<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY report pursuant to Section 13 OR 15(d) of the Securities Exchange
Act of 1934 For the quarter ended DECEMBER 31, 1999,
OR
[ ] Transition report pursuant to Section 13 OR 15(d) of the Securities
Exchange Act of 1934 For the transition period from_____________ to
_______________
Commission file number: 000-24103
COHESION TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 94-3274368
(State or Other (I.R.S. Employer
Jurisdiction of Identification No.)
Incorporation or
Organization)
2500 FABER PLACE, PALO ALTO, CA 94303
(Address of Principal Executive Offices, including Zip Code)
Registrant's telephone number, including area code: (650) 320-5500
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
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 month (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of January 31, 2000, Registrant had 8,866,640 shares of Common Stock
outstanding, exclusive of 515,100 shares held by the Registrant as treasury
stock.
<PAGE> 2
Cohesion Technologies, INC.
Form 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information Page No.
- ------------------------------------ --------
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
December 31, 1999 and June 30, 1999 3
Condensed Consolidated Statements of Operations -
Three and six months ended December 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows -
Six months ended December 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 2. FINANCIAL STATEMENTS
COHESION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999*
------------ --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................................... $ 19,168 $ 4,239
Accounts receivable, net ........................................................ 514 895
Inventories ..................................................................... 922 976
Other current assets ............................................................ 2,441 2,142
-------- --------
Total current assets ..................................................... 23,045 8,252
Property and equipment, net ....................................................... 6,720 6,705
Investment in Boston Scientific Corporation ....................................... 20,261 41,632
Other investments and assets ...................................................... 18,846 14,930
-------- --------
$ 68,872 $ 71,519
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................ $ 1,041 $ 1,035
Accrued compensation ............................................................ 1,136 1,172
Accrued liabilities ............................................................. 2,909 4,133
Income taxes payable ............................................................ 5,759 953
Obligation under capital lease .................................................. 733 --
-------- --------
Total current liabilities ................................................ 11,578 7,293
Long-term liabilities:
Obligation under capital lease .................................................. 3,039 --
Deferred income taxes ........................................................... 11,029 18,985
-------- --------
Total long-term liabilities .............................................. 14,068 18,985
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, authorized: 5,000,000 shares,
issued and outstanding: no shares at December 31, 1999 and June 30, 1999 ...... -- --
Common stock, $.001 par value, authorized: 15,000,000 shares;
issued, December 31, 1999 - 9,207,572 shares; June 30, 1999 - 8,953,167 shares;
outstanding, December 31, 1999 - 8,692,472 shares; June 30, 1999 - 8,438,067
shares ........................................................................ 9 9
Additional paid-in capital ...................................................... 16,410 15,193
Retained earnings (since August 19, 1998) ....................................... 14,076 5,705
Accumulated other comprehensive income .......................................... 14,705 26,308
Treasury stock, at cost, 515,100 shares at December 31, 1999 and
June 30, 1999 ............................................................... (1,974) (1,974)
-------- --------
Total stockholders' equity ............................................... 43,226 45,241
-------- --------
$ 68,872 $ 71,519
======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
* Amounts derived from audited financial statements at the date indicated.
3
<PAGE> 4
COHESION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue -- product sales ................................ $ 503 $ 828 $ 947 $ 1,223
Costs and expenses:
Cost of sales, including manufacturing start-up costs 899 412 1,568 595
Research and development .............................. 2,915 3,470 6,160 7,459
Selling, general and administrative ................... 1,694 1,531 3,579 3,219
Compensation expense related to
cancelled stock options .......................... 442 635 891 2,447
-------- -------- -------- --------
Total costs and expenses ...................... 5,950 6,048 12,198 13,720
-------- -------- -------- --------
Loss from operations .................................... (5,447) (5,220) (11,251) (12,497)
Other income (expense):
Gain on sale of investments ........................... 12,322 4,353 25,021 13,971
Interest income ....................................... 176 10 269 67
Interest expense ...................................... (89) -- (89) --
-------- -------- -------- --------
Income (loss) before provision for income taxes ......... 6,962 (857) 13,950 1,541
Provision (benefit) for income taxes .................... 2,785 (391) 5,580 616
-------- -------- -------- --------
Net income (loss) ....................................... $ 4,177 $ (466) $ 8,370 $ 925
======== ======== ======== ========
Earnings (loss) per common share - basic ................ $ .49 $ (.05) $ .99 $ .11
======== ======== ======== ========
Earnings (loss) per common share assuming dilution ...... $ .47 $ (.05) $ .95 $ .11
======== ======== ======== ========
Weighted average shares outstanding - basic ............. 8,546 8,580 8,469 8,709
======== ======== ======== ========
Weighted average shares outstanding assuming
dilution ......................................... 8,982 8,580 8,772 8,709
======== ======== ======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
4
<PAGE> 5
COHESION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................... $ 8,370 $ 925
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization ..................... 752 553
Gain on investments ............................... (25,021) (13,971)
Decrease (increase) in assets:
Accounts receivable ............................. 381 (139)
Inventories ..................................... 54 (536)
Other ........................................... 455 (747)
Increase (decrease) in liabilities:
Accounts payable, accrued liabilities and other . (1,253) 1,535
Income taxes payable ............................ 4,805 ---
-------- --------
Net cash used in operating activities ............. (11,457) (12,380)
-------- --------
Cash flows from investing activities:
Proceeds from sales of Boston Scientific
Corporation stock ................................. 12,614 13,221
Proceeds from sale-leaseback of manufacturing facility 4,188 --
Proceeds from sale of other investments .............. 10,993 533
Purchase of investments .............................. (4,260) --
Proceeds on maturity of equity collar, net ........... 2,574 1,081
Proceeds from maturities of short-term investments ... -- 1,016
Expenditures for property and equipment .............. (524) (2,403)
-------- --------
Net cash provided by investing activities ......... 25,585 13,448
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and
from employee stock purchase plan ................. 1,217 96
Payment of capital lease obligation .................. (416) --
Proceeds from short-term borrowings, net ............. -- 1,000
Treasury stock purchases ............................. -- (1,802)
-------- --------
Net cash provided by (used in) financing activities 801 (706)
-------- --------
Net increase in cash and cash equivalents .............. 14,929 362
Cash and cash equivalents at beginning of period ....... 4,239 591
-------- --------
Cash and cash equivalents at end of period ............. $ 19,168 $ 953
======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
5
<PAGE> 6
COHESION TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 1999, the
condensed consolidated statements of operations for the three and six months
ended December 31, 1999 and 1998, and the condensed consolidated statements of
cash flows for the six months ended December 31, 1999 and 1998, have been
prepared by the Company and are unaudited. In the opinion of management, all
necessary adjustments (which include only normal recurring adjustments) have
been made to present fairly the financial position, results of operations, and
cash flows at December 31, 1999 and for all periods presented. Interim results
are not necessarily indicative of results for a full fiscal year. The
consolidated balance sheet as of June 30, 1999 has been derived from the audited
consolidated financial statements at that date.
Certain amounts in the financial statements for the prior fiscal period have
been reclassified to conform with the current year presentation. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial statements and
notes included in the Company's Annual Report on Form 10-K for the year ended
June 30, 1999.
2. INVENTORIES
Inventories are valued at the lower of cost, determined on a standard cost
basis which approximates average cost, or market.
Inventories comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
---- ----
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................. $ 209 $ 158
Work-in-process........................... 442 737
Finished goods............................ 271 81
------- -------
$ 922 $ 976
======= =======
</TABLE>
6
<PAGE> 7
3. EQUITY INVESTMENTS
The following is a summary of the aggregate estimated fair value, gross
unrealized gains and cost of the Company's investments in common stock:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
BOSTON SCIENTIFIC CORPORATION
Cost...................................... $ 1,569 $ 2,229
Gross unrealized gains.................... 14,306 43,056
------- -------
15,875 45,285
Fair value of equity collar............... 4,386 (3,653)
------- --------
Estimated fair value...................... $20,261 $41,632
======= =======
OTHER INVESTMENTS
Cost...................................... $ 8,323 $10,253
Gross unrealized gains.................... 6,097 3,516
------- -------
Estimated fair value...................... $14,420 $13,769
======= =======
Total estimated fair value................ $34,681 $55,401
======= =======
</TABLE>
The Company determines the appropriate classification of marketable
securities at the time of purchase and re-evaluates such designation as of each
balance sheet date. All of the Company's investments in equity securities are
classified as available-for-sale.
To hedge against fluctuations in the market value of a portion of the Boston
Scientific common stock, the Company entered into costless collar instruments
that expire quarterly through May 2001 and will require settlement in cash. At
December 31, 1999, 450,000 shares were hedged under these collars. The put and
call options are collateralized by shares of Boston Scientific common stock held
by the Company.
7
<PAGE> 8
4. EARNINGS PER SHARE
Under Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128"), basic earnings per share ("EPS") is calculated using the weighted
average number of common shares outstanding for the period. The computation of
diluted EPS includes the effects of stock options, warrants and convertible
preferred stock, if such effect is dilutive. Options that had an exercise price
greater than their market price during the three and six months ended December
31, 1999 and 1998 were excluded, as their inclusion would have been
anti-dilutive. Below is a reconciliation between the basic and diluted weighted
average common and common-equivalent shares for the three and six months ended
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------- ---------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Basic (weighted average common
shares outstanding) ......... 8,546 8,580 8,469 8709
Weighted average common stock
options outstanding ......... 436 -- 303 --
----- ----- ----- -----
Diluted weighted average shares
outstanding ................. 8,982 8,580 8,772 8,709
===== ===== ===== =====
</TABLE>
5. CAPITAL LEASE OBLIGATION
The Company entered into a lease agreement that covers manufacturing
equipment and leasehold improvements. The lease finances expenditures up to $5.0
million in aggregate and has a term of 48 months with a one-year extension
option or a single cash payment of 20% of the lease line utilized. Rental
payments are based on a monthly equivalent rental payment factor of the lease
line utilized. Equipment and certain investments collateralize the lease.
The following is a schedule of future minimum lease payments as of December
31, 1999:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Period Ending December 31,
2000 .............................. $ 791
2001 .............................. 1,050
2002 .............................. 1,050
2003 .............................. 1,475
------
Total future minimum lease payments ................. 4,366
Less: Amount representing interest .................. (594)
------
Present value of net minimum lease payments ......... 3,772
Current portion of capital lease obligation ......... 733
------
Long-term portion of capital lease obligation ....... $3,039
======
</TABLE>
8
<PAGE> 9
6. STOCKHOLDERS' EQUITY
Cohesion Corporation Stock Options
In September 1998, the Company's Board of Directors approved a program to
cancel options to purchase shares of the common stock of Cohesion Corporation.
In connection with such program, the Company offered to pay each holder of these
canceled options a per share amount equal to the excess of $16.70 over the
exercise price of the canceled option. The Company will make this option payment
ratably over the original vesting period of the canceled option so long as the
former holder thereof remains an employee or consultant of the Company. The
Company recorded $442,000 and $891,000 of compensation expense related to these
canceled options during the three and six months ended December 31, 1999,
respectively. The Company expects to record an additional $1.1 million through
2001.
7. COMPREHENSIVE INCOME
The components of comprehensive income (loss), net of related income tax, for
the three and six months ended December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) ............. $ 4,177 $ (466) $ 8,370 $ 925
Change in unrealized gains
on securities ............... (4,047) (3,799) (11,603) (13,560)
-------- -------- -------- --------
Comprehensive income (loss) ... $ (130) $ (4,265) $ (3,233) $(12,635)
======== ======== ======== ========
</TABLE>
8. SEGMENT INFORMATION
The Company develops proprietary surgical products, including bioresorbable
hemostatic devices and biosealants for tissue repair and regeneration. The
Company operates in two segments: 1) a surgical business and 2) an orthopedic
business. In February 1999, the Company formed a new subsidiary, NeuColl, Inc.,
to commercialize its products in the orthopedics field, which include Collagraft
and NeuVisc. Both segments report to the Chief Executive Officer ("CEO") of
Cohesion who allocates resources to each business. The CEO has been identified
as the Chief Operating Decision Maker as defined by SFAS 131.
Information on reportable segments for the three and six months ended
December 31, 1999 is as follows (Information for the three and six months ended
December 31, 1998 is not available):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, 1999
------------------
(IN THOUSANDS)
SURGICAL ORTHOPEDIC TOTAL
-------- ---------- --------
<S> <C> <C> <C>
Revenue - product sales ... $ 182 $ 321 $ 503
Loss from operations ...... $(4,978) $ (469) $(5,447)
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, 1999
-----------------
(IN THOUSANDS)
SURGICAL ORTHOPEDIC TOTAL
-------- -------- --------
<S> <C> <C> <C>
Revenue - product sales ........ $ 297 $ 650 $ 947
Loss from operations ........... $(10,203) $ (1,048) $(11,251)
Total assets at December 31,
1999 ......................... $ 67,945 $ 927 $ 68,872
</TABLE>
9. STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-------- -------
1999 1998
-------- -------
<S> <C> <C>
Cash paid during the period for:
Interest $175,000 $ --
Income taxes $495,000 $ --
</TABLE>
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and notes thereto. Certain statements in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" are forward-looking. The forward-looking statements contained herein
are based on current expectations and entail various risks and uncertainties
that could cause actual results to differ materially from those expressed in
such forward-looking statements. These risks include, but are not limited to,
(i) significant unforeseen delays in the regulatory approval process, (ii)
determination by the FDA or foreign regulatory bodies that our clinical data
does not support the safety and efficacy of our products and (iii) competitive
products and technology. For a more detailed discussion on other business risks
see "Additional Factors That Might Affect Future Results of Operations."
Cohesion is focused on developing and commercializing proprietary surgical
products, including bioresorbable hemostatic devices and biosealants for tissue
repair and regeneration, to increase the effectiveness of minimally invasive
surgeries. CoStasis Surgical Hemostat, our lead hemostatic product, is designed
for use in cardiovascular, orthopedic and general surgery indications. We
received a CE Mark for CoStasis in September 1998 and commenced sales and
distribution of the product in Europe beginning in February 1999. We completed a
pivotal clinical trial in the U.S. during fiscal 1999, and filed a PMA
application with the FDA in June 1999. In November 1999, we announced an
agreement with U.S. Surgical for the marketing and distribution of CoStasis. The
U.S. Surgical territories include the U.S., European Union, Eastern Europe,
Latin America, Middle East, Australia, New Zealand, and India. We also initiated
an expanded clinical study in Europe in fiscal 1999 for CoSeal(TM) Surgical
Sealant, our lead biosealant product designed for sealing arterial and venous
grafts. In December 1999, we filed for a CE mark for CoSeal in Europe and filed
an IDE with the FDA to begin clinical studies in the U.S. We believe that our
surgical products will provide several distinct advantages over currently
available technologies, including ease of preparation and use, novel delivery
systems, improved safety profiles and clinical effectiveness. Cohesion also
sells Collagraft implant, an orthopedic product, through its subsidiary,
NeuColl, Inc., and has research and development programs in other orthopedic
areas and in recombinant human collagen and thrombin. Our products and programs
are based on a platform of proprietary technologies centered around collagen and
hydrophilic polymers that quickly polymerize in-vivo and bind to tissue.
Cohesion was organized in June 1997 as a Delaware corporation and wholly
owned subsidiary of Collagen Aesthetics, Inc., formerly known as Collagen
Corporation (recently acquired by Inamed Corporation). During fiscal 1998,
Collagen proceeded to separate its Aesthetic Technologies Group and its Collagen
Technologies Group into two independent, publicly-traded companies. Effective
January 1, 1998, Collagen contributed its research and development programs for
hemostatic devices, biosealants, orthopedics products and programs, adhesion
barriers and recombinant human collagen and thrombin and other related
businesses of CTG to Cohesion. Collagen also contributed various equity
investments to Cohesion, including all of its holdings in Boston Scientific
Corporation. On August 18, 1998, Collagen distributed as a dividend to its
stockholders, one share of Cohesion's Common Stock for each share of Collagen
common stock outstanding. Cohesion and Collagen entered into various agreements
to provide for an orderly transition of matters and to govern certain ongoing
matters between the two entities and provide a mechanism for transitioning
license, supply, distribution, research and development, tax, service and other
agreements in connection with the distribution of Cohesion's common stock.
11
<PAGE> 12
RESULTS OF OPERATIONS
Three and Six Months Ended December 31, 1999 and 1998
Revenues were $503,000 and $945,000 for the three and six months ended
December 31, 1999, respectively, compared to $828,000 and $1.2 million for the
same periods in the prior year. Sales of Collagraft for the three and six months
ended December 31, 1999 were $322,000 and $650,000, respectively. Collagraft
sales for the comparable prior year periods were $689,000 and $965,000. The
decreases from the prior year are primarily due to timing of shipments to
Zimmer, NeuColl's distribution partner in the U.S. and Asia. We expect revenues
to be higher in fiscal 2000 due to CoStasis milestone payments from the
agreement with U.S. Surgical, a full-year of CoStasis sales in Europe and
slightly higher sales of Collagraft due to increased end-market sales by Zimmer
and from sales by NeuColl in certain European countries. A number of
uncertainties exist surrounding the marketing and distribution of our products
where the primary means of distribution is through third party firms, such as
U.S. Surgical and Zimmer. Our business and financial results could be adversely
affected in the event a third party firm is unable to market the product
effectively, anticipate customer demand accurately, or effectively manage
industry-wide pricing and cost containment pressures in health care.
Cost of sales as a percentage of sales was 165% and 49% for the six months
ended December 31, 1999 and 1998, respectively. The increase in cost of sales as
a percentage of sales was primarily due to manufacturing startup costs for the
CoStasis product, which is expected to continue through fiscal 2000.
Research and development expenses were $2.9 million and $6.2 million for the
three and six months ended December 31, 1999, respectively, compared to $3.5
million and $7.5 million for the same prior year periods. The decrease in R&D
spending was due primarily to higher clinical trial costs in fiscal 1999 and
lower spending in the recombinant programs in the current fiscal year. R&D
expense reflects reimbursement from Collagen for the recombinant human collagen
program in accordance with the intercompany agreements entered into between
Cohesion and Collagen. We expect R&D spending in fiscal 2000 to be at slightly
lower levels than fiscal 1999.
Selling, general and administrative expenses were $1.7 million and $3.6
million during the three and six months ended December 31, 1999, respectively,
compared to $1.5 million and $3.2 million for the same periods in the prior
fiscal year. The increase in SG&A expenses is due primarily to increased
marketing costs associated with the launch of CoStasis in Europe, and is
expected to continue through the current fiscal year. Future levels of SG&A
spending will depend on various factors, including the level of product sales
and how future products are distributed throughout the world.
During the six months ended December 31, 1999 and 1998, Cohesion recorded
$891,000 and $2.4 million, respectively of compensation expense in connection
with the cancellation of the remaining stock options of Cohesion Corporation. In
September 1998, our board of directors approved a program to cancel options to
purchase shares of the common stock of Cohesion Corporation. In connection with
this cancellation, Cohesion offered to pay each holder of canceled options a per
share amount equal to the excess of $16.70 over the exercise price of the
canceled option. Cohesion will make this option payment ratably over the
original vesting period of the canceled option so long as the former holder
thereof remains an employee or consultant of Cohesion. We expect to record an
additional $1.1 million of compensation expense with respect to the cash-out of
canceled options, which will be recognized during fiscal 2000 through 2001.
Gains on sales of investments were $12.3 million and $25.0 million for the
three and six months ended December 31, 1999, respectively. The gains in the
current fiscal quarter were primarily from the sale of common stock of Medarex,
Inc. The timing and number of additional shares of Boston Scientific and other
equity investments sold will depend on market conditions and our anticipated
cash needs.
12
<PAGE> 13
Interest income was $176,000 and $269,000 for the three and six months ended
December 31, 1999, respectively, compared to $10,000 and $67,000 for the same
periods in the prior year. The increase is due to higher average cash and cash
equivalents balances.
Interest expense was $89,000 for the three and six months ended December 31,
1999, respectively. Interest expense related to the obligation under capital
lease.
Cohesion's effective tax rate for the six months ended December 31, 1999 and
1998 was 40%.
SEGMENT INFORMATION
Cohesion operates in two segments: 1) our surgical business and 2) our
orthopedics business. Our surgical segment develops proprietary surgical
products, including bioresorbable hemostatic devices and biosealants, such as
CoStasis and CoSeal, for tissue repair and regeneration. During fiscal 1999,
Cohesion formed a new company, NeuColl, Inc., in order to commercialize products
in the orthopedics field, which include Collagraft(R) and NeuVisc(TM), a
collagen-based intra-articular implant for the treatment of osteoarthritis. For
a discussion of Collagraft sales, see revenue discussion in "- Results of
Operations."
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, cash and investments were $53.8 million. Net cash used
in operating activities was $11.5 million for six months ended December 31,
1999. For the six months ended December 31, 1999, cash provided by investing
activities of $25.6 million was primarily related to proceeds of approximately
$12.6 million from the sale of Boston Scientific common stock, proceeds of
approximately $13.6 million from the sale of other investments and maturity of
our equity collars, and proceeds of $4.2 million from the sale-leaseback of our
manufacturing facility improvements and equipment. The investment proceeds were
offset by $4.2 million for the purchase of investments and $524,000 for capital
expenditures. We anticipate capital expenditures to be approximately $2.0
million in fiscal 2000.
Our principal sources of liquidity include our investment in Boston
Scientific common stock, cash, cash equivalents and other investments. Cohesion
anticipates that stock sales will be made from time to time, with the objective
of generating cash for, among other things, further investments in both current
and new affiliate companies. We may defer sales of Boston Scientific common
stock or other investments for tax planning purposes or other reasons, although
decisions concerning prospective Boston Scientific common stock sales will also
be affected by the then-current market price of Boston Scientific common stock.
In September 1998, our Board of Directors approved a stock repurchase program
to buy back up to 1.0 million shares of common stock at a price of up to $4.25
per share. As of December 31, 1999, we had repurchased 515,100 shares of common
stock under this program.
In September 1998, our Board of Directors approved a program to cancel
options to purchase shares of the common stock of Cohesion Corporation. In
connection with such program, Cohesion offered to pay each holder of canceled
options a per share amount equal to the excess of $16.70 over the exercise price
of the canceled option. Cohesion will make this option payment ratably over the
original vesting period of the canceled option so long as the holder thereof
remains an employee or consultant of Cohesion. We recorded $891,000 of
compensation expense related to these canceled options during the six months
ended December 31, 1999 and expect to records an additional $1.1 million through
2001.
13
<PAGE> 14
We believe that our current sources of liquidity should be adequate to fund
our anticipated capital requirements through at least the next two years.
However, during this period and thereafter, we may require additional financing.
Our capital requirements will depend on numerous factors, including the progress
of our clinical research and product development programs, the extent to which
we enter into collaborative relationships with third parties and the scope of
our obligations in such relationships, the receipt of, and the time required to
obtain, regulatory clearances and approvals, the resources required to protect
our intellectual property and other factors. We cannot accurately predict the
timing and amount of such capital requirements. Additional financing may not be
available to us on acceptable terms, if at all.
During fiscal 1999, we formed a new company, NeuColl, Inc., in order to
commercialize products in the orthopedics field, which include Collagraft and
NeuVisc(TM), a collagen-based intra-articular implant. In connection with the
formation, Cohesion granted NeuColl an exclusive license to certain patents
relating to collagen and polymer technology for orthopedic applications.
Cohesion provided the initial funding for NeuColl; however, in February 2000,
NeuColl received additional funding of $2.0 million from a third-party reducing
Cohesion's ownership in NeuColl to approximately 60%. An additional $2.0 million
of financing may be received by March 2000.
YEAR 2000
The Year 2000 issue refers to problems that computer programs may have in
determining the correct century; for example, time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could cause a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar business activity. Cohesion
had developed a plan to address potential exposures related to the Year 2000
issue and had taken reasonable steps to ensure that its systems, software and
equipment involving date-related information will continue to function properly
after December 31, 1999. Our plan to address the Year 2000 issue involved the
following phases: 1) inventory and risk assessment, 2) remediation, 3) testing,
and 4) full compliance and/or creation of contingency plans. Our plan also
encompassed compliance with regulatory guidelines on the Year 2000 issue.
We have completed our assessment of information technology business systems,
product, operating equipment, and third-party interfaces, including suppliers.
To date, we have not identified any significant problems. With respect to
third-party interfaces, Cohesion has and will continue to evaluate the Year 2000
readiness of those third parties.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
For a more complete discussion of other risks and uncertainties involving the
Company's business, see "Business - Government Regulations" and "Business -
Competition" in the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1999.
Cohesion has a history of operating losses and anticipates continued operating
losses
Prior to July 1, 1998, our historical results of operations reflect the
historical operations of the transferred businesses contributed by Collagen to
Cohesion. The financial statements, prior to July 1, 1998, may not necessarily
reflect the results of operations, financial position and cash flows of the
transferred businesses had Cohesion been operated as an independent entity
during the periods presented. The transferred businesses incurred operating
losses in each of the past five years, including operating losses of $24.9
million, $31.5 million and $16.4 million in fiscal 1999, 1998 and 1997,
respectively. Cohesion's operating losses have resulted primarily from expenses
incurred in
14
<PAGE> 15
connection with research and development activities, including preclinical and
clinical trials, development of manufacturing processes and general and
administrative expenses, and we expect that such expenses will continue to
increase for the foreseeable future. While we had sales of Collagraft bone
products of $1.9 million, $1.5 million and $1.9 million for the years ended June
30, 1999, 1998 and 1997, respectively, we do not expect such sales to increase
substantially in the future. Such sales at their present levels do not
contribute, in a material way, to our operating profitability. Cohesion's
ability to achieve and sustain operating profitability is highly dependent upon
obtaining in a timely and efficient fashion, regulatory approval for and
successfully commercializing its products in development, particularly CoStasis
Surgical Hemostat and CoSeal Surgical Sealant and developing sales and marketing
capabilities for its products, both in Europe, the United States and other
markets. There can be no assurance that we will obtain required regulatory
approvals in a timely fashion, if at all, or successfully develop, manufacture,
commercialize and market products or that we will ever record significant
product revenues or achieve operating profitability.
We must develop and commercialize our products to generate revenues
Except for Collagraft, our line of collagen-based research material products,
and CoStasis in Europe, all of our products are in research or preclinical or
clinical development. We have not received marketing approval for any of our
products from the FDA. The development and commercialization of new products are
highly uncertain, as is the timing associated with these activities. Among other
things, potential products that may appear to be promising may not reach the
market for a number of reasons, including the possibilities that the potential
products will be found to be ineffective or to cause harmful side effects during
preclinical testing or clinical trials, will fail to receive necessary
regulatory approvals, will be difficult to manufacture on a commercial scale,
will be uneconomical, will fail to achieve market acceptance or will be
precluded from commercialization by the proprietary rights of third parties. We
cannot assure you that any of our development programs will be successfully
completed, that clinical trials will generate anticipated results or will
commence or be completed as planned. Additionally, we cannot assure you that we
will be able to obtain CE Mark in Europe, on a timely basis, if at all, or that
any PMA application will be accepted or ultimately approved by the FDA on a
timely basis, if at all, or that any products for which approval is obtained
will be commercially successful. If any of our development programs are not
successfully completed in a timely fashion, required regulatory approvals are
not obtained in a timely fashion, or products for which approvals are obtained
are not commercially successful, our business, financial condition and results
of operations will be materially and adversely affected.
Cohesion operates in an intensely competitive environment
Cohesion competes with many domestic and foreign medical device,
pharmaceutical and biopharmaceutical companies and organizations across each of
its product categories and areas in which it is conducting research and
development activities. In the hemostatic and biosealant areas, we believe in
the United States that we will face strong competition from existing
methodologies for controlling bleeding and sealing wounds resulting from
surgery, such as hemostatic powders and sponges, collagen-based hemostats and
traditional sutures and staples marketed by companies such as Johnson & Johnson,
United States Surgical Corporation, American Home Products Corporation and
Haemacure Corporation. In addition, a fibrin sealant product is currently being
marketed by Baxter Healthcare Corporation. Cohesion faces competition from more
recent products and technologies, such as those developed by Focal, Inc. and
Fusion Medical Technologies, Inc. Outside of the United States, other
competitive products currently being marketed include fibrin sealants and
another class of sealants, cyanoacrylates, which sold in Europe and the Pacific
Rim countries by Immuno AG, Centeon L.L.C. and Cryolife. In the United States,
there are several fibrin sealants under development including those by the
American Red Cross, Convatec, a subsidiary of the Bristol-Myers Squibb Company,
Haemacure Corporation and V.I. Technologies, Inc. (Vitex). In addition to
conventional fibrin sealants, there are a number of other products in late-stage
development using either collagen or polymer technologies, made by Focal and
Fusion, as well as cyanoacrylates. In the orthopedics area,
15
<PAGE> 16
NeuColl's Collagraft bone graft products face competition from synthetic bone
graft substitutes from Interpore International, Inc., Osteotech, Inc and GenSci
Regeneration Laboratories, Inc. Additionally, several companies and institutions
are engaged in the development of collagen-based materials, techniques,
procedures and products for use in medical applications Cohesion anticipates
addressing with its current and proposed products and research programs.
Many of these companies and organizations have or will have substantially
greater financial, technological, research and development, regulatory and
clinical, marketing and sales and personnel resources than Cohesion. They may
also have greater experience in developing products, conducting clinical trials,
obtaining regulatory approvals, and manufacturing and marketing such products.
They may also develop alternative technologies and products that are more
effective, easier to use or more economical than those which have been or are
being developed by Cohesion or that render our technology and products obsolete
and non-competitive. Recently developed technologies or procedures are, or may
in the future be, the basis of competitive products. There can be no assurance
that our current competitors or other parties will not succeed in developing
alternative technologies and products that are more effective, easier to use or
more economical than those which have been or are being developed by Cohesion or
that would render our technology and products obsolete and uncompetitive. In
such an event, Cohesion's business, financial condition and results of
operations would be materially and adversely affected. Competitors may also
obtain approval or clearance by the FDA or foreign regulatory approval
organizations, achieve product commercialization or obtain patent protection
earlier than Cohesion. Additionally, there can be no assurance that any
marketing or other strategic partners that Cohesion may engage will not pursue
parallel development of technologies or products relating to or competitive with
our planned product portfolio. Also, to the extent Cohesion commences
manufacturing activities, we will also face competition with respect to
manufacturing efficiency and marketing capabilities, areas in which we currently
have limited experience. Failure to successfully address the foregoing factors
and circumstances could have a material adverse impact on Cohesion, its
financial condition and results of operations.
The market may not accept our products
CoStasis Surgical Hemostat is a device designed to control diffuse capillary
and small vein bleeding, and CoSeal Surgical Sealant is a device designed to
seal arterial and venous grafts. There can be no assurance that either of these
products will gain commercial acceptance among physicians, patients and health
care payors, even if necessary international and U.S. marketing approvals are
obtained. We believe that recommendations and endorsements by physicians will be
essential for market acceptance of its surgical products, and there can be no
assurance that any such recommendations or endorsements will be obtained. We
believe that surgeons will not use our products unless they determine, based on
clinical data and other factors, that the products are an effective means of
controlling bleeding and sealing anastomoses and sites of incision, and that the
clinical benefits to the patient and cost savings achieved through use of these
systems outweigh their cost. Acceptance among physicians may also depend upon
our ability to train surgeons and other potential users of our products in the
application of sprayable surgical products, which they typically have not used,
and the willingness of such users to learn these new techniques. Additional
factors in achieving market acceptance may include our ability to address
competition from U.S. and international medical device, pharmaceutical and
biopharmaceutical companies, to develop a marketing and sales force, to form
strategic partnerships and to manufacture price- and cost-effective products.
Failure of our products to achieve significant market acceptance will have a
material adverse effect on our business, financial condition and results of
operations.
We have limited marketing and sales capabilities
Cohesion currently has limited experience in marketing and selling its
products under development and does not have a significant marketing and sales
staff. In order to achieve commercial success for any product approved by the
FDA, if any, we must either develop a marketing and sales force or enter
16
<PAGE> 17
into arrangements with third parties to market and sell our products. If we
develop our own marketing and sales capabilities, we will be competing with
other companies that currently have experienced and well-funded marketing and
sales operations. To the extent that Cohesion enters into co-promotion or other
marketing and sales arrangements with other companies, any revenues we receive
will be dependent on the efforts of others, and there can be no assurance that
such efforts will be successful. Failure to develop a sales and marketing force
or enter into arrangements with other companies will reduce our ability to
generate revenues.
We depend on the sale of Boston Scientific stock to fund operations
In connection with our spin-off from Collagen, Collagen transferred to
Cohesion, effective January 1, 1998, all of its equity interest in Boston
Scientific. Cohesion has implemented a "protect" strategy based on purchases of
put options and sales of call options in combination, commonly known as an
"equity collar," covering the substantial majority of its Boston Scientific
holdings. While the strategy is designed to minimize downside risk of loss
should the stock price decline below approximately $31.00 and allow for limited
upside participation should the stock price rise above approximately $49.00,
there can be no assurance that we will be able to sell any of the remaining
unhedged shares of Boston Scientific common stock at attractive prices if, when
and as needed. The market price of Boston Scientific common stock is highly
volatile and, as a medical device manufacturer, we believe that Boston
Scientific is subject to a number of the same factors affecting its operations
as Cohesion, as well as additional factors not applicable to Cohesion.
17
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Cohesion is exposed to financial market risks, including changes to interest
rates and equity security prices. To mitigate these risks, Cohesion utilizes
derivative financial instruments. Cohesion does not utilize derivative financial
instruments for speculative or trading purposes.
INTEREST RATE RISK
The primary objective of Cohesion's debt investment portfolio is to preserve
principal. Cohesion invests in debt instruments that meet high credit quality
standards and limits the amount of credit exposure to any one issue, issuer, or
type of instrument. Cohesion also limits the maturity of debt investments to 400
days or less. As of December 31, 1999, Cohesion held approximately $14.9 million
of interest rate sensitive investments in debt securities, respectively. A
hypothetical 1% increase in interest rates would result in a decrease in the
fair value of investments in debt securities of less than $20,000 as of December
31, 1999. This estimate is based on sensitivity analyses performed on Cohesion's
financial positions at December 31, 1999. Actual results may differ materially.
EQUITY SECURITY PRICE RISK
Cohesion is exposed to equity security price risks on investments in Boston
Scientific common stock and equity instruments of other biotechnology or
biomedical device companies. To hedge against fluctuations in the market value
of the Boston Scientific common stock, Cohesion entered into costless collar
instruments that expire quarterly through May 2001 and will require settlement
in cash. At December 31, 1999, 450,000 shares held by Cohesion were hedged using
these collars. The costless collar instruments are collateralized by shares of
Boston Scientific common stock held by Cohesion. Certain investments that are
restricted are carried at cost until the restrictions have lapsed.
<TABLE>
<CAPTION>
FAIR VALUE AT
EQUITY INVESTMENTS DECEMBER 31, 1999
--------------------------------------------
(IN THOUSANDS)
<S> <C>
Boston Scientific $15,875
Equity collar 4,386
Innovasive 6,620
Pharming 7,800
-------
Total portfolio $34,681
=======
</TABLE>
18
<PAGE> 19
PART II. OTHER INFORMATION
COHESION TECHNOLOGIES, INC.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 10.1* License and distributorship agreement between
Cohesion Technologies, Inc. and United States
Surgical, a division of Tyco Healthcare Group LP
dated November 22, 1999
Exhibit 27.1 Financial Data Schedule
B. Reports on Form 8-K
None
* Cohesion Technologies, Inc. has requested confidential treatment for
certain portions of this exhibit.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COHESION TECHNOLOGIES, INC.
Dated: February 14, 2000 s/ Sharon Kokubun
-------------------------------
Sharon Kokubun
Vice President, Financial Operations
(Principal Accounting Officer)
20
<PAGE> 21
COHESION TECHNOLOGIES, INC.
FORM 10-Q QUARTERLY REPORT FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Page
- -------------------------------------------------------------------------------------------
<S> <C>
10.1* License and distributorship agreement between Cohesion Technologies,
Inc. and United States Surgical, a division of Tyco Healthcare Group
LP dated November 22, 1999
27.1 Financial Data Schedule (EDGAR version only)
</TABLE>
* Cohesion Technologies, Inc. has requested confidential treatment for certain
portions of this exhibit
21
<PAGE> 1
EXHIBIT 10.1
LICENSE AND DISTRIBUTORSHIP AGREEMENT
This Agreement (the "Agreement"), dated and effective as of November 22, 1999 by
and between Cohesion Technologies, Inc. ("Cohesion"), a corporation duly
organized and existing under the laws of the State of Delaware and having its
principal place of business at 2500 Faber Place, Palo Alto, CA 94303, United
States Surgical, a division of Tyco Healthcare Group LP ("USS"), a limited
partnership duly organized and existing under the laws of the State of Delaware
and having its principal place of business at 150 Glover Avenue, Norwalk,
Connecticut 06856, and Tyco Healthcare Group AG, a corporation organized and
existing under the laws of Switzerland and having its principal place of
business at Bahnhofstrasse 8, CH-8200 Schaffhausen, Switzerland (THG) (Cohesion,
USS/THG, each a "Party" and collectively, the "Parties").
In consideration of the mutual promises and, covenants contained herein, the
parties hereto agree as follows:
ARTICLE 1 - DEFINITIONS
1.l For purposes of this Agreement, the definitions set forth below shall be
applicable.
"Act" shall mean the United States Food, Drug and Cosmetic Act of 1938, as
amended to date and during the term of this Agreement, including, without
limitation the Medical Device Amendments of 1976.
"Action" shall mean a legal claim, action, suit, proceeding or arbitration.
"Affiliate" shall mean with respect to any specified Person, any other Person,
as of the date of the execution of this Agreement, that directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the Person specified. For purposes of this definition,
"control" including, with correlative meanings, the terms "controlled by" and
"under common control with" means ownership directly or indirectly of more than
fifty percent (50%) of the equity capital having the right to vote for election
of directors in the case of a corporation and more than fifty percent (50%) of
the beneficial interest in the business entity other than a corporation.
"Confidential Information" shall mean, unless specified in writing to the
contrary, all non-public information disclosed by one of the Parties to the
other Party, including the terms of this Agreement; provided, however, that
"Confidential Information" shall not include information that (i) can be
demonstrated to have been in the public domain or publicly known prior to the
date of disclosure by the disclosing Party; or (ii) that can be demonstrated
from written records, to have been in the receiving Party's possession from
another source not under an obligation of secrecy to the disclosing Party prior
to disclosure by the disclosing Party; or (iii) that becomes part of the public
domain or publicly known by publication or otherwise, not due to any
1
<PAGE> 2
unauthorized act by the receiving Party; or (iv) that can be demonstrated by
written records to have been independently developed by the receiving Party
without the use of the disclosing Party's Confidential Information.
"FDA" shall mean the United States Department of Health and Human Services, Food
and Drug Administration, or any successor governmental organization.
"Regulatory Approvals" shall mean FDA's and International Regulatory Agencies'
(defined below) clearance of the CoStasis Products for use in the Field.
"Rights Technology" shall mean any and all secret or confidential information,
trade secrets, specifications, tests results, analyses, data, inventions,
modifications and improvements, methods, processes, formulae, compositions,
designs, techniques, applications, ideas or concepts, whether or not reduced to
practice, including, without limitation, technology that is or could be the
subject matter of a foreign or domestic patent or patent application, whether or
not reduced to writing in a patent application, relating to the CoStasis
technology and as to which (i) Cohesion either conceives or develops during the
term of this Agreement relating to the CoStasis technology, or (ii) Cohesion
has, or during the term of this Agreement obtains, any rights, title or
interest, in either case, that relates to the CoStasis technology and which is
not otherwise subject to USS/THG's rights under this Agreement. Rights
Technology shall not include Cohesion's "CoSeal" product line or future product
lines involving PEG or recombinant technology.
"Field" shall mean all medical applications relating to hemostasis in surgical
applications including, without limitation, the use of the CoStasis Products and
the CoStasis Product improvements mutually agreed upon by the parties. The Field
does not include femoral access closure, sealing, gluing, adhesion prevention or
drug delivery.
"International Regulatory Agency" shall mean any national, provincial, state or
local governmental agency or other organization outside of the United States
which performs functions similar to the FDA.
"Laws" shall mean any statute, regulation, rule, ordinance, guideline, order,
judgment, decision or interpretation of the FDA, any International Regulatory
Agency, the Securities Exchange Commission or any applicable governmental
organization.
The "CoStasis Product" or" the "CoStasis Products" shall mean those specific
products listed in Exhibit A-3 attached hereto, as Exhibit A-3 may be amended
from time to time on the mutual agreement of the parties to include upgrades or
other specific improvements to the CoStasis Products. The "CoStasis Products"
shall not include Cohesion's "CoSeal" product line or future product lines
involving PEG or recombinant technology.
2
<PAGE> 3
"CellPaker" shall mean a needle-less syringe device for drawing blood from a
human for direct placement into a centrifuge and centrifuging to separate plasma
from red and white blood cells. The CellPaker is a proprietary accessory device
of Cohesion.
"Net Sales" shall mean gross sales of the CoStasis Products billed and shipped
by or on behalf of USS or its Subsidiaries, Affiliates, Sublicensees, or
permitted assignees, less normal or customary allowances and discounts actually
allowed, returns, invoices written off as uncollectable (but only to the extent
of the Variable Transfer Prices attributable thereto), billed taxes and customs
duties paid by USS, costs of insurance and transportation, freight and transit
insurance, and shall not include samples or demonstration materials or any sale
to USS employees for any reason other than resale. The term "Net Sales" shall
not include sales between the Parties, sales by independent distributors (but
shall include such sales to independent distributors), or sales between USS and
its Affiliates, Subsidiaries, Sublicensees or permitted assignees.
For the purposes of the "Net Sales" definition, where CoStasis Products are sold
in packages, trays, or other groups of items consisting of one or more CoStasis
Products and one or more non-Products (the "Package"), Net Sales shall be
calculated for each CoStasis Product within a Package as though it were sold
separately.
[Text Deleted]
"Patents" or "Patent Rights" shall mean any and all patents and patent
applications relating to the CoStasis Products in the Field on file within the
Territory and presently or hereafter owned by Cohesion or a Cohesion Affiliate
and/or in which Cohesion or a Cohesion Affiliate has or obtains any right, title
or interest including, without limitation the patents and patent applications
set forth on Exhibit A-1 attached hereto, and all continuations,
continuations-in-part, divisions, reissues, reexaminations, additions, and
renewals thereof.
"Person" or "Persons" shall mean any individual, corporation, partnership,
association, trust or other entity or organization including a governmental or
political sub division or any agency or instrumentality thereof.
"Regulatory Authorities " shall mean collectively, the FDA and the International
Regulatory Agencies.
"Sublicensee" shall mean any third Person to whom USS grants a sublicense to
sell the CoStasis Product.
"Domestic Territory" shall mean those geographical areas included in Exhibit
A-4. Said Exhibit shall be amended to include Canada if Cohesion determines that
it will use a distributor for sales therein rather than making direct sales.
3
<PAGE> 4
"International Territory" shall mean those geographical areas included in
Exhibit A-5.
"Territory" or "Territories" shall mean the Domestic Territory and the
International Territory.
"Trademarks" or "Trademark Rights" shall mean only those trademarks and
trademark applications and copyrights included in Exhibit A-2, used by Cohesion
in connection with the CoStasis Products in the Territory in the Field presently
or hereafter owned by Cohesion or a Cohesion Affiliate and/or in which Cohesion
or a Cohesion Affiliate has or obtains any right, title or interest.
1.2 In addition to the foregoing defined terms, the following terms shall have
the meanings set forth in the referenced Sections of this Agreement:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Force Majeure Event 18.1
Marketing Rights 3.1
Cohesion Indemnitees 12.1
Cohesion Inventions 11.1
Promotional Materials 3.2
Term 15.1
USS Indemnitees 12.1
USS Inventions 11.1
</TABLE>
ARTICLE 2 - APPOINTMENT
2.1 (a) For the term of this Agreement, USS hereby accepts appointment as
Cohesion's sole and exclusive distributor, with the right to sell and distribute
the CoStasis Products throughout the Domestic Territory in the Field, in all
surgical specialties in the Field not contraindicated for the CoStasis Products,
subject to Section 3.1, Article 5 and other terms and conditions set forth in
this Agreement.
(b) For the term of this Agreement, THG hereby accepts appointment as Cohesion's
sole and exclusive distributor, with the right to sell and distribute the
CoStasis Products throughout the International Territory in the Field, in all
surgical specialties in the Field not contraindicated for the CoStasis Products,
subject to Section 3.1, Article 5 and other terms and conditions set forth in
this Agreement.
(c) In connection with such appointments, Cohesion hereby grants to USS and THG
(hereinafter collectively referred to as USS/THG, with references to the
"Territory" to be construed as references to their respective portions of the
Territory, i.e., Domestic Territory and International Territory), in their
respective Territories, the following:
(i) Marketing Rights (as set forth in Article 3 below) during the term of this
Agreement; and
4
<PAGE> 5
(ii) an exclusive, royalty-free, paid-up license, with right to sublicense,
under the Patents in the Territory solely for the purpose of selling and
distributing the CoStasis Products in the Field, such license to continue during
the term of this Agreement; and
(iii) a license under the Trademarks in the Territory as set forth in Exhibit
2.1 (the "Trademark License") solely for the purpose of advertising and
marketing the CoStasis Products, such license to continue during the term of
this Agreement. The form of Trademark License set forth in Exhibit 2.1 shall be
executed by the parties simultaneously with the execution of this Agreement.
(d) All references in the Agreement to rights and obligations of USS/THG with
respect to the CoStasis Products shall also be deemed to include Affiliates and
Sublicensees appointed by USS/THG, subject to written agreements no less
restrictive than this Agreement. USS/THG shall from time to time provide
Cohesion with a list of such Affiliates and Sublicensees of USS/THG.
Notwithstanding such appointment of Sublicensees, USS/THG shall remain fully
responsible for the performance of all its covenants and obligations under this
Agreement.
(e) Cohesion shall promptly forward to USS/THG all leads for sales of CoStasis
Products in the Field in the appropriate Territory. USS/THG shall promptly
forward to Cohesion all leads for sales of CoStasis Products either (i) outside
the Field or (ii) in the Field and outside the Territory.
(f) During the term of USS/THG's distribution rights pursuant to this Article 2,
USS/THG shall not market or sell in the Territory any new products not already
sold which are competitive with the CoStasis Products.
2.2 Cohesion shall (i) not exercise any Marketing Rights in the Territory for
any of the CoStasis Products in the Field, other than as described in Section
8.5, nor permit any other third Person to exercise any Marketing Rights in the
Territory for any of the CoStasis Products in the Field, and (ii) subject to
Section 8.4, enforce its rights to prevent any other third Person, directly or
indirectly, from exercising any Marketing Rights in the Territory for any of the
CoStasis Products in the Field.
2.3 This Agreement shall not be construed to provide USS or THG with any right
to manufacture CoStasis Products.
ARTICLE 3 - MARKETING AND SALES RIGHTS AND OBLIGATIONS
3.1 Cohesion hereby grants to USS/THG the exclusive right to promote, market,
sell and distribute the CoStasis Products for use in the Field in their
respective portions of the Territory, subject to Article 5 and other terms and
conditions of this Agreement. . Notwithstanding the foregoing, it is agreed that
Cohesion may take up to [Text Deleted] following the execution of this Agreement
in which to terminate certain international distributor agreements, and that
THG's exclusive rights in the countries affected by those agreements shall
become effective on the earlier to occur of i) the termination of such
agreement(s) or ii) the end of said [Text
5
<PAGE> 6
Deleted]. Subject to Section 3.2, USS/THG's Marketing Rights in their respective
portions of the Territory for the CoStasis Products in the Field shall include
the following: (a) the exclusive right to market and solicit orders including,
without limitation, advertise, promote sales and contact potential customers,
prepare and distribute the most recently approved marketing and sales brochures
and materials, pursue sales leads, answer customer inquiries, make quotations
and take orders, and (b) exclusively train customers of the CoStasis Products
with such assistance by Cohesion as provided in this Article 3. All
communications or inquiries received by Cohesion from potential customers for
CoStasis Products shall be promptly forwarded by Cohesion to USS/THG. All
decisions regarding USS/THG marketing, solicitation, handling of customer
inquiries and training shall be in USS/THG's sole discretion.
3.2 Cohesion is legally responsible for the accuracy of all product information
regarding the CoStasis Products provided by Cohesion to USS/THG and included by
USS/THG in CoStasis Products advertising, promotional material, sales aids,
sales brochures and product labeling and packaging under the Act (collectively,
"Promotional Materials"), provided USS/THG distributes only the most recently
revised and approved, as set forth in this Section 3.2, version of such
Promotional Materials. USS/THG shall submit all Promotional Materials prepared
for use with marketing of the CoStasis Products for prior review and approval by
Cohesion, which approval shall not be unreasonably withheld or delayed. If any
Promotional Materials have been previously approved by Cohesion, USS/THG shall
not be required to resubmit such Promotional Materials for Cohesion's review and
approval.
3.3 USS/THG shall promote a CoStasis Product within the Field only for
indications covered by the labeling or literature which accompany the CoStasis
Product and which have been approved, cleared or otherwise allowed by the
applicable Regulatory Authorities in the country in which such promotion occurs.
3.4 Cohesion shall provide assistance in training with respect to the CoStasis
Products for USS/THG's marketing and sales personnel and, in accordance with
USS/THG's reasonable requests, to customers procured by USS/THG. Such training
shall be conducted by competent, technically qualified employees or
representatives of Cohesion. Cohesion shall bear the expense associated with
such training as they relate to Cohesion's employees or representatives; USS/THG
shall bear the expenses associated with such training as they relate to the
training facility and supplies. Cohesion training of USS/THG's marketing and
sales personnel shall occur at such times and locations as are mutually agreed
consistent with the mutually beneficial objective of the parties to effect rapid
and thorough training of USS/THG's marketing and sales personnel to maximize
sales of the CoStasis Products. Within the limitations set forth in this Section
3.4, Cohesion shall also provide support for USS/THG's marketing efforts,
including regulatory review of marketing materials, as set forth in Section 3.2,
conducted pursuant hereto as USS/THG's shall reasonably request. Cohesion shall
bear the costs of providing all of the support and assistance described in this
Section 3.4 up to a maximum of [Text Deleted] per calendar year. Any costs
incurred by Cohesion above [Text Deleted] in any calendar year for such support,
if approved in writing in advance by USS/THG, shall be reimbursed to Cohesion by
USS/THG within 30 days after receipt of an invoice therefor at the end of the
appropriate calendar year.
6
<PAGE> 7
3.5 Cohesion shall make available to USS/THG , at the "No P.O. Prices" as set
forth in Tables 6 and 7, demonstration CoStasis Products ("Demonstration
Products"), to be used only for demonstration purposes and not for subsequent
resale by USS/THG. USS/THG shall not purchase Demonstration Products in an
amount exceeding [Text Deleted] of its first six month sales forecast prepared
pursuant to Section 4.2 hereof for each calendar year of this Agreement.
Demonstration Products purchased pursuant to this Section shall not be counted
toward the minimum purchase requirements set forth in Article 5 hereof. USS/THG
may request that such Demonstration Products be shipped directly to a hospital/
account, or shipped directly to a U.S. Surgical facility, the shipping costs for
which USS/THG shall reimburse Cohesion within thirty (30) days of the end of
each calendar quarter.
3.6 Cohesion shall accept and fill CoStasis Products purchase orders forwarded
to it by USS/THG. In addition, Cohesion shall accept and fill purchase orders
for Centrifuges forwarded to it by USS/THG, and shall accept and fill purchase
orders for CellPaker Units forwarded to it by USS/THG.
3.7 The Parties shall continuously communicate and update each other concerning
customer purchase orders, customer pricing and purchase terms, shipping and
delivery of CoStasis Products, and customer invoicing, payment and complaints.
Notwithstanding the foregoing, CoStasis Products shall be invoiced by USS/THG,
but shipped C.I.F. destination and delivered to customers (or as otherwise
directed by USS/THG) directly by Cohesion or its representatives, employing
two-day Federal Express shipping or the equivalent carrier selected by Cohesion
(subject to the approval of USS/THG), the aggregate cost of which insurance and
freight (including supply of appropriate Cohesion shipping containers and
packing materials) shall be reimbursed quarterly by USS/THG, within thirty (30
days) of receipt of an invoice therefor at the end of the appropriate calendar
quarter, except where such costs have been charged directly to USS/THG's
accounts with the applicable carriers. USS/THG shall have sole responsibility
for customer payments and collections, and Cohesion shall be solely responsible
for warranty repairs for CoStasis Products. Cohesion shall have no right,
responsibility or liability for order processing, invoicing, billing or
collection with respect to the CoStasis Products nor any responsibility for any
delays or damages in shipment, except to ensure that reasonable insurance for
shipment delays or damages is maintained.
3.8 Cohesion agrees, at USS/THG's option, to accept orders by electronic data
interchange with USS, and in connection therewith to allow USS/THG to install
and maintain, at USS/THG's expense, a connection between Cohesion's QAD computer
system and USS/THG's SAP computer system.
3.9 USS/THG agree to provide Cohesion on a timely basis with certain sales,
customer, and marketing data relating to the CoStasis Products. Such data may
include customer feedback on the basic CoStasis Products and ideas for
improvements thereto, individual case reports of CoStasis Product uses, data
relating to account usage, ordering, re-ordering, non-ordering of CoStasis
Products, conversion from and data regarding competitive products, and such
other information as USS/THG and Cohesion deem to be reasonably useful to the
implementation of this Agreement.
7
<PAGE> 8
ARTICLE 4 - SUPPLY OBLIGATIONS
4.1 Cohesion shall fill USS/THG's purchase orders and arrange shipment to
USS/THG's customers USS/THG within the Territory of the entirety of their
requirements for the CoStasis Products, at the Transfer Prices defined in
Article 7 of this Agreement. In the event that USS/THG orders in any month more
than 125% of the amount of CoStasis Products estimated to be ordered in such
month pursuant to Section 4.2 hereof, Cohesion shall ship the CoStasis Products
that exceed said 125% as soon as reasonably possible, but in no event more than
sixty (60) calendar days after receipt of USS/THG's purchase orders therefor.
4.2 Forty-five (45) calendar days before the start of each calendar year during
the term of this Agreement, USS/THG will provide Cohesion with a twelve (12)
month forecast of its anticipated monthly purchase requirements for CoStasis
Products (the "Forecast"). The Forecast shall be updated by USS/THG on a
quarterly basis, with the updates to be provided to Cohesion forty-five (45)
calendar days before the start of each calendar quarter, for rolling successive
twelve-month periods.
ARTICLE 5 - MAINTENANCE OF EXCLUSIVE DISTRIBUTION RIGHTS
5.1 During the term of this Agreement, USS/THG shall attain the minimum
aggregate annual purchases of Units ("Minimum Aggregate Annual Purchase
Amounts") set forth in this Article 5.
5.2 By the conclusion of the calendar years set forth below in Table 1, 2 and 3,
USS/THG shall have purchased from Cohesion a Minimum Aggregate Annual Purchase
Amount of CoStasis Products in the Territory as a whole, and as to the Domestic
Territory identified in Exhibit A-4, and as to the International Territory
identified in Exhibit A-5, as follows:
Table 1 - USS/THG Purchases in Units for Total Territory
<TABLE>
<CAPTION>
Year 2000 Year 2001 Year 2002 Year 2003 Year 2004
<S> <C> <C> <C> <C> <C
4.5ml *** *** *** *** ***
2.0ml *** *** *** *** ***
1.0ml *** *** *** *** ***
</TABLE>
Table 2 - USS Purchases in Units for Domestic Territory
<TABLE>
<CAPTION>
Year 2000 Year 2001 Year 2002 Year 2003 Year 2004
<S> <C> <C> <C> <C> <C
4.5ml *** *** *** *** ***
2.0ml *** *** *** *** ***
1.0ml *** *** *** *** ***
</TABLE>
8
<PAGE> 9
Table 3 - THG Purchases in Units for International Territory
<TABLE>
<CAPTION>
Year 2000 Year 2001 Year 2002 Year 2003 Year 2004
<S> <C> <C> <C> <C> <C
4.5ml *** *** *** *** ***
2.0ml *** *** *** *** ***
1.0ml *** *** *** *** ***
</TABLE>
***Deleted
5.3 The minimum purchase quantities set forth in Tables 1, 2 and 3 shall be
adjusted to reflect delays in FDA clearance (as regards Tables 1 and 2) or
delays in termination of foreign distribution agreements (as regards Tables 1
and 3). If FDA clearance of the CoStasis Product has not been received by
January 1, 2000, the minimum purchase amount for calendar year 2000 in Table 2
shall be reduced by 1/12 for each month, or portion thereof, that said FDA
clearance is delayed, with a corresponding reduction in the minimum amount in
Table 1. If FDA clearance of the CoStasis Product has not been received by March
31, 2000, the minimum purchase amount for calendar year 2001 in Table 2 shall be
reduced by 1/12 for each month, or portion thereof, that said FDA clearance is
delayed beyond March 31, 2000, with a corresponding reduction in the minimum
amount in Table 1. . If Cohesion has been unable to terminate an existing
exclusive distribution agreement with a third party distributor in any part of
the International Territory [Text Deleted] from the date of execution of this
Agreement, the minimum purchase amount for calendar year 2000 in Table 3 shall
be reduced [Text Deleted], with a corresponding reduction in the minimum amount
in Table 1.
5.4 In the event that USS/THG, for whatever reason, fails to purchase sufficient
CoStasis Products to meet the Minimum Aggregate Annual Purchase Amount (as
adjusted pursuant to Section 5.3) to be purchased in any calendar year, then
USS/THG at its sole option may render payment within 30 days of the close of
that calendar year to Cohesion in a sum sufficient at the Transfer Price to
remedy the deficiency in the Minimum Aggregate Annual Purchase Amount in that
calendar year. Such payment by USS/THG to Cohesion will secure the exclusive
rights granted herein.
5.5 In the event that USS/THG fails to purchase sufficient CoStasis Products to
meet the Minimum Aggregate Annual Purchase Amount in any given calendar year for
reasons other than a Force Majeure as defined by this Agreement (or fails to
make the payment(s) permitted under Section 5.4, if applicable), USS/THG's
exclusive rights under this Agreement shall terminate (subject to Sections 5.6
and 5.7) and USS/THG shall no longer be obligated to purchase the Minimum
Aggregate Annual Purchase Amount of CoStasis Products.
5.6 Notwithstanding Section 5.5, if USS/THG fails to purchase sufficient
CoStasis Products to meet the Minimum Aggregate Annual Purchase Amount for total
Territory sales set forth in Table 1 in Section 5.2 in any calendar year, but
USS or THG has purchased sufficient CoStasis Products to meet the Minimum
Aggregate Annual Purchase Amount for either Domestic Territory sales set forth
in Table 2 in Section 5.2 or International Territory sales set forth in
9
<PAGE> 10
Table 3 in Section 5.2, then the conversion of USS/THG's exclusive rights to
non-exclusive rights under this Agreement for the subsequent calendar year shall
not apply to the Domestic Territory or International Territory as to which USS
or THG has purchased sufficient CoStasis Products to meet the Minimum Aggregate
Annual Purchase Amount relevant thereto.
5.7 Notwithstanding any other provision of this Article 5, if in any calendar
year USS/THG fails to purchase sufficient CoStasis Products to meet the Minimum
Aggregate Annual Purchase Amounts (calculated in units) set forth in Tables 2 or
3 above, but USS/THG purchases CoStasis Products in dollar amounts, based on the
Fixed Transfer Prices and Variable Transfer Prices set forth in Table 6, equal
to or greater than the dollar amounts set forth in Tables 4 and 5 below, as
applicable, then the conversion of USS/THG's exclusive rights to non-exclusive
rights under this Agreement for the subsequent calendar year shall not apply to
the Region as to which USS/THG has purchased sufficient Products to meet the
minimum dollar purchase amounts relevant thereto and set forth in said Tables 4
and 5.
Table 4 - USS Purchases in U.S. Dollars for Domestic Territory
<TABLE>
<CAPTION>
Year 2000 Year 2001 Year 2002 Year 2003 Year 2004
<S> <C> <C> <C> <C>
*** *** *** *** ***
</TABLE>
Table 5 - THG Purchases in U.S. Dollars for International Territory
<TABLE>
<CAPTION>
Year 2000 Year 2001 Year 2002 Year 2003 Year 2004
<S> <C> <C> <C> <C>
*** *** *** *** ***
</TABLE>
*** Deleted
5.8 If USS/THG's exclusive rights under this Agreement are converted to
non-exclusive rights pursuant to Section 5.5, 5.6 or 5.7, Cohesion shall have
the right to promote, sell and distribute CoStasis Products in the Field within
the Territory to the same extent as is provided to USS/THG by Articles 2 and 3
of this Agreement, and shall have the right to grant to third parties, including
Cohesion Affiliates, the non-exclusive right to promote, sell and distribute
CoStasis Products in the Field within the Territory.
5.9 In the event that Cohesion grants to third parties, including Cohesion
Affiliates, the non-exclusive right to promote, sell and distribute CoStasis
Products within the Territory pursuant to Section 5.8, the terms of such
non-exclusive grants shall not be more favorable than those terms under which
USS/THG promotes, sells and distributes CoStasis Products within the Territory
on a non-exclusive basis.
ARTICLE 6 - CONSIDERATION
10
<PAGE> 11
6.1 As consideration for the rights granted hereunder, in addition to
its payments under Article 7, USS/THG shall pay to Cohesion the following:
(a) Upfront License Fee: A payment of Five Hundred Thousand
Dollars ($500,000) payable to Cohesion within five (5) business days of
execution of this Agreement, 75% of which shall be payable by USS and 25% of
which shall be payable by THG.
(b) Additional License Fees:
(i) U.S. Approval: Five Hundred Thousand Dollars
($500,000) payable to Cohesion upon issuance to Cohesion of all required
Regulatory Approvals by the FDA for the commercial marketing of the CoStasis
Products; 75% of which shall be payable by USS and 25% of which shall be payable
by THG.
(ii) April Payment: Two Hundred Fifty Thousand Dollars
($250,000) payable to Cohesion on April 1, 2000, 75% of which shall be payable
by USS and 25% of which shall be payable by THG.
(iii) [Text Deleted]
(iv) [Text Deleted]
(v) Cumulative Sales: [Text Deleted] upon cumulative Net
Sales from the inception of this Agreement reaching or exceeding [Text Deleted]
, 75% of which shall be payable by USS and 25% of which shall be payable by THG;
provided, that such payment shall not be due unless and until [Text Deleted]
ARTICLE 7 - TRANSFER PRICES AND OTHER PAYMENTS
7.1 USS/THG and any USS/THG Affiliate shall purchase CoStasis Products from
Cohesion pursuant to Sections 3.6 and 4.1, respectively, at the Transfer Prices
for those products as defined by this Article 7.
7.2 The Transfer Price for a specific CoStasis Product to be sold to any person
or entity other than an USS/THG Affiliate shall be the sum of: (1) a fixed
amount (the "Fixed Transfer Price") and (2) a percentage of Net Sales (the
"Variable Transfer Price"), each as set forth in Tables 5 and 6.
11
<PAGE> 12
Table 6 - CoStasis Product Transfer Prices and Payments
<TABLE>
<CAPTION>
Unit Size Fixed Variable Transfer Variable Transfer "No P.O.
Transfer Price Price, Years 2000 & 2001 Price, Years 2002+ Price"
<S> <C> <C> <C> <C>
9.0 cc (4.5 ml) *** *** of Net Sales *** of Net Sales ***
4.0 cc (2 ml) *** *** of Net Sales *** of Net Sales ***
2.0 cc (1 ml) *** *** of Net Sales *** of Net Sales ***
</TABLE>
Table 7 - Centrifuge and CellPaker Transfer Prices and Payments
<TABLE>
<CAPTION>
Product Fixed Transfer Price "No P.O. Price"
<S> <C> <C>
Centrifuge ***(1) ***(1)
CellPaker (1x Unit) *** ***
CellPaker (10xUnit) *** ***
</TABLE>
- --------
(1) The parties agree that Centrifuges provided to USS/THG hereunder shall be
priced at [Text Deleted]. The price set forth in this table is an estimate
for planning purposes only.
12
<PAGE> 13
7.3 Fixed Transfer Prices for all Products shipped by Cohesion during any month
shall be payable by USS/THG by the 15th day of the following month, following
receipt of verification of shipment thereof from Cohesion.
7.4 Variable Transfer Prices shall be payable by USS within 30 days following
the end of each calendar quarter.
ARTICLE 8 - RESEARCH AND DEVELOPMENT
8.1 The Parties agree that one of the aims of their relationship is the further
commercialization of the CoStasis Products and the development of improvements
to the CoStasis Products which are compatible and complementary with USS/THG
products and function in a manner designed to protect, to the maximum extent
reasonably possible, the intellectual property rights of the parties and the
distinctiveness of the CoStasis Products with USS/THG products in the
marketplace, and shall design or redesign their respective products for use in
the Field consistent with the foregoing objectives.
8.2 The planning, direction and activities of the research and development
program shall be under the coordination of a "Development Committee", which
shall consist of four members, one of which shall serve as Chairman.
Responsibilities of the Development Committee shall include, but shall not be
limited to, discussion and communications concerning strategies for further
research and development of the CoStasis Products and CoStasis Product
Improvements, and development of product designs. Cohesion and USS/THG shall
each have two (2) representatives on the Development Committee. The chairmanship
shall rotate each twelve (12) month period and shall first be a representative
of Cohesion and then a representative of USS/THG, and so forth. The Development
Committee shall be established within thirty (30) days after the effective date
of this Agreement. Each party shall name, and may remove and replace at any time
without the consent of the other party, its members. The affirmative vote of a
majority of the members present at a meeting shall be necessary for the passage
of any resolution or for any other action by the Development Committee (except
adjournment of a meeting where less than a quorum is present). The Development
Committee may meet by telephone conference or other similar means.
Notwithstanding the foregoing, the Development Committee shall not have any
authority to alter in any way the substantive rights of the parties hereto set
forth in this Agreement.
8.3 Development of the CoStasis Products and Improvements during the term of
this Agreement including, without limitation, the conduct of all clinical trials
shall be the responsibility of Cohesion, unless otherwise decided by the
Development Committee. [Text Deleted] Both parties will communicate with each
other and provide copies of all test data and other results relating to agreed
upon development of CoStasis Products and Improvements. [Text Deleted] For
purposes of this Section, "Manufacturing Cost" means the direct labor and
material, but not overhead, costs incurred in, or attributable to, the
manufacture, packaging and labeling of that CoStasis Product. Manufacturing
Costs shall be Cohesion's costs as determined by Cohesion's cost accounting
procedures, which shall be in
13
<PAGE> 14
accordance with generally accepted accounting principles. Cohesion agrees to
allow USS/THG to examine and copy Cohesion's books and records as and when
reasonably requested, during Cohesion's normal business hours, for verification
of the direct labor and material costs incurred in, or attributable to, the
manufacture, packaging and labeling of that CoStasis Products.
8.4 [Text Deleted]
8.5 USS/THG agrees to allow Cohesion to use samples of CoStasis Products during
general CoStasis Product demonstrations. USS/THG further agrees to allow
Cohesion to distribute samples of CoStasis Products to physicians, not to exceed
[Text Deleted] units per year during the term of this Agreement, provided that
Cohesion notifies USS/THG in writing of the names and addresses of all parties
receiving such samples.
ARTICLE 9 - MANUFACTURE AND SUPPLY
9.1 Cohesion shall have sole right and shall have sole responsibility and
liability for the manufacture, assembly, production, quality control,
sterilizing, packaging, and multilingual labeling of the CoStasis Products.
9.2 Cohesion shall comply, and shall cause each of its third party vendors,
suppliers, distributors or other Persons involved in the manufacture, assembly,
production, packaging, labeling, shipping or delivery of the CoStasis Products
to comply, with all present and future Laws relating to the manufacture,
assembly, production, packaging, sterilizing, labeling, shipping and delivery of
the CoStasis Products, including, without limitation, those enforced or
promulgated by Regulatory Authorities (e.g., FDA Good Manufacturing Practices/
Quality Systems Regulations, defect notifications and any other registration
requirements which may be imposed on the manufacture, assembly or supply of
drugs or medical devices).
9.3 USS/THG shall have the right, upon reasonable advance notice (no less than
15 days) specifying USS/THG's purpose and during regular business hours, to
inspect the manufacture, assembly, production, packaging, labeling, shipping,
quality control and sterilizing facilities of Cohesion and its third party
vendors, suppliers and distributors, as well as all records relating to the
CoStasis Products to allow USS/THG to verify Cohesion's compliance with its
obligations under this Agreement. Cohesion shall provide USS/THG with reasonable
advance notice (no less than 45 days) prior to making, or any third party
making, any change which would require notification of any International
Regulatory Agency of the design of a CoStasis Product, the materials used to
manufacture a CoStasis Product, or the manufacturing process thereof.
9.4 USS/THG shall maintain, at Cohesion's expense, contingent business
interruption insurance under which USS/THG is the sole covered party. The amount
of such coverage shall be based upon the reasonable estimate of the parties in
their business judgment exercised in a reasonable and prudent manner as to the
expected sales of the CoStasis Products during the first twelve (12) months
following United States Regulatory Approval, but the premium payable by Cohesion
therefor shall not exceed [Text Deleted] . Thereafter, the dollar amount of such
coverage shall be adjusted on the annual anniversary date of such Regulatory
Approval during the Term to reflect the reasonable estimate of the parties in
their business judgment exercised in
14
<PAGE> 15
a reasonable and prudent manner as to the expected sales of the CoStasis
Products during the immediately following twelve (12) months, but the premium
payable by Cohesion therefor shall not exceed [Text Deleted] . Nothing set forth
in this section 9.4 is intended to substitute for the indemnity rights set forth
in this Agreement.
9.5 (a) In the event of any shortage, damage or discrepancy in or to a shipment
of CoStasis Products or in the event any of the CoStasis Products fail to comply
with the then current Specifications for the CoStasis Products, USS/THG shall
report the same to Cohesion and furnish such written evidence or other
documentation as Cohesion reasonably may deem appropriate. If the substantiating
evidence delivered by USS/THG demonstrates that such shortage, damage or
discrepancy or non-conformity with Specifications existed at the time of
delivery of the CoStasis Product at the C.I.F. point, USS/THG may return the
CoStasis Product to Cohesion at Cohesion's expense, and at USS/THG's request
Cohesion shall use all reasonable efforts to deliver promptly replacement
CoStasis Products to USS/THG in accordance with the delivery procedures set
forth herein.
(b) Cohesion represents and warrants to USS/THG that (i) all CoStasis Products
sold and delivered to any account under this Agreement will have been
manufactured, if required by law, in accordance with FDA Good Manufacturing
Practices / Quality Systems Regulations, European Medical Device Directive
requirements, ISO 9001 certification or successor requirements, and all other
applicable manufacturing requirements, (ii) all CoStasis Products sold and
delivered to any account under this Agreement shall have received all Regulatory
Approvals required for the CoStasis Products in any countries in the Territory
(subject to the material accuracy of all information provided by USS to Cohesion
in relation to such Regulatory Approvals), and (iii) continually during the term
of this Agreement no CoStasis Products delivered by Cohesion to USS/THG or to
any USS/THG account shall be adulterated or misbranded at the time of delivery
within the meaning of the U.S. Food, Drug and Cosmetic Act and regulations
thereunder. Cohesion shall cause USS/THG's regulatory personnel to be provided
with reasonable access from time to time to the facilities and records of
Cohesion for the purpose of confirming Cohesion's compliance with all applicable
requirements noted in this Section.
(c) Cohesion warrants to USS/THG and to USS/THG's customers that CoStasis
Products sold by Cohesion will not infringe any currently issued patents, trade
secrets, trademarks, or other intellectual property rights of any third party,
and that such products shall, when delivered at the C.I.F. point, meet the
Specifications and shall be free from defects in materials and workmanship.
USS/THG shall invoice Cohesion for, and Cohesion shall promptly pay, USS/THG's
reasonable labor charges and USS/THG's out-of-pocket materials, handling,
shipping, transportation, insurance and other expenses actually incurred in
replacing defective CoStasis Products which were under warranty.
(d) THE WARRANTIES SET FORTH ABOVE ARE IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, WHICH ARE HEREBY DISCLAIMED AND EXCLUDED BY COHESION,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE, EXCEPT THAT COHESION SHALL ALSO PROVIDE WITH RESPECT
TO COSTASIS
15
<PAGE> 16
PRODUCTS SOLD TO DISTRIBUTORS OR TO DISTRIBUTORS' CUSTOMERS SUCH OTHER
WARRANTIES AS COHESION CUSTOMARILY PROVIDES TO ITS CUSTOMERS OR END-USERS OF THE
COSTASIS PRODUCTS IN THE FIELD OF USE.
ARTICLE 10 - REGULATORY
10.1 (a) Cohesion shall permit USS/THG to inspect and copy at USS/THG expense
Cohesion's Regulatory Approvals for CoStasis Products in the Field in the
Territory at Cohesion's principal offices on prior notice during regular
business hours. Such Regulatory Approvals shall be retained by USS/THG in
confidence as Cohesion's Confidential Information. Promptly following the
execution of this Agreement, Cohesion shall provide to USS/THG a schedule to the
best of Cohesion's knowledge containing a description of the timing, clinical
endpoints, indications approvals, and clinical protocols for all clinical trials
conducted, sponsored or funded, in whole or in part, by Cohesion or any Cohesion
Affiliate, or currently expected or anticipated to be conducted, sponsored or
funded, in whole or in part, by Cohesion or any Cohesion Affiliate relating to
CoStasis Products in the Field in the Territory.
(b) During the term of the Agreement, interaction with the FDA, any
International Regulatory Agency and any other similar authority within or
outside the United States concerning CoStasis Products shall be conducted
exclusively by Cohesion. For purposes of any regulatory filings concerning the
CoStasis Products, Cohesion shall be the official company sponsor in the United
States. Cohesion agrees to appoint the appropriate USS/THG Affiliate or
distributor as the official company sponsor in countries in the Territory
outside the United States. Cohesion shall make reasonable commercial efforts and
provide its own resources as reasonably required to receive the Regulatory
Approvals for all countries in the Territory as to which USS requests that
applications for Regulatory Approvals be filed. Cohesion shall advise USS/THG of
regulatory communications with Regulatory Agencies concerning the CoStasis
Products in the Field in the Territory and provide USS/THG with a copy of all
proposed filings with Regulatory Agencies concerning the CoStasis Products in
the Field in the Territory as far in advance as is reasonably possible to permit
USS/THG to comment upon the proposed filings, such comment to be made within
seven (7) business days after receipt of the proposed regulatory filing. No such
filing shall be submitted to a Regulatory Agency unless USS and Cohesion have
each approved such filing in writing. USS/THG will assume and be solely
responsible for all costs associated with regulatory interaction concerning the
CoStasis Products in the International Territory, and shall reimburse Cohesion
for its costs associated therewith, provided that USS/THG's obligations in
relation to such costs will apply only to costs incurred after the date of
execution hereof which have been approved in advance by USS/THG. Cohesion shall
provide USS/THG with written updates, no less often that each calendar quarter,
on the status of any pending filings with such Regulatory Agencies for CoStasis
Products in the Field in the Territory.
10.2 Either party shall notify the other Party as soon as practicable after
receiving notice of any Action involving or relating to CoStasis Products which
includes allegations of violation of any applicable Laws. In addition, Cohesion
shall promptly notify USS/THG of any adverse reaction or other similar claims
with respect to CoStasis Products of which it becomes aware. USS/THG shall
promptly notify Cohesion of any adverse reaction or other similar claims with
respect to the CoStasis Products, for purposes of notifying the appropriate
regulatory agency or
16
<PAGE> 17
agencies of which it becomes aware. Any death, serious injury, potential for
occurrence of the same, or change in the frequency or occurrence in field
experiences required to be reported to the FDA shall be reported by a Party to
the other Party in a manner and time which will enable the Party receiving the
information to comply with applicable Laws in a timely manner.
10.3 Cohesion shall be solely responsible to institute and fund any recall,
field corrective action, or the like in circumstances relating to a CoStasis
Product defect or failure which requires such action as determined by the FDA,
any International Regulatory Agency or any other similar authority within or
outside the United States, or by Cohesion or as otherwise may be required
pursuant to applicable Laws, except to the extent such action is the result of a
failure by USS/THG to limit its promotion of the CoStasis Products to
indications approved, cleared or otherwise allowed by applicable Regulatory
Agencies. In such circumstances, the actual retrieval of the CoStasis Products
will be the responsibility of Cohesion and handled by Cohesion or third Persons
authorized by Cohesion. USS/THG shall assist Cohesion in any such recall, field
corrective action, or the like and, subject to the exception set forth in the
first sentence of this Section 10.3, shall be reimbursed by Cohesion for
USS/THG's out of pocket costs, other than attorney's fees and expenses, involved
in such requested assistance.
10.4 Cohesion represents, warrants and covenants that (i) in connection with any
CoStasis Product sold to customers, it will have and will continue to have and
maintain, effective Regulatory Approvals to manufacture and sell CoStasis
Products in the Territory, to the extent required by Law, and shall provide a
copy of such Regulatory Approvals to USS/THG, and (ii) that the submissions made
by Cohesion to obtain or maintain such Regulatory Approval shall be made in good
faith and contain accurate and complete data and information regarding the
CoStasis Products as required by applicable Laws. Cohesion warrants and
covenants that no CoStasis Products delivered by it, or on its behalf, to
customers will be adulterated or misbranded at the time of delivery within the
meaning of the Act.
10.5 USS/THG represents and warrants that (i) it shall comply with all
applicable Laws in its advertising, promotion and sale of CoStasis Products,
(ii) it shall promote CoStasis Products only within the approved indications;
and (iii) all advertising, detail aids, promotional materials and sales
brochures used by it to market CoStasis Products shall be approved by Cohesion,
such approval not to be unreasonably withheld. Cohesion represents and warrants
that (i) it shall comply with all applicable Laws in its advertising, promotion
and sale of CoStasis Products, (ii) it shall advise USS/THG of the approved
indication, and (iii) Cohesion's approval of USS/THG advertising, detail aids,
promotional materials and sales brochure for CoStasis Products, and all
advertising, detail aids, promotional materials and sales brochures prepared by
Cohesion for CoStasis Products, shall be consistent with all applicable
Regulatory Approvals.
ARTICLE 11 - INVENTIONS AND PATENTS
11.1 The Parties each acknowledge that the other Party has developed or acquired
methods, processes and apparatus relating to their respective fields of
endeavor. Notwithstanding anything in this Agreement to the contrary, each Party
shall retain all right and title in and to such methods, processes and apparatus
developed or owned on their respective parts prior to the
17
<PAGE> 18
Effective Date. During the term of this Agreement, inventions by Cohesion or
USS/THG shall be treated as follows:
(i) Inventions, whether or not patentable, which are conceived and/or reduced to
practice (i) solely by or on behalf of USS/THG based solely on Cohesion
Confidential Information, or (ii) solely by or on behalf of Cohesion based
solely on Cohesion Confidential Information, or (iii) jointly by or on behalf of
USS/THG and Cohesion based solely on Cohesion Confidential Information, shall be
owned by Cohesion (collectively, "Cohesion Inventions"); and
(ii) Inventions, whether or not patentable, which are conceived and/or reduced
to practice (i) solely by or on behalf of USS/THG based solely on USS/THG
Confidential Information, (ii) solely by or on behalf of Cohesion based solely
on USS/THG Confidential Information, or (iii) jointly by or on behalf of USS/THG
and Cohesion based solely on USS/THG Confidential Information, shall be owned by
USS/THG (collectively, "USS/THG Inventions").
(iii) Inventions, whether or not patentable, which are conceived and /or reduced
to practice by either Party based on both USS/THG Confidential Information and
Cohesion Confidential Information shall be owned jointly by both Parties.
USS/THG and Cohesion shall execute any assignments necessary to effect the
distribution of ownership of joint inventions specified in this section 11.1.
(iv) Each Party shall have sole responsibility for filing, prosecuting and
maintaining applications or patents and local counterparts in its territory.
Each Party shall bear the expenses of filing, prosecution and maintenance of
joint Inventions in its territory. If either Party declines to file, prosecute
or maintain a joint Invention patent in a territory, it shall notify the other
party in writing before any applicable due date no later than thirty (30) days
prior to such due date. The notified Party shall have the option to file,
prosecute or maintain at its expense each such joint Invention patent.
11.2 Cohesion shall have sole right and shall have sole responsibility at its
sole cost to obtain and maintain all Patents involving or related to CoStasis
Products. Cohesion shall provide USS/THG with a copy of all Patents related to
CoStasis Products in the Field in the Territory upon the issuance thereof.
11.3 If USS/THG or Cohesion receives notice of an Action by a third Person
alleging infringement of such third Person's patent rights by the manufacture,
use or sale of a CoStasis Product in the Field in the Territory, the Party
receiving such notice shall promptly notify the other Party. Cohesion shall
conduct the legal defense of such Action and may enter into any disposition with
respect thereof, including any out of court settlement or agreement with the
third party, as Cohesion in its discretion deems desirable. All costs of
Cohesion's defense, including its attorneys' fees and court costs, and any
damages awarded or amounts paid in settlement in any such Action, shall be the
sole responsibility of Cohesion. Cohesion shall keep USS/THG advised of the
status of such Action and shall provide USS/THG with a copy of all litigation
papers filed relating thereto. USS/THG shall fully cooperate with Cohesion in
its defense of such infringement Action and Cohesion shall pay USS/THG's out of
pocket expenses, including its attorneys fees and expenses, in providing such
cooperation to Cohesion.
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<PAGE> 19
11.4 The Parties shall each give prompt written notice to the other of any
apparent infringement discovered by it with respect to any Patent or trademark
related to CoStasis in the Field in the Territory. Such notice shall set forth
the facts of the apparent infringement in reasonable detail to the extent then
known to the notifying Party. Should either Cohesion or USS/THG desire that an
Action be brought against third party infringers to enforce a Patent, the Party
shall notify the other Party. USS/THG shall have the exclusive right to bring or
settle, in its discretion and within the terms of this Agreement, such Action if
it is within the Field and in the Territory at its own expense and shall be
entitled to all amounts recovered from opposing parties, if any. Cohesion shall
have the exclusive right to bring or settle, in its discretion, such Action if
it is outside the Field or outside the Territory at its own expense and shall be
entitled to all amounts recovered from opposing parties, if any. USS/THG shall
keep Cohesion advised of the status of such Action within the Field within the
Territory and shall provide a copy of all litigation papers received or prepared
involving or relating thereto. Cohesion shall cooperate with USS/THG in
connection with any such Action within the Field within the Territory and
USS/THG shall pay Cohesion's out of pocket expenses, other than attorneys fees
and expenses, in providing such cooperation. Cohesion shall have the right in
its discretion to join in any such Action within the Field provided that it pays
the costs and expenses of its counsel.
11.5 The provisions of this Article 11 shall survive termination of this
Agreement.
ARTICLE 12 - INDEMNIFICATIONS; INSURANCE
12.1 (a) Cohesion shall be liable for and shall defend, indemnify and hold
USS/THG, its Affiliates and permitted assignees, and each of their respective
directors, officers, employees, agents and representatives (collectively,
"USS/THG Indemnitees") harmless from and against any liability, damage or loss
and from any judgments, awards, claims, Action, demands, recoveries or expenses,
including USS/THG's attorneys fees and costs, to the extent that they (i) arise
out of Cohesion's breach of this Agreement or of any representation or warranty
made to USS/THG under this Agreement, or (ii) ) [Text Deleted], or (iii) result
from the negligent acts or willful malfeasance on the part of Cohesion or
Cohesion's employees or agents, or (iv) arising out of any tort claim, worker's
compensation claims or other employment related claims of any agents or
employees of Cohesion; or (v) to the extent caused by use of a defective
CoStasis Product in the Territory, except (aa) to the extent caused by an act or
omission of USS/THG or its agents, or (bb) arising out of or incident to any
misrepresentation or any breach of any warranty or covenant of USS/THG hereunder
or any default in the observance or performance of any term or provision to be
observed or performed by USS/THG hereunder, or (cc) resulting from a defect in a
USS/THG product sold in a kit form with a CoStasis Product. Cohesion shall
reimburse USS for any attorneys fees and costs incurred by USS under this
Section 12.1(a) on a monthly basis during any Action covered hereby.
(b) USS/THG shall be liable for and shall defend, indemnify and hold Cohesion,
its Affiliates and permitted assignees, and each of their respective directors,
officers, employees, agent and
19
<PAGE> 20
representatives (collectively, "Cohesion Indemnitees") harmless from and against
any liability, damage or loss and from any judgment, awards, claims, Action,
demands, recoveries or expenses, including Cohesion's attorneys fees and costs,
to the extent that they (i) arise out of USS/THG's breach of this Agreement or
of any representation or warranty made to Cohesion under this Agreement, or (ii)
result from the negligent acts or willful malfeasance on the part of USS/THG or
USS/THG's employees or agents including, without limitation, selling CoStasis
Products outside the Field or outside the Territory, or in promoting a CoStasis
Product in a manner inconsistent with the CoStasis Product's labeling (except as
to Promotional Materials approved by Cohesion), or (iii) arising out of any
tort claim, worker's compensation claims or other employment related claims of
any agents or employees of USS/THG, or (iv) arising out of or incident to any
misrepresentation or any breach of any warranty or covenant of USS/THG hereunder
or any default in the observance or performance of any term or provision to be
observed or performed by USS/THG hereunder. USS shall reimburse Cohesion for any
attorneys fees and costs incurred by Cohesion under this Section 12.1(b) on a
monthly basis during any Action covered hereby.
(c) If any lawsuit concerning CoStasis Products in the Territory or the
transactions contemplated by this Agreement is brought by or on behalf of a
third party against Cohesion and/or USS/THG, in such event Cohesion and USS/THG
shall reasonably consult concerning the handling of such matter. However, this
obligation to consult shall not affect the liabilities and obligations imposed
by this Section 12.1.
(d) On execution of this Agreement, each party shall maintain comprehensive
general liability insurance, including product liability insurance with broad
form vendors coverage, with insurance carriers reasonably acceptable to the
other party on a claims made basis in an amount [Text Deleted] . Cohesion shall
consider increases in the amount of such insurance beyond [Text Deleted] based
on its business judgment exercised in a reasonable and prudent manner. Such
insurance shall have a combined single limit for bodily injury and property
damage per occurrence and in the aggregate in the aforementioned amounts. Such
insurance shall include the other party as an additional named insured as its
interest may appear. Commencing with Regulatory Approval to sell a CoStasis
Product in the Territory, each party shall furnish to the other party a
certificate of insurance evidencing such coverage with thirty days' written
notice to the other party of cancellation or material change. Nothing set forth
herein in this Section 12.1(d) is intended to substitute for the indemnity
rights of the parties set forth in this Agreement.
12.2 Promptly after receipt by a Party indemnified pursuant to this Agreement of
the commencement of any Action against such indemnified Party in respect of
which indemnity or reimbursement may be sought against the indemnifying Party
hereunder, such indemnified Party shall promptly notify the indemnifying Party
in writing of the commencement of the Action, but the failure to so notify the
indemnifying Party shall not relieve it of any liability which it may have to
any such indemnified Party unless such a failure substantially prejudices the
rights of the indemnifying Party hereunder. The indemnifying Party shall
thereupon undertake the defense of such Action. If any such action shall be
brought against any indemnified Party and it shall notify the indemnifying Party
of the commencement thereof, the indemnified Party shall be entitled to
participate therein, and to the extent it so desires, to control the defense
thereof, with counsel
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<PAGE> 21
reasonably satisfactory to such indemnified Party. After notice is given by the
indemnified Party to the indemnifying Party of its election to participate in
the defense thereof, the indemnified Party may participate in such defense, but
the indemnifying Party shall not be liable to such indemnified party under this
Section 12.2 for any legal or other expenses subsequently incurred by such
indemnified Party in connection with its participation in the defense thereof
other than out of pocket costs and expenses of the indemnified party (excluding
legal costs and expenses) in connection with assistance rendered to the
indemnifying party at the specific request of the indemnifying Party.
12.3 The provisions of this Article 12 shall survive termination of this
Agreement.
ARTICLE 13 NON-COMPETE; EXCLUSIVITY
13.l During the term of this Agreement, Cohesion shall not except as provided in
Article 5, directly or indirectly, without USS/THG's prior written consent, in
its sole discretion, market or solicit, or permit, encourage or assist third
parties to market or solicit, the sale or lease of CoStasis Products in the
Field in the Territory, other than through USS/THG.
13.2 During the term of this Agreement, USS/THG shall not, directly or
indirectly, without Cohesion's prior written consent, in its reasonable
discretion, market or solicit, or permit, encourage or assist third parties to
market or solicit, the sale or lease of the CoStasis Products outside of the
Field in the Territory, other than through Cohesion.
ARTICLE 14 - RIGHT OF FIRST REFUSAL AND RIGHT OF FIRST OFFER
14.1 Cohesion hereby grants to USS/THG the below rights of first refusal
and first offer for Rights Technologies in the Field in the Territory set forth
in this Article 14. In accordance with such rights of first refusal and first
offer, Cohesion agrees not to transfer, by sale, license or otherwise, any
interest in any of the Rights Technology in the Field in the Territory to any
third Person, except pursuant to this Article 14.
14.2 If Cohesion decides to offer for transfer such ownership interest
in its Rights Technologies in the Field in the Territory to outside entities, it
shall first deliver to USS/THG an offer, irrevocable for forty-five (45) days
from its receipt, to sell to USS/THG the interest which is the subject of the
outside offer. If USS/THG notifies Cohesion that it desires to negotiate for the
acquisition of such Rights Technologies within ten (10) days of its receipt of
such offer, the parties shall promptly negotiate in good faith an agreement to
sell or otherwise transfer to USS/THGC such Rights Technologies. If the parties
fail to enter into an agreement regarding such Technology within said forty-five
(45) day period, Cohesion shall be free to offer such Rights Technologies to
third parties, provided the terms of any such offer(s) may not be more favorable
to such third parties than were last offered to USS/THG if such agreement is
entered into within six (6) months following the termination of said forty-five
(45) day period.
14.3 [Text Deleted]
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<PAGE> 22
ARTICLE 15 - TERM AND TERMINATION
15.l This Agreement shall remain in full force and effect from the date hereof
until the date which is five (5) years from the date hereof, unless earlier
terminated pursuant to this Article 15 (the "Term").
15.2 Both Parties agree to discuss, starting no later than January 1, 2004,
renewal of this Agreement.
15.3 This Agreement may be terminated prior to the end of the term of this
Agreement as follows:
(a) by either Party, in the event the other Party files any petition in a
bankruptcy or similar proceeding or, if the other Party has a petition in a
bankruptcy or similar proceeding filed against it and such proceeding continues
unstayed after forty five (45) days after the filing thereof, on thirty (30)
days written notice to the other Party;
(b) by either Party, in the event the other Party becomes insolvent or makes an
assignment for the benefit of its creditors, on thirty (30) days written notice
to the other Party;
(c) by either Party, in the event a Force Majeure Event (defined below) prevents
the other Party from performing for more than sixty (60) days, on thirty (30)
days written notice to the other Party;
(d) by either Party, in the event the other Party refuses to perform or shall
materially breach or materially fail in the observance or performance of any
representation, warranty, covenant or obligation under this Agreement following
notice of such refusal, breach or failure; provided however, that non-payment of
any amount due hereunder shall not constitute a material breach of this
Agreement unless payment is not made within fifteen (15) days after the date
such payment is due hereunder, and provided that the Party receiving such notice
shall have thirty (30) days after receiving notice to cure the refusal, breach
or failure. In the event such breach or failure is cured, the notice shall be of
no effect. In the event such refusal, breach or failure is not cured, this
Agreement shall then terminate at the end of such thirty (30) day period;
(e) [Text Deleted]
15.4 In the event of termination of this Agreement, each Party shall fulfill all
obligations existing as of the effective date of termination and shall supply
all open customer orders and payment for the CoStasis Products that may be due
under this Agreement. Notwithstanding the foregoing, USS/THG shall not be
obligated to pay Cohesion the Additional Fees set forth in
22
<PAGE> 23
Section 6.1(b) in the event that Cohesion achieves either or both of such
regulatory approvals subsequent to the date that USS/THG gives notice to
Cohesion of termination of this Agreement, unless USS/THG shall in its
discretion solicit orders for the CoStasis Products in such portion of the
Territory covered by such regulatory approval during the period between the date
notice of termination is given to Cohesion and the effective termination date of
this Agreement.
ARTICLE 16 - CONFIDENTIALITY
16.1 Each Party represents, warrants and covenants that it has not, directly or
indirectly, disclosed and agrees that it shall not, directly or indirectly,
disclose to any third person or entity either during the term of this Agreement
or for a period of five (5) years subsequent to the termination of this
Agreement, (a) any Confidential Information concerning the other Party disclosed
in accordance with this Agreement; or (b) the terms or substance of this
Agreement except as required by law or legal process; provided that prior to any
such disclosure the disclosing Party shall notify the other Party of such
proposed disclosure with as much prior notice as is reasonably possible and
shall not take any action to prevent the other Party from taking any legal
action as it deems necessary or desirable to prevent or limit any such
disclosure.
16.2 Notwithstanding Section 16.1, each Party may disclose Confidential
Information received pursuant to this Agreement as required to fulfill the terms
and obligations of this Agreement to its directors, officers, employees,
consultants, attorneys and accountants provided that such persons and entities
are obligated to hold the Confidential Information in confidence. Each Party
covenants that it shall exercise the same degree of care with respect to the
other Party's Confidential Information as it would its own Confidential
Information.
16.3 Upon termination of this Agreement, each Party shall, upon the request of
the other Party, return all documents received by it from the other Party which
contain the other Party's Confidential Information or destroy all of such
documents and confirm in writing the destruction thereof to the other Party,
except that one copy thereof may be retained solely for archival purposes in the
files of the counsel for the Party.
16.4 The provisions of this Article 16 shall survive termination of this
Agreement.
ARTICLE 17 - REPRESENTATIONS, WARRANTIES AND COVENANTS
17.1 Each Party represents, warrants and covenants to the other Party that (i)
the performance by such Party of its obligations under this Agreement will not
result in a violation or breach of, and not conflict with or constitute a
default under, its Certificate of Incorporation or other incorporation
documents, corporate bylaws or any contract, commitment, agreement or other
obligation to which such Party or any of its Affiliates is a party or by which
any of them is bound; and (ii) there is no Action pending or currently
threatened against it or any of its Affiliates which, if adversely determined,
would restrict or limit such Party's right to enter into this Agreement,
transfer the rights or carry out its obligations under this Agreement.
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ARTICLE 18 - FORCE MAJEURE
18.1 If either Party is prevented from performing any of its obligations
hereunder due to any cause which is beyond the non-performing Party's reasonable
control, including fire, explosion, flood, or other acts of God; acts,
regulations, or laws of any government; war or civil commotion; strike, lock-out
or labor disturbances; or failure of public utilities or common carrier(a "Force
Majeure Event"), such non-performing Party shall promptly give notice thereof to
the other party and shall use its best efforts to cure or correct any such Force
Majeure Event and to resume performance of its affected obligations as soon as
possible.
ARTICLE 19 - MISCELLANEOUS
19.1 This Agreement shall be binding upon and shall inure to the benefit of each
of the Parties hereto, and their respective successors and permitted assigns as
hereinafter set forth in this Section 19.1. Neither Party shall transfer or
assign this Agreement, in whole or in part, nor any of their respective rights
and obligations under this Agreement without the prior written consent of the
other Party; except that either Party may, without such consent, assign this
Agreement to a Affiliate of such Party provided the Party remains liable for the
performance thereof.
19.2 All notices, and other communications required or called for under this
Agreement shall be in writing, shall be transmitted by overnight U.S. mail,
postage prepaid, or by certified or registered U.S. Mail, return receipt
requested, postage prepaid or by overnight Federal Express or another nationally
recognized courier serviced (billed to sender) and shall be deemed delivered
when received by the Party to whom it is addressed at:
If to Cohesion: If to USS/THG:
Cohesion Corporation United States Surgical Corporation
2500 Faber Place, 150 Glover Avenue
Palo Alto, CA 94303 Norwalk, CT 06856
Attn.: CEO Attn.: Legal Department
19.3 This Agreement supersedes all prior discussions, negotiations, and
agreements between the Parties including, without limitation, any
confidentiality agreement heretofore entered into between the parties, but only
as to matters occurring after the date of the execution of this Agreement by
both Parties. This Agreement cannot be altered or amended except by an agreement
in writing signed by the Parties.
19.4 No previous course of dealing or performance or usage of trade not
specifically set forth in this Agreement shall be admissible to explain, modify
or contradict this Agreement. Either Party's failure to require performance by
the other of any provisions hereof shall, in no way, be deemed a waiver or
affect the right of either Party to require such performance at any time
thereafter.
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19.5 This Agreement shall not constitute either Party as an employee, agent,
partner or legal representative of the other Party for any purpose, or give
either Party any right to supervise or direct the functions of the other Party.
Neither Party shall have authority to act for or obligate the other Party in any
way or to extend any representation or warranty on behalf of the other Party.
Each Party agrees to perform under this Agreement solely as an independent
contractor and shall not hold itself out as an employee or agent of the other
Party in any sense. Each Party agrees not to permit its employees or agents to
do anything which might be construed or interpreted as acts of the other Party.
Each Party agrees that the other Party shall not be responsible for any acts or
omissions by it or its directors, officers, employees and agents and shall
indemnify and hold harmless the other Party from and against all losses,
damages, claims, judgments, and costs (excluding attorneys' fees and expenses)
claimed or rendered against such other Party on account of acts or omissions by
such Party, its directors, officers, employees and agents.
19.6 Neither Party shall originate any publicity, news release or other
announcement, written or oral, relating to the terms and conditions of this
Agreement without the prior written consent of the other Party, such consent not
to be unreasonably withheld, except as may be necessary to comply with
applicable Laws or legal process.
19.7 If any provisions of this Agreement should be or become fully or partly
invalid or unenforceable for any reason whatsoever or violate any applicable
law, this Agreement is to be considered divisible as to such provision and such
provision is to be deleted from this Agreement, and the remainder of this
Agreement shall be deemed valid and binding as if such provision were not
included herein. There shall be substituted for any such provision deemed to be
deleted a suitable provision which, as far as legally possible, comes nearest to
what the Parties desired according to the sense and purpose of this Agreement
had this point been considered when concluding this Agreement.
19.8 This Agreement shall be governed by and construed in accordance with the
internal laws of the State of Delaware applicable to contracts entered into and
to be performed entirely within the State of Delaware without reference to its
conflict of laws provisions.
19.9 The Article headings included in this Agreement are for reference purposes
only and shall not affect the meaning or interpretation of this Agreement.
19.10 This Agreement may be executed in two counterparts, each of which shall be
deemed to be an original instrument, but both such counterparts together shall
constitute but one agreement.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be signed by their
respective corporate officers as of the date first above written.
COHESION TECHNOLOGIES, INC.
By: /s/ DAVID FOSTER
-------------------------------
Name: David Foster
Title: CEO
UNITED STATES SURGICAL
By: /s/ STEVEN AMELIO
-------------------------------
Name: Steven Amelio
Title: VP & Controller USS
TYCO HEALTHCARE GROUP AG
By: /s/ FELIX HEUSLER
-------------------------------
Name: Felix Heusler
Title: Director
EXHIBITS
A-1 Patents
A-2 Trademarks
A-3 CoStasis Products
A-4 Domestic Territory
A-5 International Territory
2.1 Trademark License
2.2 Current CoStasis Applicator Device
26
<PAGE> 27
EXHIBIT A-1
PATENTS
<TABLE>
<CAPTION>
PATENT TITLE PATENT STATUS INVENTORS SUMMARY
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SURGICAL ADHESIVE U.S. PATENT NO. SIERRA, D.; LUCK, E.;
MATERIAL 5,290,552 BROWN, D.
(CO-OWNED WITH MATRIX) GRANTED:
AUSTRIA, BELGIUM, Text Deleted
CANADA, GERMANY,
EUROPE, SPAIN FRANCE,
GREECE, ITALY, JAPAN,
LUXENBOURG, THE
NETHERLANDS, SWEDEN.
- -------------------------------------------------------------------------------------------------------
COMPOSITIONS CONTAINING U.S. ALLOWED PRIOR, J.; WALLACE, D.;
THROMBIN AND DELUSTRO, F.; SIERRA, D.
MICROFIBRILLAR COLLAGEN, PCT FILED 6/17/98 Text Deleted
AND METHODS FOR
PREPARATION AND USE
THEREOF
- -------------------------------------------------------------------------------------------------------
CELL SEPARATION DEVICE U.S. PATENT NO. FREEMAN, A.; SIERRA, D.;
AND INLINE ORIFICE MIXER 5,968,018 FULLER, G.; CONSTON, S.;
SYSTEM MICHAELS, A. Text Deleted
PENDING:
CANADA, EPO, JAPAN
- -------------------------------------------------------------------------------------------------------
STERILE SYRINGE U.S. ALLOWED ESPOSITO, D.
PACKAGING AND HANDLING
"PORTED POUCH" PCT FILED Text Deleted
- -------------------------------------------------------------------------------------------------------
CELL SEPARATION DEVICE U.S. ALLOWED DURONIO, J.; SIMONYI,
AND METERING SYRINGE V.; HNOJEWYJ, O.;
"CELLPAKER" PCT FILED STEARNS, B.; Text Deleted
FREEMAN, A.;
SCHOENBERG, S.;
ESPOSITO, D.
- -------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 28
EXHIBIT A-2
TRADEMARKS
<TABLE>
<CAPTION>
MARK COUNTRY STATUS
<S> <C> <C>
CellPaker(R) United States Text Deleted
CellPaker(TM) Canada Text Deleted
CTM Text Deleted
Japan Text Deleted
CoStasis(TM) United States Text Deleted
Australia Text Deleted
Canada Text Deleted
CTM Text Deleted
Japan Text Deleted
</TABLE>
28
<PAGE> 29
EXHIBIT A-3
COSTASIS PRODUCTS
<TABLE>
<S> <C>
4.5 CoStasis (Europe) FXP 010
2.0 CoStasis (Europe) FXP 007
1.0 CoStasis (Europe) FXP 011
4.5 CoStasis (U.S.) FXP 004
2.0 CoStasis (U.S.) FXP 006
1.0 CoStasis (U.S.) FXP 012
CellPaker 1X FXP 009
CellPaker 10X FXP 008
Centrifuge TBD
</TABLE>
29
<PAGE> 30
EXHIBIT A-4
DOMESTIC TERRITORY
United States
30
<PAGE> 31
EXHIBIT A-5
INTERNATIONAL TERRITORY
1. All Countries in the European Union as of the Effective Date of this
Agreement, per the Terms identified in Section 3.1 of this Agreement.
2. Eastern Europe (defined to include Poland, the Czech Republic, Slovakia,
Hungary, Romania, Bulgaria, Estonia, Lithuania, Latvia, Albania, and the
countries formed from the former Yugoslavia).
3. Middle East (defined to include Israel, Egypt, Syria, Lebanon, Jordan, Saudi
Arabia, Kuwait, Qatar, U.A.E., Oman and Yemen).
4. Australia.
5. New Zealand.
6. India.
7. Latin America, to include Mexico, Central and South America.
31
<PAGE> 32
EXHIBIT 2.1
TRADEMARK LICENSE AGREEMENT
THIS AGREEMENT (the "Agreement"), dated and effective as of November 22,
1999 by and between Cohesion Technologies, Inc. ("Cohesion"), a corporation duly
organized and existing under the laws of the State of Delaware and having its
principal place of business at 2500 Faber Place, Palo Alto, CA 94303, and United
States Surgical, a division of Tyco Healthcare Group LP ("USS"), a limited
partnership duly organized and existing under the laws of the State of Delaware
and having its principal place of business at 150 Glover Avenue, Norwalk,
Connecticut 06856, and Tyco Healthcare Group AG, a corporation organized and
existing under the laws of Switzerland and having its principal place of
business at Bahnhofstrasse 8, CH-8200 Schaffhausen, Switzerland ("THG")
(Cohesion, USS and THG, each a "Party" and collectively, the "Parties").
WHEREAS, Cohesion is the sole and exclusive owner of the entire right,
title and interest in and to trademark(s) and trade name(s) (collectively
referred to as "CoStasis Trademarks") used by Cohesion in connection with the
promotion and sale of CoStasis Products (as defined in the License and
Distributorship Agreement executed on even date herewith); and
WHEREAS, USS/THG is desirous of acquiring royalty-free, exclusive rights
and licenses to use the CoStasis Trademarks solely for the purpose of marketing
and promoting CoStasis Products in the Field within the Territory; and
WHEREAS, Cohesion is willing to grant such licenses.
NOW, THEREFORE, in consideration of the mutual considerations set forth
and other good and valuable consideration, the receipt and sufficiency of which
is acknowledged by each of the parties, it is understood and agreed as follows:
1. GRANT OF THE LICENSES
1.1 Subject to the terms and conditions hereinafter set forth, Cohesion
hereby grants to USS/THG for the term of this Agreement a royalty-free,
exclusive right and license, with right to sublicense, to use CoStasis
Trademarks solely in connection with the marketing, promotion and sale of
CoStasis Products in the Field within their respective Territories. Nothing in
this Agreement is intended to permit USS/THG to use the CoStasis Trademarks for
any other purpose than described above, and nothing in this Agreement is
intended to nor shall it limit or impair Cohesion's rights, during the Term, to
use or otherwise license the CoStasis Trademarks to the extent not licensed to
USS/THG hereunder.
32
<PAGE> 33
1.2 The license includes the right to grant sublicenses, provided that
any such sublicense must be in writing and subject to the terms of this
Agreement.
2. TERM
2.1. This Agreement shall be effective as of the date it is executed.
2.2 The term of this Agreement shall continue for the term of the
License and Distributorship Agreement executed on even date herewith. In the
event of a material breach of this Agreement by either party, the non-breaching
party shall provide the breaching party written notice which describes with
specificity the nature of such breach. The breaching party will thereafter have
sixty (60) days to cure such breach. If the breaching party does not cure such
breach within said sixty (60) days, the non-breaching party may terminate this
Agreement upon ten (10) days prior written notice of termination.
2.3 This Agreement shall terminate immediately upon the termination of
the License and Distributorship Agreement.
2.4 Upon termination of this Agreement: (i) the license granted herein
shall terminate; (ii) USS/THG shall cease, and cause its sublicensees to cease,
using the CoStasis Trademarks; and (iii) USS/THG shall execute and deliver to
Cohesion any documents reasonably requested by Cohesion to confirm Cohesion's
ownership of the CoStasis Trademarks and the termination of the License.
3. QUALITY CONTROL
3.1 Cohesion licenses USS/THG to use the CoStasis Trademarks upon the
terms herein set forth and during the period of this Agreement, in advertising,
identifying and selling CoStasis Products in case, and only in case, such
CoStasis Products are of approved standards and are not advertised, labeled or
packaged in any manner tending to mislead or deceive the public.
3.2 USS/THG shall (i) not modify the CoStasis Trademarks in any manner
without the prior consent of Cohesion, (ii) use the CoStasis Trademarks only in
a manner and form as set forth in Exhibit A-2 and any other quality control
restrictions imposed by and followed by Cohesion; and (iii) use the CoStasis
Trademarks only in a manner and form which complies with all applicable federal,
state, local and foreign laws, rules and regulations, including, without
limitation, all applicable trademark laws, rules and regulations.
4. PROTECTION OF COSTASIS TRADEMARKS
USS/THG acknowledges Cohesion's exclusive right, title and interest in
and to the CoStasis Trademarks and will not, in any way, directly or indirectly,
do or cause to be done any act or thing contesting or in any way impairing or
tending to impair any part of said right, title and interest in connection with
the use of CoStasis Trademarks. USS/THG shall not in any manner represent that
it has any ownership in CoStasis Trademarks or any registration thereof
33
<PAGE> 34
and USS/THG acknowledges that use of CoStasis Trademarks by it shall not create
in USS/THG any right, title or interest in or to the CoStasis Trademarks, but
all use of CoStasis Trademarks shall inure to the benefit of Cohesion.
IN WITNESS WHEREOF the parties hereto have executed this Agreement
effective November 22, 1999.
COHESION TECHNOLOGIES, INC.
By: /s/ DAVID FOSTER
-------------------------------
Name: David Foster
Title: CEO
UNITED STATES SURGICAL
By: /s/ STEVEN AMELIO
-------------------------------
Name: Steven Amelio
Title: VP & Controller USS
TYCO HEALTHCARE GROUP AG
By: /s/ FELIX HEUSLER
-------------------------------
Name: Felix Heusler
Title: Director
34
<PAGE> 35
Exhibit 2.2
Diagram of CoStasis syringe and delivery system
35
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-2000 JUN-30-2000
<PERIOD-START> JUL-01-1999 OCT-01-1999
<PERIOD-END> DEC-31-1999 DEC-31-1999
<CASH> 19,168 0
<SECURITIES> 0 0
<RECEIVABLES> 554 0
<ALLOWANCES> 40 0
<INVENTORY> 922 0
<CURRENT-ASSETS> 23,045 0
<PP&E> 10,637 0
<DEPRECIATION> 3,917 0
<TOTAL-ASSETS> 68,872 0
<CURRENT-LIABILITIES> 11,578 0
<BONDS> 0 0
0 0
0 0
<COMMON> 9 0
<OTHER-SE> 43,217 0
<TOTAL-LIABILITY-AND-EQUITY> 68,872 0
<SALES> 947 503
<TOTAL-REVENUES> 947 503
<CGS> 1,568 899
<TOTAL-COSTS> 1,568 899
<OTHER-EXPENSES> 10,630 5,051
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 13,950 6,962
<INCOME-TAX> 5,580 2,785
<INCOME-CONTINUING> 8,370 4,177
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,370 4,177
<EPS-BASIC> 0.99 0.49
<EPS-DILUTED> 0.95 0.47
</TABLE>
