UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996 Commission File Number 0-21104
CRYOLIFE, INC.
(Exact name of registrant as specified in its charter)
---------
Florida 59-2417093
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2211 New Market Parkway, Suite 142
Marietta, Georgia 30067
(Address of principal executive offices)
(zip code)
(770) 952-1660
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
___ ____
The number of shares of common stock, par value $0.01 per share, outstanding
on July 26, 1996 was 9,515,132.
Part I - FINANCIAL INFORMATION
Item 1. Financial statements
CRYOLIFE, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
(Unaudited) (Unaudited)
Revenues:
Cryopreservation $9,619,346 $7,104,370 $17,878,905 $13,569,069
Research grants, licenses,
lease and interest revenue 78,524 125,390 252,772 265,556
__________ __________ ___________ ___________
9,697,870 7,229,760 18,131,677 13,834,625
Costs and expenses:
Preservation 3,289,370 2,706,257 6,168,219 5,120,935
General, administrative
and marketing 4,181,360 3,042,545 7,807,029 5,973,491
Research & development 700,423 667,923 1,390,519 1,354,034
Interest expense -- 2,620 -- 2,620
8,171,153 6,419,345 15,365,767 12,451,080
_________ __________ ___________ __________
Income before income taxes 1,526,717 810,415 2,765,910 1,383,545
Income tax expense 538,278 251,036 994,974 434,036
_________ _________ __________ __________
Net income $ 988,439 $ 559,379 $ 1,770,936 $ 949,509
__________ __________ _____________ __________
Earnings per share of
common stock $ 0.10 $ 0.06 $ 0.18 $ 0.10
Weighted average common _________ ______________ _____________ __________
and common
equivalent shares
outstanding
9,932,512 9,503,528 9,876,286 9,462,232
See accompanying notes to summary consolidated financial statements.
Item 1. Financial Statements
CRYOLIFE, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 58,061 $ 166,931
Marketable securities 4,317,254 6,015,158
Receivables (net) 7,465,534 5,369,205
Deferred preservation costs (net) 6,522,387 5,996,201
Inventories (net) 332,885 424,200
Prepaid expenses 584,648 369,594
Deferred income taxes 80,345 --
________ _________
Total current assets 19,361,114 18,341,289
__________ __________
Property and equipment (net) 4,580,272 3,279,168
Patents and other intangibles (net) 2,549,508 1,728,262
Other assets 464,943 240,897
___________ _________
TOTAL ASSETS $26,955,837 23,589,616
___________ ___________
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,651,821 $1,372,862
Accrued expenses 1,866,936 1,474,365
Accrued compensation 305,163 260,709
Current portion of long term debt 198,458 --
___________ __________
Total current liabilities 4,022,378 3,107,936
___________ ___________
Deferred income taxes -- 16,486
Other long term liabilities 445,816 --
___________ ___________
Total liabilities 4,468,194 3,124,422
___________ ___________
Shareholders' Equity:
Preferred stock -- --
Common stock (issued 10,058,132 shares in 1996
and 9,974,332 shares in 1995) 100,582 99,744
Additional paid-in capital 16,837,339 6,568,312
Retained earnings 5,745,474 3,974,538
Unrealized gain on investments 4,740 28,092
Less: Treasury stock (543,000 shares) (179,625) (179,625)
Notes receivable from shareholders (20,867) (25,867)
___________ ___________
Total shareholders' equity 22,487,643 20,465,194
___________ ___________
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $26,955,837 $23,589,616
See accompanying notes to summary consolidated financial statements.
Item 1. Financial Statements
CRYOLIFE, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1996 1995
(Unaudited)
Net cash flows from operating activities:
Net income $1,770,936 $ 949,509
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 637,620 459,094
Provision for doubtful accounts 28,400 38,000
Deferred income taxes (96,831) --
Increase in receivables (2,124,729) (773,221)
(Increase) decrease in deferred preservation
costs and inventory (434,871) 540,801
Increase in prepaid expenses and other
assets (1,387,966) (938,206)
Increase in accounts payable and accrued
expenses 715,984 708,226
________ __________
Net cash flows provided by (used in)
operating activities (891,457) 984,203
_________ __________
Net cash flows used in investing activities:
Capital expenditures (1,811,104) (544,754)
Proceeds from other long term liabilities 644,274 --
Proceeds from the sale of marketable
securities 4,128,622 2,176,400
Purchase of marketable securities (2,430,718) (3,584,859)
Net cash flows provided by (used in) investing
activities 531,074 1,953,213)
___________ ____________
Net cash flow from financing activities:
Proceeds from issuance of common stock and
from notes receivable from shareholders 251,513 106,846
___________ __________
Net cash provided by financing activities 251,513 106,846
___________ ___________
Decrease in cash (108,870) (862,164)
Cash and cash equivalents at beginning of period 166,931 2,592,799
___________ ___________
Cash and cash equivalents at end of period $ 58,061 $ 1,730,635
___________ ___________
See accompanying notes to summary consolidated financial statements.
CRYOLIFE, INC. AND SUBSIDIARIES
NOTES TO SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited, summary, consolidated financial statements have
been prepared in accordance with (i) generally accepted accounting principles
for interim financial information, and (ii) the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for fair presentation have been included. Operating results for the three
and six months ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996.
Note 2 below covers events occurring after the latest fiscal year end. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Form 10-K for the year ended
December 31, 1995.
Note 2 - Shareholders' equity
On May 16, 1996 the shareholders ratified and approved an amendment to the
Company's Articles of Incorporation to increase the number of authorized
shares of common stock of the Company from 20,000,000 shares to 50,000,000
shares.
On May 16, 1996 the shareholders approved the Employee Stock Purchase Plan
(the "Plan") under which employees who meet certain criteria are eligible to
purchase common stock of the Company, through payroll deductions, at 85% of
the market value of the shares, determined on either the first or
last day of a purchase period, on whichever date the market value is less.
No compensation expense is recorded in connection with the Plan. There are a
maximum of 600,000 shares eligible for issuance under the Plan.
On May 16, 1996 the shareholders approved an amendment to the Articles of
Incorporation of the Company deleting the provision on required voting rights
for preferred stock. On May 16, 1996 the Board of Directors declared a two
for one stock split, effected in the form of a stock dividend, payable on
June 28, 1996 to shareholders of record on June 7, 1996.
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
Revenues were $9.7 million and $18.1 million for the three and six months
ended June 30, 1996, respectively, compared to $7.2 million and $13.8
million for the corresponding periods in 1995. Revenues increased 35% and
31% for the three and six months ended June 30, 1996, respectively, compared
to the corresponding periods in 1995. Revenue increases are due to
greater allograft shipments resulting from increased demand.
Revenues from human heart valve preservation increased 32% to $6.6 million
for the three months ended June 30, 1996 from $5.0 million for the three
months ended June 30, 1995, representing 68% and 69% of total revenues,
respectively. For the six months ended June 30, revenues from human
heart valve preservation increased 27% to $12.1 million for 1996 from $9.5
million for 1995, representing 67% and 69% of total revenue, respectively.
Second quarter revenues increased due to a 34% increase in tissue shipments
resulting from an increase in demand in the second quarter of 1996 compared
to the second quarter of 1995. Six month revenues increased due to a 31%
increase in tissue shipments resulting from an increase in demand in the
first half of 1996 compared to 1995.
Revenues from vein preservation increased 24% to $2.1 million for the three
months ended June 30, 1996 from $1.7 million for the three months ended
June 30, 1995, representing 22% and 24% of total revenues, respectively.
For the six months ended June 30, revenues from vein preservation
increased 18% to $3.9 million for 1996 from $3.3 million for 1995,
representing 21% and 24% of total revenue, respectively. Second quarter
revenues increased due to a 27% increase in tissue shipments resulting from
an increase in demand in the second quarter of 1996 compared to the second
quarter of 1995. Six month revenues increased due to a 16% increase in
tissue shipments resulting from an increase in demand in the first half of
1996 compared to 1995.
Revenues from orthopaedic tissue preservation increased 150% to $896,000 for
the three months ended June 30, 1996 from $359,000 for the three months ended
June 30, 1995, representing 9% and 5% of total revenues, respectively. For
the six months ended June 30, revenues from orthopaedic tissue preservation
increased 159% to $1.7 million for 1996 from $638,000 for 1995, representing
9% and 5% of total revenue, respectively. Second quarter revenues increased
due to a 231% increase in tissue shipments resulting from an increase in
demand in the second quarter of 1996 compared to the second quarter of 1995.
Six month revenues increased due to a 241% increase in tissue shipments
resulting from an increase in demand in the first half of 1996 compared to
1995.
Other revenues were $77,000 for the three months ended June 30, 1996 compared
to $125,000 for the three months ended June 30, 1995, representing 1% and 2%
of total revenues, respectively. For the six months ended June 30, other
revenues were $253,000 for 1996 compared to $265,000 for 1995, representing
1% and 2% of total revenue, respectively. Other revenues consist primarily
of research grant award revenues and interest income. Research grant award
revenues in 1996 are primarily related to the bioadhesive and synergraft
projects.
Preservation costs aggregated $3.3 million and $6.2 million, respectively,
for the three and six months ended June 30, 1996, representing 34% of total
revenues for both periods, compared to $2.7 million and $5.1 million,
respectively, for the three and six months ended June 30, 1995,
representing 38% and 37% of total revenues, respectively. Preservation
costs increased 22% for second quarter 1996 compared to second quarter 1995
and increased 22% for the first half of 1996 compared to the first half of
1995 due to increased shipments of human allografts.
General, administrative, and marketing expenses aggregated $4.2 million and
$7.8 million, respectively, for the three and six months ended June 30, 1996,
representing 43% of total revenues for both periods, compared to $3.0 million
and $6.0 million, respectively, for the three and six months ended
June 30, 1995, representing 42% and 43% of total revenues, respectively.
This increase reflects the general overhead growth trends, including
increased marketing expensesassociated with the increase in revenues and the
switch from a predominantly independent sales force to a predominantly direct
sales force.
Research and development expenses aggregated $700,000 and $1.4 million,
respectively, for the three and six months ended June 30, 1996, representing 7%
and 8% of total revenues, respectively,
compared to $668,000 and $1.4 million, respectively, for the three and six
months ended June 30, 1995, representing 9% and 10% of total revenues,
respectively. R & D spending relates principally to the Company's focus on
bioadhesives and the synergraft technology.
Seasonality
The demand for the Company's human heart valve tissue preservation services
is seasonal. Management believes this demand trend for human heart valves is
primarily due to the high number of pediatric surgeries scheduled during the
summer months.
Liquidity and Capital Resources
At June 30, 1996 net working capital was $15.3 million, compared to
$15.2 million at December 31, 1995, with a current ratio of 4.8 to 1.
Shareholders' equity at June 30, 1996 was $22.5 million. The Company's
primary capital requirements arise out of working capital needs, including
receivables and deferred preservation costs, and capital expenditures for
facilities and equipment, primarily the new corporate headquarters.
The increase in receivables relates to the increase in revenue. The
increase in prepaid expenses relates primarily to prepaid lab supplies for
the bioadhesives facility. The increase in other assets relates primarily to
the purchase of the Bioglue technology. The increase in accounts payable and
accrued expenses is due to increased procurement fees pursuant to an increase
in tissue procured, and the increase in overhead to support the increased
revenues. Other long term liabilities relate to the acquisition of the
Bioglue technology. Fixed asset additions of $1.8 million during the first
half of 1996 related principally to the construction of the new corporate
headquarters.
The Company believes that available cash, cash equivalents, and marketable
securities, along with cash generated from operations, will be sufficient
to meet its operating and development needs for the foreseeable future.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Shareholders was held on
May 16, 1996.
(b) Management's nominees for director were elected at the
meeting by the holders of common stock. The election was
uncontested.
(c) A proposal to approve the Company's Employee Stock
Purchase Plan was approved.
The result of the voting was as follows:
Common shares
_____________
Voting for 2,679,355
Voting against 29,245
Abstain from voting 8,788
BrokerNon-votes 930,712
___________
Total 3,648,100
_________
A proposal to amend the Company's Articles of Incorporation
to increase the number of authorized shares of common stock
from twenty million to fify million shares was approved.
The result of the voting was as follows:
Common shares
_____________
Voting for 3,478,798
Voting against 395,575
Abstain from voting 19,680
Broker Non-votes 0
____________________
Total 3,894,053
____________________
A proposal to amend the Company's Articles of Incorporation
to delete the requirement that preferred shares have voting
rights was approved. The result of the voting was as follows:
Common shares
_____________
Voting for 2,441,238
Voting against 259,984
Abstain from voting 16,166
Broker Non-votes 930,712
_______________
Total 3,648,100
_______________
The following table shows the results of voting in the
election of Directors:
Shares Voted For Authority Withheld
Steven G. Anderson 3,781,470 112,653
Ronald C. Elkins, M.D. 3,781,470 112,653
Benjamin H. Gray 3,781,470 112,653
Rodney G. Lacy 3,781,470 112,653
Ronald D. McCall, Esq. 3 781,470 112,653
Item 5. Other information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibit index can be found below.
Exhibit
Number Description
3.1 Restated Certificate of Incorporation of the Company, as amended. (Incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-1 (No.
33-56388).)
3.2 Amendment to Articles of Incorporation of the Company dated November 29, 1985.
(Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.)
3.3 Amendment to the Company's Articles of Incorporation to increase the number of
authorized shares of common stock from 20 million to 50 million shares and to delete
the requirement that all preferred shares have one vote per share.
3.4 ByLaws of the Company, as amended. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Annual Report of Form 10-K for the fiscal year ended December 31, 1993.)
10.1 Research and Option Agreement between the Company and Biocompatibles Limited.
11.1 Statement re: computation of earnings per share
27.1 Financial Data Schedule
(b) Current Reports on Form 8-K.
The Registrant filed a Current Report on Form 8-K with the
Commission on April 23 with respect to a Change in the
Registrant's Certifying Accountant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CRYOLIFE, INC.
(Registrant)
August 13, 1996
EDWIN B. CORDELL, JR.
___________________________________
DATE EDWIN B. CORDELL, JR.
Vice President and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
5
0000784199
CRYOLIFE, INC.
6-MOS
DEC-31-1996
JUN-30-1996
58,061
4,317,254
7,154,569
(53,837)
332,885
19,361,114
9,904,814
(5,324,542)
26,955,837
4,022,378
0
0
0
100,582
22,387,061
26,955,837
0
18,131,677
0
6,168,219
9,197,548
28,400
0
2,765,910
994,974
1,770,936
0
0
0
1,770,936
0.18
0.18
EXHIBIT 3.3
ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION
OF CRYOLIFE, INC.
TO: DEPARTMENT OF STATE
TALLAHASSEE, FLORIDA 32304
Pursuant to the provisions of Section 607.1006 and Section 607.1007 of
the Florida Statutes, the undersigned Corporation adopts the
following Amendments to the Articles of Incorporation:
1. The name of the corporation is CRYOLIFE, INC.
2. The following Amendments to the Articles of
Incorporation were adopted by the shareholders of the corporation
on May 16, 1996, in the manner prescribed by the Florida General
Corporation Act:
A. Paragraph a(1) of Article V of the Articles of
Incorporation is hereby deleted in its entirety and the following
is substituted therefor:
(a)(1) The number of shares of capital stock authorized to
be issued by this corporation shall be Fifty Million (50,000,000)
shares of common stock, each with a par value of One Cent ($.01)
and Five Million (5,000,000) shares of preferred stock, each with
a par value of One Cent ($.01). The shares of preferred stock
may be divided into and issued in series.
B. Paragraph a(3) of Article V of the Articles of
Incorporation is hereby deleted in its entirety and the following
is substituted therefor:
(a)(3) Each share of issued and outstanding common stock
shall entitle the holder thereof to one (1) vote on each matter
with respect to which shareholders have the right to vote, to
fully participate in all shareholder meetings, and to share
ratably in the net assets of the corporation upon liquidation
and/or dissolution. Each share of issued and outstanding
preferred stock shall have such rights to share in the net assets
of the corporation upon liquidation and/or dissolution as are
determined and fixed by the Board of Directors pursuant to
Florida Statutes Section 607.047. All or any part of said
capital stock may be paid for in cash, in property or in labor or
services at a fair valuation to be fixed by the Board of
Directors at a meeting called for such purposes. All stock when
issued shall be paid for and shall be nonassessable.
The other paragraphs of Article V remained unchanged.
3. The total number of shares of common stock of the
corporation that have been issued or are outstanding are
4,716,166.
4. The number of each class entitled to vote thereon as a
class voted for and against such amendment, respectively was:
NUMBER OF COMMON SHAREHOLDERS VOTED:
AMENDMENT CLASS FOR AGAINST
ARTICLE V-A(1) Common Shareholders 3,478,798 395,575
ARTICLE V-A(3) Common Shareholders 2,441,238 259,984
The number of votes cast by the shareholders was sufficient for
approval.
IN WITNESS WHEREOF, the foregoing Articles of Amendment to the
Articles of Incorporation are hereby executed by the President,
STEVEN G. ANDERSON, and attested by RONALD D. McCALL, as
Secretary of the Corporation, CRYOLIFE, INC. on this 21st day of
June, 1996.
WITNESSES:
STEVEN G. ANDERSON FELICIA E. TROTT
________________________________ _____________________________
STEVEN G. ANDERSON
President & Ceo FELICIA E. TROTT
Cryolife, Inc. _____________________________
Printed Name of Witness
RONALD D. McCALL JOYCE A. CLARK
_________________________________ _____________________________
RONALD D. McCALL, Secretary
Cryolife, Inc. JOYCE A. CLARK
______________________________
Printed Name of Witness
STATE OF GEORGIA
COUNTY OF COBB
I HEREBY CERTIFY that before me the undersigned authority
personally appeared STEVEN G. ANDERSON, as President and CEO of
Cryolife, Inc., to me well known and who acknowledged that he
executed the foregoing instrument this 21st day of June, 1996,
for the purposes stated therein.
SUZANNE K. GABBERT
_______________________________________
Notary Public, State of Georgia at Large
SUZANNE K. GABBERT
________________________________________
Printed Name of Notary Public
My Commission Expires:
Notary Public, Cobb County, Georgia
My Commission Expires Sept. 13, 1996
________________________________________
STATE OF FLORIDA
COUNTY OF HILLSBOROUGH
I HEREBY CERTIFY that before me the undersigned authority
personally appeared RONALD D. McCALL, as Secretary of Cryolife,
Inc., to me well known and who acknowledged that he executed the
foregoing instrument this 14th day of June, 1996, for the
purposes stated therein.
JOYCE A. CLARK
________________________________________
Notary Public, State of Florida at Large
JOYCE A. CLARK
________________________________________
Printed Name of Notary Public
My Commission Expires:
Joyce A. Clark
My Commission # CC2886 B Expires
May 30, 1997
Bonded thru Troy Fain Insurance, Inc.
_______________________________________
EXHIBIT 10.1
RESEARCH AND OPTION AGREEMENT
This Agreement is made and entered into as of this 29th day
of July, 1996 (the "Effective Date"), by and between
BIOCOMPATIBLES LIMITED, a United Kingdom company
("Biocompatibles"), and CRYOLIFE, INC., a Florida corporation
("CryoLife").
W I T N E S S E T H:
WHEREAS, CryoLife desires to engage Biocompatibles, and
Biocompatibles desires to be engaged, to conduct certain
scientific research relating to the development of methods,
formulae and processes for applying Biocompatibles' proprietary
and patent protected "coating polymers" to preserved animal and
human tissue.
NOW THEREFORE, in consideration of the premises and the
mutual agreements set forth below, and other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS.
The following terms shall have the following meanings when
used in this Agreement:
"Biocompatibles Technology" shall mean the secret and
proprietary information, data, formulae, methods, processes,
products and techniques of Biocompatibles or its affiliates for
coating materials with polymers which improve the
biocompatibility of implantable devices. The Biocompatibles
Technology includes information, data, formulae, methods,
processes, products and techniques developed by Biocompatibles in
the course of conducting any Research Project.
"coated" shall refer to tissues to which the Biocompatibles
Technology has been applied.
"Confidential Information" shall mean as to each party, its
secret information, data, formulae, methods, processes, products
and techniques directly related to the patents described in
Exhibit B. Confidential Information shall not include any
information, data, formulae, methods, processes, products or
techniques which (i) are in the public domain, (ii) come into the
public domain through no fault of the other party, (iii) were
known to the other party prior to its disclosure by the party
claiming confidentiality as evidenced by the written records of
the other party, (iv) are disclosed by a third party not under an
obligation of non-disclosure, (v) is required by law or legal
process to be disclosed, or (vi) written permission for
disclosure has been granted to the disclosing party by the party
claiming confidentiality.
"CryoLife Technology" shall mean the secret and proprietary
information, data, formulae, methods, processes, products and
techniques of CryoLife for preserving and processing human and
animal tissue, but excluding the Biocompatibles Technology.
"Designated Representative" shall mean, as to each party,
the individual appointed by the party to fulfill the
responsibilities identified for Designated Representatives in
Section 2 of this Agreement. The initial Designated
Representative for Biocompatibles is Robert Hanley, Ph.D. The
initial Designated Representative for CryoLife is Steven
Goldstein, Ph.D.
"Other Tissues" shall mean animal and human tissues types
identified on Exhibit A.
"Oversight Team" shall mean the collective Designated
Representatives of both parties. Actions of the Oversight Team
shall require the agreement of both Designated Representatives.
"Research Project" shall mean research and development work
conducted by Biocompatibles pursuant to this Agreement for the
purpose of developing commercially feasible methods for applying
the Biocompatibles Technology to porcine heart valves and, if
designated by CryoLife, Other Tissue, which generates the defined
outcomes described on Exhibit A or otherwise identified by the
Oversight Team.
2. RESEARCH PROJECTS.
2.1 Biocompatibles shall conduct a Research Project
relating to the application of Biocompatibles' Technology to
porcine heart valves in the manner and on the schedule identified
on Exhibit A, which schedule may be revised by the Oversight
Team. Biocompatibles shall also conduct Research Projects for
Other Tissues designated by CryoLife on schedules agreed to by
the Oversight Team. During the term of any Research Project and
for a period of 90 days after completion of the last Research
Project, Biocompatibles agrees not to conduct research projects
involving coating polymers, except pursuant to this Agreement,
for preserved porcine tissue or any of the tissue types
identified on Exhibit A.
2.2 CryoLife shall provide Biocompatibles with reasonable
quantities of tissue for each Research Project, at no cost to
Biocompatibles.
2.3 To initiate the porcine heart valve Research Project,
the Oversight Team shall meet at CryoLife's headquarters in
Atlanta, Georgia, U.S.A. for the purpose of (i) sharing
information necessary to the conduct of the Research Project,
(ii) adjusting, if necessary, the schedule and the defined
outcomes identified in Exhibit A, and (iii) setting the standards
by which proof of coating patency and proof of concept are
determined for the porcine heart valve Research Project. All
travel expenses incurred in connection with this initial meeting
and subsequent meetings shall be borne by the party incurring the
expenses. Following the initial meeting, CryoLife shall send a
representative to Biocompatibles' facilities for approximately
one week to assist with the Research Project. The scheduling of
meetings shall be determined by the Oversight Committee.
2.4 Biocompatibles shall keep the CryoLife Designated
Representative regularly and fully advised of the progress and
results of each Research Project, which advice shall include
monthly written progress reports. Such reports shall contain
reasonable detail and include reports on matters reasonably
requested by CryoLife's Designated Representative. Full written
reports will also be required for establishing proof of coating
patency and proof of concept for each tissue Research Project.
Upon completion of each Research Project which includes proof of
concept, Biocompatibles shall provide CryoLife with a final
report setting forth the results achieved under and pursuant to
the Research Project. Such final report shall include: a
complete summary of the research carried out and detailed
experimental protocols of the research performed in the course of
the Research Project.
2.5 Biocompatibles shall provide to CryoLife copies of all
data and other information generated in connection with the
Research Project including, without limitation, all raw data
obtained as a result of studies conducted in the course of
Research Project and all experimental procedures developed under
the Research Project in sufficient written detail to permit
CryoLife's personnel to employ such procedures in their own
research.
2.6 All studies done in connection with the Research
Project shall be carried out in strict compliance with any
applicable laws, regulations, or guidelines governing the conduct
of such research. CryoLife's Designated Representative shall be
regularly consulted on all studies and testing conducted in the
course of a Research Project.
3. PAYMENTS.
3.1 For Biocompatibles' research efforts pursuant to this
Agreement, CryoLife agrees to pay Biocompatibles the following
sums, subject to the following conditions, in the following
manner:
(a) $100,000 upon execution of this Agreement,
(b) $50,000 upon proof of coating patency for each
tissue indication for which CryoLife requests Biocompatibles to
develop a coating, initially porcine heart valves,
(c) $125,000 upon commencement of animal trials
following completion of the porcine valve development program
contemplated by the Research Project and proof of concept for the
coated porcine valve,
(d) $125,000 upon satisfactory completion of animal
trials for the coated porcine valves,
(e) $250,000 upon European Union acceptance to conduct
the first human device clinical trials for a coated tissue group,
(f) $250,000 upon CryoLife obtaining its first CE
marking approval for a coated tissue group,
(g) $200,000 upon CryoLife's first commercial
distribution of a coated tissue group product in the European
Union,
(h) $300,000 upon CryoLife's first commercial
distribution of a coated tissue group product in the United
States, and
(i) a percentage royalty (10% of net sales) and
minimum royalties for commercial distribution of coated tissues
in the amounts set forth in the exclusive license form contained
in Exhibit C.
3.2 The payment requirement of subsections (e) through and
including (h) of Section 3.1 shall be contingent upon
Biocompatibles and CryoLife entering into a license in the form
of Exhibit C, pursuant to which CryoLife shall be granted the
license to commercialize the application of the Biocompatibles
Technology with porcine heart valves or Other Tissues. The
payment requirements of subsections (e) through and including
(g) of Section 3.1 shall apply only to the first tissue group
which meets the criteria of the subsection. In case of any
conflict between the terms of this Agreement and the terms of an
outstanding License Agreement as to any tissue group, the terms
of the License Agreement shall prevail.
3.3 Payments under the terms of this Agreement shall be
made by check or wire transfer and shall be payable in U.S.
dollars. In the event that CryoLife should fail to make payment
within 30 days of the due date, CryoLife will be liable for
interest payments on the outstanding sums at U.S. Prime Rate (as
announced in the The Wall Street Journal) plus 4% per annum,
calculated on actual number of days elapsed.
4. CONFIDENTIALITY.
Each party agrees that, it will not use, except in
furtherance of this Agreement, and will not disclose orally, by
written publication, or otherwise, any Confidential Information
of the other party. Each party will safeguard and protect the
Confidential Information of the other, and only those of its
employees whose participation is required to complete the
Research Project shall have access to the Confidential
Information of the other party.
5. OWNERSHIP AND PATENTS.
5.1 Biocompatibles hereby represents and warrants that it
owns all right, title and interest in and to the Biocompatibles
Technology which is germane to this Project and is authorized and
empowered to enter into and perform its obligations under this
Agreement. Biocompatibles represents and warrants that Exhibit B
attached hereto lists all of the patents and patent applications
relating to the Biocompatibles Technology.
5.2 Biocompatibles shall have sole and exclusive ownership
rights to any enhancements to the Biocompatibles' Technology
developed by Biocompatibles in connection with the Research
Project. CryoLife retains all right, title, and interest in and
to the CryoLife Technology.
5.3 No license to make, use or sell any CryoLife Technology
or Biocompatibles Technology is granted by this Agreement.
6. OPTION TO LICENSE/RESERVATION OF COATING RIGHTS.
6.1 Biocompatibles hereby grants to CryoLife the exclusive
option to receive a worldwide license to make, use and sell the
Biocompatibles' Technology as it may be applied to porcine heart
valves, and each Other Tissue for which a Research Project is
undertaken, on the terms and conditions, and subject to the
limitations, set forth on the form License Agreement attached
hereto as Exhibit C (the "License Agreement"). Notice of
exercise of the option for each tissue group must be given by
CryoLife to Biocompatibles in writing on or before the 90th day
following CryoLife's receipt of the final report on the Research
Project as described in Section 2.4 for such tissue group.
6.2 If CryoLife exercises its option according to the terms
of this Agreement, the parties agree after the first exercise
thereafter (i) to be bound by the terms and conditions set forth
in the License Agreement effective as of the date of CryoLife's
notice of exercise for the tissue group identified in the notice,
(ii) to sign and deliver the License Agreement within 20 days of
exercise of the option, and (iii) to identify the "Product" for
which the License Agreement applies to be the tissue group for
which CryoLife has exercised the option by adding the description
of the tissue group to Exhibit A to the License Agreement (which
identifies the tissue groups included within the Products
licensed under the License Agreement). For subsequent exercises
of the option, CryoLife shall provide the notice required under
Section 6.1 and the parties shall evidence the addition of the
tissue group to the License Agreement by adding a description of
the notified tissue group to Exhibit A to the License Agreement;
provided, however, that failure to complete any of the tasks
identified in this Section 6.2 shall not prevent the License
Agreement from taking effect as to a tissue group for which
proper notice has been given under Section 6.1.
6.3 Notwithstanding the option to license granted herein,
Biocompatibles reserves the exclusive right to coat porcine
valves with the Biocompatibles Technology outside the United
States but agrees not to coat porcine heart valves with the
Biocompatibles Technology during the Initial Five Year Term
(defined in Section 6(a) of Exhibit C) of a License Agreement for
a porcine valve "Product". After execution of such a License
Agreement, the parties intend to cooperate in coating porcine
valves in the United States through a joint venture or other
vehicle organized for the purpose.
7. PUBLICATION.
CryoLife shall have the right to publish data generated as a
result of the Research Project provided that in no event may
CryoLife disclose any Biocompatibles' Technology or other
Confidential Information of Biocompatibles. CryoLife agrees,
however, that CryoLife will give Biocompatibles 30 days to review
any proposed publication prior to submission or publication, and
shall obtain Biocompatibles' approval prior to such publication,
which approval shall not be unreasonably withheld by
Biocompatibles. If Biocompatibles fails to provide CryoLife with
a written statement setting forth in detail any objections it has
to the proposed publication within the 30-day period,
Biocompatibles shall be deemed to have approved of such
publication.
8. TERM AND TERMINATION.
8.1 The term during which CryoLife can initiate any
Research Project shall be two years.
8.2 This Agreement may be cancelled by either party in the
event of default by the other party, which default is not cured
within 30 days following receipt of written notice describing
such default. In the event that either party shall be in default
of any of its obligations under this Agreement and shall fail to
remedy such default within 30 days after receipt of written
notice thereof, the party not in default shall have the option of
canceling this Agreement by giving written notice of termination
to the other party. If this Agreement is terminated as a result
of breach by Biocompatibles, CryoLife shall be entitled to a
refund of all amounts paid under Section 3. For the avoidance of
doubt, "breach" as used in the preceding sentence shall not refer
to a failure of the Research Project to achieve the research
objective of CryoLife.
8.3 CryoLife may terminate this Agreement at any time by
providing Biocompatibles with at least 60 days advance written
notice.
8.4 Termination of this Agreement shall not affect the
rights and obligations of the parties, which shall have accrued
prior to termination. Sections 4, 5, 7 and 9 through 16 and this
Section 8.4 shall survive any termination of this Agreement.
Section 6 shall survive any termination except for termination
due to breach by CryoLife.
8.5 Upon termination, each party shall be required to
deliver back to the other party, all Confidential Information of
such other party. An officer of the delivering party shall be
required to certify that this condition has been met.
9. INDEPENDENT CONTRACTORS.
CryoLife and Biocompatibles shall at all times act as
independent parties and nothing contained in this Agreement shall
be construed or implied to create an agency, joint venture, or
partnership. Neither party shall have the authority to contract
or incur expenses on behalf of the other except as may be
expressly authorized by collateral agreements.
10. CHOICE OF LAW.
Any disputes or claims arising under this Agreement shall be
governed by the laws of the United Kingdom.
11. SEVERABILITY.
If any one or more of the provisions of this Agreement shall
be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby.
12. WAIVER.
The failure of any party hereto to insist upon strict
performance of any provision of this Agreement or to exercise any
right hereunder will not constitute a waiver of that provision or
right.
13. NOTICES.
Any notice or communication required or permitted to be
given or made under this Agreement by one of the parties hereto
to the other shall be in writing and shall be deemed to have been
sufficiently given or made for all purposes if (a) mailed by
certified mail, postage prepaid, (b) sent by reputable express
courier, including UPS, Federal Express, DHL, or similar service,
or (c) sent by telecopy, with a copy sent by one of the methods
described in (a) or (b) above, addressed to such other party at
its respective address as follows:
If to CryoLife: CryoLife, Inc.
2211 New Market Parkway
Suite 142
Marietta, Georgia 30067
Attention: President
Facsimile: (770) 850-0762
If to Biocompatibles: Biocompatibles Limited
Frensham House
Farnham Business Park
Weydon Lane
Farnham
Surrey G49 8QL
England
Facsimile: 44-1252-732703
Attention: Alistair H. Taylor,
President and C.E.O.
14. ASSIGNMENT.
This Agreement may be assigned by either party to any
parent, subsidiary, or affiliate of the party or to any successor
in interest by reason of any merger or acquisition. This
Agreement may not be assigned to any competitor or the other
party without the prior written consent of the other party, which
consent shall not be unreasonably withheld.
15. ARBITRATION.
15.1 If any dispute or difference shall arise between the
parties to this Agreement, as to the interpretation of this
Agreement or any covenants or conditions of this Agreement or as
to the rights, duties, or liabilities of any party under this
Agreement or as to any act, matter, or thing arising out of or
under or relating to this Agreement (even though the Agreement
may have been terminated), the same shall be finally settled by
arbitration conducted in accordance with the rules of the
American Arbitration Association. Whenever any dispute,
controversy, claim, or difference which may be submitted to
arbitration under this Section 15 arises between the parties,
either party hereby may give the other party notice of its
intention to submit such dispute, controversy, claim, or
difference to arbitration. Such arbitration shall take place in
New York, New York, before a single arbitrator agreed upon by the
parties to the arbitration. In the event the parties cannot
agree upon an arbitrator within 20 days after the effective date
of receipt, of either party's notice to arbitrate, such
arbitration shall take place in New York, New York, before a
single arbitrator appointed by the American Arbitration
Association in accordance with its rules.
15.2 The parties further agree that notwithstanding the
determination of the arbitrator (i) all costs associated with the
arbitration shall be borne equally by each party to the
arbitration, and (ii) each party to the arbitration shall be
responsible for its own attorneys' fees incurred in connection
with the arbitration. The determinations of such arbitrator
will be final and binding upon the parties to the arbitration,
and judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction, or application may be
made to such court for a judicial acceptance of the award and an
order of enforcement, as the case may be. The arbitrator shall
set forth the grounds for his decision in the award.
15.3 The parties hereto stipulate that submission of
disputes to arbitration as provided in this Section 15 and
arbitration pursuant thereto shall be a condition precedent to
any suit, action, or proceeding instituted in any court or before
any administrative tribunal with respect to this Agreement or
disputes arising out of or regarding this Agreement.
16. ENTIRETY.
This Agreement represents the entire agreement of the
parties and it expressly supersedes all previous written and oral
communications between the parties. No amendment, alteration, or
modification of this Agreement or any exhibits attached hereto
shall be valid unless executed in writing by authorized
signatories of both parties.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives
as of the date set forth above.
CRYOLIFE, INC. BIOCOMPATIBLES LIMITED
By: Steven G. Anderson By: John Bardwell
____________________ ________________________
Title: President/CEO Title: Director
_________________ ____________________
EXHIBIT A
RESEARCH PROJECT
CryoLife will provide Biocompatibles with the following
tissues to which Biocompatibles will supply the Biocompatibles
Technology and assess such Technology's ability to generate the
outcome described below.
Project Scope and Defined Outcomes
A. Tissues
The scope of this research project involves multiple
tissues which Cryolife will provide for coating according to the
Biocompatibles Technology.
1. Porcine Heart Valves
a. Cellular, glutaraldehyde-fixed
(1) aortic (including leaflets and aortic
conduit)
(2) pulmonary (including leaflets and
pulmonary artery)
b. Acellular, unfixed or glutaraldehyde-fixed
(1) aortic
(2) pulmonary
2. Porcine (or other xenogenic) Circulatory Vessels
a. Acellular vein
b. Acellular artery
3. Bovine Ligamentous Grafts
a. Ligament
b. Tendon
c. Fascia Lata
4. Other Xenogenic Tissues
a. Dura mater
b. Pericardium
c. Nerves
5. Cryopreserved Human Allograft Tissues including,
but not limited to, Heart Valves, Vessels and
Nerves
B. Defined Outcomes
A selection of coated tissues as defined in A. (v.s.) will
be assessed according to the following tests to demonstrate the
effectiveness of Biocompatibles Technology coatings in providing
the indicated results. These tests will be applied according to
the particular requirements for each coated tissue.
1. Coverage - Surface covering of the coated tissues
is anticipated. Coverage of the tissue will be
demonstrated to be uniform and unbroken.
2. The tissue surface coatings is expected to remain
intact and unbroken for an agreed clinically
relevant time period; no thinning of the coating
is expected. Coating stability will be assessed
following exposure of the coated tissues in: 1)
static cultures in the presence of tissue culture
media, blood, or similar medium; 2) in dynamic
(stirred) cultures of similar medium; and 3) in
orthotopic or heterotopic in vivo implants of the
coated tissues. As in B.1., coating coverage will
be demonstrated.
3. Histology and ultrastructure - the matrix protein
structure of the coated tissue should appear
normal by light and transmission electron
microscopic analyses.
4. Nonthrombogenicity/Noninflammatory - limited and
nonprogressive platelet and/or white cell adhesion
in at lest one of the following models: 1)
subdernial implant in rat (inflammation); b) in
vitro platelet and/or white cell adhesion; c)
intravascular or intrasynovial implant in vivo.
5. Biomechanical characteristics
a. Extensibility - should not change more
than 10% relative to a selected standard
tissue.
b. Stress-relaxation - relaxation slope and
ultimate relaxation should reflect
retention of viscoelastic properties
with no more than a 10% change in
relaxation slope or ultimate relaxation
relative to standard fixed tissue.
c. Load at Failure and Maximum Stress at
Failure - should not change more than
10% relative to a selected standard
tissue.
6. Toxicity/Biocompatibility
a. The coating material should be
compatible with cell survival and cell
proliferation and function.
b. The coated tissue should be compatible
with cell survival and cell
proliferation and function (either non-
fixed tissues or tissues fixed with
other than glutaraldehyde).
c. Cytocompatibility of coated tissues will
be assessed by supplementing cell
culture media with aqueous extracts made
from tissues following coating and
observing the effect of such
supplementation on the growth rates of
fibroblast and endothelial cells.
d. Nontoxicity or cytocompatibility will be
defined as growth rates of cells in the
presence of coating-related materials
being within 10% of the growth rates of
cells grown under control conditions.
7. Anticalcification
A model of implanting treated tissues subdermally
in weanling rats will be used to assess effects of
coating(s)on the rate and extent of tissue
calcification. At least a 60% reduction in the
extent of calcification relative to uncoated
control tissue is considered acceptable after 16
weeks of implantation.
C. Acceptance Parameters
1. Coatings will be screened according to the tests
outline in B.(v.s.).
2. Up to seven coating formulations will be screened for
each tissue type.
3. Coatings will be selected based on disclosure of known
properties to CryoLife.
4. Tests will be selected according to suitability for
each tissue type.
5. Parameters:
a. coverage - see B.1.
b. stability - B.2.
c. histology and ultrastructure - see B.3. Various
standard stains will be applied to sectioned
tissues to facilitate observation of collagens,
elastin, glycosaminoglycans, and glycoproteins.
Comparisons with untreated tissues will be carried
out by a qualified pathologist. Transmission
electron microscopy will be used to examine, among
other factors, collagen periodicity, collagen
fiber crimp, and so on.
d. nonthrombogenicity/noninflammatory - see B.4.
e. biomechanical characteristics - see B.5.
f. toxicity/biocompatibility - see B.6.
g. anticalcification - see B.7. We anticipate the
acceptable levels of coated tissue calcium will be
no greater than 5 mg/g dry weight of tissue after
16 weeks of implantation.
D. Schedules
1. Preliminary Screening of Coatings
Initial examinations of coatings will entail analysis
of: 1) coating thickness and consistency; 2) cellular
and extracellular matrix morphology, 3) appropriate
biomechanical parameters; 4) biocompatibility of
coating and of treated tissue; and 5) effect of coating
on rate and extent of calcification of the coated
tissue. It is anticipated that only those coating with
acceptable outcomes for coating properties and tissue
morphology (D.1.1. and D.1.2.) will be delivered to
CryoLife for further analysis.
2. Secondary Screening Outcomes
As indicated, those coating displaying acceptable outcomes
in the Preliminary Screenings (D.1.) will be further analyzed by
in vivo implants to demonstrate: 1) thrombogenicity/inflammatory
response characteristics, and 2) stability of the coating in a
functional graft model.
EXHIBIT B
PATENTS
Patent or
Application
Number Jurisdiction Date Status
PCT/GB92/01215 Europe (Austria, 6/7/92 Pending
Belgium, Switzerland,
(BCP 33) and Lichstenstein,
Germany, Denmark,
Spain, France, U.K.,
Greece, Italy, Luxemborg,
Monaco, Netherlands,
Portugal and Sweden)
Japan
U.S.A.
Australia
Canada
Russia
EXHIBIT C
FORM OF LICENSE AGREEMENT
This License Agreement (the "Agreement") is entered into
this ____ day of ______________, 199 , is between CryoLife,
Inc., a Florida corporation ("CryoLife") and Biocompatibles
Limited, a United Kingdom company ("Biocompatibles").
WHEREAS, Biocompatibles and CryoLife have previously entered
into a Research and Option Agreement dated July , 1996 (the
"Research Agreement"), relating to the development of methods,
formulae, and processes for applying Biocompatibles' proprietary
and patent protected "coating polymers" to preserved animal and
human tissues;
WHEREAS, CryoLife desires to license the Biocompatibles
Technology (defined below).
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and in
consideration of the mutual covenants set forth below, the
parties agree as follows:
1. Definitions. Capitalized terms not otherwise defined
herein shall have the meanings given to them in the Research
Agreement when used in this Agreement.
"Biocompatibles Technology" shall mean the secret and
proprietary information, data, formulae, methods, processes,
products and techniques of Biocompatibles or its affiliates for
coating materials with polymers which improve the
biocompatibility of implantable devices. The Biocompatibles
Technology includes information, data, formulae, methods,
processes, products and techniques developed by Biocompatibles
during or after the course of conducting any Research Project
pursuant to the Research Agreement. Biocompatibles Technology
includes the Know-How, Patents and Trade Secrets.
"Know-How" shall mean any and all non-Confidential
Information heretofore or hereafter owned, developed, acquired or
licensed by Biocompatibles relating to the Biocompatibles
Technology.
"Patent(s)" shall mean any and all domestic or foreign
patents or patent applications owned, acquired or licensed by
Biocompatibles, which relate to the Biocompatibles Technology,
or which may in the future be filed on the Trade Secrets or
Know-How. The term Patent(s) also shall include any and all U.S.
or foreign divisions, continuations, continuations-in-part,
substitutions, reissues, and extensions of said Patent(s).
Schedule A lists all Patents relevant to this License Agreement.
"Processed Tissues" shall mean those tissue groups which
have been (i) properly notified to Biocompatibles pursuant to
Section 6.1 of the Research Agreement for license under this
Agreement and (ii) treated with the Biocompatibles Technology.
The parties shall endeavor to maintain a record of Processed
Tissues by amending Schedule B attached hereto to include all
tissue groups notified for inclusion as and when Biocompatibles
receives proper notification.
"Trade Secrets" shall mean any and all Confidential
Information heretofore or hereafter owned, developed, acquired or
licensed by Biocompatibles, relating to the Biocompatibles
Technology.
2. License.
(a) License Grant. Biocompatibles hereby grants
CryoLife a license to the Biocompatibles Technology to develop,
manufacture, use, and distribute Processed Tissues throughout the
world. The license is exclusive in the United States and is the
sole license Biocompatibles will grant outside the United States;
provided, however, that Biocompatibles agrees not to produce or
coat porcine heart valves with the Biocompatibles Technology
during the Initial Five Year Term (defined in Section 6(a)),
except to the extent Biocompatibles participates in a joint
venture or partnership with CryoLife for coating valves in the
United States.
(b) Sublicense. CryoLife shall have the right to
grant sublicenses of any rights granted to it under this license,
provided that CryoLife shall have received the prior written
approval of Biocompatibles, which shall not be unreasonably
withheld.
3. Payments by CryoLife.
(a) Non-Royalty Payments. CryoLife shall pay
Biocompatibles the sums identified in subsections (d) through and
including (h) of Section 3.1 of the Research Agreement upon
completion of the conditions set forth in those provisions.
(b) Percentage Royalties. CryoLife shall pay
Biocompatibles a royalty on Net Revenues (gross revenues minus
sales taxes, reasonable discounts, freight and returns, if any)
from all distribution of Processed Tissues by CryoLife. The
amount of the royalty payable for Processed Tissues distributed
in countries ("Protected Countries") where the Processed Tissues
are protected by a patent or patent application at the time of
distribution shall be 10% of Net Revenues. The royalty payable
for Processed Tissues distributed outside of Protected Countries
shall be 5% of Net Revenues generated outside of Protected
Countries.
(c) Minimum Royalties. CryoLife shall pay
Biocompatibles minimum royalties commencing on the first day of
the first calendar quarter following first commercial
distribution of Processed Tissues after approval for unrestricted
commercial sale by the European Union or the U.S. Food and Drug
Administration as follows:
Year 1 $100,000
Year 2 $150,000
Year 3 $200,000
Year 4 $300,000
Year 5 and thereafter $400,000
Minimum royalties will be payable in equal quarterly installments
and shall be credited toward earned royalties due under
Subsections (b) and (c) above. The obligation to pay minimum
royalties shall expire upon the expiration of patent protection
for the Technology in the United States or Europe. Failure to
make royalty payments equal to or exceeding minimum royalty
obligations in any year shall be deemed a breach or default under
this Agreement and may result in its termination by
Biocompatibles.
(d) Reports; Audit Rights. Payments of royalties
under Section 3(b) shall be made on a monthly basis and shall be
payable within 20 days following the end of the preceding month.
Such payment shall be accompanied by a statement showing
distribution of the Processed Tissues by CryoLife to all parties,
and such other particulars as are necessary or which may be
reasonably requested by Biocompatibles in order to verify
accurate payment of royalties and fees pursuant to this
Section 3. CryoLife shall keep complete and accurate records of
all distributions by CryoLife of the Processed Tissues and all
sublicenses granted hereunder. Biocompatibles and its
representatives shall have the right during the term of this
Agreement and for a period of two years following any termination
of this Agreement to review the books and records of CryoLife
relating to distribution of the Processed Tissues and sublicenses
granted hereunder in order to verify payments under this
Agreement. All costs of such audit shall be borne by
Biocompatibles; provided, however, in the event such audit
reveals an underpayment of more than 5%, CryoLife shall
immediately pay the amount of the underpayment and shall
reimburse Biocompatibles for the costs incurred in connection
with the audit.
(e) Pricing of Processed Tissues. In the event
CryoLife sells the Processed Tissues for use with other products
of CryoLife (a "Combined Product"), the purchase price for the
Combined Product shall be reasonably allocated between the
Processed Tissues and CryoLife's other products. In the event
Biocompatibles objects to such allocation, the matter shall be
submitted to arbitration in accordance with Section 7(i).
4. Representations of Biocompatibles; Patents.
(a) Title. Biocompatibles hereby represents and
warrants that it owns all right, title, and interest in and to
the Biocompatibles Technology which is germane to the granting of
the license contained in this Agreement and is authorized to
enter into and perform its obligations under this Agreement.
Biocompatibles represents and warrants that Schedule B attached
hereto lists all of the patents and patent applications relating
to the Biocompatibles Technology. Biocompatibles has not granted
any other licenses to the Biocompatibles Technology for use with
Processed Tissue.
(b) Patents. CryoLife agrees to cooperate with
Biocompatibles at Biocompatibles cost in the preparation, filing,
and prosecution of domestic and foreign Patent(s) applications
and to keep each other fully informed at all times of the status
of the Patent(s) and applications.
(c) Prosecution of Patents. Biocompatibles shall have
the sole right in the first instance to take appropriate
measures, including the bringing or defending of suits throughout
the world, to prevent or stop infringement or misappropriation by
others in making, using or selling Processed Tissues. CryoLife
may participate in such suit through counsel of its own choosing,
and in its own name. All costs of any infringement, declaratory
judgment or other suit brought or defended by Biocompatibles
shall be the obligation of Biocompatibles. In the event of
recovery of damages in, or sums and settlement of, a suit or
suits for infringement or misappropriation brought or defended by
Biocompatibles, Biocompatibles shall be entitled to retain
two-thirds of whatever recovery (after costs) of sums for damages
or otherwise that might be obtained in such suit or settlement,
with one-third of the recovery (after costs) being payable to
CryoLife. CryoLife agrees to cooperate with Biocompatibles to
prevent or stop such infringement or misappropriation and to
provide Biocompatibles with documents, data, and other
information as may be reasonably necessary to conduct such suit
by Biocompatibles. When such disclosures are identified as
Confidential Information, then Biocompatibles undertakes to
ensure that the confidentiality of those disclosures is
maintained. Should Biocompatibles fail or refuse to take or
cause to be taking any such measures against any third party
after one month from the date of receipt of written notice to
Biocompatibles by CryoLife of such infringement or
misappropriation accompanied by reasonable evidence of such
infringement or misappropriation, CryoLife may take such legal
action in its own name and at its own expense. In such latter
case, CryoLife shall be entitled to retain two-thirds of whatever
recovery (after costs) of sums for damages or otherwise that it
may obtain in such suit or settlement, with one-third of the
recovery (after costs) being payable to Biocompatibles. When
either party litigates under this paragraph, it shall keep the
other party informed of such activities in writing at least every
calendar quarter.
5. Indemnification. Biocompatibles shall defend,
indemnify, and hold CryoLife and its officers, directors,
employees and affiliates harmless from and against any and all
damages, liabilities, losses, and expenses (collectively,
"Damages"), including reasonable attorneys fees and court costs,
incurred by CryoLife as a result of any claim, lawsuit, action,
or proceeding (collectively, "Claim") against CryoLife in which
it is determined or alleged that the Biocompatibles Technology
infringes on any trade secret, patent, copyright, or other
proprietary right of any third party. Except as provided above,
CryoLife shall indemnify, defend, and hold Biocompatibles and its
officers, directors, employees and affiliates harmless from and
against any and all Damages incurred by Biocompatibles arising
out of any Claim of a third party based upon the production,
distribution, or marketing by CryoLife of the Processed Tissues.
Any party claiming indemnification pursuant to this Section 5
(the "Indemnitee") shall give prompt notice of any claim,
lawsuit, action or proceeding with respect to which
indemnification is claimed and shall cooperate fully, at the cost
of the indemnifying party, in the defense or settlement thereof.
The indemnifying party shall have sole control of the defense,
negotiation, or settlement of any matter with respect to which
indemnification is claimed.
6. Termination.
(a) Term. This license shall continue in full force
and effect for each Processed Tissue for a term ending five years
after receipt of regulatory approval in the United States or
European Union to commercialize the Processed Tissue (the
"Initial Five Year Term") and shall automatically renew for
additional one year terms thereafter so long as CryoLife is not
in material default hereunder for a period of up to ten years or
the life of any Patents, whichever is longer. This Agreement may
be earlier terminated by CryoLife by giving 90 days advance
written notice.
(b) Breach by CryoLife. In the event CryoLife commits
any breach of the material terms and conditions of this
Agreement, and if such failure or breach shall continue for a
period of 60 days after written notice thereof is delivered by
Biocompatibles to CryoLife, Biocompatibles shall have the option
to terminate this Agreement.
(c) Breach by Biocompatibles. In the event
Biocompatibles commits any breach of the material terms and
conditions of this Agreement and if such failure or breach shall
continue for a period of 60 days after written notice thereto is
delivered by CryoLife to Biocompatibles, CryoLife shall have the
option to terminate this Agreement.
(d) Survival. The provisions of Sections 3(e), 5,
this Section 6(d) and 7 shall survive any termination of this
Agreement. Termination of this Agreement shall not affect or
terminate CryoLife's obligation to pay any amounts which were
payable pursuant to the terms of Section 3 with respect to sales
of Processed Tissues and grants of sublicenses prior to the
effective date of such termination.
7. General Provisions.
(a) Entire Agreement. This Agreement constitutes the
entire agreement and understanding of the parties with respect to
the Technology and supersedes and terminates all other prior
commitments, arrangements, or understandings, both oral and
written between the parties with respect to the Technology.
(b) Amendment. This Agreement may not be modified or
amended except by an instrument in writing executed by each of
the parties.
(c) Binding. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective
successors and assigns.
(d) Governing Law. This Agreement shall be governed
and construed in accordance with the laws of the United Kingdom.
(e) Notices. Any notices required or permitted
hereunder shall be in writing and shall be sent by (a) personal
delivery (including delivery by Federal Express or similar
overnight courier), (b) mailed by registered or certified mail,
return receipt requested, postage prepaid, or (c) transmitted by
facsimile, telex, or telecopy to the numbers set forth below and
with originals of such transmissions sent by registered or
certified mail. Notices shall be sent to the addresses as set
forth below or to such other addresses as may be hereafter
furnished by one party to the other party in compliance with the
terms hereof.
If to Biocompatibles: Biocompatibles Limited
Frensham House
Farnham Business Park
Weydon Lane
Farnham
Surrey G49 8QL England
Facsimile: 44-1252-732703
Attention: Alistair H.
Taylor, President and C.E.O.
If to CryoLife: CryoLife, Inc.
2211 New Market Parkway
Suite 142
Marietta, Georgia 30067
Attention: President
Telecopy: (770) 850-0762
Notices shall be effective (a) upon receipt by the addressee, if
sent by personal delivery or mail, or (b) upon transmission, if
sent by telecopy, telex, or facsimile.
(f) Waiver. None of the provisions of the Agreement
shall be deemed to have been waived by any act or acquiescence on
the part of either party, their agents or employees, but may be
waived only by instruments in writing signed by an authorized
officer of the respective party. No waiver of any provision of
this Agreement shall constitute a waiver of any other provision
or of the same provision on another occasion.
(g) Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall
be deemed an original and all of which together shall constitute
but one and the same instrument.
(h) Assignment. CryoLife shall not assign or transfer
any of its duties, rights, interests, or obligations in or under
this Agreement, without the prior written approval of
Biocompatibles. Any merger, consolidation, or sale of
substantially all of the stock of CryoLife shall be considered an
assignment hereunder for which Biocompatibles's consent is
required.
(i) Arbitration.
(i) Submission to Arbitration. If any dispute or
difference shall arise between the parties to this Agreement, as
to the interpretation of this Agreement or any covenants or
conditions of this Agreement or as to the rights, duties, or
liabilities of any party under this Agreement or as to any act,
matter, or thing arising out of or under or relating to this
Agreement (even though the Agreement may have been terminated),
the same shall be finally settled by arbitration conducted in
accordance with the rules of the American Arbitration
Association. Whenever any dispute, controversy, claim, or
difference which may be submitted to arbitration under this
Section 7(h) arises between the parties, either party hereby may
give the other party notice of its intention to submit such
dispute, controversy, claim, or difference to arbitration. Such
arbitration shall take place in New York, New York, before a
single arbitrator agreed upon by the parties to the arbitration.
In the event the parties cannot agree upon an arbitrator within
20 days after the effective date of receipt, of either party's
notice to arbitrate, such arbitration shall take place in New
York, New York, before a single arbitrator appointed by the
American Arbitration Association in accordance with its rules.
(ii) Costs; Binding. The parties further agree
that notwithstanding the determination of the arbitrator (i) all
costs associated with the arbitration shall be borne equally by
each party to the arbitration, and (ii) each party to the
arbitration shall be responsible for its own attorneys' fees
incurred in connection with the arbitration. The determinations
of such arbitrator will be final and binding upon the parties to
the arbitration, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction, or
application may be made to such court for a judicial acceptance
of the award and an order of enforcement, as the case may be.
The arbitrator shall set forth the grounds for his decision in
the award.
(iii) Applicable Law. The arbitrator shall
apply the law of the United Kingdom, as to both substantive and
procedural questions, but excepting any rule which would result
in judicial failure to enforce this arbitration provision or any
portion thereof.
(iv) Condition Precedent. The parties hereto
stipulate that submission of disputes to arbitration as provided
in this Section 7 and arbitration pursuant thereto shall be a
condition precedent to any suit, action, or proceeding instituted
in any court or before any administrative tribunal with respect
to this Agreement or disputes arising out of or regarding this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date set forth herein by their
duly authorized representatives.
CRYOLIFE, INC. BIOCOMPATIBLES LIMITED
By:________________________ By:_________________________
Title:_____________________ Title:______________________
Date:______________________ Date:_______________________
SCHEDULE A TO FORM OF LICENSE AGREEMENT
PATENTS
All Patents listed on Exhibit B to the Research Agreement plus:
Patent or
Application
Number Jurisdiction Date Status
SCHEDULE B TO FORM OF LICENSE AGREEMENTS
PROCESSED TISSUES
[to be completed in the manner anticipated in the Research
Agreement]
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
Primary:
Average shares outstanding 9,490,956 9,359,982 9,462,128 9,355,422
Net effect of dilutive stock options
based on the treasury stock
method using average market price 441,556 143,746 414,158 106,810
Totals 9,932,512 9,503,528 9,876,286 9,462,232
Net Income $988,439 $559,379 $1,770,936 $949,509
Per share amount $.10 $.06 $.18 $.10
Fully diluted:
Average shares outstanding 9,490,956 9,359,982 9,462,128 9,355,422
Net effect of dilutive stock options
based on the treasury stock
method using quarter-end market
price which is greater than
average market price 474,326 236,040 498,088 236,040
Totals 9,965,282 9,596,022 9,960,216 9,591,462
Net Income $988,439 $ 559,379 $1,770,936 $949,509
Per share amount $.10 $.06 $.18 $.10
