Research And Development Agreement

EXHIBIT 10.7


RESEARCH AND DEVELOPMENT AGREEMENT


This Research and Development Agreement ("Agreement") is made this 30th day of October 2000, between Rohm and Haas Company, a Delaware corporation, having its principal office at 100 Independence Mall West, Philadelphia, Pennsylvania, 19106-2399, United States of America ("RandH") and AgraQuest, Inc., a Delaware corporation, having its principal place office at 1530 Drew Avenue, Davis, California 95616, United States of America ("AQ").


ARTICLE 1
BACKGROUND


1.1. AQ has conducted research in the areas of biopesticide microbials and
biochemicals to develop environmentally friendly natural pesticide
products. From this microbial and biochemical research initiative, AQ
has identified a number of product leads.


1.2. RandH possesses considerable expertise in research, development,
registration and commercialization of agricultural chemical products.
Using this expertise, RandH is interested in assessing AQ's product
leads to identify those materials which RandH and AQ, will develop,
register and bring to market.


1.3. To advance these goals, RandH and AQ have determined to enter into a
commercial relationship regarding the future development, registration
and commercialization of AQ's product leads.


ARTICLE 2
DEFINITIONS


2.1 "Actual Costs" means the out-of-pocket costs, including labor costs and
indirect overhead expenses (head-count driven facilities and administrative
allocation).


2.2. "Affiliate" means, in relation to a party to this Agreement, a body
corporate which from time to time is directly or indirectly controlled by
or in control of such party and, for these purposes, "control" shall
consist of the ownership of over fifty percent (50%) of the voting stock of
a body corporate.


2.3 "AQ's Field" means use in the areas of Animal Health which is limited to
therapeutics and pharmaceuticals for animal diseases, products for
controlling internal and external parasites and pests, probiotics, animal
feed additives, Human Health which is limited to pharmaceuticals,
therapeutics, nutritional supplements and nutriceuticals and Aquaculture
which is limited to growth enhancers, nutritional supplements and products
for controlling external or internal parasites and diseases of fish,
shellfish and mollusks.


[***] Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.


2.4. "Biopesticide" means a biochemical or microbial pesticide as defined at 40
C.F.R. (S) 158.65.


2.5. "Confidential Information" means, as to either party and without
limitation, the Technology Rights, and any other data, know-how, formulas,
compositions, processes, documents, designs, sketches, photographs, plans,
graphs, drawings, specifications, equipment, samples, reports, findings,
inventions, ideas and information, including business information related
to the Lead Candidates and the Project.


2.6 "Damages" means any and all losses, liabilities, obligations, costs,
expenses, damages or judgments of any kind or nature whatsoever (including
reasonable attorney's, accountant's and expert's fees, disbursements of
counsel, and other costs and expenses incurred in pursuing or defending
claims under Article 13).


2.7. "Effective Date" means the date first written above.


2.8. "EPA" means the United States Environmental Protection Agency.


2.9. "Gated Process" means the research and development process set forth in
Article 6 of this Agreement and as described in further detail in the
Gated Process Template set forth at Exhibit D to this Agreement.


2.10. "Improvements" means any invention, improvement, modification, new
application or enhancement whether patentable or not, relating solely to a
specific Lead Candidate or Licensed Technology, but expressly excluding
the combination of such Lead Candidate with any RandH product.


2.11. "Lead Candidates" means those product leads from AQ's biopesticide
microbial and biochemical research and development (including any analogs
and homologs, which may qualify as a Biopesticide) identified at Exhibit
A, attached hereto and made a part hereof. Such Exhibit A may be updated
from time to time as provided herein.


2.12. "Net Sales" means, for any given quarter, the net sales of a technical
grade or formulated product containing a given Lead Candidate during such
period, including products containing any Improvements, as such net sales
are determined after deducting industry standard discounts, rebates,
chargebacks, sales freight and taxes. With respect to RandH, Net Sales
shall include the Net Sales to permitted sublicensees.


2.13. "Patent Prosecution" means, with respect to any Technology Right, the
prosecution and maintenance (before the United States Patent and Trademark
Office or the


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[***] Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.


applicable counterpart agency in a foreign country) of any patent or
patent application, or any divisions, continuations, extensions or
renewals relating to such Technology Right.


2.14. "Patent Rights" means all rights under any U.S. or foreign patent or
patent application which may issue with claims directed to a Lead
Candidate, a method to isolate or manufacture a Lead Candidate or a method
to use a Lead Candidate, as the case may be, in each case together with
any divisionals, continuations, continuations-in-part, reissues, re-
registrations or extensions thereof.


2.15. "Project" means the activities of RandH and AQ to assess, develop,
register and commercialize the Lead Candidates as Biopesticide products,
including the Gated Process described in Article 6 of this Agreement.


2.16. "Registration" means approval by the EPA or European Union ("EU") or Japan
of a microbial, a substance or mixture of substances as a Biopesticide
pursuant to the Federal Insecticide, Fungicide and Rodenticide Act
("FIFRA").


2.17. "Technology Rights" means any and all ideas, inventions, formulae,
processes, trade secrets and substantial know-how, intellectual property,
techniques, methods, specifications, practices, data and other forms of
information relating to the processes, methods and techniques for
manufacturing, formulating and using the Lead Candidates, whether
patentable or not and whether or not reduced to practice, including Patent
Rights.


ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF AQ


AQ hereby represents, warrants and covenants to RandH as follows:


3.1 Corporate Power and Authority.
-----------------------------


AQ has the corporate power and authority to execute and deliver this Agreement, the Convertible Note Purchase Agreement, the Convertible Note and perform its obligations hereunder and thereunder, and the execution, delivery and performance of this Agreement, the Convertible Note Purchase Agreement, and the Convertible Note have been duly and validly authorized by AQ, and upon execution and delivery by AQ, this Agreement, the Convertible Note Purchase Agreement, and the Convertible Note will constitute valid and binding agreements of AQ enforceable against it in accordance with their respective terms.


3.2 No Conflict.
------------


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[***] Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.


Neither the execution and delivery of this Agreement, the Convertible Note Purchase Agreement, the Convertible Note, nor the consummation of the transactions contemplated hereunder or thereunder, requires AQ to obtain any permits, authorizations or consents from any governmental body or from any other person, firm or corporation, and such execution, delivery and consummation will not result in the breach of or give rise to any termination of any agreement or contract to which AQ may be a party.


3.3 Compliance with Law.
--------------------


AQ will conduct its activities and operations in material compliance with all applicable laws, statutes, rules or regulations.


3.4 Effort
------


During the term of this Agreement, AQ shall use commercially reasonable efforts to fulfill its obligation as set forth in this Agreement.


3.5 Patent Prosecution; Infringement.
--------------------------------


AQ is obligated to, at AQ's expense, prepare and file one or more patent application(s) for any Lead Candidate(s) and Improvements and is obligated to pursue Patent Prosecution of such patent application(s) and patent(s) which issue from such application(s). AQ shall pursue any Patent Prosecution in a manner that it in good faith believes to be scientifically and commercially reasonable; provided, however, that (i) AQ shall determine in consultation with the Joint Project Team the timing and manner of such Patent Prosecution and the amount of resources, personnel, and effort, devoted by AQ to such Patent Prosecution, patent protection or the scope of the protection afforded by any allowed patent claim and (ii) provided that AQ diligently and in good faith pursues Patent Prosecution of a particular Lead Candidate, AQ shall have no liability or obligation to RandH for the failure to obtain any patent protection relating to any Lead Candidate or the scope of the protection afforded by any allowed patent claim. AQ shall pursue the prosecution of any actual or alleged infringement by a third party of any of the Licensed Technology (as defined in Section 9.1 below).


ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF RANDH


RandH represents, warrants and covenants the following to AQ:


4.1 Corporate Power and Authority.
------------------------------


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[***] Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.


RandH has the corporate power and authority to execute and deliver this Agreement and the Convertible Note Purchase Agreement, and to perform its obligations hereunder and thereunder, and the execution, delivery and performance of this Agreement and the Convertible Note Purchase Agreement have been duly and validly authorized by RandH, and upon execution and delivery by RandH, this Agreement and the Convertible Note Purchase Agreement will constitute valid and binding agreements of RandH enforceable against it in accordance with their respective terms.


4.2 No Conflict.
-----------


Neither the execution and delivery of this Agreement or the Convertible Note Purchase Agreement, nor the consummation of the transactions contemplated hereunder or thereunder, requires RandH to obtain any permits, authorizations or consents from any governmental body or from any other person, firm or corporation, and such execution, delivery and consummation will not result in the breach of or give rise to any termination of any agreement or contract to which RandH may be a party.


4.3 Source of Funds.
---------------


No payment to AQ hereunder will be made with government funds.


4.4. Effort.
------


During the term of this Agreement, RandH shall use commercially reasonable efforts to fulfill its obligations under this Agreement.


4.5. Compliance with Law.
-------------------


RandH will conduct its activities and operations in material compliance with all applicable laws, statutes, rules or regulations.


4.6. Patent Prosecution; Infringement.
--------------------------------


RandH shall cooperate with AQ's efforts regarding the Patent Prosecution, notify AQ of any possible claims of infringement of the Licensed Technology and cooperate with AQ in the prosecution of any actual or alleged infringement by a third party of any of the Licensed Technology.


ARTICLE 5
CERTAIN OBLIGATIONS


5.1. Supply of Lead Candidates.
--------------------------


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[***] Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.


AQ will supply the needed quantities of Lead Candidates (as determined by the Joint Project Team) for entry into the Gated Process. Until such time as [***] Lead Candidates are [***].


5.2. Exclusivity; Reservation of Right.
----------------------------------


(a) AQ shall not work, collaborate or coordinate with any third party to develop a Lead Candidate or any analog or homolog of a Lead Candidate as a Biopesticide, unless such Lead Candidate (i) has been abandoned by RandH as provided at section 6.1(c) herein or (ii) is within AQ's Field. Any such work, collaboration or coordination shall be considered a material breach of this agreement.


(b) Notwithstanding anything herein to the contrary, AQ reserves the right to conduct research and development in conjunction with third parties on analogs and homologs of Lead Candidates which do not and will not qualify as Biopesticides.


5.3. Sale of Convertible Note.
-------------------------


Concurrently with the execution of this Agreement, AQ will sell to RandH and RandH will purchase from AQ, pursuant to a Convertible Note Purchase Agreement attached hereto as Exhibit B, a Convertible Note (as defined therein)
--------- in the principal amount of five hundred thousand dollars ($500,000) made within five (5) days of the Effective Date by wire transfer of immediately available funds to an account designated in writing by AQ. The entire outstanding principal balance of, and all accrued but unpaid interest on, the Convertible Note shall be converted automatically into fully paid nonassessable shares of the equity security (the "Next Financing Securities") sold by AQ in its next equity financing involving the receipt by AQ of at least $3,000,000, including the amounts received on conversion of debt (the "Next Financing"). The number of shares of Next Financing Securities to be issued to RandH upon such conversion shall be equal to the quotient obtained by dividing (i) the entire principal amount of the Convertible Note by (ii) the price per share of the Next Financing Securities multiplied by 1.2, rounded to the nearest whole share. The issuance of such shares upon such conversion shall be upon and subject to the same terms and conditions applicable to the Next Financing and, except as set forth in the preceding sentence, such shares shall have the same rights and preferences as the Next Financing Securities and such shares shall be upon and subject to terms and conditions no less favorable than any share issued by AQ prior to the Effective Date. If AQ does not complete a Next Financing within six months of the Effective Date, the Convertible Note shall be converted into shares of preferred stock of AQ (the "Next Equity Securities") at a purchase price to ...