Collaborative Product Development Agreement

EXHIBIT 10.12



COLLABORATIVE PRODUCT DEVELOPMENT AGREEMENT

(Instrument)



TABLE OF CONTENTS

----------------- Page

----

1. Responsibilities of Aastrom.............................................. 2

1.1 Project Management................................................. 2

1.2 Specifications..................................................... 2



2. Responsibilities of SeaMED............................................... 2

2.1 Design Collaboration............................................... 2

2.2 Delivery of Preproduction Units.................................... 3

2.3 Maintenance of Adequate Facilities and Manufacturing Practices..... 4

2.4 No Subcontracting.................................................. 5

2.5 Inventory and Insurance............................................ 5

2.6 Transit............................................................ 5

2.7 Financial Condition................................................ 5



3. Acceptance Procedures.................................................... 5



4. Compensation............................................................. 6



5. Warranties............................................................... 6

5.1 SeaMED's Warranty.................................................. 6

5.2 Limitation on Liability............................................ 6

5.3 Disclaimer of Warranties........................................... 7

5.4 Aastrom's Warranty................................................. 7



6. Phase II Manufacture..................................................... 7

6.1 Manufacturing Agreement............................................ 7

6.2 Phase II Manufacturing Drawings and Process........................ 9

6.3 Transition Cooperation............................................. 9

6.4 Compensation....................................................... 9



7. Records; Inspection...................................................... 9



8. Indemnification.......................................................... 9

8.1 By SeaMED.......................................................... 9

8.2 By Aastrom......................................................... 10

8.3 Patent Infringement................................................ 10

8.4 Control of Action.................................................. 10

8.5 Insurance.......................................................... 10



9. Exclusivity.............................................................. 11

9.1 Continuing Prohibition............................................. 11







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9.2 No Similar Product................................................ 11

9.3 No Use of Aastrom's Proprietary Information....................... 11



10. Proprietary Information.................................................. 12

10.1 Aastrom's Property; Use of Property by SeaMED..................... 12

10.2 Inventions........................................................ 12

10.3 Nondisclosure..................................................... 12

10.4 Confidentiality................................................... 12



11. Term..................................................................... 13



12. Default and Termination.................................................. 13

12.1 Breach............................................................ 13

12.2 Remedy............................................................ 14



13. Miscellaneous............................................................ 14

13.1 Independent Contractors........................................... 14

13.2 Causes Beyond Control............................................. 14

13.3 Successors and Assigns............................................ 14

13.4 Applicable Law.................................................... 15

13.5 Severability...................................................... 15

13.6 Entire Agreement; Modification and Waiver......................... 15

13.7 Counterparts...................................................... 15

13.8 Dispute Resolution................................................ 15

13.9 Notices........................................................... 15





EXHIBITS



A General Description of the System and the Instrument

B Specifications and Functional Requirements for the Instrument

C Time and Quantity Schedule - Preproduction Units

C1 Pricing for Precommercial Units

D Manufacturing Drawings for the Instrument

E Compensation Schedule for Design Work and Manufacturing

Preproduction Units

F Summary of Manufacturing Agreement for Phase II









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COLLABORATIVE PRODUCT DEVELOPMENT AGREEMENT



(Instrument)







This Collaborative Product Development Agreement (the "Agreement") is entered into as of May 10, 1994, by and between Aastrom Biosciences, Inc., a

------ Michigan corporation ("Aastrom"), and SeaMED Corporation, a Delaware corporation ("SeaMED").



A. Aastrom is in the final stages of research and development for a proprietary Cell Expansion System which is used for stem cell growth (the "System"). The System includes an instrument or instruments (the "Instrument") and a disposable biochamber cartridge. Aastrom has completed a working prototype model of the System; and Aastrom now needs to complete the design of the Instrument and to obtain (i) pre-production models defined as pre-revision Rev. A specification units (hereinafter called "preproduction units") of the Instrument for laboratory and clinical evaluation, and (ii) pre-commercial models, defined as units made once the release occurs for Rev. A specification units (hereinafter called "precommercial units") of the Instrument for laboratory and clinical evaluation. Attached hereto as Exhibit A is a general description of the System, including the Instrument.



B. SeaMED has expertise and experience in the development and manufacture of medical instruments which are somewhat similar to the Instrument, and SeaMED is prepared to collaborate with Aastrom for completing the necessary design work on the Instrument to enable SeaMED to produce preproduction units and precommercial units of the Instrument for laboratory and clinical evaluation as outlined in the SeaMED Project Plan, Drawing Number 908180, draft dated 2-2-94.



C. As further described in this Agreement, (i) the design and manufacture of preproduction units and precommercial units of the Instrument shall be referred to as Phase I, and (ii) the subsequent manufacture of commercial units (defined as any unit that is sold) of the Instrument shall be referred to as Phase II.



D. Pursuant to the terms of this Agreement, during Phase I SeaMED shall (i) collaborate with and assist Aastrom to design the preproduction units and precommercial units of the Instrument, and (ii) manufacture the preproduction units and precommercial units of the Instrument. At least six months prior to the expected commencement of Phase II, Aastrom and SeaMED shall pursue good faith negotiations for entering into a Manufacturing Agreement for SeaMED to manufacture the commercial units of the Instrument, as further described in



Section 6 of this Agreement. Because of foreign governmental approval requirements, it is possible that there still will be some preproduction units and precommercial units being made during Phase I, while at the same time there will be some commercial units being made during Phase II.



E. Aastrom has contracted with Roecker Design Group, and Aastrom may also contract with other design specialists for assistance with specified aspects of the System and/or Instrument (collectively called the "Other Design Contractors").







NOW, THEREFORE, the parties hereby agree as follows:



1. Responsibilities of Aastrom.

---------------------------



1.1 Project Management. Aastrom shall be responsible for overall

------------------ project management relating to the development of the Instrument.



1.2 Specifications. Aastrom shall collaborate with SeaMED and the

-------------- Other Design Contractors on completing the design work for the Instrument. With assistance from SeaMED as more fully described in Section 2 below, Aastrom shall develop the final specifications and functional requirements for the preproduction units and precommercial units (including applicable test criteria) (the "Specifications"). Upon completion of the Specifications, Aastrom shall promptly provide SeaMED with a copy of the Specifications, and the Specifications shall be incorporated herein as Exhibit B hereto.



2. Responsibilities of SeaMED.

--------------------------



2.1 Design Collaboration. SeaMED shall collaborate with Aastrom

-------------------- and the Other Design Contractors on completing the design work for the Instrument. The time schedule for completing such design work shall be as set forth in Exhibit C. Without limiting the foregoing, SeaMED shall:



(a) Assist Aastrom with respect to planning for all manufacturing issues that are likely to arise in connection with the design work and development of the Instrument, including issues relating to the Phase I and Phase II manufacturing process development and validation, component sourcing, and the creation of Device Master record documentation requirements;



(b) Review the Instrument software design and documentation, and provide third party quality assurance, including specification review, code audits, verification and validation testing, to ensure to the best of



SeaMED's ability that they are in compliance with all applicable guidelines of the U.S. Food and Drug Administration;



(c) Assist Aastrom to establish a reliability goal for the Instrument, calculate the reliability of the preproduction units and precommercial units at certain established review points during the design and development of the Instrument, and perform demonstration tests on pilot production units produced by SeaMED; and



(d) Determine all necessary requirements for certification of the Instrument by UL, CSA, IEC, TUV and EC, and to review the design of the Instrument at various key points during the product development stage to determine compliance with such requirements, and coordinate the testing of the Instrument for compliance with such requirements and the submission of the Instrument for certification by each of such entities.



(e) Prepare working drawings for manufacturing and testing the preproduction units and the precommercial units of the Instrument, including without limitation, (i) specifications for component parts to be acquired from specified vendors, (ii) drawings and specifications for component parts, (iii) test and acceptance procedures and criteria, (iv) subassembly specifications, drawings and requirements, (v) costed bill of materials, and (vi) product specific manufacturing procedures, device master record, routing and processes (collectively called the "Manufacturing Drawings"), which Manufacturing Drawings shall be subject to the prior written approval of Aastrom, shall be owned by Aastrom, and shall ultimately be incorporated herein as Exhibit D. If said manufacturing drawings reference general policies and procedures of SeaMED, such as SeaMED's Quality System, then such general policies and procedures shall remain the property of SeaMED, but Aastrom shall be given a copy of the same. As modifications are made from time to time to the Manufacturing Drawings by mutual agreement, SeaMED shall furnish to Aastrom an updated copy thereof.



(f) To the extent required for submittal to the U.S. Food and Drug Administration ("FDA") (or comparable foreign agencies) for Aastrom's IDE and/or PMA (or comparable foreign approvals), prepare a detailed description of SeaMED's manufacturing methods, processes, procedures and facility applicable to Aastrom's Instrument.



2.2 Delivery of Preproduction Units. Following Aastrom's approval of the

------------------------------- Manufacturing Drawings prepared by SeaMED, in accordance with the time and quantity schedule specified in Exhibit C attached hereto, and the pricing specified in Exhibit E, SeaMED shall manufacture and deliver to Aastrom at its Ann Arbor, Michigan facility, a number of the preproduction units of the Instrument, in compliance with the Specifications and the Manufacturing Drawings,



for use in clinical tests of the System. The exact number of said preproduction units, and any variations thereof, shall be as specified by Aastrom in a purchase order, subject to SeaMED's reasonable approval, which approval will not be withheld unreasonably. As Aastrom's clinical tests of the System proceed, and depending on the outcome of those tests, Aastrom may place purchase orders for additional units of the preproduction unit; and SeaMED shall manufacture and sell said additional preproduction units on the same terms and conditions as set forth herein. Provided, however, the maximum number of preproduction units shall be as specified in Exhibit C.



2.2.1 Delivery of Precommercial Units. Once Aastrom has released

------------------------------- for manufacture the Rev. A specifications for the precommercial units, SeaMED shall manufacture and deliver to Aastrom at its Ann Arbor, Michigan facility, a number of the precommercial units of the Instrument, in compliance with the Rev. A Specifications and the related manufacturing Drawings, for use in clinical tests of the System. The exact number of said precommercial units shall be specified by Aastrom in a purchase order, subject to SeaMED's reasonable approval, which approval will not be withheld unreasonably. The purchase and sale of the precommercial units shall be in accordance with the terms specified on Exhibit C-1 attached hereto. Delivery of precommercial units will be within twenty (20) weeks after SeaMED receives a firm purchase order for the specified number of units. A specific schedule will be determined at the time of the purchase order placement.



2.3 Maintenance of Adequate Facilities and Manufacturing

---------------------------------------------------- Practices. SeaMED shall maintain adequate personnel and facilities to perform - --------- its obligations under this Agreement. SeaMED shall assemble all of the preproduction units and precommercial units in an environment where good manufacturing practices are followed. Inasmuch as SeaMED's FDA facility registration and inspection record are extremely important to Aastrom's ability to obtain prompt FDA approval for Aastrom's System, SeaMED hereby agrees to use its best efforts to maintain in good standing all appropriate FDA facility registrations and inspection records. SeaMED shall immediately report to Aastrom in writing any adverse events, circumstances, or potential problems relating to SeaMED's FDA registrations and inspections that could adversely effect Aastrom's product or the System approval. SeaMed shall furnish to Aastrom a copy of the FDA facility registrations and inspection reports applicable as of the date of this Agreement, plus each subsequent FDA registration or inspection report during the term of this Agreement. SeaMED shall allow Aastrom and its agent to review and inspect SeaMED's facilities, and FDA compliance files, and correspondence to and from the FDA regarding inspections, registrations, and audits that pertain directly to Aastrom's product or the System's regulatory submission. SeaMED will inform Aastrom of any negative findings regarding other products (although the product and company will remain confidential) or processes that may have an impact on



Aastrom's product or regulatory submission. To the extent that European Economic Community standards apply to SeaMED's facility and manufacturing practices for units to be used in Europe, SeaMED will also comply with said standards.



2.4 No Subcontracting. No part of SeaMED's obligations under

----------------- this Agreement shall be subcontracted by SeaMED that would impact Aastrom's PMA approval, without the prior written approval of Aastrom.



2.5 Inventory and Insurance. All inventory of components and

----------------------- materials purchased by SeaMED to make the Instrument shall be owned by SeaMED and shall be insured against risk of loss by SeaMED. Any components and materials purchased by Aastrom and delivered to SeaMED for SeaMED to use to make the Products shall be covered by SeaMED's insurance policy for risk of loss while said items remain in SeaMED's facility, with Aastrom being the loss payee therefor.



2.6 Transit. SeaMED shall arrange for shipment of the Instrument by

------- a common carrier approved by Aastrom, to a destination specified by Aastrom. Title and risk of loss to the Instrument shall pass from SeaMED to Aastrom when the Instruments are delivered to a common carrier for shipment to Aastrom's designation.



2.7 Financial Condition. Each party shall furnish to the other

------------------- party a copy of the party's quarterly financial statements and a copy of the party's annual financial statements, within forty-five (45) days after each quarter-end and ninety (90) days after the party's fiscal year-end. Each party shall give written notification to the other party of any material adverse financial condition affecting the party, including without limitation: (i) the filing of a significant lawsuit against the party, (ii) the lack of cash funds available to pay all obligations of the party as they become due, (iii) the lack of resources available to enable the party to fully and promptly perform its obligations under this Agreement on schedule, or (iv) any other condition which may jeopardize or impair the full and prompt performance by the party of its obligations under this Agreement. Said notification shall be given within five (5) days after the occurrence or realization of said adverse condition.



3. Acceptance Procedures. Delivery of each of the preproduction units

--------------------- and precommercial units shall be deemed accepted by Aastrom unless SeaMED is notified in writing of Aastrom's rejection of such delivery within thirty (30) days after the delivery date due to a failure thereof to comply with the Specifications and/or the Manufacturing Drawings, including the test criteria. In the event SeaMED receives such notice, SeaMED shall diligently attempt to promptly resolve any such failure, and to deliver a unit which conforms to the



Specifications and the Manufacturing Drawings. In the event SeaMED cannot resolve any such failure and deliver a unit that conforms to the Specifications and the Manufacturing Drawings within thirty (30) days of receipt of such notice, Aastrom may terminate this Agreement pursuant to Section 12 below.



4. Compensation. Aastrom shall compensate SeaMED for SeaMED's

------------ design work and preproduction unit manufacture on a "time and materials" basis, as further described on Exhibit E. Aastrom shall compensate SeaMED for the precommercial units manufactured pursuant to the maximum pricing formula as specified in Exhibit C-1 attached hereto, subject to the definitions and pricing schedule considerations in Section 4.1 of Exhibit F attached hereto. SeaMED shall submit to Aastrom a monthly invoice for said design work, and SeaMED shall invoice for units manufactured upon shipment of the units, and each invoice shall be accompanied by such supporting details as Aastrom may reasonably request. Aastrom shall pay said invoice within thirty (30) days after the invoice and supporting details are received by Aastrom.



5. Warranties.

----------



5.1 SeaMED's Warranty. SeaMED warrants that each of the units

----------------- (i) shall be manufactured in full compliance with the Specifications and the Manufacturing Drawings, (ii) shall be free from defects in material and workmanship, and (iii) shall be free from defects in design as to those specific elements for which SeaMED was primarily responsible for the design. As to elements of the unit for which SeaMED was not primarily responsible for the

--- design, SeaMED is not making any warranty as to design. SeaMED further warrants that the manufacture, assembly and delivery of the units hereunder shall be (i) in compliance with all applicable federal, state and local laws, rules, regulations and executive orders, including without limitation, all of the employee compensation, health and safety and environmental laws applicable to SeaMED's facility, and all U.S. customs laws and regulations, and U.S. Food and Drug Administration ("FDA") regulations, and applicable foreign regulations, and (ii) performed in a professional, workmanlike manner in accordance with prevailing industry standards. SeaMED understands that Aastrom may sell the units to hospital customers or other users. SeaMED agrees that the foregoing warranties are for the benefit of Aastrom and any ultimate end-user of the units.



5.2 Limitation on Liability. SeaMED shall either repair or

----------------------- replace or provide to Aastrom full credit for the purchase price of any unit which is defective due to SeaMED's failure to comply with the foregoing warranty. Any such warranty repairs or replacements shall be completed within thirty (30) days after the date on which any defective unit is delivered to SeaMED. All shipping and other costs incurred in connection with the repair or replacement of any



defective unit shall be borne by and for the account of SeaMED. Except as specified in Section 8, SeaMED shall have no liability to Aastrom for any consequential damages or loss, including but not limited to loss of profits or goodwill, additional expenses incurred, or other damages.



5.3 Disclaimer of Warranties.

------------------------



EXCEPT FOR THE WARRANTIES SET FORTH IN THIS SECTION, SEAMED DISCLAIMS ANY

AND ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF

MERCHANTABILITY OR ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR



5.4 Aastrom's Warranty. Aastrom warrants that all elements of

------------------ the Instrument units for which SeaMED was not primarily responsible for the design shall be free from defects in design.



6. Phase II Manufacture.

--------------------



6.1 Manufacturing Agreement. Subject to satisfying the

----------------------- prerequisites listed below, Aastrom and SeaMED will enter into a Manufacturing Agreement for Phase II manufacture of commercial units of the Instrument in accordance with the terms set forth in Exhibit F attached hereto. At the option and discretion of Aastrom, Aastrom may waive any one or more of said prerequisites. Said prerequisites are:



(a) SeaMED has performed its obligations during Phase I in a diligent, prompt and effective manner, to the reasonable satisfaction of Aastrom, without any defaults by SeaMED.



(b) SeaMED has manufactured the preproduction units and precommercial units of the Instrument during Phase I in full compliance with the Manufacturing Drawings and the Specifications, and SeaMED has delivered the quantities of same on a timely schedule as ordered, and SeaMED has complied fully with its obligations under this Agreement.



(c) SeaMED has successfully controlled the costs to manufacture the preproduction units and precommercial units, on a reasonable and cost effective basis.



(d) SeaMED has adequate facilities, equipment, personnel, governmental approvals, and manufacturing capacity to manufacture the quantities



of the commercial units of the Instruments needed by Aastrom during Phase II; and SeaMED shall furnish to Aastrom reasonable evidence to verify the same.



(e) SeaMED's facility has received all necessary approvals from the FDA and from the European Community (or other necessary foreign agencies) to manufacture the commercial units of the Instrument.



(f) SeaMED's financial condition is sound and stable, such that there are no reasonable doubts as to SeaMED's financial ability to remain in business and perform its obligations contemplated under the Manufacturing Agreement, and SeaMED shall furnish to Aastrom reasonable evidence to verify the same.



(g) SeaMED is able and willing to manufacture the commercial units of the Instrument on a cost effective and efficient basis, on a timely production schedule, and on a high quality basis, pursuant to mutually approved pricing and delivery schedules, all in accordance with the Manufacturing Agreement, and SeaMED shall furnish to Aastrom reasonable evidence to verify the same.



(h) SeaMED maintains the insurance coverage as specified in the Manufacturing Agreement and SeaMED shall furnish to Aastrom reasonable evidence to verify the same.



(i) Aastrom is satisfied with the results of its clinical trials and the market potential for the Instrument, such that Aastrom is prepared to proceed with Phase II and the manufacture and sale of commercial units.



(j) SeaMED approves any modifications to the Phase II Manufacturing Drawings for the Instrument which Aastrom determines to be needed.



(k) SeaMED approves the quantities and delivery schedule determined by Aastrom to be needed to meet the market needs for the commercial units of the Instrument.



If Aastrom concludes that the foregoing prerequisites are satisfied, then Aastrom and SeaMED will enter into a Manufacturing Agreement in accordance with the terms set forth in Exhibit F. Provided however, SeaMED may decline to e ...