<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ____________________ to ___________________
Commission file number 0-19724
PROTEIN POLYMER TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 33-0311631
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
10655 Sorrento Valley Road, San Diego, CA 92121
(Address of Principal Executive Offices)
Issuer's Telephone Number: (619) 558-6064
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Redeemable Warrants
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [_]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [_]
The issuer's revenues for the most recent fiscal year were $96,000.
The aggregate market value of the voting stock held by non-affiliates of the
issuer on March 22, 2000 was $15,208,769.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of March 22, 2000, 18,286,510
shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive Proxy Statement to be filed no later than April 7, 2000 pursuant to
Regulation 14A with respect to the Registrant's 2000 Annual Meeting of
Stockholders (incorporated by reference in Part III).
Transitional Small Business Disclosure Format: Yes [_] No [X]
================================================================================
<PAGE>
PROTEIN POLYMER TECHNOLOGIES, INC.
FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
Page No.
--------
PART I.................................................................... 2
Item 1. Business.................................................. 2
Item 2. Properties................................................ 18
Item 3. Legal Proceedings......................................... 19
Item 4. Submission of Matters to a Vote of Security Holders....... 19
PART II................................................................... 20
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 20
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 24
Item 7. Financial Statements...................................... F-1
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................... 29
PART III.................................................................. 29
Items 9, 10, 11 and 12 - Incorporated by Reference
Item 13. Financial Statements, Exhibits and Reports
on Form 8-K.............................................. 29
Signatures ......................................................... 35
1
<PAGE>
PART I
ITEM 1. BUSINESS
COMPANY BACKGROUND
Protein Polymer Technologies, Inc., a Delaware corporation ("PPTI" or
"the Company"), is a development-stage biotechnology company incorporated on
July 6, 1988 and is engaged in the research, development, production and
clinical testing of medical products based on its proprietary protein-based
biomaterials technology. Since 1992, the Company has focused primarily on
developing materials technology and products to be used in the surgical repair
of tissue: surgical adhesives and sealants; soft tissue augmentation products;
wound healing matrices; drug delivery devices; and surgical adhesion barriers.
The Company has also developed coating technology that can efficiently modify
and improve the surface properties of more traditional biomedical devices. A
common goal is to develop materials that beneficially interact with human cells,
enabling cell growth and the regeneration of tissues with improved outcomes as
compared to current products and practices.
In December 1999, the Company initiated human clinical testing of its
urethral bulking agent for the treatment of female stress urinary incontinence.
The August 1999 approval by the U.S. Food and Drug Administration ("FDA") of the
Company's Investigational Device Exemption ("IDE") allows PPTI to test the
safety and effectiveness of the incontinence product in women over the age of 40
who have become incontinent due to the shifting of their bladder or the
weakening of the muscle at its base that controls the flow of urine, or both
problems combined. The Company estimates that more than 2.5 million women begin
to experience stress urinary incontinence in the United States each year. In
most untreated cases, the problem becomes progressively more pronounced. Due to
limited efficacy or invasiveness of current treatments, only a small proportion
of the women experiencing stress urinary incontinence are clinically treated,
relying instead on pads and plugs and the like that only address the symptoms.
In contrast, PPTI's product is injected, typically in an out patient procedure,
into urethral tissue at the base of the bladder forming a solid implant that
provides support to the muscles controlling the flow of urine. The Company
believes that its product will prove to be easy for the physician to use, offer
enduring effectiveness, and avoid most of the other limitations of urethral
bulking products on the market or in development.
The tissue augmentation materials and technology underlying the
incontinence product have the potential to be effective and desirable in a
number of other clinical applications. The Company intends to submit an
additional IDE to the FDA in 2000 to obtain approval to begin human clinical
testing of its dermal bulking agent for use in cosmetic and reconstructive
surgery applications. PPTI began studies to identify its most promising
biomaterial formulations for use in these soft tissue augmentation products in
1996, devoted increasing resources through 1997 and 1998, and has primarily
focused on this program area in 1999 in preparation for human clinical testing.
2
<PAGE>
In January 2000, PPTI established a strategic alliance with Femcare,
Ltd. ("Femcare") for the commercialization of the incontinence product in Europe
and Australia. In the agreement, Femcare is responsible for clinical testing,
regulatory approval, and product sales and marketing within these territories,
and PPTI is responsible for product manufacturing. Contingent on successful
clinical trials commercialization of the product in Europe is expected to begin
more than a year before approval for marketing the product in the United States
can be obtained. PPTI also is in discussions with several companies regarding
the establishment of strategic alliances for commercializing the incontinence
product in the United States and other markets outside the Femcare territories.
Between 1994 and 1997, the Company's efforts were focused predominantly
on the development of its surgical adhesive and sealant technology. As part of
this effort, the Company targeted the establishment of a strategic alliance with
a market leader in the field of surgical wound closure products which lead to
the execution of comprehensive license, supply and development agreements in
September 1995, with Ethicon, Inc. ("Ethicon"), a subsidiary of the Johnson &
Johnson Company ("J&J"). Ethicon elected to terminate these agreements in
December 1997.
The Company has demonstrated both the adhesive performance and the
biocompatibility of its product formulations in animal models, including the
resorption of the adhesive matrix in conjunction with the progression of wound
healing. PPTI is committed to the commercial development of its adhesive and
sealant technology. Subsequent to the termination of the Ethicon agreement, the
Company has worked to determine the most significant market and product
opportunities for its use. PPTI is seeking to establish new strategic alliances
with leaders in those markets.
To the extent sufficient resources are available, the Company continues
to research the use of its protein polymers for other tissue repair and medical
device applications, principally for use in tissue engineering matrices and drug
delivery devices.
Through 1999, PPTI marketed specialty use products for in vitro cell
--------
culture applications including SmartPlastic(R) and ProNectin(R) F Cell
Attachment Factor. ProNectin F was launched commercially in 1991. SmartPlastic
is ProNectin F Activated Cultureware where ProNectin F is presented in ready to
use form on the surfaces of disposable plastic labware for culturing human and
animal cells. SmartPlastic was launched commercially in 1995. In 1998 the
Company discontinued direct sales of its cell culture products, and in February
2000, the Company sold all rights to the use of the technology for in vitro cell
--------
culture applications, the product trademarks, and remaining inventory to Sanyo
Chemical Industries, Ltd.
Prior to 1992, the Company's scientists had successfully demonstrated
the ability to create and produce novel protein polymer materials having
important physical, biological and chemical properties. During this period, most
of the Company's efforts were dedicated to supplying E. I. DuPont de Nemours &
Co. ("DuPont") with materials under contract for its proprietary research and
testing purposes.
3
<PAGE>
In 1992, the Company raised approximately $8.9 million through its
initial public offering of common stock and redeemable warrants. The Company
used a major portion of these proceeds to generate substantive in vitro
--------
laboratory evidence and in vivo animal test data demonstrating the
-------
biocompatibility and performance of its protein polymers and derived
biomaterials, and to establish a materials science group which has developed
important materials modification and fabrication technology.
In July 1994, the Company raised approximately $2.1 million from the
sale of its unregistered Series C Preferred Stock to private investors. In
September 1995, the Company raised approximately $2.4 million from the sale of
its unregistered Series D Preferred Stock to the same private investors. Also at
this time these investors exchanged all of their holdings of Series C Preferred
Stock and accumulated dividends into Series D Preferred Stock. In January 1997,
the Company raised approximately $4.6 million from a private placement of the
Company's common stock with a number of institutional and accredited investors.
In April and May 1998, the Company raised approximately $5.4 million
from the private sale of the Company's Series E Convertible Preferred Stock and
warrants to a small group of institutional and accredited investors. In
connection with this transaction, the Company also issued shares of Series F
Convertible Preferred Stock in exchange for the same number of shares of
outstanding Series D Convertible Preferred Stock.
During April 1999, the Company received approximately $508,000 from the
exercise of redeemable, publicly traded warrants originally issued as part of
PPTI's Initial Public Offering, and during May 1999 the Company received
approximately $416,000 for the conversion of warrants issued in conjunction with
its private placement of Series E Convertible Preferred Stock. In August and
September of 1999, the Company received approximately $2 million, net of costs,
from a private placement of its Series G Convertible Preferred Stock priced at
$100 per share with warrants to purchase an aggregate of 4,200,000 shares of
common stock to a small group of institutional and accredited investors.
The Company's cash balance as of December 31, 1999 was $156,000. The
Company believes this amount, in combination with approximately $3.4 million in
revenues and receivables obtained in January and February 2000 from licensing
and R&D agreements, and the exercise of common stock warrants issued in
connection with Series G Convertible Preferred Stock, is sufficient to fund its
operations through January 2001. Beyond this fiscal year, we believe there are a
number of alternatives available to meet our continuing capital requirements.
See the Liquidity and Capital Resources section of Management's Discussion and
Analysis of Financial Condition and Results of Operations for further
discussion.
THE COMPANY'S TECHNOLOGY
PPTI is focused on developing products to improve medical and surgical
outcomes, based on an extensive portfolio of proprietary biomaterials.
Biomaterials are materials that are used to direct, supplement, or replace the
functions of living systems. The interaction between materials
4
<PAGE>
and living systems is dynamic. It involves the response of the living system to
the materials (e.g., biocompatibility) and the response of the materials to the
living system (e.g., degradation). The requirements for performance within this
demanding biological environment have been a critical factor in limiting the
myriad of possible metal, polymer, and ceramic compositions to a relatively
small number that to date have been proven useful in medical devices.
The goal of biomaterials development historically has been to produce
inert materials -- materials that elicit little or no response from the living
system. However, the Company believes that such conventional biomaterials are
constrained by their inability to convey appropriate messages to the cells that
surround them -- the same messages that are conveyed by proteins in normal human
tissues.
The products targeted for development by PPTI are based on a new
generation of biomaterials which have been designed to be recognized and
accepted by human cells, to aid in the natural process of bodily repair
(including the healing of tissue and the restoration or augmentation of its form
and function), and, ultimately, to promote the regeneration of tissues. The
Company believes that the successful realization of these properties will
substantially expand the role that artificial devices can play in the prevention
and treatment of human disability and disease, and enable the culture of native
tissues for successful reimplantation.
Through its proprietary core technology, PPTI produces high molecular
weight polymers that can be processed into a variety of material forms such as
gels, sponges, films, and fibers, with their physical strength and rate of
resorption tailored to each potential product application. These polymers are
constructed of the same amino acids as natural proteins found in the body. The
Company has demonstrated that its polymers can mimic the biological and chemical
functions of natural proteins and peptides, such as the attachment of cells
through specific membrane receptors and the ability to participate in enzymatic
reactions, thus overcoming a critical limitation of conventional biomaterials.
In addition, materials made from PPTI's polymers have demonstrated excellent
biocompatibility in a variety of preclinical feasibility studies.
PPTI's patented core technology enables messages that direct activities
of cells to be precisely formulated and presented in a structured environment
similar to what nature has demonstrated to be essential in creating, maintaining
and restoring the body's functions. The Company's protein polymers are made by
combining the techniques of modern biotechnology and traditional polymer
science. The techniques of biotechnology are used to create synthetic genes that
direct the biological synthesis of protein polymers in recombinant
microorganisms. The methods of traditional polymer science are used to design
novel materials for specific product applications by combining the properties of
individual "building block" components in polymer form.
In contrast to natural proteins, either isolated from natural sources
or produced using traditional genetic engineering techniques, PPTI's technology
results in the creation of new proteins with unique properties. PPTI has
demonstrated its capability to create materials that:
. combine properties of different proteins found in nature;
5
<PAGE>
. reproduce and amplify selected activities of natural proteins;
. eliminate undesired properties of natural proteins; and
. incorporate synthetic properties via chemical modifications.
This capability is fundamental to PPTI's current primary product
research and development focus -- tissue repair and regeneration. Tissues are
highly organized structures made up of specific cells arranged in relation to an
extracellular matrix ("ECM"), which is principally composed of proteins. The
behavior of cells is determined largely by their interactions with the ECM.
Thus, the ability to structure the cells' ECM environment allows the protein
messages they receive -- and their activity -- to be controlled. Similar to what
nature has demonstrated to be essential in creating, maintaining and restoring
the body's functions, PPTI's patented core technology enables messages that
direct activities of cells to be precisely formulated and presented in a
structured environment.
FUNDAMENTAL PROTEIN POLYMERS
PPTI's primary products under development are based on protein polymers
combining selected properties from two of the most extraordinary structural
proteins found in nature: silk and elastin. Silk, based upon its crystalline
structure, has long been known as an incredibly strong material, and has a long
history of medical use in humans as a material for sutures. Elastin fibers are
one of the most remarkable rubber-like materials ever studied. Found in human
tissues such as lungs and arteries, elastin fibers must expand and contract over
a life time, and can be extended nearly three times their resting length without
damaging their flexibility.
Despite the incredible individual properties of silk and elastin,
neither of these natural protein materials is capable of being processed into
forms other than what nature has provided without destroying their valuable
materials properties. However, PPTI's proprietary technology has enabled the
creation of polymers that combine the repeating blocks of amino acids
responsible for the strength of silk and the elasticity of elastin. By precisely
varying the number and sequence of the different blocks in the assembled protein
polymer, new combinations of properties suitable for various medical
applications have been created.
The Company has also created protein polymers based on repeating blocks
of amino acids found in two other classes of structural proteins found in
nature: collagen and keratin. Collagen is the principal structural component of
the body, found in some shape or form in virtually every tissue, ranging from
shock absorbing cartilage to light transmitting corneas. Keratin is a major
component in hair, nails and skin. The development of materials based on these
polymers is at an early stage of research.
PRODUCT CANDIDATES AND ANTICIPATED MARKETS
The Company's technology and materials have the potential to create
products and product applications in a variety of medical and specialty use
markets. The Company's current development efforts are principally focused on
preparations for scale-up and validation of manufacturing processes for its
hydrogel bulking agents for soft tissue augmentation. However,
6
<PAGE>
opportunities for research and development of product candidates for other
medical and specialty use continue to be evaluated, particularly those based on
its tissue adhesive and sealant technology.
All of the Company's product candidates are subject to preclinical and
clinical testing requirements for obtaining U.S. Food and Drug Administration's
("FDA's") marketing approval. The actual development of other product
candidates, if any, will depend on a number of factors, including the
availability of funds required to research, develop, test and obtain necessary
regulatory approvals; the anticipated time to market; the potential revenues and
margins that may be generated if a product candidate is successfully developed
and commercialized; and the Company's assessment of the potential market
acceptance of a product candidate.
Soft Tissue Augmentation
Conditions where there is a need to augment the body's soft tissues
include both cosmetic and medical applications. In the former, for example,
current procedures include the injection of collagen-based materials to smooth
out facial wrinkles, acne scars and to modify lip contours. However, these
treatments only last a matter of months, which puts them economically out of
reach for a large portion of the population of people who would otherwise desire
the procedure.
Medical applications include the treatment of stress urinary
incontinence, gastroesophageal reflux, and fecal incontinence, the reversible
blockage of fallopian tubes for birth control, the augmentation of vocal chords,
and the expansion of gingival tissues impacted by periodontal disease. PPTI
believes there is a lack of materials with suitable properties for these
applications, primarily because materials having the required durability in vivo
-------
either lack the requisite biocompatibility or the ability to be easily injected.
The Company has developed protein polymers that demonstrate excellent
biocompatibility, are soluble in water at room temperature, and are easily
injected into body tissues, irreversibly forming soft, durable gels at body
temperature. Previously, PPTI has shown gels of similar composition to persist
at least 18 months in an animal model.
PPTI's bulking agents are unique in that they are applied as an aqueous
solution, easily injected through a 30-gauge needle, rapidly spreading
throughout the native tissue architecture. With the increase from room to body
temperature, the polymer solution irreversibly transforms within minutes to a
soft, pliable hydrogel. Importantly, the volume of material remains constant in
the liquid to gel transition, such that the tissue expansion observed by the
physician upon administration will be subsequently maintained.
This is in direct contrast to the majority of competing technologies,
which are suspensions or slurries of solid particles in an aqueous carrier such
as saline. When injected through a fine gauge needle, with some difficulty due
to their thick constitution, the carrier liquid dissipates through the tissues
with time, usually within 24 hours, such that roughly half of the effective
bulking volume is lost. This requires the physician to either overcompensate for
the expected volume reduction upon initial administration, with increased risks
to the patient, or to
7
<PAGE>
"top off" the bulking effect with repeated administrations of the product over
time, with substantially increased costs.
Other hydrogel technologies of which the Company is aware are either
preformed gels, difficult to administer by injection, or polymer solutions mixed
with a chemical cross-linking agent prior to injection. PPTI believes that such
technologies are limited in their overall performance including durability,
biocompatibility and ease of administration.
In August 1999, the Company obtained the FDA's approval of its
Investigational Device Exemption (IDE) to begin human clinical testing of its
urethral bulking agent for the treatment of female stress urinary incontinence.
The Company began pilot clinical testing of the product's safety and efficacy in
December 1999. The Company projects expanding into a multi-site pivotal clinical
study in the fourth quarter of 2000. To the extent funds are available, the
Company intends to submit an additional IDE to the FDA in 2000 to obtain
approval to begin human clinical testing of its dermal bulking agent for use in
cosmetic and reconstructive surgery applications.
Surgical Adhesives and Sealants
Surgeons are master craftsmen. However, instead of working with metal,
wood or plastic, they work with living tissues. Like carpenters, they use saws,
chisels (knives) and drills to take things apart and fit pieces together. But
they only have access to string (sutures) and nails (staples, pins, screws) to
hold things in place. Furthermore, a surgeon's work is complicated by the
biological healing response occurring when tissues are injured.
As in everyday life, there are many surgical uses for glue where string
and nails just don't work well. They may not be quick or easy enough to use;
they may not be capable of staying in place; they may do more damage than
desired; they and/or the tools to use them may not fit within the available work
space; they may result in fluid or air leaks; or the "fit and finish" or healing
response is just not satisfactory.
Certain surgical adhesives and sealants that seek to avoid these
limitations have been developed and marketed outside the United States by other
parties. In 1998, the FDA approved two such products for certain uses in the
U.S. DermaBond(TM), a cyanoacrylate adhesive, was approved for topical
application to close skin incisions and lacerations. Cyanoacrylate adhesives set
fast and have high strength, but are toxic to certain tissues and form brittle
plastics that do not resorb. These limitations restrict their use to bonding the
outer surfaces of skin together. Tisseel(TM), a fibrin sealant, was approved for
use as an adjunct to hemostasis in surgery. Fibrin sealants have excellent
hemostatic properties, but are derived from human and/or animal blood products,
set slowly, have low strength, and lose their strength rapidly.
A third category of tissue adhesives combines natural proteins such as
collagen or albumin with aldehyde cross-linking agents. Such products are
marketed in Europe for limited life-threatening indications. The aldehyde
cross-linking agents employed (i.e. glutaraldehyde, formaldehyde) in such
products are known to cause adverse tissue reactions. Additional adhesive
8
<PAGE>
and/or sealant products employing other polymer systems and cross-linking agents
are also under development.
PPTI is seeking to develop surgical adhesives and sealants that combine
the biocompatibility of fibrin glues (without the risks associated with use of
blood-derived products) with the high strength and fast setting times of
cyanoacrylates. Unique features include significant elasticity within the
adhesive matrix (to move as tissues move) and the capability of tailoring the
resorption rate of the adhesive matrix with the rate at which the wound heals. A
non-resorbable adhesive or sealant can only be used where the damaged tissues
will not heal. Otherwise, a barrier to wound healing is unavoidably created.
In September 1995, the Company entered into a series of agreements with
Ethicon regarding this program. Ethicon elected to terminate these agreements in
December 1997. However, the Company has demonstrated both the adhesive
performance and the biocompatibility of its product formulations in animal
models, including the resorption of the adhesive matrix in conjunction with the
progression of wound healing. Subsequently, the Company has worked to determine
the specific markets and products providing the most significant opportunities
for the use of its adhesive and sealant technology.
As a result of its evaluations of the medical market needs, the
properties achievable with its technology, and the capabilities of competitive
technologies, PPTI has focused its product development interests on certain
orthopedic applications, particularly those related to the repair of the spinal
disc for the treatment of chronic low back pain. Low back pain is the most
common musculoskeletal disorder in industrialized societies. PPTI is committed
to the commercial development of its adhesive and sealant technology and is
seeking to establish new strategic alliances with market leaders. However, there
can be no assurance that such alliances can be entered into.
Wound Healing/Tissue Engineering Matrices
The current market for wound care products is highly segmented,
involving a variety of different approaches to wound care. Products currently
marketed and being developed by other parties include fabric dressings (such as
gauze), synthetic materials (such as polyurethane films) and biological
materials (such as growth factors and living tissue skin graft substitutes).
While the type of product used varies depending on the type of wound and extent
of tissue damage, the Company believes that a principal treatment goal in all
instances is to stimulate wound healing while regenerating functional (as
opposed to scar) tissue.
The Company has developed protein polymers which it believes may be
useful in the treatment of dermal wounds, particularly chronic wounds such as
decubitous ulcers, where both reconstruction of the ECM and re-establishment of
its function are desired. These polymers, based on key ECM protein sequence
blocks, are biocompatible, fully resorbable and have been processed into gels,
sponges, films and fibrous sheets. The Company believes that such materials, if
successfully developed, could improve the wound-healing process by providing
physical support in situ for cell migration and tissue regeneration and as
-------
delivery systems for
9
<PAGE>
growth factors. Additionally, such materials may serve as scaffolds for the
ex vivo production of living tissue substitutes.
- -------
This program is in the early stages of research, which the Company has
principally conducted in collaboration with third parties. Such collaborations
have primarily focused on the treatment of dermal wounds.
Controlled Release Drug Delivery
Oral delivery of drugs is the most preferred route of administration.
However, for many drugs this is not possible and alternative drug delivery
routes are required. Alternative routes include transdermal, mucosal, and by
implantation or injection. For implantation or injection, it is often desirable
to extend the availability of the drug in order to minimize the frequency of
these invasive procedures. A few materials have been commercialized which act as
depots for a drug when implanted or injected, releasing the drug over periods
ranging from one month to several years. Other material and drug combinations
are being developed by third parties. PPTI believes that the properties of these
materials for such applications can be substantially improved upon, making
available the use of depot systems for a wider range of drugs and applications.
PPTI's soft tissue augmentation products, its wound healing matrices,
and its medical device coating technology all provide platforms for drug
delivery applications, serving as controlled release drug depots. The protein
polymer materials the Company has developed exhibit exceptional
biocompatibility, provide for control over rates of resorption, and are
fabricated using aqueous solvent systems at ambient temperatures -- attributes
which can be critical in maintaining the activity of the drug, particularly
protein-based drugs emerging from the biotechnology industry. This program is in
the early stages of research.
MANUFACTURING, MARKETING AND DISTRIBUTION
Preclinical and clinical testing of potential medical device products,
where the results will be submitted to the FDA, requires compliance with the
FDA's Good Laboratory Practices ("GLP") and other Quality System Regulations
("QSR"). The Company has implemented, and continues to implement, polymer
production and quality control procedures, and has made certain facilities
renovations to operate in conformance with FDA requirements. The Company
believes its current polymer production capacity is sufficient for supplying its
development programs with the required quality and quantity of materials needed
for feasibility and preclinical testing and initial ("pilot") clinical testing.
To expand beyond initial clinical trials, the Company will require additional
manufacturing capacity.
The Company is considering several methods for increasing production of
its biomedical and other product candidates to meet clinical and commercial
requirements. For example, the Company may expand its existing facility to
produce needed quantities of materials under FDA's GLP and QSR regulations for
clinical and commercial use. Alternatively, the Company may establish external
contract manufacturing arrangements for needed quantities of materials.
10
<PAGE>
However, there can be no assurance that such arrangements, if desired, could be
entered into or maintained on acceptable terms, if at all, or that the existence
or maintenance of such arrangements would not adversely affect the Company's
margins or its ability to comply with applicable governmental regulations. The
actual method, or combination of methods, that the Company may ultimately pursue
will depend on a number of factors, including availability, cost and the
Company's assessment of the ability of such production methods to meet its
commercial objectives.
PPTI has entered into an agreement with Femcare for marketing and
distribution of its urethral bulking agent for stress urinary incontinence in
certain countries, if the required regulatory approvals are obtained (see
"Collaborative Agreements). The Company currently expects that its other
biomedical products, if any were commercialized, would be marketed and
distributed by corporate partners. While this arrangement could minimize the
Company's marketing costs and facilitate wider distribution of any biomedical
products it may develop, these arrangements could possibly reduce the Company's
revenues and profits as compared to what would be possible if the Company
directly sold such products.
RESEARCH AND DEVELOPMENT
Information regarding Company-sponsored research and development
activities and contract research and development revenue is set forth below
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
COLLABORATIVE AGREEMENTS
Because of the highly technical focus of its business, the Company must
conduct extensive research and development prior to any commercial production of
its biomedical products or the biomaterials from which they are created. During
this development stage, PPTI's ability to generate revenues is limited. Because
of this limitation, the Company does not have sufficient resources to devote to
extensive testing or marketing of its products. The Company's primary method of
expanding its product development, testing and marketing capabilities is to seek
to form collaborative arrangements with selected corporate partners with
specific resources that the Company believes complement its business strategies
and goals.
The medical device industry has traditionally licensed from development
stage companies product candidates whose safety and efficacy has been
demonstrated at least in pilot human clinical trials. In December 1999, the
Company began human clinical testing of its urethral bulking agent for the
treatment of female stress urinary incontinence. The Company also intends to
submit an additional IDE to the FDA in 2000 to obtain approval to begin human
clinical testing of its dermal bulking agent for use in cosmetic and
reconstructive surgery applications.
11
<PAGE>
Femcare, Ltd.
In January 2000, PPTI announced the formation of a strategic alliance
with Femcare, Ltd. for the commercialization in Europe and Australia of its
urethral bulking agent for treatment of stress urinary incontinence. Femcare is
a British-based developer and international marketer of surgical products for
gynecological and urological applications.
In the alliance, PPTI will provide Femcare with technical assistance,
and the incontinence product for Femcare's clinical testing and regulatory
approvals in the Femcare territories. Femcare will utilize its existing customer
base and its extensive distribution network as the basis for introducing the
product into Europe and Australia. Currently, Femcare markets its products in 40
countries worldwide. A new Urology division has been created to extend the
company's success in gynecology to urological applications, in particular female
stress urinary incontinence. PPTI receives a $1 million license fee and a
royalty on the revenues generated by Femcare from the sale of the product. PPTI
will be responsible for providing the product to Femcare for commercial sale.
Other Agreements
PPTI is discussing other potential collaboration agreements with
prospective marketing partners for both its soft tissue augmentation products
and its tissue adhesive and sealant products. There can be no assurance that the
Company will continue such discussions or be able to establish such agreements
at all, or do so in a timely manner and on reasonable terms, or that such
agreements will lead to successful product development and commercialization.
From time to time, the Company is a party to certain materials evaluation
agreements regarding biomedical and specialty use applications of its products,
polymers and technology, including applications in areas other than those
identified as product candidates above. These agreements provide, or are
intended to provide, for the evaluation of product feasibility. There can be no
assurance that the Company will continue to be able to establish such agreements
at all, or do so in a timely manner and on reasonable terms, or that such
agreements will lead to joint product development and commercialization
agreements.
INTENSE COMPETITION
The principal anticipated commercial uses of PPTI's biomaterials are as
components of end-use products for biomedical and other specialty applications.
End-use products using or incorporating the Company's biomaterials would compete
with other products that rely on the use of alternative materials. For example,
bulking agents for soft tissue augmentation are currently marketed based on
bovine collagen and, outside the U.S., silicone particles. Similarly, all
targeted applications of the Company's potential products will compete with
other products having the same or similar applications.
The areas of business in which the Company engages and proposes to
engage are characterized by intense competition and rapidly evolving technology.
Competition in the biomedical and surgical repair markets is particularly
significant. The Company's competitors in
12
<PAGE>
the biomedical and surgical repair markets include major pharmaceutical,
surgical product, chemical and specialized biopolymer companies, many of which
have financial, technical, research and development and marketing resources
significantly greater than those of the Company. Academic institutions and other
public and private research organizations are also conducting research and
seeking patent protection, and may commercialize products on their own or
through joint ventures. Most of the Company's competitors depend on synthetic
polymer technology rather than protein engineering for developing products.
However, the Company believes that DuPont and several university laboratories
are currently conducting research into similar protein engineering technology.
The primary elements of competition in the biomedical and surgical
repair products market are performance, cost, safety, reliability, convenience
and commercial production capabilities. The Company believes that its ability to
compete in this market will be enhanced by its issued patent claims, the breadth
of its other pending patent applications, its early entry into its field and its
experience in protein engineering.
PATENTS AND TRADE SECRETS
PPTI is aggressively pursuing domestic and international patent
protection for its technology, making claim to an extensive range of
recombinantly prepared structural and functional proteins, methods for preparing
synthetic repetitive DNA, methods for the production and purification of protein
polymers, end-use products incorporating such materials and methods for their
use.
The United States Patent and Trademark Office ("USPTO") has issued
fifteen patents to the Company. U.S. Patent 5,235,041 (1993) relates to the
Company's method for purifying structurally ordered recombinant protein
polymers. U.S. Patent 5,243,038 (1993) covers the Company's synthetic DNA
compositions that encode polymers and copolymers comprising the amino acid
"building blocks" of silk and elastin. U.S. Patent 5,496,712 (1996) covers the
Company's family of high molecular weight collagen like polymers and the DNA
sequences encoding them. U.S. Patent 5,514,581 (1996) covers DNA sequences
encoding silk-like structural building blocks with an intervening sequence
coding for the key cell attachment ligand from human fibronectin. One of the
claimed sequences encodes ProNectin F.
U.S. Patent 5,606,019 (1997) covers the protein compositions comprising
copolymers of the amino acid "building blocks" of silk and elastin. These are
the primary materials used in the Company's current product development efforts.
U.S. Patent 5,641,648 (1997) covers methods by which synthetic genes encoding
protein polymers are created.
U.S. Patent 5,723,588 (1998) covers molded articles incorporating
biologically active proteins. U.S. Patent 5,760,004 (1998) covers chemical
modification of protein polymers to enhance their water solubility. U.S. Patent
5,770,697 (1998) broadly covers protein polymers incorporating repetitive amino
acid sequences found in naturally occurring proteins. U.S. Patent 5,773,249
(1998) expands the coverage of high molecular weight collagen like polymers.
U.S. Patent 5,773,577 (1998) covers protein polymers that can be cross-linked by
certain enzymes
13
<PAGE>
that naturally occur in the body. U.S. Patent 5,808,012 (1998) expands the
coverage of molded articles to those incorporating chemically active proteins.
U.S. Patent 5,817,303 (1998) covers the use of protein polymers with chemical
cross-linking agents as adhesives and sealants. U.S. Patent 5,830,713 (1998)
expands the coverage of methods by which synthetic genes encoding protein
polymers are created. U.S. Patent 6,018,030 (2000) broadly covers DNA sequences
encoding protein polymers incorporating repetitive amino acid sequences found in
naturally occurring proteins. Additionally, PPTI has nine U.S. patent
applications pending, two of which have been allowed, covering related aspects
of its core technology.
Although the Company believes its existing issued patent claims may
provide a competitive advantage, there can be no assurance that the scope of the
Company's patent protection is or will be adequate to protect its technology or
that the validity of any patent issued will be upheld in the future.
Additionally, with respect to the Company's allowed and pending applications,
there can be no assurance that any patents will be issued, or that, if issued,
they will provide substantial protection or be of commercial benefit to the
Company. The two patents issued to PPTI in 1993 will expire in 2010, as will one
of the patents issued in 1996. The other patent issued in 1996 will expire in
2013, and the patents issued in 1997 will expire in 2014. The three patents
issued in 1998, which expand the coverage of previously issued patents, will
expire in concert with the original patents. The other five patents issued in
1998 will expire in 2015. The patent issued in 2000 will expire in 2017.
Generally, for patent applications filed in the U.S. prior to June 8,
1995, the term of the patent will be 17 years from the issue date. Subsequently
filed U.S. patent applications will have a term of 20 years from the date of
filing, consistent with the patent laws in international jurisdictions.
Although the Company does not currently have any operations outside the
U.S., it anticipates that its potential products will be marketed on a worldwide
basis, with possible manufacturing operations outside the U.S. For example, the
Company has recently established a licensing and distribution agreement with
Femcare Ltd. for the sale of its urethral bulking agents in Europe and
Australia. Accordingly, international patent applications corresponding to the
major U.S. patents and patent applications described above have been filed in
these and other important market jurisdictions. Due to translation costs and
patent office fees, international patents are significantly more expensive to
obtain than U.S. patents. Additionally, there are differences in the
requirements concerning novelty and the types of claims that can be obtained
compared to U.S. patent laws, as well as the nature of the rights conferred by a
patent grant. PPTI carefully considers these factors in consultation with its
patent counsel, as well as the size of the potential markets represented, in
determining the foreign countries in which to file patents.
In almost all cases, the Company files for patents in Australia,
Canada, Europe and Japan. Currently, PPTI has fourteen issued foreign patents,
and thirty-one pending foreign applications. One of the issued foreign patents
is in Europe and the scope of its claims broadly covers protein polymers having
biological or chemical activity.
14
<PAGE>
Because of the uncertainty concerning patent protection and the
unavailability of patent protection for certain processes and techniques, PPTI
also relies upon trade secret protection and continuing technological innovation
to maintain its competitive position. Although all of the Company's employees
have signed confidentiality agreements, there can be no assurance that the
Company's proprietary technology will not be independently developed by other
parties, or that secrecy will not be breached. Additionally, the Company is
aware that substantial research efforts in protein engineering technology are
taking place at universities, government laboratories and other corporations and
that numerous patent applications have been filed. The Company cannot predict
whether it may have to obtain licenses to use any technology developed by third
parties or whether such licenses can be obtained on commercially reasonable
terms, if at all.
In the course of its business, PPTI employs various trademarks and
trade names in packaging and advertising its products. The Company has assigned
the federal registration of its ProNectin(R) trademark and its SmartPlastic(R)
trademark for ProNectin F Activated Cultureware to Sanyo Chemical Industries,
Ltd. in connection with the sale to Sanyo of its cell culture business. The
Company intends to protect and promote all of its trademarks and, where
appropriate, will seek federal registration of its trademarks.
REGULATORY MATTERS
Regulation by governmental authorities in the United States and other
countries is a significant factor affecting the success of products resulting
from biotechnological research. The Company's current operations and products
are, and anticipated products and operations will be, subject to substantial
regulation by a variety of agencies, particularly those products and operations
related to biomedical applications. Currently, the Company's activities are
subject principally to regulation under the Occupational Safety and Health Act
and the Food, Drug and Cosmetic Act.
Extensive preclinical and clinical testing and pre-market approval from
the FDA is required for new medical devices, drugs or vaccines, which is
generally a costly and time-consuming process. PPTI is required to be in
compliance with many of the FDA's regulations to conduct testing in support of
product approvals; in particular, compliance with the FDA's Good Laboratory
Practices ("GLP") regulations and portions of the FDA's Quality Systems
Regulations ("QSR"). Where PPTI has conducted such testing, the Company may
choose to file product approval submissions itself or maintain with the FDA a
"Master File" containing, among other items, such test results. A Master File
can then be accessed by the FDA in reviewing particular product approval
submissions from companies commercializing products based on PPTI's materials.
There can be no assurance that the Company or its customers will be
able to obtain or maintain the necessary approvals from the FDA or corresponding
international regulatory authorities, or that the Company will be able to
maintain a Master File in accordance with FDA regulations. In either case, the
Company's anticipated business could be adversely affected. To the extent PPTI
manufactures medical devices, as opposed to a component material supplied to a
medical device manufacturer, it will be required to conform commercial
manufacturing operations
15
<PAGE>
to the FDA's QSR requirements. The Company would also be required to register
its facility with the FDA as an establishment involved in the manufacture of
medical devices. QSR requirements are rigorous, and there can be no assurance
that compliance could be obtained in a timely manner and without the expenditure
of substantial resources, if at all. International quality system requirements,
i.e., ISO 9001 issued by the International Organization for Standardization is
the quality model used by medical product manufacturers, and is required for the
sale of medical devices in Europe. ISO 9001 standards are similar to the FDA's
QSR.
In August 1999, the Company obtained the FDA's approval of its IDE to
begin human clinical testing of its urethral bulking agent for the treatment of
female stress urinary incontinence. The Company initiated clinical testing in
December 1999. The Company intends to submit an additional IDE to the FDA in
2000 to obtain approval to begin human clinical testing of its dermal bulking
agent for use in cosmetic and reconstructive surgery applications. The Company
has implemented, and continues to implement, polymer production and quality
control procedures, and has made certain facilities renovations, to operate in
conformance with FDA requirements.
The Company's research, development and production activities are, or
may be, subject to various federal and state laws and regulations relating to
environmental quality and the use, discharge, storage, transportation and
disposal of toxic and hazardous substances. The Company's future activities may
be subject to regulation under the Toxic Substances Control Act, which requires
the Company to obtain pre-manufacturing approval for any new "chemical material"
the Company produces for commercial use that does not fall within the FDA's
regulatory jurisdiction. The Company believes it is currently in substantial
compliance with all such laws and regulations. Although the Company intends to
use its best efforts to comply with all environmental laws and regulations in
the future, there can be no assurance that the Company will be able to fully
comply with such laws, or that full compliance will not require substantial
capital expenditures.
PRODUCT LIABILITY AND ABSENCE OF INSURANCE
PPTI's business may expose it to potential product liability risks
whenever human clinical testing is performed or upon the use of any commercially
marketed medical product. Prior to initiating human clinical testing of its
urethral bulking agent, the Company procured product liability insurance. There
can be no assurance, however, that PPTI will be able to continue to obtain such
insurance on acceptable terms or that such insurance will provide adequate
coverage against potential liabilities. A successful product liability claim or
series of claims could result in a material adverse effect on the Company.
16
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
J. Thomas Parmeter 60 Chairman of the Board of Directors,
President and Chief Executive Officer
Joseph Cappello, Ph.D. 43 Vice President, Research and Development,
Chief Technical Officer and Director,
Polymer Research
Philip J. Davis 69 Corporate Secretary
Franco A. Ferrari, Ph.D. 48 Vice President, Laboratory Operations and
Polymer Production and Director, Molecular Genetics
John E. Flowers 43 Vice President, Planning and Operations
Janis Y. Neves 48 Director, Finance and Administration,
Treasurer, and Assistant Secretary
</TABLE>
Mr. Parmeter has been the Company's President, Chief Executive Officer
and Chairman of the Board of Directors since its inception in July 1988 (and,
from July 1988 to July 1992, its Chief Financial Officer). From 1982 to November
1987, Mr. Parmeter was President, Chief Executive Officer and, from June 1987 to
June 1988, Chairman of the Board of Syntro Corporation.
Dr. Cappello has been the Company's Vice President, Research and
Development since February 1997 and Director, Polymer Research and Chief
Technical Officer since February 1993. From September 1988 to February 1993, he
was the Company's Senior Research Director, Protein Engineering.
Mr. Davis has been the Company's Secretary since January 1989. Mr.
Davis has been a director of the Company since April 1995; he previously served
as a director of the Company from January 1989 until October 1991. Mr. Davis has
been employed by Donaldson, Lufkin & Jenrette since June 1994 and currently is a
Managing Director of Investment Banking. He was Director, Institutional Sales at
Merrill Lynch, Inc. (formerly Merrill Lynch Capital Markets) from February 1991
to June 1994, and was a Vice President at Merrill Lynch, Inc. from 1986 to 1991.
Mr. Flowers has been the Company's Vice President, Planning and
Operations, since February 1993. From September 1988 to February 1993, he was
the Company's Vice President, Commercial Development.
17
<PAGE>
Dr. Ferrari has been the Company's Vice President, Laboratory
Operations and Director, Molecular Genetics since February 1993. From September
1988 to February 1993, he was the Company's Senior Research Director, Genetic
Engineering.
Ms. Neves has been the Company's Director of Finance since November
1998 and Controller and Assistant Secretary since January 1990. From July 1988
until January 1990, Ms. Neves was the Company's Business Office Manager.
All executive officers of the Company were elected by the Board of
Directors and serve at its discretion. No family relationships exist between any
of the officers or directors of the Company.
EMPLOYEES
On June 30, 1999, the Company laid off eighteen employees,
approximately 60% of its work force, as part of a broad cost cutting measure to
preserve cash. In late July, several employees were brought back on the payroll
in order to prevent delays in beginning the clinical testing of the Company's
lead product, scheduled to begin in December, 1999. With the closing of the
Series G Preferred stock offering, several more of the laid off employees were
rehired.
As of February 29, 2000, PPTI had 19 full-time and one part-time
employee, of whom four hold employment contracts with the Company and three hold
Ph.D. degrees in the chemical or biological sciences. The Company is highly
dependent on the services of its executive officers and scientists. The loss of
the services of any one of these individuals would have a material adverse
effect on the achievement of the Company's development objectives, its business
opportunities and prospects. The recruitment and retention of additional
qualified management and scientific personnel is also critical to the Company's
success. There can be no assurance that the Company will be able to attract and
retain required personnel on acceptable terms, due to the competition for such
experienced personnel from other biotechnology, pharmaceutical, medical device
and chemical companies, universities and non-profit research institutions.
ITEM 2. PROPERTIES
PPTI does not own any real property. The Company leases approximately
21,000 square feet in San Diego, California from Sycamore/San Diego Investors.
The leased property includes the Company's administrative offices, which
encompass approximately 4,000 square feet, and its laboratory facilities, which
encompass approximately 17,000 square feet. The current annual rent is
approximately $417,000. The lease expires in May 2005.
The Company believes that its current facilities are adequate to meet
its needs until the end of 2000. The Company retains an option to lease an
additional 7,000 square feet of office and laboratory space in its present
facility and to extend its lease for an additional five years.
18
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1999.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
NASDAQ Delisting
Prior to September 1999, the Company's Common Stock traded on The
Nasdaq Stock Market under the symbol "PPTI". The Company's Common Stock was
delisted from the NASDAQ Small Cap Quotation System, effective September 20,
1999. The reasons for the delisting were failure to maintain the minimum bid
requirement of $1.00 per share for PPTI common stock, and failure to meet the
minimum net asset requirement of $2 million. The Company's Common Stock is now
traded on the "over-the-counter" NASD Bulletin Board. To access the quotations
for the Company's Common Stock, use the call letters PPTI.OB.
The trade prices set forth below represent inter-dealer prices without
retail markups, markdowns or commissions.
Trade Prices
-------------------------------
1999 High Low
---- ------- -------
First Quarter $1.531 $1.063
Second Quarter 2.250 0.875
Third Quarter 1.719 0.750
Fourth Quarter 1.250 0.688
1998
----
First Quarter $1.531 $1.063
Second Quarter 2.250 0.875
Third Quarter 1.719 0.750
Fourth Quarter 1.250 0.688
As of March 22, 2000, the Company had approximately 163 shareholders
of record; it estimates it has approximately 1,500 beneficial holders. The
Company has never paid cash dividends on its Common Stock. The Company currently
intends to retain earnings, if any, for use in the operation and expansion of
its business and therefore does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future.
Unregistered Offerings
On August 16, 1999, the Company received $1,775,000 for 17,750 shares
of Series G Convertible Preferred Stock ("Series G Stock") from several
institutional and accredited individual investors following the 10 day
stockholder notification period required by the NASD prior to the sale. On
September 15, 1999, the Company received an additional $325,000 for 3,250 shares
of Series G Stock, for a total of $2,100,000. Each share of Series G Stock was
priced
20
<PAGE>
at $100 per share. Each share can be converted at any time by the holder into
common stock at a price of $0.50 per share, subject to certain antidilution
adjustments. Each share of Series G Preferred Stock also received a common stock
warrant, exercisable for 12 months, that allows the holder to acquire 200 shares
of PPTI common stock at a price of $0.50 per share. The Series G Stock, warrants
and underlying common stock have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), and may not be offered or sold in the
United States absent registration or an applicable exemption from registration
requirements.
Between April 1 and April 15, 1999, the Company received approximately
$508,000 from the exercise of redeemable, publicly traded, warrants originally
issued as part of PPTI's Initial Public Offering. Following the close of
business on April 15, the remaining unexercised redeemable, publicly traded,
warrants expired. On May 12, 1999, the Company received approximately $416,000
from the exercise of warrants issued in conjunction with the private placement
of the Company's Series E Convertible Preferred Stock ("Series E Stock").
In April and May of 1998, the Company raised approximately $5.4 million
from the sale of 54,437 shares of the Company's Series E Stock priced at $100
per share, with warrants to purchase an aggregate of 3,266,250 shares of common
stock to a small group of institutional and accredited investors.
Each share of Series E Stock is convertible at any time at the election
of the holder into 80 shares of common stock at a conversion price of $1.25 per
share, subject to certain antidilution adjustments. No underwriters were engaged
by the Company in connection with such issuance and, accordingly, no
underwriting discounts were paid. The offering is exempt from registration under
Section 4(2) of the Securities Act, and met the requirements of Rule 506 of
Regulation D promulgated under the Securities Act. The Company has registered
the shares of common stock underlying the Series E Stock and the warrants with
the Securities and Exchange Commission.
Each share of Series E Stock received two common stock warrants. One
warrant (first warrant) is exercisable at any time for 40 shares of common stock
at an exercise price of $2.50 per share, and expires approximately 18 months
after the close of the offering; the other warrant (second warrant) is
exercisable at any time for 20 shares of common stock at an exercise price of
$5.00 per share, and expires approximately 36 months after the close of the
offering. In addition, an 18 month warrant to acquire 200,000 common shares
exercisable at $2.50 per share and a 36 month warrant to acquire 100,000 common
shares exercisable at $5.00 per share were issued as a finder and document
review fee paid to a lead investor. An 18 month warrant to acquire 32,000 common
shares exercisable at $2.50 per share, a 24 month warrant to acquire 16,000
common shares exercisable at $5.00 per share, and 5 year warrants to acquire an
aggregate of 25,200 common shares exercisable at $2.50 per share were issued to
certain persons for service as finders in relation to the private placement.
In connection with the above private placement, the Company issued
26,420 shares of its Series F Convertible Preferred Stock in exchange for the
same number of shares of outstanding Series D Convertible Preferred Stock. The
Company's Series F Convertible Preferred Stock is equivalent to the Company's
Series E Stock with regard to liquidation preferences. All other
21
<PAGE>
terms of the Company's Series F Convertible Preferred Stock remained the same as
the Company's Series D Convertible Preferred Stock.
On January 7, 1997, the Company received $4,760,000, less expenses of
approximately $140,000, from a private placement of 1,904,000 shares of the
Company's common stock, at $2.50 per share, with a number of accredited
investors. No underwriters were engaged by the Company in connection with such
issuance and, accordingly, no underwriting discounts or commissions were paid.
The issuance was exempt from registration under Section 4(2) of the Securities
Act, and met the requirements of Rule 506 of Regulation D promulgated under the
Securities Act. The Company agreed to register the shares with the Securities
and Exchange Commission promptly after the closing. The registration was
declared effective on January 24, 1997.
On September 14, 1995, the Company issued 49,187 shares of its Series D
Convertible Preferred Stock and warrants to purchase 500,960 shares of common
stock at $1.25 per share in a private placement to certain accredited investors.
Of this amount, 20,000 shares of Series D Convertible Preferred Stock and
warrants to purchase 400,000 shares of common stock were issued for cash at
$100.00 per share; 21,600 shares of Series D Convertible Preferred Stock were
issued in exchange for all outstanding shares of the Company's Series C
Convertible Preferred Stock and 2,539 shares for accrued and unpaid dividends
thereon; and an additional 5,048 shares of Series D Convertible Preferred Stock
and warrants to purchase 100,960 shares of common stock were issued in exchange
for cancellation of a $500,000 bridge loan and accrued interest thereon. No
underwriters were engaged by the Company in connection with such issuance and,
accordingly, no underwriting discounts or commissions were paid. The issuance
was exempt from registration under Section 4(2) of the Securities Act and met
the requirements of Rule 506 of Regulation D promulgated under the Securities
Act.
Each share of Series D and Series F Convertible Preferred Stock earns a
cumulative dividend at the annual rate of $10 per share, payable as and when
declared by the Company's Board of Directors in the form of cash, common stock
or any combination thereof. The Series D and F Convertible Preferred Stock is
convertible into common stock after two years from the date of issuance at the
holder's option. The conversion price at the time of conversion is the lesser of
$3.75 or the market price. The Series D and F Convertible Preferred Stock is
redeemable at the Company's option after four years from the date of issuance.
Automatic conversion of all of the Series D and F Convertible Preferred Stock
will occur if: (a) the Company completes a public offering of common stock at a
price of $2.50 or higher; or (b) the holders of a majority thereof elect to
convert. The Company has the option to demand conversion of the Series D and F
Convertible Preferred Stock if the average market price of its common stock
equals or exceeds $5.00 per share over a period of twenty business days. The
Series D Convertible Preferred Stock has a liquidation preference of $100 per
share plus accumulated dividends.
At the time of purchase, the Series D Convertible Preferred
stockholders received warrants to purchase, at an exercise price of $1.25 per
share, twenty shares of the Company's common stock for each share of Series D
Convertible Preferred Stock acquired for cash, or upon conversion of the
outstanding bridge loan and accrued interest thereon, described above. Warrants
22
<PAGE>
to acquire a total of 500,960 shares of common stock were issued. All of these
warrants were exercised during 1996, from which the Company received aggregate
gross proceeds of $626,200. The Series D Convertible Preferred stockholders were
granted certain registration rights relating to their shares of common stock
issuable upon conversion of the Series D Convertible Preferred Stock and upon
the exercise of their warrants.
In July 1994, the Company received $2,160,000 from a private placement
of the Company's Series C Convertible Preferred Stock with certain accredited
investors, consisting of 21,600 shares at $100.00 per share. No underwriters
were engaged by the Company in connection with such issuance and, accordingly,
no underwriter discounts or commissions were paid. The issuance was exempt from
registration under Section 4(2) of the Securities Act and met the requirements
under Rule 506 of Regulation D promulgated under the Securities Act. As
described above, the investors exchanged 21,600 shares of Series C Convertible
Preferred Stock, plus accrued and unpaid dividends thereon, for 24,139 shares of
Series D Convertible Preferred Stock. There are currently no shares of Series C
Convertible Preferred Stock outstanding.
In connection with the issuance of the Series C Convertible Preferred
Stock, warrants were also issued to acquire a total of 432,000 shares of the
Company's common stock at a price of $1.25 per share. All of these warrants were
exercised during 1996, from which the Company received aggregate gross proceeds
of $540,000.
In July 1996, holders of warrants to acquire 322,663 shares of common
stock (all of whom were accredited investors) exercised such warrants at $2.50
per share, resulting in approximately $807,000 in gross proceeds to the Company.
These warrants were originally issued in 1991 in connection with the issuance of
the Company's Series B Convertible Preferred Stock. The issuance upon exercise
of these warrants was exempt from registration under Section 4(2) of the
Securities Act and met the requirements under Rule 506 of Regulation D
promulgated under the Securities Act. The Company agreed to register the resale
of the common stock received upon exercise of these warrants, and the applicable
registration was declared effective on July 19, 1996.
23
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE IN THIS
ANNUAL REPORT ON FORM 10-KSB CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE
COMPANY, OR INDUSTRY RESULTS, TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY FORWARD-LOOKING
STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS, HISTORY OF
OPERATING LOSSES, RAISING ADEQUATE CAPITAL FOR CONTINUING OPERATIONS, EARLY
STAGE OF PRODUCT DEVELOPMENT, SCIENTIFIC AND TECHNICAL UNCERTAINTIES,
COMPETITIVE PRODUCTS AND APPROACHES, RELIANCE UPON COLLABORATIVE PARTNERSHIP
AGREEMENTS AND FUNDING, REGULATORY TESTING AND APPROVALS, PATENT PROTECTION
UNCERTAINTIES AND MANUFACTURING SCALE-UP AND REQUIRED QUALIFICATIONS. WHILE
THESE STATEMENTS REPRESENT MANAGEMENT'S CURRENT JUDGMENT AND EXPECTATIONS FOR
THE COMPANY, SUCH RISKS AND UNCERTAINTIES COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM ANY FUTURE RESULTS SUGGESTED HEREIN. THE COMPANY UNDERTAKES NO
OBLIGATION TO RELEASE PUBLICLY THE RESULTS OF ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES ARISING AFTER THE
DATE HEREOF.
GENERAL OVERVIEW
Incorporated in 1988, Protein Polymer Technologies, Inc. has
concentrated its research and development efforts on establishing a scientific
and technical leadership position in the production and development of unique
protein-based materials. The Company has identified biomedical market and
product opportunities for further research and development that management
believes will exploit the unique properties of the Company's technology to
competitive advantage. The Company has been unprofitable to date, and as of
December 31, 1999 has an accumulated deficit of $37,245,495.
The Company's product candidates for surgical repair, augmentation and
regeneration of human tissues are in various stages of research and development.
Its more advanced programs are in the areas of bulking agents for soft tissue
augmentation, particularly for use in urethral tissue for the treatment of
female stress incontinence and in dermal tissue for cosmetic and reconstructive
procedures. The Company currently is devoting the majority of its resources to
the development and registration of these products, with the greatest emphasis
on the incontinence product which began human clinical trials in December 1999.
The Company's other advanced product technology is in the area of tissue
adhesives and sealants. Currently the Company's research and development in this
area is focused on the repair of spinal discs for the treatment of lower back
pain. The Company's first commercial products, ProNectin F and SmartPlastic, are
used by biologists and cell culture laboratories, principally to grow mammalian
cells for biomedical research purposes. In February 2000, the Company licensed
the rights for the
24
<PAGE>
manufacture and sale of these products for use in in vitro cell culture,
-------
including the transfer of all existing inventory, to a third party.
In 1995, the Company entered into a collaborative relationship with
Ethicon regarding its surgical adhesives and sealants program. Ethicon
terminated the relationship in December 1997 which materially adversely affected
the Company. The Company's strategy with most of its programs is to enter into
collaborative development agreements with major medical product marketing and
distribution companies. Although these relationships, to the extent any are
consummated, may provide significant near-term revenues through up-front
licensing fees, research and development reimbursements and milestone payments,
the Company expects to continue incurring operating losses for the next several
years.
The Company's cash balance as of December 31, 1999 was $156,000. The
Company believes this amount, in combination with funds received from licensing
and R&D agreements in January and February 2000, and the exercise of the common
stock warrants issued in connection with the Series G Stock in February 2000,
which in total will generate approximately $3.4 million (net of costs) during
the calendar year 2000, is sufficient to fund its operations through January
2001. The Company will continue to attempt to raise additional funds for
continuing operations through private or public offerings and collaborative
agreements (see "Liquidity and Capital Resources" below, and Note 1 of the
Audited Financial Statements for additional information and a description of the
associated risks).
RESULTS OF OPERATIONS
Interest income was $39,000 for the year ended December 31, 1999, as
compared to $135,000 for 1998 and $187,000 for 1997. The year-to-year
variability resulted from the amount and timing of the receipt of equity capital
and the amounts of excess cash available for investment.
Product sales for the years ended December 31, 1999 were $54,000,
compared to $71,000 and $77,000 in 1998 and 1997 respectively. Product sales
consist of ProNectin F related product revenues and licensing fees. Sales during
1996 reflected disappointing market interest in the line of ProNectin products;
as a result the Company discontinued related promotional expenditures to
conserve cash. Sales in 1998 and 1999 primarily reflect distributor stocking
orders. The manufacturing and marketing rights and the inventory for this
product line were sold to Sanyo Chemical Industries, Ltd. in February 2000.
Because of previously booked inventory reserves, their was no cost of sales
booked for any product sales in 1999.
Research and development expenses for the year ended December 31, 1999
were $2,812,000, compared to $4,138,000 in 1998, a decrease of 32%. This
decrease is due primarily to a downsizing of the Company's staff and operational
expenses in June 1999, but also in part to the completion of preclinical testing
and regulatory consulting costs associated with the filing of the Company's
Investigational Device Exemption (IDE) with the U.S. Food and Drug
Administration to begin human trials for the treatment of female stress urinary
incontinence. These latter savings are temporary and will be replaced and
increased by the cost of conducting
25
<PAGE>
human clinical testing which began in December 1999. Other related expenses
include expanded manufacturing capacity and manufacturing process validation,
quality assurance efforts, and outside testing services. The Company expects its
research and development expenses will increase in the future, to the extent
additional capital is obtained, due to the expansion of product-directed
development efforts including human clinical testing, increased manufacturing
requirements, and increased use of outside testing services.
Selling, general and administrative expenses for the year ended
December 31, 1999 were $1,554,000, as compared to $1,727,000 for 1998, a
decrease of 10%. This decrease was due to the Corporate downsizing in June 1999,
and generally tighter cost management following that period. To the extent
possible, the Company continues to concentrate on controlling costs reflected in
reduced travel, office supplies, and non-regulatory consulting costs. The
Company expects its selling, general and administrative expenses will increase
in the future, to the extent additional capital is obtained, consistent with
supporting its research and development efforts and as business development,
patent, legal and investor relations activities require.
For the year ended December 31, 1999, the Company recorded a net loss
applicable to common shareholders of $4,535,000, or $.36 per share, as compared
to $9,183,000, or $.88 per share for 1998, and $4,887,000, or $.52 per share for
1997. The difference between 1999 and previous year end results is due primarily
to a non-cash "imputed dividend" expense of $3,266,000 that resulted from the
sale and issuance of the Company's Series E Convertible Preferred Stock during
1998. The 1999, 1998 and 1997 losses and per share calculations also include
$278,000, $278,000, and $433,000, respectively, of undeclared and/or paid
dividends from the Company's Preferred Stock.
The Company expects to incur increasing operating losses for the next
several years, to the extent additional capital is obtained, based upon the
successful continuation of the tissue augmentation program and product
registration, and the tissue adhesives program, as well as expected increases in
the Company's other research and development, manufacturing and business
development activities. The Company's results depend in part on its ability to
establish strategic alliances and generate contract revenues, increased
research, development and manufacturing efforts, preclinical and clinical
product testing and commercialization expenditures, expenses incurred for
regulatory compliance and patent prosecution, and other factors. The Company's
results will also fluctuate from period to period due to timing differences.
To date, the Company believes that inflation and changing prices have
not had a material impact on its continuing operations. Based upon the Company's
earnings history, a valuation allowance of $12,867,000 is required to reduce the
Company's net deferred tax assets to the amount realizable.
26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had cash, cash equivalents and
short-term investments totaling $156,000, as compared to $1,383,000 at December
31, 1998. As of December 31, 1999, the Company had working capital of
$(458,000), compared to $600,000 at December 31, 1998. In April and May of 1999,
the Company realized approximately $924,000 from the exercise of common stock
warrants and in August and September 1999, approximately $2,075,000, net of
expenses, from the private placement of the Company's Series G Convertible
Preferred Stock and warrants. Subsequently, the Company received in January and
February 2000 approximately $1,350,000 (net of costs) in cash and receivables
from licensing and R&D agreements with Femcare, Ltd. for the European and
Australian marketing rights to the stress urinary incontinence bulking product,
with Perkin-Elmer for a research and development project and commercialization
option, and with Sanyo Chemical Industries, Ltd. for the rights to the in vitro
cell culture business. Also in February 2000, the Company received approximately
$2.1 million from the exercise of common stock warrants originally granted as
part of the sale of Series G Convertible Preferred Stock and warrants.
The Company had long-term capital lease obligations of $25,000 as of
December 31, 1999, compared to an obligation of $106,000 as of December 31,
1998. For the year ended December 31, 1999, the Company's cash expenditures for
capital equipment and leasehold improvements totaled $26,000, compared with
$197,000 for the same period last year. The Company anticipates that these
expenditures will be increased in 2000 as laboratory renovations and additional
equipment required to meet GLP manufacturing regulations and production capacity
as the Company scales up its manufacturing operations to meet product
requirements for clinical testing. The Company anticipates a significant
increase in manufacturing-related equipment and leasehold improvement
expenditures in 2001 due to an increase in need for products for clinical
testing, and anticipated need for additional product manufacturing for European
product sales. The Company may enter into additional capital equipment lease
arrangements in the future if available at appropriate rates and terms.
The Company believes its existing available cash, cash equivalents and
short-term investments as of February 29, 2000 would be sufficient to meet its
anticipated capital requirements through December 2000. Substantial additional
capital resources will be required to fund continuing expenditures related to
the Company's research, development, manufacturing and business development
activities. The Company believes there may be a number of alternatives available
to meet the continuing capital requirements of its operations, such as
collaborative agreements and public or private financings. During 2000, the
Company expects that the possible exercise of other existing warrants could
result in additional funds for continuing operations. Further, the Company is
currently in preliminary discussions with a number of potential collaborative
partners and, based on the results of various materials evaluations, revenues in
the form of license fees, milestone payments or research and development
reimbursements could be generated. There can be no assurance that any of these
fundings will be consummated in the necessary timeframes needed for continuing
operations or on terms favorable to the Company. If adequate funds are not
available, the Company will be required to significantly curtail its
27
<PAGE>
operating plans and may have to sell or license out significant portions of the
Company's technology or potential products.
YEAR 2000 COMPLIANCE
The Company's plan to modify its information technology in recognition
of the year 2000 issue has been successfully implemented. The "Year 2000" issue
concerned potential exposure related to the interruption of business practice
and financial misinformation resulting from the application of computer programs
which have been written using two digits, rather than four, to define the
applicable year of business transactions. Based on its assessments to date, the
Company does not expect to incur any further significant costs, or anticipate
any significant problems or uncertainties associated with remaining Year 2000
compliant.
28
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Filed herewith are the following Audited Financial Statements for
Protein Polymer Technologies, Inc. (a Development Stage Company):
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors............................. F-2
Balance Sheets at December 31, 1999 and 1998.................................. F-3
Statements of Operations for the years ended December 31, 1999, 1998
and 1997 and the period July 6, 1988 (inception) to December 31, 1999...... F-4
Statements of Stockholders Equity for the period July 6, 1988 (inception)
to December 31, 1999....................................................... F-5
Statements of Cash Flows for the years ended December 31, 1999, 1998
and 1997 and the period July 6, 1988 (inception) to December 31, 1999...... F-7
Notes to Financial Statements................................................. F-9
</TABLE>
F-1
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Protein Polymer Technologies, Inc.
We have audited the accompanying balance sheets of Protein Polymer
Technologies, Inc. (a Development Stage Company) as of December 31, 1999 and
1998, and the related statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999 and for
the period July 6, 1988 (inception) to December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Protein Polymer
Technologies, Inc. (a Development Stage Company) at December 31, 1999 and 1998,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1999 and for the period July 6, 1988
(inception) to December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
San Diego, California
February 29, 2000
F-2
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
--------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 155,692 $ 1,383,148
Other current assets 49,266 66,459
-------------------------------
Total current assets 204,958 1,449,607
Deposits 36,177 36,177
Notes receivable from officers 140,000 141,000
Equipment and leasehold improvements, net 360,005 598,447
-------------------------------
$ 741,140 $ 2,225,231
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 385,932 $ 515,413
Accrued employee benefits 84,335 167,849
Other accrued expenses 17,118 21,574
Current portion capital lease obligations 79,593 84,518
Deferred rent 95,973 60,668
-------------------------------
Total current liabilities 662,951 850,022
Long-term portion capital lease obligations 25,088 105,548
Stockholders' equity:
Convertible Preferred Stock, $.01 par value,
188,917 shares authorized, 91,065 and
79,202 shares issued and outstanding at
December 31, 1999 and 1998, respectively -
liquidation preference of $9,106,500 and
$7,480,200 at December 31, 1999 and
December 31, 1998, respectively 8,761,072 7,600,226
Common stock, $.01 par value, 25,000,000 shares
authorized, 13,443,510 and 10,827,240 shares
issued and outstanding at December 31, 1999
and 1998, respectively 134,447 108,274
Additional paid-in capital 28,403,077 26,549,125
Deficit accumulated during development stage (37,245,495) (32,987,964)
-------------------------------
Total stockholders' equity 53,101 1,269,661
-------------------------------
$ 741,140 $ 2,225,231
===============================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 6, 1988
(INCEPTION) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
1999 1998 1997 1999
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Contract revenue $ 2,320 $ 50,000 $ 459,510 $ 4,357,285
Interest income, net 39,343 134,978 186,531 1,120,272
Product and other income 54,304 70,846 76,917 684,317
--------------------------------------------------------------
Total revenues 95,967 255,824 722,958 6,161,874
Expenses:
Research and development 2,799,147 4,167,144 3,188,398 24,754,081
Selling, general and administrative 1,554,351 1,726,883 1,988,493 14,704,903
--------------------------------------------------------------
Total expenses 4,353,498 5,894,027 5,176,891 39,458,984
--------------------------------------------------------------
Net loss (4,257,531) (5,638,203) (4,453,933) (33,297,110)
Undeclared and/or paid dividends on
preferred stock 277,639 3,544,323 432,682 5,239,654
--------------------------------------------------------------
Net loss applicable to common shareholders $ (4,535,170) $ (9,182,526) $ (4,886,615) $ (38,536,764)
==============================================================
Net loss per common share - basic and
diluted $ (.36) $ (.88) $ (.52)
=============================================
Shares used in computing net loss per
common share - basic and diluted 12,570,987 10,484,277 9,487,165
=============================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity
For the period July 6, 1988 (inception) to December 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of common stock at $.01 per share for cash 400,000 $ 4,000 -- $ --
Issuance of common stock at $.62 per share for cash and receivables 1,116,245 11,162 -- --
Receivables from sale of common stock -- -- -- --
Net loss -- -- -- --
----------------------------------------------------
Balance at December 31, 1988 1,516,245 15,162 -- --
Repayment of receivables from sale of common stock -- -- -- --
Issuance of common stock at $.62 per share 359,136 3,594 -- --
Net loss -- -- -- --
----------------------------------------------------
Balance at December 31, 1989 1,875,381 18,756 -- --
Exercise of common stock options at $.01 per share for cash 60,000 600 -- --
Issuance of common stock at $.68 per share for cash and compensation 5,000 50 -- --
Common stock repurchased at $.01 per share for cash (25,000) (250) -- --
Common stock issued at $.68 per share for cash and compensation 25,000 250 -- --
Net loss -- -- -- --
----------------------------------------------------
Balance at December 31, 1990 1,940,381 19,406 -- --
Exercise of common stock options at $.68 per share for cash 5,000 50 -- --
Exercise of warrants for common stock 483,755 4,837 -- --
Conversion of notes payable to common stock 339,230 3,391 -- --
Conversion of notes payable to preferred stock -- -- 278,326 2,783
Issuance of preferred stock at $2.00 per share for cash, net of
issuance costs -- -- 400,000 4,000
Issuance of warrants for cash -- -- -- --
Issuance of warrants in connection with convertible notes payable -- -- -- --
Net loss -- -- -- --
---------------------------------------------------
Balance at December 31, 1991 2,768,366 27,684 678,326 6,783
Initial public offering at $6.50 per unit, net of issuance costs 1,667,500 16,676 -- --
Conversion of Series B preferred stock into common stock in connection with
initial public offering 678,326 6,783 (6,783) --
Conversion of Series A preferred stock into common stock at 1.13342 per share 713,733 7,137 -- --
Net loss -- -- -- --
----------------------------------------------------
Balance at December 31, 1992 5,827,925 58,280 -- --
Exercise of common stock options at $.68 per share 3,000 30 -- --
Net loss -- -- -- --
----------------------------------------------------
Balance at December 31, 1993 5,830,925 58,310 -- --
Issuance of preferred stock at $100 per share for cash, net of
issuance costs -- -- 21,600 2,073,925
Net loss -- -- -- --
----------------------------------------------------
Balance at December 31, 1994 5,830,925 58,310 21,600 2,073,925
Issuance of preferred stock at $100 per share for cash and cancellation of
bridge loan, net of issuance costs -- -- 25,000 2,432,150
Series C dividends paid in Series D preferred stock -- -- 2,539 253,875
Interest paid in Series D preferred stock -- -- 48 4,795
Exercise of common stock options at $.53 per share 2,000 20 -- --
Net loss -- -- -- --
----------------------------------------------------
Balance at December 31, 1995 5,832,925 58,330 49,187 4,764,745
Exercise of common stock warrants at $1.25 per share 932,960 9,330 -- --
Exercise of common stock warrants at $2.50 per share, net of
issuance costs 322,663 3,226 -- --
Exercise of common stock warrants at $1.00 per share 25,000 250 -- --
Exercise of common stock options 136,000 1,360 -- --
Stock repurchases (16,320) (163) -- --
Net loss -- -- -- --
----------------------------------------------------
Balance at December 31, 1996 7,233,228 72,333 49,187 4,764,745
Issuance of common stock at $2.50 per share, net of issuance costs 1,904,000 19,040 -- --
Exercise of common stock options 28,000 280 -- --
Issuance of common stock under stock purchase plan 15,036 151 -- --
Conversion of Series D preferred stock into common stock 1,032,537 10,325 (20,973) (2,097,342)
Series D dividends paid in common stock 207,921 2,079 -- --
Net loss -- -- -- --
----------------------------------------------------
Balance at December 31, 1997 10,420,722 $ 104,208 28,214 $ 2,667,403
Issuance of common stock under stock purchase plan 36,715 368 -- --
Exercise of common stock options 12,000 120 -- --
Issuance of common stock at $1.60 per share, net of issuance costs 23,439 234 -- --
Issuance of Series E preferred stock, net of issuance costs -- -- 54,438 5,277,813
Grant of stock to finder 64,000 640 -- --
Conversion of Series D and E preferred stock into common stock 270,364 2,704 (3,450) (344,990)
Net Loss -- -- -- --
----------------------------------------------------
Balance at December 31, 1998 10,827,240 $ 108,274 79,202 $ 7,600,226
Issuance of common stock under stock purchase plan 19,429 194 -- --
Issuance of common stock and warrants for services rendered and
debt issued 16,941 180 -- --
Issuance of Series G preferred stock, net of issuance costs -- -- 21,000 2,074,596
Conversion of Series E preferred stock into common stock 731,000 7,310 (9,138) (913,750)
Exercise of common stock and Series E warrants at $.50 per share 1,848,900 18,489 -- --
Net Loss -- -- -- --
----------------------------------------------------
Balance at December 31, 1999 13,443,510 $ 134,447 91,064 $ 8,761,072
====================================================
</TABLE>
F-5
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity
For the period July 6, 1988 (inception) to December 31, 1999
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING RECEIVABLES TOTAL
ADDITIONAL DEVELOPMENT FROM STOCKHOLDERS
PAID-IN CAPITAL STAGE STOCK EQUITY
-----------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of common stock at $.01 per share for cash $ -- $ -- $ -- $ 4,000
Issuance of common stock at $.62 per share for cash and receivables 681,838 -- -- 693,000
Receivables from sale of common stock -- -- (86,000) (86,000)
Net loss -- (322,702) -- (322,702)
----------------------------------------------------
Balance at December 31, 1988 681,838 (322,702) (86,000) 288,298
Repayment of receivables from sale of common stock -- -- 86,000 86,000
Issuance of common stock at $.62 per share 219,358 -- -- 222,952
Net loss -- (925,080) -- (925,080)
----------------------------------------------------
Balance at December 31, 1989 901,196 (1,247,782) -- (327,830)
Exercise of common stock options at $.01 per share for cash -- -- -- 600
Issuance of common stock at $.68 per share for cash and compensation 3,350 -- -- 3,400
Common stock repurchased at $.01 per share for cash -- -- -- (250)
Common stock issued at $.68 per share for cash and compensation 16,750 -- -- 17,000
Net loss -- (1,501,171) -- (1,501,171)
----------------------------------------------------
Balance at December 31, 1990 921,296 (2,748,953) -- (1,808,251)
Exercise of common stock options at $.68 per share for cash 3,350 -- -- 3,400
Exercise of warrants for common stock 295,493 -- -- 300,330
Conversion of notes payable to common stock 508,414 -- -- 511,805
Conversion of notes payable to preferred stock 553,869 -- -- 556,652
Issuance of preferred stock at $2.00 per share for cash, net of
issuance costs 703,475 -- -- 707,475
Issuance of warrants for cash 3,000 -- -- 3,000
Issuance of warrants in connection with convertible notes payable 28,000 -- -- 28,000
Net loss -- (1,143,119) -- (1,143,119)
----------------------------------------------------
Balance at December 31, 1991 3,016,897 (3,892,072) -- (840,708)
Initial public offering at $6.50 per unit, net of issuance costs 8,911,024 -- -- 8,927,700
Conversion of Series B preferred stock into common stock in connection with
initial public offering -- -- -- --
Conversion of Series A preferred stock into common stock at 1.13342 per
share 1,717,065 -- -- 1,724,202
Net loss -- (3,481,659) -- (3,481,659)
----------------------------------------------------
Balance at December 31, 1992 13,644,986 (7,373,731) -- 6,329,535
Exercise of common stock options at $.68 per share 2,010 -- -- 2,040
Net loss -- (3,245,436) -- (3,245,436)
----------------------------------------------------
Balance at December 31, 1993 13,646,996 (10,619,167) -- 3,086,139
Issuance of preferred stock at $100 per share for cash, net of
issuance costs -- -- -- 2,073,925
Net loss -- (3,245,359) -- (3,245,359)
----------------------------------------------------
Balance at December 31, 1994 13,646,996 (13,864,526) -- 1,914,705
Issuance of preferred stock at $100 per share for cash and cancellation of
bridge loan, net of issuance costs -- -- -- 2,432,150
Series C dividends paid in Series D preferred stock -- (253,875) -- --
Interest paid in Series D preferred stock -- -- -- 4,795
Exercise of common stock options at $.53 per share 1,040 -- -- 1,060
Net loss -- (2,224,404) -- (2,224,404)
----------------------------------------------------
Balance at December 31, 1995 13,648,036 (16,342,805) -- 2,128,306
Exercise of common stock warrants at $1.25 per share $ 1,156,870 $ -- $ -- $ 1,166,200
Exercise of common stock warrants at $2.50 per share, net of
issuance costs 779,413 -- -- 782,639
Exercise of common stock warrants at $1.00 per share 24,750 -- -- 25,000
Exercise of common stock options 91,650 -- -- 93,010
Stock repurchases (81,437) -- -- (81,600)
Net loss -- (2,864,432) -- (2,864,432)
----------------------------------------------------
Balance at December 31, 1996 15,619,282 (19,207,237) -- 1,249,123
Issuance of common stock at $2.50 per share, net of issuance costs 4,601,322 -- -- 4,620,362
Exercise of common stock options 20,200 -- -- 20,480
Issuance of common stock under stock purchase plan 29,950 -- -- 30,101
Conversion of Series D preferred stock into common stock 2,087,017 -- -- --
Series D dividends paid in common stock 420,262 (422,341) -- --
Net loss -- (4,453,933) -- (4,453,933)
----------------------------------------------------
Balance at December 31, 1997 $ 22,778,033 $(24,083,511) $ -- $ 1,466,133
Issuance of common stock under stock purchase plan 38,010 -- -- 38,378
Exercise of common stock options 7,920 -- -- 8,040
Issuance of common stock at $1.60 per share, net of issuance costs 37,266 -- -- 37,500
Issuance of Series E preferred stock, net of issuance costs 3,266,250 (3,266,250) -- 5,277,813
Grant of stock to finder 79,360 -- -- 80,000
Conversion of Series D and E preferred stock into common stock 342,286 -- -- --
Net Loss -- (5,638,203) -- (5,638,203)
----------------------------------------------------
Balance at December 31, 1998 $ 26,549,125 $(32,987,964) $ -- $ 1,269,661
Issuance of common stock under stock purchase plan 15,111 -- -- 15,305
Issuance of common stock and warrants for services rendered and
debt issued 26,440 -- -- 26,620
Issuance of Series G preferred stock, net of issuance costs -- -- -- 2,074,596
Conversion of Series E preferred stock into common stock 906,440 -- -- --
Exercise of common stock and Series E warrants at $.50 per share 905,961 -- -- 924,450
Net Loss -- (4,257,531) -- (4,257,531)
----------------------------------------------------
Balance at December 31, 1999 $ 28,403,077 $(37,245,495) $ -- $ 53,101
====================================================
</TABLE>
See accompanying notes
F-6
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 6, 1988
(INCEPTION) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
1999 1998 1997 1999
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (4,257,531) $ (5,638,203) $ (4,453,933) $ (33,303,029)
Adjustments to reconcile net loss to net cash used
for operating activities:
Stock and warrants issued for services - - - -
rendered and debt interest 26,620 80,000 - 131,515
Depreciation and amortization 264,541 368,577 184,300 1,892,838
Write-off of purchased technology - - - 503,500
Changes in assets and liabilities:
Deposits - 440 (14,360) (36,177)
Notes receivable from officers 1,000 12,000 (153,000) (140,000)
Other current assets 17,193 22,409 (11,613) (49,266)
Accounts payable (129,481) 91,819 172,273 385,932
Accrued employee benefits (83,514) 16,018 34,219 84,335
Other accrued expenses (4,456) (19,577) (12,374) 17,118
Deferred revenue - - (75,000) -
Deferred rent 35,305 60,668 - 95,973
-----------------------------------------------------------------------------
Net cash used for operating activities (4,130,323) (5,005,849) (4,329,488) (30,417,261)
INVESTING ACTIVITIES
Purchase of technology - - - (570,000)
Purchase of equipment and improvements (26,099) (197,460) (295,778) (1,810,814)
Purchases of short-term investments - - (4,226,729) (16,161,667)
Sales of short-term investments - 974,817 4,244,954 16,161,667
-----------------------------------------------------------------------------
Net cash provided by (used for) investing activities (26,099) 777,357 (277,553) (2,380,814)
FINANCING ACTIVITIES
Net proceeds from issuance of warrants and sale of
common stock 939,755 83,918 4,670,943 17,537,666
Net proceeds from issuance of preferred stock 2,074,596 5,277,813 - 14,290,160
Net proceeds from convertible notes and detachable
warrants - - - 1,068,457
Payments on capital lease obligations (85,385) (75,112) (23,594) (184,089)
Payment on note payable (150,000) - - (242,750)
Proceeds from note payable 150,000 - - 484,323
Deferred offering costs - - 17,356 -
-----------------------------------------------------------------------------
Net cash provided by financing activities 2,928,966 5,286,619 4,664,705 32,953,767
Net increase (decrease) in cash and cash equivalents (1,227,456) 1,058,127 57,664 155,692
Cash and cash equivalents at beginning of the period 1,383,148 325,021 267,357 -
-----------------------------------------------------------------------------
Cash and cash equivalents at end of the period $ 155,692 $ 1,383,148 $ 325,021 $ 155,692
=============================================================================
</TABLE>
F-7
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION> JULY 6, 1988
(INCEPTION) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
1999 1998 1997 1999
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Equipment purchased by capital leases $ - $ - $ 288,722 $ 288,772
Interest paid 19,983 26,692 7,763 117,911
Imputed dividend on Series E Stock - 3,266,250 - 3,266,250
Conversion of Series D preferred stock to common
stock - 44,990 2,097,342 2,142,332
Conversion of Series E preferred stock to - - - -
common stock 913,750 300,000 - 1,213,750
Series D stock issued for Series C Stock - - - 2,073,925
Series C dividends paid with Series D stock - - - 253,875
Series D dividends paid with common stock - - 422,341 422,341
</TABLE>
See accompanying notes.
F-8
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITIES
Protein Polymer Technologies, Inc. (the "Company") was established to design,
produce and market genetically engineered protein polymers for a variety of
biomedical and specialty materials applications. The Company was incorporated in
Delaware on July 6, 1988. For the period from its inception to date, the Company
has been a development stage enterprise, and accordingly, the Company's
operations have been directed primarily toward developing business strategies,
raising capital, research and development activities, conducting clinical
testing of its product candidates, exploring marketing channels and recruiting
personnel. The Company operates in one segment.
LIQUIDITY
As of December 31, 1999, the Company had cash, cash equivalents and short-term
investments totaling $156,000. In January and February 2000 the Company received
approximately $1,350,000 in cash and receivables from licensing and R&D
agreements with Femcare, Ltd. for the European and Australian marketing rights
to the stress urinary incontinence bulking product, with Perkin-Elmer for a
research and development project and commercialization option, and with Sanyo
Chemical Industries, Ltd. for the marketing rights, manufacturing technology,
and inventory for the in vitro cell culture business. Also in February 2000, the
Company received approximately $2 million net of costs from the exercise of
common stock warrants originally granted as part of the sale of Series G
Convertible Preferred Stock.
The Company believes its available cash, cash equivalents and short-term
investments would be sufficient to meet its anticipated capital requirements
through January 2001. Prior to the commercialization of its products,
substantial additional capital resources will be required to fund continuing
operations related to the Company's research, development, manufacturing,
clinical testing, and business development activities. The Company believes
there may be a number of alternatives available to meet the continuing capital
requirements of its operations, such as collaborative agreements and public or
private financings. During 2000, the Company expects that the possible exercise
of existing warrants could result in additional funds for continuing operations.
Further, the Company is currently in discussions with a number of potential
collaborative partners and, based on the results of various materials
evaluations, revenues in the form of license fees, milestone payments or
research and development
F-9
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
December 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
reimbursements could be generated. There can be no assurance that any of these
fundings will be consummated in the necessary time frames needed for continuing
operations or on terms favorable to the Company. If adequate funds in the future
are not available, the Company will be required to significantly curtail its
operating plans and may have to sell or license out significant portions of the
Company's technology or potential products.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents consist of cash and highly liquid investments which
include debt securities with remaining maturities of three months or less when
acquired. Short-term investments consist primarily of commercial paper, notes
and short-term U.S. Government securities with original maturities beyond three
months and are stated at estimated fair value. Similar items with original
maturities of three months or less are considered cash equivalents. The Company
has established guidelines relative to diversification and maturities that
maintain safety and liquidity. The Company has not experienced any losses on its
short-term investments.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost, less accumulated
depreciation and amortization. Equipment is depreciated over the estimated
useful life of the asset, typically one to seven years, using the straight-line
method. Leasehold improvements are amortized over the shorter of the lease term
or life of the asset. Equipment and leasehold improvements consist of the
following:
DECEMBER 31,
1999 1998
--------------------------
Laboratory equipment $ 1,626,822 $ 1,600,723
Office equipment 175,128 175,128
Leasehold improvements 297,635 297,635
--------------------------
2,099,585 2,073,486
Less accumulated depreciation and amortization (1,739,580) (1,475,039
--------------------------
$ 360,005 $ 598,447
==========================
F-10
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
December 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
RESEARCH AND DEVELOPMENT REVENUES AND EXPENSES
License fees and research and development contract revenues are recorded as
earned based on the performance requirements of the contracts. If the research
and development activities are not successful, the Company is not obligated to
refund payments previously received. Milestone payments are recorded as revenue
when received as they have not been refundable and the Company has no future
performance obligations. Payments received in advance of amounts earned are
recorded as deferred revenue. Research and development costs are expensed as
incurred.
PRODUCT REVENUE RECOGNITION
Sales are recognized upon shipment of products to customers.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, if indicators of impairment exist, the Company assesses the
recoverability of the affected long-lived assets by determining whether the
carrying value of such assets can be recovered through undiscounted future
operating cash flows. If impairment is indicated, the Company will value the
asset at fair value. While the Company's current and historical operating and
cash flow losses are indicators of impairment, the Company believes the future
cash flows to be received from the long-lived assets will exceed the assets'
carrying value, and accordingly the Company has not recognized any impairment
losses through December 31, 1999.
STOCK OPTIONS
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, ("APB 25") and related Interpretations
in accounting for its employee stock options. Under APB 25, if the exercise
price of the Company's employee stock options equals or exceeds the fair value
of the underlying stock on the date of grant, no compensation expense is
recognized. Options issued to non-employees are recorded at their fair value and
recognized over the related service period. The effects of using the fair value
accounting method, as described in SFAS Statement No. 123 are described below in
Note 2.
F-11
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
December 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
NET LOSS PER COMMON SHARE
The Company reports its earnings per share in accordance with SFAS No. 128,
Earnings per Share, which requires the presentation of both basic and diluted
earnings per share on the statements of operations. Basic earnings per share is
calculated based upon weighted-average number of outstanding common shares for
the period. Diluted earnings per share is calculated based upon weighted-average
number of outstanding common shares, plus the effect of dilutive stock options.
The net loss per common share for the years ended December 31, 1999, 1998 and
1997 is based on the weighted average number of shares of common stock
outstanding during the periods. Potentially dilutive securities including
options, warrants and convertible preferred stock have not been included in the
calculation of the net loss per common share as their effect is antidilutive.
Consequently, there is no difference between the basic and dilutive net loss per
common share for any of the periods presented and none of the prior periods were
required to be restated. For purposes of this calculation, net loss in 1999,
1998 and 1997 has been adjusted for accumulated and/or paid dividends on the
Preferred Stock.
COMPREHENSIVE INCOME
SFAS No. 130, Reporting Comprehensive Income, requires that the Company
disclose, either in the income statement or in a separate financial statement,
net income as currently reported and other components of comprehensive income.
Comprehensive income is defined as the change in stockholders' equity during a
period resulting from transactions and other events and circumstances from
non-owner sources. For the years ended December 31, 1999, 1998 and 1997 the
Company did not have any components of comprehensive income as defined in SFAS
No. 130.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the amount of revenue and expense reported during the period. Actual results
could differ from those estimates.
F-12
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
December 31, 1999
2. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
On August 16, 1999, the Company received $1,775,000 for 17,750 shares of Series
G Preferred Stock from several institutional and accredited individual investors
following the 10 day stockholder notification period required by the NASD prior
to the sale. On September 15, 1999, the Company received an additional $325,000
for 3,250 shares of Series G Preferred Stock, for total proceeds of $2,100,000.
Each share of Series G Convertible Preferred Stock was priced at $100 per share.
Each share can be converted at any time by the holder into common stock at a
price of $0.50 per share, subject to certain antidilution adjustments. Each
share of Preferred Stock also receives a common stock warrant, exercisable for
12 months, that allows the holder to acquire 200 shares of PPTI common stock at
a price of $0.50 per share.
Between April 1 and April 15, 1999, the Company received approximately $508,000
from the exercise of redeemable, publicly traded, warrants to purchase common
stock originally issued as part of PPTI's initial public offering. Following the
close of business on April 15, the remaining unexercised redeemable, publicly
traded, warrants expired. On May 12, 1999, the Company received approximately
$416,000 from the exercise of warrants to purchase common stock issued in
conjunction with the private placement of the Company's Series E Convertible
Preferred Stock.
In April and May of 1998, the Company raised approximately $5.4 million from the
sale of 54,437 shares of the Company's Series E Convertible Preferred Stock
("Series E Stock") priced at $100 per share, with warrants to purchase an
aggregate of 3,266,250 shares of common stock to a small group of institutional
and accredited investors. In connection with this transaction, the Company
recorded a non-cash "imputed dividend" expense of $3,266,250 in order to account
for the difference between the fair market value of the common stock and the
conversion price of the preferred stock into common stock.
Each share of Series E Stock is convertible at any time at the election of the
holder into 80 shares of common stock at a conversion price of $1.25 per share,
subject to certain antidilution adjustments. This registration became effective
on October 3, 1998. As of December 31, 1999, 11,650 shares of Series E Stock had
been converted into 932,000 shares of the Company's common stock.
F-13
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
December 31, 1999
2. STOCKHOLDERS' EQUITY (continued)
Each share of Series E Stock received two common stock warrants. One warrant is
exercisable at any time for 40 shares of common stock at an exercise price of
$2.50 per share, and expires approximately 18 months after the close of the
offering; the other warrant is exercisable at any time for 20 shares of common
stock at an exercise price of $5.00 per share, and expires approximately 36
months after the close of the offering. In addition, an 18 month warrant to
acquire 200,000 common shares exercisable at $2.50 per share and a 36 month
warrant to acquire 100,000 common shares exercisable at $5.00 per share has been
issued as a finder and document review fee paid to a lead investor. An 18 month
warrant to acquire 32,000 common shares exercisable at $2.50 per share, a 24
month warrant to acquire 16,000 common shares exercisable at $5.00 per share,
and 5 year warrants to acquire an aggregate of 25,200 common shares exercisable
at $2.50 per share were issued to certain persons for service as finders in
relation to the private placement.
In connection with the above private placement, the Company issued 26,420 shares
of its Series F Convertible Preferred Stock ("Series F Stock") in exchange for
the same number of shares of outstanding Series D Convertible Preferred Stock
("Series D Stock").
Each share of Series D and F Stock earns a cumulative dividend at the annual
rate of $10 per share, payable if and when declared by the Company's Board of
Directors, in the form of cash, common stock or any combination thereof. The
Series D and F Stock is convertible into common stock after two years from the
date of issuance at the holder's option. The conversion price at the time of
conversion is the lesser of $3.75 or the market price. The Series D and F Stock
is redeemable at the Company's option after four years from the date of
issuance. Automatic conversion of all of the Series D and F Stock will occur if:
(a) the Company completes a public offering of common stock at a price of $2.50
or higher; or (b) the holders of a majority thereof elect to convert. The
Company has the option to demand conversion of the Series D and F Stock if the
average market price of its common stock equals or exceeds $5.00 per share over
a period of twenty business days. The Series D and F Stock have preference in
liquidation of $100 per share plus accumulated dividends.
The Series E Stock is convertible, at the option of the holder, into shares of
the Company's common stock, subject to anti-dilution adjustments, and has a
preference in liquidation of $100 per share, but only after any preference is
paid or declared set apart for the Series D Stock. Holders of the Series E Stock
are entitled to receive dividends when and if declared by the Board of
Directors; however, no such dividends will be declared or paid on the Series E
Stock until the preferential cumulative dividends on the Series D and F Stock
have been fully
F-14
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
December 31, 1999
2. STOCKHOLDERS' EQUITY (continued)
paid or declared and set apart. Automatic conversion of all Series E Stock will
occur if: (a) the Company completes a public offering of common stock at a price
of $7.50 or higher; or (b) the holders of more than 75% of outstanding Series E
Stock elect to convert.
The Series D, E and F Preferred Stock has been designated as non-voting stock.
STOCK OPTION PLANS
In September 1996 the Company established the Protein Polymer Technologies,
Inc., Employee Stock Purchase Plan ("Plan"). The Plan commenced January 2, 1997,
and allows for offering periods of up to two years with quarterly purchase dates
occurring the last business day of each quarter. The purchase price per share is
generally calculated at 85% of the lower of the fair market value on an eligible
employee's entry date or the quarterly purchase date. The maximum number of
shares available for issuance under the Plan is 500,000; an eligible employee
may purchase up to 5,000 shares per quarter. The Plan Administrator consists of
a committee of at least two non-employee directors of the Company. The Board may
modify the Plan at any time. During 1999, a total of 19,429 shares were
purchased under the Plan at prices ranging from $0.79 to $1.06. The value of
shares issued under the Plan as calculated in accordance with Statement 123 is
not significant and is not included in the following pro forma information.
In June 1996, the Company adopted the 1996 Non-Employee Directors Stock Option
Plan ("1996 Plan"), which provides for the granting of nonqualified options to
purchase up to 250,000 shares of common stock to directors of the Company. Such
grants of options to purchase 5,000 shares of common stock are awarded
automatically on the first business day of June during each calendar year to
every Participating Director then in office, subject to certain adjustments. No
Participating Director is eligible to receive more than one grant per year. The
purchase price of each option is set at the fair market value of the common
stock on the date of grant. Each option has a duration of ten years, and is
vested and exercisable six months after the grant date. The Board (or a
designated committee of the Board) administers the 1996 Plan. At December 31,
1999, 130,000 options to purchase have been granted under the 1996 Plan.
The Company adopted the 1992 Stock Option Plan which provides for the issuance
of incentive and non-statutory stock options for the purchase of up to 1,500,000
shares of common stock to its key employees and certain other individuals. The
options will expire
F-15
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
December 31, 1999
2. STOCKHOLDERS' EQUITY (continued)
ten years from their respective dates of grant. Options become exercisable
ratably over periods of up to five years from the dates of grant. At December
31, 1999, options to purchase 527,000 shares of common stock were exercisable,
and 212,000 shares were available for future grant.
The Company adopted the 1989 Stock Option Plan which provided for the issuance
of incentive and non-statutory stock options for the purchase of up to 500,000
shares of common stock to key employees and certain other individuals. The 1989
Stock Option Plan expired as of March 17, 1999. Options granted in the plan
became exercisable ratably over periods of up to five years from the date of
grant. At December 31, 1999, options for 365,000 shares were exercisable.
Since inception, the Company has granted non-qualified options outside the
option plans to employees, directors and consultants of the Company. At
December 31, 1999, options for 130,000 shares were exercisable.
The following table summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------------------------
1999 1998 1997
---------------------- -------------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning
of year 1,765,000 $1.51 1,540,600 $1.52 1,393,600 $1.38
Granted 548,500 $0.44 568,000 $0.99 190,000 $2.34
Exercised - - (12,000) ($0.67) (28,000) ($0.73)
Forfeited/Expired (315,500) ($1.40) (331,600) ($0.83) (15,000) ($0.60)
--------- ----- --------- ----- ------- -----
Outstanding - end of year 1,998,000 $1.23 1,765,000 $1.51 1,540,600 $1.52
========= ===== ========= ===== ========= =====
Exercisable - end of year 1,152,000 $1.37 1,093,600 $1.36 916,600 $1.56
========= ===== ========= ===== ========= =====
</TABLE>
F-16
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
December 31, 1999
2. STOCKHOLDERS' EQUITY (continued)
The exercise prices for options outstanding as of December 31, 1999 range from
$0.22 to $0.84. The weighted average remaining contractual life of these options
is approximately 7.20 years.
STATEMENT 123 PRO FORMA INFORMATION
Pro forma information regarding net loss is required by SFAS No. 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method prescribed by SFAS No. 123, using the Black-Scholes
option pricing model. The fair value was estimated using the following
weighted-average assumptions: a risk free interest rate of 5.50% for 1999, 6.00%
for 1998 and 6.43% for 1997; a volatility factor of the expected market price of
the Company's common stock of 100% for 1999, 89% for 1998 and 102% for 1997;
expected option lives of 5 years for 1999, 5 years for 1998, and 8 years for
1997; and no dividend yields for all years.
The Black-Scholes option valuation model was originally developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the expected life of the options. The Company's pro
forma information is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net loss as reported $ (4,535,170) $ (9,182,526) $ (4,886,615)
Net loss per share as reported (0.36) (0.88) (0.52)
Net loss pro forma (4,772,359) (9,877,344) (5,188,511)
Net loss per share pro forma (.38) (.94) (0.55)
Weighted average fair value per share
of options granted during the year $ 0.34 $ 0.87 $ 1.77
</TABLE>
F-17
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
December 31, 1999
2. STOCKHOLDERS' EQUITY (continued)
The pro forma effect on net loss for 1999, 1998 and 1997 is not representative
of the pro forma effect on net loss in future years because it does not take
into consideration pro forma compensation expense from option grants made prior
to 1995.
3. STOCKHOLDER PROTECTION AGREEMENT
In 1997, the Board of Directors of the Company adopted a Stockholder Protection
Agreement ("Rights Plan") that distributes Rights to stockholders of record as
of September 10, 1997. The Rights Plan contains provisions to protect
stockholders in the event of an unsolicited attempt to acquire the Company. The
Rights trade together with the common stock, and generally become exercisable
ten business days after a person or group acquires or announces the intention to
acquire 15% or more of the outstanding shares of the Company's common stock,
with certain permitted exceptions. The Rights then generally allow the holder to
acquire additional shares of the Company's capital stock at a discounted price.
The issuance of the Rights is not a taxable event, does not affect the Company's
reported earnings per share, and does not change the manner in which the
Company's common stock is traded.
4. COMMITMENTS
The Company leases its office and research facilities totaling 21,000 square
feet under an operating lease, which expires in May 2005. The facilities lease
is subject to an annual escalation provision based upon the Consumer Price
Index. The lease provides for deferred rent payments; however, for financial
purposes rent expense is recorded on a straight-line basis over the term of the
lease. Accordingly, deferred rent in the accompanying balance sheet represents
the difference between rent expense accrued and amounts paid under the lease
agreement.
F-18
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
December 31, 1999
4. COMMITMENTS (continued)
Annual future minimum operating and capital lease payments are as follows:
<TABLE>
<CAPTION>
Obligations
Operating Under
Year ending December 31, Leases Capital Leases
------------------------ --------------- ---------------
<S> <C> <C>
2000 $ 451,841 $ 87,228
2001 460,933 25,651
2002 461,782 -
2003 473,200 -
2004 487,396 -
Thereafter 164,064 -
--------------- ---------------
Total minimum operating and capital lease payments $ 2,499,216 112,879
===============
Less amount representing interest (8,198)
---------------
Present value of remaining minimum capital lease payments 104,681
Less amount due in one year (79,593)
---------------
Long-term portion of obligations under capital leases $ 25,088
===============
</TABLE>
Cost and accumulated depreciation of equipment held under capital leases as of
December 31, 1999 was $279,497 and $149,483, respectively. The carrying amount
of the Company's obligations under its capital lease agreements approximate
their fair value and the implicit interest rate approximates the Company's
borrowing rate.
Rent expense was approximately $417,000, $442,633, $412,000, and $3,637,633 for
the years ended December 31, 1999, 1998 and 1997 and for the period July 6, 1988
(inception) through December 31, 1999, respectively.
5. INCOME TAXES
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $30,589,000 for federal income tax purposes, which may be applied
against future income, if any, and will begin expiring in 2004 unless previously
utilized. In addition,
F-19
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
December 31, 1999
5. INCOME TAXES (continued)
the Company had California net operating loss carryforwards of approximately
$12,249,000. The California tax loss carryforwards continue to expire. The
difference between the tax loss carryforwards for federal and California
purposes is attributable to the capitalization of research and development
expenses for California tax purposes, the required 50% limitation in the
utilization of California loss carryforwards, and the expiration of certain
California tax loss carryforwards.
The Company also has federal and California research and development tax credit
carryforwards of approximately $1,043,000 and $478,000, respectively, which will
begin expiring in 2004 unless previously utilized.
As a result of an ownership change that occurred in January 1992, approximately
$2,700,000 of the Company's federal net operating loss carryforwards will be
subject to an annual limitation regarding utilization against taxable income in
future periods. However, the Company believes that such limitations will not
have a material impact upon the utilization of the carryforwards.
Significant components of the Company's deferred tax assets as of December 31,
1999 are shown below. A valuation allowance of $12,867,000 has been recognized
to offset the deferred tax assets as realization of such assets is uncertain.
1999 1998
-------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 11,410,000 $ 9,899,000
Research and development credits 1,354,000 1,122,000
Other, net 103,000 728,000
-------------------------------
Total deferred tax assets 12,867,000 11,749,000
Valuation allowance for deferred tax assets (12,867,000) (11,749,000)
-------------------------------
Net deferred tax assets $ - $ -
===============================
6. EMPLOYEE BENEFITS PLAN
On January 1, 1993, the Company established a 401(k) Savings Plan for
substantially all employees who meet certain service and age requirements.
Participants may elect to defer up to 20% of their compensation per year,
subject to legislated annual limits. Each year the
F-20
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
December 31, 1999
6. EMPLOYEE BENEFITS PLAN (continued)
Company may provide a discretionary matching contribution. As of December 31,
1999, the Company had not made a contribution to the Savings Plan.
7. SUBSEQUENT EVENTS
Between January 1 and February 29, 2000, the Company received approximately $3.5
million in cash and receivables from license and development agreements, the
sale of the Company's cell culture business, and the exercise of common stock
warrants.
FEMCARE AGREEMENTS
On January 26, 2000, PPTI and Femcare Ltd. ("Femcare"), headquartered in
Nottingham, Great Britain, executed three related agreements involving the grant
of a license to Femcare to register and market PPTI's urethral bulking agent for
the treatment of female stress urinary incontinence in Europe and Australia. In
addition to the License and Development Agreement, PPTI agreed in a separate
Supply Agreement to provide final product to Femcare, and if unable to do so,
agreed to make the manufacturing methods and materials available to Femcare as
specified in a separate Escrow agreement.
In addition to agreeing to purchase the final product from PPTI for a defined
percentage of the revenues received by Femcare from the sale of the incontinence
product, Femcare agreed to pay PPTI an upfront license fee of $1 million in two
installments and agreed to pay PPTI a royalty on revenues received from the sale
of the incontinence product. The agreements specify the performance benchmarks
and timelines for each party, the definition of yearly minimum royalties and
minimum product purchases, and the methods and procedures for determining
product manufacturing requirements.
The license grant from PPTI to Femcare is for the greater of 20 years or the
date upon which the last patent included within the license grant for the
territories covered expires, subject to meeting various sales requirements, and
is exclusive in the territories covered, subject to certain conditions being
maintained. The parties agreed to cooperate extensively in the clinical testing
and the registration of the product with the appropriate governmental
authorities.
SALE OF IN VITRO CELL CULTURE BUSINESS TO SANYO CHEMICAL INDUSTRIES, LTD.
--------
On February 18, 2000, PPTI and Sanyo Chemical Industries, Ltd. ("Sanyo"), of
Kyoto, Japan, executed an agreement involving the grant of a royalty-free
license to Sanyo for exclusive worldwide rights to make and sell ProNectin(R) F
and ProNectin(R)L and derivative
F-21
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
December 31, 1999
7. SUBSEQUENT EVENTS (continued)
products for in vitro cell culture and related applications. PPTI will receive
--------
from Sanyo $355,000 (less associated expenses) for the license, including
assignment of the ProNectin(R) and SmartPlastic(R) trademarks and transfer of
remaining product inventory. The agreement remains in effect until the last
patent included within the license grant expires.
EXERCISE AND EXCHANGE OF SERIES G WARRANTS
During February 2000, holders of warrants issued in connection with the sale of
Series G Preferred Stock exercised their warrants to purchase common stock which
were due to expire in September, 2000. The exercise price was $0.50 per share.
As an inducement to exercise the warrant early, the Company offered each holder
a new one year warrant for a similar number of shares at an exercise price of
$1.50 per share. As a result the Company raised $2.1 million (less offering
expenses). The newly issued warrants will expire on the last day of February
2001.
F-22
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Items 9, 10, 11 and 12 are incorporated by reference from the Company's
definitive Proxy Statement to be filed by the Company with the Commission no
later than April 7, 2000.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a)(1) and (2) Financial Statements and Schedules
The Financial Statements are incorporated herein as a part of Item 7.
(a)(3) Exhibits
The following documents are included or incorporated by reference:
Exhibit
Number Description
------ -----------
3.1 (6) Certificate of Incorporation of the Company, as amended.
3.1.1 (13) Certificate of Designation of Series E Convertible Preferred
Stock.
3.1.2 (13) Certificate of Designation of Series F Convertible Preferred
Stock.
3.1.3 (14) Certificate of Designation of Series G Convertible Preferred
Stock.
3.2 (6) Bylaws of the Company, as amended.
10.1 (1) 1989 Stock Option Plan, together with forms of Incentive Stock
Option Agreement and Nonstatutory Option Agreement.
10.2 (4) 1992 Stock Option Plan of the Company, together with forms of
Incentive Stock Option Agreement and Nonstatutory Option
Agreement.
29
<PAGE>
10.3 (1) Form of Employee's Proprietary Information and Inventions
Agreement.
10.4 (1) Form of Consulting Agreement.
10.5 (1) Form of Indemnification Agreement.
10.6 (4) License Agreement, dated as of April 15, 1992, between the
Board of Trustees of the Leland Stanford Junior University
and the Company.
10.7 (6) Amended and Restated Registration Rights Agreement dated
September 14, 1995, among the Company and the holders of its
Series D Preferred Stock.
10.8 (6) Securities Purchase Agreement related to the sale of the
Company's Series D Preferred Stock.
10.9 (7) Letter Agreement dated as of October 4, 1996 between the
Company and MBF I, LLC ("MBF") relating to the provision of
consulting and advisory services.
10.10 (7) Form of Warrant with respect to a warrant for 50,000 shares
issued to MBF, and to be used with respect to additional
warrants which may be issued to MBF.
10.11 (7) Registration Rights Agreement dated as of October 4, 1996
between the Company and MBF.
10.12 (7) Securities Purchase Agreement dated as of January 6, 1997
among the Company and the investors named therein relating to
the sale and purchase of 1,904,000 shares of the Company's
common stock.
10.13 (8) Lease, with exhibits, dated March 1, 1996 between the Company
and Sycamore/San Diego Investors.
10.14 (8) Second Amendment to Lease between the Company and Sycamore/San
Diego Investors, dated March 1, 1996.
10.15 (8) 1996 Non-Employee Directors' Stock Option Plan.
30
<PAGE>
10.16 (9) Stockholder Protection Agreement, dated August 22, 1997,
between the Company and Continental Stock Transfer & Trust
Company as rights agent.
10.17 (10) Employee Stock Purchase Plan, together with Form of Stock
Purchase Agreement.
10.18 (11) Lease, with rider and exhibits, dated April 13, 1998, between
the Company and Sycamore/San Diego Investors
10.19 (12) First Amendment to Stockholder Protection Agreement dated
April 24, 1998, between the Company and Continental Stock
Transfer & Trust Company as rights agent.
10.20 (13) Securities Purchase Agreement related to the sale of the
Company's Series E Convertible Preferred Stock dated as of
April 13, 1998 among the Company and Investors named therein
related to the purchase of 54,437.50 shares of Series E
Preferred Stock.
10.21 (13) Form of First Warrants to purchase Common Stock related to the
sale of the Company's Series E Preferred Stock.
10.22 (13) Form of Second Warrants to purchase Common Stock related to
the sale of the Company's Series E Preferred Stock.
10.23 (13) Letter of Agreement dated April 13, 1998 between the Company
and Johnson & Johnson Development Corporation for the exchange
of up to 27,317 shares of Series D Preferred Stock for a like
number of shares of Series F Preferred Stock.
10.24 (14) Securities Purchase Agreement related to the sale of the
Company's Series G Convertible Preferred Stock
10.25 (14) Form of Warrant to Purchase Common Stock issued in connection
with the Series G Preferred Stock
10.26 (14) Second Amendment to Stockholder Protection Agreement, dated
July 26, 1999 between the Company and Continental Stock
Transfer and Trust Company as rights agent
10.27 License and Development Agreement dated as of January 26,
2000 between the Company and Prospectivepiercing Limited,
to be known as Femcare Urology Limited.
31
<PAGE>
10.28 Supply Agreement dated as of January 26, 2000 between the
Company and Femcare Urology Limited.
10.29 Escrow Agreement dated as of January 26, 2000 between the
Company and Femcare Urology Limited.
10.30 Employment Agreement, dated as of February 17, 2000, between
the Company and J. Thomas Parmeter.
10.31 Employment Agreement, dated as of February 17, 2000, between
the Company and John E. Flowers.
10.32 Employment Agreement, dated as of February 17, 2000, between
the Company and Joseph Cappello.
10.33 Employment Agreement, dated as of February 17, 2000, between
the Company and Franco A. Ferrari.
10.34 License Agreement dated as of February 18, 2000 between the
Company and Sanyo Chemical Industries, Ltd.
23.1 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule
32
<PAGE>
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (No. 33-43875) filed with the Commission on November 12, 1991,
as amended by Amendments Nos. 1, 2, 3 and 4 thereto filed on November
25, 1991, December 23, 1991, January 17, 1992 and January 21, 1992,
respectively.
(2) Incorporated by reference to Registrant's Report on Form 10-Q for the
quarter ended March 31, 1992, as filed with the Commission on May 14,
1992.
(3) Incorporated by reference to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1992, as filed with the Commission on
November 13, 1992.
(4) Incorporated by reference to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1992, as filed with the Commission on
March 31, 1993.
(5) Incorporated by reference to Registrant's Report on Form 10-KSB for the
fiscal year ended December 31, 1994, as filed with the Commission on
March 30, 1995.
(6) Incorporated by reference to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1995, as filed with the Commission on
October 24, 1995.
(7) Incorporated by reference to Registrant's current Report on Form 8-K,
as filed with the Commission on January 7, 1997.
(8) Incorporated by reference to Registrant's Report on Form 10-KSB for the
fiscal year ended December 31, 1996, as filed with the Commission on
March 27, 1997.
(9) Incorporated by reference to Registrant's Current Report on Form 8-K,
as filed with the Commission on August 27, 1997.
(10) Incorporated by reference to Registrant's Report on Form 10-KSB for the
fiscal year ended December 31, 1997, as filed with the Commission on
April 9, 1998.
(11) Incorporated by reference to Registrant's Report on Form 10-Q for the
quarter ended March 31, 1998, as filed with the Commission on May 14,
1998.
(12) Incorporated by reference to Registrant's Report on Form 10-Q for the
quarter ended June 30, 1998, as filed with the Commission on August 13,
1998.
(13) Incorporated by reference to Registrant's Report on Form 10-KSB for the
fiscal year ended December 31, 1998, as filed with the Commission on
April 9, 1999.
(14) Incorporated by reference to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1999, as filed with the Commission on
November 1, 1999.
33
<PAGE>
(b) Reports on Form 8-K.
On August 17, 1999, the Company filed a Current Report on Form 8-K with
the Commission. In Item 5 of the report, the Company reported an
initial private placement of 17,750 shares of the Company's Series G
Convertible Preferred Stock, and warrants to purchase an aggregate of
3,550,000 shares of common stock.
On September 20, 1999, the Company filed a Current Report on Form 8-K
with the Commission. In Item 5 of the report, the Company reported the
delisting of the Company's common stock from the NASDAQ Small Cap
Market. The Company also reported a subsequent closing of a private
placement of the Company's Series G Convertible Preferred Stock which,
including the previous closing, was for a total of 21,000 shares and
warrants to purchase an aggregate of 4,200,000 shares of common stock.
On January 27, 2000, the Company filed a Current Report on Form 8-K
with the Commission. In Item 5 of the Report, the Company reported the
establishment of a strategic partnership with Femcare, Ltd., including
the execution of a License and Development Agreement, a Supply
Agreement, and an Escrow Agreement which in combination granted Femcare
Ltd. the exclusive right to commercialize the Company's urethral
bulking agents in Europe and Australia.
34
<PAGE>
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PROTEIN POLYMER TECHNOLOGIES, INC.
March 23, 2000 By /S/ J. THOMAS PARMETER
-----------------------
J. Thomas Parmeter
Chairman of the Board, Chief
Executive Officer, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/S/ J. THOMAS PARMETER Chairman of the Board, Chief March 23, 2000
- ----------------------- Executive Officer, President
J. Thomas Parmeter
/S/ JANIS Y. NEVES Director of Finance, Controller, March 23, 2000
- ------------------- and Assistant Secretary
Janis Y. Neves
/S/ RICHARD ADELSON Director March 23, 2000
- --------------------
Richard Adelson
/S/ PATRICIA J. CORNELL Director March 23, 2000
- ------------------------
Patricia J. Cornell
/S/ EDWARD E. DAVID Director March 23, 2000
- --------------------
Edward E. David
/S/ PHILIP J. DAVIS Director March 23, 2000
- --------------------
Philip J. Davis
/S/ PATRICK A. GERSCHEL Director March 23, 2000
- ------------------------
Patrick A. Gerschel
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/S/ EDWARD J. HARTNETT Director March 23, 2000
- -----------------------
Edward J. Hartnett
/S/ J. PAUL JONES Director March 23, 2000
- ------------------
J. Paul Jones
/S/ GEORGE R. WALKER Director March 23, 2000
- ---------------------
George R. Walker
</TABLE>
36
<PAGE>
EXHIBIT 10.27
LICENSE AND DEVELOPMENT AGREEMENT
This Agreement is between PROTEIN POLYMERS TECHNOLOGIES, INC., a Delaware
corporation, having its place of business at 10655 Sorrento Valley Road, San
Diego, California 92121 (hereinafter referred to as "PPTI"), and
PROSPECTIVEPIERCING LIMITED, to be known as FEMCARE UROLOGY LIMITED, a company
incorporated under the laws of England and Wales whose registered office is at
St. Peter Street, Nottingham NG7 3EN, England (hereinafter referred to as
"FEMCARE").
W I T N E S S E T H:
WHEREAS, PPTI is developing and intends to commercialize the Product; and
WHEREAS, FEMCARE, has experience and capability in obtaining governmental
approvals in the Territories for medical devices and in marketing such products
throughout the Territories; and
WHEREAS, FEMCARE, desires to purchase from PPTI an exclusive license to market
the Product in the Territories solely for use in the Field; and
WHEREAS, PPTI desires to sell to FEMCARE an exclusive license to market the
Product in the Territories in the Field, subject to the terms and conditions of
this Agreement; and
WHEREAS, FEMCARE desires to engage PPTI to manufacture and supply to FEMCARE,
the Product for Commercialization in the Territories in the Field;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, PPTI
and FEMCARE agree as follows:
1. DEFINITIONS
In this Agreement (including the recitals) the following expressions shall have
the following meanings unless the context otherwise requires:
1
<PAGE>
"Affiliate" shall mean, in relation to either party, (a) any company,
partnership, limited liability company, or other entity in which the relevant
party directly or indirectly holds 30% or more of the voting interests, (b) any
company which holds directly or indirectly 30% or more of the voting stock or
shares of the relevant party, (c) any other company, partnership, limited
liability company, or other entity in which 30% or more of the voting interests
is directly or indirectly held by any company described in clause (b), or (d)
any company partnership, limited liability company, or other entity in which the
relevant party directly or indirectly holds less than 30% of the voting
interests but has management control of such company in that it has the ability
to appoint or remove the majority of the directors or managers of such company.
"Calendar Quarter" shall mean the usual and customary FEMCARE calendar quarters,
the first quarter being the months of January, February and March, the second
quarter being the months of April, May and June, the third quarter being the
months of July, August and September, and the fourth quarter being the months of
October, November and December.
"Clinical Efficacy Trials" shall mean trials of the Product on sufficient
numbers of patients to establish the safety and efficacy of the Product in order
to assist the parties in obtaining Regulatory Approval for the manufacture and
Commercialization of Product.
"Clinical Safety Trials" shall mean trials for the first introduction into
humans of the Product with the purpose of establishing its safety sufficiently
to proceed to Clinical Efficacy Trials.
"Commercialization" shall mean the continuous marketing, use, offer for sale,
sale and supply of the Product to third parties, and "Commercialized" shall be
construed accordingly.
"Competitive Product" shall mean Contigen, Macroplastique, Durasphere and
similar injectable or inplantable products for the treatment of stress urinary
incontinence which compete with the Product in the Territories in the Field.
2
<PAGE>
"Copyright" shall mean all copyright and rights in the nature of copyright to
which PPTI or its Subsidiaries may now or may subsequently become entitled in or
in respect of all drawings and other documents, recordings in any form and/or
other materials bearing or embodying any part of the Know-How or the Regulatory
Information including without limitation any such materials consisting of or
containing software or databases.
"Effective Date" shall mean January 26, 2000.
"Existing IDE" shall mean the investigational device exemption application filed
with the FDA by PPTI in respect to the Product: ***.
"FDA" shall mean the United States Food and Drug Administration.
"Field" shall mean soft tissue augmentation in the genitourinary tract to treat
urological symptoms of disease, including the delivery in any manner of
lidocaine or an equivalent local anesthetic to ameliorate pain associated with
such treatment, but excluding all other drug delivery (except as aforesaid),
birth control, cosmetic tissue augmentation, and adhesive and sealant
applications and all other uses of soft tissue augmentation.
"IDE" shall mean an investigational device exemption application filed with the
FDA by PPTI.
"Intellectual Property" shall mean Patents, Know-How and Copyright.
"Know-How" shall mean all information, data or experience whether patentable or
not, useful in the Field in the Territories owned or controlled by PPTI or its
Subsidiaries at any time prior to or during the term of this Agreement,
including without limitation, processes, techniques, methods, products,
apparatuses, cultures, other biological materials and other materials and
compositions, operating instructions, machinery designs, raw material or
- ------------------------
*** Material is confidential and has been omitted and filed separately with
the Securities and Exchange Commission.
3
<PAGE>
product specifications, drawings, blue prints, and any other technical and
commercial information relating to research, design, development, manufacture,
assembly, use or sale of the Product which are or may be useful in the Field,
but excluding PMA Know-How and information and data that cannot be disclosed
without PPTI or its Subsidiaries being in breach of a bona-fide confidentiality
obligation to a third party.
"Joint Product" shall mean a product whose manufacture, marketing, use or sale
would infringe a Valid Claim of a Joint Invention.
"Marketing Year" shall mean each period of 12 months calculated from the first
day of the month following the date on which FEMCARE shall first sell Products
to independent third parties on a commercial basis in any of the Territories.
The first Marketing Year shall include sales made in the month preceding the
commencement date of the first Marketing Year.
"Net Sales" shall, subject to the two provisos to this definition, mean:
(a) the invoiced price of Product upon the sale by a party or its
Affiliates and distributors of Product to third parties (other than
Affiliates);
(b) subject to paragraph (c) of this definition the fair market value of
sales or transfers of Product from a party to Affiliates, where the
fair market value shall be determined from the sales of similar
volumes of Product in the same Territory (or if none a comparable
Territory) to third parties (other than Affiliates); or
(c) invoiced price of Product upon the sale by a party to an Affiliate of
Product which is to be used primarily for performing clinical trials
or testing to obtain Regulatory Approval in the United States or the
Territories, in each case less the following amounts:
(i) all normal discounts of any type or nature (e.g., cash
discounts, volume discounts, credits and rebates if not
already reflected in the invoiced price);
4
<PAGE>
(ii) credits or allowances actually granted upon claims or returns
regardless of the party requesting the return;
(iii) provided the amounts are separately charged upon the invoice
and not already excluded from Net Sales all proper deductions
for any costs of packaging, insurance, carriage, freight,
value added tax or other sales tax, import duties or similar
government levies or export insurance cost;
each determined in accordance with such party's accounting principles
from time to time or if none are applicable generally accepted
accounting principles in the United Kingdom or United States, as the
case may be, from time to time consistently applied.
Provided that if Product is sold by a party in a Territory in
combination with another product sold by that party and the Product
is not separately invoiced or priced on the relevant invoice for the
Product and the other product, Net Sales for such Product in a
Calendar Quarter will be calculated by multiplying actual Net Sales
of the Product and other product in the Territory in such Calendar
Quarter by the fraction A/(A+B) where A is the average invoiced price
(less the amounts referred to in (iii) of this definition) of Product
when sold separately by such party is such Territory in such Calendar
Quarter to third parties (other than Affiliates) and B is the invoice
price (less the amounts referred to in (iii) of this definition) of
the other product when sold separately by such party in such
Territory to such third parties (other than Affiliates) in such
Territory in such Calendar Quarter.
Provided further that if in the circumstances described in the
preceding proviso either the Product or the other product is not sold
separately in a Territory in a Calendar Quarter by party, Net Sales
for Product shall be calculated by multiplying actual Net Sales of
the Product and other product by the fraction D/E where D is a
party's direct cost of Product, and E shall be a party's aggregate
direct cost of the Product and other product. For purposes of the
foregoing, if the party is FEMCARE, party shall mean FEMCARE and its
Affiliates and if the party is PPTI, party shall mean PPTI and its
Subsidiaries (and the term "Subsidiaries" (and the term
"Subsidiaries" shall be substituted for "Affiliates").
5
<PAGE>
"Net Selling Price" shall mean the same as Net Sales save that Joint Product or
Joint
Products shall be substituted for "Product" or "Products" (as the case may be)
wherever the latter appear.
"Patent(s)" shall mean:
(a) any and all the patents and applications for patents that are
identified in Schedule A, any foreign counterparts thereof, all
continuations, continuations-in-part, divisions and renewals thereof,
all patent supplementary protection certificates and similar rights
that are based on or derive priority from any of the foregoing or
which may be granted thereon, and all reissues, re-examinations,
extensions, patents of addition and patent of importation thereof;
(b) any and all patent applications by PPTI related to or based on any
Know-How related to the Product or Product Improvements, if
applicable, that is developed by PPTI during the term of this
Agreement, all continuations, continuations-in-part or divisions of
any such applications, any patents which shall issue based on such
applications, continuations, continuations-in-part or divisions and
any and all patents, patent supplementary protection certificates and
similar rights that are based upon or derive priority from any of the
foregoing or which may be granted thereon and all reissues or
extensions thereof or patents of addition thereto but not including
any PMA Know-How developed by PPTI after completion of its
obligations under Article 3.01; and
(c) all such patent applications, patents Certificates and rights, a
Valid Claim of which would be infringed by the manufacture marketing
use or sale of the Product (but for the license granted herein).
6
<PAGE>
"Performance Benchmarks" shall mean the goals set forth on Schedule B as may
from time to time be modified by the Advisory Board.
"PMA" shall mean a premarket approval application filed with the FDA, or if a
PMA is not the appropriate filing, then the suitable filing to obtain Regulatory
Approval in the United States.
"PMA Know-How" shall mean any Know-How that would be embodied in Product
Improvements.
"Product(s)" shall mean Polymer 47K Urethral Bulking Agent as currently approved
by the FDA under IDE *** (whether or not including or injecting lidocaine or an
equivalent local anaesthetic) and any modifications made thereto as part of its
PMA approval and any amendment thereto.
"Product Improvements" shall mean any improvement, enhancement or modification
of or alternative or substitute for the Product proposed to be developed by PPTI
or its Subsidiaries that if made, would require the filing of a new IDE or PMA
or the like with the FDA in addition to the Existing IDE and any PMA to be
obtained in respect to the Product pursuant to the provisions of Article 3.
"Regulatory Approval" shall mean with respect to any country, filing for and
receipt of all regulatory agency or other registrations and approvals required
in such country in respect of Product for any purpose specified in this
Agreement of if no purpose is specified to enable the Product to be manufactured
and for Commercialization to take place in such country.
"Regulatory Information" shall mean all information, correspondence, reports,
documentation and approvals (however stored) in the possession or under the
control of a party in respect of any Regulatory Approvals required for the
Product in the United States or any Territory.
- ------------------------
*** Material is confidential and has been omitted and filed separately with
the Securities and Exchange Commission.
7
<PAGE>
"Subsidiary" shall mean a corporation, limited liability company or partnership
of which a party holds 50% or more of the voting or economic interest.
"Supply Agreement" shall mean the Supply Agreement to be entered into between
PPTI and FEMCARE substantially in form attached as Schedule E.
"Territories" shall mean the countries listed in Schedule D and such other
countries as the parties shall agree in writing from time to time and
"Territory" shall mean any one of them.
"Valid Claim" shall mean a claim in any pending patent application or unexpired
patent which has not been held invalid by a decision of a court or other
appropriate body of competent jurisdiction against which there is no appeal or
where any period for appealing against such decision has expired without an
appeal having been validly submitted.
2 GRANT OF LICENSE
2.01 Rights Granted.
--------------
(a) Subject to the terms and conditions of this Agreement, PPTI hereby
grants to FEMCARE and FEMCARE hereby accepts from PPTI a license to
use the Intellectual Property for the purpose of Commercialization of
the Product solely in the Field in the Territories.
(b) Subject to paragraph (c) of this Article, Article 4.02(b) and
Schedule B the grant of such license to FEMCARE shall be exclusive
against all parties including PPTI for the term of this Agreement.
(c) If during the term of this Agreement FEMCARE shall sell Competitive
Products in the Territories without the prior written consent of
PPTI, the grant of this license shall immediately become non-
exclusive for the remainder of the term of this Agreement.
8
<PAGE>
(d) The grant of such license to FEMCARE shall not include the right to
sublicense to any other person or entity any rights granted
hereunder, in whole or in part, without the prior written approval of
PPTI, except as permitted pursuant to paragraph (e) of this Article.
(e) FEMCARE shall have the right to grant sublicenses to any Affiliate or
to any third party of such license or any rights granted to FEMCARE
under this Agreement upon such terms and conditions as PPTI shall
approve, such approval not to be unreasonably withheld or delayed.
(f) The parties shall execute such formal licenses as are consistent with
the terms and provisions of this Agreement that FEMCARE considers may
be necessary or appropriate for registration with any relevant patent
or other authorities in the Territories.
2.02 Product Improvement Option.
--------------------------
(a) PPTI hereby grants to FEMCARE an exclusive right of first opportunity
to be granted rights and licenses by PPTI or any of its Subsidiaries
to obtain Regulatory Approval for and undertake Commercialization of
any Product Improvements during the term of this Agreement in the
Field and the provisions of this Article 2.02 shall apply in respect
of such opportunity.
(b) During the term of this Agreement, PPTI shall:
(i) promptly notify FEMCARE of each Product Improvement that it
proposes to develop, obtain Regulatory Approval for and
commence Commercialization of (either by itself or through a
Subsidiary or third party), and
(ii) present to FEMCARE in writing the terms and conditions upon
which PPTI would require FEMCARE to participate in the
development of, and obtaining of Regulatory Approvals for
such Product Improvement and be willing to license/sublicense
such Product Improvement to FEMCARE together with such
information as FEMCARE
9
<PAGE>
reasonably requires to enable it to evaluate the validity of
the proposed development, obtaining such Regulatory Approvals
and undertaking such Commercialization itself or through an
Affiliate in the Field in the Territories.
(c) FEMCARE shall have sixty (60) days in which to accept such terms and
conditions proposed by PPTI, or, if it so desires, to propose to PPTI
alternative terms and conditions. PPTI shall have fifteen (15) days
in which to accept or reject any such alternative.
(d) If FEMCARE accepts PPTI's terms and conditions or if PPTI accepts
such alternative terms and conditions, the parties shall promptly
execute and deliver to each other a license agreement containing the
mutually agreed terms and conditions.
(e) If the conditions in paragraph (d) of this Article shall not apply,
FEMCARE shall be deemed to have waived and relinquished any and all
rights it may have to participate in the development of, obtain
Regulatory Approval for or to exploit the subject Product Improvement
and PPTI shall thereafter have the right to develop, obtain
Regulatory Approvals for and to commence Commercialization (either by
itself or through a Subsidiary or a third party) of the Product
Improvement anywhere in the world except in the Field within the
Territories, unless it has the prior written consent of FEMCARE. If
the preceding provision shall prove to be invalid for any reason, and
PPTI shall offer any other person such rights as aforesaid in the
Field in the Territories on more favorable terms than those offered
to FEMCARE or proposed by FEMCARE under this Article 2.02, PPTI shall
make a new offer to FEMCARE of such rights on the same terms as are
offered to such third party, and FEMCARE shall have ten (10) Business
Days (any day other than Saturday, Sunday or a legal holiday on which
the banks in New York City are closed) to accept such new offer,
failing which FEMCARE shall have no further claim to such Product
Improvements rights.
10
<PAGE>
2.03 Manufacturing Rights. PPTI hereby grants to FEMCARE an exclusive option
--------------------
to acquire the right and license to the Intellectual Property and the
Escrow Materials (as defined in the Escrow Agreement), to make or have made
the Product for use and Commercialization by FEMCARE and its Affiliates,
distributors and sub-licensees on the terms and conditions of Article 2.01
in the Field within the Territories. Said option shall be deemed to have
been exercised if at any time during the term of this Agreement, FEMCARE
shall have properly given notice to withdraw the Escrow Materials pursuant
to the Escrow Agreement.
2.04 Reserved Rights. PPTI retains all rights to the Product and the
---------------
Intellectual Property not expressly granted to FEMCARE pursuant to this
Agreement.
2.05 Sale outside of Territories. During the terms of this Agreement PPTI
---------------------------
shall not and shall procure that no Subsidiary shall sell or offer for sale
the Product to any third party outside the Territories knowing or having
reasonable grounds for believing that such third party intends to sell the
Product in the Territories.
3 PRODUCT DEVELOPMENT
3.01 PPTI undertakes to FEMCARE to use its reasonable efforts:-
(a) to further research and develop the Product so that it complies in
all respects with the specification referred to in the Supply
Agreement;
(b) develop the methods and processes of manufacturing the Product so
that PPTI is able to comply in all respects with its obligations to
FEMCARE under the Supply Agreement;
(c) develop the procedures for manufacturing, producing and packaging
(except to the extent that this is the responsibility of FEMCARE
pursuant to clause 3.02(C)) the Product under FDA Quality System
Regulations and/or ISO 9001 Standards, as applicable, in commercial
quantities; provided that PPTI's obligation in respect of packaging
shall only
11
<PAGE>
extend to developing the minimum packaging required for or pursuant
to such FDA Regulations;
(d) develop cost estimates for the commercial scale production of
Product;
(e) complete the Clinical Safety Trials in accordance with the IDE;
(f) Upon receipt of FDA and other applicable Regulatory Approvals for the
export of the Product to the Territories, to thereafter supply to
FEMCARE, at FEMCARE's expense as provided herein, at the times and in
the quantities reasonably required by FEMCARE to achieve its
Performance Benchmarks and otherwise determined by the Advisory Board
such samples of Product as FEMCARE reasonably deems to be required
for the Clinical Efficacy Studies and other clinical trials within
the Territories;
(g) supply to FEMCARE promptly all Know-How reasonably requested and
Regulatory Information required by FEMCARE in sufficient detail and
quality for use in connection with obtaining Regulatory Approvals or
for any other proper purpose under this Agreement, including, without
limitation, carrying out its duties under paragraph (f) of Article
3.02; and
(h) at the request and expense of FEMCARE, conduct or permit FEMCARE to
conduct any clinical and field trials and studies in addition to the
Clinical Efficacy Trials required in connection with any Regulatory
Approvals in the Territories.
3.02 FEMCARE Activities.
------------------
FEMCARE undertakes to PPTI to use its reasonable efforts to:
(a) obtain all Regulatory Approvals that are required for
Commercialization of the Product in the Field in the Territories
listed in Schedule C;
12
<PAGE>
(b) obtain all Regulatory Approvals that are required for
Commercialization of the Product in the Field in the Territories
other than those listed in Schedule C when FEMCARE in its absolute
discretion shall determine that obtaining such Regulatory Approvals
is warranted to provide timely and orderly market introduction of the
Product in such Territories;
(c) develop packaging and labelling of the packaging of the Product
(except to the extent this is the responsibility of PPTI pursuant to
clause 3.01(c) which complies with any Regulatory Approvals for
Territories or other laws of Territories where Commercialization is
imminent;
(d) conduct the Clinical Efficacy Trials and such outcome analysis
thereof as may be required in the Territories; and
(e) provide to PPTI such information and cooperation as PPTI reasonably
requires in order to assist PPTI to obtain any required Regulatory
Approvals for the export of Product to the Territories.
3.03 Expenses Unless otherwise expressly stated each party shall bear the cost
--------
and expense of carrying out their respective obligations under Articles 3.01 and
3.02 and, without prejudice to such obligations, each party undertakes to the
other to:
(a) carry out its obligations expeditiously (subject to Article 3.02(b))
with all due diligence care and skill with a view to complying with
such obligations where time is a relevant factor (subject as
aforesaid) as soon as is reasonably practicable after the date
hereof;
(b) liaise with and provide all reasonable advise assistance and
information to the other party arising out of such obligations;
(c) supply to the other promptly all Regulatory Information in its
possession;
13
<PAGE>
(d) exchange with each other status reports and updates in reasonable
detail setting out the progress they have made in connection with
such obligations upon request by either of them, such requests not to
be made more often than once in each Calendar Quarter;
(e) permit the other party at any time during normal business hours upon
reasonable notice and at reasonable intervals to visit any premises
in its ownership or control, and to use reasonable efforts to obtain
permission for other facilities at which testing or trials are being
carried out by the other directly or indirectly in connection with
such obligations;
(f) procure that in complying with such obligations it complies strictly
with all applicable laws and regulations including without limitation
those that apply to the conduct of any activities at any site at
which such activities are being carried on.
3.04 (a) After this Agreement has been executed and delivered, the parties
agree to form an Advisory Board made up of not more than four (4)
individuals, two (2) each from PPTI and FEMCARE, which shall include
PPTI's President from time to time and FEMCARE's managing director
from time to time, which Advisory Board shall be retained throughout
the term of this Agreement.
(b) Subject to paragraph (c) of this Article the Advisory Board shall
meet from time to time (but at least once a Calendar Quarter and more
frequently if mutually agreed to by PPTI and FEMCARE) to discuss such
matters as it considers appropriate arising out of this Agreement and
the Supply Agreement.
(c) After the commencement of Commercialization in Australia and at least
one other Territory, the Advisory Board shall meet semiannually.
(d) The location, time and length of meetings of and all procedural
matters (including quorums and voting) relating to the Advisory Board
shall be agreed to by the parties.
14
<PAGE>
(e) The Advisory Board shall alternate the location of its meetings
between the facilities of each of the parties or by mutual agreement
meet at any location or telephonically.
(f) Without prejudice to the respective rights and obligations of the
parties under this Agreement the Advisory Board shall have executive
authority to deal with such matters as shall be mutually agreed upon
in writing by all members of the Advisory Board.
3.05 Supply Agreement
----------------
(a) Each of PPTI and FEMCARE shall cause to be deposited into escrow with
Piper, Marbury, Rudnick & Wolfe, Chicago, Illinois, a copy of the
Supply Agreement executed by a duly authorized officer or director of
such party.
(b) The copies of the Supply Agreement shall be dated and delivered to
FEMCARE (as to the PPTI executed Supply Agreement) and PPTI (as to
the FEMCARE executed Supply Agreement) as provided in the written
instructions and notice to said law firm setting forth the date on
which Commercialization is to commence or has commenced (i) from
FEMCARE that it intends to commence the Commercialization of Product
under this Agreement or (ii) from PPTI that FEMCARE has commenced the
Commercialization of Product under this Agreement.
(c) If written instructions and notice to said law firm have not been
delivered thereto on or before ***, without any further instruction
or action, said law firm shall return to PPTI the copy of the Supply
Agreement deposited by it and return to FEMCARE the copy of the
Supply Agreement deposited by it.
(d) FEMCARE and PPTI jointly and severally agree to indemnify, defend and
hold Piper Marbury Rudnick & Wolfe harmless from any and all losses,
costs, damages and expenses said law firm may suffer or incur as a
result of its serving as escrow agent for the Supply Agreement.
- ------------------------
*** Material is confidential and has been omitted and filed separately with
the Securities and Exchange Commission.
15
<PAGE>
(e) Piper Marbury Rudnick & Wolfe may, upon 10 days notice to PPTI and
FEMCARE withdraw as escrow agent for the Supply Agreement. The
parties shall promptly meet to designate a replacement escrow agent
and so notify Piper Marbury Rudnick & Wolfe, who on the written
instructions of the parties shall deliver the Supply Agreements in
its possession to the replacement escrow agent. Failing the
appointment of a replacement escrow agent for the Supply Agreement,
Piper Marbury Rudnick & Wolfe shall return the Supply Agreement
signed by PPTI to PPTI and the return the Supply Agreement signed by
FEMCARE to FEMCARE.
4 PAYMENTS TO PPTI
4.01 License Fees. FEMCARE, relying on the representations and warranties by
------------
PPTI in Article 20.2 shall pay to PPTI a non-refundable license fee of
US$1,000,000, which shall be payable in two equal US$500,000 installments, the
first being due and payable by wire transfer upon execution and delivery of this
Agreement and the second being due and payable by wire transfer on May 1, 2000.
4.02 Royalties.
---------
(a) Subject to the provisions of this Agreement, FEMCARE shall pay PPTI,
within thirty (30) days after the close of each Calendar Quarter
throughout the term of this Agreement commencing after the first day
of the first Marketing Year a royalty equal to *** of Net Sales of
Product for the Calendar Quarter (or part thereof in the case of the
first or last Calendar Quarter for which a royalty is payable if not
a full quarter) then ended, such royalty to be calculated initially
in Pounds Sterling (on the basis of Net Sales) and converted to and
paid in United States Dollars at the average buy/sell exchange rate
announced by Chase Manhattan Bank, N.A., New York, New York, or its
successor, for the last Business Day of the Calendar Quarter for
which such royalties are payable.
- ------------------------
*** Material is confidential and has been omitted and filed separately with
the Securities and Exchange Commission.
16
<PAGE>
(b) If the total royalty payable to PPTI by FEMCARE for the first
Marketing Year and each subsequent Marketing Year is less than the
applicable "Minimum Royalty" for that Marketing Year, FEMCARE shall
within 90 days of the end of each such Marketing Year pay to PPTI
(subject to paragraph (e) of this Article 4.02) a sum equal to the
applicable Minimum Royalty less the actual royalty payable. At any
time after the fifth Marketing Year, FEMCARE may notify PPTI that it
is not going to make such payment in respect of any Marketing Year
commencing after such fifth Marketing Year in which case the license
granted pursuant to clause 2.01 shall at the expiry of such 90 day
period become non-exclusive to FEMCARE for the remainder of the term
of this Agreement.
The applicable Minimum Royalty shall be as follows:
Marketing Year Minimum Royalty
First ***
Second ***
Third ***
Fourth ***
Fifth and thereafter ***
Provided that if the rate of royalty payable under Article 4.02 is reduced
pursuant to any provision of this Agreement or FEMCARE is permitted by this
Agreement to set off or deduct any monies against any royalty payable to
clause 4.02, the Applicable Minimum Royalty shall be calculated as if such
rate of royalty had not been so reduced and such set off or deduction had
not been made.
- ------------------------
*** Material is confidential and has been omitted and filed separately with
the Securities and Exchange Commission.
17
<PAGE>
Provided further that in any relevant Marketing Year such applicable
Minimum Royalty shall be reduced by the extent to which FEMCARE failed to
sell or procure that sale of sufficient Products to avoid having to pay
such Minimum Royalty directly as a result of any material breach of this
Agreement or the Supply Agreement by PPTI (and for this purpose force
majeure under either Agreement which prevents PPTI from being in breach
thereof shall be disregarded, and in the case of a force majeure affecting
FEMCARE or its performance on which such Minimum Royalty for such
Marketing Year depends is affected by the force majeure, the Minimum
Royalty shall be reduced by such fair amount.
Provided, however, that no Minimum Royalty shall be payable in respect of
any period during which Product cannot be Commercialized as a result of any
inherent defect in the Product, any Recall required by any applicable
regulatory body that is not specific to identified Product lots that are
replaced within a reasonable period of time, or the Product being found to
not be safe for use in humans.
(c) If the applicable royalty rate exceeds the permissible rate
established in a Territory for royalty payments in that Territory or
royalty remission from that Territory, as the case may be, the rate
of royalty shall not exceed the established permissible rate and
FEMCARE shall pay the difference between the royalty due and the
royalty at the established permissible rate unless said payments made
outside the Territory are illegal. In such event, the parties shall
negotiate in good faith such equitable adjustments to other payments
and financial obligations as may be appropriate so that the parties
realize the intended benefits of this Agreement.
(d) Any Affiliate of FEMCARE may pay any royalty obligations of FEMCARE
under this Agreement directly to PPTI with the same effect as if the
payment had been made by FEMCARE.
(e) All payments under this Agreement shall be made without deduction of
any taxes, charges, or duties except for such taxes, charges or
duties which are required under any applicable laws to be deducted.
Any tax deducted by FEMCARE or
18
<PAGE>
any Affiliate of FEMCARE under the laws of any foreign country for
the account of PPTI shall be promptly paid to the proper governmental
authority, and FEMCARE or its Affiliates shall furnish PPTI with
proof of payment of such tax together with official or other
appropriate evidence issued by the appropriate governmental authority
sufficient to enable PPTI to document claim for income tax credit in
respect to any sum so deducted. Any such tax required to be withheld
shall be an expense of and borne solely by PPTI.
(f) FEMCARE shall keep accurate books and records of all payments due to
PPTI. Said books of account shall be kept at FEMCARE's principal
place of business or the principal place of business of an
appropriate Affiliate to which this Agreement relates.
(g) PPTI shall have the right to nominate an independent accountant
acceptable to and approved by FEMCARE (which approval shall not be
unreasonably withheld) who shall have access to FEMCARE's records on
reasonable notice during reasonable business hours for the purpose of
verifying, at PPTI's expense (except as provided below), the royalty
payable as provided for in this Agreement for the three preceding
years, but this right may not be exercised more than once in any
year. PPTI shall solicit or receive only information relating to the
accuracy of the royalty report and the royalty payments made. Any
underpayment of royalty shall be paid within thirty (30) days of the
delivery of a detailed written accountants report to FEMCARE. Any
overpayment of royalty shall be credited to the next royalty payment
due from FEMCARE. If no further royalty payments will be due then a
refund will be made within sixty (60) days of the audit. If the
accountant's report shows an underpayment of royalties of five
percent (5%) or more, FEMCARE shall reimburse PPTI for all cost and
expense of the accountant's report.
(h) FEMCARE shall deliver to PPTI written reports of Net Sales during the
preceding Calendar Quarter on or before the thirtieth (30th) day
following the end of each Calendar Quarter. Such reports shall
include a calculation of the earned royalty due and shall be
accompanied by the monies due. If no earned royalties are due, then
FEMCARE shall indicate such on its written report.
19
<PAGE>
4.03 Samples.
-------
(a) FEMCARE shall purchase from PPTI and PPTI shall sell to FEMCARE such
quantities of Product in units of *** purchased in a primary
container, individually wrapped and labelled so as to comply with any
applicable Regulatory Approvals or laws as FEMCARE may reasonably
require to conduct the Clinical Efficacy Trials.
(b) Initial sample delivery shall be determined by the Advisory Board.
(c) FEMCARE shall pay to PPTI upon delivery of each such sample (FOB at
PPTI in San Diego, California) an amount equal to PPTI's cost of
manufacture, not to exceed *** unit of Product plus the cost of
packaging and delivery of (by the method required by FEMCARE) the
Product from San Diego, California to Nottingham, England or other
site(s) designated by FEMCARE.
5 DUTIES OF FEMCARE AND TRADE MARKS
5.01 FEMCARE shall during the term of this Agreement:
(a) Subject to paragraphs (a) and (b) of Article 3.02 use its reasonable
efforts:
(i) to Commercialize the Product in the Territories throughout
the term of this Agreement;
(ii) to begin selling the Product in a Territory promptly after
obtaining Regulatory Approval therefor;
(iii) to maintain adequate sales representation in each Territory
once sales of the Product have commenced there;
(iv) maintaining adequate facilities for the storage and
distribution of such quantities of the Product as may from
time to time be reasonably necessary to adequately serve the
applicable Territories; and
- ------------------------
*** Material is confidential and has been omitted and filed separately with
the Securities and Exchange Commission.
20
<PAGE>
(v) subject to the express provisions of this Agreement to
provide the standard and type of services consistent with the
services currently provided by FEMCARE in connection with the
sale and distribution of its own products or any products
sold by FEMCARE, Ltd. provided that FEMCARE may satisfy any
of the foregoing obligations either itself or through
Affiliates, distributors or sub-licencees;
(b) not to permit its Affiliates, distributors or sub-licensees to make
any verbal or written warranties, representations, or claims
concerning the Product except as approved in advance by PPTI in
writing;
(c) to address and resolve promptly all customer complaints related to
Products supplied by FEMCARE, its Affiliates or distributors or sub-
licencees in a manner consistent with FEMCARE'S and FEMCARE, Ltd.'s
approach to the resolution of complaints lodged against other
products marketed by them, (subject to PPTI providing FEMCARE with
any information in its possession that may facilitate prompt and
favorable resolution of any such complaints);
(d) to maintain complete records regarding such complaints and the
resolution thereof and make these available to inspection by PPTI on
reasonable notice during business hours;
(e) to maintain such reports of the Product sold by FEMCARE as are
required by all applicable laws and retain such records for at least
five (5) years following the expiration or other termination of this
Agreement;
(f) not to sell, nor authorise its Affiliates, distributors or sub-
licensees to sell any Product past the shelf date or expiration date
for such Product printed on the packaging thereon.
21
<PAGE>
5.02 (a) FEMCARE shall have the exclusive right to select all trademarks and
trade names to be associated with the Product in the Territories
subject to the approval of PPTI, which approval will not be
unreasonably withheld or delayed.
(b) All costs associated with the registration and maintenance of such
trademarks and trade names in the Territories will be borne by
FEMCARE.
(c) FEMCARE shall grant to PPTI a royalty free, perpetual license (with
the right to sublicense) to use the trademarks and trade names in
connection with the marketing and sale of Product outside the
Territories in the Field on such other terms as FEMCARE shall
reasonably require so as to prevent FEMCARE'S rights in such trade
marks or trade names being damaged by PPTI's use thereof under such
license.
(d) The parties will not do or cause or permit to be done any act or
thing impairing the validity or enforceability of such trademarks or
trade names.
5.03 While the Product is manufactured by or for PPTI all labeling for the
Product shall disclose that the Product is manufactured by PPTI. Such
statements shall prominently appear on all packaging, labels, advertising
and promotional materials for the Product.
6 CONFIDENTIALITY
6.01 Subject to Article 6.03 during the term of this Agreement and for a period
of five (5) years thereafter, each party shall maintain in confidence and
shall not disclose to any third party any Know-How or other information
received from the other party relating to the Product, and shall not use
the other party's Know-How or other information except for the purposes of
this Agreement without the prior written consent of such other party (such
Know-How and other information being called in this Article "Confidential
Information"). These confidentiality and non-use obligations shall not
apply to any Confidential Information that the receiving party can
demonstrate:
22
<PAGE>
(a) at the time of disclosure to the receiving party was, or thereafter
becomes, a part of the public domain through no fault of the
receiving party, its Affiliates distributors or sub-licensees;
(b) was subsequently lawfully disclosed to the receiving party by a third
party not under an obligation of confidentiality with or through the
disclosing party;
(c) was in the lawful possession of the receiving party prior to
disclosure by the disclosing party; or
(d) is required to be disclosed by judicial or administrative order
provided that notice is given to the disclosing party and the
disclosing party has an opportunity to seek a protective order, and
further provided, that disclosure is limited to compliance with the
judicial or administrative order.
6.02 During the term of this Agreement, each party shall take all reasonable
steps to:
(a) prevent any disclosure in breach of Article 6.01 of Confidential
Information of the other which would be materially prejudicial to the
interests of the other party;
(b) limit the disclosure of information to such of its Affiliates,
distributors and sub-licensees and their respective employees as
require the information for the purposes of this Agreement; and
(c) procure that the persons referred to in paragraph (b) of this Article
6.02 enter into appropriate confidentiality agreements.
6.03 Notwithstanding the foregoing provisions of this Article, the parties and
their Affiliates, distributors and sub-licensees shall be entitled (subject
to obtaining the prior written approval of PPTI such approval not to be
unreasonably withheld or denied) to disclose Confidential Information of
the other party which would otherwise be protected by the
23
<PAGE>
provisions of Article 6.01 to actual or potential customers for Product in
so far as such disclosure is reasonably necessary to Commercialize
Products.
6.04 FEMCARE shall not, without the prior written consent of PPTI, during the
term of this Agreement or for a period of two (2) years after its
termination or expiration, unless PPTI has ceased operation in the Field,
employ or contract with any person employed by PPTI or its Affiliates
during the term of this Agreement who has worked on any of the subject
matter of the Know-How.
6.05 PPTI shall not, during the term of this agreement or for a period two (2)
years after its termination or explanation (unless FEMCARE has ceased
operation) employ or contract with in the Field any Affiliate, distributor
or sub-licensee of FEMCARE in the Field during the term of this Agreement
or any employee of FEMCARE, its Affiliates, distributors or sub-licensees
in the Field during the term of this Agreement without the prior written
consent of FEMCARE.
6.06 Immediately upon the expiration or other termination of this Agreement,
FEMCARE shall return to PPTI all of the information regarding the Know-How
and all copies thereof (including summaries and notes thereof), in its
possession or control, except that one copy of such information may be
retained by FEMCARE's counsel under seal to evidence compliance with this
Agreement.
7 INDEMNIFICATION
7.01 By FEMCARE. FEMCARE shall indemnify, defend and hold PPTI, its Affiliates,
----------
and the officers, directors and employees of PPTI and its Affiliates
harmless from and against any and all liabilities, damages, loss, cost or
expense (including reasonable attorneys' fees) resulting from third party
claims or suits brought against PPTI or its Affiliates which arise out of
FEMCARE's breach of any of its duties or obligations under this Agreement
or from any willful misconduct or negligent acts or omissions of FEMCARE,
24
<PAGE>
its Affiliates, distributors or employees in the manufacture, labeling,
storage, transport, distribution or Commercialization of the Product.
7.02 By PPTI. PPTI shall indemnify, defend and hold FEMCARE, its Affiliates,
-------
distributors and sub-licensees harmless against all liabilities, damages,
loss, cost or expense (including reasonable attorneys' fees) resulting from
third party claims and suits brought against them which arise out of PPTI's
breach of any of its duties or obligations under this Agreement or from any
or any of them willful misconduct or negligent acts or omissions of PPTI or
its Subsidiaries, licensees or employees in the manufacture, labelling,
storage, transport, distribution or Commercialization of the Product.
7.03 Notice and Defense. Each party seeking indemnity ("Claimant") pursuant to
------------------
this Article shall promptly notify in writing the other ("Indemnitor") of
any claims or suits for which it seeks indemnification from the other
party. The Indemnitor shall promptly assume responsibility for the defense
of the claim or suit, including settlement negotiations and any legal
proceedings which Indemnitor shall handle at its sole discretion, and
Claimant shall fully cooperate in Indemnitor's handling and defense
thereof. In no event shall a Claimant make any payment on any claim or suit
for which indemnity may be sought without the prior written consent of the
Indemnitor.
7.04 Damages. Notwithstanding any provision in this Agreement which may be to
-------
the contrary in no event will either party be liable to the other for
special, exemplary, or punitive damages.
8 RECALL
If the Supply Agreement is not in effect and FEMCARE is manufacturing or
having manufactured the Product pursuant to any license granted hereunder,
FEMCARE, in its sole discretion, by order of a government or government
agency, or at the direction of
25
<PAGE>
PPTI, determine to recall any Product, FEMCARE shall notify PPTI promptly
by telephone or electronic mail or telecopy. FEMCARE shall give PPTI
reasonable opportunity to comment in advance on any public announcement to
be made by FEMCARE regarding any recall. In the event any Product is
recalled, FEMCARE shall assume complete responsibility for conducting such
recall; however, PPTI shall provide FEMCARE with any information that may
be in PPTI's possession or control concerning the manufacture of the
Product which FEMCARE reasonably may require to conduct such recall.
FEMCARE and PPTI shall cooperate to identify and correct deficiencies, if
any, in the manufacture, shipment, storage or distribution of the Product.
FEMCARE shall pay all costs of conducting such recall.
9 INVENTIONS
9.01 PPTI Inventions.
---------------
(a) Title to any inventions or discoveries made by PPTI employees or
agents without inventive contribution of FEMCARE employees or agents,
based on any PPTI Know-How related in any way to the Product or
developed during PPTI'S performance under Article 3.01 ("PPTI
Inventions") shall belong to PPTI.
(b) PPTI may file applications for U.S. and/or foreign patents at its own
expense for such PPTI Inventions and shall keep FEMCARE fully and
promptly informed as to such PPTI Inventions and the filing,
prosecution and maintenance of such patent applications) and
patent(s) and corresponding foreign patent applications.
(c) If PPTI does not elect to file, prosecute or maintain any such patent
applications or patent(s) on such PPTI Inventions after being reduced
to practice, PPTI shall so notify FEMCARE and FEMCARE shall, in its
sole discretion, have the right to require that PPTI file, prosecute
or maintain on a country-by-country basis such patent applications or
patent(s) on such PPTI Invention in which case FEMCARE shall pay the
costs and expenses of and manage the prosecution of such patent
application(s) or patent(s) and
26
<PAGE>
PPTI will co-operate fully and promptly with FEMCARE in respect of
such management and prosecution.
(d) Until FEMCARE shall have recovered all costs and expenses associated
with filings, prosecuting, issuing and maintaining said patent
applications or patent(s) FEMCARE'S obligation to pay royalties to
PPTI pursuant to Article 4.02 shall be reduced from *** to not less
than *** for Net Sales in each Territory in which the patent
application is being prosecuted.
9.02 FEMCARE Inventions. Title to any inventions and discoveries made by
------------------
FEMCARE employees or agents without inventive contribution by PPTI
employees or agents and conceived or first reduced to practice under this
Agreement (hereinafter, "FEMCARE Inventions") shall belong to FEMCARE.
FEMCARE may file patent application(s) for FEMCARE Inventions in its own
discretion and at its own expense.
9.03 Joint Inventions.
----------------
(a) Title to any inventions or discoveries made jointly by employees or
agents of PPTI and FEMCARE and conceived or first reduced to practice
under this Agreement ("Joint Inventions") shall belong to PPTI and
FEMCARE jointly, i.e., each shall own an undivided one-half interest
therein.
(b) PPTI and FEMCARE shall keep each other fully and promptly informed as
to such Joint Inventions.
(c) After Joint Inventions are reduced to practice FEMCARE shall have
primary responsibility for filing, prosecuting and maintaining any
U.S. patent application(s) or patent(s) and foreign counterpart
thereof for Joint Inventions, but shall give full consideration to
PPTI's recommendations including selection of attorney(s).
- ------------------------
*** Material is confidential and has been omitted and filed separately with
the Securities and Exchange Commission.
27
<PAGE>
(d) The expenses for Joint Inventions shall be borne equally by FEMCARE
and PPTI, but either may, by giving at least one month's notice to
the other, withdraw from further participation in the filing,
prosecution and/or maintenance of any such patent application(s) or
patent(s)and shall not be liable for any expenses incurred after
written notice is given.
(e) If either party does not elect to file, prosecute or maintain any
such patent application (s) or patent(s) in a country or countries or
after electing to participate in the filing, prosecution and/or
maintenance on such Joint Inventions in a country or countries, does
not pay its share of the expenses within one hundred twenty (120)
days of written notification of expenses being due, the other party,
in its sole discretion, shall have the right to file, prosecute or
maintain at its expense on a country-by-country basis each such
patent application(s) and patent(s).
(f) If FEMCARE pays all of the costs and expenses of filing, prosecuting
and maintaining any Joint Invention, until FEMCARE recovers one-half
of such costs and expenses, its royalty rate to PPTI in the Territory
in which the patent issues shall be reduced from *** to not less than
***.
(g) If PPTI pays all of the costs and expenses of filing, prosecuting and
maintaining any Joint Invention, until PPTI recovers one-half of such
reasonable costs and expenses, the royalty rate charged to FEMCARE,
its Affiliates and distributors in the Territory in which the Patent
issues shall increase from *** to not more than ***.
9.04 Each party shall require its employees or agents responsible for conducting
research in performance of this Agreement to keep contemporaneous records
of their results and findings in sufficient detail to document any
inventions of discoveries made by such employees and agents under this
Agreement in bound notebooks (that shall be reviewed and signed by a
witness on a regular basis).
- ------------------------
*** Material is confidential and has been omitted and filed separately with
the Securities and Exchange Commission.
28
<PAGE>
9.05 PPTI and FEMCARE will cooperate in a timely manner to prepare, review and
execute patent applications and all such further papers, as may be
necessary to enable the parties or the party pursuing any patent
application to protect Joint Inventions by patent in any and all countries
and to vest title to said patent application(s) and patent(s) and assist
in Patent Office proceedings.
9.06 If either party wishes to practice a Joint Invention patented in its sole
name or in the joint names of the parties outside the grant provided to
FEMCARE under Article 2.01, the party practicing the patented Joint
Invention will pay to the other party a royalty of not less than *** nor
more than *** of the Net Selling Price of any Joint Product. In no event
shall such royalty be payable with respect to the use of a Joint Invention
by one party to provide goods or services to the other party. Provided
however, that if a party seeks to practice such Joint Invention for which
it did not pay its share of the cost and expenses, such party shall have
to reimburse the party that paid the costs and expenses one-half of the
costs and expenses incurred in the country or countries in which the party
is seeking to practice the Joint Invention.
9.07 Clause 4.02 (except for paragraph (b)) shall apply in respect of any such
royalty payable making such changes as are necessary to reflect the proper
payor and payee of the royalty hereunder, and when the royalty is payable
by PPTI to pay it in Pounds Sterling.
10 TERM AND TERMINATION
10.01 The term of this Agreement shall commence as of the date it is executed
and delivered by both parties, and, unless terminated earlier in
accordance with its terms, shall continue for an initial period of the
greater of twenty (20) years from the Effective Date or the date upon
which the last of the Patents in the Territories expires.
- ------------------------
*** Material is confidential and has been omitted and filed separately with
the Securities and Exchange Commission.
29
<PAGE>
10.02 This Agreement may be terminated as follows:
(a) (i) By one party in the event the other substantially fails to
perform or otherwise breaches any of its material
obligations, other than obligations to pay money or achieve a
Performance Benchmark under this Agreement by giving notice
of its intent to terminate and stating the grounds therefor.
(ii) The party receiving the notice shall, subject to the
provisions of Article 15 and sub-paragraph (v) of this
paragraph (a) have sixty (60) days from the date of receipt
thereof to cure the failure or breach.
(iii) In the event such breach is cured, the notice shall be of no
effect.
(iv) In the event it is not cured, this Agreement shall, without
further action, terminate at the end of such sixty (60) day
period.
(v) Notwithstanding the foregoing provisions of this Article 10
if the failure to perform or other breach is due to
circumstances referred to in Article 17 and such party has
complied with the provisions of such Article 17 and is making
all reasonable efforts to perform or cure such failure or
breach, Article 10.02 (a) shall not apply unless or until the
failure to perform or other breach shall have lasted
continuously for one hundred and twenty (120) days from the
initial receipt of notice of breach.
(b) (i) By one party in the event the other fails to make any payment
of money due under this Agreement or the Supply Agreement by
giving notice of its intent to terminate and stating the
amount of money due, reason said amount is due, and the
intended termination date.
(ii) The party receiving the notice shall, subject to the
provisions of Article 15 have thirty (30) days from the date
of receipt thereof to cure the failure to pay (during which
30
<PAGE>
time if PPTI is the party issuing the notice it shall not be
obligated to supply Product to FEMCARE under the Supply
Agreement unless payment of such Product is protected by a
suitable letter of credit).
(iii) In the event such payment breach is cured, the notice shall
be of no effect.
(iv) In the event it is not, this Agreement shall, without further
action terminate at the end of such thirty (30) day period.
(c) (i) Subject to Schedule B, by one party in the event the other
party substantially fails to meet its Performance Benchmarks
through no fault of the first party by giving notice of its
intent to terminate and stating the grounds therefor.
(ii) The party receiving the notice shall subject to the
provisions of Article 15 have one hundred eighty (180) days
from the date of receipt thereof to cure the default by
achieving the Performance Benchmark.
(iii) In the event such default is cured, the notice shall be of no
effect.
(d) FEMCARE is dissolved or liquidates, makes a general assignment for
the benefit of its creditors, files a voluntary petition under any
applicable bankruptcy or insolvency law, has a receiver appointed for
its property, or has a petition for bankruptcy or insolvency filed
against it which petition is not dismissed within one hundred eighty
(180) days after filing.
10.03 If the party in default under Article 10.02 is FEMCARE, and the default is
not cured within the applicable period, this Agreement shall, unless PPTI
notifies FEMCARE in writing prior to the end of such period, without
further action, terminate at the end of such period and PPTI shall be
entitled to use any and all data and information of FEMCARE to continue
obtaining Regulatory Approvals in its own name and right.
31
<PAGE>
10.04 If FEMCARE shall have properly exercised its rights to withdraw the Escrow
Materials from the Escrow pursuant to the Escrow Agreement (and
correspondingly exercised its option under Article 2.02 above, FEMCARE may
continue to prosecute any Regulatory Approvals in the Territories and
shall be entitled to deduct from any sums payable to PPTI whatsoever any
moneys due to it from PPTI whether in respect of any breach of this
Agreement by PPTI or otherwise; provided that if FEMCARE does not exercise
as aforesaid and serve notice of termination upon PPTI, this Agreement
shall terminate and the deposits in the Escrow under the Escrow Agreement
shall be returned to PPTI.
10.05 Effects of Termination or Expiration. Subject to Articles 10.04 and 11
------------------------------------
upon the expiration or termination of this Agreement under 10.01 and 10.02
above, the obligations of PPTI and the rights of FEMCARE hereunder shall
immediately terminate.
Provided that following such expiration or termination FEMCARE, its
Affiliates, distributors and sub-licensees shall continue to have the
right to sell, for a reasonable period not to exceed ninety (90) days
following the date of termination or expiration, any Product then held in
its inventory at not less than 75% of its then usual and customary sales
prices.
Provided further that notwithstanding such termination or expiration,
FEMCARE shall pay to PPTI any royalties due to it through and including
the sale of such inventory Product.
10.06 Escrow Agreement. To secure its obligations to manufacture and supply
----------------
Product or enable FEMCARE to manufacture or have manufactured Product in
certain circumstances, PPTI has agreed to enter into an Escrow Agreement
of even date herewith.
11 RIGHTS UPON TERMINATION
11.01 Subject to Article 10, the termination or expiration of this Agreement
shall not relieve and release either party from its obligations to make
any other payment which may be owing to
32
<PAGE>
the other party under the terms of this Agreement or from any other
liability which either may have to the other arising out of this Agreement
or the breach of this Agreement.
11.02 All provisions of this Agreement which in order to give effect to their
meaning need to survive its termination or expiration shall remain in full
force and effect thereafter.
12 ADVERSE EFFECTS
12.01 (a) The parties recognize that the holder of or applicant for Regulatory
Approvals for a country may be required to submit information and
file reports to various governmental agencies on Products under
clinical investigation, Products proposed for Commercialization, or
Commercialized Products.
(b) Consequently, each party agrees to provide to the other within three
(3) Business Days (any day other than a Saturday, Sunday or legal
holiday in the U.S. on which banks in New York shall be closed) of
the initial receipt a copy of a report of any adverse experience with
Product that is serious or unexpected.
(c) Serious adverse experience means any experience that suggests a
significant hazard, contraindication, side effect or precaution, or
any experience that is fatal or life threatening, is permanently
disabling, requires or prolongs inpatient hospitalization, or is a
congenital anomaly, cancer, or overdose.
(d) An unexpected adverse experience is one not identified in nature,
specificity, severity or frequency in the current investigator
brochure or labeling for the Product.
12.02 In the case where either party has licensed the sale of Product to a third
party, each party agrees to obligate any such licensee or distributor
thereof to promptly report to the licensing party any serious adverse
experience or unexpected adverse experience relating to such Product so
that each party can report such experience to the other party pursuant to
the provisions hereunder.
13 PATENTS
33
<PAGE>
13.01 (a) Subject to Article 13.02(a) PPTI agrees faithfully, at its sole
expense to diligently prosecute to (and thereafter maintain) all
patents applications for Patents referred to in paragraph (a) of the
definition of "Patents" in the United States and, when reasonable
under the circumstances or required by a Patent Office because more
than one invention is claimed in an application, to file and
prosecute additional patent applications, re-examinations, reissues
or the like covering patentable technology disclosed in the Patents
in the United States and within any applicable time limits to file
foreign corresponding applications in the Territories (unless
otherwise agreed in writing by FEMCARE) and to prosecute the same to
grant and thereafter maintain the same.
(b) PPTI shall have the duty and responsibility to pay when due for
payment all taxes, maintenance fees and annuities on the Patents and
to maintain in force all patents within the Patents granted in the
Territories for the full terms thereof.
(c) PPTI shall within thirty (30) days of mailing or receipt, provide
FEMCARE with copies of all future filed patent applications relating
to the Patents and, upon request, all correspondence from and to
patent offices worldwide relating to both the Patents and future
filed patent applications, re-examinations, reissues or the like.
13.02 (a) If PPTI, in its discretion, decides not to comply with any of the
actions required to be taken by it under Article 13.01(a) and notifies
FEMCARE in writing accordingly (such notice to specify clearly the
countries in respect of which it is not going to take such actions) at
least three months before the expiration of any material time period
in respect of such actions, PPTI will be released from its obligations
thereunder in respect of the actions so notified. PPTI shall so notify
FEMCARE and FEMCARE shall, in its sole discretion, have the right to
elect to assume the prosecution of such patent application on behalf
of PPTI in respect of any such actions (including for the avoidance of
doubt filing any applicable patent applications and prosecuting to
grant any applicable patents and thereafter maintaining such patents)
and PPTI shall co-operate fully and promptly with FEMCARE in the
taking of any such actions by it.
34
<PAGE>
(b) If FEMCARE so elects, it shall pay the costs and expenses of taking
such actions and, notwithstanding anything in Section 4.02 to the
contrary, FEMCARE's obligation to pay a royalty to PPTI in such
country which is a Territory under Article 4 shall be reduced from
*** to no less than *** until FEMCARE shall have recovered all costs
and expenses associated with filings, prosecuting, issuing and
maintaining said patent applications or patent(s).
(c) If the country to which paragraph (b) of this Article 13.02 is the
United States FEMCARE shall be entitled to deduct all costs and
expenses as aforesaid from any sums payable to PPTI under this
Agreement until they have been reimbursed in full.
(d) PPTI shall not be deemed to be in breach of this Agreement for
failing to comply with Article 13.01(a) to the extent that it fails
to take any actions properly notified to FEMCARE pursuant to Article
13.02(a).
13.03 (a) The parties agree to cooperate in order to avoid loss of any rights
which may otherwise be available to the parties under the U.S. Drug
Price Competition and Patent Term Restoration Act of 1984, the
Supplementary Certificate of Protection of the Member States of the
European Common Market and other similar measures in any other
country in the Territories.
(b) Without limiting the foregoing, PPTI agrees to notify FEMCARE
promptly upon receipt of any PMA approval to Commercialize Product in
the United States and PPTI agrees to file an application for patent
extension in the U.S. Patent and Trademark Office within the sixty
(60) day period following the receipt of such PMA approval.
14 INFRINGEMENT
- ------------------------
*** Material is confidential and has been omitted and filed separately with
the Securities and Exchange Commission.
35
<PAGE>
14.01 (a) If, as a result of the manufacture or Commercialization of the
Product in the Territories pursuant to this Agreement and the Supply
Agreement, PPTI and its Subsidiaries or FEMCARE and/or its
Affiliates, distributors or sub-licensees, are sued for patent
infringement or infringement of other intellectual property rights or
threatened with such a lawsuit or other action by a third party, PPTI
and FEMCARE shall promptly meet to analyze the infringement claim and
avoidance of same.
(b) If following such meeting the parties fail to agree on a joint
program of action, including how the costs of any such action are to
be borne and how any damages or other sums received from such action
are to be distributed, then FEMCARE shall be entitled to take action
against the third party at its sole expense and it shall be entitled
to all damages or other sums received from such action. PPTI shall
agree to be joined in any suit to enforce such rights subject to
being indemnified and secured in a reasonable manner as to any costs,
damages, expenses or other liability and shall have the right to be
separately represented by its own counsel at its own expenses.
(c) If it is necessary to obtain a license from such third party, PPTI
and FEMCARE in negotiating such a license shall in the extent
practicable use their reasonable efforts to minimize the license fees
and/or royalty payable to such third party.
(d) If FEMCARE or its Affiliates, distributors or sub-licensees shall be
obligated to pay a license fee and/or royalty to a third party under
such licence as the result of the Commercialization of the Product or
the use of Patents or Know-How then PPTI shall elect within ten (10)
days of the execution of the license with such third party to:
(i) pay all fees and expenses associated with obtaining and
maintaining the license; or
(ii) to have the royalties specified in Article 4.02 reduced by
***.
(e) FEMCARE shall be entitled to deduct from up to one-half of the
royalties payable under clause 4.02 any sums paid to third parties
(including without limitation damages, payments in settlement of
litigation and reasonable cost and expenses incurred in relation to
any alleged or actual infringement of third party rights in the
manufacture or
- ------------------------
*** Material is confidential and has been omitted and filed separately with
the Securities and Exchange Commission.
36
<PAGE>
Commercialization of any product; provided that such payments are
specifically approved, in advance, by PPTI, such approval to not be
unreasonably withheld or delayed).
14.02 (a) In the event that there is infringement of a Patent involving the
Product by a third party in the Territories, PPTI and FEMCARE shall
notify each other in writing to that effect immediately upon becoming
aware of the same, including if practicable with said written notice
evidence establishing a case of infringement by such third party.
(b) FEMCARE shall have the right, in its sole discretion, but not the
obligation to bring such suit at its own expense and in its own name,
if possible, or jointly in its name and in the name of PPTI or if
necessary in PPTI's sole name.
(c) FEMCARE shall bear all the expenses of any suit brought by it and
shall retain all damages or other monies awarded or received in
settlement of such suit; provided, however, that at its option
exercised by notice in writing to FEMCARE before it commences such
suit PPTI may contribute to the expenses of any such suit and, in
such event, FEMCARE and PPTI shall share proportionately to their
respective contributions all damages or other monies awarded or
received in settlement of such suit.
(d) PPTI will cooperate with FEMCARE in any such suit and shall have the
right to consult with FEMCARE and, if it elects pursuant to the
proviso to paragraph (c) of this Article, to be separately
represented by its counsel at its own expense.
14.03 (a) In the event that there is infringement of a patent of a Joint
Invention jointly owned by the parties outside the grant provided to
FEMCARE under Article 3.01 by a third party, PPTI and FEMCARE shall
notify each other in writing to that effect immediately upon becoming
aware of the same, including if practicable with said written notice
evidence establishing a case of infringement by such third party.
37
<PAGE>
(b) PPTI and FEMCARE shall meet to analyze the infringement claim, the
evidence of same and attempt to agree upon a suitable approach for
addressing said infringement.
15 ARBITRATION OF DISPUTES
15.01 Excepting only actions and claims relating to actions commenced by a third
party against PPTI or FEMCARE (including, without limitation, for injuries
caused by a Product or in respect to a trademark or patent infringement
claim), any controversy or claim arising out of or relating to the terms
and conditions of this Agreement, or the decision to agree upon these
terms, or the breach thereof, including questions of validity,
infringement, or termination hereof, shall be settled exclusively by
arbitration in accordance with the rules of the American Arbitration
Association. If such controversy or claim relates to patent validity or
infringement, then the Patent Arbitration Rules of the AAA shall apply;
otherwise the International Arbitration Rules of the AAA shall apply.
Notwithstanding the foregoing to the contrary or in the arbitration rules
invoked or in this Section 15, the parties retain the right to request a
judicial authority to invoke interim measures of protection, and such
request shall not be deemed incompatible with this agreement to arbitrate
or a waiver of the right to arbitrate.
15.02 There shall be one (1) arbitrator to be mutually agreed upon by the
parties and to be selected from the Regional Panel of Distinguished
Neutrals. If the parties are unable to agreeupon such an arbitrator who is
willing to serve within ten (10) days of receipt of the demand by the
other party, the parties shall within three (3) days select one of the
five largest international public accounting firms (excluding those
providing services to the parties) and engage the managing partner or
senior officer of its New York City office to designate a partner of such
firm to serve as the arbitrator. Failing that, then the AAA shall appoint
an arbitrator willing to serve from the Regional Panel of Distinguished
Neutrals, or if no such panel exists, then from an appropriate AAA panel.
It shall be the duty of the arbitrator to set dates for preparation and
hearing of any dispute and to expedite the resolution of such dispute.
38
<PAGE>
15.03 (a) The arbitration shall be held in the City of New York, State of New
York, U.S.A. and the arbitrator shall apply the substantive law of
Delaware except that the interpretation and enforcement of this
arbitration provision shall be governed by the Federal Arbitration
Act.
(b) The arbitrator shall permit and facilitate discovery, which will be
conducted in accordance with the Federal Rules of Civil Procedure,
taking into account the needs of the parties and the desirability of
making discovery expeditious and cost-effective.
(c) The arbitrator will set a discovery schedule with which the parties
will comply and attend depositions if requested by either party.
(d) The arbitrator will entertain such presentation of sworn testimony or
evidence, written briefs and/or oral argument as the parties may wish
to present, but no testimony or exhibits will be admissible unless
the adverse party was afforded an opportunity to examine such witness
and to inspect and copy such exhibits during the pre-hearing
discovery phase.
(e) The arbitrator shall among his other powers and authorities, have the
power and authority to award interim or preliminary relief.
(f) The arbitrator shall not be empowered to award either party exemplary
or punitive damages or any enhanced damages for willful infringement
and the parties shall be deemed to have waived any right to such
damages.
(g) A qualified court reporter will record and transcribe the proceeding.
(h) The decision of the arbitrator will be in writing and judgment upon
the award by the arbitrator may be entered in any court having
jurisdiction thereof.
(i) Prompt handling and disposal of the issue is important. Accordingly,
the arbitrator is instructed to assume adequate managerial initiative
and control over discovery and other aspects of the proceeding to
schedule discovery and other activities for substantially continuous
work, thereby expediting the arbitration as much as is deemed
reasonable to him, but in all events to effect a final award within
365 days of the arbitrator's selection or appointment and within 20
days of the close of evidence.
(j) The proceedings shall be confidential and the arbitrator shall issue
appropriate protective orders to safeguard both parties' confidential
information.
39
<PAGE>
(k) The fees of the arbitrator and the AAA shall be paid as designated by
the arbitrator or, if he shall not so designate, they shall be split
equally between the parties.
16 NOTICES
16.01 Notices hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered, mailed by registered mail, return
receipt requested, or when sent by facsimile or other telegraphic means.
Such notices shall be effective upon receipt, if by personal delivery, on
the third business day following date of the receipt for registered mail,
or if by facsimile, on the date of the confirmation of "ok" transmission.
Addresses and persons to be notified may be changed by either party by
giving written notice thereof to the other party.
For FEMCARE:
FEMCARE UROLOGY LIMITED.
St. Peter's Street
Nottingham NG7 3EN United Kingdom
Attention: B. Sweeney
Fax: 011-44-115-942-0234
With a copy to:
Nelsons Solicitors
Pennine House, 8 Stanford Street
Nottingham, NG1 7BQ
FAX: 0115 958 9113
Attention: David J. Tillcock
40
<PAGE>
For PPTI:
Protein Polymer Technologies, Inc.
10655 Sorrento Valley Road
San Diego, California 92121
Attention: President
Fax: (858) 558-6477
With a copy to:
Piper Marbury Rudnick & Wolfe
203 North LaSalle Street, Suite 1800
Chicago, Illinois 60601
Fax: (312) 630-5322
Attention: John H. Heuberger
17 FORCE MAJEURE
17.01 (a) Subject to compliance with paragraph (b) of this Article 17 any
delays in or failure of performance by either party under this
Agreement shall not be considered a breach of this Agreement if and
to the extent caused by any occurrences beyond the reasonable control
of the party affected, including but not limited to: acts of God;
acts, regulations or laws of any government; strikes or other
concerted acts of workers; fires; floods; explosions; riots; wars;
rebellion; embargo; and sabotage; and any time for performance
hereunder shall be extended by the actual time of delay caused by
such occurrence.
(b) Any party affected by such force majeure who wishes to rely on the
provisions of paragraph (a) of this Article shall as soon as
reasonably practicable give notice to the other party specifying the
matters constituting force majeure together with such evidence
41
<PAGE>
thereof as it can reasonable give and specifying the period for which
it is estimated that the such delay will continue.
18 SAVINGS PROVISION
18.01 The invalidity of any provision of this Agreement shall not impair the
validity of any other provision; and any provision hereof which might
otherwise be invalid or contravene any applicable law shall hereby be
deemed to be amended to the extent necessary to remove the cause of such
invalidity and to the extent practicable to continue the intent of such
provision and of this Agreement, and such provision, as so amended, shall
remain in full force and effect as a part hereof.
19 RELATIONSHIP OF PARTIES
19.01 Each party shall act as an independent contractor in carrying out its
obligations under this Agreement. Nothing contained in this Agreement
shall be construed to imply a joint venture, partnership or principal-
agent relationship between the parties, and neither party by virtue of
this Agreement shall have the right, power or authority to act or create
any obligation, express or implied, on behalf of the other party. This
Agreement shall not be construed to create rights, express or implied, on
behalf of or for the use of any party aside from FEMCARE and PPTI, and
neither party shall be obligated, separately or jointly, to any third
parties by virtue of this Agreement.
20 WARRANTIES
20.01 FEMCARE warrants that it shall use its best efforts to comply with all
laws applicable to the purchase, storage, transport, labeling,
distribution or Commercialization by it of the Product in the Territories,
shall comply with the U.S. Export Administration laws and regulations and
shall not export or re-export any technical data or Intellectual Property,
or the direct products of such technical data or Intellectual Property, or
Products to any
42
<PAGE>
prohibited country listed in the U.S. Export Administration Regulations
unless properly authorized to do so by the U.S. government.
20.02 PPTI represents and warrants to FEMCARE that the following statements are
true and accurate in all material respects as follows:
(a) To its knowledge and belief, it has sufficient right and title to and
ownership of, free and clear of all liens, claims and encumbrances of
any nature, the Intellectual Property to grant to FEMCARE the various
rights and Licenses granted to FEMCARE under this Agreement;
(b) It has not done and subject to clause 23, will not do nor agree to do
during the term of this Agreement, any of the following things if to
do so would be materially inconsistent with the exercise by FEMCARE
of the rights granted to it under this Agreement, assign, mortgage,
hypothecate, or otherwise transfer any of the Patents or any of its
rights or obligations under this Agreement;
(c) It is not aware that any third party owns any rights in the
Intellectual Property;
(d) It is not aware that any third party owns any rights which would be
infringed by the use of the Patents in accordance with provisions of
this Agreement;
(e) It has reasonable grounds for believing that the Product in its
present form will constitute substantially the Product for
Commercialization in the Territories;
(f) There is no information known to PPTI concerning the Product not
previously incorporated in the IDE *** or disclosed to FEMCARE which
indicates that it may not be safe for administration to humans or
that the development and Commercialization of the Product would not
be commercially successful.
- ------------------------
*** Material is confidential and has been omitted and filed separately with
the Securities and Exchange Commission.
43
<PAGE>
(h) To PPTI's knowledge as of the date of this Agreement, no corporation,
limited liability partnership or partnership which has more than 250
employees and either an annual turnover which exceeds Euro 40 million
or an annual balance sheet total exceeding Euro 27 million owns more
than 25% of the share capital or voting rights of PPTI.
21 INTEGRATION AND CONFLICT
21.01 (a) It is the mutual desire and intent of the parties to provide
certainty as to their future rights and remedies against each other
by defining the extent of their mutual undertakings provided herein.
The parties have in this Agreement and in the related Supply
Agreement and Escrow Agreement incorporated the representations,
warranties, covenants, commitments and understandings on which they
have relied in entering into this Agreement and, except as provided
for herein and in the Supply Agreement and Escrow Agreement, neither
party has made any undertaking or other commitment to the other
concerning its future activities. Accordingly, this Agreement and the
related Supply Agreement and Escrow Agreement:
(i) constitute the entire agreement and understanding between the
parties with respect to the subject matter contained herein,
and there are no promises, representations, conditions,
provisions or terms related thereto other than as set forth
in this Agreement and the related Supply Agreement and Escrow
Agreement; and
(ii) supersede all previous understandings and agreements, and
representations between the parties, whether written or oral,
relating to the subject matter.
(b) The parties may from time to time during the term of this Agreement
modify any of its provisions by mutual agreement in writing.
44
<PAGE>
(c) The parties agree that each has had the opportunity to be represented
by counsel of it choosing including the negotiations that preceded
this Agreement.
(d) In the event of any conflict between the provisions of this Agreement
and the Supply Agreement, unless expressly stated in this Agreement,
the provisions of this Agreement shall prevail.
22 GOVERNING LAW
22.01 This Agreement shall be construed and the rights of the parties shall be
determined in accordance with the substantive laws of the State of
Delaware, without regard to its conflict of laws principles, except that
the Arbitration provisions contained herein shall be governed as stated in
Section 15.
23 ASSIGNMENT
23.01 Except as specifically provided herein each party in its sole discretion,
may assign or transfer all or a portion of its rights under this Agreement
to any of its Affiliates, or designate or cause any Affiliate to have the
benefit of all or a portion of its rights hereunder; provided, however,
that any such party shall remain liable for the performance by its
Affiliate under this Agreement. Also, either party may assign this
Agreement to a party purchasing substantially all of the assets or
operations of such party. Except as herein provided, neither party shall
assign or otherwise transfer this Agreement or any part hereof to any
third party without the prior written permission of the other party.
24 BANKRUPTCY
24.01 All rights and licenses granted under or pursuant to this Agreement by a
party acting as licensor to the other party as licensee are, and shall
otherwise be deemed to be, for purposes of Section 365(n) of Title 11,
U.S. Code (the "Bankruptcy Code") licenses of rights to "intellectual
45
<PAGE>
property" as defined under Section 101(60) of the Bankruptcy Code. The
parties agree that a licensee of such rights under this Agreement, shall
retain and may fully exercise all of its rights and elections under the
Bankruptcy Code. The licensor of such rights agrees during the term of
this Agreement to create and maintain current copies or, if not amenable
to copying, detailed descriptions or other appropriate embodiments, of all
such intellectual property. The parties further agree that, in the event
of the commencement of a bankruptcy proceeding by or against the licensor
under the Bankruptcy Code, the licensee shall be entitled to a complete
duplicate of (or complete access to, as appropriate) any such intellectual
property and all embodiments of such intellectual property, and same, if
not already in its possession, shall be promptly delivered to licensee (i)
upon any such commencement of a bankruptcy proceeding upon written request
therefor by the licensee, unless licensor elects to continue to perform
all of its obligations under this Agreement, or [(ii) if not delivered
under (i) above, upon the rejection of this Agreement by or on behalf of
licensor upon written request therefor by licensee.
46
<PAGE>
IN WITNESS WHEREOF, and FEMCARE have caused this Agreement to be executed in
duplicate by their fully authorized representatives.
PROTEIN POLYMERS, INC FEMCARE
By: /s/ Thomas Parmeter By: /s/ Bernard Sweeney
--------------------------- ---------------------------
Thomas Parmeter Bernard Sweeney
President and CEO Managing Director
Date January 26, 2000 Date January 26, 2000
-------------------------- --------------------------
THE UNDERSIGNED PARENT COMPANY OF PROSPECTIVEPIERCING LIMITED (TO BECOME FEMCARE
UROLOGY LIMITED), TO INDUCE PROTEIN POLYMER TECHNOLOGIES, INC. TO ENTER INTO
THIS AGREEMENT AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT,
ADEQUACY AND SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, HEREBY IRREVOCABLY AND
UNCONDITIONALLY GUARANTEES THE TIMELY AND FULL PERFORMANCE AND PAYMENTS UNDER
THIS AGREEMENT BY PROSPECTIVEPIERCING LIMITED AND AGREES THAT IT SHALL BE BOUND
BY THE ARBITRATION PROVISIONS HEREIN AS IF A FULL PARTY HERETO.
Date: January 26, 2000
----------------------------
By: /s/ Bernard Sweeney
------------------------------
Bernard Sweeney
Managing Director
47
<PAGE>
SCHEDULE A
Schedule of Patents
-------------------
<TABLE>
<CAPTION>
Corresponding
International Patents
Patent Number Issue Date Title and/or Applications
- -------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C>
U.S. 5,243,038 Sep 7, 1993 Construction of Synthetic PCT/US87/02822: Issued in
DNA and Its Use in Large Australia, Finland, New
Polypeptide Synthesis Zealand; ***
U.S. 5,606,019 Feb 25, 1997 Synthetic Proteins as PCT/US95/02772: ***
Implantables
U.S. 5,770,697 Jun 23, 1998 Peptides Comprising Not Applicable
Repetitive Units of Amino
Acids and DNA Sequences
Encoding the Same
Patent Application Number Filing Date Title Corresponding
International Patents
and/or Applications
PCT/US89/05016 Nov 7, 1989 Functional Recombinantly Issued in Australia,
Prepared Synthetic Protein Europe, Finland, Norway,
Polymer South Korea; ***
U.S. S/N 08/482,085 Jun 7, 1995 Peptides Comprising Not Applicable
Repetitive Units of Amino
Acids and DNA Sequences
Encoding the Same
*** *** *** ***
*** *** *** ***
*** *** *** ***
</TABLE>
- ------------------------
*** Material is confidential and has been omitted and filed separately with
the Securities and Exchange Commission.
A-1
<PAGE>
SCHEDULE B
PRODUCT DEVELOPMENT AND REGULATORY APPROVAL MILESTONES
MILESTONE TARGET DATE
- --------- -----------
BEGIN NON-U.S. CLINICAL EFFICACY TRILAS ***
BEGIN EUROPEAN PRODUCT SALES ***
BEGIN AUSTRALIAN PRODUCT SALES ***
BEGIN MINIMUM ROYALTY PERIOD ***
* Provided that any failure to achieve this Performance Benchmark shall not
give rise to a right of termination of this Agreement even if the failure is not
cured within the required time period. In the event of such failure, FEMCARE's
license for Australia hereunder shall cease to be exclusive and shall become
non-exclusive for remaining term of, and subject to, this Agreement.
- ------------------------
*** Material is confidential and has been omitted and filed separately with
the Securities and Exchange Commission.
B-1
<PAGE>
SCHEDULE C
***
- ------------------------
*** Material is confidential and has been omitted and filed separately with
the Securities and Exchange Commission.
C-1
<PAGE>
SCHEDULE D
LIST OF THE TERRITORIES
TERRITORIES
Norway France
Finland Germany
Iceland Greece
Liechtenstein Ireland
Sweden Italy
Switzerland Luxembourg
Hungary Netherlands
Poland Portugal
Austria Spain
Belgium UK
Denmark Australia
***
- ------------------------
*** Material is confidential and has been omitted and filed separately with
the Securities and Exchange Commission.
D-1
<PAGE>
EXHIBIT 10.28
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT is made and entered into this day of by and between
PROTEIN POLYMER TECHNOLOGIES, INC., a Delaware corporation (" Supplier")and
FEMCARE UROLOGY LIMITED, a corporation under the laws of the United Kingdom and
Wales having offices at St. Peter's Street, Nottingham, NG7 3EN, England
("Purchaser").
WITNESSETH:
WHEREAS, Purchaser and Supplier are party to that certain License and
Development Agreement dated January 26, 2000 (the "License Agreement")pursuant
to which Purchaser has been granted an exclusive license to Commercialize the
Product in the Territories in the Field.
WHEREAS, pursuant to the License Agreement, all of the Product that is
marketed by Purchaser is to be manufactured by Supplier or by another company
selected by Supplier and approved by Purchaser for the term of the License
Agreement.
WHEREAS, Supplier possesses and is further developing the Know-How and
Patents to commercially manufacture the Product.
WHEREAS, Supplier desires to manufacture and sell to Purchaser, and
Purchaser desires to engage Supplier to manufacture and supply to it, the
Product, in each case subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and for other good and valuable consideration, the receipt, sufficiency and
adequacy are hereby acknowledged, the parties hereto agree as follows:
1. PREAMBLES AND DEFINITIONS. The preambles set forth above are an
integral part of this Agreement and are incorporated herein by this reference.
All capitalized terms used but not defined in this Agreement shall have the
meanings ascribed thereto in the License Agreement.
2. SUPPLY AND PURCHASE OF PRODUCT.
(a) During the five year period beginning with the date of this
Agreement (the "Exclusive Term"), Purchaser hereby agrees to purchase and to
cause its Affiliates to purchase from Supplier or such person as Supplier shall
designate, the entire requirements of Product by Purchaser, its Affiliates,
distributors and sublicensees. After the expiration of the Exclusive Term,
Purchaser may, but shall not be required to purchase and to cause its Affiliates
to purchase Product from Supplier or Supplier's designee. All Product supplied
by Supplier pursuant to this Agreement shall be resold and distributed solely in
the Territories for use in the Field. The Purchaser and its Affiliates,
distributors and sublicensees shall not resell the Product to any person in the
Territories knowing or
<PAGE>
having reasonable basis to believe that such person intends to re-sell the
Product outside of the Territories or use or resell the Product outside of the
Field.
(b) Supplier agrees to manufacture, package, sell and ship or cause to be
manufactured, packaged, sold and shipped, the Product to Purchaser, in finished
*** units, subject to Purchaser satisfying its obligations hereunder. All
purchases by Purchaser or its Affiliates will be made by purchase orders issued
by Purchaser or such Affiliate to Supplier setting forth the quantities of
Product ordered and the anticipated delivery date. Quantities of Product shall
be identified by units.
(c) Purchaser shall provide to Supplier upon the commencement of the Term
and in all events not less than 120 days before the expected beginning of the
first Marketing Year and thereafter not less than 90 days prior to the
commencement of each subsequent Marketing Year a bona fide (based on a realistic
estimate of sales in the relevant Marketing Year) 12 month projection of
anticipated (not guaranteed) Product purchases by Calendar Quarter by Purchaser
and its Affiliates during the upcoming Marketing Year ("Annual Estimate").
Supplier shall have 15 days in which to review the Annual Estimate and advise
Purchaser as to whether or not it has the available capacity to manufacturer and
supply the Annual Estimate. Supplier shall use all reasonable efforts to put
itself in a position whereby it is able to agree with the Purchaser's Annual
Estimate for the applicable Marketing Year. If Supplier, having applied such
reasonable efforts, advises Purchaser that it cannot manufacture and supply
Product equal to the Annual Estimate, Supplier may arrange for a third party
manufacturer selected by it and approved by Purchaser, which approval shall not
be unreasonably withheld or delayed, to assist Supplier in the manufacturer and
supply of Product. If Supplier shall be unable to timely manufacture or have
manufactured Product equal to the Annual Estimate, Supplier and Purchaser shall
negotiate and adopt a revised Annual Estimate and in such negotiations the
Supplier shall use its reasonable efforts to reduce the Purchaser's original
Annual Estimate by the smallest number of units reasonably practicable. In such
a case, if the revised Annual Estimate is less than the Minimum Purchase
requirement for the subject Marketing Year (as expressed in units), the Minimum
Purchase requirement for that Marketing Year shall be reduced to the dollar
amount (using the table in Section 5(a))corresponding to the number of units in
the revised Annual Estimate and a corresponding adjustment shall be made for the
Minimum Royalty payable under the License Agreement.
(d) Purchase orders for the Product shall be placed with Supplier at
least 90 days prior to Purchaser's anticipated delivery date. All Product will
be purchased in quantities of not less than one-twelfth (1-12th) of the Annual
Estimate unless otherwise requested in advance by Purchaser and agreed to by
Supplier, which agreement shall not be unreasonably withheld or delayed.
Purchaser
- ------------------------
*** Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.
2
<PAGE>
submitted in accordance with this Agreement shall be firm and binding upon
Purchaser after acceptance by Supplier. Purchase orders for Product shall be
deemed acceptable to Supplier provided that the quantities and delivery dates do
not deviate materially from the Marketing Year Annual Estimate developed by
Purchaser. Purchase orders shall be deemed to have been accepted by Supplier
seven (7) calendar days after delivery of the purchase order to Supplier unless
within said seven (7) day period Supplier shall give notice to Purchaser of the
unacceptability of said purchase order for a reason for non-acceptance permitted
under this Agreement (which reason shall be set out in the notice).
(e) Supplier shall supply ordered Product as requested by Purchaser to
the extent that the purchase order does not exceed by an amount greater than
fifty percent (50%) from the corresponding month within the Annual Estimate.
Supplier shall use all reasonable efforts to fill each purchase order delivered
by Purchaser or its Affiliates within 90 days of delivery of such purchase order
or such lesser period of time and Purchaser and Supplier shall, in advance,
agree.
3. DELIVERY
(a) Delivery of Product to Purchaser and its Affiliates shall be F. O. B.
Supplier's manufacturing facility, and shall be accompanied by a packing slip
which describes the Product, identifies the purchase order number and shows the
shipment's destination. Purchaser shall arrange insured common carrier
transportation of Product to Purchaser's distribution center or where Purchaser
shall otherwise direct. Title to and risk of loss of Product shall pass to
Purchaser at the time of delivery to the carrier. Supplier shall promptly bill
Purchaser for all Product delivered. All invoices shall be accompanied by the
applicable commercial bills of lading. Unless otherwise specified by Purchaser,
all Product shall be shipped on a first manufactured-first shipped basis,
provided that no Product shall have an expiration date less than six (6) months
from the date of shipment unless otherwise agreed to in writing by Purchaser.
All Product shall be packaged for shipping using protocols designated by
Supplier taking into consideration the method and timing of transport identified
by Purchaser, which protocols shall be promptly furnished in writing to
Purchaser. Purchaser shall notify Supplier of any change in the method and
timing of transporting Product a reasonable time before Product delivery so that
Supplier may develop appropriate shipping protocols. Subject to the forgoing,
the shipment of Product delivered to Purchaser or its Affiliates shall be at the
sole risk of Purchaser.
(b) Any required governmental, regulatory or customs approvals for
domestic or international shipment of the Product shall be the responsibility of
Purchaser or its designated agent. Supplier will cooperate and assist Purchaser
in complying with any applicable international shipping requirements.
(c) All shipping cartons and units of Product within each shipping carton
shall bear a readily visible code or other notation identifying the
manufacturing lot number, expiration date and Product name. All shipping cartons
and units of Product within each shipping carton shall comply with all
applicable laws and regulations regarding the packaging and labeling of medical
devices.
<PAGE>
(d) The parties shall use all reasonable efforts to schedule the timely
shipment of Product pursuant to the requirements as established in the accepted
purchase orders. For purposes of this Agreement, a timely shipment shall be a
shipment delivered to the common carrier not later than two weeks after the
agreed upon date.
(e) Purchaser shall notify Supplier of any short shipment claims within
ten (10) days of receipt of a shipment of Product.
4. PRODUCTION AND QUALITY CONTROL.
(a) Supplier warrants, represents and covenants that all Product produced
for or sold to Purchaser and its Affiliates shall be manufactured free from
defects in materials and workmanship in accordance with specifications set forth
in approved production protocols and shall be in compliance with Quality System
Regulations and IS0 9001 Standards in effect at the time of production and/or
such other lawful and appropriate standards as the parties may agree upon. All
Product will have passed suitable Supplier required quality control tests.
Purchaser acknowledges that production specifications may be changed from time
to time to comply with applicable laws and regulations. Supplier shall delivery
to Purchaser a copy of test results for each lot of Product supplied to
Purchaser or its Affiliates.
(b) Each of Supplier and Purchaser shall conduct such quality control
procedures and inplant quality control checks as it shall deem reasonably
necessary. Supplier shall use the same quality control procedures and checks as
it applies in the manufacturing of Product for its own use and sale. Purchaser
shall audit Supplier's quality control activities and results or conduct its own
quality control testing, or provide that its Affiliates, distributors or sub-
licensees conduct quality control testing, within 30 days of delivery of Product
to Purchaser or direct to Purchaser's Affiliates distributors or sub-licensees.
Purchaser shall immediately, and in all events within seven days of discovery or
of the end of the 30 day period, whichever shall first occur, bring to the
attention of Supplier any Product that does not meet Purchaser's audit or
quality control procedures and checks. Product lots that meet Supplier's quality
control requirements and which are not objected to by Purchaser within 30 days
of delivery as provided above shall be presumed to be free from defects in
material and workmanship, in the absence of manifest error.
(c) Each party agrees to notify the other within 48 hours of learning
of (i) the failure of any Product to meet standards found in said Product's
Regulatory Approval or (ii) third-party complaints pertaining to Product.
Purchaser shall use its reasonable efforts to promptly resolve any third party
complaints relating to the Product in a manner consistent with Purchaser's
approach to the resolution of complaints lodged against other products marketed
by Purchaser and its Affiliates (subject to Supplier, as required by Purchaser's
quality control manual, providing Purchaser with any information in its
possession that may facilitate prompt and favorable resolution of any such
complaints and without limitation, within 72 hours of the delivery of the
complaint to Supplier). In the event that Purchaser cannot resolve such
complaint as aforesaid, Purchaser shall notify Supplier and the parties shall
jointly attempt to resolve the problem.
<PAGE>
(d) In the event that any governmental agency or authority issues a
recall or takes similar action in connection with any Product sold or
distributed by Purchaser and its Affiliates, its distributors or sub-licensees
in a Territory, or Purchaser reasonably considers it necessary to recall
Product, Purchaser shall, within 24 hours, advise Supplier by telephone, e-mail
or facsimile transmission and Supplier and Purchaser shall agree on an
appropriate course of action. Purchaser shall assume complete responsibility for
conducting such recall; however, Supplier shall provide Purchaser with any
information that may be in Supplier's possession or control concerning the
manufacture of the Product which Purchaser reasonably may require to conduct
such recall. Supplier and Purchaser shall cooperate to identify and correct
deficiencies, if any, in the manufacture, shipment, storage or distribution of
the Product. In the event of such a recall or if Supplier requests Purchaser to
recall Product, Purchaser and its Affiliates, distributors and sublicensees
shall immediately cease all sales of such Product and take all appropriate
actions to recall such Product. Supplier shall bear the expenses of any recall
requested by it or resulting from (i) defective manufacture, packaging or
shipment by Supplier or (ii) any willful misconduct, negligence or gross
negligence of Supplier, or any failure of Supplier to comply with the terms of
this Agreement, that causes such Product recall. Purchaser shall bear the
expenses of any other recall. For the purpose of this Agreement expenses of
recall include, without limitation, the expenses of notification and destruction
or return of the recalled Products, but not the expense or service fees
associated with salesmen's time which shall be borne by Purchaser.
(e) Supplier shall retain samples of all ingredients, packaging
materials, records and data as may be in accordance with the sample and record
retention policies which Supplier uses in connection with manufacture of Product
for its own account; provided such retention shall at all times be in accordance
with all applicable Regulatory Approvals, Quality System Regulations and IS0
9001 Standards. Purchaser shall have the right, from time to time, to review
Supplier's manufacturing procedures and operations and its records relating to
the manufacture and shipment of Product. No inspection or testing of Product by
Purchaser, or failure to test or inspect, shall relieve Supplier of its
obligations hereunder. Copies of any certificates, reports, test results or
other information produced by Supplier, or by a third party consultant or
contractor at Supplier's request, that directly relate to lots of Product sold
to Purchaser shall, upon the written request of Purchaser, be furnished to
Purchaser and may be relied upon by it.
(f) The parties recognize that the holder of or applicant for Regulatory
Approvals for a country may be required to submit information and file reports
to various governmental agencies on Product under clinical investigation,
Product proposed for Commercialization, or Commercialized Product. Consequently,
each party agrees to provide to the other within three (3) business days of the
initial receipt of a report of any adverse experience with Product that is
serious or unexpected. Serious adverse experience means any experience that
suggests a significant hazard, contraindication, side effect or precaution, or
any experience that is fatal or life threatening, is permanently disabling,
requires or prolongs inpatient hospitalization, or is a congenital anomaly,
cancer, or overdose. An unexpected adverse experience is one not identified in
nature, specificity, severity or frequency in the current investigatory brochure
or labeling for the Product. In the case
<PAGE>
experience or unexpected adverse experience relating to such Product so that
Purchaser can report such experience to Supplier pursuant to the provisions
hereunder.
5. PRICE AND PAYMENT TERMS.
(a) Purchaser will pay the unit price for each accepted Product. The unit
price within each Marketing Year shall be the greater of that amount which is
equal to *** of Purchaser's Net Sales price per Unit or as follows:
Marketing ***
Year
First ***
Second ***
Third ***
Fourth ***
Fifth ***
All prices of Product shall be stated in U. S. Dollars and all payments made
under this Agreement (or any invoice issued in accordance with this
Agreement) shall be paid in U. S. Dollars and shall be without deduction of any
taxes or other charges except as required by law. Per unit invoice pricing shall
be based on the number of units previously delivered (in accordance with the
first sentence of Section 3(a) above) during the Marketing Year and being
delivered under the purchase order then being filled net of any units returned
and scheduled to be returned by Purchaser to Supplier. All invoices for Products
sold to Purchaser and its Affiliates shall be the obligation of Purchaser.
However, any Affiliate of Purchaser may pay any invoice or account payable
obligation of Purchaser directly to Supplier with the same effect as if the
payment had been made by Purchaser.
(b) The unit price shall include manufacturing, packaging, and Supplier's
quality control measures as Supplier applies to Product used or sold by
Supplier. Purchaser shall provide to Supplier in writing the packaging and
labeling requirements for the Product, which requirements, when determined,
shall meet all applicable Quality System Regulations and IS0 9001 Standards
and/or such other lawful and appropriate standards as the parties may agree
upon, and shall become part of the Product specifications for the Product. Such
requirements shall be specified within a reasonable period of time prior to the
first shipment of Product in order to allow Supplier to be able to satisfy
Purchaser's requirements. In addition, from time to time upon reasonable prior
notice to Supplier, Purchaser may make changes to such packaging and labeling
specifications should
- ------------------------
*** Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.
6
<PAGE>
Purchaser determine such changes are necessary or desirable and subject to then
satisfying all applicable Regulatory Approvals. To the extent permitted under
applicable law, Purchaser shall credit Supplier as the licenser or manufacturer
of the technology used in the Product.
(c) The unit price as specified in Section 5(a) shall apply during the
first five (5) Marketing Years. Thereafter, not less than 60 days prior to the
end of the fifth Marketing Year, and not less than 60 days prior to the end of
every second Marketing Year thereafter, Supplier and Purchaser may agree to
revise any of the prices for the forthcoming marketing years. In no event shall
the price to be paid to Supplier by Purchaser and its Affiliates be less than
***of Purchaser's Net Sales price per unit in the Territory. If the average
number of units required per treatment procedure in the Clinical Efficacy Trials
exceeds ***, the parties shall (subject to Supplier increasing its or its
approved contract manufacturing capacity of Products to allow for the
consequential increase in demand) adjust the unit price and unit volume
increments per Marketing Year, and volume of product per unit, in a manner which
takes into account the assumptions used by the parties to determine the
Minimum Purchase requirement specified in Section 5(e).
(d) The terms of payment are net upon shipment of Product. Any invoice
not paid when due shall be subject to late and service charges equal to l-
1/2% per month of the amount past due. Notwithstanding anything in the foregoing
to the contrary, any purchase order submitted or to be filled within the last
four months of the term of this Agreement or the termination of Supplier's
obligations under this Agreement shall be accompanied by an unconditional,
irrevocable letter of credit issued by a banking institution having facilities
in New York City, New York that is reasonably acceptable to Supplier in the full
face amount of the extended price of the Product ordered, and payable to
Supplier or its assignee which letter of credit shall be drawable upon
presentment of the letter of credit and bills of lading evidencing delivery of
the Product pursuant to such purchase order.
(e) If for any Marketing Year Purchaser shall not have purchased from
Supplier the Minimum Purchase requirement for such Marketing Year, Purchaser
shall pay to Supplier within 45 days following the close of the applicable
Marketing Year the amount by which the applicable Minimum Purchase requirement
for the Product exceeds the actual revenue derived by Supplier from the sale of
Product to Purchaser. The Minimum Purchase requirement is as follows:
Marketing Year Minimum Purchases
First ***
Second ***
Third ***
Fourth ***
Fifth ***
- ------------------------
*** Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.
7
<PAGE>
The parties agree that the Minimum Purchase requirements shall not apply in
any Marketing Year in which (i) the Minimum Royalty under the License Agreement
is not payable to Supplier due to Purchaser's affirmative election under Section
4.02(b) of the License Agreement, or (ii) the quantity of Product corresponding
to the Minimum Purchase requirement has been ordered by Purchaser but Supplier
has failed to timely till the accepted purchase orders required to be filled
within said Marketing Year or committed a breach of this Agreement that prevents
the Minimum Purchase requirements being achieved. In the event of (ii), if there
continues to be a delivery of Product to Purchaser, the Minimum Purchase
requirements shall be reduced by dollar amount corresponding to the number of
units of Product ordered by Purchaser for timely delivery on the Marketing Year
which are not delivered to Purchaser in such Marketing Year but if Supplier has
failed to deliver to Purchaser for six (6) months or more during the Marketing
Year, any Product ordered by Purchaser and scheduled for timely delivery within
the Marketing Year, the Minimum Purchase requirements for such Marketing Year
shall be waived and for the next Marketing Year the Minimum Purchase requirement
shall revert to that in effect for the immediately preceding Marketing Year (or
if in the two Marketing Years the Minimum Purchase requirements are the same,
the Minimum Purchase requirement shall be reduced by 20%) and a corresponding
adjustment shall be made to subsequent Marketing Years and to the Minimum
Royalty requirements under the License Agreement. Notwithstanding the forgoing,
the Minimum Purchase requirement shall be suspended during any period during
which Product cannot be Commercialized as a result of any inherent defect in the
Product, any Recall required by any applicable regulatory body that is not
specific to identified Product lots that are replaced within a reasonable period
of time, or the Product being found to not be safe for use in humans.
6. MARKETING AND TECHNICAL SUPPORT
(a) Supplier agrees to provide Purchaser (but not to its Affiliates or
distributors), with such reasonable technical support as Purchaser may from time
to time request with respect to the Commercialization of the Product, including
access to research data, interpretation of such research data, assistance in
initial backgrounding of Purchaser sales, marketing and technical service
personnel, competitive analysis and general advice and counsel pertinent to
supporting the Products in the marketplace. Such support shall be provided at no
additional cost to Purchaser. To the extent appropriate, such data shall be
subject to the confidentiality obligations set forth in the License Agreement.
(b) Purchaser agrees to provide to Supplier copies of all training,
advertising and promotional materials for the Product, as those materials become
available, including translations thereof into the English language. Purchaser
agrees that all such materials shall be prepared in accordance with all
applicable laws and regulations.
(c) Supplier shall promptly refer to Purchaser all customer inquiries and
correspondence which Supplier receives from persons within a Territory in the
Field relating to the Product.
8
<PAGE>
7. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Supplier represents and warrants to Purchaser that it is duly
authorized and empowered to enter into and perform this Agreement; and the
execution and performance of this Agreement by Supplier does not and will not
conflict with or violate any contract, agreement, indenture, mortgage,
instrument, writ, judgment, or order of any court, arbiter or governmental or
quasi-governmental body to which Supplier is a party or by which Supplier is
bound.
(b) Supplier represents and warrants to Purchaser that prior to first
shipment of the Product it will have received all necessary licenses, permits
and Regulatory Approvals for manufacture and export of the Product to the
applicable Territories and that there have been no recalls of Product.
(c) Supplier agrees to adhere to all known laws, rules and regulations
applicable to the manufacture of Product under this Agreement and warrants that
the Product will be manufactured in accordance with all Product specifications
and will be delivered to Purchaser free and clear of all third party claims,
liens and encumbrances.
(d) Purchaser represents and warrants to Supplier that it is duly
authorized and empowered to enter into and perform this Agreement; and the
execution and performance of this Agreement by Purchaser does not and will not
conflict with or violate any contract, agreement, indenture, mortgage,
instrument, writ, judgment, or order of any court, arbiter or governmental or
quasi-governmental body to which Purchaser is a party or by which Purchaser is
bound.
(e) Purchaser represents and warrants to Supplier that the Product will,
when Commercialization takes place in a Territory, have received the necessary
Regulatory Approvals in such Territory, and covenants to offer or sell, directly
or indirectly, Product only in the Territories and Field in which all necessary
Regulatory Approvals have been obtained.
(f) Provided that Supplier is not in breach of this Agreement, Purchaser
shall not during the Exclusive Term purchase Product from any supplier other
than Supplier or a manufacturer authorized to manufacture Product by Supplier
without in each instance the prior written consent of Supplier. Purchaser shall
purchase Product solely for resale purposes as provided herein and shall not
combine the Product with any other components by further manufacturing or
otherwise. Purchaser shall not during the Exclusive Term manufacture or
distribute in any Territories any other Competitive Product. Purchaser agrees to
commercialize the Product in accordance with the terms and conditions of the
License Agreement.
8. MARKETING YEAR: TERM AND TERMINATION.
(a) The term of this Agreement shall commence as of the date hereof and,
unless terminated earlier pursuant to the provisions of this Agreement, shall
expire upon the expiration or termination of the License Agreement.
<PAGE>
(b) The obligations of a party under this Agreement (but not its rights
hereunder) may be terminated by such party if: (i) subject to Section 9 below,
the other party fails to perform any material term, provision, covenant or
obligation imposed upon it under this Agreement, which failure or refusal shall
continue for thirty (30) days following written notice thereof from the non-
defaulting party specifying the event of default; (ii) the other party is
dissolved or liquidated, makes a general assignment for the benefit of its
creditors, files a voluntary petition under any applicable bankruptcy or
insolvency law, has a receiver appointed for its property, or has a petition for
bankruptcy or insolvency filed against it which petition is not dismissed or
vacated within 120 days after filing; or (iii) the License Agreement is
terminated or expires.
(c) The failure of a party to terminate its obligations under this
Agreement by reason of the breach of any of the provisions by the other party
shall not be construed as a waiver of the rights or remedies available for any
subsequent breach of the terms and provisions of this Agreement.
(d) A party electing to terminate its obligations under this Agreement
shall also be entitled to pursue such additional remedies at law or in equity
that it may have as a result of a breach of or default under this Agreement by
the other party.
(e) Any party bringing action to enforce the obligations of the other
party or its rights under this Agreement shall be entitled to recover all costs
and expenses (including reasonable attorneys fees and court costs) incurred by
it in such enforcement action.
9. FORCE MAJEURE.
(a) The obligations of a party hereunder shall be suspended (and
reasonable adjustment made to the Minimum Purchase requirement, if such
suspension shall continue for more than 30 consecutive days) by the occurrence
of any event beyond the control of such party, such as acts of god, war, warlike
conditions, strikes, lockouts, power failures, the elements, embargoes, failure
or inability to obtain suitable and sufficient labor, materials or
transportation facilities, or law, regulation or governmental order, whether or
not valid, restricting performance; provided, however, that such party shall
take reasonable measures to remove the disability or restriction and resume
operations at the earliest possible date, and further provided that nothing
contained herein shall excuse the obligation to pay money (except to the extent
that a Minimum Purchase requirement is adjusted as aforesaid).
(b) Subject to compliance with Section (c) below, any delay in or failure
of performance by either party under this Agreement as a result of a Force
Majeure shall not be considered a breach of this Agreement during the period of
delay.
(c) Any party affected by such Force Majeure who wishes to rely on the
provisions of Section (a) above shall as soon as reasonably practicable give
notice to the other party specifying the matters constituting Force Majeure
together. with such evidence thereof as it can reasonably give and specifying
the period for which it is estimated that such delay will continue.
10
<PAGE>
10. INDEMNIFICATION.
(a) Each party ("Indemnitor") agree to indemnify, defend and hold
harmless the other party ("Indemnitee") from and against all liabilities,
losses, costs, damages and expenses (excluding fees and disbursements of the
Indemnitee's counsel and court costs, except as provided below) caused by,
arising out of resulting from (i) the Indemnitor's gross negligence or willful
misconduct in carrying out its obligations under this Agreement, (ii) the
Indernnitor's failure to comply with any law or regulation applicable to the
performance of its obligations under this Agreement, (iii) Product seizures made
as a direct result of the Indemnitor's negligence, gross negligence or willful
misconduct in the performance of or failure to perform, its obligations under
this Agreement and any liabilities of Indernnitor in respect of recalls under
Article 4(d), and (iv) any labels or advertising used by the Indemnitor, in any
such case that is not based on any act or omission or alleged act or omission of
the Indemnitee. The indemnity provided above shall not extend to any
liabilities, losses, costs, damages or expenses caused by or resulting from or
arising out of any act or omission or breach of representation, warranty or
covenant of the Indemnitee.
(b) Each party agrees to give the other party prompt notice of any claim
or demand made or the institution of any suit or proceeding brought upon the
grounds referred to under this Section 10, and to permit the Indemnitor to
conduct the defense of any such claim, demand, suit, or proceeding, and to give
the Indemnitor all information in its possession which is pertinent to the
defense of any such claim, demand, suit or proceeding, and to give the
Indemnitor the authority and assistance appropriate or necessary to enable the
Indemnitor to carry on such defense and any appeal from a judgment or decree
rendered in any such suit or proceeding. However, nothing in this Section
10(b) will prevent the Indemnitee from engaging its own counsel in any such
matter and, if there shall exist a bona fide conflict between the rights and
interest of the indemnifying party and the indemnified party, from being
indemnified with respect to such engagement to the extent provided in this
Section 10.
(c) Without its prior consent, Supplier will not be responsible for or
bound by any compromise made by Purchaser in any matter in which Purchaser is
indemnified by Supplier. Without its prior consent, Purchaser will not be
responsible for or bound by any compromise made by Supplier in any matter in
which Purchaser is indemnified by Supplier.
(d) The Indemnitee agrees to give the Indemnitor prompt notice of any
claim, demand, suit or proceeding asserted, made or brought against the
Indemnitee (including any claim, demand, suit or proceeding asserted, made or
brought by any governmental authority) for which the Indemnitor might be liable
under the foregoing provisions. However, the failure to give prompt notice shall
not relieve the Indemnitor from its obligations hereunder unless the failure to
give prompt notice has materially and adversely affected the Indemnitor's
defense of the claim or action.
11. PRODUCT LIABILITY INSURANCE. Each of Supplier and Purchaser (and
each Affiliate of Purchaser purchasing and selling Product) shall at all times
during the term of this Agreement and for a period of 12 months after the
expiration or termination of this Agreement carry such products liability
(comprehensive general liability insurance) in such amounts and subject to such
11
<PAGE>
requirements and restrictions as may be customary in the Territory (in the case
of Purchaser or its Affiliates)or in the United States (in the case of
Supplier).
12. ARBITRATION.
(a) Excepting only actions and claims relating to actions commenced by a
third party against Supplier or Purchaser (including, without limitation, for
injuries caused by a Product or in respect to a trademark or patent infringement
claims), any controversy or claim arising out of or relating to the terms and
conditions of this Agreement, or the decision to agree upon these terms, or the
breach thereof, including questions of validity, infringement, or termination
hereof, shall be settled exclusively by arbitration in accordance with the rules
of the American Arbitration Association. If such controversy or claim relates to
patent validity or infringement, then the Patent Arbitration Rules of the AAA
shall apply, otherwise the International Arbitration Rules of the AAA shall
apply. Notwithstanding the forgoing to the contrary or in the arbitration rules
invoked or in this Section 12, the parties retain the right to request a
judicial authority to invoke interim measures of protection, and such request
shall not be deemed incompatible with this agreement to arbitrate or a waiver of
the right to arbitrate.
(b) There shall be one (1) arbitrator to be mutually agreed upon by the
parties and to be selected from the Regional Panel of Distinguished Neutrals. If
the parties are unable to agree upon such an arbitrator who is willing to serve
within ten (10)days of receipt of the demand by the other party, the parties
shall within three (3) days select one of the five (5) largest international
accounting firms (excluding those providing services for the parties) and engage
the managing partner or senior officer of its New York City office to designate
a partner of such firm to serve as the arbitrator. Failing that, then the AAA
shall appoint an arbitrator willing to serve from the Regional Panel of
Distinguished Neutrals, or if no such panel exists, then from an appropriate AAA
panel. It shall be the duty of the arbitrator to set dates for preparation and
hearing of any dispute and to expedite the resolution of such dispute.
(c) The arbitration shall be held in the City of New York, State of New
York, U. S. A. and the arbitrator shall apply the substantive law of Delaware
except that the interpretation and enforcement of this arbitration provision
shall be governed by the Federal Arbitration Act. The arbitrator shall permit
and facilitate discovery, which will be conducted in accordance with the Federal
Rules of Civil Procedure, taking into account the needs of the parties and the
desirability of making discovery expeditious and cost-effective. The arbitrator
will set a discovery schedule with which the parties will comply and attend
depositions if requested by either party. The arbitrator will entertain such
presentation of sworn testimony or evidence, written briefs and/or oral argument
as the parties may wish to present; however, no testimony or exhibits will be
admissible unless the adverse party was afforded an opportunity to examine such
witness and to inspect and copy such exhibits during the pre-hearing discovery
phase. The arbitrator shall among his other powers and authorities, have the
power and authority to award interim or preliminary relief. The arbitrator shall
not be empowered to award either party exemplary, consequential or punitive
damages or any enhanced damages for willful infringement and the parties shall
be deemed to have waived any right to such damages. A qualified court reporter
will record and transcribe the proceeding. The decision of the arbitrator will
be in writing and judgment upon the award by the arbitrator may be entered in
12
<PAGE>
any court having jurisdiction thereof. Prompt handling and disposal of the issue
is important. Accordingly, the arbitrator is instructed to assume adequate
managerial initiative and control over discovery and other aspects of the
proceeding to schedule discovery and other activities for substantially
continuous work, thereby expediting the arbitration as much as is deemed
reasonable to him, but in all events to effect a final award within 365 days of
the arbitrator's selection or appointment and within 20 days of the close of
evidence. The proceedings shall be confidential and the arbitrator shall issue
appropriate protective orders to safeguard both parties'confidential
information. The fees of the arbitrator and the AAA shall be paid as designated
by the arbitrator or, if he shall not so designate, they shall be split equally
between the parties.
13. ESCROW AGREEMENT. Notwithstanding the Effective Date of this Supply
Agreement, Supplier agrees to place into escrow when and as required under the
Escrow Agreement of even date herewith sealed containers containing a copy of
the Escrow Materials (as defined in the Escrow Agreement) for the Product to be
held subject to the terms and conditions of the Escrow Agreement. Supplier
shall, upon placing the Escrow Materials into escrow, so notify Purchaser of
such fact in writing.
14. NOTICES. Any notice provided for under this Agreement shall be
given by sending such notice to the noticed party by personal delivery, telecopy
or mail at the following address:
To Purchaser: FEMCARE UROLOGY LIMITED
St. Peter Street
Nottingham NG7 3EN United Kingdom
Telecopy No: 011-44-l 15-942-0234
Attn: B. Sweeney
To Supplier: Protein Polymer Technologies, Inc.
10655 Sorrento Valley Road
San Diego, California 92121
Telecopy No: (858)558-6477
Attn: President
Any such notice delivered personally shall be effective upon confirmation of
receipt. Any such notice delivered by telecopy shall be effective upon
confirmation of receipt if received prior to 5:00 p.m., recipient's time, or
on the next business day following confirmation of receipt if received after
5:00 p.m., recipient's time, on the date of transmittal. Any such notice
delivered by mail shall be effective on the fifth (5th) business day following
deposit in first class mail, postage prepaid. Either party may change its notice
address by written notice to the other party.
15. MISCELLANEOUS.
(a) This instrument, together with the License Agreement and the Escrow
Agreement constitute the entire agreement between the parties with respect to
the subject matter hereof. This Agreement shall not be amended, varied, modified
or supplemented except by an agreement in writing signed
13
<PAGE>
by the party to be charged. To the extent the terms of this Agreement shall
conflict with the terms of the License Agreement, the terms of this Agreement
shall control.
(b) The headings used herein are for ease of reference only and are not
to be used in the interpretation or construction of this Agreement.
(c) Neither party shall have the right to assign this Agreement or any
interest herein without the prior written consent of the other except in
connection with the sale or other disposition of all or substantially all of the
assets of the assigning party or its parent corporation.
(d) Supplier and Purchaser shall at all times be and remain independent
contractors and not agents, partners or joint venturers of the other for any
purpose whatsoever and neither Supplier nor Purchaser shall have authority to
create or assume any obligation, express or implied, in the name of or on behalf
of the other party or to bind the other party in any manner whatsoever.
(e) The failure of either party to enforce at any time or for any period
of time any one or more of the provisions hereof shall not be construed to be a
waiver of such provisions or of the right of such party thereafter to enforce
each such provision.
(f) This Agreement shall be construed in accordance with the laws of the
State of Delaware (U. S. A.). The invalidity of any provision of this Agreement
shall not impair the validity of any other provision; and any provision hereof
which might otherwise be invalid or contravene any applicable law shall hereby
be deemed to be amended to the extent necessary to remove the cause of such
invalidity and to the extent practicable to continue the intent of such
provision and of this Agreement, and such provision, as so amended, shall remain
in full force and effect as a part hereof.
(g) This Agreement shall be binding upon and enure to the benefit of the
parties hereto, their successors and permitted assigns.
(h) Those provisions of this Supply Agreement dealing with rights and
obligations upon and/or after termination of this Supply Agreement shall survive
termination of this Supply Agreement to the extent necessary to give effect to
such provisions.
(i) If either party terminates this Supply Agreement in accordance with
the terms herein, the terminating party shall owe no penalty or indemnity to the
terminated party on account of such termination.
(j) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original and together shall constitute one and the
same instrument.
14
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the day and year first above written.
FEMCARE UROLOGY LIMITED
By:
-----------------------------------
Printed Name:
----------------------
Title:
-----------------------------
PROTEIN POLYMERTECHNOLOGIES, INC.,
a Delaware corporation
By:
-----------------------------------
-----------------------------------
President
THE UNDERSIGNED PARENT COMPANY OF FEMCARE UROLOGY LIMITED, TO INDUCE PROTEIN
POLYMER TECHNOLOGIES, INC. TO ENTER INTO THIS AGREEMENT AND FOR OTHER GOOD AND
VALUABLE CONSIDERATION, THE RECEIPT, ADEQUACY AND SUFFICIENCY OF WHICH IS HEREBY
ACKNOWLEDGED, HEREBY IRREVOCABLY AND UNCONDITIONALLY GUARANTEES THE TIMELY AND
FULL PERFORMANCE AND PAYMENTS UNDER THIS AGREEMENT BY FEMCARE UROLOGY LIMITED
AND AGREES THAT IT SHALL BE BOUND BY THE ARBITRATION PROVISIONS HEREIN AS IF A
FULL PARTY HERETO.
Date: , 2000
-----------------
FEMCARE, LTD.
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
15
<PAGE>
EXHIBIT 10.29
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of January 26, 2000, among PROSPECTIVEPIERCING
LIMITED, to be known as FEMCARE UROLOGY LIMITED, corporation organized under the
laws of the United Kingdom and Wales, having its principal place of business at
St. Peters Street, Nottingham NG7 3EN, United Kingdom ("FEMCARE"), and PROTEIN
POLYMER TECHNOLOGIES, INC., a corporation with its principal office at 10655
Sorrento Valley Road, San Diego, California 92121 ("PPTI"), and the party
identified on Exhibit A attached hereto ("Escrow Agent").
WHEREAS, in connection with the License and Development Agreement between
FEMCARE and PPTI ("License Agreement") and Supply Agreement between PPTI and
FEMCARE ("Supply Agreement"), each dated as of the date of this Escrow
Agreement, PPTI has agreed to enter into this Escrow Agreement pursuant to which
PPTI shall deposit into escrow, when required (i) aliquotes of the Master Cell
Bank and Working Cell Bank for the Product (as such term is defined under the
License Agreement) ("Sample", herein), and (ii) the current manufacturing and
quality control procedures with respect to the Sample being deposited, as well
as such other Know-How (as defined in the License Agreement), technical
specifications, instructions, processes and other intellectual property and
information as PPTI shall possess and as shall be necessary in order to allow
FEMCARE to manufacture and/or have manufactured for it the Product so licensed
(a "Process Description") and (iii) any written agreement between PPTI and any
contract manufacturer engaged by PPTI to manufacture Product and a related
assignment and assumption agreement and letter of direction as provided in
Section 2 (c) below ("Toll Manufacturing Materials" and together with the
Process Descriptions and the Sample, collectively, the "Escrow Material");
NOW, THEREFORE, the parties hereto agree as follows:
1. APPOINTMENT OF ESCROW AGENT. Within thirty (30) days after the
execution of this Agreement, FEMCARE shall select and appoint an Escrow Agent,
which appointment shall be subject to the consent of PPTI, such consent not to
be unreasonably withheld or delayed. The Escrow Agent must certify to the
parties that it has and will at all times during the term of the escrow liquid
nitrogen storage capabilities and that it will use such capabilities to hold the
Samples. Upon such appointment, the Escrow Agent shall execute a copy of Exhibit
A (duly filled in with the information specified thereon), whereupon the Escrow
Agent shall become a party to this Agreement.
2. DEPOSIT BY PPTI.
(a) Within ten (10) days after the appointment of the Escrow Agent, PPTI
will deposit in escrow with the Escrow Agent a sealed receptacle containing a
copy of the Process Description, which receptacle shall be held subject to the
terms and conditions of this Escrow Agreement. The Process Description shall be
sufficiently clear and detailed that it can be readily followed and carried
1
<PAGE>
out by a trained scientist and PPTI shall, upon placing the Process Description
into escrow, so notify FEMCARE of such deposit in writing, and provide to
FEMCARE a schedule of Process Description information so deposited. A FEMCARE
representative on the Advisory Board appointed under the License Agreement may
verify the Process Description information being deposited against the schedule.
The schedule shall constitute PPTI Know-How (as defined in the License
Agreement) and shall be kept confidential. PPTI agrees to update and keep
current, accurate and complete the Process Description on an annual basis or
more frequently if required to reflect procedures embodied in Regulatory
Approvals (as that term is defined in the License Agreement) or required to
assist in the manufacture of Product (and where appropriate, the term "Process
Description" shall include any such updated materials from time-to-time). PPTI
shall, upon each updating of the Process Description, so notify FEMCARE of such
fact in writing, and give it the same verification opportunity as is provided
above. FEMCARE may, at its sole cost and expense, obtain such insurance as it
deems reasonable and necessary regarding the Escrow Materials.
(b) Within ten (10) days after the appointment of the Escrow Agent, PPTI
will also deposit in escrow with the Escrow Agent a sealed receptacle containing
the Sample, which receptacle shall be held subject to the terms and conditions
of this Escrow Agreement. PPTI shall, upon placing each Sample into escrow, so
notify FEMCARE of such deposit in writing. PPTI agrees to replace the deposited
Sample with a newly-generated set of Sample if PPTI, based on quality control
testing of Product manufactured from cognate cells shall determine that the
cells in the Sample are not viable, in which case FEMCARE shall give its written
instructions pursuant to Article 4. PPTI shall, upon each replacement of the
Sample, so notify FEMCARE of such deposit in writing and such replacement shall
be deemed the Sample for purposes of this Agreement.
(c) Within ten (10) days after the engagement by PPTI of a contract
manufacturer of Product, if any, PPTI will also deposit into escrow with the
Escrow Agent a sealed receptacle containing any written agreement for the
manufacture of Product between PPTI and such contract manufacturer, an
assignment and assumption of said written agreement by and between PPTI and
FEMCARE duly executed by PPTI (but not FEMCARE), and a letter of direction
addressed to the contract manufacturer informing it of the assignment of the
written agreement to FEMCARE and authorizing it to manufacture Product on behalf
of, and supply such Product directly to FEMCARE under said assigned written
agreement (the "Toll Manufacturing Materials"). Any deposit of Toll
Manufacturing Materials notwithstanding, PPTI shall not be obligate to continue
the engagement of any contract manufacturer or to keep in effect any written
agreement for the contract manufacture of Product, or fully comply with the
terms and conditions of any such written agreement. PPTI shall promptly notify
FEMCARE of any change in the Toll Manufacturing Materials and, when necessary,
shall replace Toll Manufacturing Materials with new, amended or additional Toll
Manufacturing Materials, and shall so notify FEMCARE in writing.
3. REPRESENTATION. PPTI represents that the Process Description will be
accurate and complete in all material respects, that in its reasonable opinion
the Process Description is sufficiently clear and detailed so that they can be
readily followed and carried out by a trained scientist to
2
<PAGE>
manufacture the Product, and that the deposited Sample(s) (including any
replacement Sample deposited pursuant to Article 2) will be free of defects and
will be viable at the time of deposit.
4. CUSTODY; ACCESS. Escrow Agent agrees to accept deposit of the Escrow
Materials and to act as its custodian until the escrow is terminated pursuant to
the terms of this Escrow Agreement. Except as otherwise provided in this Escrow
Agreement, Escrow Agent shall not permit (i) any party access to the Escrow
Materials and (ii) any copies to be made of the Escrow Materials deposited
hereunder. Escrow Agent shall not open the sealed recepticals containing the
Escrow Materials, except upon receipt of mutual written instructions from PPTI
and FEMCARE.
5. RELEASE OF ESCROW MATERIALS.
(a) TO FEMCARE. Escrow Agent shall release and deliver any or all of the
Escrow Materials to FEMCARE upon the occurrence of any of the following events:
(i) Upon the written instructions of PPTI;
(ii) Upon delivery to the Escrow Agent of (A) a copy of an order,
judgment or decree adjudicating PPTI bankrupt or insolvent; (B) written notice
that PPTI has commenced any case, proceeding or other action relating to it in
bankruptcy or seeking reorganization, liquidation, dissolution, winding-up,
arrangement, composition or readjustment of its debts, or for any other relief,
under any bankruptcy, insolvency, reorganization, liquidation, dissolution,
arrangement, composition, readjustment of debt or other similar act or law of
any jurisdiction, domestic or foreign, now or hereafter existing; (C) PPTI has
applied for a receiver, custodian or trustee of it or for all or a substantial
part of its property, made an assignment for the benefit of its creditors; (D)
written notice that a case, proceeding or other action has been commenced
against PPTI in bankruptcy, or seeking reorganization, liquidation, dissolution,
winding-up, arrangement, composition or readjustment of its debts, or any other
relief, under any bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement, composition, readjustment of debt or other similar act
or law of any jurisdiction, domestic or foreign, now or hereafter existing; or
if a receiver, custodian or trustee of PPTI or for all or substantially all of
its properties shall be appointed; or if a warrant of attachment, execution or
distraint, or similar process, shall be issued against any substantial part of
the property of PPTI; and if in each such case in this clause (D) such condition
shall continue for a period of ninety (90) days undismissed, undischarged or
unbonded; (E) written notice along with reasonable evidence that shows that PPTI
has failed to deliver to FEMCARE at least *** of the quantities of Product
ordered on at least *** of acceptable purchase orders within the deliver periods
allowed in the Supply Agreement; or (F) written notice along with reasonable
evidence that shows that in two consecutive Marketing Years for which Minimum
Purchases are required under the Supply Agreement and in which FEMCARE has had
sales of Product equal to or in excess of the
- ------------------------
*** Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.
3
<PAGE>
Minimum Purchases for such Marketing Years, PPTI has reduced FEMCARE's original
Annual Estimate (as defined in the Supply Agreement) by more than twenty percent
***.
(iii) Ten (10) business days after FEMCARE delivers to both Escrow
Agent and PPTI a letter or certificate signed by a director of FEMCARE
indicating that it is entitled to the Escrow Materials as a result of a material
breach by PPTI of the License Agreement (which breach was not cured in
accordance with the applicable provisions thereof).
(b) TO PPTI. Escrow Agent shall release and deliver all of the Escrow
Materials to PPTI within ten (10) business days after PPTI delivers to both
Escrow Agent and FEMCARE a letter or certificate signed by the President of PPTI
indicating that it is entitled to the Escrow Materials as a result of (1) a
breach by FEMCARE of the License Agreement (which breach was not cured in
accordance with the applicable provisions thereof) or (2) termination or
expiration of FEMCARE's license under Section 2.1 of the License Agreement.
6. LICENSE TO ESCROW MATERIALS. If the Escrow Materials are released and
delivered to FEMCARE, PPTI shall retain title to such Escrow Materials and
FEMCARE shall have a license to use such Escrow Materials in accordance with the
rights set out in the License Agreement.
7. TERMINATION OF ESCROW.
(a) The escrow shall terminate upon the earliest to occur of the
following events:
(i) mutual written agreement of the parties; or
(ii) delivery of a Process Description and related Sample and the
Toll Manufacturing Materials to FEMCARE or PPTI, as the case may be, in
accordance with the terms of Section 5.
(b) The parties agree that if the escrow is terminated pursuant to
Section 7(a)(i) above, the relevant Escrow Materials shall be delivered to
whichever party is designated in the written agreement among the parties.
8. ESCROW AGENT FEES. In consideration for performing its function as
escrow agent, Escrow Agent shall be paid solely by FEMCARE the charge for any
duties required in connection with this Escrow Agreement.
9. ESCROW AGENT.
(a) The obligations of the Escrow Agent are those specifically provided
in this Escrow Agreement, and the Escrow Agent shall have no liability under, or
duty to inquire into the terms and provisions of, any other agreement including,
without limitation, the License Agreement. The duties of the Escrow Agent are
purely ministerial in nature, and it shall not incur any liability whatsoever,
except for willful misconduct, gross negligence or breach of Article 9(d).
- ------------------------
*** Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.
4
<PAGE>
(b) The Escrow Agent shall not have any responsibility for the
genuineness or validity of any document or other item deposited with it or of
any signature thereon and shall not have any liability for acting in accordance
with any written instructions or certificates given to it hereunder and believed
by it to be signed by the proper parties. If the Escrow Agent shall receive
conflicting instructions, it shall advise FEMCARE and PPTI of such fact. FEMCARE
and PPTI shall have thirty (30) days to resolve the conflicting instructions and
jointly notify the Escrow Agent. If the Escrow Agent is not timely jointly
notified, it may at any time thereafter submit such conflict to arbitration in
accordance with the provisions of Section 10(c).
(c) The Escrow Agent may resign and be discharged from its duties
hereunder at any time by giving at least 30 days' notice of such resignation to
FEMCARE and PPTI, specifying a date upon which such resignation shall take
effect; provided, however, that the Escrow Agent shall continue to serve until
its successor accepts the appointment as new Escrow Agent. Upon receipt of such
notice, a successor escrow agent shall be appointed by FEMCARE and PPTI, such
successor escrow agent to become the Escrow Agent hereunder on the resignation
date specified in such notice. If an instrument of acceptance by a successor
escrow agent shall not have been delivered to the Escrow Agent within 40 days
after the giving of such notice of resignation, the resigning Escrow Agent may
at the expense of FEMCARE request that an arbitrator appoint a successor escrow
agent in accordance with the provisions of Section 10(c). FEMCARE and PPTI,
acting jointly, may at any time substitute a new escrow agent by giving 10 days'
notice thereof to the current Escrow Agent then acting and paying all expenses
of the current Escrow Agent.
(d) The Escrow Agent hereby agrees:
i. to maintain the Escrow Material and all information and/or
documentation coming into its possession or to its knowledge
under this Escrow Agreement in strictest confidence and
secrecy;
ii. not to make use of the Escrow Materials other than for the
performance of its obligations under this Escrow Agreement
and shall not disclose or release the same to any party other
than in accordance with the terms hereof; and
iii. that the obligations imposed hereunder shall continue,
notwithstanding release of the Escrow Materials or
termination of this Escrow Agreement, until or unless as the
Escrow Materials falls within the public domain, through no
fault of the Escrow Agent.
10. MISCELLANEOUS.
(a) NOTICES. All notices, claims, certificates, requests, demands and
other communications hereunder shall be in writing and shall be delivered
personally or sent by facsimile
5
<PAGE>
transmission, air courier, or registered or certified mail, return receipt
requested, addressed as follows:
IF TO PPTI TO:
Protein Polymer Technologies, Inc.
10655 Sorrento Valley Road
San Diego, California 92121
Fax: (619) 558-6477
Attention: President;
with a copy to:
Piper Marbury Rudnick & Wolfe
203 North LaSalle Street
Suite 1800
Chicago, IL 60601
Fax: (312) 630-5322
Attention: John H. Heuberger; and
IF TO FEMCARE TO:
Femcare Urology Limited
St. Peter Street
Nottingham NG7 3EN
United Kingdom
Attention:
Fax: 011-44-115-942-0234
Copy to B. Sweeney
with a copy to:
Nelson Solicitors
Perrine House, 8 Stanford Street
Nottingham NG1 7BQ
United Kingdom
Fax: 011-44-115-958-9113
if to ESCROW AGENT, to the address specified on Exhibit A attached hereto
or to such other address as the party to whom notice is to be given may have
furnished to the other parties in writing in accordance herewith. Any such
communication shall be deemed to have been delivered (i) when delivered, if
delivered personally, (ii) when sent (with confirmation received), if sent by
facsimile transmission on a business day, (iii) on the first business day after
dispatch (with confirmation received), if sent by facsimile transmission on a
day other than a business day, (iv) on the third business day after dispatch, if
sent by air courier, and (v) on the fifth business day after mailing, if sent by
registered or certified mail.
6
<PAGE>
(b) SEVERABILITY. In the event that any provision of this Escrow
Agreement would be held in any jurisdiction to be invalid, prohibited or
unenforceable for any reason, such provision, as to such jurisdiction, shall be
ineffective, without invalidating the remaining provisions of this Escrow
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction. Notwithstanding the foregoing, if such provision could be
more narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Escrow Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
(c) GOVERNING LAW; DISPUTE RESOLUTION. Any controversy or claim arising
out of or relating to the Escrow Agreement, or the parties' decision to enter
into this Escrow Agreement, or the breach hereof, shall be settled by
arbitration in accordance with the International Arbitration Rules of the
American Arbitration Association ("AAA"), and judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction thereof.
Notwithstanding the forgoing to the contrary or in the arbitration rules invoked
or in this Section 10 (c), the parties retain the right to request a judicial
authority to invoke interim measures of protection, and such request shall not
be deemed incompatible with this agreement to arbitrate or a waiver of the right
to arbitrate.
The arbitration shall be held in the City of New York, State of New York,
U.S.A., and the arbitrator shall apply the substantive law of the State of
Delaware, except that the interpretation and enforcement of this arbitration
provision shall be governed by the Federal Arbitration Act. There shall be one
(1) arbitrator to be mutually agreed upon by the parties and to be selected from
the Regional Panel of Distinguished Neutrals. If the parties are unable to agree
upon such an arbitrator who is willing to serve within ten (10) days of receipt
of a demand to arbitrate by the other party, then the AAA shall appoint an
arbitrator willing to serve from the stated panel, or if no such panel exists,
the parties shall within three (3) days select one of the five (5) largest
international accounting firms (excluding those providing services for the
parties) and engage the managing partner or senior officer of its New York City
office to designate a partner of such firm to serve as the arbitrator. Failing
that, then the AAA shall appoint an arbitrator willing to serve from the
Regional Panel of Distinguished Neutrals, or if no such panel exists, then from
an appropriate AAA panel. It shall be the duty of the arbitrator to set dates
for preparation and hearing of any dispute and to expedite the resolution of
such dispute. Recognizing that the release of Escrow Materials is time critical,
the parties do hereby direct any arbitrator hereunder to reach a decision
regarding the release of Escrow Materials (which may be a temporary or
preliminary decision subject to such conditions as the arbitrator may, in its
sole discretion, order) within 30 days following his or her engagement or
appointment.
It shall be the duty of the arbitrator to set dates for preparation and
hearing of any dispute and to expedite the resolution of such dispute. The
arbitrator shall permit and facilitate discovery, which will be conducted in
accordance with the Federal Rules of Civil Procedure, taking into account the
needs of the parties and the desirability of making discovery expeditious and
cost-effective. The arbitrator will set a discovery schedule with which the
parties will comply and attend depositions if requested by either party. The
arbitrator will entertain such presentation of sworn testimony or evidence,
written briefs and/or oral argument as the parties may wish to present; however,
no testimony or exhibits will be admissible unless the adverse party was
afforded an opportunity to
7
<PAGE>
examine such witness and to inspect and copy such exhibits during the pre-
hearing discovery phase. The arbitrator shall among his other powers and
authorities, have the power and authority to award interim or preliminary
relief. The arbitrator shall not be empowered to award either party exemplary or
punitive damages or any enhanced damages for willful infringement and the
parties shall be deemed to have waived any right to such damages.
A qualified court reporter will record and transcribe the proceedings. The
decision of the arbitrator will be in writing and judgment upon the award by the
arbitrator may be entered into any court having jurisdiction thereof. Prompt
handling and disposal of the issue is important. Accordingly, the arbitrator is
instructed to assume adequate managerial initiative and control over discovery
and other aspects of the proceeding to schedule discovery and other activities
for substantially continuous work, thereby expediting the arbitration as much as
is deemed reasonable to him, but in all events to effect a final award within
365 days of the arbitrator's selection or appointment and within 20 days of the
close of evidence.
The proceedings shall be confidential and the arbitrator shall issue
appropriate protective orders to safeguard both parties' confidential
information and the Escrow Materials. The fees of the arbitrator and the AAA
shall be paid as designated by the arbitrator or, if he shall not so designate,
they shall be split equally between the parties.
(d) BINDING EFFECT; BENEFITS; ASSIGNMENT. This Escrow Agreement shall
enure to the benefit of and be binding upon the parties hereto and their
respective permitted successors and assigns. Nothing contained herein shall give
to any other person any benefit or any legal or equitable right, remedy or
claim. This Escrow Agreement shall not be assignable by PPTI without the prior
written consent of FEMCARE, which consent may be withheld in the sole discretion
of FEMCARE. Notwithstanding the foregoing, no consent of FEMCARE shall be
required if such assignment is in connection with the sale or transfer of all or
substantially all of the assets of PPTI or the merger or consolidation of PPTI
with or into any other business entity. FEMCARE shall be permitted to assign
this Escrow Agreement upon written notice to PPTI to any party to which it
assigns all of its rights under the License Agreement or sells or transfers all
or substantially all of its assets. No such assignment shall relieve the
assigning party of its underlying obligations under this Escrow Agreement.
(e) ENTIRE ESCROW AGREEMENT; AMENDMENTS. This Escrow Agreement and the
other writings referred to herein or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with respect to its
subject matter. This Escrow Agreement may be amended only by a written
instrument duly executed by the parties hereto.
(f) WAIVERS. It is further understood and agreed that no failure or delay
by either party hereto in exercising any right, power or privilege under this
Escrow Agreement shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege hereunder.
(g) COUNTERPARTS. This Escrow Agreement may be executed in any number of
counterparts, and execution by each of the parties of any one of such
counterparts will constitute due
8
<PAGE>
execution of this Escrow Agreement. Each such counterpart hereof shall be
deemed to be an original instrument, and all such counterparts together shall
constitute but one agreement.
(h) HEADINGS. The article and section headings contained in this Escrow
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Escrow Agreement.
IN WITNESS WHEREOF, the parties have caused this Escrow Agreement to be
signed by authorized persons, whereupon it became binding on the parties as of
the date first above written.
PROSPECTIVEPIERCING LIMITED PROTEIN POLYMER TECHNOLOGIES, INC.,
(TO BECOME FEMCARE UROLOGY LIMITED) a Delaware corporation
By: /s/ Bernard Sweeney By: /s/ Thomas Parmeter
-------------------------------- ------------------------------
Name: Bernard Sweeney Thomas Parmeter, President and CEO
------------------------------
Its: Managing Director
-------------------------------
THE UNDERSIGNED PARENT COMPANY OF PROSPECTIVEPIERCING LIMITED, TO INDUCE PROTEIN
POLYMER TECHNOLOGIES, INC. AND THE ESCROW AGENT TO ENTER INTO THIS AGREEMENT AND
FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT, ADEQUACY AND SUFFICIENCY
OF WHICH IS HEREBY ACKNOWLEDGED, HEREBY IRREVOCABLY AND UNCONDITIONALLY
GUARANTEES THE TIMELY AND FULL PERFORMANCE AND PAYMENTS UNDER THIS AGREEMENT BY
PROSPECTIVEPIERCING LIMITED AND AGREES THAT IT SHALL BE BOUND BY THE ARBITRATION
PROVISIONS HEREIN AS IF A FULL PARTY HERETO.
FEMCARE, LTD.
By: /s/ Bernard Sweeney
----------------------------
Name: Bernard Sweeney
-------------------------
Title: Managing Director
-------------------------
9
<PAGE>
EXHIBIT A
The undersigned party hereby (a) agrees to be the Escrow Agent pursuant to
and under that certain Escrow Agreement dated as of January __, 2000, between
Protein Polymer Technologies, Inc. and Femcare Urology Limited and (b) certifies
that it has liquid nitrogen storage capabilities and that it will use such
capabilities to store the cells that are part of the Escrow Materials.
ESCROW AGENT:
Name:
----------------------------------
Address:
-------------------------------
Telephone:
-----------------------------
Fax:
-----------------------------------
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Date:
----------------------------
A-1
<PAGE>
EXHIBIT 10.30
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of February
17, 2000 between PROTEIN POLYMER TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), and J. THOMAS PARMETER (the "Employee").
RECITAL
The Company desires to continue to employ the Employee, and the Employee
desires to be so employed by the Company, on the terms and subject to the
conditions set forth in this Agreement. This Agreement supersedes that certain
employment agreement between the Company and the Employee dated November 1, 1996
(the "Prior Agreement").
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
set forth in this Agreement, the Company and the Employee hereby agree as
follows:
1. Employment.
(a) Subject to the terms and conditions contained herein, the Company
hereby agrees to employ the Employee, and the Employee accepts such employment,
from the date hereof until the earlier of (i) December 31, 2002 or (ii) the date
such employment is terminated pursuant to Section 4 of this Agreement. During
the Employee's employment under this Agreement, the Employee shall perform such
duties for the Company as may from time to time be assigned to the Employee by
Board of Directors of the Company (the "Board"). The Employee shall have the
title of Chairman of the Board of Directors, Chief Executive Officer and
President, or such other title or titles, if any, as from time to time may be
assigned to the Employee by the Board.
(b) The Employee will devote his entire business time, energy,
attention and skill to the services of the Company and its affiliates and to the
promotion of their interests. So long as the Employee is employed by the
Company, the Employee shall not, without the written consent of the Company:
(i) engage in any other activity for compensation, profit or
other pecuniary advantage, whether received during or after the term of this
Agreement;
(ii) render or perform services of a business, professional, or
commercial nature other than to or for the Company, either alone or as an
employee, consultant, director, officer, or partner of another business entity,
whether or not for compensation, and whether or not such activity, occupation or
endeavor is similar to, competitive with, or adverse to the business or welfare
of the Company; or
<PAGE>
(iii) invest in or become a shareholder of another corporation or
other entity; provided, that the Employee's investment solely as a shareholder
in another corporation shall not be prohibited hereby so long as such investment
is not in excess of one percent (1%) of any class of shares that are traded on a
national securities exchange.
(c) Prior to or concurrently with the execution of this Agreement, the
Employee has executed an Employee Proprietary Information, Trade Secret and
Confidentiality Agreement (the "Confidentiality Agreement").
2. Location of Employment. The Employee's principal place of employment
shall be at the executive offices of the Company located at 10655 Sorrento
Valley Road, San Diego, California 92121 or, as may be requested by the Board,
at any other office of the Company or any of its affiliates currently or
hereinafter located in San Diego County; provided, that at the direction of the
Board, the Employee may from time to time be required to travel to various
domestic and foreign locations.
3. Compensation.
(a) In exchange for full performance of the Employee's obligations and
duties under this Agreement, the Company shall pay the Employee an annual base
salary (the "Base Salary") equal to $212,000, payable in monthly installments in
accordance with the Company's standard payroll practices. In any month in which
the Employee shall be employed for less than the entire number of days in such
month, the compensation payable under this Section 3(a) shall be prorated on the
basis of the number of days during which the Employee was actually employed
divided by the number of days in such month.
(b) The Base Salary is a gross amount, and the Company shall be
required to withhold from such amount deductions with respect to Federal, state
and local taxes, FICA, unemployment compensation taxes and similar taxes,
assessments or withholding requirements.
(c) During the Employee's employment under this Agreement, the
Employee shall also be reimbursed by the Company for reasonable business
expenses actually incurred or paid by the Employee, consistent with the policies
established by the Board, in rendering to the Company the services provided for
in this Agreement, upon presentation of expense statements or such other
supporting information as is consistent with the policies of the Company.
(d) The Employee shall be entitled to 20 business days vacation for
each full year of employment under this Agreement, which vacation time will
accrue in accordance with the vacation policy of the Company.
(e) The Employee shall be entitled to participate in all benefit plans
(including deferred compensation plans and any medical, dental or life insurance
plans) which shall
2
<PAGE>
be available from time to time to the domestic management employees of the
Company generally, except to the extent such participation in any plan would, in
the opinion of the Board, alter the intended tax treatment of such plan;
provided, however, that the Employee shall have no right under this Agreement to
participate in any stock option, stock purchase or other plan relating to shares
of capital stock of the Company or its affiliates. The Employee acknowledges and
agrees that the Board may in its discretion terminate at any time or modify from
time to time any such benefit plans.
(f) During the term of this Agreement, the Company shall maintain, for
the benefit of the Employee, a "term life" insurance policy in the amount of
$250,000, the proceeds of which are payable to a person designated by the
Employee.
(g) The Employee shall be entitled to use, at the expense of the
Company, a corporate automobile leased by the Company, provided that the monthly
lease payments shall be less than $550. Upon termination or expiration of this
Agreement, the Employee shall have the option to purchase such automobile from
the Company at a price equal to the book value thereof, as reflected on the most
recent regularly-prepared balance sheet of the Company. The Employee may
exercise this option by delivering a check, in the amount of such price, to the
Company within 30 days of such termination or expiration.
(h) Other than as expressly set forth in this Section 3 or Sections
4(f) and 4(g) below, the Employee shall not receive any other compensation or
benefits except to the extent provided by the Board.
4. Termination.
(a) The employment of the Employee under this Agreement may be
terminated by the Company immediately upon giving the Employee notice if (i) the
Board determines that the Employee is unable to discharge his essential job
duties by reason of illness or injury or (ii) the Employee has been unable to
discharge his essential job duties by reason of illness or injury for either (A)
a period of two consecutive months or (B) twelve weeks in any twelve-month
period.
(b) The employment of the Employee under this Agreement shall
terminate on the date of the Employee's death.
(c) The employment of the Employee under this Agreement may be
terminated by the Company upon written notice from the Board that, in the
opinion of the Board, the Employee has (i) refused or failed (after reasonable
notice that such refusal or failure would result in termination of the
Employee's employment) to perform, to the satisfaction of the Board, any duties
assigned to the Employee by the Board, (ii) committed a breach of the terms of
this Agreement or any other legal obligation to the Company, (iii) failed to
perform any of the Employee's obligations under the Confidentiality Agreement,
(iv) demonstrated negligence or willful misconduct in the execution of the
Employee's assigned duties, (v) been convicted of or pleaded nolo
----
3
<PAGE>
contendere to a felony or other serious crime, (vi) repeatedly and intemperately
- ----------
used alcohol or drugs, (vii) engaged in business practices which, in the opinion
of the Board, are unethical or reflect adversely on the Company, (viii)
misappropriated assets of the Company or (ix) been repeatedly absent from work
during normal business hours for reasons other than disability.
(d) The employment of the Employee under this Agreement shall
terminate upon receipt by the Board of a written notice of resignation signed by
the Employee or, if no notice is given, on the date on which the Employee
voluntarily terminates his or her employment relationship with the Company.
(e) In addition to the circumstances described in subsections (a),
(b), (c) and (d) above, the Company may terminate the Employee's employment for
any reason or no reason and with or without cause or prior notice. The Employee
understands that, subject to subsections (f)(iii) and (g) below, he is an
at-will employee and may be terminated by the Company without cause or prior
notice pursuant to this subsection (e) notwithstanding any other provision
contained in this Agreement. This at-will relationship will remain in effect
during the term of this Agreement and so long thereafter provided that the
Employee remains employed by the Company, unless such at-will employment
relationship is modified by a specific, express written agreement signed by the
Company.
(f) If the Employee's employment is terminated pursuant to this
Section 4 or for any, other reason, the Employee shall not be entitled to any
compensation or benefits from the Company, under Section 3 of this Agreement or
otherwise, except for the following:
(i) Base Salary and vacation pay accrued, and reasonable business
expenses incurred, under Section 3 of this Agreement through the date of such
termination;
(ii) such benefits, if any, as may be required to be provided by
the Company under the Comprehensive Omnibus Budget Reconciliation Act (COBRA);
and
(iii) if the Employee's employment is terminated pursuant to
subsection (e) above, the Company shall continue to pay to the Employee the Base
Salary then in effect at intervals in accordance with the Company's standard
payroll practice until the termination date set forth in Section 1(a)(i) of this
Agreement.
(g) Employee may terminate his employment hereunder for "Good Reason"
(as hereinafter defined)
4
<PAGE>
(i) For purposes of this Agreement, "Good Reason" shall mean a
termination of Employee's employment by Employee within 90 days after the
occurrence of any of the following after a "Change in Control" (as hereinafter
defined): (i) a reduction in Employee's Base Salary then in effect; (ii) a
material reduction in Employee's positions, duties and responsibilities from
those described in Section 1(a) of this Agreement; or (iii) the failure of the
Company to obtain the assumption of this Agreement by any successor to the
extent required pursuant to Section 10(a) of this Agreement.
(ii) For purposes of this Agreement, the term "Change in Control"
shall mean the occurrence of any of the following events with respect to the
Company:
(A) All or substantially all of the assets of the Company
are sold or transferred to another corporation or entity; or
(B) The Company is sold, transferred, merged, consolidated,
ventured or reorganized into or with another corporation or entity, with the
result that upon conclusion of the transaction less than a majority of the
outstanding securities entitled to vote generally in the election of directors
or other capital interests of the acquiring corporation or entity are owned,
directly or indirectly, by the shareholders of the Company immediately prior to
the sale, transfer, merger, consolidation, venture or reorganization; or
(C) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as promulgated pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
disclosing that any person (as the term "person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the
term "beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities representing more
than 50% of the combined voting power of the then-outstanding voting securities
of the Company; or
(D) The Company shall file a report or proxy statement
with the Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Item 1 of Form 8-K thereunder or Item 14 of Schedule
14A thereunder (or any successor schedule, form or report or item therein) that
a change in control of the Company has or may have occurred or will or may occur
in the future pursuant to any then-existing contract or transaction; or
(E) The individuals who, at the beginning of any period of
two consecutive calendar years, constituted members of the Board cease for any
reason to constitute at least a majority thereof unless the nomination for
election by the Company's stockholders of each new director of the Company was
approved by a vote of at least two-thirds of the directors of the Company still
in office who were Directors of the Company at the beginning of any such period.
5
<PAGE>
(iii) Notwithstanding the foregoing, a termination shall not be
treated as a termination for Good Reason (i) if Employee shall have specifically
consented in writing to the occurrence of the event giving rise to the claim of
termination for Good Reason or (ii) unless Employee, within 30 days after
receiving written notice from the Company specifying in reasonable detail the
occurrence of one of such events, shall have delivered a written notice to the
Company stating that he intends to terminate his employment for Good Reason and
specifying the factual basis for such termination and such event, if capable of
being cured, shall not have been cured within 30 days of the receipt by the
Company of such notice.
(iv) If Employee shall terminate his employment for Good Reason,
the Company shall pay Employee (or, in the event of his death, his devisee,
legatee or, if there is none, his estate) a lump-sum amount equal to the highest
level of Employee's annual Base Salary in effect on the date of the Change in
Control, multiplied by a factor of 2.99. Employee will also be entitled to any
vested benefits under any employee benefit plans.
5. Employee's Representations.
(a) The Employee represents that he has full authority to enter into
this Agreement and that he is free to enter into this Agreement and not under
any contractual restraint which would prohibit the Employee from satisfactorily
performing his duties to the Company under this Agreement.
(b) The Employee hereby agrees to indemnify and hold harmless the
Company, its officers, directors and stockholders from and against any losses,
liabilities, damages or costs (including reasonable attorney's fees) arising out
of a breach, or claimed breach, of any of the representations, warranties and
covenants of the Employee set forth in this Agreement.
(c) The Employee acknowledges that he is free to seek advice from
independent counsel with respect to this Agreement. The Employee has either
obtained such advice or, after carefully reviewing this Agreement, has decided
to forego such advice. The Employee is not relying on any representation or
advice from the Company or any of its officers, directors, attorneys or other
representatives regarding this Agreement, its content or effect.
6. Arbitration. Any controversy or claim arising out of or relating to this
Agreement or any breach hereof or the Employee's employment by the Company or
termination thereof, shall be settled by arbitration by one arbitrator in
accordance with the rules of the American Arbitration Association, and judgment
upon such award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The arbitration shall be held in the City of San Diego or
such other place as may be agreed upon at the time by the parties to the
arbitration.
6
<PAGE>
7. Equitable Relief. The Employee acknowledges that the Company is relying
for its protection upon the existence and validity of the provisions of this
Agreement, that the services to be rendered by the Employee are of a special,
unique and extraordinary character, and that irreparable injury will result to
the Company from any violation or continuing violation of the provisions of this
Agreement for which damages may not be an adequate remedy. Accordingly, the
Employee hereby agrees that in addition to the remedies available to the Company
by law or under this Agreement, the Company shall be entitled to obtain such
equitable relief as may be permitted by law in a court of competent jurisdiction
including, without limitation, injunctive relief from any violation or
continuing violation by the Employee of any term or provision of this Agreement.
8. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal substantive laws (and not the laws of
conflicts) of the State of California.
9. Entire Agreement. This Agreement constitutes the whole agreement of the
parties hereto in reference to any employment of the Employee by the Company and
in reference to any of the matters or things herein provided for or hereinabove
discussed or mentioned in reference to such employment; all prior agreements,
promises, representations and understandings relative thereto (including,
without limitation, the Prior Agreement) being herein merged.
10. Assignability.
(a) In the event the Company shall merge or consolidate with any other
corporation, partnership or business entity, or all or substantially all of the
Company's business or assets shall be transferred in any manner to any other
corporation, partnership or business entity, then such successor to the Company
shall thereupon succeed to, and be subject to, all rights, interests, duties and
obligations of, and shall thereafter be deemed for all purposes hereof to be,
the "Company" under this Agreement. This Agreement shall inure to the benefit of
and be enforceable by Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Employee should die, any amounts payable to him hereunder shall be paid in
accordance with the terms of this Agreement to Employee's devisee, legatee, or
other designee or, if there be no such designee, to his estate.
(b) This Agreement is personal in nature and the Employee shall not,
except as set forth in subsection (a) hereof, without the written consent of the
Company, assign or transfer this Agreement or any rights or obligations
hereunder.
(c) Except as set forth in subsection (a) above, nothing expressed or
implied in this Agreement is intended or shall be construed to confer upon or
give to any person, other than the parties to this Agreement, any right, remedy
or claim under or by reason of this Agreement or of any term, covenant or
condition of this Agreement.
7
<PAGE>
l1. Amendments; Waivers. This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms or covenants of this
Agreement may be waived only by a written instrument executed by the parties to
this Agreement or, in the case of a waiver, by the party waiving compliance. Any
such written instrument must be approved by the Board to be effective as against
the Company. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later time to enforce the same. No waiver by any party of the breach
of any term or provision contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such breach, or a waiver of the breach of
any other term or covenant contained in this Agreement.
12. Notice. All notices, requests or consents required or permitted under
this Agreement shall be made in writing and shall be given to the other parties
by personal delivery, overnight air courier (with receipt signature) or
facsimile transmission (with "answerback" confirmation of transmission), sent to
such parties' addresses or telecopy numbers as are set forth below such parties'
signatures to this Agreement, or such other addresses or telecopy numbers of
which the parties have given notice pursuant to this Section 12. Each such
notice, request or consent shall be deemed effective upon the date of actual
receipt, receipt signature or confirmation of transmission, as applicable.
13. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
14. Survival. The representations and agreements of the Employee set forth
in Sections 5, 6 and 7 of this Agreement shall survive the expiration or
termination of this Agreement (irrespective of the reason for such expiration of
termination).
15. Attorney's Fees. If any party to this Agreement seeks to enforce his or
its rights under this Agreement, the prevailing party or parties shall be
entitled to recover reasonable fees, costs and expenses incurred in connection
therewith including, without limitation, the fees, costs and expenses of
attorneys, accountants and experts, whether or not litigation is instituted, and
including such fees, costs and expenses of appeals.
[Signature page follows]
8
<PAGE>
1N WITNESS WHEREOF, the parties to this Agreement have executed this
Employment Agreement as of the date first above written.
PROTEIN POLYMER TECHNOLOGIES, 1NC.
By: /s/ Philip J. Davis
------------------------------
Philip J. Davis
Corporate Secretary
Address for Notices:
10655 Sorrento Valley Road
First Floor
San Diego, California 92121
Attention: Philip J. Davis
Telecopy: (619) 5558-6477
/s/ J. THOMAS PARMETER
---------------------------------
J. THOMAS PARMETER
Address for Notices:
1842 Viking Way
La Jolla, CA 92037
9
<PAGE>
EXHIBIT 10.31
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of February
l7, 2000 between PROTEIN POLYMER TECHNOLOGIES, INC., a Delaware corporation
(the "Company"), and JOHN FLOWERS (the "Employee").
RECITAL
The Company desires to continue to employ the Employee, and the Employee
desires to be so employed by the Company, on the terms and subject to the
conditions set forth in this Agreement. This Agreement supersedes that certain
employment agreement between the Company and the Employee dated November 1, 1996
(the "Prior Agreement").
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
set forth in this Agreement, the Company and the Employee hereby agree as
follows:
1. Employment.
(a) Subject to the terms and conditions contained herein, the Company
hereby agrees to employ the Employee, and the Employee accepts such employment,
from the date hereof until the earlier of (i) December 31, 2002 or (ii) the date
such employment is terminated pursuant to Section 4 of this Agreement. During
the Employee's employment under this Agreement, the Employee shall perform such
duties for the Company as may from time to time be assigned to the Employee by
Board of Directors of the Company (the "Board") or the President of the Company
(the "Designated Officer"). The Employee shall have the title of Vice President,
Planning and Operations and Director, Intellectual Property, or such other title
or titles, if any, as from time to time may be assigned to the Employee by the
Board.
(b) The Employee will devote his entire business time, energy,
attention and skill to the services of the Company and its affiliates and to the
promotion of their interests. So long as the Employee is employed by the
Company, the Employee shall not, without the written consent of the Company:
(i) engage in any other activity for compensation, profit or
other pecuniary advantage, whether received during or after the term of this
Agreement;
(ii) render or perform services of a business, professional,
or commercial nature other than to or for the Company, either alone or as an
employee, consultant, director, officer, or partner of another business entity,
whether or not for compensation, and whether or not such activity, occupation or
endeavor is similar to, competitive with, or adverse to the business or welfare
of the Company; or
<PAGE>
(iii) invest in or become a shareholder of another corporation
or other entity; provided, that the Employee's investment solely as a
shareholder in another corporation shall not be prohibited hereby so long as
such investment is not in excess of one percent (1%) of any class of shares that
are traded on a national securities exchange.
(c) Prior to or concurrently with the execution of this Agreement, the
Employee has executed an Employee Proprietary information, Trade Secret and
Confidentiality Agreement (the "Confidentiality Agreement").
2. Location of Employment. The Employee's principal place of employment
shall be at the executive offices of the Company located at 10655 Sorrento
Valley Road, San Diego, California 92121 or, as may be requested by the Board,
at any other office of the Company or any of its affiliates currently or
hereinafter located in San Diego County; provided, that at the direction of the
Board or the Designated Officer, the Employee may from time to time be required
to travel to various domestic and foreign locations.
3. Compensation.
(a) In exchange for full performance of the Employee's obligations and
duties under this Agreement, the Company shall pay the Employee an annual base
salary (the "Base Salary") equal to $125,000, payable in monthly installments in
accordance with the Company's standard payroll practices. In any month in which
the Employee shall be employed for less than the entire number of days in such
month, the compensation payable under this Section 3(a) shall be prorated on the
basis of the number of days during which the Employee was actually employed
divided by the number of days in such month.
(b) The Base Salary is a gross amount, and the Company shall be
required to withhold from such amount deductions with respect to Federal, state
and local taxes, FICA, unemployment compensation taxes and similar taxes,
assessments or withholding requirements.
(c) During the Employee's employment under this Agreement, the
Employee shall also be reimbursed by the Company for reasonable business
expenses actually incurred or paid by the Employee, consistent with the policies
established by the Board, in rendering to the Company the services provided for
in this Agreement, upon presentation of expense statements or such other
supporting information as is consistent with the policies of the Company.
(d) The Employee shall be entitled to 20 business days vacation for
each full year of employment under this Agreement, which vacation time will
accrue in accordance with the vacation policy of the Company.
(e) The Employee shall be entitled to participate in all benefit plans
(including deferred compensation plans and any medical, dental or life insurance
plans) which shall
2
<PAGE>
be available from time to time to the domestic management employees of the
Company generally, except to the extent such participation in any plan would, in
the opinion of the Designated Officer, alter the intended tax treatment of such
plan; provided, however, that the Employee shall have no right under this
Agreement to participate in any stock option, stock purchase or other plan
relating to shares of capital stock of the Company or its affiliates. The
Employee acknowledges and agrees that the Board may in its discretion terminate
at any time or modify from time to time any such benefit plans.
(f) Other than as expressly set forth in this Section 3 or
Sections 4(f) and 4(g) below, the Employee shall not receive any other
compensation or benefits except to the extent provided by the Board.
4. Termination.
(a) The employment of the Employee under this Agreement may be
terminated by the Company immediately upon giving the Employee notice if (i) the
Board determines that the Employee is unable to discharge his essential job
duties by reason of illness or injury or (ii) the Employee has been unable to
discharge his essential job duties by reason of illness or injury for either (A)
a period of two consecutive months or (B) twelve weeks in any twelve-month
period.
(b) The employment of the Employee under this Agreement shall
terminate on the date of the Employee's death.
(c) The employment of the Employee under this Agreement may be
terminated by the Company upon written notice from the Board that, in the
opinion of the Board, the Employee has (i) refused or failed (after reasonable
notice that such refusal or failure would result in termination of the
Employee's employment) to perform, to the satisfaction of the Designated Officer
or the Board, any duties assigned to the Employee by the Designated Officer or
the Board, (ii) committed a breach of the terms of this Agreement or any other
legal obligation to the Company, (iii) failed to perform any of the Employee's
obligations under the Confidentiality Agreement, (iv) demonstrated negligence or
willful misconduct in the execution of the Employee's assigned duties, (v) been
convicted of or pleaded nolo contendere to a felony or other serious crime, (vi)
---- ----------
repeatedly and intemperately used alcohol or drugs, (vii) engaged in business
practices which, in the opinion of the Board, are unethical or reflect adversely
on the Company, (viii) misappropriated assets of the Company or (ix) been
repeatedly absent from work during normal business hours for reasons other than
disability.
(d) The employment of the Employee under this Agreement shall
terminate upon receipt by the Board of a written notice of resignation signed by
the Employee or, if no notice is given, on the date on which the Employee
voluntarily terminates his or her employment relationship with the Company.
3
<PAGE>
(e) In addition to the circumstances described in subsections (a),
(b), (c) and (d) above, the Company may terminate the Employee's employment for
any reason or no reason and with or without cause or prior notice. The Employee
understands that, subject to subsections (f)(iii) and (g) below, he is an
at-will employee and may be terminated by the Company without cause or prior
notice pursuant to this subsection (e) notwithstanding any other provision
contained in this Agreement. This at-will relationship will remain in effect
during the term of this Agreement and so long thereafter provided that the
Employee remains employed by the Company, unless such at-will employment
relationship is modified by a specific, express written agreement signed by the
Company.
(f) If the Employee's employment is terminated pursuant to this
Section 4 or for any other reason, the Employee shall not be entitled to any
compensation or benefits from the Company, under Section 3 of this Agreement or
otherwise, except for the following:
(i) Base Salary and vacation pay accrued, and reasonable
business expenses incurred, under Section 3 of this Agreement through the date
of such termination;
(ii) such benefits, if any, as may be required to be provided
by the Company under the Comprehensive Omnibus Budget Reconciliation Act
(COBRA);
and
(iii) if the Employee's employment is terminated pursuant to
subsection (e) above, the Company shall continue to pay to the Employee the Base
Salary then in effect at intervals in accordance with the Company's standard
payroll practice until the earlier of (A) six months following such termination
or (B) the termination date set forth in Section l(a)(i) of this Agreement.
(g) Employee may terminate his employment hereunder for "Good Reason"
(as hereinafter defined).
(i) For purposes of this Agreement, "Good Reason" shall mean a
termination of Employee's employment by Employee within 90 days after the
occurrence of any of the following after a "Change in Control" (as hereinafter
defined): (i) a reduction in Employee's Base Salary then in effect; (ii) a
material reduction in Employee's positions, duties and responsibilities from
those described in Section l(a) of this Agreement; or (iii) the failure of the
Company to obtain the assumption of this Agreement by any successor to the
extent required pursuant to Section 10(a) of this Agreement.
(ii) For purposes of this Agreement, the term "Change in
Control" shall mean the occurrence of any of the following events with respect
to the Company:
4
<PAGE>
(A) All or substantially all of the assets of the
Company are sold or transferred to another corporation or entity; or
(B) The Company is sold, transferred, merged,
consolidated, ventured or reorganized into or with another corporation or
entity, with the result that upon conclusion of the transaction less than a
majority of the outstanding securities entitled to vote generally in the
election of directors or other capital interests of the acquiring corporation or
entity are owned, directly or indirectly, by the shareholders of the Company
immediately prior to the sale, transfer, merger, consolidation, venture or
reorganization; or
(C) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as promulgated pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
disclosing that any person (as the term "person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the
term "beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities representing more
than 50% of the combined voting power of the then-outstanding voting securities
of the Company; or
(D) The Company shall file a report or proxy statement
with the Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Item 1 of Form 8-K thereunder or Item 14 of Schedule
14A thereunder (or any successor schedule, form or report or item therein) that
a change in control of the Company has or may have occurred or will or may occur
in the future pursuant to any then-existing contract or transaction; or
(E) The individuals who, at the beginning of any period
of two consecutive calendar years, constituted members of the Board cease for
any reason to constitute at least a majority thereof unless the nomination for
election by the Company's stockholders of each new director of the Company was
approved by a vote of at least two-thirds of the directors of the Company still
in office who were Directors of the Company at the beginning of any such period.
(iii) Notwithstanding the foregoing, a termination shall not
be treated as a termination for Good Reason (i) if Employee shall have
specifically consented in writing to the occurrence of the event giving rise to
the claim of termination for Good Reason or (ii) unless Employee, within 30 days
after receiving written notice from the Company specifying in reasonable detail
the occurrence of one of such events, shall have delivered a written notice to
the Company stating that he intends to terminate his employment for Good Reason
and specifying the factual basis for such termination and such event, if capable
of being cured, shall not have been cured within 30 days of the receipt by the
Company of such notice.
5
<PAGE>
(iv) If Employee shall terminate his employment for Good
Reason, the Company shall pay Employee (or, in the event of his death, his
devisee, legatee or, if there is none, his estate) a lump-sum amount equal to
the highest level of Employee's annual Base Salary in effect on the date of the
Change in Control, multiplied by a factor of 2.0. Employee will also be entitled
to any vested benefits under any employee benefit plans.
5. Employee's Representations.
(a) The Employee represents that he has full authority to enter into
this Agreement and that he is free to enter into this Agreement and not under
any contractual restraint which would prohibit the Employee from satisfactorily
performing his duties to the Company under this Agreement.
(b) The Employee hereby agrees to indemnify, and hold harmless the
Company, its officers, directors and stockholders from and against any losses,
liabilities, damages or costs (including reasonable attorney's fees) arising out
of a breach, or claimed breach, of any of the representations, warranties and
covenants of the Employee set forth in this Agreement.
(c) The Employee acknowledges that he is free to seek advice from
independent counsel with respect to this Agreement. The Employee has either
obtained such advice or, after carefully reviewing this Agreement, has decided
to forego such advice. The Employee is not relying on any representation or
advice from the Company or any of its officers, directors, attorneys or other
representatives regarding this Agreement, its content or effect.
6. Arbitration. Any controversy or claim arising out of or relating to this
Agreement or any breach hereof or the Employee's employment by the Company or
termination thereof, shall be settled by arbitration by one arbitrator in
accordance with the rules of the American Arbitration Association, and judgment
upon such award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The arbitration shall be held in the City of San Diego or
such other place as may be agreed upon at the time by the parties to the
arbitration.
7. Equitable Relief. The Employee acknowledges that the Company is relying
for its protection upon the existence and validity of the provisions of this
Agreement, that the services to be rendered by the Employee are of a special,
unique and extraordinary character, and that irreparable injury will result to
the Company from any violation or continuing violation of the provisions of this
Agreement for which damages may not be an adequate remedy. Accordingly, the
Employee hereby agrees that in addition to the remedies available to the Company
by law or under this Agreement, the Company shall be entitled to obtain such
equitable relief as may be permitted by law in a court of competent jurisdiction
including, without limitation, injunctive relief from any violation or
continuing violation by the Employee of any term or provision of this Agreement.
6
<PAGE>
8. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal substantive laws (and not the laws of
conflicts) of the State of California.
9. Entire Agreement. This Agreement constitutes the whole agreement of the
parties hereto in reference to any employment of the Employee by the Company and
in reference to any of the matters or things herein provided for or hereinabove
discussed or mentioned in reference to such employment; all prior agreements,
promises, representations and understandings relative thereto (including,
without limitation, the Prior Agreement) being herein merged.
10. Assignability.
(a) In the event the Company shall merge or consolidate with any
other corporation, partnership or business entity, or all or substantially all
of the Company's business or assets shall be transferred in any manner to any
other corporation, partnership or business entity, then such successor to the
Company shall thereupon succeed to, and be subject to, all rights, interests,
duties and obligations of, and shall thereafter be deemed for all purposes
hereof to be, the "Company" under this Agreement. This Agreement shall inure to
the benefit of and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die, any amounts payable to him
hereunder shall be paid in accordance with the terms of this Agreement to
Employee's devisee, legatee, or other designee or, if there be no such designee,
to his estate.
(b) This Agreement is personal in nature and the Employee shall not,
except as set forth in subsection (a) hereof, without the written consent of the
Company, assign or transfer this Agreement or any rights or obligations
hereunder
(c) Except as set forth in subsection (a) above, nothing expressed or
implied in this Agreement is intended or shall be construed to confer upon or
give to any person, other than the parties to this Agreement, any right, remedy
or claim under or by reason of this Agreement or of any term, covenant or
condition of this Agreement.
11. Amendments; Waivers. This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms or covenants of this
Agreement may be waived only by a written instrument executed by the parties to
this Agreement or, in the case of a waiver, by the party waiving compliance. Any
such written instrument must be approved by the Board to be effective as against
the Company. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later time to enforce the same. No waiver by any party of the breach
of any term or provision contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such breach, or a waiver of the breach of
any other term or covenant contained in this Agreement.
7
<PAGE>
12. Notice. Ail notices, requests or consents required or permitted under
this Agreement shall be made in writing ad shall be given to the other parties
by personal delivery, overnight air courier (with receipt signature) or
facsimile transmission (with "answerback" confirmation of transmission), sent to
such parties' addresses or telecopy numbers as are set forth below such parties'
signatures to this Agreement, or such other addresses or telecopy numbers of
which the parties have given notice pursuant to this Section 12. Each such
notice, request or consent shall be deemed effective upon the date of actual
receipt, receipt signature or confirmation of transmission, as applicable.
13. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction
14. Survival. The representations and agreements of the Employee set forth
in Sections 5, 6 and 7 of this Agreement shall survive the expiration or
termination of this Agreement (irrespective of the reason for such expiration of
termination).
15. Attorney's Fees. If any party to this Agreement seeks to enforce his or
its rights under this Agreement, the prevailing party or parties shall be
entitled to recover reasonable fees, costs and expenses incurred in connection
therewith including, without limitation, the fees, costs and expenses of
attorneys, accountants and experts, whether or not litigation is instituted, and
including such fees, costs and expenses of appeals.
[Signature page follows]
8
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Employment Agreement as of the date first above written.
PROTEIN POLYMER TECHNOLOGIES, INC.
By /s/ J. THOMAS PARMETER
----------------------------------
Its President
Address for Notices:
10655 Sorrento Valley Road
First Floor
San Diego, California 92121
Attention: J. Thomas Parmeter
Telecopy: (619) 558-6477
/s/ JOHN FLOWERS
-------------------------------------
John Flowers
Address for notices:
1005 Santa Queta
Solana Beach, CA 92075
9
<PAGE>
EXHIBIT 10.32
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of February
17, 2000 between PROTEIN POLYMER TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), and JOSEPH CAPPELLO (the "Employee").
RECITAL
The Company desires to continue to employ the Employee, and the Employee
desires to be so employed by the Company, on the terms and subject to the
conditions set forth in this Agreement. This Agreement supersedes that certain
employment agreement between the Company and the Employee dated November 1, 1996
(the "Prior Agreement").
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
set forth in this Agreement, the Company and the Employee hereby agree as
follows:
l. Employment.
(a) Subject to the terms and conditions contained herein, the Company
hereby agrees to employ the Employee, and the Employee accepts such employment,
from the date hereof until the earlier of (i) December 31, 2002 or (ii) the date
such employment is terminated pursuant to Section 4 of this Agreement. During
the Employee's employment under this Agreement, the Employee shall perform such
duties for the Company as may from time to time be assigned to the Employee by
Board of Directors of the Company (the "Board") or the President of the Company
(the "Designated Officer"). The Employee shall have the title of Vice President,
Research and Development, Chief Technical Officer and Director, Polymer
Research, or such other title or titles, if any, as from time to time may be
assigned to the Employee by the Board.
(b) The Employee will devote his entire business time, energy,
attention and skill to the services of the Company and its affiliates and to the
promotion of their interests. So long as the Employee is employed by the
Company, the Employee shall not, without the written consent of the Company:
(i) engage in any other activity for compensation, profit or
other pecuniary advantage, whether received during or after the term of this
Agreement;
(ii) render or perform services of a business, professional, or
commercial nature other than to or for the Company either alone or as an
employee, consultant, director, officer, or partner of another business entity,
whether or not for compensation, and whether or not such activity, occupation or
endeavor is similar to, competitive with, or adverse to the business or welfare
of the Company; or
<PAGE>
(iii) invest in or become a shareholder of another corporation or
other entity; provided, that the Employee's investment solely as a shareholder
in another corporation shall not be prohibited hereby so long as such investment
is not in excess of one percent (1%) of any class of shares that are traded on a
national securities exchange.
(c) Prior to or concurrently with the execution of this Agreement, the
Employee has executed an Employee Proprietary Information, Trade Secret and
Confidentiality Agreement (the "Confidentiality Agreement").
2. Location of Employment. The Employee's principal place of employment
shall be at the executive offices of the Company located at 10655 Sorrento
Valley Road, San Diego, California 92121 or, as may be requested by the Board,
at any other office of the Company or any of its affiliates currently or
hereinafter located in San Diego County; provided, that at the direction of the
Board or the Designated Officer, the Employee may from time to time be required
to travel to various domestic and foreign locations.
3. Compensation.
(a) In exchange for full performance of the Employee's obligations and
duties under this Agreement, the Company shall pay the Employee an annual base
salary (the "Base Salary") equal to $137,000, payable in monthly installments in
accordance with the Company's standard payroll practices. In any month in which
the Employee shall be employed for less than the entire number of days in such
month, the compensation payable under this Section 3(a) shall be prorated on the
basis of the number of days during which the Employee was actually employed
divided by the number of days in such month.
(b) The Base Salary is a gross amount, and the Company shall be
required to withhold from such amount deductions with respect to Federal, state
and local taxes, FICA, unemployment compensation taxes and similar taxes,
assessments or withholding requirements.
(c) During the Employee's employment under this Agreement, the
Employee shall also be reimbursed by the Company for reasonable business
expenses actually incurred or paid by the Employee, consistent with the policies
established by the Board, in rendering to the Company the services provided for
in this Agreement, upon presentation of expense statements or such other
supporting information as is consistent with the policies of the Company.
(d) The Employee shall be entitled to 20 business days vacation for
each full year of employment under this Agreement, which vacation time will
accrue in accordance with the vacation policy of the Company.
(e) The Employee shall be entitled to participate in all benefit plans
(including deferred compensation plans and any medical, dental or life insurance
plans) which shall
<PAGE>
be available from time to time to the domestic management employees of the
Company generally, except to the extent such participation in any plan would, in
the opinion of the Designated Officer, alter the intended tax treatment of such
plan; provided, however, that the Employee shall have no right under this
Agreement to participate in any stock option, stock purchase or other plan
relating to shares of capital stock of the Company or its affiliates. The
Employee acknowledges and agrees that the Board may in its discretion terminate
at any time or modify from time to time any such benefit plans.
(f) Other than as expressly set forth in this Section 3 or Sections
4(f) and 4(g) below, the Employee shall not receive any other compensation or
benefits except to the extent provided by the Board.
4. Termination.
(a) The employment of the Employee under this Agreement may be
terminated by the Company immediately upon giving the Employee notice if (i) the
Board determines that the Employee is unable to discharge his essential job
duties by reason of illness or injury or (ii) the Employee has been unable to
discharge his essential job duties by reason of illness or injury for either (A)
a period of two consecutive months or (B) twelve weeks in any twelve-month
period.
(b) The employment of the Employee under this Agreement shall
terminate on the date of the Employee's death.
(c) The employment of the Employee under this Agreement may be
terminated by the Company upon written notice from the Board that, in the
opinion of the Board, the Employee has (i) refused or failed (after reasonable
notice that such refusal or failure would result in termination of the
Employee's employment) to perform, to the satisfaction of the Designated Officer
or the Board, any duties assigned to the Employee by the Designated Officer or
the Board, (ii) committed a breach of the terms of this Agreement or any other
legal obligation to the Company, (iii) failed to perform any of the Employee's
obligations under the Confidentiality Agreement, (iv) demonstrated negligence or
willful misconduct in the execution of the Employee's assigned duties, (v) been
convicted of or pleaded nolo contendere to a felony or other serious crime, (vi)
---- ----------
repeatedly and intemperately used alcohol or drugs, (vii) engaged in business
practices which, in the opinion of the Board, are unethical or reflect adversely
on the Company, (viii) misappropriated assets of the Company or (ix) been
repeatedly absent from work during normal business hours for reasons other than
disability.
(d) The employment of the Employee under this Agreement shall
terminate upon receipt by the Board of a written notice of resignation signed by
the Employee or, if no notice is given, on the date on which the Employee
voluntarily terminates his or her employment relationship with the Company.
<PAGE>
(e) In addition to the circumstances described in subsections (a),
(b), (c) and (d) above, the Company may terminate the Employee's employment for
any reason or no reason and with or without cause or prior notice. The Employee
understands that, subject to subsections (f)(iii) and (g) below, he is an
at-will employee and may be terminated by the Company without cause or prior
notice pursuant to this subsection (e) notwithstanding any other provision
contained in this Agreement. This at-will relationship will remain in effect
during the term of this Agreement and so long thereafter provided that the
Employee remains employed by the Company, unless such at-will employment
relationship is modified by a specific, express written agreement signed by the
Company.
(f) If the Employee's employment is terminated pursuant to this
Section 4 or for any other reason, the Employee shall not be entitled to any
compensation or benefits from the Company, under Section 3 of this Agreement or
otherwise, except for the following:
(i) Base Salary and vacation pay accrued, and reasonable business
expenses incurred, under Section 3 of this Agreement through the date of such
termination;
(ii) such benefits, if any, as may be required to be provided by
the Company under the Comprehensive Omnibus Budget Reconciliation Act (COBRA);
and
(iii) if the Employee's employment is terminated pursuant to
subsection (e) above, the Company shall continue to pay to the Employee the Base
Salary then in effect at intervals in accordance with the Company's standard
payroll practice until the earlier of (A) six months following such termination
or (B) the termination date set forth in Section 1(a)(i) of this Agreement.
(g) Employee may terminate his employment hereunder for "Good Reason"
(as hereinafter defined).
(i) For purposes of this Agreement, "Good Reason" shall mean a
termination of Employee's employment by Employee within 90 days after the
occurrence of any of the following after a "Change in Control" (as hereinafter
defined): (i) a reduction in Employee's Base Salary then in effect; (ii) a
material reduction in Employee's positions, duties and responsibilities from
those described in Section 1(a) of this Agreement; or (iii) the failure of the
Company to obtain the assumption of this Agreement by any successor to the
extent required pursuant to Section 10(a) of this Agreement.
(ii) For purposes of this Agreement, the term "Change in Control"
shall mean the occurrence of any of the following events with respect to the
Company:
<PAGE>
(A) All or substantially all of the assets of the Company
are sold or transferred to another corporation or entity; or
(B) The Company is sold, transferred, merged, consolidated,
ventured or reorganized into or with another corporation or entity, with the
result that upon conclusion of the transaction less than a majority of the
outstanding securities entitled to vote generally in the election of directors
or other capital interests of the acquiring corporation or entity are owned,
directly or indirectly, by the shareholders of the Company immediately prior to
the sale, transfer, merger, consolidation, venture or reorganization; or
(C) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as promulgated pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
disclosing that any person (as the term "person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the
term "beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities representing more
than 50% of the combined voting power of the then-outstanding voting securities
of the Company; or
(D) The Company shall file a report or proxy statement with
the Securities and Exchange Commission pursuant to the Exchange Act disclosing
in response to Item 1 of Form 8-K thereunder or Item 14 of Schedule 14A
thereunder (or any successor schedule, form or report or item therein) that a
change in control of the Company has or may have occurred or will or may occur
in the future pursuant to any then-existing contract or transaction; or
(E) The individuals who, at the beginning of any period of
two consecutive calendar years, constituted members of the Board cease for any
reason to constitute at least a majority thereof unless the nomination for
election by the Company's stockholders of each new director of the Company was
approved by a vote of at least two-thirds of the directors of the Company still
in office who were Directors of the Company at the beginning of any such period.
(iii) Notwithstanding the foregoing, a termination shall not be
treated as a termination for Good Reason (i) if Employee shall have specifically
consented in writing to the occurrence of the event giving rise to the claim of
termination for Good Reason or (ii) unless Employee, within 30 days after
receiving written notice from the Company specifying in reasonable detail the
occurrence of one of such events, shall have delivered a written notice to the
Company stating that he intends to terminate his employment for Good Reason and
specifying the factual basis for such termination and such event, if capable of
being cured, shall not have been cured within 30 days of the receipt by the
Company of such notice.
<PAGE>
(iv) If Employee shall terminate his employment for Good Reason,
the Company shall pay Employee (or, in the event of his death, his devisee,
legatee or, if there is none, his estate) a lump-sum amount equal to the highest
level of Employee's annual Base Salary in effect on the date of the Change in
Control, multiplied by a factor of 2.0. Employee will also be entitled to any
vested benefits under any employee benefit plans.
5. Employee's Representations.
(a) The Employee represents that he has full authority to enter into
this Agreement and that he is free to enter into this Agreement and not under
any contractual restraint which would prohibit the Employee from satisfactorily
performing his duties to the Company under this Agreement.
(b) The Employee hereby agrees to indemnify and hold harmless the
Company, its officers, directors and stockholders from and against any losses,
liabilities, damages or costs (including reasonable attorney's fees) arising out
of a breach, or claimed breach, of any of the representations, warranties and
covenants of the Employee set forth in this Agreement.
(c) The Employee acknowledges that he is free to seek advice from
independent counsel with respect to this Agreement. The Employee has either
obtained such advice or, after carefully reviewing this Agreement, has decided
to forego such advice. The Employee is not relying on any representation or
advice from the Company or any of its officers, directors, attorneys or other
representatives regarding this Agreement, its content or effect.
6. Arbitration. Any controversy or claim arising out of or relating to this
Agreement or any breach hereof or the Employee's employment by the Company or
termination thereof, shall be settled by arbitration by one arbitrator in
accordance with the rules of the American Arbitration Association, and judgment
upon such award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The arbitration shall be held in the City of San Diego or
such other place as may be agreed upon at the time by the parties to the
arbitration.
7. Equitable Relief. The Employee acknowledges that the Company is relying
for its protection upon the existence and validity of the provisions of this
Agreement, that the services to be rendered by the Employee are of a special,
unique and extraordinary character, and that irreparable injury will result to
the Company from any violation or continuing violation of the provisions of this
Agreement for which damages may not be an adequate remedy. Accordingly, the
Employee hereby agrees that in addition to the remedies available to the Company
by law or under this Agreement, the Company shall be entitled to obtain such
equitable relief as may be permitted by law in a court of competent jurisdiction
including, without limitation, injunctive relief from any violation or
continuing violation by the Employee of any term or provision of this Agreement.
<PAGE>
8. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal substantive laws (and not the laws of
conflicts) of the State of California.
9. Entire Agreement. This Agreement constitutes the whole agreement of the
parties hereto in reference to any employment of the Employee by the Company and
in reference to any of the matters or things herein provided for or hereinabove
discussed or mentioned in reference to such employment; all prior agreements,
promises, representations and understandings relative thereto (including,
without limitation, the Prior Agreement) being herein merged.
10. Assignability.
(a) In the event the Company shall merge or consolidate with any other
corporation, partnership or business entity, or all or substantially all of the
Company's business or assets shall be transferred in any manner to any other
corporation, partnership or business entity, then such successor to the Company
shall thereupon succeed to, and be subject to, all rights, interests, duties and
obligations of, and shall thereafter be deemed for all purposes hereof to be,
the "Company" under this Agreement. This Agreement shall inure to the benefit of
and be enforceable by Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Employee should die, any amounts payable to him hereunder shall be paid in
accordance with the terms of this Agreement to Employee's devisee, legatee, or
other designee or, if there be no such designee, to his estate.
(b) This Agreement is personal in nature and the Employee shall not,
except as set forth in subsection (a) hereof, without the written consent of the
Company, assign or transfer this Agreement or any rights or obligations
hereunder.
(c) Except as set forth in subsection (a) above, nothing expressed or
implied in this Agreement is intended or shall be construed to confer upon or
give to any person, other than the parties to this Agreement, any right, remedy
or claim under or by reason of this Agreement or of any term, covenant or
condition of this Agreement.
11. Amendments; Waivers. This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms or covenants of this
Agreement may be waived only by a written instrument executed by the parties to
this Agreement or, in the case of a waiver, by the party waiving compliance. Any
such written instrument must be approved by the Board to be effective as against
the Company. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later time to enforce the same. No waiver by any party, of the
breach of any term or provision contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be, or construed
as, a further or continuing waiver of any such breach, or a waiver of the breach
of any other term or covenant contained in this Agreement.
<PAGE>
12. Notice. All notices, requests or consents required or permitted under
this Agreement shall be made in writing and shall be given to the other parties
by personal delivery, overnight air courier (with receipt signature) or
facsimile transmission (with "answerback" confirmation of transmission), sent to
such parties' addresses or telecopy numbers as are set forth below such parties'
signatures to this Agreement, or such other addresses or telecopy numbers of
which the parties have given notice pursuant to this Section 12. Each such
notice, request or consent shall be deemed effective upon the date of actual
receipt, receipt signature or confirmation of transmission, as applicable.
13. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
14. Survival. The representations and agreements of the Employee set forth
in Sections 5, 6 and 7 of this Agreement shall survive the expiration or
termination of this Agreement (irrespective of the reason for such expiration of
termination).
15. Attorney's Fees. If any party to this Agreement seeks to enforce his or
its rights under this Agreement, the prevailing party or parties shall be
entitled to recover reasonable fees, costs and expenses incurred in connection
therewith including, without limitation, the fees, costs and expenses of
attorneys, accountants and experts, whether or not litigation is instituted, and
including such fees, costs and expenses of appeals.
[Signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Employment Agreement as of the date first above written.
PROTEIN POLYMER TECHNOLOGIES, 1NC.
By: /s/ J. THOMAS PARMETER
---------------------------------
Its: President
Address for Notices:
10655 Sorrento Valley Road
First Floor
San Diego, California 92121
Attention: J. Thomas Parmeter
Telecopy: (619) 558-6477
/s/ JOSEPH CAPPELLO
------------------------------------
Joseph Cappello
Address for Notices:
12879 Corbett Ct.
San Diego, CA 92130
<PAGE>
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of February
17, 2000 between PROTEIN POLYMER TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), and FRANCO A. FERRARI (the "Employee").
RECITAL
The Company desires to continue to employ the Employee, and the Employee
desires to be so employed by the Company, on the terms and subject to the
conditions set forth in this Agreement. This Agreement supersedes that certain
employment agreement between the Company and the Employee dated November 1, 1996
(the "Prior Agreement").
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
set forth in this Agreement, the Company and the Employee hereby agree as
follows:
1. Employment.
(a) Subject to the terms and conditions contained herein, the Company
hereby agrees to employ the Employee, and the Employee accepts such employment,
from the date hereof until the earlier of (i) December 31, 2002 or (ii) the date
such employment is terminated pursuant to Section 4 of this Agreement. During
the Employee's employment under this Agreement, the Employee shall perform such
duties for the Company as may from time to time be assigned to the Employee by
Board of Directors of the Company (the "Board") or the President of the Company
(the "Designated Officer"). The Employee shall have the title of Vice President,
Laboratory Operations and Polymer Production and Director, Molecular Genetics,
or such other title or titles, if any, as from time to time may be assigned to
the Employee by the Board.
(b) The Employee will devote his entire business time, energy,
attention and skill to the services of the Company and its affiliates and to the
promotion of their interests. So long as the Employee is employed by the
Company, the Employee shall not, without the written consent of the Company:
(i) engage in any other activity for compensation, profit or
other pecuniary advantage, whether received during or after the term of this
Agreement;
(ii) render or perform services of a business, professional, or
commercial nature other than to or for the Company, either alone or as an
employee, consultant, director, officer, or partner of another business entity,
whether or not for compensation, and whether or not such activity, occupation or
endeavor is similar to, competitive with, or adverse to the business or welfare
of the Company; or
<PAGE>
(iii) invest in or become a shareholder of another corporation or
other entity; provided, that the Employee's investment solely as a shareholder
in another corporation shall not be prohibited hereby so long as such investment
is not in excess of one percent (1%) of any class of shares that are traded on a
national securities exchange.
(c) Prior to or concurrently with the execution of this Agreement, the
Employee has executed an Employee Proprietary Information, Trade Secret and
Confidentiality Agreement (the "Confidentiality/Agreement").
2. Location of Employment. The Employee's principal place of employment
shall be at the executive offices of the Company located at 10655 Sorrento
Valley Road, San Diego, California 92121 or, as may be requested by the Board,
at any other office of the Company or any of its affiliates currently or
hereinafter located in San Diego County; provided, that at the direction of the
Board or the Designated Officer, the Employee may from time to time be required
to travel to various domestic and foreign locations.
3. Compensation.
(a) In exchange for full performance of the Employee's obligations and
duties under this Agreement, the Company shall pay the Employee an annual base
salary (the "Base Salary') equal to $127,000, payable in monthly installments in
accordance with the Company's standard payroll practices. In any month in which
the Employee shall be employed for less than the entire number of days in such
month, the compensation payable under this Section 3(a) shall be prorated on the
basis of the number of days during which the Employee was actually employed
divided by the number of days in such month.
(b) The Base Salary is a gross amount, and the Company shall be
required to withhold from such amount deductions with respect to Federal, state
and local taxes, FICA, unemployment compensation taxes and similar taxes,
assessments or withholding requirements.
(c) During the Employee's employment under this Agreement, the
Employee shall also be reimbursed by the Company for reasonable business
expenses actually incurred or paid by the Employee, consistent with the policies
established by the Board, in rendering to the Company the services provided for
in this Agreement, upon presentation of expense statements or such other
supporting information as is consistent with the policies of the Company.
(d) The Employee shall be entitled to 20 business days vacation for
each full year of employment under this Agreement, which vacation time will
accrue in accordance with the vacation policy of the Company.
(e) The Employee shall be entitled to participate in all benefit plans
(including deferred compensation plans and any medical, dental or life insurance
plans) which shall
2
<PAGE>
be available from time to time to the domestic management employees of the
Company generally, except to the extent such participation in any plan would, in
the opinion of the Designated Officer, alter the intended tax treatment of such
plan; provided, however, that the Employee shall have no right under this
Agreement to participate in any stock option, stock purchase or other plan
relating to shares of capital stock of the Company or its affiliates. The
Employee acknowledges and agrees that the Board may in its discretion terminate
at any time or modify from time to time any such benefit plans.
(f) Other than as expressly set forth in this Section 3 or Sections
4(f) and 4(g) below, the Employee shall not receive any other compensation or
benefits except to the extent provided by the Board.
4. Termination.
(a) The employment of the Employee under this Agreement may be
terminated by the Company immediately upon giving the Employee notice if (i) the
Board determines that the Employee is unable to discharge his essential job
duties by reason of illness or injury or (ii) the Employee has been unable to
discharge his essential job duties by reason of illness or injury for either (A)
a period of two consecutive months or (B) twelve weeks in any twelve-month
period.
(b) The employment of the Employee under this Agreement shall
terminate on the date of the Employee's death.
(c) The employment of the Employee under this Agreement may be
terminated by the Company upon written notice from the Board that, in the
opinion of the Board, the Employee has (i) refused or failed (after reasonable
notice that such refusal or failure would result in termination of the
Employee's employment) to perform, to the satisfaction of the Designated Officer
or the Board, any duties assigned to the Employee by the Designated Officer or
the Board, (ii) committed a breach of the terms of this Agreement or any other
legal obligation to the Company, (iii) failed to perform any of the Employee's
obligations under the Confidentiality Agreement, (iv) demonstrated negligence
or willful misconduct in the execution of the Employee's assigned duties, (v)
been convicted of or pleaded nolo contendere to a felony or other serious crime,
---- ----------
(vi) repeatedly and intemperately used alcohol or drugs, (vii) engaged in
business practices which, in the opinion of the Board, are unethical or reflect
adversely on the Company, (viii) misappropriated assets of the Company or (ix)
been repeatedly absent from work during normal business hours for reasons other
than disability.
(d) The employment of the Employee under this Agreement shall
terminate upon receipt by the Board of a written notice of resignation signed by
the Employee or, if no notice is given, on the date on which the Employee
voluntarily terminates his or her employment relationship with the Company.
3
<PAGE>
(e) In addition to the circumstances described in subsection (a), (b),
(c) and (d) above, the Company may terminate the Employee's employment for any
reason or no reason and with or without cause or prior notice. The Employee
understands that, subject to subsections (f)(iii) and (g) below, he is an
at-will employee and may be terminated by the Company without cause or prior
notice pursuant to this subsection (e) notwithstanding any other provision
contained in this Agreement. This at-will relationship will remain in effect
during the term of this Agreement and so long thereafter provided that the
Employee remains employed by the Company, unless such at-will employment
relationship is modified by a specific, express written agreement signed by the
Company.
(f) If the Employee's employment is terminated pursuant to this
Section 4 or for any other reason, the Employee shall not be entitled to any
compensation or benefits from the Company, under Section 3 of this Agreement or
otherwise, except for the following:
(i) Base Salary and vacation pay accrued, and reasonable business
expenses incurred, under Section 3 of this Agreement through the date of such
termination;
(ii) such benefits, if any, as may be required to be provided by
the Company under the Comprehensive Omnibus Budget Reconciliation Act (COBRA);
and
(iii) if the Employee's employment is terminated pursuant to
subsection (e) above, the Company shall continue to pay to the Employee the
Base Salary then in effect at intervals in accordance with the Company's
standard payroll practice until the earlier of (A) six months following such
termination or (B) the termination date set forth in Section 1(a)(i) of this
Agreement.
(g) Employee may terminate his employment hereunder for "Good Reason"
(as hereinafter defined).
(i) For purposes of this Agreement, "Good Reason" shall mean a
termination of Employee's employment by Employee within 90 days after the
occurrence of any of the following after a "Change in Control" (as hereinafter
defined): (i) a reduction in Employee's Base Salary then in effect; (ii) a
material reduction in Employee's positions, duties and responsibilities from
those described in Section 1(a) of this Agreement; or (iii) the failure of the
Company to obtain the assumption of this Agreement by any successor to the
extent required pursuant to Section 10(a) of this Agreement.
(ii) For purposes of this Agreement, the term "Change in Control"
shall mean the occurrence of any of the following events with respect to the
Company:
4
<PAGE>
(A) All or substantially all of the assets of the Company
are sold or transferred to another corporation or entity; or
(B) The Company is sold, transferred, merged, consolidated,
ventured or reorganized into or with another corporation or entity, with the
result that upon conclusion of the transaction less than a majority of the
outstanding securities entitled to vote generally in the election of directors
or other capital interests of the acquiring corporation or entity are owned,
directly or indirectly, by the shareholders of the Company immediately prior to
the sale, transfer, merger, consolidation, venture or reorganization; or
(C) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as promulgated pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
disclosing that any person (as the term "person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the
term "beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities representing more
than 50% of the combined voting power of the then-outstanding voting securities
of the Company; or
(D) The Company shall file a report or proxy statement with
the Securities and Exchange Commission pursuant to the Exchange Act disclosing
in response to Item 1 of Form 8-K thereunder or Item 14 of Schedule 14A
thereunder (or any successor schedule, form or report or item therein) that a
change in control of the Company has or may have occurred or will or may occur
in the future pursuant to any then-existing contract or transaction; or
(E) The individuals who, at the beginning of any period of
two consecutive calendar years, constituted members of the Board cease for any
reason to constitute at least a majority thereof unless the nomination for
election by the Company's stockholders of each new director of the Company was
approved by a vote of at least two-thirds of the directors of the Company still
in office who were Directors of the Company at the beginning of any such period.
(iii) Notwithstanding the foregoing, a termination shall not be
treated as a termination for Good Reason (i) if Employee shall have specifically
consented in writing to the occurrence of the event giving rise to the claim of
termination for Good Reason or (ii) unless Employee, within 30 days after
receiving written notice from the Company specifying in reasonable detail the
occurrence of one of such events, shall have delivered a written notice to the
Company stating that he intends to terminate his employment for Good Reason and
specifying the factual basis for such termination and such event, if capable of
being cured, shall not have been cured within 30 days of the receipt by the
Company of such notice.
5
<PAGE>
(iv) If Employee shall terminate his employment for Good Reason,
the Company shall pay Employee (or, in the event of his death, his devisee,
legatee or, if there is none, his estate) a lump-sum amount equal to the highest
level of Employee's annual Base Salary in effect on the date of the Change in
Control, multiplied by a factor of 2.0. Employee will also be entitled to any
vested benefits under any employee benefit plans.
5. Employee's Representations.
(a) The Employee represents that he has full authority to enter into
this Agreement and that he is free to enter into this Agreement and not under
any contractual restraint which would prohibit the Employee from satisfactorily
performing his duties to the Company under this Agreement.
(b) The Employee hereby agrees to indemnify and hold harmless the
Company, its officers, directors and stockholders from and against any losses,
liabilities, damages or costs (including reasonable attorney's fees) arising out
of a breach, or claimed breach, of any of the representations, warranties and
covenants of the Employee set forth in this Agreement.
(c) The Employee acknowledges that he is free to seek advice from
independent counsel with respect to this Agreement. The Employee has either
obtained such advice or, after carefully reviewing this Agreement, has decided
to forego such advice. The Employee is not relying on any representation or
advice from the Company or any of its officers, directors, attorneys or other
representatives regarding this Agreement, its content or effect.
6. Arbitration. Any controversy or claim arising out of or relating to this
Agreement or any breach hereof or the Employee's employment by the Company or
termination thereof, shall be settled by arbitration by one arbitrator in
accordance with the rules of the American Arbitration Association, and judgment
upon such award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The arbitration shall be held in the City of San Diego or
such other place as may be agreed upon at the time by the parties to the
arbitration.
7. Equitable Relief. The Employee acknowledges that the Company is
relying for its protection upon the existence and validity of the provisions of
this Agreement, that the services to be rendered by the Employee are of a
special, unique and extraordinary character, and that irreparable injury will
result to the Company from any violation or continuing violation of the
provisions of this Agreement for which damages may not be an adequate remedy.
Accordingly, the Employee hereby agrees that in addition to the remedies
available to the Company by law or under this Agreement, the Company shall be
entitled to obtain such equitable relief as may be permitted by law in a court
of competent jurisdiction including, without limitation, injunctive relief from
any violation or continuing violation by the Employee of any term or provision
of this Agreement.
6
<PAGE>
8. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal substantive laws (and not the laws of
conflicts) of the State of California.
9. Entire Agreement. This Agreement constitutes the whole agreement of the
parties hereto in reference to any employment of the Employee by the Company and
in reference to any of the matters or things herein provided for or hereinabove
discussed or mentioned in reference to such employment; all prior agreements,
promises, representations and understandings relative thereto (including,
without limitation, the Prior Agreement) being herein merged.
10. Assignability.
(a) In the event the Company shall merge or consolidate with any other
corporation, partnership or business entity, or all or substantially all of the
Company's business or assets shall be transferred in any manner to any other
corporation, partnership or business entity, then such successor to the Company
shall thereupon succeed to, and be subject to, all rights, interests, duties and
obligations of, and shall thereafter be deemed for all purposes hereof to be,
the "Company" under this Agreement. This Agreement shall inure to the benefit of
and be enforceable by Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Employee should die, any amounts payable to him hereunder shall be paid in
accordance with the terms of this Agreement to Employee's devisee, legatee, or
other designee or, if there be no such designee, to his estate.
(b) This Agreement is personal in nature and the Employee shall not,
except as set forth in subsection (a) hereof, without the written consent of the
Company, assign or transfer this Agreement or any rights or obligations
hereunder.
(c) Except as set forth in subsection (a) above, nothing expressed or
implied in this Agreement is intended or shall be construed to confer upon or
give to any person, other than the parties to this Agreement, any right, remedy
or claim under or by reason of this Agreement or of any term, covenant or
condition of this Agreement.
11. Amendments; Waivers. This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms or covenants of this
Agreement may be waived only by a written instrument executed by the parties to
this Agreement or, in the case of a waiver, by the party waiving compliance. Any
such written instrument must be approved by the Board to be effective as against
the Company. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later time to enforce the same. No waiver by any party of the breach
of any term or provision contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such breach, or a waiver of the breach of
any other term or covenant contained in this Agreement.
7
<PAGE>
12. Notice. All notices, requests or consents required or permitted under
this Agreement shall be made in writing and shall be given to the other parties
by personal delivery, overnight air courier (with receipt signature) or
facsimile transmission (with "answerback" confirmation of transmission), sent to
such parties' addresses or telecopy numbers as are set forth below such parties'
signatures to this Agreement, or such other addresses or telecopy numbers of
which the parties have given notice pursuant to this Section 12. Each such
notice, request or consent shall be deemed effective upon the date of actual
receipt, receipt signature or confirmation of transmission, as applicable.
13. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
14. Survival. The representations and agreements of the Employee set forth
in Sections 5, 6 and 7 of this Agreement shall survive the expiration or
termination of this Agreement (irrespective of the reason for such expiration of
termination).
15. Attorney's Fees. If any party to this Agreement seeks to enforce
his or its rights under this Agreement, the prevailing party or parties shall be
entitled to recover reasonable fees, costs and expenses incurred in connection
therewith including, without limitation, the fees, costs and expenses of
attorneys, accountants and experts, whether or not litigation is instituted, and
including such fees, costs and expenses of appeals.
[Signature page follows]
8
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Employment Agreement as of the date first above written.
PROTEIN POLYMER TECHNOLOGIES, 1NC.
By: /s/ J. THOMAS PARMETER
--------------------------------
Its: President
Address for Notices:
10655 Sorrento Valley Road
First Floor
San Diego, California 92121
Attention: J. Thomas Parmeter
Telecopy: (619) 558-6477
/s/ FRANCO FERRARI
-----------------------------------
FRANCO A. FERRARI
Address for Notices:
7389 High Ave.
La Jolla, CA 92037
9
<PAGE>
EXHIBIT 10.34
AGREEMENT
This Agreement, entered into this 18 day of February, 2000, by and between
Protein Polymer Technologies, Inc., a corporation of Delaware, having a
principal place of business at 10655 Sorrento Valley Road, First Floor, San
Diego, CA 92121 (hereinafter "PPT"), and Sanyo Chemical Industries, Ltd. a
corporation of Japan, having its principal place of business at 11-1 Ikkyo
Nomoto-cho, Higashiyama-ku, Kyoto 605-0995, Japan (hereinafter "Sanyo");
Recitals
1. PPT states that it is the owner of PPT Patents and, to its knowledge,
PPT Know-How, as defined hereinbelow, and is the exclusive licensee under
certain other patent rights, and a non-exclusive licensee under other patent
rights relating to the manufacture, use and sale of Proteinaceous Polymers
effective in promoting cell culture, and of Coated Products, as herein defined.
2. The parties desire to enter into an agreement under which Sanyo is
exclusively licensed by PPT under PPT Patent Rights, as herein defined, and for
the use of PPT Know-How in the manufacture, use and sale of Licensed Products in
fields further defined herein as the Sanyo Field.
The parties, therefore, agree as follows:
ARTICLE 1: DEFINITIONS
As used in this Agreement, the following terms shall have the following
definitions:
1.1 "PPT Patents" shall mean patents owned by PPT as listed on attached
Schedule 1.1, all continuations, divisionals, continuations-in-part, and
reissues thereof, rights under any re-examinations certificates relating
thereto, and all foreign counterparts of any of the listed patents or aforesaid
continuations-in-part.
1.2 "PPT Patent Rights" shall mean PPT's rights under PPT patents.
1.3 "Proteinaceous Polymer" shall mean a proteinaceous polymer which has
segments containing the amino acid sequences RGD or IKVAV (defined by standard
single letter amino acid designations) useful in promoting cell culture.
1.4 "Coated Product" shall mean any formed object made of another polymer,
resin, glass, or metal and coated with a Proteinaceous Polymer.
1.5 "Cell Line" means a microorganism or cell line which contains a
nucleotide sequence which encodes a Proteinaceous Polymer.
1.6 "Licensed PPT Cell Lines" shall mean E. coli strain EC003 containing
the plasmid pPT0101 used to produce ProNectin(R) F or the plasmid pPT0278 used
to produce ProNectin(R) L.
1
<PAGE>
1.7 "Cell Line Growth Information" shall mean all information necessary to
establish in Sanyo's possession Licensed PPT Cell Lines producing ProNectin(R) F
and ProNectin(R) L in the quantity and quality described in PPT's letter to
Sanyo dated February 18, 2000.
1.8 "PPT Know-How" shall mean the information and documentation required
for Sanyo to:
(a) store and grow by fermentation the Licensed PPT Cell Lines and induce
their production of ProNectin(R) F and ProNectin(R) L;
(b) purify ProNectin(R) F and ProNectin(R) L from biomass obtained by
fermentation;
(c) analyze ProNectin(R)F and ProNectin(R)L for their purity, cell
attachment activity, and leachable endotoxin content;
(d) prepare ProNectin(R)F Diluent and ProNectin(R)L Diluent;
(e) prepare ProNectin(R)F+ from ProNectin(R)F;
(f) bottle and sterilize by autoclaving ProNectin(R) F in 1 and 5 mg
quantities, ProNectin(R) L in 1 mg quantity, ProNectin(R) F+ in 1 mg
quantity; ProNectin(R) F Diluent in 1 and 5 mL volumes, and
ProNectin(R) L Diluent in 1 mL volume;
(g) analyze the fill weights, fill volumes, and sterility of the products
specified in (f);
(h) coat ProNectin(R)F on non-tissue culture treated, non-sterile 6, 24-,
and 96-well plates, and 35, 60, and 100 mm dishes;
(i) sterilize by e-beam irradiation the Coated Products specified in (h);
and
(j) analyze the cell attachment activity, leachable endotoxin content, and
sterility of the products specified in (h);
as practiced by PPT in its commercial production of the products specified in
(f) and (h) above.
1.9 "Sanyo Field" shall mean the manufacture, use, sale, importation and/or
exportation of Protelnaceous Polymers, including derivatives and Coated Products
thereof, for in vitro cell attachment and culture and/or for use under the
limitations of a "For Research Use Only" label, where the use is based upon the
cellular receptor binding activity of the RGD or IKVAV amino acid sequence.
Without limiting the foregoing, the Sanyo Field shall include uses for: (i)
screening of drugs and other bioactive materials; (ii) quality control and other
analytical applications in research and/or development; and (iii) quality
control and other analytical applications in the manufacture of other products.
The Sanyo Field shall not include the manufacture, use, sale, importation and/or
exportation of Proteinaceous Polymers, including derivatives and Coated Products
thereof, for use in therapeutic, device, or diagnostic products that require
approval for marketing by any regulatory authority.
1.10 "Licensed Products" shall mean the Proteinaceous Polymers
ProNectin(R)F and ProNectin(R)L, including derivatives and Coated Products
thereof, as listed on attached Schedule 1.2.
1.11 "Affiliate" shall mean any entity directly or indirectly controlling,
controlled by, or under common control with, a party. "Control" as used in this
Paragraph 1.11 shall mean ownership of fifty percent (50% or more of the entity
in question.
2
<PAGE>
1.12 "Date of this Agreement" shall be the date first written hereinabove.
ARTICLE 2: LICENSE GRANT
2.1 PPT grants to Sanyo an exclusive, world-wide, irrevocable paid up
license under PPT Patents and PPT Patent Rights for the use of PPT Know-How and
Licensed PPT Cell Lines solely to make, have made, use, sell, offer for sale,
import and/or export Licensed Products within the Sanyo Field.
2.2 The rights granted under Paragraph 2.1 hereof shall include the
right to grant sublicenses, including the right to pass on to customers,
distributors and ultimate users the right to use any Licensed Product within the
Sanyo Field. Sanyo shall be fully responsible for enforcing the terms and
conditions of this Agreement with respect to any such sublicensees.
2.3 PPT agrees to assign, and hereby does assign, to Sanyo its entire right
and interest, if any, under the SUBLICENSE AGREEMENT FOR RGD-CONTAINING
ENGINEERED PROTEIN POLYMERS, dated October 1, 1991, originally entered into
between PPT and Teljos Pharmaceuticals, Inc. (hereinafter "Telios").
2.4 PPT agrees to assign, and hereby does assign, to Sanyo its entire right
and interest under the PHS PATENT LICENSE AGREEMENT-NONEXCLUSIVE, dated November
27, 1996, entered into between National Institutes of Health ("NIH") and PPT
("AGREEMENT") and shall notify NIH of the assignment of the AGREEMENT to Sanyo
by PPT within ten (10) days from the Date of this Agreement.
ARTICLE 3: TRADEMARK ASSIGNMENT
3.1 PPT agrees to assign, and hereby does assign, to Sanyo the entire
right, title and interest in and to the trademarks "PRONECTIN,' "PRONECTIN F",
"PRONECTIN L', and "SMARTPLASTIC" and the good will appurtenant thereto
throughout the world for use on or in connection with polymeric proteins,
peptides, products comprising polymeric proteins or peptides, and other related
products and services, including the U.S. trademark registrations 1,705,720 and
2,168,749.
3.2 PPT agrees not to use or adopt any trademark or service mark that is
confusingly similar to "PRONECTIN," "PRONECTIN F', "PRONECTIN L", or
"SMARTPLASTIC" when applied to goods or services offered or promoted by PPT or
any Affiliate of PPT.
ARTICLE 4: TECHNOLOGY TRANSFER AND SERVICES
4.1 Within thirty (30) days after the Date of this Agreement, PPT shall
deliver to Sanyo sufficient quantities of Licensed PPT Cell Lines to enable
Sanyo to establish the Licensed PPT Cell Lines and provide to Sanyo the PPT
Know-How, including the Cell Line Growth Information.
3
<PAGE>
4.2 PPT agrees to maintain a stock of Licensed PPT Cell Lines, and
provide additional quantities of the Licensed PPT Cell Lines to Sanyo within
fifteen (15) days of Sanyo's written request, for a period not to exceed one (1)
year from the Date of this Agreement, in order to ensure that Sanyo is enabled
to establish the Licensed PPT Cell Lines according to the Cell Line Growth
Information. Sanyo shall pay PPT for all reasonable costs incurred by PPT in
delivering additional quantities of Licensed PPT Cell Lines to Sanyo pursuant to
this Paragraph 4.2. If Sanyo notifies PPT within the one (1) year period that
Sanyo is not able to establish the Licensed PPT Cell Lines using such additional
quantities of the Licensed PPT Cell Lines, PPT shall establish the Licensed PPT
Cell Lines for Sanyo and provide Sanyo with such Cell Lines at the expense of
Sanyo. Sanyo shall provide written notice to PPT once it has established the
Licensed PPT Cell Lines according to the Cell Line Growth Information and
thereafter, or upon expiration of such one (1) year period, PPT shall have no
further obligation to provide the Licensed PPT Cell Lines to Sanyo.
4.3 Upon request of Sanyo, PPT shall train Sanyo's personnel at PPT's
facility in San Diego, California, in the bulk manufacture of ProNectin(R) L,
using PPT Cell Lines, by conducting fermentation, purification, and analyses of
the product demonstrating that it meets specifications, provided that PPT's
obligation to train such personnel shall be limited to one (1) man-month within
two (2) months of the Date of this Agreement. The expenses of transport, food
and lodging of such personnel in connection with such training shall be paid by
Sanyo. All other training expenses shall be paid by PPT.
4.4 For a period of one (1) year from the Date of this Agreement, upon the
written or oral request of Sanyo concerning the practice of PPT Know-How, PPT
shall give Sanyo advice and such further information as PPT possesses to enable
Sanyo to manufacture the Licensed Products in compliance with the specifications
PPT has established for such Licensed Products under PPT Know-How.
ARTICLE 5: ASSET TRANSFER
5.1 within thirty {30) days after the Date of this Agreement, PPT shall
deliver to Sanyo the information in PPT's possession with respect to customers
of the Licensed Products and their use of the Licensed Products.
5.2 Within thirty (30) days after the Date of this Agreement, PPT shall
ship to a location designated by Sanyo, F.O.B. San Diego, the inventory of
Licensed Products as described in PPT's letter to Sanyo dated February 18, 2000.
5.3 For a period of one (1) year from the Date of this Agreement, Sanyo
shall have the right to sell the Licensed Products transferred under the
Paragraph 5.2 with PPT's label without changing it.
5.4 For a period of one (1) year from the Date of this Agreement, PPT shall
take orders from customers on Sanyo's behalf and provide referral services to
customers.
4
<PAGE>
5.5 For a period of six (8) months from the Date of this Agreement, PPT
agrees to maintain all business and market files concerning Licensed Products in
PPT's possession. Upon request of Sanyo, PPT shall deliver to Sanyo such files
from time to time. After the expiration of such six (6) month period, PPT shall
have no further obligation to maintain or deliver such files to Sanyo.
ARTICLE 6: COMPENSATION
6.1 As compensation for the rights granted by PPT to Sanyo under Article 2
hereof, the trademarks assigned under Article 3 hereof, the technology
transferred under Article 4 hereof, and the assets transferred to Sanyo under
Article 5 hereof, Sanyo shall pay to PPT the sum of three hundred and fifty-five
thousand U.S. dollars (U.S. $355,000) as follows:
(a) One hundred and eighty thousand U.S. dollars (U.S. $180,000) within ten
(10) days of the Date of this Agreement, and
(b) One hundred and seventy-five thousand U.S. dollars (U.S. $175,000)
within ten (10) days of the receipt of all of the Licensed Cell Lines and PPT
Know-How, including the Cell Line Growth Information described in Paragraph 4.1,
the information described in Paragraph 5.1 and the inventory of the Licensed
Products described in Paragraph 5.2.
ARTICLE 7: REPRESENTATIONS AND WARRANTIES
7.1 PPT represents and warrants that it is the owner of all right, title
and interest in and to PPT Patents and Licensed PPT Cell Lines free and clear of
all liens and encumbrances.
7.2 PPT represents and warrants that to its knowledge it is the owner of
all right, title and interest in and to the trademarks PRONECTIN" and
"SMARTPLASTIC" free and clear of any liens and encumbrances and that, prior to
the assignment made hereunder, it has the exclusive right to use the aforesaid
marks in commerce, throughout the United States, for use as described in the
Principal Register of the U.S. Patent and Trademark Office under registration
numbers 1,705,720 and 2,168,749, respectively.
7.3 PPT further represents and warrants that to its knowledge it has the
requisite right and authority to grant the rights and licenses provided for in
this Agreement and that to its knowledge the grant of such rights and licenses
does not violate any right of any third party whether vested, unvested or
inchoate.
7.4 PPT represents and warrants that PPT Know-How transferred pursuant to
Article 4 hereof is current, accurate, and sufficient in detail and content to
enable Sanyo to grow Licensed PPT Cell Lines and manufacture and sell Licensed
Products in compliance with the specifications PPT has established for said
Licensed Products as described in PPT's letter to Sanyo dated February 18, 2000.
5
<PAGE>
7.5 PPT makes no representations and provides no warranty with respect to
the assets transferred pursuant to Article 5 hereof, except that the inventory
met the specifications as described in Article 7.4 upon manufacture.
7.6 PPT represents and warrants that it has not commercialized, on its own
or through third parties, Proteinaceous Polymers other than the Licensed
Products and will not commercialize during the term of this Agreement or
thereafter, on its own or through third parties, Proteinaceous Polymers in the
Sanyo Field.
7.7 PPT represents and warrants that it has taken and will continue to take
during the term of this Agreement all reasonable security measures to protect
the secrecy, confidentiality and value of the PPT Know-How to the extent that
this is feasible and consistent with its own R & D, commercialization, and
marketing of products and technology it sells outside the Sanyo Field and
instructing customers in appropriate uses thereof.
7.8 PPT represents and warrants that neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated under this
Agreement either requires PPT to obtain any permits, authorizations or consents
under current law from any governmental authority or, to PPP's knowledge, from
any third party or results in the breach of or gives rise to a cause for
termination of any agreement or contract to which PPT is a party or by which PPT
is bound or which otherwise relates to PPT Know-How.
7.9 PPT represents and warrants that there are no pending claims, actions,
judicial or adversary proceedings concerning the PPT Know-How or the
manufacture, use or sale of any product under PPT Patent Rights, and no such
action or proceeding is threatened.
7.10 PPT represents and warrants that, to its knowledge, neither the
manufacture, use, nor sale of any Licensed Product within the scope of PPT
Patent Rights will: (i) conflict with, infringe upon or violate any patent or
other proprietary right of any third party, except as described in PPT's letter
dated February 18, 2000; or (ii) breach any confidential relationship or violate
any contractual right of any third party except as described in PPP's letter
dated February 18, 2000; and PPT has no notice of any claim that Sanyo's
manufacture, use or sale of any such Licensed Product will or might conflict
with, infringe, or violate any patent, proprietary right, or violate any
contractual right of any third party.
ARTICLE 8: CONFIDENTIALITY
8.1 PPT and Sanyo shall treat information comprising PPT Know-How as
confidential. Sanyo shall not use PPT Know-How outside the Sanyo Field, and
shall not disclose PPT Know-How to others during the term of this Agreement;
provided, however, that Sanyo may, at its discretion, disclose PPT Know-How to
customers, distributors and end users of Licensed Products for use thereof in
the Sanyo Field, and to manufacturing sublicensees who agree to maintain the PPT
Know-How in confidence and not disclose it to others during the term of this
Agreement. PPT shall not use PPT Know-How in the Sanyo Field nor disclose PPT
Know-How to others for use in the
6
<PAGE>
Sanyo Field; provided, however, that PPT may use PPT Know-How outside the Sanyo
Field and, at its discretion, may disclose PPT Know-How for use outside the
Sanyo Field to customers, distributors and end users of products sold outside
the Sanyo Field, and also to other manufacturing licensee(s) who agree to
maintain the PPT Know-How in confidence and not disclose it to others during the
term of this Agreement.
8.2 In the event that Sanyo discloses any technical or business information
(collectively "Sanyo Information") in confidence to PPT, subject to the
provisions of Paragraph 8.3 hereof, PPT shall not use such information or
disclose it to others during the term of this Agreement without the express
written consent of Sanyo.
8.3 The provisions of Paragraphs 8.1 and 8.2 shall not apply to any
disclosure or use by the receiving party of information:
(a) known to the receiving party prior to disclosure thereto by the
disclosing party, as evidenced by the receiving party's written records;
(b) that is now in the public domain, or which hereafter comes into the
public domain, without fault of the receiving party;
(c) that is at any time lawfully disclosed to the receiving party from a
third party without violation of any obligation to the disclosing party
hereunder, and without restriction on the further disclosure or use of the
information running in favor of such disclosing party;
(d) that is developed by the receiving party without reference to the
information as received from the disclosing party;
(e) that it is necessary for either party to disclose in connection with
the filing of any patent application;
(f) that a regulatory agency requires (i) Sanyo to disclose in connection
with an application for regulatory approval of an application, use, or process
for manufacture of a Licensed Product within the Sanyo Field; or (ii) PPT to
disclose in connection with an application for regulatory approval of an
application, use, or process for manufacture of a Licensed Product outside the
Sanyo Field;
(g) that either party is required to disclose by court order; or
(h) is requested by a treating physician or other health professional in
the event that a medical emergency arises that is associated with the handling
or exposure to a Licensed Product or any precursor thereof, and the physician or
other health professional determines that a medical or occupational health need
exists for such information in order to administer appropriate emergency or
first-aid treatment.
7
<PAGE>
No combination or compilation of information shall qualify under any of the
exceptions of this Paragraph 8.3 merely because it is constituted of plural
elements of information which qualify under one or more of such exceptions, even
though all of such elements of information do so qualify, unless the combination
or compilation is fully set forth in a single document meeting at least one of
such exceptions.
ARTICLE 9: INFRINGEMENT
PPT will promptly notify Sanyo of any counterfeiting, imitation or passing
off of any Licensed Product or suspected infringement of any PPT Patent in the
Sanyo Field by any third party of which PPT becomes aware. Sanyo shall have the
right at its sole discretion and at its own expense to bring an action to police
such third party infringement. PPT agrees to join such action as a party
plaintiff provided that Sanyo underwrites the reasonable expense of
representation of PPT as a party plaintiff in such action based on claims which
Sanyo asserts. PPT shall fully cooperate with Sanyo in the prosecution of such
action including the provision of witnesses and documentation which Sanyo
requests in connection with the investigation of the claim and the submission of
evidence supportive thereof. PPT may be represented in such action by its own
counsel at its own expense. It is understood and agreed that Sanyo is not and
shall not be obligated to provide representation to PPT or to defray PPT's
expenses in the defense of any claim brought by any party against PPT, either in
any action or proceeding brought by Sanyo under this Article 9 or otherwise.
ARTICLE 10: INDEMNITIES
10.1 PPT shall indemnify, defend, and hold Sanyo harmless from and against
any and all loss, claims, suits, proceedings, expenses, recoveries, and damages,
including costs and attorneys fees arising out of, based on, or caused by breach
of any of the warranties of Article 7 hereof.
10.2 Sanyo shall indemnify, defend, and hold PPT harmless from and against
any and all loss, claims, suits, proceedings, expenses recoveries, and damages,
including costs and reasonable attorneys fees arising out of, based on, or
caused by any manufacture, use or sale of Licensed Products by Sanyo, or by any
customer of Sanyo, except that Sanyo shall have no obligation to defend or
indemnify PPT with respect to any damages, losses or liabilities arising out of
gross negligence or more culpable act or omission of PPT.
10.3 PPT shall indemnify, defend, and hold Sanyo harmless from and against
any and all loss, claims, suits, proceedings, expenses, recoveries, and damages,
including costs and reasonable attorneys fees arising out of, based on, or
caused by any manufacture, use or sale of Proteinaceous Polymer(s), including
derivatives or Coated Products thereof, by PPT either outside the exclusive
grant to Sanyo under this Agreement or in violation thereof, or by any customer
of PPT, except that PPT shall have no obligation to defend or indemnify Sanyo
with respect to any damages, losses or liabilities arising out of gross
negligence or more culpable act or omission of Sanyo.
8
<PAGE>
ARTICLE 11: TERM AND TERMINATION
11.1 This Agreement shall remain in effect until the expiration of the last
to expire of patents comprised by PPT Patent Rights.
11.2 Either party shall be entitled to remedies at law and equity
recognized and applied by a court having proper jurisdiction over a dispute that
may arise between the parties.
ARTICLE 12: ASSIGNABILITY
This Agreement shall be assignable by Sanyo to any third party subject to
transfer of the entire business to which this Agreement relates.
ARTICLE 13: NOTICES
Any notice or report or other communication permitted or required under
this Agreement shall be in writing and sent by certified mail, express mail,
postage prepaid, return receipt requested, or by commercial delivery service,
addressed to the party to whom the notice is to be given. Ail notices, reports
or other communications made hereunder shall be deemed to have been made five
days after the date postmarked, if sent by mail, or two business days after
deposit if sent by commercial delivery service. Changes in address shall be
accomplished by a notice in compliance with this Article 13. The current address
for each party is as follows:
PROTEIN POLYMER SANYO CHEMICAL
TECHNOLOGIES, INC. INDUSTRIES, LTD.
10655 Sorrento Valley Road 11-1 Ikkyo Nomoto-cho,
San Diego, CA 92101 Higashiyama-ku, Kyoto 605-0995
United States of America Japan
Attention: J. Thomas Parmeter, Attention: Masakazu SugJura, General
President Manager, Bio & Medical Group,
Technology & Business Innovation
Department, Research Division
ARTICLE 14: MISCELLANEOUS
14.1 Sanyo shall have the right to mark Licensed Products with the numbers
of PPT Patents applicable thereto.
14.2 This Agreement shall be construed in accordance with the law and
judicial decisions of the State of California in effect as of the Date of this
Agreement.
14.3 PPT agrees for itself, its successors, and assigns, that it will
execute without further consideration any further lawful documents and
assurances, including recordable trademark assignments, that may be deemed
necessary by Sanyo to secure to Sanyo's interest in the rights transferred under
this Agreement.
9
<PAGE>
14.4 This Agreement represents the entire understanding between the parties
as of the Date of this Agreement with respect to the subject matter hereof, and
supersedes all prior agreements, negotiations, understandings, representations,
statements, and writings, between the parties relating thereto. No modification,
alteration, waiver or change in any of the terms of this Agreement shall be
valid or binding upon the parties hereto unless made in writing and specifically
referring to this Agreement and duly executed by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their duly authorized representatives as of the day and
year first written above.
PROTEIN POLYMER SANYO CHEMICAL
TECHNOLOGIES, INC. INDUSTRIES, LTD.
BY: /s/ J. THOMAS PARMETER By: /s/ FUSAYOSHI MASUDA
---------------------------- ---------------------------
J. Thomas Parmeter Fusayoshi Masuda
PRESIDENT SENIOR MANAGING DIRECTOR
10
<PAGE>
SCHEDULE 1.1
------------
<TABLE>
<CAPTION>
PATENT CORRESPONDING INTERNATIONAL
NUMBER ISSUE DATE TITLE PATENTS AND/OR APPLICATIONS
- ------ ---------- ----- ---------------------------
<S> <C> <C> <C>
U.S. 5,514,581 May 7, 1996 Functional Recombinantly PCT/US89/05016: issued in
Prepared Synthetic Protein Austral[a, Europe, Finland,
Polymer Norway, South Korea; Pending in
Denmark, Japan
U.S. 5,760,004 Jun 2, 1998 Chemical modification of PCT/US95/12959: Issued in
repetitive polymers to Australia. Pending in Canada,
enhance water solubility Europe, Japan
U.S. 5,770,697 Jun 23, 1998 Peptides Comprising Not Applicable
Repetitive Units of Amino
Acids and DNA Sequences
Encoding the Same
</TABLE>
<TABLE>
<CAPTION>
PATENT
APPLICATION CORRESPONDING INTERNATIONAL
NUMBER FILING DATE TITLE PATENTS AND/OR APPLICATIONS
- ----------- ----------- ----- ---------------------------
<S> <C> <C> <C>
U.S. S/N Jun 7, 1995 Peptides Comprising Not Applicable
08/482,085 Repetitive Units of Amino
Acids and DNA Sequences
Encoding the Same
U.S. S/N Jun 7, 1995 Functional Recombinanty Not Applicable
08/475,411 Prepared Synthetic Protein
Polymer
U.S. S/N Jun 7, 1995 Functional Recombinantly Not Applicable
08/478,029 Prepared Synthetic Protein
Polymer
U.S. S/N Feb 23, 1998 Chemical modification of Not Applicable
09/028,086 repetitive polymers to
enhance water solubility
</TABLE>
SCHEDULE 1.2
------------
Trade Name Product Number
---------- --------------
ProNectin F PF1001, PF1005
ProNectin L PL1001
ProNectin F Plus PP1001
SmartPlastic PF3035, PF3060, PF3100,
PF4006, PF4024, PF4096
11
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Forms S-3 (Nos. 333-19695, 333-62761, 333-45759) and Forms S-8 (Nos. 33-61704,
33-61708, 33-68046), of our report dated February 29, 2000 with respect to the
financial statements of Protein Polymer Technologies, Inc. included in the
Annual Report (Form 10-KSB) for the year ended December 31, 1999.
ERNST & YOUNG LLP
San Diego, California
March 21, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 155,692 1,383,148
<SECURITIES> 0 0
<RECEIVABLES> 30,113 9,965
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 204,958 1,449,607
<PP&E> 2,099,585 2,073,486
<DEPRECIATION> (1,739,581) (1,475,039)
<TOTAL-ASSETS> 741,140 2,225,231
<CURRENT-LIABILITIES> 662,951 850,022
<BONDS> 0 0
0 0
8,761,072 7,600,226
<COMMON> 28,537,524 26,657,399
<OTHER-SE> (37,245,495) (32,987,964)
<TOTAL-LIABILITY-AND-EQUITY> 741,140 2,225,231
<SALES> 52,108 67,096
<TOTAL-REVENUES> 95,967 255,824
<CGS> (508) 4,158
<TOTAL-COSTS> (13,008) 29,158
<OTHER-EXPENSES> 4,366,506 5,864,819
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 19,983 26,692
<INCOME-PRETAX> (4,257,531) (5,638,203)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,257,531) (5,638,203)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,257,531) (5,638,203)
<EPS-BASIC> (.36) (.88)
<EPS-DILUTED> (.36) (.88)
</TABLE>
