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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
Commission File No. 0-28034
CardioTech International, Inc.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3186647
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State or other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification No.)
11 State Street, Woburn, Massachusetts 01801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 933-4772
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Securities registered pursuant to Section 12 (b) of the Act:
Common Stock, $.01 par value per share
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(Title of Class)
Securities registered pursuant to Section 12 (g) of the Act: None
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___ No X
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [_]
As of June 25, 1998, 4,272,916 shares of the registrant's Common Stock were
outstanding, and the aggregate market value of the registrant's Common Stock
held by non-affiliates of the registrant (without admitting that such person
whose shares are not included in such calculation is an affiliate) was
$8,131,112, based on the last sale price as reported on the American Stock
Exchange on such date.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant hereby incorporates by reference into Part III of this report
portions of its proxy statement for the 1998 annual meeting of stockholders,
which will be filed within 120 days of the registrant's fiscal year ended March
31, 1998.
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CARDIOTECH INTERNATIONAL, INC.
PART I
Item 1. Business
GENERAL
CardioTech International, Inc. ("CardioTech" or the "Company") is using its
proprietary manufacturing technology to develop and manufacture small bore
vascular grafts, or synthetic blood vessels, made of ChronoFlex, a family of
polyurethanes that has been demonstrated to be biocompatible and non-toxic.
Vascular grafts are used to replace, bypass or provide a new lining or arterial
wall for occluded, damaged, dilated or severely diseased arteries and are used
to provide access for patients undergoing hemodialysis treatments. The Company
is developing three types of layered, microporous small bore vascular grafts:
(i) a vascular access graft, called the VascuLink Access Graft; (ii) a
peripheral graft, called the MyoLink Peripheral Graft, and (iii) a coronary
artery bypass graft, called the CardioPass Coronary Artery Bypass Graft.
Blood is pumped from the heart throughout the body via arteries. Blood is
returned to the heart at relatively low pressure via veins, which have thinner
walls than arteries and have check valves which force blood to move in one
direction. Because a specific area of the body is often supplied by a single
main artery, rupture, severe narrowing or occlusion of the artery supplying
blood to that area is likely to cause an undesirable or catastrophic medical
outcome.
Vascular grafts are used to replace or bypass occluded, damaged, dilated or
severely diseased arteries and are sometimes used to provide access to the
bloodstream for patients undergoing hemodialysis treatments. Existing small
bore graft technologies suffer from a variety of disadvantages in the treatment
of certain medical conditions, depending upon the need for biodurability,
compliance (elasticity) and other characteristics necessary for long-term
interface with the human body.
CardioTech is developing its grafts using specialized ChronoFlex
polyurethane materials that it believes will provide significantly improved
performance in the treatment of arterial disorders. The grafts have three
layers similar to natural arteries and are designed to replicate the physical
characteristics of human blood vessels.
Additionally, through its CT Biomaterials division, the Company develops,
manufactures and markets polyurethane-based biomaterials for use in both acute
and chronically implanted devices such as stents, artificial hearts, and
vascular ports. These premium biomaterials are sold under the tradenames:
ChronoFlex, ChronoThane, HydroThane and ChronoFilm.
CardioTech owns a number of patents relating to its vascular graft
manufacturing technology. In addition, PolyMedica Corporation ("PMI") has
granted to CardioTech an exclusive, perpetual, worldwide, royalty-free license
for the use of one polyurethane patent and related technology in the field
consisting of the development, manufacture and sale of implantable medical
devices and biodurable polymer material to third parties for the use in
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medical applications (the "Implantable Device and Materials Field"). PMI also
owns, jointly with Thermedics, Inc., the ChronoFlex polyurethane patents. PMI
has granted to CardioTech a non-exclusive, perpetual, worldwide, royalty-free
sublicense of these patents for use in the Implantable Devices and Materials
Field.
The Company was founded in 1993 as a subsidiary of PMI. In June 1996, PMI
distributed (the "Spin Off") all of the shares of CardioTech's common stock, par
value $.01 per share (the "Common Stock"), that PMI owned to PMI stockholders of
record as of June 3, 1996. The Company is headquartered in Woburn, Massachusetts
and also has production facilities in Tarvin, U.K.
ChronoFlex and ChronoFilm are registered trademarks of PMI. ChronoThane,
ChronoPrene, HydroThane, PolyBlend and PolyWeld are tradenames of CardioTech.
DuraGraft, VascuLink, MyoLink, CardioPass are trademarks of CardioTech.
PRODUCTS IN DEVELOPMENT
VASCULINK VASCULAR ACCESS GRAFT
Patients suffering from end-stage renal disease may be required to undergo
hemodialysis. The majority of these patients require long-term vascular access
to facilitate treatment. A point of access for dialysis needles may be created
by connecting an artery and a vein in the patient's arm. However, because
kidney dialysis therapy typically requires patients to undergo hemodialysis
treatment three times per week, these natural shunts often become unusable over
time. Other methods of vascular access for kidney dialysis, such as
transcutaneous catheters, are only designed for temporary use.
A synthetic graft is implanted in hemodialysis patients to provide routine
vascular access. The vast majority of these synthetic grafts are presently made
of polytetafluoroethylene ("ePTFE"). The use of ePTFE grafts is often
accompanied by excessive bleeding when the dialysis needle is withdrawn,
requiring a nurse to apply pressure to help stop the bleeding and requiring the
patient to remain in the treatment area until the bleeding has stopped. In
addition, to limit the risk of graft infection following implant, at least a
four to six week healing period following implantation is required before
initiating dialysis in order to allow for tissue in-growth into the graft.
The Company believes that the VascuLink Graft that it is developing may
offer advantages over currently used synthetic grafts because of its needle-
hole-sealing-capability. The Company believes that this characteristic will be
effective in sealing puncture sites in its grafts with minimal compression time
and bleeding as compared with ePTFE grafts and, as a result, will reduce
dialysis procedure and administrative time per patient and their associated
costs. In addition, the Company believes, based on animal studies, that
patients who receive the VascuLink Graft will be able to be dialized in a
shorter period of time than four to six weeks.
The Company believes that approximately 185,000 patients in the United
States undergo kidney dialysis each year, of which approximately 140,000 undergo
vascular access surgeries using either natural vessel grafts or synthetic access
grafts. The Company estimates that of these patients, approximately 55,000 are
implanted with synthetic grafts. The Company believes that a comparable market
exists overseas.
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The Company is currently conducting Phase I clinical trials of the
VascuLink Graft in Holland, France and Sweden with patients undergoing routine
hemodialysis treatment. The Company's clinical trials will compare patency and
complication rates of the Company's VascuLink Graft with ePTFE grafts. The
clinical trial in Holland, which began in November 1996, involves one site and
up to 20 patients. The clinical trial in France, which began in June 1997,
involves three sites and up to 40 patients. The clinical trial in Sweden, which
began in the last quarter of Fiscal 1998 involves two sites. There can be no
assurance that the Company's clinical trials will be successful.
MYOLINK PERIPHERAL GRAFT
In the United States, an estimated 16 million people suffer from diabetes,
which is often further complicated by atherosclerosis, or the blockage of
arteries. Eventually, many atherosclerosis patients require vascular grafts to
bypass severely occluded leg arteries, which impede circulation to the lower
extremities and can ultimately lead to amputation. Lack of adequate circulation
to the lower limbs and toes results in approximately 54,000 yearly amputations
in the United States alone. Current techniques of surgical intervention rely on
autologous saphenous veins from the leg for use as substitute vessels.
However in over 40% of all atherosclerosis patients, the saphenous veins
are deemed unsuitable, making it necessary to use a vein constructed from
artificial materials. The Company is designing the MyoLink Peripheral Graft
that it is developing to be suitable for providing needed circulation from the
upper thigh, across the knee and into the mid calf. In order to accommodate the
bend at the knee, CardioTech has designed the MyoLink graft to be "non-kinking."
Further, CardioTech believes that it has the expertise and capability to
manufacture a graft that tapers from an inside diameter of approximately 6mm for
the portion above the knee to an inside diameter of approximately 4mm for the
portion below the knee, roughly the same dimensions as the natural artery. The
Company is currently conducting pre-clinical development studies of the MyoLink
Graft at its Tarvin, UK facility.
On April 1, 1998, the Company, through its wholly owned subsidiary,
CardioTech International, Ltd. ("CTI Ltd."), entered into a two year research
collaboration with The Royal Free Hospital School of Medicine (University of
London) ("Royal"), which relates to the investigation and clinical trials of the
MyoLink graft and the clinical evaluation of endothelial cell-seeding of
peripheral vascular grafts. This research, if successfully commercialized may
result in the payment of royalties to the Royal Free Hospital. The research will
be funded by a loan of /(pounds)/252,942 ($414,765) (the "Loan") from Freemedic
PLC, a subsidiary of Royal (together with Royal, "Freemedic"), to CTI Ltd. The
Loan, plus accrued interest, is convertible under certain conditions, at either
the Company's or Fremedic's option, into Common Stock of the Company at a
conversion price of $3.70 per share. Freemedic may terminate the collaboration
at any time upon a material breach by the Company of any obligation under the
collaboration agreement or upon an event of default under the Loan agreement.
CARDIOPASS CORONARY ARTERY BYPASS GRAFT
Coronary artery bypass graft ("CABG") surgery is performed to treat the
impairment of blood flow to portions of the heart. CABG surgery involves the
addition of one or more new vessels to the heart to re-route blood around
blocked coronary arteries.
Autogenous grafts (using the patient's own saphenous vein or mammary
artery) have been successfully used in CABG procedures for a number of years and
have shown a relatively high patency rate (80% to 90% for saphenous veins and
over 90% for mammary arteries one year after surgery) with no risk of tissue
rejection. However, the surgical harvesting of vessels for autogenous grafts
involves significant trauma and expense. In addition, not all patients
requiring CABG surgery have sufficient native vessels as a result of previous
bypass surgeries, or their vessels may be of inferior quality due to trauma or
disease. Cryopreserved saphenous veins are available, but these veins often
deteriorate due to attack by the body's immune system.
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The Company is developing the CardioPass Coronary Artery Bypass Graft to be
a synthetic graft of 3mm in diameter specifically designed for use in CABG
surgery. If successfully developed, the Company believes that the CardioPass
Graft may be used initially to provide an alternative to patients with
insufficient or inadequate native vessels for use in bypass surgery as a result
of repeat procedures, trauma, disease or other factors. The Company believes,
however, that the CardioPass Graft may ultimately be used as a substitute for
native saphenous veins, thus avoiding the trauma and expense associated with the
surgical harvesting of the vein.
The Company believes that in 1995, approximately 700,000 CABG procedures
were performed worldwide, of which nearly 500,000 were performed in the United
States. The Company believes that approximately 20% of these CABG procedures
were performed on patients who had previously undergone bypass surgery, and that
the number of repeat procedures will continue to increase as a percentage of
procedures performed. Currently, approximately 70% of CABG procedures are
performed utilizing the saphenous vein.
The Company estimates that approximately 100,000 patients are diagnosed by
their physicians as having native vessels that are inadequate for use in bypass
surgery. The CardioPass Coronary Artery Bypass Graft is currently in pre-
clinical development. If the CardioPass Graft is successfully developed, the
Company believes that the graft may initially be used for these patients. The
Company also believes that if long-term clinical results are acceptable to
clinicians (generally, greater than 50% patency five years after implant), the
graft may ultimately be used as a direct substitute for autogenous saphenous
veins.
BIOMATERIALS
CardioTech also develops, manufactures and sells a range of polymer-based
materials customized for use in the manufacture of certain medical devices to
other medical device manufacturers. CardioTech sells these custom polymers
under the tradenames ChronoFilm, ChronoFlex, ChronoThane, ChronoPrene,
HydroThane, PolyBlend and PolyWeld. The Company also provides development
services relating to biomaterials to medical device customers. In 1992, PMI
entered into a long term development and materials supply agreement with Bard
Access Systems, Inc. pursuant to which Bard purchases ChronoFlex for use in the
manufacture of a line of catheters and implantable vascular access ports that
are used to deliver doses of pharmaceuticals over an extended period of time or
to deliver chemotherapy agents to specific organs. PMI assigned this agreement
to CardioTech prior to the Spin Off.
CardioTech also manufactures and sells its proprietary HydroThane
biomaterials to medical device manufacturers that are evaluating HydroThane for
use in their products. HydroThane is a thermoplastic, water-absorbing,
polyurethane elastomer, that posses properties that CardioTech believes make it
well suited for the complex requirements of a variety of catheters. In addition
to its physical properties, CardioTech believes HydroThane exhibits an inherent
degree of bacterial resistance, clot resistance and biocompatibility. When
hydrated, HydroThane has elastic properties similar to living tissue.
During the fiscal year ended March 31, 1998, the Company was the recipient
of two Small Business Innovation Research grants awarded by National Institutes
of Health ("NIH") to support the Company's research and development programs.
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Research revenues related to biomaterials were approximately $872,521 and
$570,676 for the year ended March 31, 1998 and 1997, respectively. For the year
ended March 31, 1998, 26% and 56% of research revenues were generated from Bard
Access Systems, Inc. and the NIH, respectively.
MANUFACTURING
CardioTech currently manufactures limited quantities of ChronoFlex and
HydroThane for sale to medical device manufacturers. To date, CardioTech's
manufacturing activities with respect to the specialized ChronoFlex materials
used in vascular grafts have consisted primarily of manufacturing small
quantities of such products for use in clinical trials. CardioTech currently
has the ability to produce quantities of vascular grafts sufficient to support
its current testing needs. CardioTech also has the ability to produce
quantities of vascular grafts sufficient to support its needs for early-stage
clinical trials. However, CardioTech may need to acquire manufacturing
facilities and improve its manufacturing technology in order to meet the volume
and cost requirements for later clinical trials and will require additional
manufacturing facilities in order to undertake commercial production of vascular
grafts, if it elects to do so. To achieve profitability, CardioTech's products
must be manufactured in commercial quantities in compliance with regulatory
requirements and at acceptable costs. Production in commercial quantities will
require CardioTech to expand its manufacturing capabilities significantly and to
hire and train additional personnel. CardioTech has no experience in large-
scale manufacturing, and there can be no assurance that CardioTech will be able
to make the transition to commercial production successfully.
The Company's manufacturing operations in the United Kingdom currently hold
an ISO 9001 Certificate of Registration from National Quality Assurance, Ltd.
This internationally recognized endorsement of ongoing quality management
represents the highest level of certification available.
The development and manufacture of CardioTech's products are subject to
good laboratory practice ("GLP") and good manufacturing practice ("GMP")
requirements prescribed by the Food and Drug Administration ("FDA") and other
standards prescribed by the appropriate regulatory agency in the country of use.
There can be no assurance that CardioTech will be able to obtain or manufacture
products in a timely fashion at acceptable quality and prices, that it or any
suppliers can comply with GLP or GMP, as applicable, or that it or such
suppliers will be able to manufacture an adequate supply of product.
MARKETING
CardioTech plans to market its vascular graft products for which it obtains
regulatory approvals either through a small targeted direct sales group or
through licensing arrangements with large medical device companies.
Implementation of this strategy will depend on many factors, including the
market potential for CardioTech's products and financial resources. There can
be no assurance that CardioTech will be able to successfully market its
products.
COMPETITION
Competition in the medical device industry in general is intense and based
primarily on scientific and technological factors, the availability of patent
and other protection for technology and products, the ability to commercialize
technological developments and the ability to obtain governmental approval for
testing, manufacturing and marketing products.
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CardioTech will compete with products offered by W.L. Gore and Associates
("W.L. Gore"), Impra, Inc. ("Impra"), Corvita Corporation ("Corvita") and
Thoratec Corporation ("Thoratec"). CardioTech believes that W.L. Gore and
Impra, whose synthetic graft products have been sold in the United States and
worldwide for many years, sell approximately 90% of the intermediate diameter
peripheral synthetic vascular grafts and vascular access grafts used throughout
the world. While CardioTech believes that the attributes of its vascular grafts
will allow it to compete effectively, both W.L. Gore and Impra can be expected
to defend their market positions vigorously, and both have substantially greater
financial, technical and other resources than CardioTech. Corvita is developing
a broad range of polyurethane based synthetic vascular grafts, including
vascular access grafts and has commenced clinical trials of certain of its
synthetic vascular graft products in both the United States and Europe.
Thoratec has developed a small bore polyurethane vascular access graft and has
begun limited clinical trials in foreign countries. The joint technology may be
licensed or otherwise made available to competitors of CardioTech.
Competition among these products will be based, among other things, on
product efficacy, safety, reliability, availability, price and patent position.
An important factor will be the timing of the market introduction of
CardioTech's or competitive products. Accordingly, the relative speed with
which CardioTech can develop products, complete the clinical trials and approval
processes and supply commercial quantities of the products to the market is
expected to be an important competitive factor. CardioTech's competitive
position will also depend upon its availability to attract and retain qualified
personnel, to obtain patent protection or otherwise develop proprietary products
or processes, and to secure sufficient capital resources for the often
substantial period between technological conception and commercial sales.
RESEARCH AND DEVELOPMENT
CardioTech's research and development efforts are focused on developing its
synthetic vascular graft technologies. CardioTech's development decisions are
based on (1) development costs, (2) product need, (3) third-party interest and
funding availability and (4) regulatory considerations. CardioTech believes it
will need substantial additional financing to conduct human clinical trials, and
produce vascular access graft and other planned products. No assurance can be
given, however, that such financing, or other financing, will be available on
terms attractive to CardioTech, if at all. Research and Development expenditures
for the years ended March 31, 1998, 1997 and 1996 were $1,638,381, $1,031,605
and $910,676 respectively.
GOVERNMENT REGULATION
CardioTech's research and development activities are subject to regulation
for safety, efficacy and quality by numerous governmental authorities in the
United States and other countries. In the United States, the development,
manufacturing and marketing of synthetic vascular grafts are subject to
regulation for safety and efficacy by the FDA in accordance with the Food, Drug
and Cosmetic Act. Synthetic vascular grafts are subject to rigorous FDA
regulation, including pre-clinical and clinical testing. The process of
completing clinical trials and obtaining FDA approvals for a medical device is
likely to take a number of years, requires the expenditure of substantial
resources and is often subject to unanticipated delays. There can be no
assurance that any product will receive such approval on a timely basis, if at
all.
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The steps required to qualify a medical device for marketing in the United
States are complex. Medical products regulated by the FDA are generally
classified as drugs and/or medical devices. Medical devices are classified as
Class I, II or III devices. CardioTech believes that its synthetic vascular
grafts will be regulated as Class III medical devices. In general, Class I
devices require compliance with labeling and record keeping regulations and are
subject to other general controls. Class II devices may be subject to special
controls, such as market surveillance and are subject to general controls.
Class II devices also may not be subject to clinical testing for purposes of
pre-market notification to the FDA. Class III devices, such as CardioTech's
vascular graft products, require clinical testing to assure safety and
effectiveness prior to marketing and distribution.
At least 90 days prior to marketing, devices must be subject to pre-market
notification to the FDA to determine the product's classification and regulatory
status. If a product is found to be "substantially equivalent" to a Class I or
Class II device, or a Class III device not subject to a Pre-Marketing
Application (PMA) requirement, it may be marketed without further FDA review.
The FDA may require the submission of clinical data as a basis for determining
whether a device is "substantially equivalent." Such clinical data is often
developed under an Investigational Drug Exemption (IDE). Marketing may commence
only when the FDA issues a written order finding that the device is
"substantially equivalent." If a device is found to be "not substantially
equivalent," the device manufacturer must file a PMA with the FDA based on
testing intended to demonstrate that the product is both safe and effective.
CardioTech believes that its products will require the issuance of a PMA from
the FDA prior to commercial sale.
The PMA process requires the performance of human clinical studies under an
IDE. Upon completion of required clinical studies, results are presented to the
FDA in a PMA application. In addition to the results of clinical
investigations, the PMA applicant must submit other information relevant to the
safety and effectiveness of the device, including the results of pre-clinical
tests; a full description of the device and its components; a full description
of the methods, facilities and controls used for manufacturing; and proposed
labeling. The FDA staff then determines whether to accept the application for
filing. If accepted for filing, the application is further reviewed by the FDA
and then usually reviewed by an FDA scientific advisory panel of physicians and
others with expertise in the relevant field. The FDA will also conduct an
inspection to determine whether an applicant conforms with the FDA's current
GMP. If the FDA's evaluation is favorable, the FDA will subsequently publish an
order granting the PMA for the device. Although the initial PMA review process
is required to be completed within 180 days from the date that the PMA
application is accepted for filing, the FDA routinely raises additional issues
which must be addressed prior to the approval of a PMA, which significantly
extends the review process.
There can be no assurance that the FDA will approve any of CardioTech's
products currently under research for marketing, or if they are approved, that
they will be approved on a timely basis. Furthermore, CardioTech or the FDA may
suspend clinical trials at any time upon a determination that the subjects or
patients are being exposed to an unacceptable adverse health risk ascribable to
CardioTech's products. If clinical studies are suspended, CardioTech may be
unable to continue the development of the investigational products affected.
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Whether or not FDA approval has been obtained, approval of a medical device
by comparable foreign governmental regulatory authorities must be obtained prior
to the commencement of clinical trials and subsequent marketing of such products
in such countries. Under European Community ("EC") Law, the safety, efficacy
and quality of CardioTech's products must be demonstrated prior to marketing,
including extrinsic clinical testing of such products. National laws in each of
the EC member states govern clinical trials of products, adherence to good
manufacturing practice, advertising, promotion and other matters. Certain EC
member countries permit the sale of medical devices based upon approvals
received in other EC member states. There can be no assurance that approvals
will be granted on a timely basis and the failure to receive such approvals
could have a material adverse effect on the business, financial condition and
results of operation of CardioTech.
EXCHANGE LISTING
The Company's outstanding stock is currently listed on the American Stock
Exchange under the ticker symbol "CTE." CardioTech was granted listing approval
for 1,066,792 shares of its common stock for the 1998 calendar year. However,
there can be no assurance that these shares will not be de-listed during the
1998 calendar year. If the Company's shares were to be de-listed, it is likely
that CardioTech's fund raising ability would be adversely affected.
EMPLOYEES
As of June 1998, the Company has 10 full-time employees. Of these full-time
employees, 4 are in research and development, 2 are in manufacturing and
production, and 4 are in management, administrative, or marketing positions.
None of the Company's employees is covered by a collective bargaining agreement,
and management considers its relations with its employees to be good.
YEAR 2000 ISSUES
The Company uses computer software programs for its financial business
systems and administrative functions. The Company believes that its programs are
"Year 2000" compliant, and will be able to appropriately interpret the upcoming
calendar year "2000." However, there can be no assurance that potential "Year
2000" compliance failures will not have a material adverse affect on the
Company's business, results of operations or financial condition.
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ITEM 2. PROPERTIES
CardioTech leases a total of approximately 9,300 square feet at PMI's
facilities in Woburn, Massachusetts and Tarvin, United Kingdom. CardioTech
believes that its current facilities are adequate for the next 3 months, after
which the lease relating to these facilities will expire and CardioTech will
need to seek replacement facilities. Although CardioTech believes that
alternative facilities can be leased on acceptable terms, there is no assurance
that CardioTech will be able to do so.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company,
through solicitations of proxies or otherwise, during the last quarter of the
fiscal year ended March 31, 1998.
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PART II
Item 5. Market Information for Registrants Common Equity and Related
Stockholder Matters
The Common Stock began trading on the American Stock Exchange under the
symbol "CTE" on June 12, 1996. Prior to that date, there was no established
trading market for the Common Stock. The following table sets forth the high
and low sales prices of the Common Stock for each of the last two fiscal years,
as reported on the American Stock Exchange.
Fiscal Year Ended March 31, 1997 High Low
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June 30 5-3/8 3-1/8
September 30 3-3/8 1-1/2
December 31 3-1/16 1-9/16
March 31 2-9/16 1-3/4
Fiscal Year Ended March 31, 1998
June 30 2-3/16 1-1/2
September 30 4-9/16 1-1/2
December 31 4-9/16 2-1/4
March 31 2-3/4 1-1/2
As of June 29, 1998, there were approximately 476 stockholders of record
and 2,970 additional beneficial stockholders (stockholders holding Common
Stock in brokerage accounts). The Company has never paid a cash dividend on its
Common Stock and does not anticipate the payment of cash dividends in the
foreseeable future.
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Item 6. CardioTech International, Inc. Selected Consolidated Financial Data
The following are selected consolidated (i) statements of operations data
for the Company for the fiscal years ended March 31, 1998, 1997, 1996, 1995, and
1994 and (ii) balance sheet data for the Company at March 31, 1998, 1997, 1996,
1995 and 1994. The Company became a stand-alone company on June 12, 1996 as a
result of the Spin Off from PMI. The financial information set forth below for
the periods prior to June 12, 1996, is intended to present management's estimate
of the results of consolidated operations and financial condition of CardioTech
as if it had operated as a stand-alone company since its inception. Certain of
the costs and expenses presented in these consolidated financial statements
represent inter-company allocations and estimates of the costs of services
provided by PMI and its subsidiaries. As a result, the consolidated financial
statements presented may not be indicative of the results that would have been
achieved had CardioTech operated as a non-affiliated entity.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997 1996 1995 1994
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Research Revenues $ 872,521 $ 570,676 $ 228,806 $ 407,510 $ 285,876
Operating Expenses:
Research & Development 1,638,381 1,031,605 910,676 708,723 699,919
Selling, General, & Administrative 1,118,233 903,016 512,926 297,727 375,886
----------- ----------- ----------- ---------- ----------
Total Operating Expenses 2,756,614 1,934,621 1,423,602 1,006,450 1,075,805
----------- ----------- ----------- ---------- ----------
Net Loss $(1,808,955) $(1,655,572) $(2,188,030) $ (598,940) $ (789,929)
=========== =========== =========== ========== ==========
Loss per Common Share
Basic & Diluted $ (0.42) $ (0.42) $ (0.77) $ (0.21) $ (0.28)
=========== =========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31
1998 1997 1996 1995 1994
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data/(1)/
Total Current Assets $ 2,640,218 $ 2,535,285 $ 504 $ 504 $ 504
Working Capital 2,043,679 2,350,349 504 504 504
Total Assets 3,039,638 2,782,787 35,694 44,150 52,222
Stockholders' Equity 783,099 2,597,851 35,694 44,150 52,222
</TABLE>
/(1)/Prior to June 12, 1996, all inter-company activity related to the Company's
operations and all amounts receivable to and payable by the Company were
processed by PMI, and the net amount was recorded as Due to Parent in
Stockholders Equity, for the years 1994, 1995 and 1996.
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
REVENUE
Research revenue consists of revenues from the sale of medical grade
polyurethanes, research grants from the NIH and royalties from Bard Access
Systems. Research revenue increased $301,845, or 53%, to $872,521 for the fiscal
year ended March 31, 1998. Research revenues for the fiscal year ended March 31,
1997 increased $341,870, or 149%, to $570,676 from $228,806 for the 1996 fiscal
year. The increases in both periods were primarily due to an increase in revenue
derived from NIH grants, an increase in royalty revenues, and an increase in the
company's sale of medical grade polyurethanes.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT
Research and development expenses consist principally of employment-related
costs for scientific staff, facility costs, pre-clinical and clinical testing
costs, costs related to on-going development efforts and NIH grant expenses. To
date, all of the Company's research and development expenses have been charged
to operations as incurred. Research and development expenses increased $606,776,
or 59%, to $1,638,381 in the 1998 fiscal year and $120,929, or 13%, to
$1,031,605 in the 1997 fiscal year. The increases in both periods were primarily
the result of expenditures related to clinical trials of the VascuLink Vascular
Access Grafts in Europe and the NIH grants. Approximately 50% of the Company's
expenditures relating to these NIH grants are contracted to outside hospitals
and laboratories. The Company intends to increase its clinical trials sites for
the Vasculink Vascular Access graft as well as beginning clinical trials on
Myolink Peripheral Graft, and, therefore, anticipates that the cost of research
and development will continue to increases in the 1999 fiscal year.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses consist principally of
employment-related cost for executive, selling and administrative personnel,
professional fees, consulting fees, system support costs, and other general and
administrative expenses. Selling, general, and administrative expenses
increased $215,217, or 24%, to $1,118,233 in the 1998 fiscal year and $390,090,
or 76%, to $903,016 in the 1997 fiscal year. The increase in the selling,
general, and administrative expenses in the 1998 fiscal year was principally due
to increased costs as the Company continued to establish itself as a stand-alone
company and incurred costs related to professional, legal, and consulting fees,
as well as marketing and selling, investor relations and public reporting
expenses. The increase in selling, general and administrative expenses in the
1997 fiscal year was principally due to additional costs incurred by the Company
subsequent to the Spin-off, including expenses related to the establishment of a
separate finance and accounting group, investor relations, and public reporting
fees, rent, insurance and legal representation. The Company anticipates that
selling, general, and administrative expenses will increase in the 1999 fiscal
year due to growth in management systems and marketing and selling efforts.
13
<PAGE>
OTHER INCOME AND EXPENSES
Other income and expenses is comprised of interest income related to the
Company's invested cash balances, offset by costs associated with the spin off.
The Company generally invests its cash in money market accounts. The amount of
interest income fluctuates based on the amount of funds available and the
prevailing interest rates. Other income and expenses improved $366,765, to
income of $75,138 for the 1998 fiscal year. During the 1997 fiscal year, other
income and expenses decreased $701,607, or 71%, to an expense of $291,627. The
1997 expense balance included $393,879 in spin-off transaction costs offset by
interest income of $102,897. The decrease in interest income for the year ended
March 31, 1998 was primarily due to reduced money market balances due to
operational cash flow needs.
PROVISION FOR INCOME TAXES
The Company had no provision for income taxes for the 1996, 1997, and 1998
fiscal years due to the fact that it incurred net operating losses for these
fiscal years. The Company has an operating loss carried forward for the period
June 12, 1996 to March 31, 1998 of approximately $3,678,000. Losses for the
periods prior to June 12, 1996 were consolidated with the results of PMI and,
accordingly, CardioTech will not receive any benefit from net operating losses
prior to June 12, 1996.
LIQUIDITY AND CAPITAL RESOURCES
CardioTech's future growth will depend on its ability to raise capital to
support research and development activities and to commercialize its vascular
graft technology. To date, CardioTech has not generated revenues from the sale
of vascular grafts, although it has received research revenues relating to its
other biomaterial sales and from the NIH to support graft research. Since
inception, funding has come from PMI and 7% Senior convertible notes with a face
value of $1,660,000 issued on March 31, 1998. CardioTech expects to continue to
incur operating losses unless and until product sales and/or royalty generate
sufficient revenues to fund its continuing operations.
CardioTech will require substantial funds for further research and
development, future pre-clinical and clinical trials, regulatory approvals,
establishment of commercial-scale manufacturing capabilities, and the marketing
of its products. CardioTech's capital requirements depend on numerous factors,
including but not limited to, the progress of its research and development
programs, the progress of pre-clinical and clinical testing, the time and costs
involved in obtaining regulatory approvals, the cost of filing, prosecuting,
defending and enforcing any intellectual property rights, competing
technological and market developments, changes in CardioTech's development of
commercialization activities and arrangements, and the purchase of additional
facilities and capital equipment.
CardioTech is currently conducting its operations with approximately
$2,226,691 in cash. CardioTech estimates such amount will be sufficient to fund
its working capital and research and development activities through June 1999.
However, CardioTech's spending level may increase depending on the Company's
ability to raise additional capital.
14
<PAGE>
Past spending levels are not necessarily indicative of future spending
levels. From the inception of CardioTech's business through March 31, 1996, PMI
funded approximately $4.0 million in operating losses to support CardioTech's
research activities. Future expenditures for product development, especially
related to outside testing and clinical trials, are discretionary and,
accordingly, can be adjusted as required depending on the amount of available
cash.
CardioTech will seek to obtain additional funds through public or private
equity or debt financing, collaborative arrangements, or from other sources.
There can be no assurance that additional financing will be available at all or
on acceptable terms to permit successful commercialization of CardioTech's
technology and products. If adequate funds are not available, CardioTech may be
required to curtail significantly one or more if its research and development
programs, or obtain funds through arrangements with collaborative partners or
others that may require CardioTech to relinquish rights to certain of its
technologies, product candidates or products.
The Company believes that this Form 10-K contains forward-looking
statements that are subject to certain risks and uncertainties. These forward-
looking statements include statements regarding the sufficiency of the Company's
liquidity and capital. Such statements are based on management's current
expectations and are subject to a number of factors and uncertainties that could
cause actual results to differ materially from the forward-looking statements.
The Company cautions investors that there can be no assurance that actual
results or business conditions will not differ materially from those projected
or suggested in such forward-looking statements as a result of various factors,
including but not limited to the following: the Company's ability to
successfully complete clinical trials in a timely manner, the Company's ability
to obtain financing to support its working capital needs, the timely development
of products by the Company, intense competition related to the development of
synthetic grafts and difficulties inherent in developing synthetic grafts. As a
result, the Company's further development involves an high degree of risks. For
further information, refer to the more specific risks and uncertainties
discussed throughout this report.
Year 2000 Compliance
The Year 2000 Issue refers to potential problems with computer systems or
any equipment with computer chips or software that use dates where the date has
been stored as just two digits (e.g., 97 for 1997). On January 1, 2000, any
clock or date recording mechanism incorporating the date sensitive software
which uses only two digits to represent the year may recognize a date using 00
as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruption of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar business activities.
The Company has conducted a review of its internal information systems to
determine the extent of any Year 2000 problem. Based on such review, the Company
does not currently believe that it has material exposure to the Year 2000 Issue
with respect to its own information systems, since its core existing business
information systems correctly define the year 2000.
The Company is in the process of contacting its major customers in a effort
to determine the extent to which the Company may be vulnerable to those parties'
failure to timely correct their own Year 2000 problems. To date, the Company is
unaware of any situations of noncompliance that would materially adversely
affect its operations or financial condition. There can be no assurance,
however, that instances of noncompliance which could have a material adverse
effect on the Company's operations or financial condition will not be
identified; that the systems of other companies with which the Company transacts
business will be corrected on a timely basis; or that a failure by such entities
to correct a Year 2000 problem or a correction which is incompatible with the
Company's information systems would not have a material adverse effect on the
Company's operations or financial condition.
15
<PAGE>
Item 8.
<TABLE>
<CAPTION>
INDEX OF FINANCIAL STATEMENTS Page
<S> <C>
Report of Independent Accountants 17
Consolidated Balance Sheets as of March 31, 1998 and 1997 18
Consolidated Statements of Operations for each of the three years
in the period ended March 31, 1998. 19
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended March 31, 1998. 20
Consolidated Statements of Cash Flows for each of the three years
in the period ended March 31, 1998. 21
Notes to Consolidated Financial Statements 22 - 34
Exhibits 44
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of CardioTech International, Inc.:
We have audited the accompanying consolidated balance sheets of CardioTech
International, Inc. as of March 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended March 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CardioTech
International, Inc. as of March 31, 1998 and 1997, and results of its operations
and its cash flows for the three years in the period ended March 31, 1998 in
conformity with generally accepted accounting principles.
From inception to June 12, 1996 the Company was a majority-owned subsidiary
of PolyMedica Corporation. As explained in Note B to the financial statements,
for the period prior to June 12, 1996, certain of the costs and expenses in the
financial statements represent inter-company allocations and management
estimates of the costs of services provided by PolyMedica Corporation. As a
result, the financial statements presented may not be indicative of the
financial position or results of operations that would have been achieved had
the Company operated as a non-affiliated entity.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
May 27, 1998
17
<PAGE>
CARDIOTECH INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Assets
Current Assets:
Cash & Equivalents $ 2,226,691 $ 2,346,366
Accounts Receivable - Trade 58,707 8,292
Accounts Receivable - Other 328,318 93,218
Prepaid Expenses 26,502 87,409
--------------- ---------------
Total Current Assets 2,640,218 2,535,285
Property and Equipment, Net 187,654 231,619
Other Non-Current Assets 211,766 15,883
--------------- ---------------
Total Assets 3,039,638 2,782,787
=============== ===============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable $ 161,243 $ 50,860
Accrued Expenses 435,296 134,076
--------------- ---------------
Total Current Liabilities 596,539 184,936
Long Term Notes Payable 1,660,000 -
Stockholders' Equity
Preferred stock, $.01 par value 5,000,000 - -
shares authorized, none issued or outstanding
Common stock, $.01 par value 20,000,000
shares authorized, 4,272,916 issued and
outstanding at March 31, 1998 and 1997 42,729 42,729
Additional Paid in Capital 8,232,579 8,232,579
Accumulated Deficit (7,495,630) (5,686,675)
Cumulative Translation Adjustment 3,421 9,218
--------------- ---------------
Total Stockholders' Equity 783,099 2,597,851
--------------- ---------------
Total Liabilities and Stockholders' Equity $ 3,039,638 $ 2,782,787
=============== ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
CARDIOTECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Research Revenue $ 872,521 $ 570,676 $ 228,806
OPERATING EXPENSES
Research and Development 1,638,381 1,031,605 910,676
Selling, General and Admin. 1,118,233 903,016 512,926
------------ ------------ ------------
Total Operating Expenses 2,756,614 1,934,621 1,423,602
OTHER INCOME AND EXPENSES
Interest Income 75,138 102,270
Spin Off Transaction Cost (393,897) (993,234)
------------ ------------ ------------
Net Loss $ (1,808,955) $ (1,655,572) $ (2,188,030)
============ ============ ============
Net Loss Per Common Share
Basic and Diluted $ (0.42) $ (0.42) $ (0.77)
============ ============ ============
Weighted Average Shares,
Basic and Diluted 4,272,916 3,983,067 2,831,941
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE>
CARDIOTECH INTERNATIONAL, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR YEARS ENDED MARCH 31, 1996, 1997, 1998
<TABLE>
<CAPTION>
Common Stock
------------ Additional Total Currency Stock-
Number of Due to Paid in Accumulated Translation holder
Shares Amount Parent Capital Deficit Adjustment Equity
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995 2,831,491 $ 2,831 $ 1,884,392 $(1,843,073) $ 44,150
Net Loss (2,188,030) (2,188,030)
Advance from Parent - - 2,179,574 - - - 2,179,574
--------- ------- ----------- ---------- ----------- ---------- -----------
Balance at March 31, 1996 2,831,491 2,831 4,063,966 - (4,031,103) - 35,694
Issuance of Common
Stock to Parent 1,412,625 39,610 - 3,960,375 - - 3,999,985
Payment of Shared Spin-off
Costs to Former Parent - - - (373,631) - - (373,631)
Forgiveness of Advances
from Parent and Adjustment
of APIC - - (4,063,966) 4,559,123 - - 495,157
Issuance of Common Stock
Warrants - - - 15,000 - - 15,000
Issuance of Common Stock
for Services 28,800 288 - 71,712 - - 72,000
Effect of Cumulative
Translation Adjustment - - - - - 9,218 9,218
Net Loss - - - - (1,655,572) - (1,655,572)
--------- ------- ----------- ---------- ----------- ---------- -----------
Balance at March 31, 1997 4,272,916 42,729 - 8,232,579 (5,686,675) 9,218 2,597,851
Effect of Cumulative
Translation Adjustment - - - - - (5,797) (5,797)
Net Loss - - - - (1,808,955) - (1,808,955)
--------- ------- ----------- ---------- ----------- ---------- -----------
Balance at March 31, 1998 4,272,916 42,729 - $8,232,579 $(7,495,630) 3,421 783,099
========= ======= =========== ========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
CARDIOTECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss $(1,808,955) $(1,655,572) $(2,188,030)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and Amortization 71,776 63,965 9,238
Loss (gain)on disposal of Property & Equipment (2,500) 2,082
Non Cash Expenses 66,000
Changes in assets and liabilities
Accounts Receivables (285,515) (101,510)
Prepaid Expenses 60,907 (87,409)
Accounts Payable 110,383 50,860
Accrued expenses 301,220 134,076
Increase in non-current assets (35,883) (15,883)
-------------- -------------- --------------
Net cash flows from operating activities (1,588,567) (1,545,473) (2,176,710)
Cash Flows from Investing Activities:
Purchase of Property, and Equipment (28,936) (116,750)
Proceeds from sale of Property and Equipment 2,500
-------------- -------------- --------------
Net Cash Flows from Investing Activities (26,436) (116,750)
============== ============== ==============
Cash Flows from Financing Activities:
Issuance of Convertible Notes Payable 1,500,000
Net proceeds from issuance of common stock 3,830,000
Advance from parent 531,302 2,176,710
Payment of spin-off costs (373,631)
-------------- -------------- --------------
Net cash flows from financing activities 1,500,000 3,987,671 2,176,710
============== ============== ==============
Net increase in cash and cash equivalents (115,003) 2,325,448
Effect of exchange rate changes on cash (4,672) 20,414
Cash and cash equivalents at beginning of
period 2,346,366 504 504
-------------- -------------- --------------
Cash and cash equivalents at end of period $ 2,226,691 $ 2,346,366 $ 504
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE>
CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
A. NATURE OF BUSINESS:
CardioTech International, Inc. (including its subsidiary, collectively
"CardioTech" or the "Company") is using its proprietary technology to develop
and manufacture small bore vascular grafts, or synthetic blood vessels, made of
ChronoFlex, a family of polyurethanes that have been demonstrated to be
biocompatible and non-toxic. The Company is headquartered in Massachusetts and
operates from manufacturing and laboratory facilities located in Massachusetts
and the United Kingdom.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
CardioTech's business, which is the basis for these financial statements,
was a spin-off of a portion of the business of PolyMedica Corporation. ("PMI").
CardioTech was incorporated in March 1993. The accompanying financial statements
for the year 1996 and the period April 1, 1996 through June 11, 1996 were
derived from the historical books and records of PMI and include the assets,
liabilities, revenues and expenses of CardioTech at historical cost.
CardioTech's spun-off business operated as a division of PMI starting in
1990. In September 1993, PMI purchased certain assets of Newtec Vascular
Products Limited ("Newtec"), a company that had conducted development work on
small bore vascular grafts. Newtec operated as a division of PMI until June
1995, when it was incorporated as a wholly-owned subsidiary of CardioTech.
The financial statements for the periods prior to June 12, 1996 are
intended to present management's estimates of the results of consolidated
operations and financial condition of CardioTech as if it had operated as a
stand-alone company since inception. Certain of the costs and expenses for the
periods prior to June 12, 1996 presented in these consolidated financial
statements represent inter-company allocations and management estimates of the
cost of services provided by PMI and its subsidiaries.
In June 1996, the Company issued 1,412,625 shares of Common Stock, par
value of $.01 per share (the "Common Stock"), to PMI for $3.8 million in cash,
equipment having an estimated market value of $147,000, the transfer of certain
vascular graft manufacturing patents, and the forgiveness of certain amounts due
to PMI. After it acquired these shares, PMI owned 3,929,493 shares, or 92.6%, of
the Common Stock. On June 12, 1996 and June 19, 1996, PMI distributed (the "Spin
Off") all of the shares of Common Stock that it owned to its stockholders of
record as of June 3, 1996. On June 11, 1996, all advances from PMI to CardioTech
were converted to equity and are now classified by the Company as additional
paid in capital.
22
<PAGE>
CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant inter-company balances and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates and such
differences may be material to the financial statements.
FUTURE OPERATIONS
CardioTech's future growth will largely depend on its ability to raise
additional capital to support research and development activities and to
commercialize its vascular graft technology. CardioTech expects to continue to
incur operating losses until vascular graft product sales and/or royalty
payments generate sufficient revenue to fund its continuing operations.
CardioTech will require substantial funds for further research and
development, future pre-clinical and clinical trials, regulatory approvals,
establishment of commercial-scale manufacturing capabilities, and the marketing
of its products. CardioTech's capital requirements depend on numerous factors,
including but not limited to the progress of its research and development
programs, the progress of pre-clinical and clinical testing, the time and costs
involved in obtaining regulatory approvals, the cost of filing, prosecuting,
defending and enforcing any intellectual property rights, competing
technological and market developments, changes in CardioTech's development of
commercialization activities and arrangements, and the purchase of additional
facilities and capital equipment. CardioTech is currently conducting its
operations with approximately $2,226,691 in cash. CardioTech estimates such
amounts will be sufficient to fund its working capital and research and
development activities through June 1999.
23
<PAGE>
CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
CardioTech will seek to obtain additional funds through public or private
equity or debt financings, collaborative arrangements, or from other sources.
There can be no assurance that additional financing will be available at all or
on acceptable terms to permit successful commercialization of CardioTech's
technology and products in development. If adequate funds are not available,
CardioTech may be required to curtail significantly one or more of its research
and development programs, or obtain funds through arrangements with
collaborative partners or others that may require CardioTech to relinquish
rights to certain of its technologies, product candidates, or products.
UNCERTAINTIES
The Company is subject to risks common to companies in the medical device
industry, including, but not limited to, development of new technology
innovations by competitors of the Company, dependence on key personnel,
protection of proprietary technology, and compliance with FDA government
regulations.
CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents include cash on hand, demand deposits and short
term investments with original maturities of three months or less.
ACCOUNTS RECEIVABLE - OTHER
Accounts Receivable - Other principally consist of revenue receivable from
research and development work completed on National Institutes of Health Small
Business Innovative Research Grants, and Royalty Income Receivable.
RESEARCH REVENUES
Research Revenues are generated in connection with the development and sale
of ChronoFlex and other proprietary biomaterials for use in medical devices. The
Company has also received royalty fees from Bard Access Systems. CardioTech
recognizes these fees as revenue in accordance with the terms of the contracts.
Contracted development fees from corporate partners are recognized upon
completion of service or the attainment of technical benchmarks, as appropriate.
During the year ended March 31, 1998 and 1997, the Company was the
recipient of four Small Business Innovation Research (SBIR) grants, awarded by
the National Institute of Health to support the Company's research and
development programs. Revenue from these grants is recognized ratably over one
year which properly matches costs with related revenues.
24
<PAGE>
CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are charged to expense as incurred.
DUE TO PARENT, ADVANCE FROM PARENT
Prior to the June, 1996 Spin-Off, all inter-company charges related to
CardioTech's operations and all amounts receivable to and payable by CardioTech
were processed by PMI, and the net amount was recorded as Advance from Parent in
Stockholders' Equity. Amounts due to parent were permanently invested by PMI in
connection with the Common Stock Subscription Agreement discussed in Note C
below.
FOREIGN CURRENCY TRANSLATION
In accordance with Statement of Financial Accounting Standard No. 52,
"Foreign Currency Translation," assets and liabilities of the Company's foreign
subsidiary are translated into US dollars using current exchange rates at the
balance sheet date and revenues and expenses are translated at average exchange
rates prevailing during the period. The resulting translation adjustments are
recorded in a separate component of Stockholders' Equity. Transaction gains and
losses are recorded in the Consolidated Statements of Operations.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and Leasehold improvements are stated at cost. Equipment is
depreciated using the straight-line method over the estimated useful lives of
the assets, ranging from five to seven years, and leasehold improvements are
amortized using the straight-line method over the shorter of the estimated life
of the asset or the remaining term of the lease. Expenditures for repairs and
maintenance are charged to expense as incurred. When assets are retired or
disposed of, the cost and accumulated depreciated thereon are removed from the
accounts and related gains and losses are included in operations.
BASIC AND DILUTED EARNINGS PER SHARE
The Company computes basic and diluted earnings per share ("EPS") in
accordance with Statement of Financial Accountings Standards No. 128, "Earnings
Per Share", which the Company adopted on October 1, 1997. Basic earnings per
share is based upon the weighted average number of common shares outstanding
during the period. Diluted earnings per share is based upon the weighted average
number of common shares outstanding during the period plus additional weighted
average common equivalent shares outstanding during the period. Common
equivalent shares have been excluded from the computation of diluted loss per
share for all periods presented, as their effect would have been anti-dilutive.
25
<PAGE>
Common equivalent shares result from the assumed exercise of outstanding stock
options and warrants, the proceeds of which are then assumed to have been used
to repurchase outstanding common stock using the treasury stock method.
The following table reconciles the numerator and denominator of the basic
and diluted earnings per share computations shown on the Consolidated Statements
of Operations:
<TABLE>
<CAPTION>
For the years ended March 31,
-----------------------------
In thousands, except for per share data
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
BASIC AND DILUTED EPS
Numerator:
Net income (loss) $(1,809) $(1,656) $(2,188)
------- ------- -------
Denominator:
Common shares outstanding 4,272 3,983 2,832
------- ------- -------
Basic and Diluted EPS $ (0.42) $ (0.42) $ (0.77)
======= ======= =======
</TABLE>
Options to purchase 945,022 and 902,022 shares of common stock outstanding
during the periods ended March 31, 1998 and 1997, respectively, were excluded
from the calculation of diluted earnings per share because the effect of their
inclusion would have been anti-dilutive.
26
<PAGE>
CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
INCOME TAXES
Deferred tax assets and liabilities are recognized based on temporary
differences between the financial statements and tax basis of assets and
liabilities using enacted tax rates expected to be in effect when they are
realized. A valuation reserve against the net deferred assets is recorded, if,
based upon weighed available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.
The Company has no income tax provision for the years ended March 31, 1998
and 1997.
DEBT ISSUANCE COST
The costs related to the issuance of debt are capitalized and amortized to
interest expense on a straight line basis over the life of the debt.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company will adopt Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" in fiscal 1999. This Statement establishes
standards for reporting and displaying comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. This statement requires the classification of items of
comprehensive income by their nature in a financial statement and the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. The Company believes that adoption of this Statement will not have a
material effect on its financial statements.
The Company will also adopt Statement of Financial Accounting Standards No.
131 "Disclosures About Segments of an Enterprise and Related Information" fiscal
1999. This statement supersedes FASB Statement No. 14, "Financial Reporting for
Segments of a Business Enterprise," but retains the requirement to report
information about major customers. This Statement establishes standards for
reporting information about operating segments in annual financial statements.
Operating segments are defined as components of an enterprise evaluated
regularly by the Company's senior management in deciding how to allocate
resources and in assessing performance. The Company believes that adoption of
this statement will not significantly change its segment reporting disclosures.
C. ARRANGEMENTS WITH PMI AND SUBSIDIARIES:
From CardioTech's inception until June 11, 1996, all facilities and support
services, including research and administrative support, were provided by PMI.
For these services, CardioTech was charged $1,792,500, $591,000 and $169,354 for
the years ended March 31, 1996, 1995 and for the period April 1, 1996 to June
11, 1996, respectively. These charges
27
<PAGE>
represent an allocation of CardioTech's proportionate share of PMI's overhead
costs by PMI using formulas which management believed were reasonable based upon
CardioTech's use of facilities and services.
In connection with the Spin Off, CardioTech entered into the following
agreements with PMI.
DISTRIBUTION AGREEMENT
This agreement provided for the principal corporate transactions required
to effect the Spin Off, including, among other things, the preparation of a
registration statement registering the Common Stock under the Securities
Exchange Act of 1934, as amended, and an undertaking by CardioTech to prepare a
registration statement registering, under the Securities Act of 1933, as
amended, the shares of Common Stock to be issued upon the exercise of the
Warrants described in Note M.
This agreement also allocated the costs related to the implementation of
the Spin Off between PMI and CardioTech and provided that each company would
share equally any liabilities under the federal and any state securities laws
incurred as a result of the distribution of the information statement relating
to the Spin Off.
CardioTech agreed to reimburse PMI 50% of certain expenses incurred in
connection with the Distribution. CardioTech's portion of these expenses was
approximately $374,000 and were incurred in the fiscal year 1997. There were no
remaining spin-off costs in Fiscal year 1998.
28
<PAGE>
CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
LICENSE AGREEMENT
PMI granted to CardioTech an exclusive, perpetual, world-wide, royalty-free
license for CardioTech to use all of the necessary patent and other intellectual
property owned by PMI in the implantable devices and materials field
(collectively, "PMI Licensed Technology"). PMI, at its own expense, will file
patent or other applications for the protection of all new inventions
formulated, made or conceived by PMI during the term of the license that related
to PMI Licensed Technology and all such inventions will be part of the
technology licensed to CardioTech. CardioTech, at its own expense, will file
patent or other applications for the protection of all new inventions
formulated, made, or conceived by CardioTech during the term of the license that
related to PMI Licensed Technology and all such inventions shall be exclusively
licensed to PMI for use by PMI in fields other than the implantable devices and
materials field.
TAX MATTERS AGREEMENT
The Tax Matters Agreement provides, among other things, that PMI will be
responsible for all federal, state, local and foreign tax liabilities of
CardioTech for periods ending on or prior to June 11, 1996 and CardioTech will
be responsible for all tax liabilities of CardioTech subsequent to that time.
The Tax Matters Agreement further provides that for the tax year of PMI that
includes June 11, 1996 and the tax year of CardioTech that commences immediately
following June 11, 1996, PMI will claim on its federal income tax returns
certain specified tax benefits and CardioTech will not claim any of such tax
benefits through June 11, 1996.
D. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Laboratory Equipment $ 333,057 $ 314,764
Furniture, Fixtures, and Office Equipment 70,879 60,236
Leasehold Improvements 11,715 11,715
--------- ---------
Subtotal 415,651 386,715
Less Accumulated Depreciation (227,997) (155,096)
--------- ---------
$ 187,654 $ 231,619
</TABLE>
Depreciation expense for Property and equipment for the fiscal years ended March
31, 1998, 1997, and 1996 was approximately $71,776, $63,965, and $9,238,
respectively.
29
<PAGE>
CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
E. ACCRUED EXPENSES:
Accrued Expenses consist of:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Legal and Professional Fee $ 92,454 $ 52,746
Salaries and Benefits 130,132 21,273
Research and Development 202,956 0
Other 9,754 60,057
----------- -----------
$ 435,296 $ 134,076
----------- -----------
</TABLE>
F. INCOME TAXES
Income (loss) before income taxes was generated as follows in the years ended
March 31:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
United States $(1,111,596) $(1,122,167)
Foreign (697,359) (533,405)
----------- -----------
$(1,808,955) $(1,655,572)
----------- -----------
</TABLE>
A reconciliation between the Company's effective tax rate for continuing
operations and the United States statutory rate is as follows:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Expected federal tax rate (34.00%) (34.00%)
State income taxes, net
of federal tax benefit (3.93) ( 2.91)
Change in
Valuation Allowance 37.26 28.16
Meals & Entertainment
and Other Permanent
Items 0.67 8.75
------ ------
Effective Tax Rate 0.00% 0.00%
------ ------
</TABLE>
30
<PAGE>
CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
A valuation allowance has been recorded to offset the related deferred tax
assets due to uncertainty or realizing the benefit of these assets. The
following is a summary of the significant components of the Company's deferred
tax assets and liabilities as of March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Deferred tax asset:
1998 1997
<S> <C> <C>
Net Operating Loss $ 1,426,300 $ 755,600
Tax Credits 400 2,800
----------- ---------
$ 1,426,700 $ 758,400
----------- ---------
Deferred tax liabilities:
1998 1997
Depreciation $ 25,750 $ 29,300
----------- ---------
Deferred Tax Liability 25,750 29,300
----------- ---------
Valuation Allowance $(1,400,950) $(729,100)
------------ ---------
Net Deferred Tax Assets $ -0- $ -0-
------------ ---------
</TABLE>
As of March 31, 1998, the Company had Federal net operating loss carry
forwards of approximately $2,594,000 available to offset future taxable income
which begin to expire in 2010. The Company has Foreign net operating loss carry
forwards of approximately $1,200,000.
G. STOCKHOLDERS' EQUITY:
CardioTech was incorporated in March 1993 and issued 67,500 shares of
Common Stock. Of the 67,500 shares, 60,000 shares were issued to PMI and 7,500
shares were issued to certain founders of CardioTech. There were 100,000 shares
of Common Stock authorized for issuance.
On March 19 and May 9, 1996, CardioTech amended its Article of Organization
to: (i) effect a net 41.95 for one stock split of the Common Stock (reflecting a
54.7328 for one stock split effected on March 19, 1996 and a 0.76645 for one
reverse stock split effected on May 9, 1996), (ii) increase the number of
authorized shares of Common Stock to 20,000,000 shares and (iii) authorize a
class of 5,000,000 shares of Preferred Stock. The consolidated financial
statements have been restated to reflect these amendments.
31
<PAGE>
CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
H. RELATED PARTY TRANSACTIONS:
As of March 31, 1996, the following executive officers and directors of PMI
owned a total of 314,623 shares (effected for stock split) of CardioTech:
Michael Szycher, Ph.D., Steven J. Lee, Arthur A. Siciliano, Ph.D., Andrew M.
Reed, Ph.D., Eric G. Walters and Robert J. Zappa. See Note G.
I. LEASE AGREEMENT:
On October 1, 1996, the Company signed a two (2) year lease agreement with
PolyMedica Pharmaceuticals, (U.S.A.) Inc., the owner or lessor of the office,
manufacturing and research facilities currently occupied by the Company in
Woburn, Massachusetts and Tarvin, Cheshire, UK. The lease agreement replaces in
its entirety the service agreement between PMI and the Company, signed in June
1996. The lease agreement expires on September 30, 1998. The lease agreement
also provides for a two (2) year payback of approximately $20,000 in build out
costs incurred by the landlord on behalf of the Company.
J. MAJOR CUSTOMERS:
Customers comprising more than 10% of CardioTech's research revenues are
shown as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Customer A 26% 18% 33%
Customer B 56% 73% 46%
</TABLE>
K. COMMITMENTS AND LONG TERM OBLIGATIONS:
The Company lease offices, laboratory and manufacturing space under a non-
cancelable operating lease with PMI. Future minimum lease payments as of the end
of fiscal 1998 are as follows:
<TABLE>
<CAPTION>
Fiscal Year(s):
<S> <C>
1998 92,959
---------
Total $ 92,959
---------
</TABLE>
Rent expenses for operating leases was $193,757, $158,013 and $0 for the years
ended March 31, 1998, 1997 and 1996, respectively.
32
<PAGE>
CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
On March 31, 1998, the Company issued $1,660,000, 7% Convertible Senior
Notes with a maturity date of March 20, 2003 to Dresdner, Kleinwort Benston
Private Partners LP ("DKB"). Interest will accrue annually and is payable
quarterly in cash and/or additional Notes at the option of DKB.
At any time prior to maturity, DKB may convert the Notes, in whole or part,
plus accrued interest into Common Stock of the Company at a conversion price of
$1.995 which is subject to adjustment in certain events.
Prior to maturity, the Notes are redeemable by the Company at a premium
which ranges from 105% to 100% of principal. Upon the occurrence of a change of
control, DKB may require the Company repurchase the Notes at a premium which
ranges from 105% to 100%. At maturity and under certain conditions, the Company
may repay the Notes, plus accrued interest, by converting them, in whole or in
part, into Common Stock of the Company at the conversion price.
If the Company elects not to issue sufficient shares pursuant to the
conversion, redemption or repayment of the Notes, the balance of any amounts due
will be paid in cash, based upon the prevailing market price of the shares of
Common Stock not issued.
CardioTech has the right to issue to DKB an additional $840,000 in 7%
Convertible Senior Notes, provided certain milestones are attained prior to
September 30, 1998.
Certain financial and other covenants exist including, but not limited to
maintenance of working capital and positive net worth, maintenance of share
listing on the AMEX (or other acceptable national exchange) and receipt of an
unqualified audit opinion without a "going concern" paragraph. In the event of
default the Notes may be accelerated.
L. STOCK OPTION DISCLOSURE:
CardioTech's 1996 Employee, Director and Consultants Stock Option Plan (the
"Plan") was approved by CardioTech's Board of Directors and Stockholders in
March 1996, a total of approximately 1,167,000 shares have been reserved for
issuance under the Plan. Under the terms of the Plan the exercise price of
Incentive Stock Options issued under the Plan must be equal to the fair market
value of the Common Stock at date of grant. The options vest over 4 years. In
the event that Non Qualified Options are granted under the Plan the exercise
price may be less than the fair market value of the Common Stock at time of
grant (but not less than par value). On October 1, 1996, the Compensation
Committee of the Board of Directors of the Company, which administers the Plan,
repriced stock options to purchase 866,208 shares of Common Stock, at the fair
market value on the date of repricing.
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123"), the Company applies
APB Opinion No. 25 and
33
<PAGE>
related Interpretations in accounting for the Plan. SFAS 123, issued in 1995,
defined a fair value method of accounting for stock options and other equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. The Company elected to
continue to apply the accounting provisions of APB Opinion No. 25 for stock
options. The required disclosures under SFAS 123 as if the Company had applied
the new method of accounting are made below.
Activity under the Plans for the year ended March 31, 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- --------------
<S> <C> <C>
Outstanding March 31, 1996 - -
Granted 1,768,230 $3.17
Canceled 866,208 $.41
Exercised - -
Outstanding March 31, 1997 902,022 $1.98
Granted 57,854 $2.01
Canceled (14,854) $1.94
Exercised - -
--------- ------
Outstanding March 31, 1998 945,022 $1.98
</TABLE>
Summarized information about stock options outstanding at March 31, 1998
is as follows:
<TABLE>
<CAPTION>
---- EXERCISABLE ----
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE AVERAGE
RANGE OF OPTIONS CONTRACTUAL EXERCISE NUMBER OF EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE OPTIONS PRICE
<S> <C> <C> <C> <C> <C>
$1.75-2.56 930,022 8.6 $1.91 590,447 $1.94
$4.55 15,000 3.6 $4.55 15,000 $4.55
</TABLE>
Options exercisable at March 31, 1998 and March 31, 1997 were 605,447
and 401,409 respectively.
34
<PAGE>
CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The fair value of each option granted during the fiscal years 1998 and
1997, is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Dividend yield............................................ none none
Expected volatility....................................... 78% 65%
Risk-free interest rate................................... 6.2% 6.3%
Expected life............................................. 4 4
Weighted average fair value of options granted at fair value during:
1998...................................................... $1.67
1997...................................................... $1.48
</TABLE>
Had compensation cost for the Company's 1998 and 1997 stock option grants been
determined consistent with SFAS 123, the Company's net loss and net loss per
share would approximate the pro forma amounts below:
<TABLE>
<CAPTION>
NET INCOME PER
NET INCOME FULLY DILUTED SHARE
---------- -------------------
<S> <C> <C>
As reported:
1998..................................... $(1,808,955) $(0.42)
1997..................................... (1,655,572) (0.42)
Pro forma:
1998..................................... $(2,159,024) $(0.51)
1997..................................... (2,633,592) (0.66)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards made prior to
1995. Additional awards in future years are anticipated.
M. WARRANTS:
In connection with the Spin Off, the Company issued warrants (the
"Warrants") to John Hancock Mutual Life Insurance Company to purchase up to
255,100 shares of Common Stock at $3.70 per share. The Warrants are exercisable
beginning on June 19, 1996 and expire on January 31, 2000. As a result of the
antidilutive provisions, CardioTech is required to issue additional warrants to
John Hancock when additional common shares or common share equivalents are
issued to third parties at a price lower than the exercise price. On March 31,
1998 the exercise price of the Warrants was adjusted to $3.41 per share and the
number of shares subject to the Warrants was adjusted to 276,656 shares.
35
<PAGE>
CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
N. EARNINGS PER SHARE
The following table reconciles the numerator and denominator of the basic
and diluted earnings per share computations shown on the Consolidated Statements
of Operations:
O. SUBSEQUENT EVENTS
On April 1, 1998 the Company's wholly owned subsidiary CardioTech
International, Ltd., signed a collaborative research and development agreement
with the Royal Free Hospital School of Medicine. This research and development
is funded by a loan of GBP 252,942 ($424,765) from Freemedic PLC, a subsidiary
of the Royal Free Hospital, to CardioTech International, Ltd. The loan has a
fixed rate of interest of 10% and both principal and interest are payable in
full before April 01, 2000.
The loan is convertible, at Freemedic's option, into Common Stock of the
Company at $3.70 per share from April 1, 1998 until March 20, 2000. During this
period, the loan is also convertible at the Company's option into Common Stock
of the Company at $3.70 per share, provided that the market price for the
Company's Common Stock exceeds $3.70 from the day that the Company gives notice
of such conversion until seven business days thereafter. The loan is secured by
a pledge of all the assets of CardioTech International, Ltd. and is guaranteed
by the Company.
<TABLE>
<CAPTION>
For the years ended March 31,
-----------------------------
In thousands, except for per share data
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
BASIC AND DILUTED EPS
Numerator:
Net income (loss) $(1,809) $(1,656) $(2,188)
------- ------- -------
Denominator:
Common shares outstanding 4,272 3,983 2,832
------- ------- -------
Basic and Diluted EPS $ (0.42) $ (0.42) $ (0.77)
======= ======= =======
</TABLE>
Options to purchase 945,022 and 902,022 shares of common stock outstanding
during the periods ended March 31, 1998 and 1997, respectively, were excluded
from the calculation of diluted earnings per share because the effect of their
inclusion would have been anti-dilutive.
36
<PAGE>
Item 9. Changes In and Disagreements with Accountants on a Accounting and
Financial Disclosure
There have been no changes in accounts or disagreements with accountants on
accounting and financial disclosure matters.
37
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item will be set forth under the section
entitled "Management" and "Section 16 (A) Beneficial Ownership Reporting
Compliance" in the Company's 1998 definitive proxy statement to be filed
pursuant to Regulation 14A not later than July 29, 1998, and is incorporated
herein by reference.
Item 11. Executive Compensation
The information required by this item will be set forth under the section
entitled "Executive Compensation" in the Company's 1998 definitive proxy
statement to be filed pursuant to Regulation 14A not later than July 29, 1998,
and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item will be set forth under the section
entitled "Share Ownership" in the Company's 1998 definitive proxy statement to
be filed pursuant to Regulation 14A not later than July 29, 1998, and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item will be set forth under the section
entitled "Certain Relationships and Related Transactions" in the Company's 1998
definitive proxy statement to be filed pursuant to Regulation 14A not later than
July 29, 1998, and is incorporated herein by reference.
38
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following are filed as part of this Form 10-K:
(1) Financial Statements:
For a list of financial statements which are filed as part of this
Form 10-K, See Page 16.
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable, or not
required, or because the required information is included in the
Financial Statements as notes thereto.
(3) Exhibits
Exhibit Number:
2 Plan and Agreement of Distribution between PMI and CardioTech, dated
May 13, 1996 was filed as Exhibit 2 to CardioTech's Form 10 filed on
March 20, 1996, as amended (the "Form 10"), and is incorporated herein
by reference.
3.1 Articles of Incorporation were filed as Exhibit 3.1 of the Form 10 and
are incorporated herein by reference.
3.2 Bylaws were filed as Exhibit 3.2 of the Form 10 and are incorporated
herein by reference.
10.1 Amended and Restated Common Stock Subscription Agreement between PMI
and CardioTech, dated May 9, 1996, was filed as Exhibit 10.1 of the
Form 10 and is incorporated herein by reference.
10.2 Tax Matters Agreement between PMI and CardioTech, dated May 13, 1996,
was filed as Exhibit 10.2 of the Form 10 and is incorporated herein by
reference.
10.3 Amended and Restated License Agreement between PMI and CardioTech,
dated May 13, 1996, was filed as Exhibit 10.4 of the Form 10 and is
incorporated herein by reference.
10.4 CardioTech 1996 Employee, Director and Consultant Stock Option Plan,
as amended.
10.5 Employment Agreement of Michael Szycher, dated March 26, 1998.
10.6 Employment Agreement of Alan Edwards, dated March 24, 1998.
10.7 Service Agreement of Alan Edwards, dated March 24, 1998.
10.8 Warrant issued by CardioTech to John Hancock Mutual Life Insurance
Company was filed as Exhibit 10.8 of the Form 10 and is incorporated
herein by reference.
39
<PAGE>
10.9 Letter Agreement between CardioTech, PMI, and John Hancock Mutual
Life Insurance Company was filed as Exhibit 10.9 and is incorporated
herein by reference.
10.10 Development, Supply and License Agreement between PMI and Bard Access
Systems, dated November 11, 1992, was filed as Exhibit 10.10 of the
Form 10 and is incorporated herein by reference.
10.11 Lease Agreement between CardioTech and Cummings Properties
Management, Inc., dated June 26, 1998.
10.12 Loan and Option Agreement dated as of March 31, 1998 and among
CardioTech, CardioTech International Ltd. ("CTI, Ltd."), the Royal
Free Hospital School of Medicine ("Royal Free Hospital") and
Freemedic PLC ("Freemedic").
10.13 CTI, Ltd and Royal free Hospital Research Agreement in respect of the
Development of Vascular Grafts, dated April 1, 1998.
10.14 Freemedic and CTI, Ltd. License Agreement, dated as of April 1, 1998.
10.15 Note Purchase Agreement dated as of March 31, 1998 between CardioTech
and Dresdner Kleinwort Benson Private Equity Partners, LP ("Kleinwort
Benson") was filed as Exhibit 99.1 to CardioTech's Form 8-K filed
with the Securities and Exchange Commission (the "Commission") on
April 15, 1998 and is incorporated herein by reference.
10.16 7% Convertible Senior Note dated as of March 31, 1998 between
CardioTech and Kleinwort Benson was filed as Exhibit 99.2 to
CardioTech's Form 8-K filed with the Commission on April 15, 1998 and
is incorporated herein by reference.
21 Subsidiaries of CardioTech
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed with the Commission on April 15, 1998 reporting the
transactions with Kleinwort Benson and with Freemedic.
(c) See (3) above.
(d) See (2) above.
40
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: June 29, 1998 CardioTech International, Inc.
By: /s/ Michael Szycher
-----------------------
Michael Szycher
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: June 29, 1998 /s/ Michael Szycher
-------------------
Michael Szycher
Chairman, Chief Executive Officer
(Principal Executive Officer)
Dated: June 29, 1998 /s/ John E. Mattern
-------------------
John E. Mattern
Chief Financial Officer, Chief Operating
Officer (Principal Financial and
Accounting Officer)
Dated: June 29, 1998 /s/ Jonathan Walker
-------------------
Jonathan Walker
Director
Dated: June 29, 1998 /s/ Alan Edwards
----------------
Alan Edwards
Director
Dated: June 29, 1998 /s/ Michael Barretti
--------------------
Michael Barretti
Director
41
<PAGE>
INDEX FOR EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
<C> <S> <C>
10.4 CardioTech 1996 Employee, Director
and Consultant Stock Option Plan, as amended.
10.5 Employment Agreement of Michael Szycher,
dated March 26, 1998.
10.6 Employment Agreement of Alan Edwards,
dated March 24, 1998.
10.7 Service Agreement of Alan Edwards, dated March 24, 1998.
10.11 Lease Agreement between CardioTech and Cummings
Properties Management, Inc., dated June 26, 1998.
10.12 Loan and Option Agreement dated as of March 31, 1998
by and among CardioTech, CardioTech International Ltd.
("CTI, Ltd."), the Royal Free Hospital School of
Medicine ("Royal Free Hospital") and Freemedic PLC
("Freemedic").
10.13 CTI, Ltd. and Royal Free Hospital Research Agreement
in respect of the Development of Vascular Grafts,
dated as of April 1, 1998.
10.14 Freemedic and CTI, Ltd. License Agreement,
dated as of April 1, 1998.
21 Subsidiaries of CardioTech
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 10.4
CARDIOTECH INTERNATIONAL, INC.
1996 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK OPTION PLAN
1. DEFINITIONS.
-----------
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this CardioTech International, Inc. 1996
Employee, Director and Consultant Stock Option Plan, have the following
meanings:
Administrator means the Board of Directors, unless it has delegated
-------------
power to act on its behalf to the Committee, in which case the
Administrator means the Committee.
Affiliate means a corporation which, for purposes of Section 424 of
---------
the Code, is a parent or subsidiary of the Company, direct or
indirect.
Board of Directors means the Board of Directors of the Company.
------------------
Code means the United States Internal Revenue Code of 1986, as
----
amended.
Committee means the Committee of the Board of Directors to which the
---------
Board of Directors has delegated power to act under or pursuant to the
provisions of the Plan.
Common Stock means shares of the Company's common stock, $.01 par
------------
value per share.
Company means CardioTech International, Inc., a Massachusetts
-------
corporation.
Disability or Disabled means permanent and total disability as defined
---------- --------
in Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
-----------------
(1) If the Common Stock is listed on a national securities exchange
or traded in the over-the-counter market and sales prices are
regularly reported for the Common Stock, either (a) the average of the
closing or last prices of the Common Stock on the Composite Tape or
other comparable reporting system for the five (5) consecutive trading
days immediately following the applicable date or (b) the closing or
last price of the Common Stock on the Composite Tape or other
comparable reporting system for the trading day immediately preceding
the applicable date, as the Administrator shall determine, except that
Subparagraph (b) shall not apply to Options granted pursuant to
Paragraph 6(A)(e) of the Plan;
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales prices
are not regularly reported for the Common Stock for the trading days
or day referred to in clause (1), and if bid and asked prices for the
Common Stock are regularly reported, either (a) the
<PAGE>
average of the mean between the bid and the asked price for the Common
Stock at the close of trading in the over-the-counter market for the
five (5) trading days on which Common Stock was traded immediately
preceding the applicable date or (b) the mean between the bid and the
asked price for the Common Stock at the close of trading in the over-
the-counter market for the trading day on which Common Stock was
traded immediately preceding the applicable date, as the Administrator
shall determine, except that Subparagraph (b) shall not apply to
Options granted pursuant to Paragraph 6(A)(e) of the Plan; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as the
Administrator, in good faith, shall determine.
ISO means an option meant to qualify as an incentive stock option
---
under Section 422 of the Code.
Key Employee means an employee of the Company or of an Affiliate
------------
(including, without limitation, an employee who is also serving as an
officer or director of the Company or of an Affiliate), designated by
the Administrator to be eligible to be granted one or more Options
under the Plan.
Non-Qualified Option means an option which is not intended to qualify
--------------------
as an ISO.
Option means an ISO or Non-Qualified Option granted under the Plan.
------
Option Agreement means an agreement between the Company and a
----------------
Participant delivered pursuant to the Plan.
Participant means a Key Employee, director or consultant to whom one
-----------
or more Options are granted under the Plan. As used herein,
"Participant" shall include "Participant's Survivors" where the
context requires.
Participant's Survivors means a deceased Participant's legal
-----------------------
representatives and/or any person or persons who acquired the
Participant's rights to an Option by will or by the laws of descent
and distribution.
Plan means this CardioTech International, Inc. 1996 Employee, Director
----
and Consultant Stock Option Plan.
Shares means shares of the Common Stock as to which Options have been
------
or may be granted under the Plan or any shares of capital stock into
which the Shares are changed or for which they are exchanged within
the provisions of Paragraph 3 of the Plan. The Shares issued upon
exercise of Options granted under the Plan may be authorized and
unissued Shares or Shares held by the Company in its treasury, or
both.
2. PURPOSES OF THE PLAN.
--------------------
-2-
<PAGE>
The Plan is intended to encourage ownership of Shares by Key Employees,
directors and certain consultants to the Company in order to attract such
people, to induce them to work for the benefit of the Company or of an Affiliate
and to provide additional incentive for them to promote the success of the
Company or of an Affiliate. The Plan provides for the granting of ISOs and Non-
Qualified Options.
3. SHARES SUBJECT TO THE PLAN.
--------------------------
The number of Shares subject to this Plan as to which Options may be
granted from time to time shall be equal to 1,061,029 Shares or the equivalent
of such number of Shares after the Administrator, in its sole discretion, has
interpreted the effect of any stock split, stock dividend, combination,
recapitalization or similar transaction in accordance with Paragraph 16 of the
Plan. Of the Shares subject to this Plan, 106,103 Shares shall be eligible for
grant under Paragraph 6(A)(e) hereof.
If an Option ceases to be "outstanding", in whole or in part, the Shares
which were subject to such Option shall be available for the granting of other
Options under the Plan. Any Option shall be treated as "outstanding" until such
Option is exercised in full, or terminates or expires under the provisions of
the Plan, or by agreement of the parties to the pertinent Option Agreement.
4. ADMINISTRATION OF THE PLAN.
--------------------------
The Administrator of the Plan will be the Board of Directors, except to the
extent the Board of Directors delegates its authority to the Committee, in which
case the Committee shall be the Administrator. Following the date on which the
Common Stock is registered under the Securities and Exchange Act of 1934, as
amended (the "1934 Act"), the Plan is intended to comply in all respects with
Rule 16b-3 or its successors, promulgated pursuant to Section 16 of the 1934 Act
with respect to Participants who are subject to Section 16 of the 1934 Act, and
any provision in this Plan with respect to such persons contrary to Rule 16b-3
shall be deemed null and void to the extent permissible by law and deemed
appropriate by the Administrator. Subject to the provisions of the Plan, the
Administrator is authorized to:
a. Interpret the provisions of the Plan or of any Option or Option
Agreement and to make all rules and determinations which it deems
necessary or advisable for the administration of the Plan;
b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees, directors
and consultants shall be granted Options;
c. Determine the number of Shares for which an Option or Options shall be
granted; and
d. Specify the terms and conditions upon which an Option or Options may
be granted;
-3-
<PAGE>
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Section 422 of the Code of those Options which are designated as
ISOs. Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of the Plan or of any Option granted under it
shall be final, unless otherwise determined by the Board of Directors, if the
Administrator is the Committee.
5. ELIGIBILITY FOR PARTICIPATION.
-----------------------------
The Administrator will, in its sole discretion, name the Participants in
the Plan, provided, however, that each Participant must be a Key Employee,
director or consultant of the Company or of an Affiliate at the time an Option
is granted. Members of the Board of Directors who are not employees of the
Company or of an Affiliate may receive options pursuant to Paragraph 6(A)(e) of
the Plan, but only pursuant thereto. Notwithstanding any of the foregoing
provisions, the Administrator may authorize the grant of an Option to a person
not then an employee, director or consultant of the Company or of an Affiliate.
The actual grant of such Option, however, shall be conditioned upon such person
becoming eligible to become a Participant at or prior to the time of the
execution of the Option Agreement evidencing such Option. ISOs may be granted
only to Key Employees. Non-Qualified Options may be granted to any Key Employee,
director or consultant of the Company or an Affiliate. In no event shall any
Employee be granted in any fiscal year Options to purchase more than 1,061,029
shares of Stock pursuant to this Plan. The granting of any Option to any
individual shall neither entitle that individual to, nor disqualify him or her
from, participation in any other grant of Options.
6. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Administrator may provide that Options be
granted subject to such conditions as the Administrator may deem appropriate,
including, without limitation, subsequent approval by the shareholders of the
Company of this Plan or any amendments to this Plan. The Option Agreements shall
be subject to at least the following terms and conditions:
A. Non-Qualified Options: Each Option intended to be a Non-Qualified
---------------------
Option shall be subject to the terms and conditions which the
Administrator determines to be appropriate and in the best interest of
the Company, subject to the following minimum standards for any such
Non-Qualified Option:
a. Option Price. Each Option Agreement shall state the option price
------------
(per share) of the Shares covered by each Option, which option
price shall be determined by the Administrator but shall not be
less than the par value per share of Common Stock;
b. Number of Shares. Each Option Agreement shall state the number of
----------------
Shares to which it pertains;
-4-
<PAGE>
c. Term of Option, Vesting. Each Option Agreement shall state the
-----------------------
date or dates on which it first is exercisable and the date after
which it may no longer be exercised, and may provide that the
Option rights accrue or become exercisable in installments over a
period of months or years, or upon the occurrence of certain
conditions or the attainment of stated goals or events;
d. Option Conditions. Exercise of any Option may be conditioned upon
-----------------
the Participant's execution of a Share purchase agreement in form
satisfactory to the Administrator providing for certain
protections for the Company and its other shareholders including
requirements that:
i. The Participant's or the Participant's Survivors' right to
sell or transfer the Shares may be restricted; and
ii. The Participant or the Participant's Survivors may be
required to execute letters of investment intent and must
also acknowledge that the Shares will bear legends noting
any applicable restrictions.
e. Directors' Options. Each director of the Company who is not an
------------------
employee of the Company or any Affiliate, who is first elected or
appointed to the Board of Directors after the date on which the
Common Stock is registered under the 1934 Act, upon such election
or appointment and upon every anniversary thereof provided that
on such dates such director has been in the continued and
uninterrupted service of the Company as a director since his or
her election or appointment and is a director of the Company and
is not an employee of the Company at such times, shall be granted
a Non-Qualified Option to purchase 14,854 Shares. Any non-
employee director serving in office on the date on which the
Common Stock is registered under the 1934 Act, who has been a
member of the Board of Directors prior to such date shall be
granted on such date and upon every anniversary thereof, a Non-
Qualified Option to purchase 14,854 Shares, provided that on such
date such director has been in the continued and uninterrupted
service of the Company as a director since his or her election or
appointment and is a director of the Company and is not an
employee of the Company at such time. If any non-employee
director should cease to be a director and thereafter shall be
elected or appointed to the Board of Directors, upon such
election or appointment and upon every anniversary thereof
provided that on such dates such director has been in the
continued and uninterrupted service of the Company as a director
since his or her election or appointment and is a director of the
Company and is not an employee of the Company at such times, such
director shall be granted a Non-Qualified Option to purchase
14,854 Shares. Each such Option shall (i) have an exercise price
equal to the Fair Market Value (per share) of the Shares on the
date of grant of the Option, (ii) have a term of ten (10) years,
and (iii) shall become cumulatively exercisable in four (4) equal
installments of twenty-five percent (25%) each, upon completion
of three (3) months of service on the Board of Directors after
the date of grant, and continuing upon completion of each of the
next three (3) three (3)-month
-5-
<PAGE>
periods of service thereafter (for example, if the date of grant
of an Option was May 1, 1996, then the Option would vest in four
(4) equal installments on August 1, 1996, November 1, 1996,
February 1, 1997 and May 1, 1997). Any director entitled to
receive an Option grant under this Subparagraph may elect to
decline the Option. Notwithstanding the provisions of Paragraph
23 concerning amendment of the Plan, the provisions of this
Subparagraph shall not be amended more than once every six (6)
months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act, or the rules thereunder.
The provisions of Paragraphs 10, 11, 12 and 13 below shall not
apply to Options granted pursuant to this Subparagraph.
Except as otherwise provided in the pertinent Option Agreement, if a
director who received Options pursuant to this Subparagraph (e):
i. ceases to be a member of the Board of Directors for any
reason other than death or Disability, any then unexercised
Options granted to such director may be exercised by the
director within a period of ninety (90) days after the date
the director ceases to be a member of the Board of
Directors, but only to the extent of the number of Shares
with respect to which the Options are exercisable on the
date the director ceases to be a member of the Board of
Directors, and in no event later than the expiration date of
the Option; or
ii. ceases to be a member of the Board of Directors by reason of
his or her death or Disability, any then unexercised Options
granted to such director may be exercised by the director
(or by the Participant's personal representative, or
Participant's Survivors in the event of death) within a
period of one hundred eighty (180) days after the date the
director ceases to be a member of the Board of Directors,
but only to the extent of the number of Shares with respect
to which the Options are exercisable on the date the
director ceases to be a member of the Board of Directors,
and in no event later than the expiration date of the
Option.
B. ISOs: Each Option intended to be an ISO shall be issued only to a Key
----
Employee and be subject to at least the following terms and
conditions, with such additional restrictions or changes as the
Administrator determines are appropriate but not in conflict with
Section 422 of the Code and relevant regulations and rulings of the
Internal Revenue Service:
a. Minimum standards. The ISO shall meet the minimum standards
-----------------
required of Non-Qualified Options, as described in Paragraph 6(A)
above, except clauses (a) and (e) thereunder.
b. Option Price. Immediately before the Option is granted, if the
------------
Participant owns, directly or by reason of the applicable
attribution rules in Section 424(d) of the Code:
-6-
<PAGE>
i. Ten percent (10%) or less of the total combined voting power
-------
of all classes of share capital of the Company or an
Affiliate, the Option price per share of the Shares covered
by each Option shall not be less than one hundred percent
(100%) of the Fair Market Value per share of the Shares on
the date of the grant of the Option.
ii. More than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or an
Affiliate, the Option price per share of the Shares covered
by each Option shall not be less than one hundred ten
percent (110%) of the said Fair Market Value on the date of
grant.
c. Term of Option. For Participants who own:
--------------
i. Ten percent (10%) or less of the total combined voting power
-------
of all classes of share capital of the Company or an
Affiliate, each Option shall terminate not more than ten
(10) years from the date of the grant or at such earlier
time as the Option Agreement may provide.
ii. More than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or an
Affiliate, each Option shall terminate not more than five
(5) years from the date of the grant or at such earlier time
as the Option Agreement may provide.
d. Limitation on Yearly Exercise. The Option Agreements shall
-----------------------------
restrict the amount of Options which may be exercisable in any
calendar year (under this or any other ISO plan of the Company or
an Affiliate) so that the aggregate Fair Market Value (determined
at the time each ISO is granted) of the stock with respect to
which ISOs are exercisable for the first time by the Participant
in any calendar year does not exceed one hundred thousand dollars
($100,000), provided that this Subparagraph (d) shall have no
force or effect if its inclusion in the Plan is not necessary for
Options issued as ISOs to qualify as ISOs pursuant to Section
422(d) of the Code.
e. Limitation on Grant of ISOs: No ISOs shall be granted after
---------------------------
March 4, 2006.
-7-
<PAGE>
7. EXERCISE OF OPTION AND ISSUE OF SHARES.
--------------------------------------
An Option (or any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal office address, together with
provision for payment of the full purchase price in accordance with this
Paragraph for the Shares as to which such Option is being exercised, and upon
compliance with any other condition(s) set forth in the Option Agreement. Such
written notice shall be signed by the person exercising the Option, shall state
the number of Shares with respect to which the Option is being exercised and
shall contain any representation required by the Plan or the Option Agreement.
Payment of the purchase price for the Shares as to which such Option is being
exercised shall be made (a) in United States dollars in cash or by check, or (b)
at the discretion of the Administrator, through delivery of shares of Common
Stock having a fair market value equal as of the date of the exercise to the
cash exercise price of the Option, determined in good faith by the
Administrator, or (c) at the discretion of the Administrator, by delivery of the
grantee's personal recourse note bearing interest payable not less than annually
at no less than 100% of the applicable Federal rate, as defined in Section
1274(d) of the Code, or (d) at the discretion of the Administrator, in
accordance with a cashless exercise program established with a securities
brokerage firm, and approved by the Administrator or (e) at the discretion of
the Administrator, by any combination of (a), (b), (c) and (d) above.
Notwithstanding the foregoing, the Administrator shall accept only such payment
on exercise of an ISO as is permitted by Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which
such Option was exercised to the Participant (or to the Participant's Survivors,
as the case may be). In determining what constitutes "reasonably promptly," it
is expressly understood that the delivery of the Shares may be delayed by the
Company in order to comply with any law or regulation which requires the Company
to take any action with respect to the Shares prior to their issuance. The
Shares shall, upon delivery, be evidenced by an appropriate certificate or
certificates for fully paid, non-assessable Shares.
In lieu of permitting a Participant to obtain Common Stock pursuant to the
exercise of an Option, the Company may, in its sole discretion, pay to the
Participant an amount equal to the Appreciated Value multiplied by the number of
shares of Common Stock that the Participant is entitled to upon the exercise of
an Option (the "Appreciated Amount"). The Appreciated Amount shall be payable to
the Participant within fifteen (15) days of receipt by the Company of the notice
from the Participant that the Participant intends to exercise the Option.
"Appreciated Value" shall mean the amount by which (i) the per share Fair Market
Value on the date of exercise of the Option, exceeds (ii) the option price per
share set forth in the related Option Agreement.
The Administrator shall have the right to accelerate the date of exercise
of any installment of any Option; provided that the Administrator shall not
accelerate the exercise date of any installment of any Option granted to any Key
Employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to Paragraph 19) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in Paragraph
6(B)(d).
The Administrator may, in its discretion, amend any term or condition of an
outstanding
-8-
<PAGE>
Option provided (i) such term or condition as amended is permitted by the Plan,
(ii) any such amendment shall be made only with the consent of the Participant
to whom the Option was granted, or in the event of the death of the Participant,
the Participant's Survivors, if the amendment is adverse to the Participant,
(iii) any such amendment of any ISO shall be made only after the Administrator,
after consulting the counsel for the Company, determines whether such amendment
would constitute a "modification" of any Option which is an ISO (as that term is
defined in Section 424(h) of the Code) or would cause any adverse tax
consequences for the holders of such ISO, and (iv) with respect to any Option
held by any Participant who is subject to the provisions of Section 16(a) of the
1934 Act, any such amendment shall be made only after the Administrator, after
consulting with counsel for the Company, determines whether such amendment would
constitute the grant of a new Option.
8. RIGHTS AS A SHAREHOLDER.
-----------------------
No Participant to whom an Option has been granted shall have rights as a
shareholder with respect to any Shares covered by such Option, except after due
exercise of the Option and tender of the full purchase price for the Shares
being purchased pursuant to such exercise and registration of the Shares in the
Company's share register in the name of the Participant.
9. ASSIGNABILITY AND TRANSFERABILITY OF OPTIONS.
--------------------------------------------
By its terms, an Option granted to a Participant shall not be transferable
by the Participant other than by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act or the rules thereunder,
provided, however, that the designation of a beneficiary of an Option by a
Participant shall not be deemed a transfer prohibited by this Paragraph. Except
as provided in the preceding sentence, an Option shall be exercisable, during
the Participant's lifetime, only by such Participant (or by his or her legal
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Option or of any rights
granted thereunder contrary to the provisions of this Plan, or the levy of any
attachment or similar process upon an Option, shall be null and void.
10. EFFECT OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE".
-------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, in the
event of a termination of service (whether as an employee, director or
consultant) with the Company or an Affiliate before the Participant has
exercised all Options, the following rules apply:
a. A Participant who ceases to be an employee, director or consultant of
the Company or of an Affiliate (for any reason other than termination
"for cause," Disability, or death for which events there are special
rules in Paragraphs 11, 12, and 13, respectively), may exercise any
Option granted to him or her to the extent that the Option is
exercisable on the date of such termination of service, but only
within such term as the Administrator has designated in the pertinent
Option
-9-
<PAGE>
Agreement.
b. In no event may an Option Agreement provide, if the Option is intended
to be an ISO, that the time for exercise be later than three (3)
months after the Participant's termination of employment.
c. The provisions of this Paragraph, and not the provisions of Paragraph
12 or 13, shall apply to a Participant who subsequently becomes
disabled or dies after the termination of employment, director status
or consultancy, provided, however, in the case of a Participant's
death within three (3) months after the termination of employment,
director status or consulting, the Participant's Survivors may
exercise the Option within one (1) year after the date of the
Participant's death, but in no event after the date of expiration of
the term of the Option.
d. Notwithstanding anything herein to the contrary, if subsequent to a
Participant's termination of employment, director status or
consultancy, but prior to the exercise of an Option, the Board of
Directors determines that, either prior or subsequent to the
Participant's termination, the Participant engaged in conduct which
would constitute "cause," then such Participant shall forthwith cease
to have any right to exercise any Option.
e. A Participant to whom an Option has been granted under the Plan who is
absent from work with the Company or with an Affiliate because of
temporary disability (any disability other than a permanent and total
Disability as defined in Paragraph 1 hereof), or who is on leave of
absence for any purpose, shall not, during the period of any such
absence, be deemed, by virtue of such absence alone, to have
terminated such Participant's employment, director status or
consultancy with the Company or with an Affiliate, except as the
Administrator may otherwise expressly provide.
f. Options granted under the Plan shall not be affected by any change of
employment or other service within or among the Company and any
Affiliates, so long as the Participant continues to be an employee,
director or consultant of the Company or any Affiliate, provided,
however, if a Participant's employment by either the Company or an
Affiliate should cease (other than to become an employee of an
Affiliate or the Company), such termination shall affect the
Participant's rights under any Option granted to such Participant in
accordance with the terms of the Plan and the pertinent Option
Agreement.
11. EFFECT OF TERMINATION OF SERVICE "FOR CAUSE".
--------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, the
following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated "for
cause" prior to the time that all of his or her outstanding Options have been
exercised:
a. All outstanding and unexercised Options as of the date the Participant
is notified that his or her service is terminated "for cause" will
immediately be forfeited, unless the Option Agreement provides
otherwise.
-10-
<PAGE>
b. For purposes of this Paragraph, "cause" shall include (and is not
limited to) dishonesty with respect to the Company or any Affiliate,
insubordination, substantial malfeasance or non-feasance of duty,
unauthorized disclosure of confidential information, and conduct
substantially prejudicial to the business of the Company or any
Affiliate. The determination of the Administrator as to the existence
of cause will be conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service but prior to the exercise of an Option, that either prior or
subsequent to the Participant's termination the Participant engaged in
conduct which would constitute "cause," then the right to exercise any
Option is forfeited.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause"
for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
12. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY.
-----------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be an employee, director or consultant of the Company
or of an Affiliate by reason of Disability may exercise any Option granted to
such Participant:
a. To the extent exercisable but not exercised on the date of Disability;
and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights as would have
accrued had the Participant not become Disabled prior to the end of
the accrual period which next ends following the date of Disability.
The proration shall be based upon the number of days of such accrual
period prior to the date of Disability.
A Disabled Participant may exercise such rights only within a period of not
more than one (1) year after the date that the Participant became Disabled,
notwithstanding that the Participant might have been able to exercise the Option
as to some or all of the Shares on a later date if he or she had not become
disabled and had continued to be an employee, director or consultant or, if
earlier, within the originally prescribed term of the Option.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
-11-
<PAGE>
13. EFFECT OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
---------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, in the
event of the death of a Participant to whom an Option has been granted while the
Participant is an employee, director or consultant of the Company or of an
Affiliate, such Option may be exercised by the Participant's Survivors:
a. To the extent exercisable but not exercised on the date of death; and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights which would have
accrued had the Participant not died prior to the end of the accrual
period which next ends following the date of death. The proration
shall be based upon the number of days of such accrual period prior to
the Participant's death.
If the Participant's Survivors wish to exercise the Option, they must take
all necessary steps to exercise the Option within one (1) year after the date of
death of such Participant, notwithstanding that the decedent might have been
able to exercise the Option as to some or all of the Shares on a later date if
he or she had not died and had continued to be an employee, director or
consultant or, if earlier, within the originally prescribed term of the Option.
-12-
<PAGE>
14. PURCHASE FOR INVESTMENT.
-----------------------
Unless the offering and sale of the Shares to be issued upon the particular
exercise of an Option shall have been effectively registered under the
Securities Act of 1933, as now in force or hereafter amended (the "1933 Act"),
the Company shall be under no obligation to issue the Shares covered by such
exercise unless and until the following conditions have been fulfilled:
a. The person(s) who exercise such Option shall warrant to the Company,
prior to the receipt of such Shares, that such person(s) are acquiring
such Shares for their own respective accounts, for investment, and not
with a view to, or for sale in connection with, the distribution of
any such Shares, in which event the person(s) acquiring such Shares
shall be bound by the provisions of the following legend which shall
be endorsed upon the certificate(s) evidencing their Shares issued
pursuant to such exercise or such grant:
The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by
any person, including a pledgee, unless (1) either (a) a
Registration Statement with respect to such shares shall be
effective under the Securities Act of 1933, as amended, or (b)
the Company shall have received an opinion of counsel
satisfactory to it that an exemption from registration under such
Act is then available, and (2) there shall have been compliance
with all applicable state securities laws.
b. The Company shall have received an opinion of its counsel that the
Shares may be issued upon such particular exercise in compliance with
the 1933 Act without registration thereunder.
The Company may delay issuance of the Shares until the completion of any
action or the attainment of any consent which the Company deems necessary under
any applicable law (including, without limitation, state securities or "blue
sky" laws).
15. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
-----------------------------------------
Upon the dissolution or liquidation of the Company, all Options granted
under this Plan which as of such date shall not have been exercised will
terminate and become null and void; provided, however, that if the rights of a
Participant or a Participant's Survivors have not otherwise terminated and
expired, the Participant or the Participant's Survivors will have the right
immediately prior to such dissolution or liquidation to exercise any Option to
the extent that the Option is exercisable as of the date immediately prior to
such dissolution or liquidation.
-13-
<PAGE>
16. ADJUSTMENTS.
-----------
Upon the occurrence of any of the following events, a Participant's rights
with respect to any Option granted to him or her hereunder which have not
previously been exercised in full shall be adjusted as hereinafter provided,
unless otherwise specifically provided in the pertinent Option Agreement:
A. Stock Dividends and Stock Splits. If the shares of Common Stock shall
--------------------------------
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of such Option shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend. The number
of Shares subject to Non-Qualified Options to be granted to directors pursuant
to Paragraph 6(A)(e) shall also be proportionately adjusted upon the occurrence
of such events.
B. Consolidations or Mergers. If the Company is to be consolidated with
-------------------------
or acquired by another entity in a merger, sale of all or substantially all of
the Company's assets or otherwise (an "Acquisition"), the Administrator or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options, either (i)
make appropriate provision for the continuation of such Options by substituting
on an equitable basis for the Shares then subject to such Options either the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition or securities of any successor or acquiring
entity; or (ii) upon written notice to the Participants, provide that all
Options must be exercised (either to the extent then exercisable or, at the
discretion of the Administrator, all Options being made fully exercisable for
purposes of this Subparagraph), within a specified number of days of the date of
such notice, at the end of which period the Options shall terminate; or (iii)
terminate all Options in exchange for a cash payment equal to the excess of the
Fair Market Value of the Shares subject to such Options (either to the extent
then exercisable or, at the discretion of the Administrator, all Options being
made fully exercisable for purposes of this Subparagraph) over the exercise
price thereof.
C. Recapitalization or Reorganization. In the event of a
----------------------------------
recapitalization or reorganization of the Company (other than a transaction
described in Subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, a Participant upon exercising an Option shall be entitled to
receive for the purchase price paid upon such exercise the securities he or she
would have received if he or she had exercised such Option prior to such
recapitalization or reorganization.
-14-
<PAGE>
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments
--------------------
made pursuant to Subparagraph A, B or C with respect to ISOs shall be made only
after the Administrator, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424(h) of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Administrator
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments, unless
the holder of an ISO specifically requests in writing that such adjustment be
made and such writing indicates that the holder has full knowledge of the
consequences of such "modification" on his or her income tax treatment with
respect to the ISO.
17. ISSUANCES OF SECURITIES.
-----------------------
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company.
18. FRACTIONAL SHARES.
-----------------
No fractional share shall be issued under the Plan and the person
exercising such right shall receive from the Company cash in lieu of such
fractional share equal to the Fair Market Value thereof.
19. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs.
------------------------------------------------------------------
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such Options. At the time of such conversion,
the Administrator (with the consent of the Participant) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any Participant the right to have such Participant's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Administrator takes appropriate action. The Administrator, with the consent of
the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such termination.
-15-
<PAGE>
20. WITHHOLDING.
-----------
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Option holder's salary, wages or other remuneration in connection with
the exercise of an Option or a Disqualifying Disposition (as defined in
Paragraph 21), the Option holder shall advance in cash to the Company, or to any
Affiliate of the Company which employs or employed the Option holder, the amount
of such withholdings unless a different withholding arrangement, including the
use of shares of the Company's Common Stock, is authorized by the Administrator
(and permitted by law), provided, however, that with respect to persons subject
to Section 16 of the 1934 Act, any such withholding arrangement shall be in
compliance with any applicable provisions of Rule 16b-3 promulgated under
Section 16 of the 1934 Act. For purposes hereof, the fair market value of the
shares withheld for purposes of payroll withholding shall be determined in the
manner provided in Paragraph 1 above, as of the most recent practicable date
prior to the date of exercise. If the fair market value of the shares withheld
is less than the amount of payroll withholdings required, the Option holder may
be required to advance the difference in cash to the Company or the Affiliate
employer. The Administrator in its discretion may condition the exercise of an
Option for less than the then Fair Market Value on the Participant's payment of
such additional withholding.
21. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
----------------------------------------------
Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition of
any Shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any sale) of such Shares before the
later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired Shares by exercising the
ISO. If the Key Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.
22. TERMINATION OF THE PLAN.
-----------------------
The Plan will terminate on March 4, 2006. The Plan may be terminated at an
earlier date by vote of the shareholders of the Company; provided, however, that
any such earlier termination will not affect any Options granted or Option
Agreements executed prior to the effective date of such termination.
-16-
<PAGE>
23. AMENDMENT OF THE PLAN AND AGREEMENTS.
------------------------------------
The Plan may be amended by the shareholders of the Company. The Plan may
also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify any or all outstanding Options granted under the
Plan or Options to be granted under the Plan for favorable federal income tax
treatment (including deferral of taxation upon exercise) as may be afforded
ISOs, to the extent necessary to ensure the qualification of the Plan under Rule
16b-3, at such time, if any, as the Company has a class of stock registered
pursuant to Section 12 of the 1934 Act, and to the extent necessary to qualify
the shares issuable upon exercise of any outstanding Options granted, or Options
to be granted, under the Plan for listing on any national securities exchange or
quotation in any national automated quotation system of securities dealers. Any
amendment approved by the Administrator which is of a scope that requires
shareholder approval in order to ensure favorable federal income tax treatment
for any ISOs or requires shareholder approval in order to ensure the compliance
of the Plan with Rule 16b-3 at such time, if any, as the Company has a class of
stock registered pursuant to Section 12 of the 1934 Act, shall be subject to
obtaining such shareholder approval. Any modification or amendment of the Plan
shall not, without the consent of a Participant, adversely affect his or her
rights under an Option previously granted to him or her. With the consent of the
Participant affected, the Administrator may amend outstanding Option Agreements
in a manner which may be adverse to the Participant but which is not
inconsistent with the Plan. In the discretion of the Administrator, outstanding
Option Agreements may be amended by the Administrator in a manner which is not
adverse to the Participant.
24. EMPLOYMENT OR OTHER RELATIONSHIP.
--------------------------------
Nothing in this Plan or any Option Agreement shall be deemed to prevent the
Company or an Affiliate from terminating the employment, consultancy or director
status of a Participant, nor to prevent a Participant from terminating his or
her own employment, consultancy or director status or to give any Participant a
right to be retained in employment or other service by the Company or any
Affiliate for any period of time.
25. GOVERNING LAW.
-------------
This Plan shall be construed and enforced in accordance with the law of The
Commonwealth of Massachusetts.
-17-
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
--------------------
PARTIES
-------
This Employment Agreement (this "Agreement"), dated as of the 26th day of
March, 1998, is entered into by and between CardioTech International, Inc., a
Massachusetts corporation having its principal place of business at 11 State
Street, Woburn, Massachusetts 01801 (the "Company"), and Michael Szycher, Ph.D.,
an individual with an address at 2 Durham Drive, Lynnfield, Massachusetts 01940
(the "Executive").
TERMS OF AGREEMENT
------------------
In consideration of this Agreement and the continued employment of the
Executive by the Company, the parties agree as follows:
1. Employment. The Company hereby employs the Executive, on a full-time
----------
basis, to act as Chief Executive Officer of the Company and to perform such acts
and duties and furnish such services to the Company in connection with and
related to that position as is customary for persons with similar positions in
like companies, and as the Board of Directors of the Company (the "Board") shall
from time to time reasonably direct. The Executive shall be an officer of the
Company. The Company also agrees to use its best efforts to cause the Executive
to be elected a member, and the Chairman, of the Board. The Executive hereby
accepts said employment. The Executive shall use his best and most diligent
efforts to promote the interests of the Company; shall discharge his duties in a
highly competent manner; and shall devote his full business time and his best
business judgment, skill and knowledge to the performance of his duties and
responsibilities hereunder. The Executive shall report directly to the Board.
Nothing contained herein shall preclude the Executive from devoting incidental
and insubstantial amounts of time to activities other than the business of the
Company.
2. Term of Employment. The Company agrees to employ the Executive for
------------------
the period commencing on May 13, 1998 and ending on May 13, 2000 (the
"Employment Period"). Notwithstanding the foregoing, both the Executive and the
Company shall have the right to terminate the Executive's employment under this
Agreement upon thirty (30) days written notice to the other party, subject to
the Company's obligation to pay severance benefits under certain circumstances
as provided in Sections 3.6 and 3.7 hereof. If the Executive shall remain in the
employ of the Company beyond the Employment Period, in the absence of any other
express agreement between the parties, this Agreement shall be deemed to
continue on a month-to-month basis (the "Extended Employment Period").
<PAGE>
3. Compensation and Benefits; Disability.
-------------------------------------
3.1. Salary. During the Executive's employment, the Company shall
------
pay the Executive an annualized base salary of One Hundred Eighty-Seven Thousand
Five Hundred Forty-Eight Dollars ($187,548) (the "Base Salary"), payable in
equal installments pursuant to the Company's customary payroll policies in force
at the time of payment (but in no event less frequently than monthly), less
required payroll deductions and state and federal withholdings. The Base Salary
may be adjusted from time to time in the sole discretion of the Board, except
that the Executive, if a Director, shall not be entitled to vote thereon. The
Base Salary shall be reviewed annually by the Board.
3.2. Bonus Payment. During the Employment Period, the Executive may
-------------
receive, in the sole discretion of the Compensation Committee of the Board (the
"Compensation Committee"), an annual bonus payment in an amount, if any, to be
determined by the Compensation Committee, except that the Executive, if a member
of the Compensation Committee, shall not be entitled to vote thereon.
3.3. Executive Benefits. During the Employment Period, the
------------------
Executive shall receive such benefits as are customarily provided to other
officers and employees of the Company, including but not limited to the
following benefits:
(a) Health Insurance. Non-contributory health insurance pursuant
----------------
to a Freedom Care policy or substantially similar policy; and
(b) Life Insurance. Life insurance on the life of the Executive
--------------
with an Executive-directed beneficiary in the amount of one hundred fifty
percent (150%) of the Base Salary.
3.4. Vacation. The Executive may take four weeks of paid vacation
--------
during each year at such times as shall be consistent with the Company's
vacation policies and (in the Board's judgment) with the Company's vacation
schedule for officers and other employees.
3.5. Disability or Death. If during the Employment Period, the
-------------------
Executive shall (i) become ill, disabled or otherwise incapacitated so as to be
unable to perform his usual duties (a) for a period in excess of one hundred
twenty (120) consecutive days or (b) for more than one hundred eighty (180) days
in any consecutive twelve (12) month period, or (ii) die, then the Company shall
have the right to terminate this Agreement, in accordance with applicable laws,
on thirty (30) days written
-2-
<PAGE>
notice to the Executive or his estate.
3.6. Severance Payment. In the event (i) the Company terminates
-----------------
this Agreement without Cause (i.e., other than pursuant to Section 3.5 or
Section 4 hereof) at any time (including during the Extended Employment Period,
or (ii) the Executive terminates his employment for Good Reason following a
Change in Control of the Company, or (iii) the Company fails to renew this
Agreement within two (2) years following the occurrence of a Change in Control,
the Company shall pay the Executive a severance payment equal to the Executive's
then current Base Salary multiplied by 2.99; such severance payment to be
adjusted to the extent necessary to avoid such payment being treated as an
"excess parachute payment" for purposes of Section 280G of the Internal Revenue
Code of 1986.
"Good Reason" shall mean, during the nine (9) month period following a
Change in Control, (1) a good faith determination by the Executive that as a
result of such Change in Control he is not able to discharge his duties
effectively or (2) without the Executive's express written consent, the
occurrence of any of the following circumstances: (a) the assignment to the
Executive of any duties inconsistent (except in the nature of a promotion) with
the position in the Company that he held immediately prior to the Change in
Control or a substantial adverse alteration in the nature or status of his
position or responsibilities or the conditions of his employment from those in
effect immediately prior to the Change in Control; (b) a reduction by the
Company in the Base Salary as in effect on the date of the Change in Control;
(c) the Company's requiring the Executive to be based more than twenty-five (25)
miles from the Company's offices at which he was principally employed
immediately prior to the date of the Change in Control except for required
travel on the Company's business to an extent substantially consistent with his
present business travel obligations; or (d) the failure by the Company to
continue in effect any material compensation or benefit plan in which the
Executive participates immediately prior to the Change in Control unless an
equitable arrangement (embodied in an ongoing substitute or alterative plan) has
been made with respect to such plan, or the failure by the Company to continue
the Executive's participation therein (or in such substitute or alterative plan)
on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of his participation relative to other
participants, than existed at the time of the Change in Control. The Executive's
continued employment shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason hereunder.
For purposes of this Agreement, a "Change in Control" shall
-3-
<PAGE>
occur or be deemed to have occurred only if any of the following events occur:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (other than
any majority owned subsidiary thereof, the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, any
trustee or other fiduciary of a trust treated for federal income tax purposes as
a grantor trust of which the Company is the grantor, or any corporation owned
directly or indirectly by the stockholders of the Company in substantially the
same proportion as their ownership of stock of the Company) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities on any matter
which could come before its stockholders for approval; (ii) individuals who, as
of the date hereof, constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A under the Exchange Act) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board; (iii) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or (iv) the stockholders of
the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
3.7. Benefits After Termination. Except as otherwise required by
--------------------------
law, the Executive shall not be entitled to any employee benefits provided under
Section 3.3 hereof after termination of the employment of the Executive, whether
or not
-4-
<PAGE>
severance pay is being provided, except that if the Executive is entitled to the
severance payment described in Section 3.6 of this Agreement, (i) the Company
shall continue in full force and effect, at its expense, the life insurance
provided for in Section 3.3(b) hereof for a period of one (1) year after
termination of the Executive's employment hereunder or until the Executive
becomes employed, whichever first occurs, and (ii) during the six (6) month
period following the termination of the Executive's employment, the Company
shall reimburse the Executive for out-of-pocket health insurance expenses
incurred by the Executive pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1986 ("COBRA"). If the Executive elects not to maintain
health insurance pursuant to COBRA, the Company is under no obligation to
reimburse the Executive for his otherwise elected coverage. The Executive shall
be obligated to give the Company prompt notice of his employment.
4. Discharge for Cause. The Company may discharge the Executive and
-------------------
terminate his employment under this Agreement for Cause without further
liability to the Company by a majority vote of the Board, except that Executive,
if a Director, shall not be entitled to vote thereon. As used in this Agreement,
"Cause" shall mean any or all of the following:
(a) misconduct of the Executive during the course of his employment
which is materially injurious to the Company and which is brought to the
attention of the Executive promptly after discovery by the Company, including
but not limited to, theft or embezzlement from the Company, the intentional
provision of services to competitors of the Company, or improper disclosure of
proprietary information, but not including any act or failure to act by the
Executive that he believed in good faith to be proper conduct not adverse to his
duties hereunder;
(b) willful disregard or neglect by the Executive of his duties or of
the Company's interests that continues after being brought to the attention of
the Executive;
(c) unavailability (except as provided in Section 3.5 hereof) of the
Executive to substantially perform the duties provided for herein;
(d) conviction of a fraud or felony or any criminal offense involving
dishonesty, breach of trust or moral turpitude during the Executive's
employment;
(e) the Executive's breach of any of the material terms of this
Agreement (including the failure of the Executive to discharge his duties in a
highly competent manner) or any of the agreements executed in connection
herewith as enumerated in
-5-
<PAGE>
Section 10.1 hereof.
In the event the Company exercises its right to terminate the Executive's
employment under this Section 4, the Executive shall not be entitled to receive
any severance pay or other termination benefits, except as required by law.
5. Termination Without Cause. The Company may terminate this Agreement
-------------------------
without Cause, without further liability to the Company except as set forth in
Sections 3.6 and 3.7 hereof, by a majority vote of the Board. The Executive, if
a Director, shall not be entitled to vote on the termination of this Agreement
without Cause.
6. Expenses. Pursuant to the Company's customary policies in force at
--------
the time of payment, the Executive shall be promptly reimbursed, against
presentation of vouchers or receipts therefor, for all authorized expenses
properly incurred by him on the Company's behalf in the performance of his
duties hereunder.
7. Additional Agreements. Upon execution of this Agreement, the
---------------------
Executive shall execute and deliver to the Company an Agreement Not to Compete
(the "Noncompetition Agreement") and a Confidential and Proprietary Information
Agreement (the "Confidential and Proprietary Information Agreement"),
substantially in the forms attached hereto as Exhibits A and B. The agreements
----------------
attached hereto as Exhibits A and B shall survive the expiration of or
----------------
termination of this Agreement and the termination of Executive's employment with
the Company for any reason.
8. Arbitration. All disputes and claims relating to this Agreement and
-----------
the rights, obligations and performance of the parties hereto shall be settled
by a single arbitrator sitting in Boston, Massachusetts under the applicable
rules of the American Arbitration Association.
9. Notices. Any notice of communication given by any party hereto to the
-------
other party or parties shall be in writing and personally delivered, mailed by
certified mail, return receipt requested, postage prepaid, or delivered by a
recognized overnight carrier, to the addresses provided above. All notices shall
be deemed given when actually received. Any person entitled to receive notice
(or a copy thereof) may designate in writing, by notice to the others, another
address to which notices to such person shall thereafter be sent.
10. Miscellaneous.
-------------
10.1. Entire Agreement. This Agreement contains
----------------
-6-
<PAGE>
the entire understanding of the parties in respect of its subject matter and
supersedes all prior agreements and understandings between the parties with
respect to such subject matter; provided, however, that nothing in this
Agreement shall affect the Executive's or the Company's obligations under the
Noncompetition Agreement or the Confidential and Proprietary Information
Agreement each dated as of May 13, 1996, between the parties hereto.
10.2. Amendment; Waiver. This Agreement may not be amended,
-----------------
supplemented, cancelled or discharged, except by written instrument executed by
the party affected thereby. No failure to exercise, and no delay in exercising,
any right, power or privilege hereunder shall operate as a waiver thereof. No
waiver of any breach of any provision of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other
provisions.
10.3. Binding Effect; Assignment. The rights and obligations of this
--------------------------
Agreement shall bind and inure to the benefit of any successor of the Company by
reorganization, merger or consolidation, or any assignee of all or substantially
all of the Company's business and properties. The Executive's rights or
obligations under this Agreement may not be assigned by the Executive; except
that the Executive's right to compensation to the earlier of the date of death,
disability pursuant to Section 3.5 hereof, or termination of actual employment,
shall pass to the Executive's executor or administrator.
10.4. Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
10.5. Governing Law; Interpretation. This Agreement shall be
-----------------------------
construed in accordance with and governed for all purposes by the laws and
public policy of the Commonwealth of Massachusetts applicable to contracts
executed and to be wholly performed within such Commonwealth. Service of process
in any dispute shall be effective (a) upon the Company, if service is made on
any officer of the Company other than the Executive; (b) upon the Executive, if
served at the Executive's residence last known to the Company with an
information copy to the Executive at any other residence, or in care of a
subsequent employer of which the Company may be aware.
10.6. Further Assurances. Each of the parties agrees to execute,
-------------------
acknowledge, deliver and perform, or cause to be executed, acknowledged,
delivered or performed, at any time, or from time to time, as the case may be,
all such further acts, deeds, assignments, transfers, conveyances, powers of
attorney
-7-
<PAGE>
and assurances as may be necessary or proper to carry out the provisions or
intent of this Agreement.
10.7. Severability. If any one or more of the terms, provisions,
------------
covenants or restrictions of this Agreement shall be determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated. If, moreover, any one or more of the provisions contained in this
Agreement shall for any reason be determined by a court of competent
jurisdiction to be excessively broad as to duration, geographical scope,
activity or subject, it shall be construed by limiting or reducing it so as to
be enforceable to the extent compatible with then applicable law.
EXECUTION
---------
The parties executed this Agreement as a sealed instrument as of the date
first above written, whereupon it became binding in accordance with its terms.
CARDIOTECH INTERNATIONAL, INC.
By: /s/ John E. Mattern
----------------------------
John E. Mattern
Chief Operating Officer,
Chief Financial Officer and
Clerk
EXECUTIVE
/s/ Michael Szycher, Ph.D.
-------------------------------
Michael Szycher, Ph.D.
Attachments:
Exhibit A: Noncompetition Agreement
---------
Exhibit B: Confidential and Proprietary Information
---------
Agreement
-8-
<PAGE>
EXHIBIT A
AGREEMENT NOT TO COMPETE
------------------------
I recognize that CardioTech International, Inc., a Massachusetts
corporation (the "Company", which term shall include its subsidiaries and
affiliated entities), desires to retain me in its employ and that the Company
wishes to ensure that I do not compete with the Company, as specified below, in
the event my employment with the Company is terminated.
In consideration of the Company's employment or continued employment of me,
I agree as follows:
1. I will not, for a period of one (1) year commencing with the
termination of my employment with the Company, engage (directly or indirectly)
in any activities or render any services similar or reasonably related to those
in which I shall have engaged or those which I shall have rendered as an
employee of the Company during any part of the two-year period preceding my
termination for any trade or business which directly competes with the Company
in any place where the Company does or may do business in any line of business
engaged in (or planned to be engaged in) by the Company, whether now existing or
hereafter established, nor shall I engage in such activities nor render such
services for any other person or entity engaged or about to become engaged in
such activities to, for or on behalf of any such trade or business.
2. I agree that for a period of one (1) year following termination of my
employment with the Company, I will not solicit or in any manner encourage
employees of the Company to leave their employ. I further agree that during such
period I will not offer or cause to be offered employment to any person who was
employed by the Company at any time during the six (6) months prior to the
termination of my employment with the Company.
3. For purposes of this Agreement, "termination of employment" shall mean
voluntary termination by me or termination by the Company for "cause" (as that
term is defined in an Employment Agreement of even date herewith between me and
the Company).
4. I understand that nothing in this Agreement shall affect my
obligations under the "Confidential and Proprietary Information Agreement"
between the Company and myself of even date herewith.
5. I agree that in addition to any other rights and remedies available to
the Company for any breach by me of my obligations hereunder, the Company shall
be entitled to enforcement of my obligations hereunder by court injunction.
6. If any provision of this Agreement shall be declared invalid, illegal
or unenforceable, then such provision shall be enforceable to the extent that a
court shall deem it reasonable to enforce such provision. If such provision
shall be unreasonable to enforce to any extent, such provision shall be severed
from this Agreement and all remaining provisions shall continue in full force
and effect.
-9-
<PAGE>
This Agreement shall be governed in all respects by the laws of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF I have executed this Agreement under seal as of the date
below.
Dated: March 27, 1998 /s/ Michael Szycher, Ph.D.
-----------------------------------
Michael Szycher, Ph.D.
ACCEPTED AND AGREED TO:
CardioTech International, Inc.
By: /s/ John E. Mattern
---------------------------------
John E. Mattern
Chief Operating Officer,
Chief Financial Officer and Clerk
-10-
<PAGE>
EXHIBIT B
FOR EMPLOYEES
-------------
CONFIDENTIAL AND PROPRIETARY INFORMATION AGREEMENT
--------------------------------------------------
In consideration of my employment by CardioTech International, Inc., a
Massachusetts corporation (the "Company"), I hereby agree as follows:
1. I will make full and prompt disclosure to the Company of all
inventions, improvements, modifications, discoveries, methods, data, ideas and
developments (all of which are collectively termed "developments" hereinafter),
whether patentable or not, made or conceived or reduced to practice or learned
by me either alone or jointly with others or under my direction during the
period of my employment, whether or not made or conceived during normal working
hours or on the premises of the Company. I do not have any developments other
than those I have already disclosed to you.
2. I agree that all developments covered by Paragraph 1 shall be the sole
property of the Company and its assigns, and the Company and its assigns shall
be the sole owner of all patents and other rights in connection therewith. I
hereby assign to the Company any rights in connection therewith. I hereby assign
to the Company any rights I may have or acquire in all developments. I further
agree as to all developments to assist the Company in every proper way (but at
the Company's expense) to obtain and from time to time enforce patents in
developments in any and all countries, and to that end I will execute all
documents for use in applying for and obtaining such patents thereon and
enforcing same, as the Company may desire, together with any assignments thereof
to the Company or persons designated by it. My obligation to assist the Company
in obtaining and enforcing patents for developments in any and all countries
shall continue beyond the termination of my employment, but the Company shall
compensate me at a reasonable rate after such termination for time actually
spent by me at the Company's request on such assistance.
I understand that this Paragraph 2 does not apply to developments for
which no equipment, supplies, facility or trade secret information of the
Company was used and which was developed entirely on my own time, and (a) which
does not relate (1) to the business of the Company or (2) to the Company's
actual or demonstrable anticipated research or development, and (b) which does
not result from any work performed by me for the Company, but I agree that the
Company shall have a non-exclusive royalty-free license to use such developments
for all purposes.
3. I hereby represent that, to the best of my knowledge, I have no
present obligation to assign to any former employer or any other person,
corporation or firm, any development covered by Paragraph 2, EXCEPT AS I MAY BE
--------------------
OBLIGATED TO ASSIGN TO POLYMEDICA INDUSTRIES, INC. ("PMI") DEVELOPMENTS WHICH I
- -------------------------------------------------------------------------------
MAY HAVE CONCEIVED WHILE EMPLOYED BY PMI AND WHICH ARE REDUCED TO PRACTICE WHILE
- --------------------------------------------------------------------------------
I AM EMPLOYED BY THE COMPANY. I represent that my performance of all the terms
- ----------------------------
of this Agreement as an employee of the Company does not and will not breach any
agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by the Company. I have not entered
into, and I agree I will not enter into, any agreement (either written or oral)
in conflict herewith.
4. I will also assign to the Company any and all copyrights and
reproduction rights to any material prepared by me in connection with my
employment.
-11-
<PAGE>
5. I understand as part of the consideration for the offer of employment
extended to me by the Company and of my employment or continued employment by
the Company, that I have not brought and will not bring with me to the Company
or use in the performance of my responsibilities at the Company any materials or
documents of a former employer which are not generally available to the public,
unless I have obtained written authorization from the former employer for their
possession and use. I HAVE BROUGHT WITH ME MATERIALS AND DOCUMENTS OF PMI
-----------------------------------------------------
RELATED TO DEVELOPMENTS TRANSFERRED OR LICENSED BY IT TO THE COMPANY.
- ---------------------------------------------------------------------
Accordingly, this is to advise the Company that the only materials or
documents of a former employer which are not generally available to the public
that I have brought or will bring to the Company or have used or will use in my
employment are identified on Exhibit A attached hereto, and, as to each such
---------
item, I represent that I have obtained prior to the effective date of my
employment with the Company written authorization for their possession and use
in my employment with the Company.
6. During the course of my employment by the Company, I may learn of the
Company's confidential information or confidential information entrusted to the
Company by other persons, corporations, or firms. The Company's confidential
information includes matters not generally known outside the Company, such as
developments relating to existing and future products and services marketed or
used by the Company and data relating to the general business operations of the
Company (e.g., concerning sales, costs, profits, organizations, customer lists,
pricing methods, etc.). I agree not to disclose any confidential information of
the Company or of such other persons, corporations, or firms to others or to
make use of it, except on the Company's behalf, whether or not such information
is produced by my own efforts. Also, I may learn of developments, ways of
business, etc., which in themselves are generally known, but whose use by the
Company is not generally known, and I agree not to disclose to others such use,
whether or no such use is due to my own efforts.
7. At the time I begin my employment and during the term of my employment
by the Company, I will not become employed by or act on behalf of any other
person, corporation, or firm which is engaged in any business or activity
similar to or competitive with that of the Company, unless such employment has
been approved by the Company in writing and signed by an appropriate personnel
manager of the Company.
8. In the event that my employment is transferred by the Company to a
subsidiary or affiliated company (as the case may be), my employment by such
company will, for the purposes of this Agreement, be considered as continued
employment by the Company, unless I execute an agreement substantially similar
in substance to this Agreement, in which event my employment by the Company
shall be deemed to continue until the effective date of said agreement in any
such company for which I become employed.
9. I hereby give the Company and its assigns permission to reasonably use
photographs of me, either during or after my employment, with or without using
my name, for whatever purposes it deems necessary.
10. Upon termination of my employment, unless my employment is transferred
to a subsidiary or affiliated company of the Company, I agree to leave with the
Company all records, drawings, notebooks, and other documents pertaining to the
Company's confidential information,
-12-
<PAGE>
whether prepared by me or others, and also any equipment, tools or other devices
owned by the Company, then in my possession however such items are obtained, and
I agree not to reproduce any document or data relating thereto.
11. My obligations under this Agreement shall survive the termination of
my employment regardless of the manner of such termination, and shall be binding
upon my heirs, executors, and administrators.
12. CONTEMPORANEOUSLY WITH entering the employ of the Company I have
----------------------
terminated employment with all past employers.
13. As a matter of record I have identified on Exhibit B attached hereto
---------
all developments relevant to the subject matter of my employment by the Company
which have been made or conceived or first reduced to practice by me alone or
jointly with others prior to my engagement by the Company which I desire to
remove from the operation of this Agreement; and I covenant that such list is
complete. If there is no such list on Exhibit B, I represent that I have made no
---------
such developments at the time of signing this Agreement.
14. I agree that in addition to any other rights and remedies available to
the Company for any breach by me of my obligations hereunder, the Company shall
be entitled to enforcement of my obligations hereunder by court injunction.
15. If any provision of this Agreement shall be declared invalid, illegal
or unenforceable, then such provision shall be enforceable to the extent that a
court shall deem it reasonable to enforce such provision. If such provision
shall be unreasonable to any extent, such provision shall be severed from this
Agreement and all remaining provisions shall continue in full force and effect.
16. This Agreement shall be effective as of the date set forth below next
to my signature.
17. This Agreement shall be governed in all respects by the laws of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, I have executed this Agreement under seal as of the
date below.
Dated: March 27, 1998 By: /s/ Michael Szycher, Ph.D.
-------------------------------
Michael Szycher, Ph.D.
ACCEPTED AND AGREED TO:
CardioTech International, Inc.
By: /s/ John E. Mattern
-----------------------------------------
John E. Mattern, Chief Operating Officer,
Chief Financial Officer and Clerk
-13-
<PAGE>
EXHIBIT 10.6
DATED MARCH 24 1998
-------------------
CARDIOTECH INTERNATIONAL INC.
and
ALAN EDWARDS
EMPLOYMENT AGREEMENT
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
PARTIES
This Employment Agreement ("the Agreement") dated the 24th day of March, 1998 is
entered into by and between
(1) CARDIOTECH INTERNATIONAL INC., a Massachusetts corporation having its
principal place of business at 11 State Street, Woburn, MA 01801 ("the
Company"), and
(2) ALAN EDWARDS of Lianfair D.C., Ruthin Clwyd, LL15 2RU, United Kingdom ("the
Executive")
TERMS OF AGREEMENT
In consideration of this Agreement and the continued employment of the Executive
by the Company and the payment of $1 by the Company to the Executive and the
covenants contained in the Service Agreement (as hereinafter defined) the
parties agree as follows:
1. Employment
----------
1.1. The Company hereby agrees to employ the Executive to act as Executive
Vice President of the Company and to perform such acts and duties and
furnish such services to the Company in connection with and related to
that position as is customary for persons with similar positions in
like companies and as the Chief Executive Officer of the Company shall
from time to time reasonably direct. The Executive shall be an officer
of the Company.
1.2. The Executive hereby accepts the said employment.
<PAGE>
1.3. The Executive shall use his diligent efforts to promote the interests
of the Company and shall discharge his duties in a competent manner.
1.4. The Executive shall report directly to the Chief Executive Officer of
the Company.
1.5. It is acknowledged by the Company that the Executive is employed on a
full time basis by its United Kingdom subsidiary company, CardioTech
International Limited ("Cardio Limited") pursuant to the terms of a
Service Agreement (the "Service Agreement") made between Cardio
Limited and the Executive on the date hereof. The Executive is
required to devote his full business time to Cardio Limited pursuant
to the terms of the Service Agreement and the duties set out in this
Agreement shall be interpreted accordingly.
2. Term of Employment
------------------
2.1. The Company agrees to employ the Executive initially for the period
commencing on 1st January 1998 and ending on 31st December 1998 ("the
Employment Period') provided that both the Executive and the Company
shall have the right to terminate the Executive's employment under
this Agreement upon not less than thirty (30) days written notice to
the other party, subject to the Company's obligation to pay severance
benefits in accordance with the terms of this Agreement.
2.2. If the Executive remains employed by the Company beyond the Employment
Period in the absence of any other express agreement between the
parties this Agreement shall be deemed to continue on a month-to-month
basis ("the Extended Employment Period").
2.3. For the purpose of calculating the Executive's period of continuous
employment, the Executive's employment with Newtec Vascular Products
2
<PAGE>
Limited from March 1989 to August 1993, and with PolyMedica UK Limited
from August 1993 until June 1996, shall be taken into account. The
Executive's period of continuous employment with the Company began in
March 1989.
3. Salary and Benefits after Termination
-------------------------------------
3.1. Salary
------
During the Executive's employment, the Company shall pay the Executive
a nominal annual salary of one US dollar ($1).
3.2. Disability or Death
-------------------
If during the Employment Period or the Extended Employment Period, the
Executive shall
3.2.1. become ill, disabled or otherwise incapacitated so as to be
unable to perform his usual duties either for a period in
excess of one hundred twenty (120) consecutive days, or for
more than one hundred eighty (180) days in any consecutive
twelve (12) month period, or
3.2.2. die;
then the Company shall have the right to terminate this Agreement on
thirty (30) days written notice to the Executive or his personal
representative(s).
3.3. Severance Payment
-----------------
3.3.1. In the event that
3.3.1.1. the Company terminates this Agreement without cause
(i.e. other than pursuant to Clause 3.2 hereof) at any
time (including during the Extended Employment
Period); or
3
<PAGE>
3.3.1.2. the Executive terminates his employment For Good Reason
following a Change in Control of the Company; or
3.3.1.3. the Company fails to renew this Agreement within two
(2) years following the occurrence of a Change in
Control;
the Company shall pay the Executive a severance payment, equal to
the current or last base salary paid to the Executive by Cardio
Limited pursuant to the terms of the Service Agreement multiplied
by 2.
3.3.2. "Good Reason" shall mean, during the nine (9) month period
following a Change in Control:
3.3.2.1. a determination in good faith by the Executive that as
a result of such Change in Control he is not able to
discharge his duties effectively or
3.3.2.2. without the Executive's express written consent, the
occurrence of any of the following circumstances: (a)
the assignment to the Executive of any duties
inconsistent (except in the nature of a promotion) with
the position in the Company that be held immediately
prior to the Change in Control or a substantial adverse
alteration in the nature or status of his position or
responsibilities or the conditions of his employment
from those in effect immediately prior to the Change in
Control; (b) a reduction by the Company in the Base
Salary as in effect on the date of the Change in
Control; (c) the Company's requiring the Executive to
be based more than twenty-five (25) miles from the
offices at which he was principally employed
immediately prior to the date of the Change in Control
except for required travel
4
<PAGE>
on the Company's business to an extent substantially
consistent with his present business travel
obligations; or (d) the failure by the Company to
continue in effect any material compensation or benefit
plan in which the Executive participates immediately
prior to the Change in Control unless an equitable
arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such
plan, or the failure by the Company to continue the
Executive's participation therein (or in such
substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount
of benefits provided and the level of his participation
relative to other participants, than existed at the
time of the Change in Control.
3.3.2.3. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with
respect to any circumstance constituting Good Reason
hereunder.
3.3.3. For purposes of this Agreement, a "Change in Control" shall occur
or be deemed to have occurred only if any of the following events
occur:
3.3.3.1. any "person" as such term is used in Clauses 13(d) and
14(d) of the United States' Securities Exchange Act of
1934, as amended ("the Exchange Act"), is or becomes
the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of
the combined voting power of the Company's then
outstanding securities
5
<PAGE>
on any matter which could come before its shareholders
for approval;
3.3.3.2. individuals who, as of the date of this Agreement,
constitute the Board (the "Incumbent Board") cease for
any reason to constitute at lease a majority of the
Board, provided that any person becoming a director
subsequent to the date hereof whose election or
nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be,
for purposes of this Agreement, considered as though
such person were a member of the Incumbent Board;
3.3.3.3. the shareholders of the Company approve a merger or
consolidation of the Company with any other company or
corporation, other than (A) a merger or consolidation
which would result in the voting securities of the
Company outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity) more than 80% of
the combined voting power of the voting securities of
the Company or such surviving entity outstanding
immediately after such merger or consolidation or (B) a
merger or consolidation effected to implement a re-
capitalisation of the Company (or similar transaction)
in which no "person" (as herein above defined) acquires
more than 50% of the combined voting power of the
Company's then outstanding securities; or
6
<PAGE>
3.3.3.4. the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for
the sale or disposition by the Company of all or
substantially all of the Company's assets.
3.3.4. The Company shall not be liable to pay the Executive a severance
payment pursuant to the terms set out herein if a severance
payment has been paid to the Executive pursuant to the terms of
the Service Agreement.
3.4. Benefits After Termination
--------------------------
3.4.1. Other than as required at law, the Executive shall not be
entitled to any employee benefits pursuant to the terms of this
Agreement after termination of the employment of the Executive,
whether or not severance pay is being provided, except that if
the Executive is entitled to the severance payment pursuant to
the terms of this Agreement.
3.4.1.1. the Company shall continue in full force and effect, at
its expense, life insurance provided pursuant to the
terms of the Service Agreement for a period of one (1)
year after termination of the Executive's employment
hereunder or until the Executive becomes employed,
whichever first occurs; and
3.4.1.2. during the six (6) month period following the
termination of the Executive's employment, the Company
shall reimburse the Executive for out-of-pocket health
insurance expenses incurred by the Executive. If the
Executive elects not to maintain health insurance, the
Company is under no
7
<PAGE>
obligation to reimburse the Executive for his otherwise
elected coverage.
3.4.1.3. the Executive shall be obliged to give the Company
prompt notice of his re-employment.
3.4.2. The Company shall not be liable to pay the Executive benefits
pursuant to the terms set out herein if a severance payment has
been paid to the Executive pursuant to the terms of the Service
Agreement.
4. Expenses
--------
Pursuant to the Company's customary policies in force at the time of
payment, the Executive shall be promptly reimbursed, against presentation of
vouchers or receipts therefor, for all authorised expenses properly incurred
by him on the Company's behalf in the performance of his duties hereunder.
5. Additional Agreements
---------------------
Upon execution of this Agreement, the Executive shall execute and deliver
to the Company an Agreement Not to Compete (the "Non-Competition
Agreement") and a Confidential and Proprietary Information Agreement (the
"Confidential and Proprietary Information Agreement"), substantially in the
forms attached hereto as Schedules A and B. The agreements attached hereto
as Schedules A and B shall survive the expiration of or termination of this
Agreement and the termination of Executive's employment with the Company.
6. Notices
-------
Any notice of communication given by either party hereto to the other party
shall be in writing and personally delivered, posted by recorded delivery,
postage prepaid, or delivered by a recognised overnight carrier, to the
addresses provided
8
<PAGE>
above. All notices shall be deemed given when actually received. My person
entitled to receive notice (or a copy thereof) may designate in writing, any
notice to the others, another address to which notices to such person shall
thereafter be sent.
7. Miscellaneous
-------------
7.1. Entire Agreement
----------------
This Agreement contains the entire understanding of the parties in
respect of its subject matter and supersedes all prior agreements and
understandings between the parties with respect to such subject
matter, provided however that nothing in this Agreement shall affect
the Executive's or the Company's obligations under the Non Competition
Agreement or the Confidential and Proprietary Information Agreement
attached as Schedules A and B nor shall anything contained herein
affect the respective obligations of the Executive and Cardio Limited
in the Service Agreement.
7.2. Amendment: Waiver
-----------------
This Agreement may not be amended. supplemented, cancelled or
discharged except by written instrument executed by the party affected
thereby No failure to exercise, and no delay in exercising, any right,
power or privilege hereunder shall operate as a waiver thereof. No
waiver of any breach of any provision of this Agreement shall be
deemed to be a waiver of any preceding or succeeding breach of the
same or any other provisions.
7.3. Binding Effect: Assignment
--------------------------
The rights and obligations of this Agreement shall bind and inure to
the benefit of any successor of the Company by reorganisation, merger
or consolidation or any assignee of all or substantially all of the
Company's
9
<PAGE>
business and properties. The Executive's rights or obligations under
this Agreement may not be assigned by the Executive.
7.4. Headings
--------
The headings contained in this Agreement are for reference purposes
only and shall not affect the meaning or interpretation of this
Agreement.
7.5. Governing Law: Interpretation
-----------------------------
This Agreement shall be construed in accordance with and governed for
all purposes by the laws and public policy of the Commonwealth of
Massachusetts applicable to contracts executed and to be wholly
performed within such commonwealth. Service of process in any dispute
shall be effective (a) upon the Company, if service is made on an
officer of the Company other than the Executive; (b) upon the
Executive, if served at the Executive's residence last known to the
Company with an information copy to the Executive at any other
residence, or in care of a subsequent employer of which the Company
may be aware.
7.6. Further Assurances
------------------
Each of the parties agrees to execute, acknowledge, deliver and
perform, or cause to be executed, acknowledged, delivered or
performed, at any time, or from time to time, as the case may be, all
such further acts, deeds, assignments, transfers, conveyances, powers
of attorney, and assurances as may be necessary or proper to carry out
the provisions or intent of this Agreement.
7.7. Severability
------------
If any one or more of the terms, provisions, covenants or restrictions
of this Agreement shall be determined by a court of competent
jurisdiction in the United State to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall
10
<PAGE>
remain in full force and effect and shall in no way be affected,
impaired or invalidated. If, moreover, any one or more of the
provisions contained in this Agreement shall for any reason be
determined by a court of competent jurisdiction in the United States
to be excessively broad as to duration, geographical scope, activity
or subject, it shall be construed by limiting or reducing it so as to
be enforceable to the extent compatible with then applicable law.
EXECUTION
---------
The parties executed this Agreement as a sealed instrument as of the date first
above written, whereupon it became binding in accordance with its terms.
CARDIOTECH INTERNATIONAL INC.
By:
-----------------------------------------
Michael Szycher, Ph.D.
Chairman of the Board
EXECUTIVE
By:
-----------------------------------------
Alan Edwards
Attachments:
Exhibit A: Non-competition Agreement
- ---------
Exhibit B: Confidential and Proprietary Information Agreement
- ---------
11
<PAGE>
SCHEDULE A
AGREEMENT NOT TO COMPETE
------------------------
I recognise that CardioTech International Inc., a Massachusetts corporation
having its principal place of business at 11 State Street, Woburn, MA 01801 (the
"Company" which term shall include its subsidiaries and affiliated entities)
desires to retain me in its employ and that the Company wishes to ensure that I
do not compete with the Company, as specified below, in the event my employment
with the Company is terminated.
In consideration of the Company's employment or continued employment of me, I
agree as follows:
1. I will not, for a period of one (1) year commencing with the termination of
my employment with the Company, engage (directly or indirectly) in any
activities or render any services similar or reasonably related to these in
which I shall be engaged or those reasonably related to those in which I
shall have engaged or those which I shall have rendered as an employee of
the Company during any part of the two year period preceding my termination
for any trade or business which directly competes with the Company in any
place where the Company does or may do business in any line of business
engaged in (or planned to be engaged in) by the Company, where now existing
or hereafter established, nor shall I engage in such activities nor render
such services for any other person or entity engaged or about to become
engaged in such activities to, for or on behalf of any such trade or
business.
2. I agree that for a period of one (1) year following termination of my
employment with the Company, I will not solicit or in any manner encourage
employees of the Company to leave their employ. I further agree that during
such period I will not offer or cause to be offered employment to any
person who was employed by the Company at any time during the six (6)
months prior to the termination of my employment with the Company.
12
<PAGE>
3. For the purposes of this Agreement, "termination of employment" shall mean
voluntary termination by me or termination by the Company for "Cause" (as
that term is defined in a Service Agreement of even date herewith between
me and CardioTech International Inc.).
4. I understand that nothing in this Agreement shall affect my obligations
under the "Confidential and Proprietary Information Agreement" between the
Company and myself of even date herewith.
5. I understand that in addition to any other rights and remedies available to
the Company for any breach by me of my obligations hereunder, the Company
shall be entitled to seek enforcement of my obligations hereunder by court
injunction.
6. If any provision of this Agreement shall be declared invalid, illegal or
unenforceable by a court of competent jurisdiction in the United States,
then such provision shall be enforceable to the extent that such court
shall deem it reasonable to enforce such provision. If such provision shall
be unreasonable to enforce to any extent, such provision shall be severed
from this Agreement and all remaining provisions shall continue in full
force and effect.
7. This Agreement shall be governed in all respects by the Laws of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF I have executed this Agreement.
Date
- --------------------------------- ------------------
Alan Edwards
13
<PAGE>
ACCEPTED AND AGREED TO:
CardioTech International Inc.
By: Date
------------------------------------------ ------------------
Michael Szycher. Ph.D.
Chairman of the Board
14
<PAGE>
SCHEDULE B
FOR EMPLOYEES
-------------
CONFIDENTIAL AND PROPRIETARY INFORMATION AGREEMENT
--------------------------------------------------
In consideration of my employment by CardioTech International Inc. a
Massachusetts corporation having its principal place of business at 11 State
Street, Woburn, MA 01801 (the "Company"), which term shall include its
subsidiaries and affiliated entities), I hereby agree as follows:
1. I will make full and prompt disclosure to the Company of all inventions,
improvements, modification, discoveries, methods, data, ideas and
developments (all of which are collectively termed "Developments"
hereinafter), whether patentable or not, made or conceived or reduced to
practice or learned by me either alone or jointly with others or under my
direction during the period of my employment, whether or not made or
conceived during normal working hours or on the premises of the Company. I
do not have any Developments other than those I have already disclosed to
the Company.
2. I agree that all Developments covered by paragraph 1 shall be the sole
property of the Company and its assigns, and the Company and its assigns
shall be the sole owner of all patents and other rights in connection
therewith. I hereby assign to the Company any rights in connection
therewith. I hereby assign to the Company any rights I may have or acquire
in all Developments. I further agree as to all Developments to assist the
Company in every proper way (but at the Company's expense) to obtain and
from time to time enforce patents in Developments in any and all countries,
and to that end I will execute all documents for use in applying for and
obtaining such patents thereon and enforcing same as the Company may
desire, together with any assignments thereof to the Company or persons
designated by it. My obligation to assist the Company in obtaining and
enforcing patents for Developments in any and all countries shall continue
beyond the termination of my employment, but the Company shall compensate
me at a
15
<PAGE>
reasonable rate after such termination for time actually spent by me at the
Company's request on such assistance.
I understand that this paragraph 2 does not apply to Developments for which
no equipment, supplies, facility or trade secret information of the Company
was used and which were developed entirely on my own time, and (a) which do
not relate (1) to the business of the Company or (2) to the Company's
actual or demonstrable anticipated research or Development, and (b) which
do not result from any work performed by me for the Company, but I agree
that the Company shall have a non-exclusive royalty free license to use
such Developments for all purposes.
3. I hereby represent that, to the best of my knowledge, I have no present
obligation to assign to any former employer or any other person,
corporation or firm, any Development covered by paragraph 2. I represent
that my performance of all the terms of this Agreement as an employee of
the Company does not and will not breach any agreement to keep in
confidence proprietary information acquired by me in confidence or in trust
prior to my employment by the Company. I have no entered into, and I agree
I will not enter into, any agreement (either written or oral) in conflict
herewith.
4. I will also assign to the Company and all copyrights and reproduction
rights to any material prepared by me in connection with my employment.
5. I understand as part of the consideration for the offer of employment
extended to me by the Company and of my employment or continued employment
by the Company that have not brought and will not bring with me to the
Company or use in the performance of my responsibilities at the Company any
materials or documents of a former employer which are not generally
available to the public, unless I have obtained written authorisation from
the former employer for their possession and use.
16
<PAGE>
6. During the course of my employment by the Company, I may learn of the
Company's confidential information or confidential information entrusted to
the Company by other persons, corporations, or firms. The Company's
confidential information includes matters not generally known outside the
Company, such as Developments relating to existing and future products and
services marketed or used by the Company and data relating to the general
business operations of the Company (e.g. concerning sales, costs, profits,
organisations, customer lists, pricing methods etc.). I agree not to
disclose any confidential information of the Company or of such other
persons, corporations, or firms to others or to make use of it, except on
the Company's behalf, whether or not such information is produced by my own
efforts. Also, I may learn of Developments, ways of business, etc. which in
themselves are generally known, but whose use by the Company is not
generally known, and I agree not to disclose to other such use, whether or
not such use is due to my own efforts.
7. At the time I begin my employment and during the term of my employment by
the Company, I will not become employed by or act on behalf of any other
person, company, or firm which is engaged in any business or activity
similar to or competitive with that of the Company, unless such employment
has been approved by the Company in writing and signed by an appropriate
authorised official of the Company.
8. In the event that my employment is transferred by the Company to a
subsidiary or affiliated company (as the case may be), my employment by
such company will, for the purposes of this Agreement, be considered as
continued employment by the Company, unless I execute an agreement
substantially similar in substance to this Agreement, in which event my
employment by the Company shall be deemed to continue until the effective
date of said agreement in any such company for which I become employed.
17
<PAGE>
9. I hereby give the Company and its assigns permission to reasonably use
photographs of me, either during or after my employment, with or without
using my name, for whatever purposes it deems necessary.
10. Upon termination of my employment, unless my employment is transferred to a
subsidiary or affiliated company of the Company, I agree to leave with the
Company all records, drawings, notebooks and other documents pertaining to
the Company's confidential information, whether prepared by me or others,
and also any equipment, tools or other devices owned by the Company, then
in my possession however such items are obtained, and I agree not to
reproduce any document or data relating thereto.
11. My obligations under this Agreement shall survive the termination of my
employment regardless of the manner of such termination, and shall be
binding upon my heirs, executors, and administrators.
12. Contemporaneously with entering thc employ of the Company I have terminated
employment with all past employers.
13. I represent that I have made no Developments relevant to the subject matter
of my employment by the Company that have been made or conceived or first
reduced to practice by me alone or jointly with others prior to my
engagement by the Company.
14. I agree that in addition to any other rights and remedies available to the
Company for any breach by me of my obligations hereunder, the Company shall
be entitled to seek enforcement of my obligations hereunder by court
injunction.
15. If any provision of this Agreement shall be declared invalid, illegal or
unenforceable by a court of competent jurisdiction in the United States,
then such provision shall be enforceable to the extent that such court
shall deem it reasonable to enforce such provision. If such provision shall
be unreasonable to
18
<PAGE>
any extent, such provision shall be severed from this Agreement and all
remaining provisions shall continue in full force and effect.
16. This Agreement shall be effective as of the date set forth below next to my
signature.
17. This Agreement shall be governed in all respects by the laws of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF I have executed this Agreement.
/s/ Alan Edwards
- -----------------------------------
Alan Edwards
ACCEPTED AND AGREED TO:
CardioTech International, Ltd.
By: /s/ Michael Szycher Date March 24, 1998
-------------------------
Michael Szycher. Ph.D.
Chairman of the Board
19
<PAGE>
EXHIBIT 10.7
DATED March 24, 1998
CARDIOTECH INTERNATIONAL LIMITED
and
ALAN EDWARDS
SERVICE AGREEMENT
<PAGE>
SERVICE AGREEMENT
-----------------
PARTIES
This Employment Agreement ("the Agreement"), dated the 24th day of March 1998,
is entered into by and between
(1) CARDIOTECH INTERNATIONAL LIMITED, (Company No. 03198267). whose
registered office is situate at 5/7 Grosvenor Court. Foregate Street,
Chester, CH1 1HG ("the Company"), being a wholly owned subsidiary of
Cardiotech International Inc. a U.S. Corporation subject to the laws
of the State of Massachusetts, ("the Parent"); and
(2) ALAN EDWARDS of Barnfold, Lianfair D.C., Ruthin. Clwyd, LLI5 2RU,
United Kingdom ("the Executive").
TERMS OF AGREEMENT
1. Employment
1.1. The Company hereby agrees to employ the Executive, on a full time
basis, to act as Managing Director of the Company and to perform such
acts and duties and furnish such services to the Company in connection
with and related to that position as is customary for persons with
similar positions in like companies, and as the Chairman of the
Company shall from time to time reasonably direct. The Executive shall
be an officer of the Company.
1.2. The Executive hereby accepts the said employment.
1.3. The Executive shall use his diligent efforts to promote the interests
of the Company; shall discharge his duties in a Competent manner; and
shall devote his
<PAGE>
full business time and his business judgment, skill and knowledge to
the performance of his duties and responsibilities hereunder.
1.4. The Executive shall report directly to the Chairman of the Company.
1.5. Nothing in this Agreement shall preclude the Executive from devoting
incidental and insubstantial amounts of time to activities other than
the business of the Company, or from performing any duties, whether as
employee, officer or otherwise for and on behalf of the Parent.
1.6. The Executive's normal working hours are 9.00 am to 5.00 pm, Monday o
Friday. but the Executive shall work such hours as are reasonably
necessary for the performance of his duties to the Company.
2. Term of Employment
------------------
2.1. The Company agrees to employ the Executive initially for the period
commencing on 1st January 1998 and ending on 31st December 1998 ("the
Employment Period"), provided that both the Executive and the Company
shall have the right to terminate the Executive's employment under
this Agreement upon not less than thirty (30) days written notice to
the other party, subject to the Company's obligation to pay severance
benefits under certain circumstances as provided in Clauses 3.6 and
3.7 hereof.
2.2. If the Executive remains employed by the Company beyond the Employment
Period, in the absence of any other express agreement between the
parties, this Agreement shall be deemed to continue on a month-to-
month basis ("the Extended Employment Period").
2.3. For the purpose of calculating the Executive's period of continuous
employment the Executive's previous employment with Newtec Vascular
Products Limited
3
<PAGE>
from March 1989 to August 1993, and with Polymedica UK Limited From
August 1993 until June 1996, shall be taken into account. The
Executive's period of continuous employment with the Company began in
March 1989.
3. Compensation and Benefits: Disability
-------------------------------------
3.1. Salary
------
During the Executive's employment, the Company shall pay the Executive
an annual base salary of Forty Thousand Four Hundred and Twenty-Three
Pounds (L40,423) (the "Base Salary") payable in equal instalments
pursuant to the Company's customary payroll policies in force at the
time of payment (but in no event less frequently than monthly), by
credit transfer to the Executive's bank. The Base Salary may be
adjusted from time to time by the Board of Directors of the Company
(the "Board") upon the recommendation of the Board of Directors of the
Parent, except that the Executive, if a Director, shall not be
entitled to vote thereon. The Base Salary shall be reviewed annually
by the Board.
3.2. Bonus Payment
-------------
During his employment, the Executive may receive, in the sole
discretion of the Compensation Committee of the Board of Directors of
the Parent ("the Compensation Committee"), an annual bonus payment in
an amount, if any, to be determined by the Compensation Committee:
except that the Executive, if a member of the Compensation Committee,
shall not be entitled to vote thereon.
3.3. Executive Benefits
------------------
During his employment, the Executive shall receive such benefits as
are customarily provided to other officers and employees of the
Company, including but not limited to the following benefits:
4
<PAGE>
3.3.1. Health Insurance. Non-contributory health insurance pursuant
----------------
to a Freedom Care policy or substantially similar policy;
3.3.2. Life Insurance. Life insurance on the life of the Executive
--------------
with a beneficiary nominated by the Executive in the amount of
one hundred and fifty per cent (150%) of the Base Salary; and
3.3.3. Car Allowance. An annual car allowance of Six Thousand Pounds
-------------
(L6.000).
3.4. Holidays
--------
3.4.1. In addition to statutory and public holidays the Executive may
take four weeks paid holiday during each holiday year at such
times as shall be consistent with the Company's holiday
policies and (in the Board's judgment) with the Company's
holiday schedule for officers and other employees.
3.4.2. The Company's holiday year runs from 1st January to 31st
December.
3.4.3. Holiday entitlement will accrue pro rata on a month by month
basis, at the rate of one twelfth of the annual entitlement
for each complete month of service.
3.5. Disability or Death
-------------------
If during the Employment Period or the Extended Employment Period, the
Executive shall
5
<PAGE>
3.5.1. become ill, disabled or otherwise incapacitated so as to be
unable to perform his usual duties either for a period in
excess of one hundred twenty (120) consecutive days, or for
more than one hundred eighty (180) days in any consecutive
twelve (12) month period, or
3.5.2. die;
then the Company shall have the right to terminate this
Agreement on thirty (30) days written notice to the Executive
or his personal representative(s).
3.6. Severance Payment
-----------------
3.6.1. In the event that
3.6.1.1. the Company terminates this Agreement without Cause
(i.e. other than pursuant to Clause 3.5 or Clause 4
hereof) at any time (including during the Extended
Employment Period): or
3.6.1.2. the Executive terminates his employment for Good
Reason following a Change in Control of the Company;
or
3.6.1.3. the Company fails to renew this Agreement within two
(2) years following the occurrence of a Change in
Control;
the Company shall pay the Executive a severance
payment, equal to the Executive's then current Base
Salary multiplied by 2.
3.6.2. "Good Reason" shall mean, during the nine (9) month
period following a Change in Control:
6
<PAGE>
3.6.2.1. a determination in good faith by the Executive that
as a result of such Change in Control he is not able
to discharge his duties effectively or
3.6.2.2. without the Executive's express written consent, the
occurrence of any of the following circumstances:
(a) the assignment to the Executive of any duties
inconsistent (except in the nature of a promotion)
with the position in the Company the he held
immediately prior to the Change in Control or a
substantial adverse alteration in the nature or
status of his position or responsibilities or the
conditions of his employment from those in effect
immediately prior to the Change in Control; (b) a
reduction by the Company in the Base Salary as in
effect on the date of the Change in Control; (c) the
Company's requiring the Executive to be based more
than twenty-five (25) miles from the Company's
offices at which he was principally employed
immediately prior to the date of the Change in
Control except for required travel on the Company's
business to an extent substantially consistent with
his present business travel obligations; or (d) the
failure by the Company to continue in effect any
material compensation or benefit plan in which the
Executive participates immediately prior to the
Change in Control unless an equitable arrangement
(embodied in art ongoing substitute or alternative
plan) has been made with respect to such plan, or
the failure by the Company to continue the
Executive's participation therein (or in such
substitute or alternative plan) on a basis not
materially less favorable, both in terms of the
amount of benefits provided and the level of his
participation relative to other participants, than
existed at the time of the Change in Control.
7
<PAGE>
3.6.2.3. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with
respect to any circumstance constituting Good Reason
hereunder.
3.6.3. For purposes of this Agreement, a "Change in Control" shall
occur or be deemed to have occurred only if any of the
following events occur:
3.6.3.1. any "person" as such term is used in Clauses 13(d)
and 14(d) of the United States' Securities Exchange
Act of 1934, as amended ("the Exchange Act"), (other
than the Parent, any majority owned subsidiary
thereof, any trustee or other fiduciary holding
securities under an employee benefit plan of the
Parent, any trustee or other fiduciary of a trust
treated for tax purposes in the United States as a
grantor trust of which the Parent is the grantor, or
any corporation owned directly or indirectly by the
shareholders of the Parent in substantially the same
proportion as their ownership of shares in the
Parent) is or becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company
representing 50% or more of the combined voting
power of the Company's then outstanding securities
on any matter which could come before its
shareholders for approval;
3.6.3.2. individuals who, as of the date of this Agreement,
constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority of
the Board, provided that any person becoming a
director subsequent to the date hereof whose
election, or nomination for election by the
Company's shareholders, was approved by a vote of at
least a majority of the directors then comprising
the Incumbent Board shall be, for purposes of this
8
<PAGE>
Agreement, considered as though such person were a
member of the Incumbent Board;
3.6.3.3. the shareholders of the Company approve a merger or
consolidation of the Company with any other company
or corporation, other than (A) a merger or
consolidation which would result in the voting
securities of the Company outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity) more than
80% of the combined voting power of the voting
securities of the Company or such surviving entity
outstanding immediately after such merger or
consolidation or (B) a merger or consolidation
effected to implement a recapitalization of the
Company (or similar transaction) in which no
"person" (as herein above defined) acquires more
than 50% of the combined voting power of the
Company's then outstanding securities; or
3.6.3.4. the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or
substantially all of the Company's assets.
3.7. Benefits After Termination
--------------------------
Other than as required by law, the Executive shall not be entitled to
any employee benefits provided under Clause 3.3 hereof after
termination of the employment of the Executive, whether or not
severance pay is being provided, except that if the Executive is
entitled to the severance payment described in Clause 3.6 of this
Agreement:
9
<PAGE>
3.7.1. the Company shall continue in full force and effect, at its
expense, the life insurance provided for in Clause 3.3.2
hereof for a period of one (1) year after termination of the
Executive's employment hereunder or until the Executive
becomes employed, whichever first occurs; and
3.7.2. during the six (6) month period following the termination of
the Executive's employment, the Company shall reimburse the
Executive for out-of-pocket health insurance expenses incurred
by the Executive. If the Executive elects not to maintain
health insurance, the Company is under no obligation to
reimburse the Executive for his otherwise elected coverage.
3.7.3. The Executive shall be obliged to give the Company prompt
notice of his re-employment.
4. Discharge for Cause
-------------------
4.1. The Company may discharge the Executive and terminate his employment
under this Agreement for Cause without further liability to the
Company by a majority vote of the Board, except that Executive, if a
Director, shall not be entitled to vote thereon. As used in this
Agreement, "Cause" shall mean any or all of the following:
4.1.1. misconduct of the Executive during the course of his
employment which is materially injurious to the Company and
which is brought to the attention of the Executive promptly
after discovery by the Company, including but not limited to,
theft or embezzlement from the Company, the intentional
provision of services to competitors of the Company, or
improper disclosure of proprietary information, but not
including any act or failure to act by the Executive that he
believed in good faith to be proper conduct not adverse to his
duties hereunder;
10
<PAGE>
4.1.2. willful disregard or neglect by the Executive of his duties or
of the Company's interests that continues after being brought
to the attention of the Executive;
4.1.3. unavailability (except as provided in Clause 3.5 hereof) of
the Executive substantially to perform the duties provided for
herein;
4.1.4. conviction of a fraud or transgression or any criminal offence
involving dishonesty, breach of trust or moral turpitude
during the Executive's employment;
4.1.5. the Executive's breach of any of the material terms of this
Agreement (including the failure of the Executive to discharge
his duties in a competent manner) or any of the collateral
agreements executed in connection herewith as enumerated in
Clause 10.1 hereof.
4.2. In the event the Company exercises its rights to termination the
Executive's employment under this Clause 4, the Executive shall not be
entitled to receive any severance pay or other termination benefits,
except as required by law.
5. Termination Without Cause
-------------------------
The Company may terminate this Agreement without Cause, and without further
liability to the Company except as set out in Clauses 3.6 and 3.7 hereof.
by a majority vote of the Board. The Executive, if a Director, shall not be
entitled to vote on the termination of this Agreement without Cause.
6. Expenses
--------
Pursuant to the Company's customary policies in force at the time of
payment, the Executive shall be promptly reimbursed, against presentation
of vouchers or receipts
11
<PAGE>
therefor, for all authorized expenses properly incurred by him on the
Company's behalf in the performance of his duties hereunder.
7. Additional Agreements
---------------------
Upon execution of this Agreement, the Executive shall execute and deliver
to the Company an Agreement Not to Compete (the "Non-Competition
Agreement") and a Confidential and Proprietary Information Agreement (the
"Confidential and Proprietary Information Agreement"), substantially in the
forms attached hereto as Schedules A and B. The agreements attached hereto
as Schedules A and B shall survive the expiration of or termination of this
Agreement and the termination of Executive's employment with the Company.
8. Dispute Resolution
------------------
In case of dispute the parties hereby agree to submit to the non-exclusive
jurisdiction of the English courts.
9. Notices
-------
Any notice of communication given by either party hereto to the other party
shall be in writing and personally delivered, posted by recorded delivery,
postage prepaid, or delivered by a recognized overnight carrier, to the
addresses provided above. All notices shall be deemed given when actually
received. Any person entitled to receive notice (or a copy thereof) may
designate in writing, any notice to the others, another address to which
notices to such person shall thereafter be sent.
10. Miscellaneous
-------------
10.1. Entire Agreement
----------------
This Agreement contains the entire understanding of the parties in
respect of its subject matter and supersedes all prior agreements and
understandings between the parties with respect to such subject
matter; provided however that nothing in
12
<PAGE>
this Agreement shall affect the Executive's or the Company's
obligations under the Non Competition Agreement or the Confidential
and Proprietary Information Agreement attached as Schedules A and B.
10.2. Amendment: Waiver
-----------------
This Agreement may not be amended, supplemented, cancelled or
discharged except by written instrument executed by the party affected
thereby. No failure to exercise, and no delay in exercising, any
right, power or privilege hereunder shall operate as a waiver thereof.
No waiver of any breach of any provision of this Agreement shall be
deemed to be a waiver of any preceding or succeeding breach of the
same or any other provisions.
10.3. Binding Effect: Assignment
--------------------------
The rights and obligations of this Agreement shall bind and inure to
the benefit of any successor of the Company by reorganization, merger
or consolidation or any assignee of all or substantially all of the
Company's business and properties. The Executive's rights or
obligations under this Agreement may not be assigned by the Executive;
except that the Executive's right to compensation to the earlier of
the date of death, disability pursuant to Clause 3.5 hereof, or
termination of actual employment, shall pass to the Executive's
personal representative(s).
10.4. Headings
--------
The headings contained in this Agreement are for reference purposes
only and shall not affect the meaning or interpretation of this
Agreement.
10.5. Governing Law: Interpretation
-----------------------------
This Agreement shall be construed in accordance with and governed for
all purposes by the laws and public policy of England applicable to
contracts executed and to be wholly performed within such
jurisdiction. Service of process in any dispute shall be effective (a)
upon the Company, if service is made on any officer of the Company
other than the Executive; (b) upon the Executive, if served
13
<PAGE>
at the Executive's residence last known to the Company with an
information copy to the Executive at any otter residence, or in care
of a subsequent employer of which the Company may be aware.
10.6. Further Assurances
------------------
Each of the parties agrees to execute, acknowledge, deliver and
perform, or cause to be executed, acknowledged, delivered or
performed, at any time, or from time to time, as the case may be, all
such further acts, deeds, assignments, transfers, conveyances, powers
of attorney, and assurances as may be necessary or proper to carry out
the provisions or intent of this Agreement.
10.7. Severability
------------
If any one or more of the terms, provisions, covenants or restrictions
of this Agreement shall be determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected,
impaired or invalidated. If, moreover, any one or more of the
provisions contained in this Agreement shall for any reason be
determined by a court of competent jurisdiction to be excessively
broad as to duration, geographical scope, activity or subject, it
shall be construed by limiting or reducing it so as to be enforceable
to the extent compatible with then applicable law.
IN WITNESS whereof the parties have set their hands this _____ day of
_______ for and on behalf of
CARDIOTECH INTERNATIONAL LIMITED
/s/ Michael Szycher, Ph.D.
- --------------------------
MICHAEL SZYCHER Ph.D.
Chairman of the Board
14
<PAGE>
EXECUTIVE
/s/ Alan Edwards
- ----------------
ALAN EDWARDS
15
<PAGE>
SCHEDULE A
AGREEMENT NOT TO COMPETE
------------------------
I recognize that CardioTech International Ltd. a company incorporated under
English law (the "Company" which term shall include its subsidiaries and
affiliated entities) desires to retain me in its employ and that the Company
wishes to ensure that I do not compete with the Company, as specified below, in
the event my employment with the Company is terminated.
In consideration of the Company's employment or continued employment of me, I
agree as follows:
1. I will not, for a period of one (1) year commencing with the termination of
my employment with the Company, engage (directly or indirectly) in any
activities or render any services similar or reasonably related to those in
which I shall be engaged or those reasonably related to those in which I
shall have engaged or those which I shall have rendered as an employee of
the Company during any part of the two year period preceding my termination
for any trade or business which directly competes with the Company in any
place where the Company does or may do business in any line of business
engaged in (or planned to be engaged in) by the Company, where now existing
or hereafter established, nor shall I engage in such activities nor render
such services for any other person or entity engaged or about to become
engaged in such activities to, for or on behalf of any such trade or
business.
2. I agree that for a period of one (1) year following termination of my
employment with the Company, I will not solicit or in any manner encourage
employees of the Company to leave their employ. I further agree that during
such period I will not offer or cause to be offered employment to any
person who was employed by the Company at any time during the six (6)
months prior to the termination of my employment with the Company.
16
<PAGE>
3. For the purposes of this Agreement. "termination of employment" shall mean
voluntary termination by me or termination by the Company for "Cause" (as
that term is defined in an Employment Agreement of even date herewith
between me and the Company).
4. I understand that nothing in this Agreement shall affect my obligations
under the "Confidential and Proprietary Information Agreement" between the
Company and myself of even date herewith.
5. I understand that in addition to any other rights and remedies available to
the Company for any breach by me of my obligations hereunder, the Company
shall be entitled to seek enforcement of my obligations hereunder by court
injunction.
6. If any provision of this Agreement shall be declared invalid, illegal or
unenforceable, then such provision shall be enforceable to the extent that
a court shall deem it reasonable to enforce such provision. If such
provision shall be unreasonable to enforce to any extent, such provision
shall be severed from this Agreement and all remaining provisions shall
continue in full force and effect.
7. This Agreement shall be governed in all respects by the laws of England.
IN WITNESS WHEREOF I have executed this Agreement.
/s/ Alan Edwards Date
- ------------------- ---------
Alan Edwards
ACCEPTED AND AGREED TO:
CardioTech International, Ltd
By: /s/Michael Szycher, Ph.D. Date: 3/24/98
------------------------- -------
Michael Szycher, Ph.D.
Chairman of the Board
17
<PAGE>
SCHEDULE B
FOR EMPLOYEES
-------------
CONFIDENTIAL AND PROPRIETARY INFORMATION AGREEMENT
--------------------------------------------------
In consideration of my employment by CardioTech International, Ltd. a company
incorporated under English law (the "Company", which term shall include its
subsidiaries and affiliated entities), I hereby agree as follows:
1. I will make full and prompt disclosure to the Company of all inventions,
improvements, modification, discoveries, methods, data, ideas and
developments (all of which are collectively -termed "Developments"
hereinafter), whether patentable or not, made or conceived or reduced to
practice or learned by me either alone or jointly with others or under my
direction during the period of my employment, whether or not made or
conceived during normal working hours or on the premises of the Company. I
do not have any Developments other than those I have already disclosed to
the Company.
2. I agree that all Developments covered by paragraph 1 shall be the sole
property of the Company and its assigns, and the Company and its assigns
shall be the sole owner of all patents and other rights in connection
therewith. I hereby assign to the Company any rights in connection
therewith. I hereby assign to the Company any rights I may have or acquire
in all Developments. I further agree as to all Developments to assist the
Company in every proper way (but at the Company's expense) to obtain and
from time to time enforce patents in Developments in any and all countries,
and to that end I will execute all documents for use in applying for and
obtaining such patents thereon and enforcing same as the Company may
desire, together with any assignments thereof to the Company or persons
designated by it. My obligation to assist the Company in obtaining and
enforcing patents for Developments in any and all countries shall continue
beyond the termination of my employment, but the Company shall compensate
me at a reasonable rate after such termination for time actually spent by
me at the Company's request on such assistance.
18
<PAGE>
I understand that this paragraph 2 does not apply to Developments for which
no equipment. supplies, facility or trade secret information of the Company
was used and which were developed entirely on my own time, and (a) which do
not relate (1) to the business of the Company or (2) to the Company's
actual or demonstrable anticipated research or Development, and (b) which
do not result from any work performed by me for the Company, but I agree
that the Company shall have a non-exclusive royalty free license to use
such Developments far all purposes.
3. I hereby represent that, to the best or my knowledge, I have no present
obligation to assign to any former employer or any other person,
corporation or firm, any Development covered by paragraph 2. I represent
that my performance of all the terms of this Agreement as an employee of
the Company does not and will not breach any agreement to keep in
confidence proprietary information acquired by me in confidence or in trust
prior to my employment by the Company. I have no entered into, and I agree
I will not enter into, any agreement (either written or oral) in conflict
herewith.
4. I will also assign to the Company and all copyrights and reproduction
rights to any material prepared by me in connection with my employment.
5. I understand as part of the consideration for the offer or employment
extended to me by the Company and of my employment or continued employment
by the Company that I have not brought and will not bring with me to the
Company or use in the performance of my responsibilities at the Company any
materials or documents of a former employer which are not generally
available to the public, unless I have obtained written authorization from
the former employer for their possession and use.
6. During the course of my employment by the Company, I may learn of the
Company's confidential information or confidential information entrusted to
the Company by other persons, corporations, or firms. The Company's
confidential information includes matters
19
<PAGE>
not generally known outside the Company, such as Developments relating to
existing and future products and services marketed or used by the Company
and data relating to the general business operations of the Company (e.g.
concerning sales, costs, profits, organizations, customer lists, pricing
methods etc.). I agree not to disclose any confidential information of the
Company or of such other persons, corporations, or firms to others or to
make use of it, except on the Company's behalf, whether or not such
information is produced by my own efforts. Also, I may learn of
Developments, ways of business, etc. which in themselves are generally
known, but whose use by the Company is not generally known, and I agree not
to disclose to other such use, whether or not such use is due to my own
efforts.
7. At the time I begin my employment and during the term of my employment by
the Company, I will not become employed by or act on behalf of any other
person, company, or firm which is engaged in any business or activity
similar to or competitive with that of the Company, unless such employment
has been approved by the Company in writing and signed by an appropriate
personnel manager of the Company.
8. In the event that my employment is transferred by the Company to a
subsidiary or affiliated company (as the case may be), my employment by
such company will, for the purposes of this Agreement, be considered as
continued employment by the Company, unless I execute an agreement
substantially similar in substance to this Agreement, in which event my
employment by the Company shall be deemed to continue until the effective
date of said agreement in any such company for which I become employed.
9. I hereby give the Company and its assigns permission to reasonably use
photographs of me, either during or after my employment, with or without
using my name, for whatever purposes it deems necessary.
10. Upon termination of my employment, unless my employment is transferred to a
subsidiary or affiliated company of the Company, I agree to leave with the
Company all
20
<PAGE>
records, drawings, notebooks and other documents permitting to the
Company's confidential information, whether prepared by me or others, and
also any equipment, tools or other devices owned by the Company, then in my
possession however such items are obtained, and I agree not to reproduce
any document or data relating thereto.
11. My obligations under this Agreement shall survive the termination of my
employment regardless of the manner of such termination, and shall be
binding upon my heirs, executors, and administrators.
12. Contemporaneously with entering the employ of the Company I have terminated
employment with all past employers.
13. I represent that I have made no Developments relevant to the subject matter
of my employment by the Company that have been made or conceived or first
reduced to practice by me alone or jointly with others prior to my
engagement by the Company.
14. I agree that in addition to any other rights and remedies available to the
Company for any breach by me of my obligations hereunder, the Company shall
be entitled to seek enforcement of my obligations hereunder by court
injunction.
15. If any provision of this Agreement shall be declared invalid, illegal or
unenforceable, then such provision shall be enforceable to the extent that
a court shall deem it reasonable to enforce such provision. If such
provision shall be unreasonable to any extent, such provision shall be
severed from this Agreement and all remaining provisions shall continue in
full force and effect.
16. This Agreement shall be effective as of the date set forth below next to my
signature.
17. This Agreement shall be governed in all respects by the laws of England.
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IN WITNESS WHEREOF I have executed this Agreement.
/s/ Alan Edwards
- -------------------
Alan Edwards
ACCEPTED AND AGREED TO:
Cardiotech International, Ltd.
By: /s/Michael Szycher, Ph.D. Date: 3/24/98
------------------------- -------
Michael Szycher, Ph.D.
Chairman of the Board
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EXHIBIT 10.11
CUMMINGS PROPERTIES MANAGEMENT, INC.
STANDARD FORM
COMMERCIAL LEASE 598325-DJC-B
In consideration of the covenants herein contained, Cummings Properties
Management, Inc., hereinafter called LESSOR, does hereby lease to CardioTech
International, Inc. (a MA corp.), 11 State Street, Woburn, MA 01801 hereinafter
called LESSEE, the following described premises, hereinafter called the leased
premises: approximately 15,788 square feet at 78-E Olympia Avenue, Woburn, MA
01801.
TO HAVE AND HOLD the leased premises for a term of five (5) years commencing at
noon on September 1, 1998 and ending at noon on August 30, 2003 unless sooner
terminated as herein provided. LESSOR and LESSEE now covenant and agree that the
following terms and conditions shall govern this lease during the term hereof
and for such further time as LESSEE shall hold the leased premises.
1. RENT. LESSEE shall pay to LESSOR base rent at the rate of one hundred
eighty eight thousand six hundred sixty six (188,666.00) U.S. dollars per year,
drawn on a U.S. bank, payable in advance in monthly installments of $15,722.16
on the first day in each calendar month in advance, the first monthly payment to
be made upon LESSEE's execution of this lease, including payment in advance of
appropriate fractions of a monthly payment for any portion of a month at the
commencement or end of said lease term. All payments shall be made to LESSOR or
agent at 200 West Cummings Park, Woburn, Massachusetts 01801, or at such other
place as LESSOR shall from time to time in writing designate. If the "Cost of
Living" has increased as shown by the Consumer Price Index (Boston,
Massachusetts, all items, all urban consumers), U.S. Bureau of Labor Statistics,
the amount of base rent due during each calendar year of this lease and any
extensions thereof shall be annually adjusted in proportion to any increase in
the Index. All such adjustments shall take place with the rent due on January 1
of each year during the lease term. The base month from which to determine the
amount of each increase in the Index shall be January 1998, which figure shall
be compared with the figure for November 1999, and each November thereafter to
determine the percentage increase (if any) in the base rent to be paid during
the following calendar year. In the event that the Consumer Price Index as
presently computed is discontinued as a measure of "Cost of Living" changes, any
adjustment shall then be made on the basis of a comparable index then in general
use.
2. SECURITY DEPOSIT. LESSEE shall pay to LESSOR a security deposit in
the amount of thirty nine thousand six hundred (39,600.00) U.S. dollars upon the
execution of this lease by LESSEE, which shall be held as security for LESSEE's
performance as herein provided and refunded to LESSEE without interest at the
end of this lease, subject to LESSEE's satisfactory compliance with the
conditions hereof. LESSEE may not apply the security deposit to payment of the
last month's rent. In the event of any default or breach of this lease by
LESSEE, LESSOR may immediately apply the security deposit first to any
unamortized improvements completed for LESSEE's occupancy, then to offset any
outstanding invoice or other payment due to LESSOR, with the balance applied to
outstanding rent. If all or any portion of the security deposit is applied to
cure a default or breach during the term of the lease, LESSEE shall be
responsible for restoring said deposit forthwith, and failure to do so shall be
considered a substantial default under the lease. LESSEE's failure to remit the
full security deposit or any portion thereof when due shall also constitute a
substantial lease default. Until such time as LESSEE pays the security deposit
and first months rent, LESSOR may declare this lease null and void for failure
of consideration.
3. USE OF PREMISES. LESSEE shall use the leased premises only for the
purpose of office and manufacturing space.
4. ADDITIONAL RENT. LESSEE shall pay to LESSOR as additional rent its
proportionate share (14.34%) (based on square footage leased by LESSEE as
compared with the total leaseable square footage of the building of which the
leased premises are a part) of any increase in the real estate taxes levied
against the land and building of which the leased premises are a part
(hereinafter called the building), whether such increase is caused by an
increase in the tax rate, or the assessment on the property, or a change in the
method of determining real estate taxes. LESSEE shall make payment within thirty
(30) days of written notice from LESSOR that such increased taxes are payable,
and any additional rent shall be prorated should the lease terminate before the
end of any tax year. The base from which to determine the amount of any increase
in taxes shall be the rate and the assessment in effect as of July 1, 1997.
<PAGE>
5. UTILITIES. LESSOR shall provide equipment per LESSOR's building
standard specifications to heat the leased premises in season and to cool all
office areas between May 1 and November 1. LESSEE shall pay all charges for
utilities used on the leased premises, including electricity, gas, oil, water
and sewer. LESSEE shall pay the utility provider or LESSOR, as applicable, for
all such utility charges as determined by separate meters serving the leased
premises and/or as a proportionate share of the utility charges for the building
if not separately metered. LESSEE shall also pay LESSOR a proportionate share of
any other fees and charges relating in any way to utility use at the building.
No plumbing, construction or electrical work of any type shall be done without
LESSOR's prior written approval and LESSEE obtaining the appropriate municipal
permit.
6. COMPLIANCE WITH LAWS. LESSEE acknowledges that no trade, occupation,
activity or work shall be conducted in the leased premises or use made thereof
which may be unlawful, improper, noisy, offensive, or contrary to any applicable
statute, regulation, ordinance or bylaw. LESSEE shall keep all employees working
in the leased premises covered by Workers Compensation Insurance and shall
obtain any licenses and permits necessary for LESSEE's occupancy. LESSEE shall
be responsible for causing the leased premises and any alterations by LESSEE
which are allowed hereunder to be in full compliance with any applicable
statute, regulation, ordinance or bylaw.
7. FIRE, CASUALTY EMINENT DOMAIN. Should a substantial portion of the
leased premises, or of the property of which they are a part, be substantially
damaged by fire or other casualty, or be taken by eminent domain, LESSOR may
elect to terminate this lease. When such fire, casualty, or taking renders the
leased premises substantially unsuitable for their intended use, a just and
proportionate abatement of rent shall be made, and LESSEE may elect to terminate
this lease if: (a) LESSOR fails to give written notice within thirty (30) days
of intention to restore the leased premises, or (b) LESSOR fails to restore the
leased premises to a condition substantially suitable for their intended use
within ninety (90) days of said fire, casualty or taking. LESSOR reserves all
rights for damages or injury to the leased premises for any taking by eminent
domain, except for damage to LESSEE's property or equipment.
8. FIRE INSURANCE. LESSEE shall not permit any use of the leased
premises which will adversely affect or make voidable any insurance on the
property of which the leased premises are a part, or on the contents of said
property, or which shall be contrary to any law or regulation from time to time
established by the Insurance Services Office (or successor), local Fire
Department, LESSOR's insurer, or any similar body. LESSEE shall on demand
reimburse LESSOR, and all other tenants, all extra insurance premiums caused by
LESSEE's use of the leased premises. LESSEE shall not vacate the leased premises
or permit same to be unoccupied other than during LESSEE's customary non-
business days or hours.
9. MAINTENANCE OF PREMISES. LESSOR will be responsible for all
structural maintenance of the leased premises and for the normal daytime
maintenance of all space heating and cooling equipment, sprinklers, doors,
locks, plumbing, and electrical wiring, but specifically excluding damage caused
by the careless, malicious, willful, or negligent acts of LESSEE or others,
chemical, water or corrosion damage from any source, and maintenance of any non
"building standard" leasehold improvements. LESSEE agrees to maintain at its
expense all other aspects of the leased premises in the same condition as they
are at the commencement of the term or as they may be put in during the term of
this lease, normal wear and tear and damage by fire or other casualty only
excepted, and whenever necessary, to replace light bulbs, plate glass and other
glass therein, acknowledging that the leased premises are now in good order and
the light bulbs and glass whole. LESSEE will properly control or vent all
solvents, degreasers, smoke, odors, etc. and shall not cause the area
surrounding the leased premises to be in anything other than a neat and clean
condition, depositing all waste in appropriate receptacles. LESSEE shall be
solely responsible for any damage to plumbing equipment, sanitary lines, or any
other portion of the building which results from the discharge or use of any
acid or corrosive substance by LESSEE. LESSEE shall not permit the leased
premises to be overloaded, damaged, stripped or defaced, nor suffer any waste,
and will not keep animals within the leased premises. If the leased premises
include any wooden mezzanine type space, the floor capacity of such space is
suitable only for office use, light storage or assembly work. LESSEE will
protect any carpet with plastic or masonite chair pads under any rolling chairs.
Unless heat is provided at LESSORS expense, LESSEE shall maintain sufficient
heat to prevent freezing of pipes or other damage. Any increase in air
conditioning equipment or electrical capacity or any installation or maintenance
of equipment which is necessitated by some specific aspect of LESSEE's use of
the leased premises shall be LESSEE's sole responsibility, at LESSEE's expense
and subject to LESSOR's prior written consent. All maintenance provided by
LESSOR shall be during LESSOR's normal business hours.
10. ALTERATIONS. LESSEE shall not make structural alterations or
additions of any kind to the leased premises, but may make nonstructural
alterations provided LESSOR consents thereto in writing. All such allowed
alterations shall be at LESSEE's expense and shall conform with LESSOR's
construction specifications. If LESSOR or LESSOR's agent provides any services
or maintenance for LESSEE in connection with such alterations or otherwise under
this lease, any just invoice will be promptly paid. LESSEE shall not permit any
mechanics' liens, or similar liens, to remain upon the leased premises in
connection with work of any
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character performed or claimed to have been performed at the direction of LESSEE
and shall cause any such lien to be released or removed forthwith without cost
to LESSOR. Any alterations or additions shall become part of the leased premises
and the property of LESSOR. Any alterations completed by LESSOR or LESSEE shall
be LESSOR's "building standard" unless noted otherwise. LESSOR shall have the
right at any time to change the arrangement of parking areas, stairs, walkways
or other common areas of the building.
11. ASSIGNMENT OR SUBLEASING. LESSEE shall not assign this lease or
sublet or allow any other firm or individual to occupy the whole or any part of
the leased premises without LESSOR's prior written consent. Notwithstanding such
assignment or subleasing, LESSEE and GUARANTOR shall remain liable to LESSOR for
the payment of all rent and for the full performance of the covenants and
conditions of this lease. LESSEE shall pay LESSOR promptly for legal and
administrative expenses incurred by LESSOR in connection with any consent
requested hereunder by LESSEE.
12. SUBORDINATION. This lease shall be subject and subordinate to any and
all mortgages and other instruments in the nature of a mortgage, now or at any
time hereafter, and LESSEE shall, when requested, promptly execute and deliver
such written instruments as shall be necessary to show the subordination of this
lease to said mortgages or other such instruments in the nature of a mortgage.
13. LESSOR'S ACCESS. LESSOR or agents of LESSOR may at any reasonable
time enter to view the leased premises, to make repairs and alterations as
LESSOR should elect to do for the leased premises, the common areas or any other
portions of the building, to make repairs which LESSEE is required but has
failed to do, and to show the leased premises to others.
14. SNOW REMOVAL. The plowing of snow from all roadways and unobstructed
parking areas shall be at the sole expense of LESSOR. The control of snow and
ice on all walkways, steps and loading areas serving the leased premises and all
other areas not readily accessible to plows shall be the sole responsibility of
LESSEE. Notwithstanding the foregoing, however, LESSEE shall hold LESSOR and
OWNER harmless from any and all claims by LESSEE's agents, representatives,
employees, callers or invitees for damage or personal injury resulting in any
way from snow or ice on any area serving the leased premises, except for claims
arising out of LESSOR's negligence.
15. ACCESS AND PARKING. LESSEE shall have the right without additional
charge to use parking facilities provided for the leased premises in common with
others entitled to the use thereof. Said parking areas plus any stairs,
corridors, walkways, elevators or other common areas (hereinafter collectively
called the common areas) shall in all cases be considered a part of the leased
premises when they are used by LESSEE or LESSEE's employees, agents, callers or
invitees. LESSEE will not obstruct in any manner any portion of the building or
the walkways or approaches to the building, and will conform to all rules and
regulations now or hereafter made by LESSOR for parking, and for the care, use,
or alteration of the building, its facilities and approaches. LESSEE further
warrants that LESSEE will not permit any employee or visitor to violate this or
any other covenant or obligation of LESSEE. No unattended parking will be
permitted between 7:00 PM and 7:00 AM without LESSOR's prior written approval,
and from December 1 through March 31 annually, such parking shall be permitted
only in those areas specifically designated for assigned overnight parking.
Unregistered or disabled vehicles, or storage trailers of any type, may not be
parked at any time. LESSOR may tow, at LESSEE's sole risk and expense, any
misparked vehicle belonging to LESSEE or LESSEE's agents, employees, invitees or
callers, at any time. LESSOR shall not be responsible for providing any security
services for the leased premises.
16. LIABILITY. LESSEE shall be solely responsible as between LESSOR and
LESSEE for deaths or personal injuries to all persons whomsoever occurring in or
on the leased premises (including any common areas that are considered part of
the leased premises hereunder) from whatever cause arising, and damage to
property to whomsoever belonging arising out of the use, control, condition or
occupation of the leased premises by LESSEE; and LESSEE agrees to indemnify and
save harmless LESSOR and OWNER from any and all liability, including but not
limited to costs, expenses, damages, causes of action, claims, judgments and
attorneys fees caused by or in any way growing out of any matters aforesaid,
except for death, personal injuries or property damage directly resulting from
the negligence or willful misconduct of LESSOR.
17. INSURANCE. LESSEE will secure and carry at its own expense a
commercial general liability policy insuring LESSEE, LESSOR and OWNER against
any claims based on bodily injury (including death) or property damage arising
out of the condition of the leased premises (including any common areas that are
considered part of the leased premises hereunder) or their use by LESSEE, such
policy to insure LESSEE, LESSOR and OWNER against any claim up to One Million
(1,000,000) Dollars in the case of any one accident involving bodily injury
(including death), and up to One Million (1,000,000) Dollars against any claim
for damage to property. LESSOR and OWNER shall be included in each such policy
as additional insureds using ISO Form CG 20 26 11 85 or some other form approved
by LESSOR. LESSEE will file with LESSOR prior to occupancy certificates and any
applicable
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riders or endorsements showing that such insurance is in force, and thereafter
will file renewal certificates prior to the expiration of any such policies. All
such insurance certificates shall provide that such policies shall not be
cancelled without at least ten (10) days prior written notice to each insured.
In the event LESSEE shall fail to provide or maintain such insurance at any time
during the term of this lease, then LESSOR may elect to contract for such
insurance at LESSEE's expense.
18. SIGNS. LESSOR authorizes, and LESSEE at LESSEE's expense agrees to
erect promptly upon commencement of this lease, signage for the leased premises
in accordance with LESSOR's building standards for style, size, location, etc.
LESSEE shall obtain the prior written consent of LESSOR before erecting any sign
on the leased premises, which consent shall include approval as to size,
wording, design and location. LESSOR may remove and dispose of any sign not
approved, erected or displayed in conformance with this lease.
19. BROKERAGE. LESSEE warrants and represents to LESSOR that LESSEE has
dealt with no broker except Mark St. Jean of Phoenix Corporate Services or third
person with respect to this lease, and LESSEE agrees to indemnity LESSOR against
any brokerage claims arising by virtue of this lease. LESSOR warrants and
represents to LESSEE that LESSOR has employed no exclusive broker or agent in
connection with the letting of the leased premises.
20. DEFAULT AND ACCELERATION OF RENT. In the event that: (a) any
assignment for the benefit of creditors, trust mortgage, receivership or other
insolvency proceeding shall be made or instituted with respect to LESSEE or
LESSEE's property; (b) LESSEE shall default in the observance or performance of
any of LESSEE's covenants, agreements, or obligations hereunder, other than
substantial monetary payments as provided below, and such default shall not be
corrected within twenty (20) days after written notice thereof; or (c) LESSEE
vacates the leased premises without continuing to pay rent, then LESSOR shall
have the right thereafter, while such default continues and without demand or
further notice, to re-enter and take possession of the leased premises, to
declare the term of this lease ended, and to remove LESSEE's effects, without
being guilty of any manner of trespass, and without prejudice to any remedies
which might be otherwise used for arrears of rent or other default or breach of
the lease. If LESSEE shall default in the payment of the security deposit, rent,
taxes, substantial invoice from LESSOR or LESSOR's agent for goods and/or
services or other sum herein specified, and such default shall continue for ten
(10) days after written notice thereof, and, because both parties agree that
nonpayment of said sums when due is a substantial breach of the lease, and,
because the payment of rent in monthly installments is for the sole benefit and
convenience of LESSEE, then in addition to the foregoing remedies the entire
balance of rent which is due hereunder shall become immediately due and payable
as liquidated damages. LESSOR, without being under any obligation to do so and
without thereby waiving any default, may remedy same for the account and at the
expense of LESSEE. If LESSOR pays or incurs any obligations for the payment of
money in connection therewith, such sums paid or obligations incurred plus
interest and costs, shall be paid to LESSOR by LESSEE as additional rent. Any
sums received by LESSOR from or on behalf of LESSEE at any time shall be applied
first to any unamortized improvements completed for LESSEE's occupancy, then to
offset any outstanding invoice or other payment due to LESSOR, with the balance
applied to outstanding rent. LESSEE agrees to pay reasonable attorney's fees
and/or administrative costs incurred by LESSOR in enforcing any or all
obligations of LESSEE under this lease at any time. LESSEE shall pay LESSOR
interest at the rate of eighteen (18) percent per annum on any payment from
LESSEE to LESSOR which is past due.
21. NOTICE. Any notice from LESSOR to LESSEE relating to the leased
premises or to the occupancy thereof shall be deemed duly served when served by
constable, or sent to the leased premises by certified mail, return receipt
requested, postage prepaid, addressed to LESSEE. Any notice from LESSEE to
LESSOR relating to the leased premises or to the occupancy thereof shall be
deemed duly served when served by constable, or delivered to LESSOR by certified
mail, return receipt requested, postage prepaid, addressed to LESSOR at 200 West
Cummings Park, Woburn, MA 01801 or at LESSOR's last designated address. No oral
notice or representation shall have any force or effect. Time is of the essence
in the service of any notice.
22. OCCUPANCY. In the event that LESSEE takes possession of said leased
premises prior to the start of the lease term, LESSEE will perform and observe
all of LESSEE's covenants from the date upon which LESSEE takes possession
except the obligation for the payment of extra rent for any period of less than
one month. LESSEE shall not remove LESSEE's goods or property from the leased
premises other than in the ordinary and usual course of business, without having
first paid and satisfied LESSOR for all rent which may become due during the
entire term of this lease. In the event that LESSEE continues to occupy or
control all or any part of the leased premises after the agreed termination of
this lease without the written permission of LESSOR, then LESSEE shall be liable
to LESSOR for any and all loss, damages or expenses incurred by LESSOR, and all
other terms of this lease shall continue to apply except that rent shall be due
in full monthly installments at a rate of one hundred fifty (150) percent of
that which would otherwise be due under this lease, it being understood between
the parties that such extended occupancy is as a tenant at sufferance and is
solely for the benefit and convenience of LESSEE and as such has greater rental
value. LESSEE's control or occupancy of all or any part of the leased premises
beyond noon on the last day of any monthly rental period shall constitute
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LESSEE's occupancy for an entire additional month, and increased rent as
provided in this section shall be due and payable immediately in advance.
LESSOR's acceptance of any payments from LESSEE during such extended occupancy
shall not alter LESSEE's status as a tenant at sufferance.
23. FIRE PREVENTION. LESSEE agrees to use every reasonable precaution
against fire and agrees to provide and maintain approved, labeled fire
extinguishers, emergency lighting equipment, and exit signs and complete any
other modifications within the leased premises as required or recommended by the
Insurance Services Office (or successor organization), OSHA, the local Fire
Department, or any similar body.
24. OUTSIDE AREA. Any goods, equipment, or things of any type or
description held or stored in any common area without LESSOR's prior written
consent shall be deemed abandoned and may be removed by LESSOR at LESSEE's
expense without notice. LESSEE shall maintain a building standard size dumpster
in a location approved by LESSOR, which dumpster shall be provided and serviced
at LESSEE's expense by whichever disposal firm may from time to time be
designated by LESSOR.
25. ENVIRONMENT. LESSEE will so conduct and operate the leased premises
as not to interfere in any way with the use and enjoyment of other portions of
the same or neighboring buildings by others by reason of odors, smoke, exhaust,
smells, noise, pets, accumulation of garbage or trash, vermin or other pests, or
otherwise, and will at its expense employ a professional pest control service if
necessary. LESSEE agrees to maintain efficient and effective devices for
preventing damage to heating equipment from solvents, degreasers, cutting oils,
propellants, etc. which may be present at the leased premises. No hazardous
materials or wastes shall be stored, disposed of, or allowed to remain at the
leased premises at any time, and LESSEE shall be solely responsible for any and
all corrosion or other damage associated with the use, storage and/or disposal
of same by LESSEE.
26. RESPONSIBILITY. Neither LESSOR nor OWNER shall be held liable to
anyone for loss or damage caused in any way by the use, leakage, seepage or
escape of water from any source, or for the cessation of any service rendered
customarily to said premises or buildings, or agreed to by the terms of this
lease, due to any accident, the making of repairs, alterations or improvements,
labor difficulties, weather conditions, mechanical breakdowns, trouble or
scarcity in obtaining fuel, electricity, service or supplies from the sources
from which they are usually obtained for said building, or any cause beyond
LESSOR's immediate control.
27. SURRENDER. LESSEE shall at the termination of this lease remove all
of LESSEE's goods and effects from the leased premises. LESSEE shall deliver to
LESSOR the leased premises and all keys and locks thereto, all fixtures and
equipment connected therewith, and all alterations, additions and improvements
made to or upon the leased premises, whether completed by LESSEE, LESSOR or
others, including but not limited to any offices, partitions, window blinds,
floor coverings (including computer floors), plumbing and plumbing fixtures, air
conditioning equipment and ductwork of any type, exhaust fans or heaters, water
coolers, burglar alarms, telephone wiring, telephone equipment, air or gas
distribution piping, compressors, overhead cranes, hoists, trolleys or
conveyors, counters, shelving or signs attached to walls or floors, all
electrical work, including but not limited to lighting fixtures of any type,
wiring, conduit, EMT, transformers, distribution panels, bus ducts, raceways,
outlets and disconnects, and furnishings or equipment which have been bolted,
welded, nailed, screwed, glued or otherwise attached to any wall, floor,
ceiling, root pavement or ground, or which have been directly wired to any
portion of the electrical system or which have been plumbed to the water supply,
drainage or venting systems serving the leased premises. LESSEE shall deliver
the leased premises sanitized from any chemicals or other contaminants, and
broom clean and in the same condition as they were at the commencement of this
lease or any prior lease between the parties for the leased premises, or as they
were modified during said term with LESSOR's written consent, reasonable wear
and tear and damage by fire or other casualty only excepted. In the event of
LESSEE's failure to remove any of LESSEE's property from the leased premises
upon termination of the lease, LESSOR is hereby authorized, without liability to
LESSEE for loss or damage thereto, and at the sole risk of LESSEE, to remove and
store any such property at LESSEE's expense, or to retain same under LESSOR's
control, or to sell at public or private sale (without notice), any or all of
the property not so removed and to apply the net proceeds of such sale to the
payment of any sum due hereunder, or to destroy such abandoned property. In no
case shall the leased premises be deemed surrendered to LESSOR until the
termination date provided herein or such other date as may be specified in a
written agreement between the parties, notwithstanding the delivery of any keys
to LESSOR.
28. GENERAL. (a) The invalidity or unenforceability of any provision of
this lease shall not affect or render invalid or unenforceable any other
provision hereof. (b) The obligations of this lease shall run with the land, and
this lease shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that LESSOR and OWNER shall
be liable only for obligations occurring while lessor, owner, or master lessee
of the premises. (c) Any action or proceeding arising out of the subject matter
of this lease shall be brought by LESSEE within one year after the cause of
action has occurred and only in a court of the Commonwealth of Massachusetts.
(d) If LESSOR is acting under or as agent for any trust or corporation, the
obligations
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of LESSOR shall be binding upon the trust or corporation, but not upon any
trustee, officer, director, shareholder, or beneficiary of the trust or
corporation individually. (e) If LESSOR is not the owner (OWNER) of the leased
premises, LESSOR represents that said OWNER has agreed to be bound by the terms
of this lease unless LESSEE is in default hereof. (f) This lease is made and
delivered in the Commonwealth of Massachusetts, and shall be interpreted,
construed, and enforced in accordance with the laws thereof. (g) This lease was
the result of negotiations between parties of equal bargaining strength, and
when executed by both parties shall constitute the entire agreement between the
parties, superseding all prior oral and written agreements, representations,
statements and negotiations relating in any way to the subject matter herein.
This lease may not be extended or amended except by written agreement signed by
both parties or as otherwise provided herein, and no other subsequent oral or
written representation shall have any effect hereon. (h) Notwithstanding any
other statements herein, LESSOR makes no warranty, express or implied,
concerning the suitability of the leased premises for LESSEE's intended use. (i)
LESSEE agrees that if LESSOR does not deliver possession of the leased premises
as herein provided for any reason, LESSOR shall not be liable for any damages to
LESSEE for such failure, but LESSOR agrees to use reasonable efforts to deliver
possession to LESSEE at the earliest possible date. A proportionate abatement of
rent, excluding the cost of any amortized improvements to the leased premises,
for such time as LESSEE may be deprived of possession of the leased premises,
except where a delay in delivery is caused in any way by LESSEE, shall be
LESSEE's sole remedy. (j) Neither the submission of this lease form, nor the
prospective acceptance of the security deposit and/or rent shall constitute a
reservation of or option for the leased premises, or an offer to lease, it being
expressly understood and agreed that this lease shall not bind either party in
any manner whatsoever until it has been executed by both parties. (k) LESSEE
shall not be entitled to exercise any option contained herein if LESSEE is at
that time in default of any terms or conditions hereof. (l) Except as otherwise
provided herein, LESSOR, OWNER and LESSEE shall not be liable for any special,
incidental, indirect or consequential damages, including but not limited to lost
profits or loss of business, arising out of or in any manner connected with
performance or nonperformance under this lease, even if any party has knowledge
of the possibility of such damages. (m) The headings in this lease are for
convenience only and shall not be considered part of the terms hereof. (n) No
endorsement by LESSEE on any check shall bind LESSOR in any way. (o) LESSOR and
LESSEE hereby waive any and all rights to a jury trial in any proceeding in any
way arising out of this lease.
29. This paragraph has been deleted as it does not apply.
30. WAIVERS, ETC. No consent or waiver express or implied by LESSOR to or
of any breach of any covenant, condition or duty of LESSEE shall be construed as
a consent or waiver to or of any other breach of the same or any other covenant,
condition or duty. If LESSEE is several persons, several corporations or a
partnership, LESSEE's obligations are joint or partnership and also several.
Unless repugnant to the context, "LESSOR' and 'LESSEE" mean the person or
persons, natural or corporate, named above as LESSOR and as LESSEE respectively,
and their respective heirs, executors, administrators, successors and assigns.
31. This paragraph has been deleted as it does not apply.
32. ADDITIONAL PROVISIONS. (Continued on attached rider(s) if necessary.)
--See Attached Rider--
IN WITNESS WHEREOF, LESSOR and LESSEE have hereunto set their hands and
common seals and intend to be legally bound hereby this 26th day of
June, 1998.
LESSOR: CUMMINGS PROPERTIES MANAGEMENT, INC. LESSEE: CARDIOTECH
INTERNATIONAL, INC.
By: /s/ W.S. Cummings By: /s/ Michael Szycher, Ph.D.
___________________________________________ ___________________________
President
GUARANTY
This paragraph has been deleted as it does not apply.
6
<PAGE>
CUMMINGS PROPERTIES MANAGEMENT, INC.
STANDARD FORM
RIDER TO LEASE 598325-DJC-5
The following additional provisions are incorporated into and made a part of the
attached lease:
A. LESSOR, at LESSOR's cost, shall modify the leased premises according to a
mutually agreed upon plan attached hereto before LESSEE takes possession of
the leased premises, except for punch list items which shall be completed
within 30 days following LESSEE's occupancy.
B. * LESSOR, if requested to do so by LESSEE, and at LESSEE's sole expense,
agrees to complete certain improvements and alterations necessitated by
LESSEE's use of the leased premises according to a plan to be mutually
agreed upon by both parties. These alterations shall be considered
"nonbuilding standard" for maintenance purposes pursuant to Section 9 of
the lease.
C. The parties acknowledge and agree that, as of the execution of this lease,
the leased premises have not been demised. Accordingly, upon completion of
the modifications provided for herein, LESSOR shall measure the leased
premises, and if the size does not equal the total number of square feet
set forth in the initial paragraph of this lease, the parties shall execute
an amendment to this lease that adjusts the size and rent accordingly. The
total square footage of the leased premises shall not exceed 20,000
leaseable square feet in the event the size of the leased premises does
change.
D. * Notwithstanding monthly rent as provided in Section 1 above, LESSEE may
deduct $1,315.66 per month from each monthly rental payment due from
September 1,1998 through August 30, 1999 (only), provided LESSOR receives
each such monthly payment on or before the first day of the month for which
that rent is due and LESSEE is not otherwise in default of the lease or in
arrears of any rent or invoice payments. Time is of the essence.
E. * The maximum cumulative "Cost of Living" increase during the initial term
of the lease (only) shall not exceed an average of 8% per calendar year.
F. * Whenever LESSOR's or LESSEE's consent, agreement or approval is required
under this lease, said consent, agreement or approval shall not be
unreasonably withheld or delayed.
G. * LESSEE shall have the right to assign this lease or sublet the leased
premises to an affiliated corporation, namely a corporation in which LESSEE
owns at least a 50 percent interest, a corporation which owns at least a 50
percent interest in LESSEE, a corporation which is under common control
with LESSEE, a corporation with which LESSEE merges, or a corporation which
is formed as a result of a merger or consolidation involving LESSEE,
without further consent from LESSOR, provided LESSEE serves LESSOR with
prior written notice to that effect. The provisions of Section 11 shall
govern said assignment in all other respects.
H. * LESSOR agrees that all work to be performed by LESSOR as set forth in the
plan attached hereto shall be completed in a good and workmanlike manner.
I. * Notwithstanding the commencement date of the lease, LESSEE may occupy the
leased premises as of August 15, 1998, or as soon as substantially
complete, provided this lease has been fully executed, the Security Deposit
and the first month's rent due for the month of September 1998 have been
fully paid, and all required insurance certificates and financing
statements have been produced, without further obligation for the payment
of monthly rent until October 1, 1998. All other terms, covenants and
conditions of this lease shall apply during this rent-free period.
<PAGE>
J. * LESSEE shall have access to the leased premises seven days per week, 24
hours per day. LESSEE acknowledges and agrees that LESSOR has no
responsibility for providing any security services for the leased premises,
and LESSEE assumes any and all risks in that regard.
K. * LESSOR and LESSEE do hereby mutually release and discharge each other of
and from all liability and responsibility to the other for any loss, damage
or liability covered by insurance if and to the extent that the written
release and, discharge does not invalidate or adversely affect any
applicable insurance, provided both parties secure and maintain all
insurance required hereunder.
L. During the initial term of this lease, LESSEE shall have the option to
lease approximately 6,100 square feet of additional mezzanine level space
above the leased premises under proportionately the same terms and
conditions as this lease, provided said space is then available for lease
directly from LESSOR, by serving LESSOR with written notice of its desire
to lease said space. Upon receipt of LESSEE's notice, LESSOR shall deliver
to LESSEE an amendment to this lease which incorporates said space into the
leased premises, and LESSEE must then sign and deliver to LESSOR said
amendment within three business days of receipt. LESSOR shall then have two
months from receipt of the signed amendment to deliver said space. If said
space is then under lease to another party, during the two-month delivery
period LESSOR shall either (1) relocate the other party or (2) deliver a
similar amount of additional space elsewhere in one of LESSOR's buildings
on proportionately the same terms and conditions, except that the rental
rate shall be one-half its then current rental rate for the first floor
premises. This election of remedies shall be LESSEE's exclusive remedy for
any failure by LESSOR to deliver possession of said mezzanine level space
or any breach by LESSOR of the provisions of this paragraph. Time is of the
essence.
LESSOR: CUMMINGS PROPERTIES MANAGEMENT, INC. LESSEE: CARDIOTECH
INTERNATIONAL, INC.
By: /s/ W.S. Cummings By: /s/ Michael Szycher, Ph.D.
___________________________________________ ___________________________
President
Date: June 26, 1998
_________________________________________
<PAGE>
EXHIBIT 10.12
DATED 1998
(1) FREEMEDIC PLC
(2) CARDIOTECH INTERNATIONAL LIMITED
AND
(3) CARDIOTECH INTERNATIONAL INC
LOAN AND
OPTION AGREEMENT
AARON & PARTNERS
GROSVENOR COURT
FOREGATE STREET
CHESTER
CH1 1HG
REF: IV.CAR51.2
<PAGE>
THIS DEED is made the day of 1998
BETWEEN:
(1) FREEMEDIC PLC (registered number 2776963) whose registered office is at The
Royal Free Hospital School of Medicine, University of London, Rowland Hill
Street, London, NW3 2PF ("Freemedic");
(2) CARDIOTECH INTERNATIONAL LIMITED (registered number 3198267) whose
registered office is situate at 5/7 Grosvenor Court, Foregate Street,
Chester, CH1 1HG ("the Company"); and
(3) CARDIOTECH INTERNATIONAL INC. a U.S. Corporation incorporated under the
laws of the State of Massachusetts and whose principal place of business is
11 State Street, Woburn, Massachusetts, 01801 ("the Parent").
WHEREAS:
(A) The Company is a private company limited by shares incorporated in England
and Wales with registered number 3198267 and is the wholly owned subsidiary
of the Parent.
(B) The Parent is a Massachusetts corporation with a capitalisation as at the
date hereof of 20,000,000 shares of common stock each with a par value of
$0.01 per share of which 4,272,916 are issued (excluding any common stock
to be issued under a 7% Convertible Senior Note between the Parent and the
third party investor referred to in Clause 2.1) and 5,000,000 shares of
preferred stock each with a par value of $0.01 per share none of which are
issued.
(C) In accordance with the terms of the Research Agreement, the Medical School
(each as defined) and the Company have agreed to carry out certain research
and development work as detailed therein.
(D) In order inter alia to fund the aforementioned work Freemedic is to advance
certain monies to the Company subject to the repayment provisions set out
below.
1
<PAGE>
(E) As security for their respective compliance with the terms of this
Agreement, the Company has granted a debenture over certain of its assets
and the Parent has given a guarantee.
(F) As a further term of such Agreement, the parties hereto have agreed to the
granting of an option over the shares of the Parent in the form set out
below.
NOW THIS DEED WITNESSES AND IT IS HEREBY AGREED as follows:-
1. INTERPRETATION
--------------
1.1. DEFINITIONS
-----------
"Account" the Company's designated deposit account set
up pursuant to Clause 3.3;
"the Act" the Companies Act 1985 (as amended or
updated);
"AMEX" the American Stock Exchange;
"business day" a day (other than a Saturday or a Sunday) on
which banks are open for business in London);
"Call Notice" a notice served pursuant to Clause 6.1;
"Call Option" the option more particularly set out in
Clause 6;
"Call Option Period" the period more particularly specified in
Clause 6.2;
"Common Stock" the common stock of the Parent referred to in
2
<PAGE>
Recital B.
"the Company's Solicitors" Messrs Aaron & Partners, Grosvenor
Court, Foregate Street, Chester, CH1
1HG;
"Debenture" the fixed and floating charge in the
form set out in Schedule 2;
"Effective Date" the date of completion of this Agreement
in accordance with Clause 2;
"Market Price" the closing price of the Common Stock
quoted on AMEX (or such other national
securities exchange or automated
quotation system on which the Common
Stock is then listed) on the relevant
day;
"Medical School" the Royal Free Hospital School of
Medicine, c/o University of London,
Rowland Hill Street, London NW3 2PF;
"Minimum Period" shall have the meaning given to it in
Clause 2.2 of the Research Agreement.
"Option Completion Date" the date on which either the Put Option
or Call Option is completed in
accordance with the terms of this
Agreement;
"Option Monies" all monies (including any accrued
interest thereon) calculated as due and
owing from the Company to Freemedic
hereunder and more particularly detailed
in Schedule 1 hereof as at the Option
Completion Date.
3
<PAGE>
"Option Shares" the number of shares of Common Stock in
the capital of the Parent calculated
pursuant to Clause 12.1 and more
particularly detailed in Clause 12.
"Parent Guarantee" the guarantee to be entered into by the
Parent in favour of Freemedic and in the
form set out in Schedule 3;
"Put Notice" a notice served pursuant to Clause 7.1;
"Put Option" the option more particularly set out in
Clause 7;
"Put Option Period" the period more particularly specified
in Clause 7.2;
"Repayment Notice" a notice served by the Company pursuant
to Clause 8.1;
"Repayment Option" the option more particularly set out in
Clause 8;
"Repayment Period" the period more particularly specified
in Clause 8.2.
"the Research Agreement" the Research Agreement of even date
between (1) the Company; and (2) the
Medical School;
"SEC" the US Securities and Exchange
Commission.
4
<PAGE>
"the Securities Act" the US Securities Act 1933 (as amended).
"the Freemedic Letter" the letter from Freemedic in the form
---------
set out in Schedule 5.
1.2. Words and expressions defined in the Research Agreement shall unless
the context otherwise requires, or save as expressly defined herein,
have the same meanings in this Agreement.
1.3. The headings in this Agreement are for convenience or reference only
and shall not affect the interpretation hereof.
1.4. Reference to the masculine gender shall include references to the
feminine and neuter genders and vice versa and words importing the
singular meaning shall include the plural meaning and vice versa.
2. COMPLETION
----------
2.1. Completion shall take place at the premises of the Company (or such
other place as the parties may previously agree) upon the Effective
Date (being the date of this Agreement or the date on which Freemedic
receives written notification from the Parent that the Parent has
received the sum of (Pounds)1.5 million by way of third party
investment, whichever is the later. At such completion the following
matters shall take place:-
2.1.1. Freemedic shall advance (or otherwise agree to advance at a
time and manner satisfactory to the Company) to the Company or
the Company's Solicitors in cleared funds those monies more
particularly set out in Clause 3.1, to be held to the order of
Freemedic pending delivery of those documents set out in
Clause 2.1.2 below, duly executed.
2.1.2. Immediately upon receipt by the Company of such monies in full
in cleared funds a Board meeting of the Company shall be held
at which:-
5
<PAGE>
2.1.2.1. the Company shall execute the Debenture and deliver
the same to Freemedic.
2.1.2.2. the Parent shall execute the Parent Guarantee and
deliver the same to Freemedic; and
2.1.2.3. the Company and the Medical School shall enter into
the Research Agreement.
2.1.3. Immediately thereafter Freemedic will execute the Freemedic
Letter and deliver the same to the Parent.
2.2. Immediately thereafter, Freemedic shall provide (or otherwise agree to
provide at a time and manner satisfactory to the Company) to the
Company the sum of (Pounds)21,000 in cleared funds to be applied for
the purpose of the acquisition of the Capital Equipment in accordance
with Clause 4 or shall produce details of the Capital Equipment
already acquired along with evidence of the respective costs thereof
and the amount payable pursuant to this Clause 2.2 shall be reduced
accordingly.
2.3. Completion shall be deemed to have taken place upon the happening of
all those matters set out in Clauses 2.1 and 2.2 above.
2.4. If all the events referred to in Clause 2.1 and 2.2 above shall not
have taken place by 5 pm on the Effective Date, then save as agreed in
writing by the parties hereto, this Agreement shall have no effect and
none of the parties shall have any claim against or liability to any
other hereunder other than for breach of its obligations under Clause
2.1 or 2.2.
2.5. Save for those particulars in respect of the Debenture, which shall be
filed by Freemedic, the Company shall procure that all other necessary
filings are made at Companies House within the requisite time limits
to give effect to the above and
6
<PAGE>
shall produce such evidence to Freemedic as it may reasonably require
to evidence the same, and shall write up the statutory books of the
Company where relevant.
3. REPAYMENT PROVISIONS
--------------------
3.1. In accordance with the provisions of Clause 2.1.1, Freemedic shall
provide to the Company the sum of (Pounds)252,942, being the monies
required for the Experimental Work and detailed in the Budget
Costings, in cleared funds upon Completion .
3.2. Those monies referred to in Clause 3.1 above shall be by way of loan
to the Company, subject to the interest and repayment terms more
particularly detailed or referred to in Schedule 1 and shall be
secured by the Debenture and be subject to the Parent Guarantee.
3.3. The monies received by the Company pursuant to Clauses 2.1.1 and 2.2
(if any) above shall be transferred by the Company into a separate
designated deposit account with the Company's bankers for which the
Company will account to the Committee at each quarterly meeting
thereof.
3.4. Any interest credited to the said Account shall accrue for the
benefit of the Company and may be transferred out of the Account at
any time upon the request to the Bank by the Managing Director of the
Company.
3.5. Save as aforesaid, payment out of the Account shall only be made
pursuant to the provisions of Clause 4 of the Research Agreement.
3.6. Any interest standing to the credit of the Account upon termination
of this Agreement shall for the avoidance of doubt become the
property of the Company.
3.7. Details of the Account and the authorised signatories thereof are set
out in Schedule 4.
7
<PAGE>
4. CAPITAL EXPENDITURE
-------------------
4.1. It is hereby agreed that the Capital Equipment required in connection
with the Experimental Work shall be acquired from capital standing to
the credit of the Account in accordance with the Budget Costings save
that (Pounds)21,000 of the cost shall be funded directly by Freemedic
as provided for in Clause 2.2.
4.2. Title to the Capital Equipment shall vest in Freemedic (or as it may
direct), which shall make available or procure that there is made
available such equipment for the Experimental Work at all times
during the continuance of this Agreement.
4.3. Freemedic will further procure that such equipment is kept safe and
in good working order free from any material defect or any liens,
charges or other encumbrances and that it is insured to its full
reinstatement value with a reputable insurer.
5. OPTION CONDITIONS PRECEDENT
---------------------------
5.1. This clause sets out the conditions precedent to the exercise by
Freemedic of the Call Option:
5.1.1. that Freemedic shall not be in breach of its obligations
hereunder.
5.1.2. that the Company shall not prior to the date of service of
such Call Notice have served a Repayment Notice.
5.1.3. that such Call Option is exercised only in accordance with
the provisions of this Agreement and shall relate to all (and
not some only) of the Option Monies.
5.2. This clause sets out the conditions precedent to the exercise by the
Parent of the Put Option:-
8
<PAGE>
5.2.1. that neither of the Parent nor the Company shall be in breach
of its obligations hereunder;
5.2.2. that such Put Option is exercised only in accordance with the
provisions of this Agreement and shall relate to all (and not
some only) of the Option Monies.
6. CALL OPTION
-----------
6.1. Freemedic shall be entitled at any time during the Call Option Period
to serve a Call Notice on the Parent, such notice to be in writing
informing the Parent that Freemedic is exercising the Call Option and
will be applying for the Option Shares in accordance with the terms
hereof. A Call Notice, once given, may be withdrawn by Freemedic at
any time prior to completion of such Call Option on written
notification to the Parent.
6.2. For the purposes of this Agreement, the Call Option Period shall
commence on the Effective Date and shall come to an end on the date
seven business days prior to the second anniversary of the Effective
Date.
6.3. If no Call Notice is served by Freemedic within the Call Option
Period, repayment of the Option Monies shall take place in accordance
with Clause 7 or Clause 8.
7. PUT OPTION
----------
7.1. The Parent shall be entitled at any time during the Put Option Period
to serve a Put Notice on Freemedic, such notice to be in writing
informing Freemedic that the Parent is exercising the Put Option and
specifying that Freemedic will be required to apply for the Option
Shares in accordance with the terms hereof. A Put Notice, once given,
may be withdrawn by the Parent at any time prior to completion of
such Put Option on written notification to Freemedic.
9
<PAGE>
7.2. For the purposes of this Agreement the Put Option Period shall be any
period following the Effective Date during which the Market Price for
the Common Stock exceeds the conversion price for Option Shares set
out in Clause 12 below and shall come to an end on the date seven
business days prior to the second anniversary of the Effective Date
PROVIDED THAT if after service of a Put Notice in accordance with
this clause 7, the Market Price falls below the said conversion
price, the right to exercise and complete such Put Option at that
time shall cease unless Freemedic shall in its absolute discretion
agree otherwise in writing.
8. REPAYMENT
---------
8.1. The Company shall be entitled at any time during the Repayment Period
to serve a Repayment Notice on Freemedic, such notice to be in
writing, stating that the Company shall repay the Option Monies to
Freemedic.
8.2. For the purposes of this Agreement the Repayment Period shall
commence on the Effective Date and shall come to an end on the
service of a validly completed Put Notice or Call Notice as the case
may be.
8.3. If no Call Notice or Put Notice is served within the Call Option
Period or Put Option Period (as the case may be) and validly
completed in accordance with Clause 13, then the Company shall repay
the Option Monies in full in accordance with Clause 15 below.
9. OPTION SHARES
-------------
9.1. The following provisions shall apply to the Option Shares:
9.1.1. Any Option Shares issued pursuant to this Agreement shall,
prior to any such issuance and at the cost and expense of the
Parent be listed on AMEX (or such other national securities
exchange or automated quotation system on which the Common
Stock is then listed).
10
<PAGE>
9.1.2. The Parent shall procure that subject to Clause 9.1.4 below,
on the second anniversary of the Effective Date (or, if not
possible, the first day immediately following the date on
which such securities may be registered with the SEC) those
Option Shares then issued to (which shall for the avoidance of
doubt include any Option Shares issued on such date), and not
previously disposed of by Freemedic shall be registered with
the SEC under the Securities Act. Registration shall be made
at the cost and expense of the Parent by filing a registration
statement with the SEC, no later than 30 days prior to the
second anniversary of the Effective Date and using its best
efforts to cause such registration statement to be declared
effective by the SEC prior to the second anniversary of the
Effective Date. The Parent shall keep such registration
statement continuously effective for the lesser of 45 days or
the period required for Freemedic to distribute the Option
Shares registered pursuant thereto. Notwithstanding the
foregoing, the Parent may delay filing a registration
statement and may withhold efforts to cause the registration
statement to become effective if the Parent shall furnish to
Freemedic a certificate signed by the President of the Parent
stating that in the good faith judgment of its Board of
Directors (i) such registration would have a material adverse
effect on the Parent's ability to negotiate or complete a
transaction which had been approved by the Board of Directors
prior to the date on which the Parent filed or was to have
filed the registration statement as set forth above or (ii) it
would be seriously detrimental to the Parent and its
stockholders for such registration statement to be filed
within such period. If, after a registration statement becomes
effective, the Parent advises Freemedic that the Parent
considers it appropriate for the registration statement to be
amended, Freemedic shall suspend any further sales of its
registered shares until the Parent advises it that the
registration statement has been amended. The number of days
during which the registration statement shall be effective
shall be extended for an additional number of days equal to
the number of
11
<PAGE>
days during which Freemedics' right to sell the Option Shares
was suspended pursuant to the preceding sentence.
9.1.3. For the avoidance of doubt, any disposal of Option Shares
shall be subject to the provisions of this Agreement and in
particular this Clause 9.
9.1.4.
(a) The Parent shall further procure that if prior to the
expiry of the period mentioned in Clause 9.1.2 above the
Parent shall register (other than a registration relating
solely to employee benefit plans or a Rule 145
transaction or a registration on any registration form
that does not permit secondary resales) any other
unregistered Common Stock (not being Option Shares) with
the SEC, (including pursuant to a demand ("demand") of
any stockholder of the Parent exercising registration
rights), it shall (i) promptly give Freemedic notice
thereof, and (ii) at its own cost and expense, include in
such registration and in any underwriting involved
therein, subject to paragraphs (b) and (c) below, all or
any part of the Option Shares that have been purchased
hereunder that are specified in written notice from
Freemedic that is received by the Parent within twenty
days after the written notice from the Parent described
above is mailed or delivered by the Parent.
(b) If the registration of which the Parent gives notice is
for a registered public offering involving an
underwriting, the right to registration hereunder shall
be conditioned upon Freemedic's participation in such
underwriting, the inclusion of Freemedic's Option Shares
in the underwriting to the extent provided herein and
Freemedic entering into an underwriting agreement in
customary form with the representative of the underwriter
selected by the Parent. Freemedic shall not be required
to make any
12
<PAGE>
representations or warranties to or agreements with the
Parent or the underwriters other than representations and
warranties contained in a writing furnished by Freemedic
expressly for use in such registration statement or
representations, warranties and agreements regarding
Freemedic, the Option Shares being registered and
Freemedic's intended method of distribution and any other
representation required by law. If the representative of
the underwriters advises the Parent in writing that
marketing factors require a limitation on the number of
shares to be underwritten, the representative may
(subject to the limitations set forth below) exclude the
Option Shares from, or limit the number of Option Shares
to be included in, the registration and underwriting. The
Parent shall so advise all holders of securities
requesting registration pursuant to contractual,
incidental ("piggy back") registration rights, and the
number of shares of securities that are entitled to be
included in the registration and underwriting shall be
allocated first to the Parent (or, if applicable to the
stockholders exercising demand registration rights) for
securities being sold for its own account and thereafter
as set forth in paragraph (c) below.
(c) In any circumstance in which all of the Option Shares and
other shares of Common Stock with piggy back registration
rights (including any security convertible into Common
Stock) ("Other Shares") requested to be included in a
registration cannot be so included, the number of shares
of Option Shares and Other Shares that may be so included
shall be allocated among Freemedic and the other selling
stockholders requesting inclusion of shares such that the
selling holders of the Option Shares and Other Shares
shall have their shares included pro rata on the basis of
the number of
13
<PAGE>
shares of Option Shares and Other Shares that would be
held by Freemedic and the other selling stockholders
assuming conversion that Freemedic and the other selling
stock holders had requested to be included in the
registration, provided that Freemedic shall have priority
to all shares sought to be included by officers and
directors of the Parent. The Parent shall have the right
to postpone or withdraw any registration effected without
obligation to Freemedic.
9.1.5.
(a) In connection with any registration, Freemedic will pay
its own costs and expenses, including the fees of its
counsel and brokerage fees and commissions and transfer
taxes on resale of any Option Shares. As soon as
practicable but in no event later than the third business
day following receipt of a written request from the
Parent, Freemedic shall furnish the Parent with such
information regarding Freemedic and its proposed
dispositions of Option Shares as the Parent may from time
to time reasonably request for use in preparing any
registration statement hereunder (and any related
qualification under applicable state securities laws).
The Parent shall not be obligated to register the Option
Shares if Freemedic fails to promptly provide the Parent
with such information as the parent may reasonably
request at the time to enable the Parent to comply with
applicable laws or regulations to facilitate the
preparation of the registration statement (and any
related qualification under applicable state securities
laws). Freemedic shall notify the Parent within five
business days of completion of its disposition of the
Option Shares.
14
<PAGE>
(b) In the case of each registration effected by the Parent
pursuant to this Agreement, at its expense the Parent
will:
(i) promptly prepare and file with the SEC the
registration statement to effect such registration
and such amendments and supplements to such
registration statement and the prospectus used in
connection therewith as may be necessary to comply
with the provisions of the Securities Act and to
keep such registration statement effective for
that period of time specified in Clause 9.1.2,
provided that before filing such registration
statement or any amendments thereto, the Parent
will furnish to Freemedic and its counsel copies
of all documents proposed to be filed;
(ii) furnish such number of prospectuses and other
documents incidental thereto as Freemedic from
time to time may reasonably request;
(iii) use its best efforts to register or qualify the
Option Shares covered by such registration
statement under the securities or blue sky laws of
such jurisdictions as Freemedic or any underwriter
reasonably requires (other than any state in which
the Parent would be required to execute a general
consent to service of process in effecting such
registration), and keep such registration or
qualification effective during the period set
forth in Clause 9.1.2;
(iv) cause its accountants to issue to Freemedic and
any underwriter comfort letters and updates
thereof in customary form and covering matters of
the type customarily covered in such letters;
15
<PAGE>
(v) make available for inspection by Freemedic, any
underwriter participating in any disposition
pursuant to such registration statement, and any
attorney, accountant or other agent retained by
Freemedic or any such underwriter, all pertinent
financial and other records, corporate documents
and properties of the Parent and cause the
Parent's officers, directors, employees and
independent accountants to supply all information
reasonably requested by any Freemedic or any such
underwriter, attorney, accountant or agent in
connection with such registration statement;
(vi) furnish to Freemedic an opinion of counsel for the
Parent dated the effective date of such
registration statement (or, if such registration
includes an underwritten public offering, dated
the date of the closing under the underwriting
agreement), addressed to the underwriters and to
Freemedic, reasonably satisfactory in form and
substance to Freemedic and such underwriters; and
(vii) notify Freemedic, at any time a prospectus covered
by such registration statement is required to be
delivered under the Securities Act, of the
happening of any event of which it has knowledge
as a result of which the prospectus included in
such registration statement, as then in effect,
includes an untrue statement of a material fact or
omits to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading in the light of the
circumstances then existing.
16
<PAGE>
9.1.6. The right of Freemedic to request registration or inclusion in
any registration pursuant to this Agreement shall terminate on
the date that all Option Shares held or entitled to be held
upon exercise or conversion of this Agreement by Freemedic may
immediately be sold under Rule 144(k) of the Securities Act,
assuming Freemedics' compliance with the provisions of the
Rule.
9.1.7. In the event that Freemedic wishes to dispose of any Option
Shares issued to it prior to their registration with the SEC,
then such sale or other disposal of the said Option Shares by
Freemedic shall be carried out:-
(i) only after consultation with the Board of Directors of
the Parent; and
(ii) as unregistered shares exempt from the requirement of SEC
registration in compliance with Rule 144 of the
Securities Act, or pursuant to Regulation S as defined in
Clause 10.1.2 below, or by private placement to
accredited investors in compliance with US Securities
laws (in the case of an exemption under Rule 144 or
Regulation S, such compliance to be evidenced by
certificates of an officer of Freemedic, in the case of
Rule 144, or of officers of both Freemedic and the
transferee in case of Regulation S, and in the case of a
private placement, such compliance to be evidenced by an
opinion of counsel to Freemedic (in both cases the form
of which certificate or opinion is reasonably
satisfactory to the Parent).
9.1.8. All dealings with the Option Shares by Freemedic and whether
or not registered will at all times be subject to compliance
by Freemedic and the Parent with the rules of AMEX (or such
other national securities exchange or automated quotation
system on which the Common Stock is then listed), the SEC and
any other regulatory body in connection therewith.
17
<PAGE>
Freemedic agrees that it will not offer, transfer, sell,
pledge, hypothecate or otherwise dispose of any of the Option
Shares, except in compliance with the Securities Act and the
rules and regulations of the SEC thereunder, and in compliance
with applicable state securities laws. In the event that
compliance with this Clause 9 conflicts in any way with such
rules or regulations, then the relevant provisions of this
Clause 9 shall be varied to ensure compliance therewith.
9.1.9. So long as Freemedic owns any of the Option Shares, the Parent
shall timely file all reports required to be filed with the
SEC pursuant to the Securities Exchange Act of 1934, as
amended ("the "Exchange Act"), and the Parent shall not
terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules
and regulations thereunder would permit such termination. The
Parent currently meets, and will take all necessary action to
continue to meet, the "registrant requirements" for the use of
Form S-3 set forth therein. The Parent shall comply with the
Parent's reporting, filing and other obligations under the
Exchange Act.
9.1.10.
(a) In the event of a registration of any of the Option
Shares under the Securities Act, the Parent will
indemnify and hold harmless Freemedic, each of its
directors and officers and each person, if any, who
controls Freemedic within the meaning of the Securities
Act, against any losses, claims, damages or liabilities,
joint or several, actually made against or incurred by
Freemedic or such person under the Securities Act or
otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any
registration
18
<PAGE>
statement under which such Option Shares were
registered, any prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are
based upon the omission or alleged omission to state
therein a material fact required to be stated therein
or necessary to make the statements therein in light of
the circumstances in which they were made, not
misleading, or any violation by the Parent of any rule
or regulation promulgated under the Securities Act or
any state securities law applicable to the Parent and
relating to action or inaction required of the Parent
in connection with any such registration, and will
reimburse Freemedic, each of its officers and
directors, and each person controlling Freemedic for
any reasonable legal and any other expenses incurred in
connection with defending or settling any such claim,
loss, damage, liability or action, provided that the
Parent will not be liable in any such case to the
extent that any such claim, loss, damage or liability
arises out of or is based on any untrue statement or
omission based upon written information furnished to
the Parent by an instrument duly executed by Freemedic,
its officers, directors or any person controlling
Freemedic specifically for user therein. The indemnity
agreement contained in this Clause 9.1.10 (a) will not
apply to amounts paid in settlement of any such loss,
claim, damage or liability if such settlement is
effected without the consent of the Parent (which
consent shall not be unreasonably withheld) unless the
Parent waived its right pursuant to Clause 9.1.10(c) to
assume the defence of such loss, claim, damage or
liability.
(b) Freemedic will, if Option Shares are included in the
securities as to which such registration is being
effected, indemnify and hold harmless the Parent, each
of its directors and officers, each
19
<PAGE>
underwriter, if any, of the Parent's securities covered
by such a registration statement, each person who
controls the Parent and each underwriter within the
meaning of the Securities Act, against all claims,
losses, expenses, damages and liabilities (or actions
in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a
material fact contained in any such registration
statement or prospectus, or any omission (or alleged
omission) to state therein a material fact required to
be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Parent,
such directors, officers, persons or underwriters for
any reasonable legal or any other expenses incurred in
connection with defending or settling any such claim,
loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration
statement or prospectus in reliance upon and in
conformity with written information furnished to the
Parent by an instrument duly executed by Freemedic its
officers, directors or any person controlling Freemedic
specifically for use therein. The indemnity agreement
contained in this Clause 9.1.10(b) will not apply to
amounts paid in settlement of any such loss, claim,
damage or liability if such settlement is effected
without the consent of Freemedic (which consent shall
not be unreasonably withheld) unless Freemedic waived
its right pursuant to Clause 9.1.10(c) to assume the
defence of such loss, claim, damage or liability.
(c) Each party entitled to indemnification under this
Clause 9.1.10 (the "Indemnified Party") shall give
notice to the party required to provide indemnification
(the "Indemnifying Party") promptly after
20
<PAGE>
such Indemnified Party has actual knowledge of any
claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defence of
such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who
shall conduct the defence of such claim or any
litigation resulting therefrom, shall be approved by
the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party
may participate in such defence at such party's
expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its
obligations under this Clause 9.1.10 to the extent such
failure is not prejudicial. In case the defendants in
any such action include both the Indemnified Party and
the Indemnifying Party and the Indemnified Party shall
have reasonably concluded that there may be one or more
legal defences available to it which are different from
or additional to those available to the Indemnifying
Party, the Indemnifying Party shall not have the right
to direct the defence of such action on behalf of the
Indemnified Party and the Indemnified Party shall have
the right to select separate counsel to defend such
action on behalf of the Indemnified Party and in such
event the Indemnifying Party shall be liable for the
legal and other costs and expenses associated with such
separate counsel. No Indemnifying Party in the defence
of any such claim or litigation shall, except with the
consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement that does not
include as an unconditional term thereof, the giving by
the claimant or plaintiff to such Indemnified Party of
a release from all liability in respect of such claim
or litigation and no Indemnified Party shall consent to
entry of any judgment or settle such claim or
litigation without the prior consent
21
<PAGE>
of the Indemnifying Party (which consent shall not be
unreasonably withheld). Each Indemnified Party shall
furnish such information regarding itself or the claim
in question as an Indemnifying Party may reasonably
request in writing and as shall be reasonably required
in connection with defence of such claim and litigation
resulting therefrom.
(d) The indemnification provided by this Clause 9.1.10
shall be a continuing right to indemnification and
shall survive the registration and sale of any
securities by any person entitled to indemnification
hereunder and the expiration or termination of this
Agreement.
9.1.11. If requested by the Parent and an underwriter of Common
Stock (or other securities) of the Parent, Freemedic shall
not sell or otherwise transfer or dispose of any Option
Shares (or other securities of the Parent held by Freemedic)
other than those included in the registration, during the
one hundred and eighty day period following the effective
date of a registration statement of the Parent filed under
the Securities Act, provided, however, that all officers and
directors of the Parent and all persons with demand or piggy
back registration rights enter into similar agreements. The
obligations described in this Clause 9.1.11 shall not apply
to a registration relating solely to employee benefit plans
on Form S-8 or similar forms that may be promulgated in the
future, or a registration relating solely to a Commission
Rule 145 transaction on Form S-4 or similar forms that may
be promulgated in the future. The Parent may impose stop-
transfer instructions with respect to the shares (or
securities) subject to the foregoing restriction until the
end of the said one hundred and eighty day period.
22
<PAGE>
10. COVENANTS AND REPRESENTATIONS OF FREEMEDIC
------------------------------------------
10.1. Freemedic hereby represents, warrants and covenants with the Parent
and as a separate representation, warranty and covenant with the
Company that:-
10.1.1. this Agreement when executed and delivered by Freemedic
will constitute a valid and legally binding obligation of
Freemedic enforceable in accordance with its terms.
10.1.2. Freemedic is not "U.S. person" as defined in Securities and
Exchange Commission Regulation S - Rules Governing Offers
and Sales Made Outside the United States Without
Registration under the Securities Act ("Regulation S"); a
"U.S. person" includes, without limitation:-
(i) any natural person resident in the United States;
(ii) any trust of which any trustees is a U.S. person;
(iii) any partnership or corporation organised or
incorporated under the laws of the United States;
and at the time of execution of this Agreement by
Freemedic, it is outside the United States (as defined in
Regulation S);
10.1.3. Freemedic is not acquiring the Option Shares or any part
thereof for the account or benefit of any U.S. person;
10.1.4. Freemedic agrees to resell such Option Shares only in
accordance with Clause 9 above;
10.1.5. Freemedic acknowledges that the Option Shares will contain
a legend to the effect that transfer of such shares shall
be prohibited except in accordance with the requirements of
Regulation S;
23
<PAGE>
10.1.6. Freemedic is not an underwriter, dealer, or other person who
is participating pursuant to a contractual arrangement, in
the distribution of the Option Shares offered or sold in
reliance on Regulation S;
10.1.7. the valid issue and allotment of the Option Shares in
accordance with the terms of this Agreement shall constitute
a complete discharge and release of the Parent and the
Company from any liability arising from or in respect of the
Option Monies.
11. COVENANTS AND REPRESENTATIONS OF THE PARENT
-------------------------------------------
11.1. The Parent hereby covenants and undertakes with Freemedic that:-
11.1.1. The Parent is a Corporation duly incorporated and in good
standing under the laws of the State of Massachusetts, with
the corporate power and authority to conduct its business
and to enter into and perform this Agreement;
11.1.2. The execution, delivery and performance by the Parent of
this Agreement have been duly authorised by all necessary
action on the part of the stockholders and directors of the
Parent, and this Agreement is a legal, valid and binding
obligation enforceable in accordance with its terms;
11.1.3. The Parent has reserved for issuance the Option Shares and
will ensure that sufficient authorised but unissued shares
of Common Stock to enable it to comply with its obligations
under this Agreement and the Put Option and Call Option
granted hereby are reserved at all times.
11.1.4. Upon the issue of the Option Shares pursuant to either the
Call Option or the Put Option pursuant to this Agreement,
the Option Shares will be fully paid and non-assessable.
24
<PAGE>
11.1.5. The issuance of the Option Shares to Freemedic on the
completion of either the Call Option or the Put Option will
be exempt from registration under the Securities Act and the
Parent will comply with all US federal and state securities
laws in connection with such issuance.
12. CALCULATION OF OPTION SHARE PRICE AND OPTION SHARES
----------------------------------------------------
12.1. For the purpose of this Agreement in the event that either party
exercises its rights hereunder in respect of the Put Option or Call
Option as the case may be, the price payable by Freemedic for the
Option Shares shall be the greater of:
(a) closing price for the Common Stock of the Parent on the trading
day immediately prior to 31st March 1998, plus 25%; or
(b) $3.70.
and the number of Option Shares shall be the number equal to the
Option Monies divided by the price per Option Share as specified
above (provided that in the case of a fractional number of Option
Shares the number of Option Shares shall be rounded down to the
nearest whole number).
12.2. For the purposes of this Clause 12, the relevant dollar sterling
exchange rate for the formula under Clause 12.1 shall be the
exchange rate on the trading day immediately prior to the Effective
Date.
13. COMPLETION OF PUT OPTION OR CALL OPTION
----------------------------------------
Completion of the Put Option or Call Option (as the case may be) shall take
place at the offices of the Company (or at such other place as the parties
shall agree) on the date seven business days from the date of service of
the Call Notice or Put Notice when the following acts shall be effected in
the following order:-
25
<PAGE>
13.1. The Company shall prepare a statement certified by Freemedic
specifying the precise amount of the Option Monies and a calculation
of the relevant number of Option Shares which may be acquired
therewith pursuant to Clause 12 above.
13.2. The Parent shall issue and allot to Freemedic the Option Shares
specified in the statement referred to in Clause 13.1 above credited
as fully paid and shall issue a Share Certificate to Freemedic in
respect of these Option Shares.
13.3. On receipt of a validly executed share certificate, Freemedic shall
release and/or procure the release of the Parent and the Company
from the Parent Guarantee, Debenture and any associated
indebtedness.
14. DEFAULT
-------
14.1. COMPANY EVENTS OF DEFAULT
Each of the following events shall constitute an Event of Default,
namely:
(a) If any event shall have occurred which would entitle Freemedic
or the Medical School to terminate the Research Agreement in
accordance with the terms set out in Clause 9 thereof;
(b) If there shall be a material breach by either the Company or
the Parent of any provision of this Agreement which shall
remain un-remedied for a period of 30 days following receipt of
a notice by the defaulting party of such breach and requiring
it to be so remedied.
(c) The Parent ceases to be the legal and beneficial owner of at
least 50% of the total issued equity share capital of the
Company (it being understood that the Parent is entering into a
pledge and Security Agreement with the third party investor
described in Clause 2.1 and that such third party shall not be
deemed to beneficially own the equity share capital of the
Company until an event of default (beyond the applicable period
of grant with
26
<PAGE>
respect thereto) has occurred and is continuing, unless
waived) or the Company ceases or threatens to cease to carry
on the whole or a substantial part of its business, other
than with the prior written consent of Freemedic, such
consent not to be unreasonably withheld or delayed.
14.2. RIGHTS ON A DEFAULT
Freemedic may upon and at any time after the happening of an Event
of Default, so long as the same is continuing, by notice to the
Company declare that:
(a) any outstanding obligation of Freemedic to lend any
amount hereunder shall be terminated forthwith; and/or
(b) the sum advanced, by way of loan, pursuant to Clauses 2.1.1
and 3.1 and the sum provided to the Company but not yet
utilised for the purchase of Capital Equipment pursuant to
Clauses 2.2 and 4.1 have become immediately due and payable
together with all accrued interest in accordance with
Schedule 1, whereupon the Company shall forthwith repay the
same and the provisions of Clause 15 below shall apply.
15. COMPLETION OF REPAYMENT
-----------------------
15.1. Completion of the repayment of the Option Monies by the Company to
Freemedic shall take place at the offices of the Company (or such
other place as the parties shall agree) on whichever is the first to
occur of the following:-
15.1.1. the first business day following:
(i) the date of service of a Repayment Notice; or
(ii) the date of receipt of notification that the Research
Agreement is being terminated by the Medical School in
accordance with Clauses 9.2 or 9.3 thereof or by reason
of the Company or the Parent having committed an Event
of Default under Clause 14.1 of
27
<PAGE>
this Agreement or an event has occurred which
under the terms of the Debenture confers on
Freemedic the right to enforce the Debenture; or
(iii) the termination of the Research Agreement in
accordance with Clause 9.5 thereof by reason of
the insolvency of the Parent or the Company; or
15.1.2. the date seven business days from the expiry of the Call
Option Period or Put Option Period respectively provided
that no Call Notice has been served by Freemedic or no
Put Notice has been served by the Parent; or
15.1.3. the first business day following the second anniversary
of the Effective Date in the event that the Research
Agreement is terminated in accordance with Clause 9.4
thereof by reason of the default or insolvency of either
Freemedic or the Medical School; or
15.1.4. in any event the second anniversary (or if it is not a
business day the first business day immediately
thereafter) of the Effective Date.
15.2. On Completion in accordance with Clause 15.1 the following acts
shall be effected in the following order:
15.2.1. Freemedic shall deliver or shall procure that there is
delivered to the Company or to the Company's solicitors
as its agent a statement specifying the precise amount of
the Option Monies.
15.2.2. The Company shall repay or shall procure the repayment of
the Option Monies set out in the statement referred to in
Clause 15.2.1 above, in full in cleared funds.
15.2.3. Upon receipt of the Option Monies in full in cleared
funds, Freemedic shall provide or procure that there is
provided a release of the Company and the
28
<PAGE>
Parent in respect of the indebtedness for the Option
Monies in such form as the Parent may require, including
a release of the Parent Guarantee and Debenture.
16. NOTICES
-------
16.1. Any notices required to be given hereunder shall be in writing and
shall be served by sending the same by prepaid first class,
registered post or recorded delivery, personal delivery or telex or
facsimile transmission to the registered office or business address
of the party in question as set out in this Agreement or to such
other address as shall have been notified to the other party(ies)
from time to time.
16.2. Any such notice shall be deemed to be served at the time when the
same is personally handed to or left at the address of the party to
be served and if served by post on the next business day following
the day of posting and in the case of telex or facsimile
transmission when in the ordinary course of the means of
transmission it would first be received by the addressee in normal
business hours.
17. In proving the giving of notice it shall be sufficient to prove that the
notice was left or that the envelope containing such notice was properly
addressed and posted or that the applicable means of telecommunication was
properly addressed and despatched (as the case may be).
18. MISCELLANEOUS
-------------
18.1. This Agreement is personal to the parties hereto, none of whom may
assign its rights or obligations under it in whole or in part
without the other parties' prior written agreement except that
Freemedic shall be entitled, without the other parties' prior
written agreement, to assign its rights and benefits under this
Agreement to University College London (or any other organisation in
the University of London) or any company owned by University College
London (or any such other organisation) in connection with the
proposed merger of the Medical School with University College London
(or any such other organisation)
29
<PAGE>
provided that in the event of such merger Freemedic, the Parent, the
Company and University College, London (or any such other
organisation) will enter into an agreement novating the obligations
of Freemedic hereunder to University College, London (or such other
organisation).
18.2. No party shall be bound by any variation or amendment of or addition
to this Agreement except where that party has agreed expressly in
writing to be so bound.
18.3. This Agreement shall not constitute a partnership between the
parties.
18.4. Each of the parties hereto undertakes that it is fully empowered to
enter into this Agreement and to become bound in accordance with its
terms.
18.5. No failure by any party to exercise and no delay in exercising any
right power or privilege under this Agreement shall operate as a
waiver nor shall any single or partial exercise of any right power
or privilege preclude any further exercise of it or the exercise of
any other right power or privilege. The rights and remedies provided
in this Agreement are cumulative and not exclusive of any rights or
remedies provided by law.
18.6. If any term of this Agreement or its application is judicially or
otherwise held invalid or unenforceable or if the parties mutually
agree in writing to any variation or revision of this Agreement the
remainder of this Agreement and its application shall not be
affected and this Agreement shall remain in full force and effect.
18.7. This Agreement, the Confidentiality Agreement, the Research
Agreement, the Debenture and the Parent Guarantee constitute the
entire agreement between the parties hereto in respect of such
subject matter hereof, and each party hereby confirms that it has
not relied upon any representation, warranty or undertaking other
than those expressly set out herein. Without prejudice to the
foregoing, each of the parties waives any right it or he may have to
any damages or rescission for any misrepresentation which is not
contained in these Agreements, or for breach
30
<PAGE>
of any warranty not contained in these Agreements, unless and to the
extent such misrepresentation or warranty was made fraudulently.
19. The proper law of this Agreement shall be the law of England and Wales, and
the parties hereto submit to the non exclusive jurisdiction of the English
courts.
IN WITNESS whereof this Agreement has been entered into the day and year first
before written.
31
<PAGE>
EXECUTED AND DELIVERED AS )
A DEED by FREEMEDIC PLC )
acting by:- )
Director:
Director/Secretary
EXECUTED AND DELIVERED AS )
A DEED by CARDIOTECH )
INTERNATIONAL LIMITED )
acting by:- )
Director:
Director/Secretary
EXECUTED AND DELIVERED AS )
A DEED by CARDIOTECH INTERNATIONAL )
INC. acting by:- )
)
Director:
Director/Secretary
32
<PAGE>
SCHEDULE 1
----------
Terms of Loan
-------------
LOAN AMOUNT: (Pounds)252,942 advanced pursuant to Clauses
2.1.1 and 3.1 but excluding for the avoidance
of doubt any monies advanced pursuant to
Clauses 2.2 and 4.1.
INTEREST A fixed rate of 10% cumulative per annum to be
calculated up to the date of repayment or
conversion of the loan and to be paid or
credited as the case may in accordance with
this Agreement, together with the additional
sum of (Pounds)25,927 (calculated on the basis
of an additional interest penalty of 5%
cumulative per annum on the loan then
outstanding, calculated up to the expiry of the
Minimum Period and to be paid or credited
notwithstanding repayment or conversion of the
loan prior to the expiry of such Minimum
Period); PROVIDED THAT the additional sum will
not be paid or credited in the event of the
default or insolvency of Freemedic or the
Medical School hereunder or under the Research
Agreement;
REPAYMENT: Repayment of capital and interest to be subject
to the terms of the Loan Agreement.
SECURITY: The Security for the repayment or conversion of
the sum of (Pounds)252,942 together with all
accrued interest, calculated as set out above,
on the sum then outstanding shall be the
Debenture and the Parent Guarantee.
33
<PAGE>
SCHEDULE 2
----------
DEBENTURE
---------
34
<PAGE>
SCHEDULE 3
----------
PARENT GUARANTEE
----------------
35
<PAGE>
SCHEDULE 4
----------
ACCOUNT DETAILS
---------------
Account Name: RFH/CTI Research Account
Account Number: 71324926
Sort Code: 40-33-10
Bank: Midland Bank Plc
22 High Street
Mold
Flintshire
CH7 1AR
Authorised Signatories: Alan Edwards
Michael Szycher
36
<PAGE>
SCHEDULE 5
----------
SIDE LETTER
-----------
[TO BE TYPED ON THE NOTEPAPER OF FREEMEDIC PLC]
To:- The Board of Directors
Cardiotech International Inc.
11 State Street
Woburn
Massachusetts MA01801
USA
Dear Sirs
RESEARCH AND LICENCE AGREEMENTS
- -------------------------------
We refer to the Research Agreement in respect of the Development of Vascular
Grafts entered into today between your subsidiary, Cardiotech International
Limited, and our parent, the Royal Free Hospital School of Medical, a copy of
which agreement is attached to this letter ("the Research Agreement").
Clause 5.5 of the Research Agreement provides that the Medical School will
procure that Freemedic will grant Cardiotech International Inc. a licence on the
terms set out in the Licence Agreement attached as Schedule 2 to the Research
Agreement ("the Licence Agreement"). In consideration of the payment by
Cardiotech International Inc. of the sum of (Pounds)1.00, Freemedic hereby
undertakes that upon the receipt by the Medical School of a written request from
Cardiotech International Limited in accordance with Clause 5.5 of the Research
Agreement, Freemedic will enter into the Licence Agreement with Cardiotech
International Inc. on the terms set out in the Licence Agreement.
Yours faithfully
FOR AND ON BEHALF OF FREEMEDIC PLC
- ----------------------------------
37
<PAGE>
EXHIBIT 10.13
DATED 1998
(1) CARDIOTECH INTERNATIONAL LIMITED
AND
(2) THE ROYAL FREE HOSPITAL SCHOOL OF MEDICINE
RESEARCH
AGREEMENT
IN RESPECT
OF
THE DEVELOPMENT OF VASCULAR GRAFTS
AARON & PARTNERS
GROSVENOR COURT
FOREGATE STREET
CHESTER
CH1 1HG
REF: IV.CAR51.2
<PAGE>
THIS AGREEMENT is made the day of 1998
BETWEEN:
(1) CARDIOTECH INTERNATIONAL LIMITED (Company number 3198267) whose registered
office is at 5/7 Grosvenor Court, Foregate Street, Chester, CH1 1HG ("the
Company");
(2) THE ROYAL FREE HOSPITAL SCHOOL OF MEDICINE c/o University of London,
Rowland Hill Street, London, NW3 2PF ("the Medical School").
WHEREAS:
(A) The Company is involved in the development and manufacture of polycarbonate
urethane vascular grafts and has the benefit of the Patents (as defined);
(B) The Medical School has experience of research into vascular biology and
invitro and in-vivo evaluation of vascular grafts;
(C) The Company and the Medical School wish to combine their expertise to
further the development and evaluation of certain small diameter vascular
grafts.
NOW IN CONSIDERATION OF THE MUTUAL COVENANTS ENTERED INTO BY THE PARTIES AND SET
OUT HEREIN, IT IS AGREED as follows:
1. INTERPRETATION
--------------
1.1. DEFINITIONS
-----------
In this Agreement save where the context otherwise requires the
following terms and expressions shall have the following meanings:
"Account" the Company's designated deposit account
set up pursuant to Clause 3.3 of the Loan
Agreement.
1
<PAGE>
"Board" the board of directors of the Company from
time to time.
"Budget Costings" Appendix B to this Agreement entitled
`Schedule of Budget Costings' and setting
out in detail the agreed future application
of the monies advanced by Freemedic in
accordance with the Loan Agreement.
"business day" a day (other than a Saturday or a Sunday)
on which banks are open for business in
London.
"Capital Equipment" laboratory equipment and all other
equipment required to carry out the
Experimental Work as referred to in Clause
4 of the Loan Agreement.
"CE Mark" the sign of conformity with Directive
93/42/EEC- Medical Devices.
"Chronoflex" the biomaterial manufactured under the
Patents by the Company and marketed under
the same name.
"Company IPR" all Intellectual Property Rights vested in
or licensed to the Company or the Parent
including but not limited to those relating
to vascular grafts, where such Intellectual
Property Rights:-
(i) have been developed by or on behalf
of or licensed to the Company or the
Parent prior to Completion
(including, without limitation, the
Patents and any processes in
connection therewith); or
(ii) are developed by or in behalf of the
Company or the Parent at any time
independently and separately from
the Experimental Work including any
2
<PAGE>
modifications to the Intellectual
Property Rights of the Company or
the Parent; or
(iii) are developed by the Company or the
Parent in the course of the
Experimental Work.
"Completion" completion of this Agreement.
"Confidentiality the confidentiality agreement between the
Agreement" Company and Freemedic dated 4th September
1997.
"Debenture" the fixed and floating charge to be entered
into by the Company pursuant to the Loan
Agreement.
"Commencement Date" 31st March 1998.
"the Ethical Committee" the Ethical Committee of the Medical School
and the Trust.
"Experimental Work" the investigation and clinical trials
making up Project One and the programme of
research and development in respect of
Project Two both as more particularly
detailed in the Specification (including
any clinical investigation and follow up)
and intended to achieve the Purpose.
"Expert" such person as may be appointed in
accordance with Clause 10.2.
"Freemedic" Freemedic Plc (Company number 2776963)
whose registered office is at The Royal
Free Hospital School of Medicine,
University of London, Rowland Hill Street,
London, NW3 2PF.
3
<PAGE>
"Freemedic Letter" the letter to be entered into by Freemedic
pursuant to the terms of the Loan
Agreement.
"Intellectual Property all patents, patent applications,
Rights" continuations, continuations-in-part and
divisions thereof, petty patents, utility
models, supplementary protection
certificates, registered designs, trade
marks (whether registered or not), together
with the right to apply for any of the
same, copyrights, design rights, rights in
confidential or technical information,
rights in inventions, know-how and any
similar rights existing anywhere in the
world.
"Licence" means the Licence agreement to be entered
into by Freemedic the Parent in the form
more particularly set out in Schedule 2.
"Loan Agreement" the loan and option agreement between
Freemedic, the Company and the Parent in
the agreed form set out in Schedule 1.
"Managing Director" the managing director of the Company who,
at the Commencement Date is Alan Edwards.
"Option" the put and call option exercisable
pursuant to the Loan Agreement.
"Parent" Cardiotech International Inc., a US
corporation incorporated under the laws of
the State of Massachusetts and whose
principal place of business is at 11 State
Street, Woburn, Massachusetts, 01801 U.S.A.
"Parent Guarantee" the guarantee to be entered into by the
Parent pursuant to the Loan Agreement.
"Patents" those patents and patent applications more
4
<PAGE>
particularly set out in Schedule 3.
"the Products" (i) the Chronoflex peripheral vascular
grafts investigated and clinically
tested pursuant to Project One and
the vascular grafts evaluated,
clinically investigated or developed
pursuant to Project Two; and
(ii) any kit evaluated, clinically
investigated or developed pursuant
to Project Two for the seeding of
endothelial cells onto any such
vascular grafts where such kit
incorporates any such vascular
graft.
"Project One" the project more particularly detailed in
Clause 2.1.1 and the Specification.
"Project Two" the project more particularly detailed in
Clause 2.1.2 and the Specification.
"Project IPR" all Intellectual Property Rights developed
by the Medical School or the Trust and
arising directly or indirectly from Project
Two (and which are not Company IPR)
including, without limitation, all
improvements, developments or modifications
made in the course of Project Two to any
existing Intellectual Property Rights.
"Purpose" to obtain Ethical Committee approval for
Project One and Project Two and to obtain
the CE Mark for the Products.
"the Specification" Appendix A to this Agreement entitled
"Development of a small diameter compliant
vascular graft for lower limb arterial
bypass"
5
<PAGE>
and setting out the timetable for
Project One and Project Two and the
roles of the Company, the Medical
School and the Trust in conducting
the Experimental Work as may be
varied or amended from time to time
in accordance with this Agreement.
"Territory" all countries in the world, and
`country' shall be construed
accordingly.
"Trust" Royal Free Hampstead NHS Trust.
1.2. Clause headings shall be for convenience only and shall not affect
interpretation.
1.3. Words and expressions defined in the Licence Agreement shall have the
same meaning herein unless otherwise specifically defined.
2. SCOPE, DURATION AND DELAYS
--------------------------
2.1. Subject to and in consideration of the completion of the Loan
Agreement in accordance with the terms set out therein and the mutual
obligations set out below, the Company and the Medical School agree
on the terms stated below to carry out and the Medical School agrees
to procure that the Trust (where indicated in the Specification as
being, or otherwise becoming the responsibility of the Trust) will
carry out the Experimental Work with a view to completing:-
2.1.1. the investigation and phase 1 clinical trials in respect of
Chronoflex peripheral vascular grafts in accordance with the
Specification; and
2.1.2. the evaluation and clinical investigation of an endothelially
seeded Chronoflex peripheral vascular graft and the
evaluation of alternative technologies relevant to peripheral
arterial bypass in accordance with the Specification.
6
<PAGE>
2.2. Unless otherwise agreed in writing by the parties hereto, this
Agreement shall be deemed to commence on the Commencement Date and
shall come to an end on the date 2 years thereafter ("the Minimum
Period").
2.3. If the Experimental Work shall not have been concluded by the expiry
of the Minimum Period, the parties hereto may agree to extend such
period (subject to those further provisions agreed by the Committee),
the cost of such extension being apportioned in such manner and upon
such terms as the parties shall agree in writing.
2.4. Each of the Company and the Medical School will use their respective
reasonable endeavours to complete or procure the completion of their
respective parts, and in the case of the Medical School to procure
the completion by the Trust of its respective part, of the
Experimental Work in accordance with the Specification within the
Minimum Period but if some cause which was beyond the reasonable
control or foresight of the Company or the Medical School or the
Trust (as appropriate) shall interrupt the progress of the
Experimental Work by such party, then the Company or the Medical
School (as appropriate) shall allow the other a reasonable additional
period of time to complete or procure the completion of the relevant
part of the Experimental Work and such additional period of time
shall not be deemed to count towards the Minimum Period.
3. UNDERTAKINGS
------------
3.1. The Medical School hereby warrants, represents and undertakes to the
Company:-
3.1.1. that it will perform or will procure the performance of the
Experimental Work detailed in the Specification as being the
responsibility of the Medical School and/or the Trust with
all reasonable care and skill and to the best of its
abilities;
3.1.2. that it will use its reasonable endeavours to comply with or
procure the compliance by the Trust with the Specification;
7
<PAGE>
3.1.3. that it will act in the utmost good faith towards the
Company;
3.1.4. that it will use its reasonable endeavours to achieve the
Purpose;
3.1.5. that it will permit only those of its staff previously
approved in writing by the Committee (as defined below) to
carry out any of the Experimental Work and/or to operate any
of the Capital Equipment;
3.1.6. that it will comply at all times with all relevant laws and
regulations in the United Kingdom in respect of the conduct
of such Experimental Work;
3.1.7. that it will procure the performance of and adherence to this
Agreement by the Trust where relevant;
3.1.8. that it will prepare and make available or procure that there
is prepared and made available to the Committee all test
results arising from that proportion of the Experimental Work
which is its responsibility or that of the Trust;
3.1.9. that it will immediately bring to the attention of the
Committee any matter arising from or in respect of the
Experimental Work (including the clinical investigation and
follow up) which would or might reasonably be expected to
invalidate any of the said results or which might otherwise
make or be likely to result in any of the Products becoming
hazardous or otherwise unsafe;
3.1.10. that it will notify the Committee in writing immediately upon
receiving any written notice, or as soon as reasonably
practicable after becoming aware that the Trust has received
any written notice stating that the Experimental Work or any
part thereof or any of the Products infringes or is
reasonably likely to infringe any Intellectual Property
Rights of any third party whatsoever, but for the avoidance
of doubt the provisions of this
8
<PAGE>
clause 3.1.10 will not impose a positive duty upon the
Medical School to make specific enquiries in respect thereof.
3.2. The Company hereby warrants, represents and undertakes to the Medical
School:-
3.2.1. that it will perform that part of the Experimental Work
detailed in the Specification as being the responsibility of
the Company, with all reasonable care and skill and to the
best of its abilities;
3.2.2. that it will use its reasonable endeavours to comply with the
Specification;
3.2.3. that it will act in the utmost good faith towards the Medical
School;
3.2.4. that it will use its reasonable endeavours to achieve the
Purpose;
3.2.5. that subject always to the provisions of clause 3.1 above, it
will be responsible for evaluating all results of the
Experimental Work, testing the Products for compliance with
all relevant safety regulations, requirements and standards
and for ensuring generally that all products supplied or used
by or on behalf of the Parent, the Company or any of their
Sub-licensees are safe and non hazardous (and neither the
Medical School nor the Trust nor their respective officers,
employees or agents will have any liability to the Company or
the Parent whether in contract, tort, negligence or otherwise
for any loss or damage arising out of or in connection with
the manufacture, supply, development or use of any of the
Products by or on behalf of the Parent, the Company or any of
their Sub-licensees, save as expressly provided hereby or in
the Licence).
4. PROJECT MANAGEMENT COMMITTEE
-----------------------------
4.1. The Company and the Medical School shall each appoint two suitably
qualified employees or agents acceptable to the other to be members
of a project
9
<PAGE>
management committee ("the Committee") which shall liaise on matters
relating to the Experimental Work.
4.2. The first appointees of the Company shall be the Managing Director
and Michael Szycher, and the first appointees of the Medical School
shall be George Hamilton and Cengiz Tarhan.
4.3. During the period of this Agreement the Committee will meet formally
at intervals of not less than 3 months to discuss the progress of the
Experimental Work and the results obtained and to authorise
expenditure in respect thereof.
4.4. Subject always to Clause 4.7 below, all decisions of the Committee
shall be taken with the agreement of all members in attendance at
such duly convened meetings, and any member unable to attend and vote
at any such meeting shall be entitled to appoint another member to
act as his proxy at such meeting, such appointment to be in writing.
4.5. The Committee meetings shall be convened by the Managing Director who
shall prepare and circulate the agenda for such meeting for
agreement, along with the notice convening the meeting no less than
21 days before the proposed date therefor, unless otherwise decided
by unanimous consent of the members of the Committee.
4.6. The first meeting of the Committee will be held on or as close as
reasonably practicable to the date 3 months from the Commencement
Date. All meetings will be held at the premises of the Medical School
except as otherwise previously agreed in writing by the parties. All
decisions and minutes of the Committee shall be duly recorded by such
party as the Committee shall reasonably agree.
4.7. One of the functions of the Committee shall be to evaluate the
progress of the Experimental Work and the compliance by the parties
with the Specification. If there is any dispute between the parties
as to whether either of them has complied with its obligations under
the Specification, the Committee shall use all reasonable
10
<PAGE>
endeavours to resolve such dispute amicably. If the dispute cannot be
resolved within 14 days of it first arising, either party shall be
entitled to refer such matter to the Expert.
4.8. Upon the presentation in a form reasonably acceptable to the
Committee of an itemised invoice from the Medical School in respect
of those proper costs incurred by it or the Trust or on their behalf
in accordance with the Budget Costings in performing the Experimental
Work undertaken during the previous three months in accordance with
the Specification, the Committee shall authorise the Company to make
payment from the Account to the Medical School or as it may direct.
All invoices so presented shall be paid within 28 days of receipt,
and if the Medical School does not receive payment of any of its
costs, incurred in accordance with the Budget Costings or with the
consent of the Committee pursuant to Clause 4.9, it having invoiced
the Company in respect of the same, then the Medical School will be
under no obligation, and the Medical School will be under no
obligation to procure the Trust to continue with any of the
Experimental Work then outstanding set out in the Specification until
receipt of such payment.
4.9. The Committee may agree to vary the frequency and nature of payments
specified in the Budget Costings and the nature of future work to be
undertaken, in accordance with the Specification and in the event of
a conflict or discrepancy between the decision of the Committee and
the Budget Costings or Specification, the decision of the Committee
shall prevail.
4.10. The Medical School shall furnish both the Company and the Committee
with copies of all technical reports on, and full details of the
progress of the Experimental Work which shall be prepared at monthly
intervals. The first of the technical reports shall be presented at
the first meeting of the Committee. The Medical School shall, upon
request also supply all other information and reports reasonably
required by the Company in order to enable the Company to comply
11
<PAGE>
with all statutory and other regulatory requirements necessary for or
otherwise in connection with the Purpose.
4.11. Upon the conclusion of the Experimental Work the Medical School shall
provide the Committee with a final detailed report summarising the
findings and outcome of the Experimental Work and containing such
other information as may reasonably be required by the
representatives of the Company.
4.12. The parties hereto will procure that subject always to Clause 4.13
below, the monies standing to the credit of the Account (but
excluding any interest thereon) shall be used solely to pay those
costs authorised by the Committee and properly incurred in accordance
with the Budget Costings, by the Medical School or on its behalf in
undertaking the Experimental Work in accordance with the
Specification.
4.13. Notwithstanding any other provision of this Agreement, any and all
monies standing to the credit of the Account upon the termination of
this Agreement or the cessation of the Experimental Work for whatever
reason and not otherwise properly due to the Medical School under
this Clause 4 shall vest absolutely in the Company, which shall be
entitled to use such monies in such manner and for such purpose as it
shall in its absolute discretion think fit.
5. INTELLECTUAL PROPERTY
---------------------
5.1. The provisions of this Clause 5 shall be in addition to and not in
substitution for those terms set out in the Licence. In the event of
a conflict between the provisions of this Clause 5 and the terms of
the Licence, the terms of the Licence shall prevail.
5.2. During the continuance hereof, the Company hereby grants to each of
the Medical School and the Trust such non-exclusive, royalty free
licence to use the Company IPR as may be necessary for the purpose of
carrying out the Experimental Work in
12
<PAGE>
accordance with the terms of this Agreement. All Company IPR shall at
all times remain vested in the Company or the Parent, as appropriate.
5.3. The Company hereby warrants that it is the registered proprietor or
the licensee under the Patents. The Company hereby warrants that to
the best of its knowledge and belief but without having made any
enquiries, investigations and searches, the Medical School and the
Trust will not infringe the Intellectual Property Rights of any third
party in using such Patents in the performance of the Experimental
Work in accordance with the terms of this Agreement. Notwithstanding
any other provision of this Agreement, the Company hereby warrants
that it is entitled to grant the Licence of the Patents included in
Clause 5.2 and that the consent of Thermedics Inc. or any other third
party that owns an interest in the Patents is not required to enable
the Medical School or the Trust to use the Patents in undertaking the
Experimental Work or to enable Freemedic to grant the Licence.
5.4. All Project IPR shall vest in and be the exclusive property of
Freemedic. The Company shall promptly notify the Medical School in
writing of any Intellectual Property Rights of which it is or becomes
aware to which Freemedic may be entitled by virtue of this Clause
5.4.
5.5. Any Project IPR shall be subject to the Licence. In the event that
the Parent wishes to take a licence of the Project IPR, the Company
shall notify the Medical School in writing. Upon receipt of any such
notice, the Medical School will procure that Freemedic shall offer to
the Parent a licence of the Project IPR in accordance with and
subject to the provisions of the Licence and the Company shall
procure that the Parent shall execute the Licence on the agreed
terms. If, for any reason, the Parent decides not to seek a licence
of the Project IPR or refuses to enter into a licence in respect of
the Project IPR in accordance with the terms of the Licence,
Freemedic shall be entitled to grant a licence of the Project IPR to
any person for the purpose envisaged in the Licence.
13
<PAGE>
5.6. Save as aforesaid (or as provided in the Licence) the Company shall
acquire no right title or interest in or to the Project IPR or to any
other Intellectual Property Rights properly vesting in the Medical
School, the Trust or Freemedic.
5.7. Neither the Medical School nor the Trust shall do or permit any act
which might prejudice the novelty of an invention, process or
development covered by this Clause 5.
5.8. Each party shall, if reasonably required by any other party thereto,
procure that its employees, agents, or subcontractors enter into a
corresponding undertaking as set out herein.
6. COMMERCIAL EXPLOITATION
-----------------------
In the event that the Purpose has been achieved, the Company and the
Medical School will take all practical measures and give all assistance and
information as may be reasonably necessary to enable the Company to obtain
those consents and fulfil those requirements at the Company's expense,
whether statutory or otherwise which are necessary to allow the commercial
development and exploitation of the Products by the Company and/or the
Parent. The Company shall for the avoidance of doubt be the sole
beneficiary and recipient of any income arising directly or indirectly from
the exploitation of the Products tested pursuant to Project One. The terms
of exploitation of any Product tested or developed pursuant to Project Two
shall be governed by the Licence.
7. CONFIDENTIALITY
---------------
The provisions of this Clause 7 shall be in addition to and not in
substitution for the restrictions, obligations and undertakings contained
in the Confidentiality Agreement.
7.1. Each of the parties hereto shall take all reasonable practical
measures to ensure that access to the premises where the Experimental
Work is conducted is restricted to such individuals as are taking
part in the Experimental Work or as otherwise reasonably require
access to such premises, that materials use in and data obtained
14
<PAGE>
from the Experimental Work are kept in a secure manner and that,
subject to the provisions of this Clause 7, data obtained from the
Experimental Work is not made publicly available.
7.2. Save as expressly provided in this Clause 7, except with the other
party's prior written agreement or as required by operation of law or
in accordance with any other regulatory requirements in respect
thereof, neither party shall disclose or permit the disclosure to any
third party of any information obtained from the other party (or from
the Parent, the Trust or Freemedic as appropriate) in any document or
correspondence marked "Confidential" or any know how, data, technical
trade or business information obtained from the other (or from the
Parent, the Trust or Freemedic as appropriate) in connection with
this Agreement including any such information obtained by either
party during a visit to the other's (or the Trust's or the Parent's)
place of business work offices or laboratories.
7.3. The Medical School will disclose to the Company all trial results,
data and information arising exclusively from Project One. The
Company shall be free to use and disclose any such results, data or
information as it thinks fit, including the for purpose of obtaining
any necessary product approvals. The Medical School will, and will
procure that the Trust will, retain all such results, data and
information in confidence and will not use the same other than for
the purpose of Experimental Work or with the prior written consent of
the Company or the Parent.
7.4. The Company shall at all times retain in confidence the Project IPR,
including all data and technical information relating thereto and the
Company and the Parent shall use the same only where licensed to do
so by Freemedic in accordance with the terms of the Licence. The
Medical School will and will procure that Freemedic and the Trust
will retain all such Project IPR in confidence to the extent that the
same applies to the Products. Notwithstanding any other provision
15
<PAGE>
of this Agreement, the Medical School and the Trust shall be entitled
to use all such Project IPR in connection with their academic
research and the Medical School, the Trust and Freemedic shall be
entitled to disclose any of the same to any third party or permit any
third party to use any of the same in connection with matters
unrelated to the development, manufacture or sale of the Products,
subject to any such third party entering into corresponding
obligations of confidentiality in respect of such Project IPR.
7.5. Either party shall be entitled to disclose all information, data or
know-how properly disclosed to it pursuant to this Agreement to its
employees, agents and sub-contractors, the Company shall be entitled
to disclose all such information, data or know-how to the Parent and
the Medical School shall be entitled to disclose all such
information, data or know-how to the Trust and Freemedic, and each
party shall procure that all such persons to whom all such
information, data or know-how is disclosed keep the same confidential
in accordance with the terms of this Clause 7 and, if so required by
the other, the Company or the Medical School will procure that their
employees, agents and sub-contractors or the Parent or the Trust and
Freemedic (as appropriate) enter into a corresponding confidentiality
undertaking with the party disclosing such information, data or know-
how.
7.6. The obligation in Clauses 7.1 to 7.5 (inclusive) shall be in force
from the Commencement Date and shall remain in force after expiry or
termination of this Agreement without limitation in time except where
the party seeking relief from the obligation can show that the data,
know-how or information was public knowledge and known to that party
at the time it was obtained from the disclosing party or that since
the data, know-how or information was obtained it has become public
knowledge without the fault of any other party hereto.
7.7. Each of the parties hereto recognises that the other may wish to
publish in a reputable journal scientific papers containing data
obtained from the Experimental
16
<PAGE>
Work. Accordingly the parties hereto shall have the right to publish
such papers provided that before they submit any such paper to such
journal, the relevant party shall submit the paper to the Committee
which shall scrutinise the paper to ensure that no information is
disclosed in the paper which would prejudice the commercial interest
of the other party in the data or the novelty of any invention to
which such party is entitled under this Agreement. The Committee
shall give its decision within 1 month of the date on which the paper
is submitted to it for scrutiny. Where the Parent or the Trust wish
to publish any such papers, they shall be so entitled subject to the
Company or the Medical School submitting any such papers to the
Committee for scrutiny in accordance with this Clause 7.7.
8. ENTRY AND INSPECTION
--------------------
Subject always to Clause 7, the parties hereto permit (or procure that
there is permitted) on request any duly authorised representative of the
other party to enter at all reasonable times and upon reasonable notice
into and upon that party's premises where any of the Experimental Work or
any research and development in respect thereof is being carried out for
the purpose of ascertaining that the provisions of this Agreement and the
Specification are being complied with by such party.
9. TERMINATION
-----------
9.1. This Agreement may be terminated at any time by the Company giving
written notice to the Medical School specifying the relevant breach
if the Medical School shall have committed a material breach of any
obligation or duty owed under this Agreement to the Company and (if
such breach is capable of rectification) shall have failed to rectify
the breach within 30 days of the written notice requiring the
rectification.
9.2. This Agreement may be terminated at any time by the Medical School
giving written notice to the Company specifying the relevant breach
if the Company shall have committed a material breach of any
obligation or duty owed under this
17
<PAGE>
Agreement to the Medical School and (if such breach is capable of
rectification) shall have failed to rectify the breach within 30 days
of the written notice requiring the rectification.
9.3. In addition, this Agreement may be terminated at any time by the
Medical School giving written notice specifying the event to the
Company if the Company shall have committed an Event of Default under
the Loan Agreement or an event has occurred which under the terms of
the Debenture confers on Freemedic the right to enforce the
Debenture.
9.4. This Agreement may be terminated by the Company forthwith if either
Freemedic or the Medical School goes into liquidation either
compulsory or voluntary (except for the purpose of reconstruction or
amalgamation) or passes a resolution for winding up or if a receiver,
administrative receiver or administrator is appointed in respect of
the whole or any part of its assets or if either party makes an
assignment for the benefit of or composition with its creditors
generally or threatens to do any of these things or any similar
occurrence under any jurisdiction which affects such party.
9.5. This Agreement maybe terminated by the Medical School forthwith if
either the Company or the Parent goes into liquidation either
compulsory or voluntarily (except for the purpose of reconstruction
or amalgamation) or passes a resolution for winding up or if a
receiver, administrative receiver or administrator is appointed in
respect of the whole or any part of its assets or if either party
makes an assignment for the benefit of or composition with its
creditors generally or threatens to do any of these things or any
similar occurrence under any jurisdiction which affects such party.
9.6. In the event that this Agreement is terminated by reason of the
default or insolvency of either Freemedic or the Medical School in
accordance with this Clause 9, then notwithstanding any other term of
this Agreement, no monies shall become repayable to Freemedic under
the Loan Agreement whether in
18
<PAGE>
respect of capital or interest until the first business day following
the second anniversary of the completion of such Loan Agreement. All
monies then owed by the Company to Freemedic pursuant to such
Agreement will be paid forthwith to Freemedic by the Company in
accordance with the relevant terms set out in Clause 15 of the Loan
Agreement.
9.7. In the event that this Agreement is terminated by reason of the
default or insolvency of either the Company or the Parent in
accordance with this Clause 9, then all monies then owed by the
Company or the Parent to Freemedic pursuant to the Loan Agreement
will be paid forthwith to Freemedic by the Company or the Parent as
the case may be in accordance with the terms set out in Clause
15 thereof.
9.8. Provided that the proposed merger of the Medical School and
University College London (or any other organisation in the
University of London) shall not, for the avoidance of doubt in itself
confer a right of termination on any of the parties hereto.
9.9. In the event that this Agreement is terminated by the Company
pursuant to 9.1 or 9.4 above, then without prejudice to any rights it
may have in respect of such breach the Company shall be entitled to
require Freemedic to enter (and the Medical School will procure that
Freemedic so enters) into the Licence in respect of such of the
Project IPR which exists as at the date of such termination.
9.10. Save as otherwise agreed in writing by the parties, or as expressly
provided herein, this Agreement will automatically terminate on the
expiry of the Minimum Period.
9.11. Upon termination or expiry of this Agreement, all rights and
obligations of either of the parties shall automatically terminate,
save that termination or expiry of this Agreement shall not affect
the accrued rights of either party and the following provisions shall
stay in full force and effect:- Clause 1, 3.2.5, 4.8, 5.3, 5.5, 5.6,
7, 9.6, 9.7, 9.9, 9.11, 10 and 11.
19
<PAGE>
10. DISPUTES, PROPER LAW AND JURISDICTION
-------------------------------------
10.1. The parties hereto shall strive to resolve on an amicable basis any
dispute that may arise between them relating to the terms of this
Agreement.
10.2. In the event that the parties cannot settle any dispute between them
arising pursuant to the matters referred to in Clause 4.7, either
party shall be entitled to refer the matter to the Expert who shall
be an independent third party scientific expert appointed by the
parties or, in the absence of the agreement, by the President for the
time being of the Royal College of Surgeons. The Expert shall act as
an expert and not as an arbitrator and his or her decision in respect
of any matter referred to him or her shall be final and binding on
the parties. All costs incurred by the Expert in resolving any
dispute shall be borne in such proportions as the Expert shall
determine. The parties shall comply with such directions as the
Expert may give in respect of such dispute.
10.3. This Agreement shall be governed by the laws of England, save as
provided in Clause 10.2, the parties hereby submit to the exclusive
jurisdiction of the English courts.
11. MISCELLANEOUS
-------------
11.1. Save as expressly permitted pursuant to the terms of this Agreement,
no announcement, advert or other circular in respect of the subject
matter of this Agreement or the result(s) of the Experimental Work
may be made or issued either directly or indirectly by any party
hereto without the nature, extent and content thereof being given the
prior written consent of the other party hereto, such consent not to
be unreasonably withheld or delayed.
11.2. This Agreement is personal to the parties hereto, neither of whom may
assign its rights or obligations under it in whole or in part without
the other party's prior written agreement except that the Medical
School shall be entitled, with the Company's prior written agreement,
such agreement not to be unreasonably
20
<PAGE>
withheld or delayed, to assign the rights and benefits under this
Agreement to University College London (or any other organisation in
the University of London) or any company owned by University College
London (or such other organisation) in connection with the proposed
merger of the Medical School with University College London (or any
such other organisation), provided that in the event of any such
merger, save where statutorily inappropriate, the Medical School, the
Company and University College, London (or any such other
organisation) will enter into an agreement novating the obligations
of the Medical School hereunder to University College, London (or
such other organisation).
11.3. Neither party shall be bound by any variation or amendment of or
addition to this Agreement except where that party has agreed
expressly in writing to be so bound.
11.4. This Agreement shall not constitute a partnership between the
parties.
11.5. Any notice given under this Agreement shall be in writing either
delivered personally at or posted in the case of notice served on the
Company, to its registered office or in the case of notice served by
the Company, to the registered office or place of business of the
Medical School sent (if posted) by recorded delivery or registered
first-class post. If such notice is served personally it shall be
deemed to have been received at the time of delivery. If such notice
is sent by post it shall be deemed to have been received 48 hours
after being correctly addressed, stamped and posted.
11.6. Each of the parties hereto undertakes that it is fully empowered to
enter into this Agreement and to become bound in accordance with its
terms.
11.7. No failure by either party to exercise and no delay in exercising any
right power or privilege under this Agreement shall operate as a
waiver nor shall any single or partial exercise of any right power or
privilege preclude any further exercise of it or the exercise of any
other right power or privilege. The rights and remedies
21
<PAGE>
provided in this Agreement are cumulative and not exclusive of any
rights or remedies provided by law.
11.8. If any term of this Agreement or its application is judicially or
otherwise held invalid or unenforceable or if the parties mutually
agree in writing to any variation or revision of this Agreement the
remainder of this Agreement and its application shall not be affected
and this Agreement shall remain in full force and effect.
11.9. This Agreement, the Confidentiality Agreement, the Debenture, the
Loan Agreement, the Parent Guarantee and the Freemedic Letter
constitute the entire agreement between the parties hereto, and each
party hereby confirms that it has not relied upon any representation,
warranty or undertaking other than those expressly set out herein.
Without prejudice to the foregoing, the parties waive any right they
may have to any damages or rescission for any misrepresentation which
is not contained in these Agreements, or for breach of any warranty
not contained in these Agreements, unless and to the extent such
misrepresentation or warranty was made fraudulently.
AS WITNESS the hands of the parties hereto the day and year first above written.
EXECUTED by a duly authorised )
representative of CARDIOTECH )
INTERNATIONAL LIMITED )
in the presence of )
EXECUTED by a duly authorised )
representative of THE ROYAL FREE )
HOSPITAL SCHOOL OF MEDICINE )
in the presence of )
22
<PAGE>
SCHEDULE 1
----------
LOAN AGREEMENT
--------------
23
<PAGE>
SCHEDULE 2
----------
LICENCE
-------
24
<PAGE>
SCHEDULE 3
----------
PATENTS AND PATENT APPLICATIONS
-------------------------------
1. Patent Applications
---------------------
(i) European Patent Application 973032626
(Publication No. 0 807 425) "Making an Access Graft"
Priority : GB 9610273.6, 16/th/ May 1996
Filed: 13/th/ May 1997
Published: 19/th/ November 1997 (with search report)
(ii) US Patent Application No. 08/655317
"Method of Making an Access Graft and a Vascular Prosthesis"
Priority: GB 91165639 1st August 1991
Filed: 1/st/ February 1994 (continuation of Serial No.
08/182,156)
2. Patents
-------
(i) Belgium (EP) 0 286 220
Switzerland (EP) 0 286 220-7
Germany 3 879 741-0
Austria (EP) 0 286 220
Denmark 168359
Spain (EP) 0 286 220
France (EP) 0 286 220
Great Britain (EIP) 0 286 220
Greece 3008 181
Ireland 63267
Italy (EP) 0 286 220
25
<PAGE>
Japan 1813534
Luxembourg (EP) 0 286 220
Netherlands (EP) 0 286 220
Portugal 88710
Sweden 88301722-0
USA 5132066
(ii) Germany 69024658-7
France (EP) 0495 869
Great Britain (EP) 0 495 869
USA 5549860
(iii) US Patent 5,254,662
Biostable Polyurethane
Product Co-owned and
Cross Licensed with Thermedics Inc
(iv) US Patent Application 08/920-662
Hydrolytically and Proteolytically
Stable Polycarbonate Polyurethane
Silicone Copolymers
(v) US Patent Applicant - Biocompatable Devices
26
<PAGE>
APPENDIX A
----------
SPECIFICATIONS
--------------
27
<PAGE>
APPENDIX B
----------
BUDGET COSTINGS
---------------
28
<PAGE>
EXHIBIT 10.13
EXHIBIT A
---------
THE DEVELOPMENT OF A SMALL DIAMETER
COMPLIANT VASCULAR GRAFT FOR LOWER LIMB
ARTERIAL BYPASS
MR. G HAMILTON, MB, CHB, D.OBS RCOG, FRCS
CONSULTANT GENERAL AND VASCULAR SURGEON
UNIVERSITY DEPARTMENT OF SURGERY
ROYAL FREE HOSPITAL
ALAN EDWARDS
MANAGING DIRECTOR
CARDIOTECH INTERNATIONAL LTD.
<PAGE>
EXECUTIVE SUMMARY
This is an application to support the investigation of a small diameter
compliant vascular prosthesis. The application would be in patients presenting
with critical limb ischemia (threatened limb loss due to poor circulation) which
affects 1 in 2,500 of the population.
The best material for this procedure is autologous saphenous vein. However, in
30% of patients the vein cannot be used and an alternative conduit must be
sought.
The market is worth some (Pounds)100 million per annum. It is dominated by
American-manufactured products utilizing expanded P.T.F.E., the use of which is
limited by the diameter of the grafts being more than or equal to 6 mm, with
poor results in critical applications. There is therefore a need for a 4-5 mm
internal diameter prosthetic vascular graft for this type of distal arterial
reconstruction.
The programme will bring together the commercial, technical and development
resources of the commercial partner with the research, scientific and surgical
resources of the department of vascular surgery at The Royal Free Hospital
Medical School who have considerable specialist experience and international
recognition in this field.
The development process will encompass a new approach to the design of vascular
grafts in that we intend to address the main reasons for graft failure by
utilising technologies to overcome the failure modes. For example, the graft
will have anti-thrombogenic flow lining which could be provided by a layer of
endothelial cells or alternative technologies. The graft will also be compliant
to match the physical and mechanical characteristics of a native blood vessel
enabling the transmission of pulsatile blood flow.
The project will last two years and is divided into a series of tasks. These
tasks take the programme from investigation of a polycarbonate urethane vascular
graft developed by CardioTech for haemodialysis access through a series of steps
to pilot clinical evaluation by the University partner for peripheral vascular
bypass. Additional methods or technologies which could potentially enhance
graft performance will be investigated.
2
<PAGE>
SECTION 1
THE NEED
The United Kingdom Vascular Society recently reported on the prevalence of
patients presenting to vascular surgeons with critical limb ischaemia
(threatened limb loss due to poor circulation) to be 1 in 2,500 of the
population. The peak occurrence is between 70 and 79 years of age. This burden
on the NHS is expected to increase as the population ages. To avoid
amputation, peripheral arterial bypass surgery is required, usually to a small
artery in the calf or foot. Successful revascularisation has been clearly shown
to be considerably less expensive than amputation and subsequent rehabilitation.
The best material for this procedure is autologous saphenous vein. However, in
30% of patients the vein cannot be used and an alternative conduit must be
sought. There is therefore a need for a 4-5 mm internal diameter prosthetic
vascular graft for this type of distal arterial reconstruction.
THE PROBLEM
Below knee prosthetic grafting is currently restricted by unacceptably poor
patency rates achieved with existing products.
The principal causes of graft failure are:
. Early thrombosis at less than one month due to the inherent
thrombogenicity of current prosthetic materials.
. Diameter mismatch between artery and graft.
. Low compliance and major compliance mismatch of current prosthetic
materials resulting in inadequate flow rates.
. Neo-intimal hyperplasia between one and twelve months.
. Disease progression usually beyond the distal anastomosis.
. Inadequate inflow.
3
<PAGE>
THE SOLUTION
To develop a small diameter synthetic vascular graft with the potential for
improved clinical performance by bringing together several technologies and a
multidisciplinary team who have the relevant background and skills to undertake
and complete the project.
This is a new approach to the research and design of vascular grafts.
Historically, the development of vascular grafts has been directed at one
factor, such as material characteristics, kink resistance or thrombogenicity,
etc. Graft failure is however a multifactorial issue. Performance and clinical
outcome will not be substantially improved without addressing the major issues
which contribute to graft failure in combination with novel technologies which
can improve performance.
An antithrombotic surface to inhibit thrombus formation and form an interface
with blood flowing through the graft can be enabled by endothelial cell lining
of the graft surface. This is considered a likely successful route to achieving
such an interface. However, several new technologies are available to modify
the flow surface of the graft and achieve a low thrombotic flow lining without
the need for biological materials to be introduced.
Neo-intimal hyperplasia, which causes later graft failure, tends to occur when
the endothelium is damaged, although this can be inhibited by restoration of the
cell monolayer by cell seeding. An alternative route would be in bonding
certain pharmaceutical or biotechnology products onto the graft surface which
could minimise the potential for hyperplasia development.
Arteries display a characteristic known as compliance which in lay terms can
best be expressed as elasticity (but not in the scientific sense). This
property gives the artery elastic recoil which takes place after each arterial
pulse has passed, and thus enhances blood flow. This property is particularly
marked in low blood pressure states, thus enhancing blood flow even further.
All prosthetic grafts to date have very low compliance, i.e. they are rigid and
non-elastic. Enhancing the compliance of a small calibre prosthetic graft would
be expected to improve the low flow often seen in this situation. Furthermore a
compliance prosthetic graft would reduce the mismatch in compliance between
graft and native artery. Low graft compliance and compliance mismatch are
recognized as important factors in failure of small calibre prosthetic grafts.
Design and development of a compliant vascular graft should remove this cause of
graft failure.
The design criteria will be to mimic the mechanical and physical properties of a
natural artery allowing the maintenance of pulsatile flow and compliance in
combination with an antithrombotic flow lining. This will allow patency to be
maintained in smaller diameters even with low blood flow.
4
<PAGE>
THE BENEFITS
PATIENT
For the patient, successful bypass allows resumption of a normal lifestyle,
relief from pain, ulceration and/or gangrene, and avoidance of amputation.
Improved graft performance would reduce the rates of secondary reconstructions
and amputation, with their attendant risks for the generally elderly population.
NHS
For the NHS, it has been clearly shown that limb salvage, at an estimated
(Pounds)7,500 per patient, with its attendant patient benefits, is significantly
less expensive than amputation and the subsequent support requirements,
conservatively estimated at (Pounds)25,000 per patient. This would offer a
potential saving of around (Pounds)66 million per annum even if only 25% of
patients are able to benefit. Reduction in expensive revisional surgery, a
reduction in the burden of community care services, and an increase in the case
load throughput and bed occupancy rates are among the major benefits.
COMMERCIAL
The development of a successful small bore vascular graft could bring several
diverse benefits
. major capital investment and job creation in a high technology manufacturing
company
. improved performance by the UK health care sector in international markets
. international recognition that collaborative medical implant programmes can
be successfully completed in the UK
5
<PAGE>
SECTION 2
PARTICIPANTS
The project is proposed by CardioTech International Ltd, the only UK based
company manufacturing polycarbonate urethane vascular access grafts, and the
University Department of Vascular Surgery at the Royal Free Hospital School of
Medicine, London.
CARDIOTECH
COMPANY STRUCTURE
CardioTech was created in May of 1996 as a spin-off from PolyMedica Industries
Inc. into a stand-alone company. The company comprises CardioTech International
Inc. which is quoted on the American Stock Exchange and specialises in the
development, production and marketing of advanced polymer biomaterials for the
medical device industry, and CardioTech International Ltd which is undertaking a
programme of small diameter vascular graft development which is a continuation
of the work undertaken over the last three years by PolyMedica Industrioe.
Our vascular graft programme is principally based in the UK. Research,
development, testing and production of vascular grafts is being carried out at
our premises near Chester.
COMPETENCIES
Staff employed by CardioTech (previously at Polymedica) have already developed a
polycarbonate Vascular Access Graft used for haemodialysis. We have therefore
carried out a considerable programme of process development, in vitro and in
vivo research into the biodurability of our material ChronoFlex and the
ChronoFlex vascular access graft which has enter clinical trials in both Holland
and France. The information generated by CardioTech during graft development
will be used to support an application to the Ethics Committee to commence
limited clinical evaluation.
MATERIALS
ChronoFlex will be used to produce the new graft. It is a biodurable
polycarbonate based polyurethane which comprises the following components:
. polycarbonate polyol
. methylene diisocyanate
. ethylene diamaine
. 1,3 diaminocyclohexane
6
<PAGE>
CardioTech holds USA patent 6254662 for ChronoFlex. The inventor of
ChronoFlex, Dr. M. Szycher, is Chairman of the company and Chief Technical
Officer. CardioTech holds a perpetual worldwide license from PolyMedica to
manufacture and use ChronoFlex for medical applications.
VASCULAR GRAFT PRODUCTION
Our patented process involved what we term "low temperature cast coagulation".
In this system we gently extrude polymer solution onto the smooth surface of a
mandrel. The polymer solution comprises a solution grade ChronoFlex, a water
soluble filler of between 10 and 60% by weight and a surfactant in an amount
between 1 and 10% by weight. The mandrel and extrusion head rotate in
synchronization, minimising shear and residual stress, whilst a pair of 2.5
metre long mandrels are drawn through the twin extrusion heads into a coagulant
maintained at 40 degrees C. During phased coagulation the fillers prevent
collapse of the structure as the solvent disperses and the filler dissolves into
the coagulant, resulting in a single layer uniform microporous structure which
avoids the danger of delamination and subsequent loss of strength, maintaining
cross section.
By manipulating the process conditions, it is possible for grafts to be produced
with different physical and mechanical characteristics; an example would be a
very porous graft allowing rapid cellular ingrowth which could be suited to
venous applications.
CardioTech owns European patent 0286220, USA patent 5132066 and Japanese patent
1813534 covering aspects of graft production.
ROUTE TO MARKET
When the graft is ready for introduction, the Medical Device Directives will be
mandatory. The peripheral graft will obviously require a CE mark and as a class
11b implant able device it will require clinical data to comply with the
essential requirements. This information is expected to come from limited
clinical investigations carried out by the academic partner.
DISTRIBUTION
There are three possible methods:
1. Direct via staff employed by CardioTech
2. Indirect via distributors engaged by CardioTech
3. Creating a strategic alliance to access an existing international marketing
and sales network with a major health care company
It is too early to decide which option will be favoured. However, by mid 1997
our vascular access graft will become a commercial product and we will have a
distribution in place which may be suitable for the peripheral graft.
7
<PAGE>
OPPORTUNITY
The UK market is estimated at (Pounds)1.5 million per annum, the total EU market
at (Pounds)40 million and the global business (Pounds)125 million per annum.
The market is growing at 10% per annum and is dominated by American-manufactured
products. The EU has suspended import duty on certain categories of vascular g
rafts because there is no EU manufacturer.
THE UNIVERSITY DEPARTMENT OF SURGERY AT THE ROYAL FREE HOSPITAL
The Department is recognised for its research into several aspects of vascular
biology, in particular the role of compliance in vascular grafting. Vascular
biological research here has also focused on neo-intimal hyperplasia and
endothelial cell graft seeding. The head of Department has been involved in
compliance research initially at Harvard and over the last seven years at the
Royal Free Hospital School of Medicine. The Department has a Principal
Biophysicist, a specialist in vascular flow dynamics and measurement who has
developed a highly accurate method of compliance measurement using digital x-ray
angiographic techniques. For the first time this method allows accurate
compliance measurement of implanted grafts and native arteries in patients. In
addition there is an experienced cell culture technician and a vascular fellow
of two years experience of research into compliance and vascular flow
measurement. The department is set up with a vascular Haemodynamic laboratory
for in vitro and in vivo vascular graft studies. This department has great
expertise in the field of compliance in vascular surgery.
The methodologies of immunohistochemistry, autoradiography and electron
microscopy are in routine use in this Department. The methodology of in vitro
study of prosthetic grafts over the long term (i.e. longer than 24 hours) under
physiological conditions is well developed. There are superb facilities for
large animal studies focused on the pig with established prosthetic graft
evaluation within this context.
The IRC of Biomaterials Research headed by Professor Dennis Chapman is housed
within the University Department of Surgery. In collaboration there has been
research into the use of non-thrombogenic biomaterials in lining prosthetic
graft materials both in vitro and using a carotid interposition model in sheep.
8
<PAGE>
SECTION 3
PROJECT PLAN OUTLINE
Research and experimental work will be carried out by the Department of Vascular
Surgery at The Royal Free Hospital Medical School. CardiTech will manufacture
polycarbonate urethane grafts for the project at its facilities near Chester.
The present polycarbonate graft which has been developed for vascular access by
CardioTech will be studied in vitro by the academic partner to ascertain its
suitability to meet the more demanding requirements in peripheral vascular
bypass grafting.
The results from evaluation will be combined with study results and other
development information from CardioTech International Ltd to allow an
application to be made to an Ethics Committee leading to a pilot clinical
investigation with the objective of determining the short term clinical
performance of the grafts, providing the clinical information required to comply
with the essential requirements of the EU Medical Devices Directive. The
clinical investigation will commence no later than May 1998.
In parallel to this work evaluation of alternative adjunctive technologies will
be instigated. In particular endothelial cell seeding of the ChronoFlex will be
undertaken to reduce the thrombogenicity of the graft surface.
Grafts will go through a selection process of physical and mechanical testing by
CardioTech (ISO/DS 7198 Tubular Vascular Grafts) and in vitro and in vivo
research at the laboratories of the academic partner leading to clinical
evaluation.
The project will consist of a series of tasks which are described in outline as
follows:
9
<PAGE>
- --------------------------------------------------------------------------------
PROJECT 1 IN VITRO INVESTIGATION OF POLYCARBONATE URETHANE GRAFT FOR
TASKS 1.1 - 1.4 LOWER LIMB ARTERIAL BYPASS
- --------------------------------------------------------------------------------
Objective: Research the compliance and pulsatile flow
characteristics
Responsible: Royal Free Hospital, dept. of vascular surgery
Description of Work: Peripheral arterial bypass grafts have to pass
over the knee joint and there is concern for
possible kinking of the graft at flexion points.
CardioTech will add to the existing access graft
an external supporting layer to improve the
anti-kinking properties of the graft for
peripheral use. The reinforced peripheral
graft will be made in both 4 and 5 mm internal
diameters to provide a closer match to the
natural vessels.
Grafts will be manufactured by CTI for
evaluation of the compliance
characteristics of the polycarbonate
urethane grafts in vitro by using
oohotracker and angiographic methods,
obtaining compliance, diameter and
pressure curves for a range of
physiological flow rates.
Initially research the compliance and
shear stress characteristics of human
artery in vivo and in vitro at
physiological flow conditions by
echotracker and angiographic methods.
This will establish the physical
characteristics of a blood voocol and
generate a range of compliance and
pressure curves at different pulsatile
blood flow waveforms for human artery
and compliant graft.
Objective: Research the ability of the graft to tolerate
low blood flow.
Description of Work: Grafts are placed in a pulsatile flow circuit to
simulate human femoral artery conditions. Flow
and pressure rates are modified to establish
conditions prevalent in a range of diseased
femoral artery conditions and by gross and
microscopic methods to investigate the ability
of surface to tolerate low blood flow. This
would be assessed over one week at sterillised
conditions. The aim is to access the physical
characteristics over time in a condition similar
to in vivo.
Deliverable: An analysis of the peripheral vascular graft to
provide the
10
<PAGE>
justification required to commence experimental
implants.
11
<PAGE>
- --------------------------------------------------------------------------------
PROJECT 1 IN VIVO RESEARCH AND EVALUATION OF POLYCARBONATE GRAFT
TASKS 1.5, 1.8 FOR LOWER LIMB ARTERIAL BYPASS
- --------------------------------------------------------------------------------
Objective: Research into the effect of anastomotic
technique and materials on compliance.
Responsible: Royal Free Hospital, dept. of surgery.
Description of Work: In vivo acute studies of anastomotic compliance
will be performed to research the effects of
commonly used suture materials, i.e. proline and
novafil sutures (this is a more elastic or
compliant suture material provided by Davis &
Geck) and suture technique, i.e. continuous and
interrupted on the in situ rentention of
compliance.
The haemodynamic effect of anastomotic angle
will also be studied (including the
configuration used in clinical practice).
Measurements at the anastomosis will include
shear stress, shear rate and turbulence.
Objective: Long term in vivo compliance and performance
study.
Having identified the best anastomotic
methodology and materials by actue in
vivo experimental investigation we will
begin research into the acute and
chronic in vivo compliance of the graft.
This will be done by implanting grafts
into a porcine model. Compliance will be
measured at implant and at predetermined
intervals using an angiographic
technique.
At explant, in addition to compliance
and performance measurements, the grafts
will be perfused-fixed and studied by
autoradiograpy, and
immunohistochemistry, and electron
microscopy. Redial tensile strength and
molecular weight determination are also
undertaken on the explants to
demonstrate biodurability.
Deliverable: Analysis of biological response to the implant,
retention of compliance characteristics, and
performance information needed to justify
limited clinical evaluation and recommendations
for implantation technique.
12
<PAGE>
- --------------------------------------------------------------------------------
PROJECT 1 CLINICAL INVESTIGATION OF POLYCARBONATE URETHANE GRAFT FOR
TASKS 1.7 - 1.9 LOWER LIMB ARTERIAL BYPASS
- --------------------------------------------------------------------------------
Objective: Investigate the short term clinical performance
of the peripheral vascular graft.
Responsible: Clinical investigation - Royal Free Hospital,
dept. of vascular surgery and other
investigators to be determined Regulatory -
CardioTech International Ltd.
Objective: Twenty patients requiring lower limb arterial
bypass in whom saphenous vein is not available
will be recruited into the study Graft patency
to be assessed non-invasively using Duplex
scanning at regular intervals.
In addition, ultrasound measurements of the
graft lumen will be performed at operation and
at regular intervals to monitor the compliance
characteristics.
Description of Work: Design clinical evaluation to EN540.
Prepare clinical investigation documentation.
Obtain ethical committee approval.
Obtain approval from the Competent Authority
Deliverable: Justification to enable extended pre-marketing
clinical evaluation to take place at other
hospitals and clinical information required to
complete CE marking process.
13
<PAGE>
- --------------------------------------------------------------------------------
PROJECT 2 EVALUATION OF GRAFT SEEDED WITH ANDOTHOLICAL CELLS
TASKS 2.1 - 2.9
- --------------------------------------------------------------------------------
Objective Investigate possibility of creating a non-
thrombogenic luminal surface, by seeding the
graft with endothelial cells.
Responsible Royal Free hospital, department of surgery.
Description of Work a. Assessment of endothelial cell attachment
beyond 24 hours: Grafts will be seeded to
confluence with micro vascular endothelial
cells will be placed onto the circuit of an
Acusyct R., Endotronics this system allows
perfusion at 37C for up to one week with
physiological solutions appropriately
oxygenated, and buffered, with viscosity
similar to that of human blood. This system
is already established in this laboratory.
a.i Segments of grafts seeded to confluences
will be perfused for two days, four days
and seven days respectively. Human
platelets labelled with 111 Indium-oxine
will be injected at the end of the
perfusion period and circulated for sixty
minutes. Endothelial cell covering will be
assesssed using this method of
thrombogenicity assessment (thrombogenicity
index). At the end of the study the graft
will be removed and endothelial coverage
assessed in addition by scanning electron
microscopy.
a.ii Compliance measurement of endothelialised
grafts: Compliance profiles using the
echotracker will be generated from each of
the graft segments after two, four and
seven days of perfusion in this system.
b. Long term in vivo study on graft
compliance: Endothelial five centimetre
segments of grafts will be inserted into
the carotid circulation of 5 large white
pigs and compliance measured immediately
after implantation. Compliance studies
using the angiographic technique will be
performed at implant and at pre-determined
intervals. This group will form a cohort
for long term study for a minimum period of
one year and ideally for eighteen months in
order to assess any long-term effects.
b.i At explanation in addition to compliance
measurements the grafts will be perfused-
fixed,
14
<PAGE>
studied by immunohistochemistry,
autoradiography and E.M.
15
<PAGE>
- --------------------------------------------------------------------------------
PROJECT 2 EVALUATION OF ALTERNATIVE TECHNOLOGIES RELEVANT TO
peripheral arterial bypass
- --------------------------------------------------------------------------------
Objective: Investigate available surface modification
treatments and or other technologies that could
enhance the properties of the graft and
potentially contribute to improved performance
and/or convenience of use of the graft
Responsible Royal Free Hospital, dept of surgery and
CardioTech Ltd.
Description of Work This would start as mostly desk research via
literature searches, patent databases or
commercial contacts, evaluation of information
available from vendors.
Select the most promising alternative
technologies and obtain grafts treated or
modified by selected treatments and research the
improvements/benefits brought by the modified
surface using steps described in Task 1.
Deliverable: Provide initial justification to adopt a
particular treatment for additional evaluation
and comparison against existing peripheral
graft.
16
<PAGE>
- --------------------------------------------------------------------------------
Project 1 + 2 Regulatory Matters
- --------------------------------------------------------------------------------
Objective Establishment and maintaining of regulatory
files required for CE (European) marking and
(USA) F.D.A. application.
Responsible CardioTech Internationa Ltd.
Description of Work D____ compliance with ISO 719 Tubular Vascular
Grafts
Generate quality system documentation
Document compliance with essential requirements
Undertake risk analysis
Set up technical file
Contact and negotiations with notified body and
competent authority
Clinical investigation protocol and
documentation to EN540
Application to USA F.D.A. for Investigational
Device Status
Deliverable Regulatory files and development records in
place throughout the programme.
17
<PAGE>
ROYAL FREE HOSPITAL & SCHOOL OF MEDICINE
UNIVERSITY OF LONDON
Vascular Unit
- ----------------------------------------
University Department of Surgery
The Royal Free Hospital, Pond Street, London NW3 2QG, U.K.
Tel: 0171 794 0500
Fax: 0171 431 4528
STAFF
1. Vascular Surgical Fellow (Mr. Alberto Giudiceandrea) is a fully qualified
surgeon. He will work on experimental and clinical side of the project.
2. Biophysicist (need to be appointed). The Diaphysicist will work on
compliance and cell seeding of vascular graft in vitro and in vivo.
3. Research Fellow (Mr. Nigel Tai) will set up and maintain the cell bank,
investigate human endothelial cell recovery rates from fat. He will work
experimental and clinical side of project.
Management of the project will be by Mr. George Hamilton and Dr. Alexander
Seifalian, University Department of Surgery, RFH&SM.
ON MANAGEMENT
Overall management of the project will be provided by a quarterly meeting of the
RFH&SM (Mr. Cengiz Tarhan, Mr. George Hamilton & Dr. Alexander Seifalian) and
CTI (Mr. Alan Edwards and Dr. Michael Szycher). A summary report will be
produced for each quarterly meeting, and this will be made available on demand
to Freemedic and CTI.
Research and Development management of the project will be provided by a monthly
meeting of the Mr. G. Hamilton and Dr. A. Seifalian and three researchers. A
summary report will be produced by the researchers in preparation for each
monthly meeting.
Informal gatherings between members of the group in the department will be held
at least once a week.
Mr. G. Hamilton Dr. A. M. Seifalian
18
<PAGE>
EXHIBIT B
---------
ROYAL FREE HOSPITAL & SCHOOL OF MEDICINE
University of London
Vascular Unit
- ----------------------------------------
University Department of Surgery
The Royal Free Hospital, Pond Street, London NW3 2QG, U.K.
Tel: 0171 794 0500
Fax: 0171 431 4528
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
COST YEAR 1 YEAR 2
- ------------------------------------------------------------------------------------------------------------------------
CAPITAL COST
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LDA (Pounds)8,000
- ------------------------------------------------------------------------------------------------------------------------
Intravascular (Pounds)41,000
ultrasound
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
STAFF Vascular Surgeon
- ------------------------------------------------------------------------------------------------------------------------
Salary (Pounds)20,710
- ------------------------------------------------------------------------------------------------------------------------
LW (Pounds)1,448
- ------------------------------------------------------------------------------------------------------------------------
Total (Pounds)25,158
- ------------------------------------------------------------------------------------------------------------------------
10.5% NI (Pounds)2,642
- ------------------------------------------------------------------------------------------------------------------------
Total cost (Pounds)27,800 (Pounds)27,800
- ------------------------------------------------------------------------------------------------------------------------
Biophysicist
- ------------------------------------------------------------------------------------------------------------------------
Salary (Pounds)17,000
- ------------------------------------------------------------------------------------------------------------------------
LW (Pounds)1,448
- ------------------------------------------------------------------------------------------------------------------------
Total (Pounds)18,448
- ------------------------------------------------------------------------------------------------------------------------
10.5%NI (Pounds)1,937
- ------------------------------------------------------------------------------------------------------------------------
Total Cost (Pounds)20,385 (Pounds)20,385 (Pounds)21,404
- ------------------------------------------------------------------------------------------------------------------------
Research Fellow
- ------------------------------------------------------------------------------------------------------------------------
Salary (Pounds)17,000
- ------------------------------------------------------------------------------------------------------------------------
LW (Pounds)1,448
- ------------------------------------------------------------------------------------------------------------------------
Total (Pounds)18,448
- ------------------------------------------------------------------------------------------------------------------------
10.6%NI (Pounds)1,937
- ------------------------------------------------------------------------------------------------------------------------
Total Cost (Pounds)20,385 (Pounds)20,385 (Pounds)21,404
- ------------------------------------------------------------------------------------------------------------------------
OVERHEADS AT (Pounds)27,428 (Pounds)17,123
40%
- ------------------------------------------------------------------------------------------------------------------------
ADMINISTRATION Administration (Pounds)7,120 (Pounds)7,120 (Pounds)7,120
- ------------------------------------------------------------------------------------------------------------------------
TRAVEL Travelling to (Pounds)1,000 (Pounds)1,000
company
- ------------------------------------------------------------------------------------------------------------------------
CONSUMMABLE (Pounds)23,200 (Pounds)17,072
- ------------------------------------------------------------------------------------------------------------------------
CTI LEGAL (Pounds)12,500
- ------------------------------------------------------------------------------------------------------------------------
TOTAL (Pounds)188,818 (Pounds)85,124
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Grand Total (Pounds)273,942
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Mr. G. Hamilton Dr. A. M. Seifalian
19
<PAGE>
<TABLE>
<CAPTION>
RFH&SM-CTI DEVELOPMENT PROGRAMME
- -----------------------------------------------------------------------------------------------------------------------------------
ID Task Name Year 1
- ------------------------------------------------------------------------------------------------------------------------------------
- --> PROJECT 1 1 2 3 4 5 6 7 8 9 10 11 12 1
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.1 Review CTI data -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1.2 In vitro investigation of CPU grafts -- -- -- -- -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1.3 Delivery of analysis of the in vitro -- -- -- -- --
experimental work on CPU graft
- ------------------------------------------------------------------------------------------------------------------------------------
1.4 Preparation of in vivo application -- -- --
and submission
- ------------------------------------------------------------------------------------------------------------------------------------
1.5 In vivo, animal implants of CPU grafts -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1.6 Delivery analysis of biological response to the -- -- -- --
implant, retention of compliance characteristics
- ------------------------------------------------------------------------------------------------------------------------------------
1.7 Preparation of Ethical Committee applications -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1.8 Clinical study reinforced CPU graft (subject -- -- --
to ethical approval)
- ------------------------------------------------------------------------------------------------------------------------------------
1.9 Report and follow up on clinical study
- -----------------------------------------------------------------------------------------------------------------------------------
- --> PROJECT 2
- ------------------------------------------------------------------------------------------------------------------------------------
2.1 Review literature -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
2.2 Set up call bank from porcine cells -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
2.3 Evaluation of Graft seeded with endothellal -- -- -- -- -- -- -- -- -- --
cells in vitro
- ------------------------------------------------------------------------------------------------------------------------------------
2.4 in vivo animal implants CPU seeded grafts -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
2.5 Delivery analysis of biological response to -- -- --
the implant of seeded grafts
- ------------------------------------------------------------------------------------------------------------------------------------
2.6 Human endothellal Cell harvesting -- -- -- -- -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
2.7 Preparation of Ehtical Committee application -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
2.8 Clinical study of CPU seeded graft
(subject to ethical approval)
- ------------------------------------------------------------------------------------------------------------------------------------
2.9 Report and followup on clinical study
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ID Task Name Year 2
- -------------------------------------------------------------------------------------------------------------------------
- --> PROJECT 1 2 3 4 5 6 7 8 9 10 11 12
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.1 Review CTI data
- -------------------------------------------------------------------------------------------------------------------------
1.2 In vitro investigation of CPU grafts --
- -------------------------------------------------------------------------------------------------------------------------
1.3 Delivery of analysis of the in vitro
experimental work on CPU graft
- -------------------------------------------------------------------------------------------------------------------------
1.4 Preparation of in vivo application
and submission
- -------------------------------------------------------------------------------------------------------------------------
1.5 In vivo, animal implants of CPU grafts
- -------------------------------------------------------------------------------------------------------------------------
1.6 Delivery analysis of biological response to the
implant, retention of compliance characteristics
- -------------------------------------------------------------------------------------------------------------------------
1.7 Preparation of Ethical Committee applications
- -------------------------------------------------------------------------------------------------------------------------
1.8 Clinical study reinforced CPU graft (subject -- -- -- -- -- -- -- -- -- --
to ethical approval)
- -------------------------------------------------------------------------------------------------------------------------
1.9 Report and follow up on clinical study -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
- --> PROJECT 2
- -------------------------------------------------------------------------------------------------------------------------
2.1 Review literature
- -------------------------------------------------------------------------------------------------------------------------
2.2 Set up call bank from porcine cells
- -------------------------------------------------------------------------------------------------------------------------
2.3 Evaluation of Graft seeded with endothellal -- -- --
cells in vitro
- -------------------------------------------------------------------------------------------------------------------------
2.4 in vivo animal implants CPU seeded grafts
- -------------------------------------------------------------------------------------------------------------------------
2.5 Delivery analysis of biological response to
the implant of seeded grafts
- -------------------------------------------------------------------------------------------------------------------------
2.6 Human endothellal Cell harvesting -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
2.7 Preparation of Ehtical Committee application
- -------------------------------------------------------------------------------------------------------------------------
2.8 Clinical study of CPU seeded graft -- -- -- -- -- -- --
(subject to ethical approval)
- -------------------------------------------------------------------------------------------------------------------------
2.9 Report and followup on clinical study -- --
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Project 1 is the experimental and clinical investigation of the
ChronoFlex vascular graft.
2. Project 2 is development and experimental and clinical investigation
of cell seeded ChronoFlex vascular Graft.
20
<PAGE>
EXHIBIT 10.14
DATED
199_
(1) FREEMEDIC PLC
AND
(2) CARDIOTECH INTERNATIONAL INC.
LICENCE AGREEMENT
Aaron & Partners
Grosvenor Court
Foregate Street
Chester
CH1 1HG
Ref: IV.CAR51.2
<PAGE>
THIS AGREEMENT is made the day of 199_
BETWEEN:
1. FREEMEDIC PLC (company number 2776963) whose registered office is at The
Royal Free Hospital School of Medicine, University of London, Rowland Hall
Street, London, NW3 2PF ("the Licensor"); and
2. CARDIOTECH INTERNATIONAL INC. a US corporation incorporated under the laws
of the State of Massachusetts and whose principal place of business is at
11, State Street, Woburn, Massachusetts, MA 01801 ("the Licensee").
WHEREAS:
(A) The Licensor is the sole owner of the Intellectual Property (as defined).
(B) The Licensor has the right to grant licences of the Intellectual Property
in the Territory (as defined).
(C) The Licensee has requested a licence to use the Intellectual Property for
the Purpose (as defined) within the Territory.
(D) The Licensor has agreed to grant such a licence to the Licensee on the
terms of this Agreement.
NOW IT IS HEREBY AGREED as follows:
1. INTERPRETATION
--------------
1.1. In this Agreement the following words and expressions shall have the
following meanings:
"THE COMMENCEMENT DATE" means the date hereof.
"THE COMPANY" means Cardiotech International
<PAGE>
Limited (company no. 3198267) whose
registered office is situate at 5/7
Grosvenor Court, Foregate Street,
Chester, CH1 1HG.
"CONFIDENTIAL INFORMATION" means any and all data, results, know-
how (including, but not limited to the
Know-how) plans, business, financial and
technical information and other
information disclosed by either party to
the other, whether orally, in writing or
in any other form, either before or
after the Commencement Date.
"DEVELOPMENT WORK" means the programme of research and
development undertaken by the Company,
the Medical School and the Trust in
respect of Project Two of the Research
Agreement.
"EUROPEAN ECONOMIC AREA" means the countries from time to time
parties to the agreement on the European
Economic Area, including without
limitation, the member states from time
to time of the European Union.
"THE INTELLECTUAL PROPERTY" means the Know how and the Patents.
"KIT" means a kit comprising materials and
equipment for effecting the Process and
developed by the Medical School and/or
the Trust, as may be tested, modified or
improved as part of the
<PAGE>
Development Work.
"KNOW-HOW" means all know-how, inventions,
confidential and technical information,
data, processes and techniques
(including any improvements or
modifications to any pre-existing know-
how, techniques or information):-
(i) relating to the Process and/or the
Kit which is vested in the Licensor
as at the Commencement Date of the
Research Agreement as the Licensor
identifies to the Licensee within
30 days of the Commencement Date of
the Research Agreement; and
(ii) relating to the Kit, Process and/or
any Product and arising from or
developed during the course of the
Development Work and which is
vested in the Licensor pursuant to
the terms of the Research Agreement
and which the Licensor is entitled
to use and disclose.
"NET SALE PRICE" means the invoiced selling price of
the Products in the Territory net
of insurance and carriage, so far
as the
<PAGE>
same are separately invoiced, and
of all rebates, discounts, and
other reductions actually granted
and exclusive of any Value Added
Tax or other duty payable in
respect thereof.
"PATENTS" means any patent applications filed
by or on behalf of the Licensor,
whether before or after the
Commencement Date which seek to
protect any invention developed or
arising from the Development Work
and relating to the Kit, the
Process and/or any Product and
vesting in the Licensor pursuant to
the terms of the Research
Agreement, any application which
claims priority from any such
application, and any patents which
may be granted in respect of any
such applications.
"PRIMARY PRODUCTS" means:-
(i) any Vascular Graft; and/or
(ii) any Kit incorporating any
Vascular Graft for effecting
the Process in connection with
such Vascular Graft.
"THE PRIMARY PURPOSE" means the manufacture, marketing,
supply and development of the
Primary Products.
<PAGE>
"PROCESS" means the process developed by the
Medical School and/or the Trust
relating to the extraction of
endothelial cells from patients,
the seeding of those cells onto
materials used in surgery and the
implantation of such seeded
materials into patients, as such
process may be tested, modified and
improved as part of the Development
Work.
"PRODUCTS" means together the Primary Products
and, where the scope of this
Licence has been extended to cover
the supply of Secondary Products by
or on behalf of the Licensee, such
Secondary Products.
"PURPOSE" means together the Primary Purpose
and the Secondary Purpose.
"QUARTER DAY" means 31st March; 30th June; 30th
September and 31st December in each
year.
"RESEARCH AGREEMENT" means the Agreement entered into
between the Company and the Royal
Free Hospital School of Medicine
dated [_] 1998 a copy of which is
attached at Schedule 1.
"SECONDARY PRODUCTS" means any Kit incorporating any
Stent.
<PAGE>
"THE SECONDARY PURPOSE" means the manufacture, marketing,
supply and development of the
Secondary Products.
"STENT" means any stent or stent graft for
use in surgery.
"SUB-LICENSEE" means any third party, including
but not limited to the Company or
any other associate of the
Licensee, to whom the Licensee has
sub licensed, sub-contracted or
otherwise transferred any of the
Licensee's rights and/or
obligations under this Agreement in
accordance with Clause 11.3.
"THE TERRITORY" means all countries in the world;
and `country' shall be construed
accordingly.
"VASCULAR GRAFT" means any vascular graft as may be
tested, modified or improved as
part of the Development Work.
1.2. The headings in this Agreement are inserted only for convenience and
shall not affect its interpretation.
1.3. Where appropriate words denoting a singular number only shall include
the plural and vice versa.
1.4. Reference to any statute or statutory provision includes a reference
to the statute or statutory provision as from time to time amended,
extended or re-enacted.
<PAGE>
1.5. Reference to any Schedule or Annex shall be deemed to be reference to
a Schedule of or Annex to this Agreement, and such Schedule or Annex
shall form a part hereof.
1.6. References to any gender shall include the other genders and
references to persons shall include individuals, bodies corporate,
unincorporated associations and partnerships.
1.7. Words and expressions defined in the Research Agreement shall have the
same meaning herein unless otherwise specifically defined.
2. RIGHTS GRANTED
--------------
2.1. During the continuance hereof, the Licensor grants to the Licensee, on
the terms set out in this Agreement, an exclusive licence to use the
Intellectual Property in the Territory for the Primary Purpose under
the terms of this Agreement.
2.2. The Licensee shall not be entitled:-
2.2.1. to supply any Kit with any product other than any Vascular
Graft, save as provided in Clauses 2.3 or 2.4;
2.2.2. to supply any Kit independently from any Vascular Graft save
that with the prior written consent of the Licensor (such
consent not to be unreasonably withheld or delayed), the
Licensee shall be entitled to supply any Kit separately from
any Vascular Graft for practical production or supply reasons,
provided that the Licensee makes such supply only on such
terms as the Licensor may reasonably require and supplies all
Kits on the condition (but without guaranteeing the compliance
by any third party with such condition) that they be used with
a Vascular Graft and that the Kit must not be used with any
product other than the Vascular Graft; and
<PAGE>
2.2.3. to use any of the Intellectual Property save as expressly
licensed pursuant to Clause 2.1.
Where in accordance with Clause 2.2.2 the Licensee or any Sub-Licensee
supplies any Kit separately from any Vascular Graft, the definition of
Products shall be deemed to include any such Kit.
Where the Licensee or any Sub-licensee supplies any Kit it will do so
on the condition (but without guaranteeing the compliance by any third
party with such condition) that the Kit is only to be used with the
Vascular Graft.
2.3. Subject to Clause 2.4 and 2.5 below, if at any time during the Minimum
Period the Licensee can demonstrate to the reasonable satisfaction of
the Licensor that:-
(i) it has developed a Stent to which the Process can be applied; or
(ii) it has acquired the right to manufacture and supply any such
Stent; or
(iii) either (i) or (ii) above is imminent;
then the exclusive licence granted pursuant to Clause 2.1 shall in
addition to Primary Products, extend to cover the Secondary Products
and the provisions of clauses 2.1 and 2.2 shall apply mutatis mutandis
to include such Secondary Purpose.
2.4. Subject to Clause 2.5 below, if at any time during the Minimum Period,
provided that no extension of the licence for the Secondary Purpose as
envisaged by Clause 2.3 above shall then have been granted or such
obligation shall have arisen, the Licensor shall receive an approach
from any third party wishing to perform the Secondary Purpose, the
Licensor shall as soon as reasonably practicable thereafter give to
the Licensee details in writing of such approach (subject to any
duties of confidentiality owed by the Licensor to any such third party
provided
<PAGE>
that the Licensor shall use all reasonable endeavours to ensure that
such obligations of confidentiality do not restrict the provision by
the Licensor to the Licensee of sufficient information to enable it to
exercise its rights under this Clause 2.4), and shall allow the
Licensee a reasonable period of time (being not less than 60 days) in
which to demonstrate to the reasonable satisfaction of the Licensor
that the Licensee is able to put such Secondary Products as are the
subject of the third party approach into such a form as to enable them
to be sold on the open market in a shorter period than it would have
taken the said third party to do so. If the Licensee is able to
demonstrate such capability in accordance with this Clause 2.4 then
the exclusive licence granted pursuant to Clause 2.1 shall, in
addition to the Primary Products, extend to cover the Secondary
Products and the provisions of Clauses 2.1 and 2.2 shall apply mutatis
mutandis to include such Secondary Purpose.
2.5. If the Licensee is planning to enter into the market for Stents in the
near future, it shall be entitled to request an extension of the
option period provided in clauses 2.3 and 2.4 for a further 12 months
from the expiry of the Minimum Period and the Licensor shall not
unreasonably withhold or delay its consent to such an extension
provided the Licensee demonstrates to the reasonable satisfaction of
the Licensor that it is taking active steps to enter that market.
3. DURATION
3.1. The Licence granted under Clause 2.1 shall commence on the date
hereof.
3.2. With respect to each country within the Territory, subject to the
provisions of Clause 9, the licence granted under Clause 2.1 shall
expire on the last to occur of the following:-
<PAGE>
3.2.1. the date upon which last of the Patents (if any) ceases to be
in force in the country concerned; or
3.2.2. 10 years from the date that the Product concerned was first
put on the market by or on behalf of the Licensee or any Sub-
Licensee in the country concerned.
4. COMPLIANCE OF PRODUCTS
The provisions of this Clause 4 shall at all times be subject to the
provisions of the Research Agreement.
4.1. The Licensee shall ensure that all Products supplied by or on behalf
of the Licensee or any Sub-licensee:-
4.1.1. are safe, non-hazardous and comply with all regulatory
requirements applying to such Products in the relevant country
within the Territory.
4.2. The Licensor makes no representations or warranties that the Products
will be safe or non-hazardous. The Licensee will be responsible for
any product liability claims relating to the Products licensed to the
Licensee hereunder and their use and the Licensor, its officers,
employees and agents will have no liability to the Licensee or any
Sub-Licensee whether in contract, tort, negligence or otherwise for
any loss or damage arising out of or in connection with the
manufacture, supply or development of any Products by or on behalf of
the Licensee or any Sub-Licensee which are not safe or are hazardous.
4.3. The Licensee shall indemnify the Licensor and keep the Licensor fully
indemnified against any and all liability, losses damages, costs,
claims and expenses (including legal expenses) actually incurred by
the Licensor, the Medical School and the Trust and arising out of or
in connection with:-
<PAGE>
4.3.1. any manufacture, use, distribution or supply of the Products
by or on behalf of the Licensee or any Sub-licensee; or
4.3.2. any use by a third party of any Products manufactured and/or
supplied by or on behalf of the Licensee or any Sub-licensee
where such liability, damages, losses, costs, claims or expenses are
suffered, incurred or experienced by the Licensor (or Medical School
or Trust) as a result of the negligence, breach of statutory duty or
breach of any of the provisions of this Agreement on the part of the
Licensee, its directors, officers, employees, agents or any Sub-
licensee.
5. INTELLECTUAL PROPERTY
5.1. At the Licensor's written request the Licensee will:
5.1.1. ensure that all Products bear a label quoting any relevant
patent numbers and/or stating in English that the Products are
manufactured by the Licensee or Sub Licensee with the
permission of the Licensor, the terms of such wording and its
placing shall be as reasonably requested by the Licensor; and
5.1.2. ensure that all literature relating to the Products includes a
notice in similar terms.
6. OWNERSHIP OF THE INTELLECTUAL PROPERTY
--------------------------------------
6.1. Subject to the provisions of this Clause 6.1 the Licensor hereby
warrants represents and undertakes to the Licensee:-
6.1.1. that it has the right and authority to enter into this
Agreement; and
6.1.2. that it will notify the Licensee in writing immediately upon
it receiving written notification that the use of any of the
Intellectual Property on or in relation to the Products in any
part of the Territory in accordance with the terms of this
Agreement
<PAGE>
infringes or is likely to infringe the Intellectual Property
Rights of any third party, but for the avoidance of doubt the
provisions of this clause 6.1.2 will not impose a positive
duty upon the Licensor to make specific enquiries in respect
thereof.
The Licensor acknowledges and confirms that the Licensor has not
sought the consent of Thermedics Inc. or any other third party which
owns any interest in any Patents as defined in the Research Agreement
and the Licensee warrants that such consent is not required for the
purposes of this Agreement.
6.2. Where any of the Know-How is patentable, the Licensor may in its
absolute discretion apply for Patents in any country within the
Territory at the Licensor's cost. Where the Licensor so applies for
any Patent, it will promptly pay all registration, renewal and other
related fees necessary to maintain the registrations of any Patents on
the relevant register of patents ("the Register") within the said
countries within the Territory and where such Patents are applications
shall prosecute the applications with due diligence during the term of
this Agreement.
6.3. If the Licensor notifies the Licensee in writing that it does not
intend to apply for any Patent in any of the countries within the
Territory in accordance with Clause 6.2 above, then the Licensee shall
itself be entitled to apply for any such Patent in the relevant
country in the name of the Licensor at the cost of the Licensee and in
accordance with the reasonable directions of the Licensor and, for so
long as the Licensee shall remain exclusively entitled thereto, shall
promptly pay all registration, renewal and other fees necessary to
maintain the registrations of such Patents on the Register within such
country, and where such Patents are applications, shall prosecute the
applications with due diligence during the term of this Agreement.
6.4. In the event that the Licensor, or where relevant the Licensee applies
for a Patent pursuant to Clauses 6.2 or 6.3 above for the purpose of,
or
<PAGE>
in connection with the granting of a licence to the Licensee, then for
so long as such exclusive licence enures for the benefit of the
Licensee, the party so applying shall be entitled to require the other
party to provide such assistance as the applying party may reasonably
request in connection with the prosecution of such application,
subject to the applying party reimbursing the other for all fees,
costs and expenses incurred by it in providing such assistance.
6.5. Each of the Licensor and the Licensee undertakes not to do or permit
to be done any act which would or might jeopardise or invalidate the
registration of any Patent nor to do or permit any act which might
assist or give rise to an application to remove any of the Patents
from the Register or which might prejudice the right or title of the
Licensor to any of the Intellectual Property.
6.6. The Licensee will on request give or procure that there is given to
the Licensor or its duly authorised representative any information as
to the use of the Intellectual Property which the Licensor may
reasonably require.
6.7. The Licensee shall assist the Licensor as may be reasonably necessary
(including by executing any necessary documents) in recording the
Licensee as a licensee of the Patents on the Register and the Licensee
hereby agrees that such entry may be cancelled by the Licensor on
termination of this Agreement, for whatever reason, and that it will
assist the Licensor so far as may be necessary to achieve such
cancellation including by executing or procuring that there is
executed at the request of the Licensor any documents necessary for
that purpose, subject to the Licensor bearing the costs relating to
the removal of such entry where this Agreement is terminated by reason
of breach on the part of the Licensor.
<PAGE>
7. INFRINGEMENTS
-------------
7.1. To the extent that the same relates to the exclusive licence or option
granted or to be granted to the Licensee hereunder, each of the
parties hereto shall as soon as it becomes aware thereof give to the
other in writing full particulars of any activity by any person which
amounts or might amount either to infringement of any of the Patents
or misuse of the Know-how.
7.2. To the extent that the same relates to the exclusive licence or option
granted or to be granted to the Licensee hereunder, then without
prejudice to the requirement set out in Clause 6.1.2 above, if either
party hereto becomes aware that any person either alleges that any of
the Patents is invalid or that the use of the Intellectual Property
infringes any Intellectual Property Rights of any third party or the
Intellectual Property is otherwise attacked or challenged such party
shall immediately give to the other full particulars in writing
thereof. Subject to Clause 7.3, the Licensee shall make no comments or
admission to any third party in respect thereof without the prior
written consent of the Licensor.
7.3. Where any third party alleges that the Licensee has infringed its
Intellectual Property Rights as a result of the manufacture, use or
supply of any Products by or on behalf of the Licensee in any of the
Territories, the Licensee shall be responsible for conducting any
proceedings relating to its defence and shall consult with the
Licensor in respect of any such proceedings. The Licensor will give
the Licensee all such assistance as is reasonable in the
circumstances. The Licensee shall be responsible for all costs
relating to such proceedings (including the reasonable costs of the
Licensor in providing such assistance) and shall keep any damages and
costs awarded.
7.4. Where there is any infringement or suspected infringement of any of
the Patents any attack or challenge on any of the Patents or any
<PAGE>
unauthorised disclosure or mis-use of the Know-How within any country
within the Territory, the Licensor shall at its own option and expense
have the sole conduct of any proceedings in respect thereof and will
retain any damages and costs awarded to it. The Licensor shall consult
with the Licensee in connection with such proceedings.
7.5. Where there is any infringement or suspected infringement of any of
the Patents or any unauthorised disclosure or misuse of the Know how
within any country within the Territory and where the Licensor
initiates proceedings in respect thereof, then to the extent that such
infringement, disclosure or misuse relates to any of the Products, the
Licensor will at the Licensee's written request use its reasonable
endeavours to join the Licensee in as co-plaintiff in such
proceedings. In such circumstances the Licensee will bear its own
costs and expenses relating to such proceedings and will retain any
damages or costs awarded to it.
7.6. Where the Licensor decides not to take any action in respect of-
(i) any attack or challenge on any of the Patents; or
(ii) any infringement or suspected infringement of any of the Patents
or any unauthorised disclosure or misuse of any of the Know-how
which relates to the Products;
the Licensor shall notify the Licensee and, subject to Clauses 7.7 and
7.8 below, shall permit the Licensee at its own option and expense to
have the sole conduct of any proceedings relating to the same and the
Licensee shall be entitled to retain any damages and costs awarded to
it. The Licensee shall consult with the Licensor in connection with
such proceedings. Where the Licensee commences any infringement
proceedings in accordance with this Clause 7.6 the Licensee shall, at
the Licensor's written request use its reasonable endeavours to join
the Licensor in as co-plaintiff in such proceedings. In such
circumstances
<PAGE>
the Licensor will bear its own costs and expenses relating to such
proceedings and will retain any damages or costs awarded to it.
7.7. Where a situation as envisaged by Clause 7.6(i) or 7.6 (ii) above has
arisen but the Licensee is not the sole Licensee in respect of the
Intellectual Property giving rise to such action, then the Licensor
shall, acting reasonably and having full regard of the wishes,
available financial resources and potential loss of such party, decide
which of the Licensee or the other licensee(s) shall take action in
respect of the same. Where procedurally possible, such decisions shall
not preclude the Licensor or Licensee from being joined into such
proceedings as co-plaintiffs in which case the provisions of Clause
7.5 and 7.6 in respect thereof shall apply mutatis mutandis.
7.8. In any proceedings to which either the Licensor or the Licensee (as
the case may be) is a party hereunder pursuant to Clauses 7.4 to 7.7
(inclusive), then the other party shall give the Licensor or the
Licensee (as the case may be) such assistance as that party may
reasonably request in connection with such proceedings, subject to the
Licensor or the Licensee (as the case may be) meeting that other
party's reasonable costs and expenses in connection therewith, save
that where both parties are co-plaintiffs in respect of any such
proceedings, they shall each bear their own costs and expenses
incurred in connection with any such proceedings.
8. SALES AND ROYALTIES
-------------------
8.1. The Licensee will use its reasonable endeavours to promote and develop
the sale of the Products by it or on its behalf in the Territory.
8.2. Subject to the provisions of this Clause 8, and in particular Clause
8.3 below, during the continuance of this Agreement the Licensee shall
pay the Licensor royalties on sales of the Products made by it or on
its
<PAGE>
behalf or by its Sub licensees (if any) in the Territory at the
following rates:
8.2.1. In respect of all Products sold by or on behalf of the
Licensee or any Sub-Licensee which have either been
manufactured or sold in any country where any Patent subsists
in respect thereof:
(i) (Pounds)0-5,000,000 of such Products sold by or on
behalf of the Licensee or any Sub-Licensee (calculated
by reference to the aggregate Net Sale Price) = 6%;
(ii) (Pounds)5,000,001-(Pounds)7,500,000 of such Products
sold by or on behalf of the Licensee or any Sub-
Licensee (calculated by reference to the aggregate Net
Sale Price) = 4%;
(iii) (Pounds)7,500,001 + of such Products sold by or on
behalf of the Licensee or any Sub-Licensee (calculated
by reference to the aggregate Net Sale Price) = 2%.
8.2.2. in respect of all Products sold by or on behalf of the
Licensee or any Sub-licensee which have either been
manufactured or sold in any country where no Patent subsists,
a royalty of 2% of the Net Sale Price of all such Products,
irrespective or the quantity of such Products sold.
For the avoidance of doubt, the Licensee will not in any circumstances
be required under Clause 8.2 to pay any royalties twice in respect of
the same unit of Product.
8.3. For the purpose of calculating the royalty payable to the Licensee by
the Licensor hereunder, there shall be a disregard of (Pounds)80,000
with the effect that the Licensee shall be released from any liability
to pay the first (Pounds)80,000 of royalties calculated as due on
sales of the Products by or on behalf of the Licensee pursuant to
Clause 8.2.
<PAGE>
8.4. For the avoidance of doubt any royalty calculations made hereunder
shall be based upon the royalty rate prevailing in that part of the
Territory in which the Product was either manufactured or supplied
whichever is the greater.
8.5. In the event that the Licensee or any Sub-licensee supplies any
Products to any connected person, such supply shall be ignored for the
purposes of calculating the royalties due under this Clause 8 and the
Licensee shall pay the Licensor royalties calculated in accordance
with this Clause 8 by reference to the Net Sales Price of the Products
when disposed of by such connected person to an unconnected person.
8.6. If any Products are incorporated in any other equipment or apparatus
or included as part of a larger kit sold by the Licensee or any Sub-
licensee and the price of the Product is included in the price of such
other equipment, apparatus or kit, the Net Sale Price for the purpose
of calculating royalties due under this Agreement shall be deemed to
be that proportion of the Net Sale Price of that other equipment,
apparatus or kit which is fairly attributable to the Products,
comparing the manufacturing cost of the other equipment, apparatus or
other parts of the kit to that of the Products as components thereof.
Notwithstanding the above, where any Product supplied is a Kit
incorporating any Vascular Graft of Stent, the Net Sales Price shall
be the price of the Kit and Vascular Graft or the Kit and the Stent
(as appropriate).
8.7. For the purpose of this Agreement a calendar year will commence on 1st
January in each year and expire on the following 31st December. The
Licensee shall within 30 days of the first Quarter Day following the
Commencement Date and within 30 days of each following (or subsequent)
Quarter Day provide a statement to the Licensor giving particulars of
the sales of the Products by the Licensee and any Sub Licensee during
the preceding quarter (or in the first quarter during the period from
the Commencement Date to the first Quarter Day) showing
<PAGE>
the quantity of the Products sold, the price charged in which of the
Territories such Products were both manufactured and sold, any
discounts or other rebates given, the Net Sale Price and the royalty
due and if more than one type of the Products is sold, showing such
information for each type, together with any other particulars as the
Licensor may reasonably require and shall pay the royalties to the
Licensor at the same time as rendering the statement.
8.8. All sums payable hereunder are exclusive of Value Added Tax, which
shall in addition be payable by the Licensee where appropriate. All
royalties and other payments due under this Agreement by the Licensee
shall be paid without deduction or withholding in respect of duties,
taxes or charges levied or imposed by any taxation authority under the
laws of any country unless the deduction or withholding is required by
the law of that country. In which event, the Licensee shall provide to
the Licensor either an official receipt from the relevant taxation
authority in respect of all amounts so deducted or withheld or (if not
available) a certificate of deduction or equivalent evidence to enable
the Licensor to obtain credit for the tax deducted or to claim from
double taxation (if such relief is available).
8.9. The Licensee shall and shall procure so far as it is able that its Sub
Licensee shall keep separate , detailed, true and accurate books and
records of all sales of the Products to enable the Licensor to check
the accuracy of the information contained in the statements rendered
under clause 8.7, such books and records to be retained by the
Licensee and any other Sub-Licensees for at least three years from the
date of their creation. The Licensor shall be entitled at its expense
to inspect such books and records by its authorised representative or
representatives on reasonable notice during business hours and to take
copies of or extracts from such books and records, save that this
right shall not be exercisable in respect of any statement if no
inspection has been made within three years of its being rendered to
the Licensor. In the event
<PAGE>
that the statements rendered under clause 8.7 are inaccurate by more
than 5 per cent, the costs of such inspection shall be paid by the
Licensee. Any information about the business of the Licensee which
may be obtained by the Licensor as a result of any such inspection
and which does not relate to the Products shall be kept confidential
by the Licensor.
8.10. The Licensee shall supply to the Licensor within 60 days of the end
of each Year of this Agreement a certificate in writing by its
auditors certifying the aggregate Net Sale Price of the Products sold
or otherwise disposed of by the Licensee or any Sub-Licensee that
Year and the amount of royalty due. The rendering of such certificate
shall not preclude the right of inspection given to the Licensor in
clause 8.8.
9. TERMINATION
-----------
9.1. Either party may terminate this Agreement without prejudice to its
other remedies forthwith by notice in writing to the other if that
other either:
9.1.1. commits a material breach of this Agreement; provided that if
the breach is capable of remedy the notice shall only be given
if the party in breach shall not have remedied the same within
30 days of having been given notice in writing specifying the
breach and requiring it to be remedied; or
9.1.2. is unable to pay its debts or enters into compulsory or
voluntary liquidation (other than for the purpose of effecting
a reconstruction or amalgamation in such manner that the
company resulting from such reconstruction or amalgamation if
a different legal entity shall agree to be bound by and assume
the obligations of the relevant party under this Agreement) or
compounds with or convenes a meeting of its creditors or has a
receiver or manager or an administrative receiver or an
<PAGE>
administrator appointed of its assets or ceases for any reason
to carry on business or takes or suffers any similar action
which in the opinion of the party giving notice means that the
other may be unable to pay its debts.
9.2. Termination of this Agreement for whatever reason shall not affect the
accrued rights of the parties arising in any way out of this Agreement
as at the date of termination and in particular but without limitation
the right to recover damages from the other.
9.3. Upon the termination of this Agreement in accordance with the terms of
this Agreement the Licensee shall cease to make any use of the
Intellectual Property and shall cease all manufacture, supply and use
of all Products save that if the Licensee has a stock of Products
existing or in the course of manufacture or unfulfilled orders on hand
at the date of termination of this Agreement the Licensee may, but
only with the Licensor's specific permission, sell such stock on the
terms hereof or such other terms as may be reasonably agreed.
9.4. Upon termination or expiry of this Agreement the following Clauses
shall remain in full force and effect: Clauses 1, 4, 6.7, 8, 9.2, 9.3,
9.4, 10, 13, 14, and 16.
10. CONFIDENTIALITY
---------------
10.1. Each party shall retain ownership of all Confidential Information
(and any copies thereof) disclosed by it to the other and may require
the return of any such Confidential Information and any copies at any
time.
10.2. Each party shall maintain confidentiality of the other's Confidential
Information and, in particular, shall:-
10.2.1. only use such Confidential Information for the purposes of
performing its obligations under this Agreement;
<PAGE>
10.2.2. only disclose such Confidential Information to those of its
employees to whom it is necessary to disclose such
Confidential Information for the purposes of this Agreement,
but only to the extent necessary to enable it to perform its
obligations under this Agreement and provided that it shall
remain responsible for procuring that its employees do not
further disclose the Confidential Information or use it for
any purpose other than to assist the receiving party in
performing its obligations under this Agreement.
10.3. Each party shall be responsible for the compliance with this Clause
10 on the part of its employees or any other persons to whom such
Confidential Information is disclosed for the purposes of this
Agreement.
10.4. The obligations set out in this Clause 10 shall not apply to any
Confidential Information which:-
10.4.1. the disclosing party in writing authorises the receiving
party to disclose;
10.4.2. is or comes into the public domain other than through any
act or default either directly or indirectly of the
receiving party, its officers, employees, agents,
representative or Sub-licensees;
10.4.3. the receiving party can prove by documentary evidence was
already in its possession at the time of its receipt from
the disclosing party and that the receiving party was free
from any obligation of confidence in respect of such
information;
10.4.4. is subsequently disclosed to the receiving party by a person
who did not acquire the information directly or indirectly
from the disclosing party and such third party was in lawful
possession of such information and not in violation of any
obligation or confidentiality in respect of such
information; or
<PAGE>
10.4.5. the receiving party is obliged to disclose by order of any
competent jurisdiction or a governmental or regulatory body,
provided that the receiving party uses its best endeavours
to limit such disclosure and to provide the disclosing party
with an opportunity to make representations to the relevant
court or governmental or regulatory body.
10.5. For the avoidance of doubt, information shall not be deemed to be
within any of the exceptions included in Clause 10.4 merely because
it is embraced by general disclosure in the public domain or in the
lawful possession of the receiving party, nor shall a combination of
information be deemed to be within any of the exceptions set out in
Clause 10.4 merely because individual items of information are in the
public domain or in the lawful possession of the receiving party,
unless the specific combination of information is itself in the
public domain or in the lawful possession of the receiving party.
11. ASSIGNMENT
----------
11.1. Subject to Clause 11.3, neither party hereto shall assign, transfer,
sub-contract or in any other manner make over to any third party the
benefit and/or burden of this Agreement without the prior written
consent of the other, except that the Licensor shall be entitled
without the Licensee's prior written consent, such consent not to be
unreasonably withheld or delayed, to assign its rights and benefits
under this Licence to University College London (or any other
organisation in the University of London) or any company owned by
University College London (or any such other organisation) in
connection with the proposed merger of the Medical School with
University College London (or any such other organisation) provided
that in the event of such merger save where statutorily inappropriate
the Licensor, the Licensee and University College London (or any such
other organisation) will enter into an agreement novating the
obligations of
<PAGE>
the Licensor hereunder to University College London (or such other
organisation).
11.2. In the event of an assignment this Agreement shall be binding upon
such successor or assignee and the name of a party appearing herein
shall be deemed to include the names of any such successor or
assignee.
11.3. The Licensee shall not be entitled to sub-license or sub-contract any
of its rights and/or obligations under this Agreement to any person
without the prior written consent of the Licensor such consent not to
be unreasonably withheld or delayed, save that the Licensee shall be
entitled to sub-license or sub-contract any of its rights to the
Company without the Licensor's consent. The Licensee shall be
entitled to appoint any distributor or agent in respect of the supply
of the Products without the consent of the Licensor.
11.4. In the event that the Licensee sub-licenses or sub-contracts any of
its rights under obligations under this Agreement to any person
(including, for the avoidance of doubt, the Company):-
11.4.1. the Licensee shall be responsible to the Licensor for all
acts and/or omissions of each Sub-Licensee as if such acts
or omissions had been made by the Licensee;
11.4.2. the Licensee shall enter into a written sub-licence
agreement with the Sub-licensee and promptly provide the
Licensor with a copy of any sub-licence agreement;
11.4.3. the Licensee shall ensure that provisions of any such sub-
licence agreement are entirely consistent with the
provisions of this Agreement and shall prohibit further sub-
licensing and sub-contracting by the Sub-licensee without
the prior written consent of the Licensor and the Licensee
such consent not to be unreasonably withheld or delayed; and
<PAGE>
11.4.4. the Licensee shall use its reasonable endeavours to procure
that each Sub-Licensee complies fully at all times with the
provisions of its sub-licence agreement in respect of the
subject matter hereof and shall enforce the terms of each
such sub-licence against the relevant Sub-Licensee.
12. FORCE MAJEURE
-------------
12.1. Neither party shall be in breach of this Agreement if there is any
total or partial failure of performance by it of its duties and
obligations under this Agreement except for the obligation to pay any
monies due, occasioned by any act of God, fire, act of government or
state, war, civil commotion, insurrection, embargo, prevention from
or hindrance in obtaining any raw materials, energy or other cause
beyond the control of either party. If either party is unable to
perform its duties and obligations under this Agreement as a direct
result of the effect of one or more of such causes such party shall
give written notice to the other of such inability stating the cause
in question and the date on which such cause commenced. The operation
of this Agreement shall be suspended during the period (and only
during the period) in which the cause continues to have effect.
Forthwith upon the cause ceasing to have effect the party relying
upon it shall give written notice thereof to the other. If the cause
continues to have effect for a period of more than 60 days the party
not claiming relief under this clause shall have the right to
terminate this Agreement upon giving 30 days written notice of such
termination to the other party, but such notice shall not take effect
if the other party gives notice within that period that the cause has
ceased to prevent the operation of this Agreement and forthwith upon
such cessation recommences the full and punctual performance of its
obligations hereunder.
<PAGE>
13. ILLEGALITY
----------
13.1. If any provision or term of this Agreement shall become or be
declared illegal, invalid or unenforceable for any reason whatsoever
such term or provision shall be divisible from this Agreement and
shall be deemed to be deleted from this Agreement provided always
that if such deletion substantially affects or alters the commercial
basis of this Agreement the parties shall negotiate in good faith to
amend and modify the provisions and terms of this Agreement so as to
achieve so far as possible the same economic effect without rendering
the Agreement so amended or modified illegal, invalid or
unenforceable.
14. ENTIRE AGREEMENT/AMENDMENT/PRESS RELEASES/COSTS
-----------------------------------------------
14.1. This Agreement constitutes the entire agreement and understanding of
the parties and supersedes all prior oral or written agreements,
understandings or arrangements between them relating to the subject
matter of this Agreement. Neither party shall be entitled to rely on
any agreement, understanding, or arrangement, representation, term or
warranty which is not expressly contained in this Agreement and no
change may be made to it except in writing signed by duly authorised
representatives of both parties save that nothing in this Agreement
shall operate to exclude any provision implied into this Agreement by
English law which may not be excluded by English law or to limit or
exclude any liability, right or remedy to a greater extent than is
permissible under English law.
14.2. Without prejudice to the generality of Clause 14.1, the Licensor does
not give any warranty, representation or undertaking:-
14.2.1. as to the efficacy or usefulness of any of the Intellectual
Property;
<PAGE>
14.2.2. that any of the Patents is or will be valid or subsisting or
where any such Patents are applications that, such
applications will proceed to grant; or
14.2.3. that any use of the Intellectual Property and the
manufacture, supply or use of any of the Products will not
infringe the intellectual property or other rights of any
third party.
14.3. No failure or delay on the part of either of the parties to exercise
any right or remedy under this Agreement shall be construed or
operate as a waiver thereof nor shall any single or partial exercise
of any right or remedy preclude the further exercise of such right or
remedy as the case may be. The rights and remedies provided in this
Agreement are cumulative and are not exclusive of any rights or
remedies provided by law.
14.4. The text of any press release or other communication to be published
by or in the media concerning the subject matter of this Agreement
shall require the approval of each of the parties.
14.5. Each of the parties shall be responsible for its respective legal and
other costs incurred in relation to the preparation of this
Agreement.
14.6. Nothing in this Agreement shall create or imply any relationship of
agency, partnership or joint venture between the parties.
14.7. The Licensee shall not act or describe itself as the agent of the
Licensor and shall not represent that it has any authority to bind
the Licensor.
15. NOTICE
------
15.1. Any notice or other document to be given under this Agreement shall
be in writing and shall be deemed to have been duly given if left at
or sent by hand or by registered post; or facsimile to the address
set out above for such party or such other address as one party may
from time to time designate by written notice to the other.
<PAGE>
15.2. Any such notice or other document shall be deemed to have been
received by the addressee two working days following the date of
dispatch if the notice or other document is sent by registered post,
or simultaneously with the delivery or transmission if sent by hand
or facsimile.
16. GOVERNING LAW AND JURISDICTION
------------------------------
16.1. The validity, construction and performance of this Agreement shall be
governed by English law, and shall be subject to the exclusive
jurisdiction of the English Courts.
IN WITNESS WHEREOF the parties acting through their duly authorised
representatives have executed this Agreement the day and year first before
written.
Signed by )
for FREEMEDIC PLC in the )
presence of:- )
Signed by
for CARDIOTECH )
INTERNATIONAL INC. )
in the presence of:- )
<PAGE>
SCHEDULE 1
----------
Research Agreement
-------------------
<PAGE>
SCHEDULE 2
----------
Licensor's Know-how
-------------------
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF
CARDIOTECH INTERNATIONAL, INC.
Name
- ----
State or Other Jurisdiction
---------------------------
of Incorporation or Organization
--------------------------------
Incorporation or Organization
- -----------------------------
CardioTech International Limited United Kingdom
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of CardioTech International, Inc. on Form S-8, dated June 12, 1996, of our
report dated May 27, 1998, on our audit of the consolidated financial statements
of CardioTech International, Inc. as of March 31, 1998 and 1997 and for each of
the three years in the period ended March 31, 1998 which report is included in
this annual report on Form 10-K.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 26, 1998
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<PAGE>
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<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
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<RECEIVABLES> 387,025
<ALLOWANCES> 0
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<CURRENT-ASSETS> 2,640,218
<PP&E> 187,654
<DEPRECIATION> 227,997
<TOTAL-ASSETS> 3,039,638
<CURRENT-LIABILITIES> 596,539
<BONDS> 0
0
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<COMMON> 42,729
<OTHER-SE> 740,370
<TOTAL-LIABILITY-AND-EQUITY> 3,039,638
<SALES> 0
<TOTAL-REVENUES> 872,521
<CGS> 0
<TOTAL-COSTS> 2,756,614
<OTHER-EXPENSES> (75,138)
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