FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(x) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 1996 Commission File Number 0-21104
CRYOLIFE, INC.
(Exact name of Registrant as specified in its charter)
---------
Florida 59-2417093
(State or Other Jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2211 New Market Parkway, Suite 142
Marietta, Georgia 30067
(Address of principal executive offices)
(zip code)
(770) 952-1660
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO ____
The number of shares of common stock, par value $0.01 per share, outstanding
at May 14, 1996 is 4,740,766.
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial statements
CRYOLIFE, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
1996 1995
(Unaudited)
Revenues:
Cryopreservation $8,259,559 $6,464,699
Research grants, licenses, lease
and interest revenue 174,248 140,166
--------- ---------
8,433,807 6,604,865
Costs and expenses:
Preservation 2,878,849 2,414,678
General, administrative and marketing 3,625,669 2,930,946
Research & development 690,096 686,111
--------- ---------
7,194,614 6,031,735
--------- ---------
Income before income taxes 1,239,193 573,130
Income tax expense 456,696 183,000
--------- ---------
Net income $ 782,497 $ 390,130
--------- ---------
Earnings per share of common stock $ 0.16 $ 0.08
Weighted average common and common --------- ---------
equivalent shares outstanding 4,877,997 4,707,191
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See accompanying notes to summary consolidated financial statements.
<PAGE>
Item 1. Financial Statements
CRYOLIFE, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,273,142 $ 166,931
Marketable securities 4,485,974 6,015,158
Receivables (net) 6,309,778 5,369,205
Deferred preservation costs (net) 6,121,787 5,996,201
Inventories (net) 333,884 424,200
Prepaid expenses 728,322 369,594
Deferred income taxes 22,798 --
---------- ----------
Total current assets 19,275,685 18,341,289
---------- ----------
Property and equipment (net) 3,523,390 3,279,168
Patents and other intangibles (net) 1,932,885 1,728,262
Other assets 366,553 240,897
---------- ----------
TOTAL ASSETS $ 25,098,513 $ 23,589,616
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,296,334 $ 1,372,862
Accrued expenses 1,865,681 1,474,365
Accrued compensation 372,179 260,709
Income taxes payable 189,311 --
--------- ---------
Total current liabilities 3,723,505 3,107,936
--------- ---------
Deferred income taxes -- 16,486
--------- ---------
Total liabilities 3,723,505 3,124,422
--------- ---------
Shareholders' Equity:
Preferred stock -- --
Common stock (issued 5,005,866 shares
in 1996 and 4,951,386 shares in 1995) 50,059 49,872
Additional paid-in capital 16,750,987 16,618,184
Retained earnings 4,757,035 3,974,538
Unrealized gain on investments 17,419 28,092
Less: Treasury stock (271,500 shares) (179,625) (179,625)
Notes receivable from shareholders (20,867) (25,867)
---------- ----------
Total shareholders' equity 21,375,008 20,465,194
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $25,098,513 $23,589,616
---------- ----------
See accompanying notes to summary consolidate statements.
<PAGE>
Item 1. Financial Statements
CRYOLIFE, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
--------------------
1996 1995
--------------------
(Unaudited)
Net cash flows from operating activities:
Net income $ 782,497 $ 390,130
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 318,810 226,069
Provision for doubtful accounts 15,000 17,000
Deferred income taxes (39,284) (23,000)
Increase in receivables (1,037,860) (550,042)
(Increase) decrease in deferred preservation
costs and inventory (35,270) 134,723
Increase in prepaid expenses and other assets (752,817) (362,681)
Increase (decrease) in accounts payable and
accrued expenses 697,857 275,595
------- -------
Net cash flows provided by (used in)
operating activities (51,067) 107,794
-------- -------
Net cash flows used in investing activities:
Capital expenditures (499,223) (192,043)
Proceeds from the sale of marketable securities 1,523,511 --
Purchase of marketable securities -- (1,343,832)
--------- ----------
Net cash flows provided by (used in)
investing activities 1,024,288 (1,535,875)
--------- ----------
Net cash flow from financing activities:
Proceeds from issuance of common stock and
from notes receivable from shareholders 132,990 75,432
--------- --------
Net cash provided by financing activities 132,990 75,432
--------- --------
Increase (decrease) in cash 1,106,211 (1,352,649)
Cash at beginning of period 166,931 2,592,799
--------- ---------
Cash at end of period $ 1,273,142 $ 1,240,150
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See accompanying notes to summary consolidated financial statements.
<PAGE>
CRYOLIFE, INC. AND SUBSIDIARIES
NOTES TO SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited, condensed, consolidated financial statements have
been prepared in accordance with (i) generally accepted accounting principles
for interim financial information, and (ii) the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
fair presentation have been included. Operating results for the three months
ended March 31, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Form 10-K for the year ended December 31, 1995.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Revenues were $8.43 million for the three months ended March 31, 1996, a 28%
increase compared to $6.60 million for the same period in 1995. Revenue
increases are primarily attributable to an increase in the number of allograft
shipments.
Revenues from human heart valve preservation increased 24% to $5.55 million
for the three months ended March 31, 1996 from $4.46 million for the three
months ended March 31, 1995, representing 66% and 68%, respectively, of total
revenues during such periods. Shipments rose 27% for the first three months
of 1996 compared to the same period in 1995.
Revenues from vein preservation increased 10% to $1.80 million for the three
months ended March 31, 1996 from $1.63 million for the three months ended
March 31, 1995, representing 22% and 25%, respectively, of total revenues for
those periods. Vein shipments increased 6% for the first three months of 1996
compared to the same period in 1995.
Revenues from orthopaedic preservation increased 182% to $755,000 for the
three months ended March 31, 1996 from $268,000 for the three months ended
March 31, 1995, representing 9% and 4%, respectively, of total revenues for
those periods. Orthopaedic shipments increased 254% for the first three
months of 1996 compared to the same period in 1995.
The Company also received research grant award revenues aggregating $113,000
for the three months ended March 31, 1996, compared to $90,000 for the same
period in 1995. Research grant award revenues for the first three months of
1996 are primarily related to the bioadhesive and synergraft projects.
Preservation costs aggregated $2.88 million for the three months ended March
31, 1996, representing 34% of total revenues, compared to $2.41 million for
the three months ended March 31, 1995, representing 37% of total revenues.
Preservation costs as a percentage of revenues decreased 3% for first quarter
1996 compared to first quarter 1995. The decrease relates to increased
shipments of tissues and efficiencies in the preservation service operations.
General, administrative, and marketing expenses increased 24% to $3.63 million
for the three months ended March 31, 1996, compared to $2.93 million for the
corresponding period in 1995. This increase reflects the general overhead
growth trends, including personnel related expenses, and increased marketing
expenses resulting from higher revenues.
Research and development expenses were $690,000 for the three months ended
March 31, 1996, or 8% of total revenues, compared to $686,000, or 10% of total
revenues for the corresponding period in 1995. Research and development
spending relates principally to the Company's focus on bioadhesives.
Seasonality
The demand for the Company's human heart valve tissue preservation services is
seasonal. Management believes this demand trend for human heart valves is
primarily due to the high number of pediatric surgeries scheduled during the
summer months.
Liquidity and Capital Resources
At March 31, 1996 net working capital was $15.6 million, compared to $15.2
million at December 31, 1995, with a current ratio of 5.2 to 1. Shareholders'
equity at March 31, 1996 was $21.4 million. The Company's primary capital
requirements arise out of working capital needs, including receivables and
deferred preservation costs, capital expenditures for facilities and
equipment, and funding of research and development projects. The increase in
receivables results from the increase in revenue. The increase in prepaid
expenses and other assets relates primarily to prepaid insurance premiums.
The increase in accrued expenses is primarily attributed to costs associated
with increased procurement of allografts.
The Company believes that available cash, cash equivalents, marketable
securities, along with cash generated from operations will be sufficient to
meet its operating and development needs for the foreseeable future.
During May 1996 the Company signed a letter of intent to acquire substantially
all of the assets and assume certain liabilities of a third party in a related
line of business. The transaction is subject to certain conditions including
appropriate due diligence and the negotiation of definitive agreements. If an
agreement is reached, the Company has committed to spend up to $2,000,000 in
connection with this acquisition, along with the assumption of certain
liabilities not to exceed $500,000.
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibit index can be found below.
Exhibit
Number Description
3.1 Restated Certificate of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 (No. 33-56388).)
3.2 Amendment to Articles of Incorporation of the Company dated November 29,
1985. (Incorporated by reference to Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995.)
3.3 ByLaws of the Company, as amended. (Incorporated by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.)
10.1 Technology License Agreement between the Company and Colorado State
University Research Foundation dated March 28, 1996.
11.1 Statement re: computation of earnings per share
(b) Current Reports on Form 8-K.
The Registrant filed a Current Report on Form 8-K with the Commission on
April 23 with respect to a Change in the Registrant's Certifying Accountant.
<PAGE> SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRYOLIFE, INC.
(Registrant)
May 14, 1996 EDWIN B. CORDELL, JR.
- ------------------ ---------------------------
DATE EDWIN B. CORDELL, JR.
Vice President and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
TECHNOLOGY LICENSE
This Agreement entered into this 28th day of March, 1996,
between Colorado State University Research Foundation of Fort
Collins, Colorado, 80522, (hereinafter referred to as ("CSURF"),
CryoLife, Inc. of 2211 New Market Parkway, Suite 142, Marietta,
Georgia 30067, (hereinafter referred to as "Company").
WITNESSETH:
WHEREAS, Dr. Chris Orton has invented, is developing and may
develop in the future certain Trade Secrets, Know-How and Patents
dealing with methods, procedures and sciences relating to the
science of enhancing fibroblast and other cellular ingrowth into
homograft, xenograft and bioprosthetic grafts;
WHEREAS, CSURF by virtue of its contractual relationship
with Colorado State University ("CSU") and by virtue of CSU's
contractual relationship with Dr. Orton, is the owner of all
right and title to the Technology;
WHEREAS, the parties entered into a Technology Option
Agreement dated March 1, 1991 (the "1991 Agreement") pursuant to
which the Company evaluated the Technology for use in certain
products currently under development;
WHEREAS, the Company now desires to license the Technology
in order to continue its product development and eventually
commercialize products utilizing the Technology and to obtain as
part of the license certain assistance from Dr. Orton;
WHEREAS, the parties desire to enter into the following
Agreement to license the Technology and provide for Dr. Orton's
assistance upon the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises, the
Company's continued investment in product development
incorporating the Technology in reliance upon the promises
hereinafter set forth, and other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1
<PAGE>
SECTION I. DEFINITIONS. The following terms shall have the
meanings as hereinafter set forth:
"Commercialization" shall mean the ability after the Company
is satisfied with the safety and efficacy of any Product to
market and distribute the Product without regulatory restraint
with the United States following receipt of premarket approval
from the FDA, Commercialization shall not include limited sales
within the United States under an investigatory device exemption
or similar conditional sale approval received from the FDA.
"FDA" shall mean the United States Food and Drug
Administration or successor agency.
"Milestone Payments" shall mean the payments required to be
made to CSURF pursuant to Section III(4).
"Minimum Royalties" shall mean the payments required to be
made to CSURF pursuant to Section III(3).
"Patent(s)" shall mean U.S. patent number 5,192,312 together
with any and all domestic and foreign patents and patent
applications which may in the future be filed on the Science
which are owned, developed or acquired by CSURF. The term
Patents shall also include any and all U.S. or foreign divisions,
continuations, continuations in part, substitutions, reissues and
extensions of the said Patents.
"Percentage Royalties" shall mean the payments required to
be made to CSURF pursuant to Section III(1).
"Principal Investigator" shall mean Dr. Orton or his
successor, if any, and shall be responsible for all technical
communications with the Company. Nothing in this Agreement shall
be construed so as to require CSURF to pursue the Science in the
event that Dr. Orton leaves CSU.
"Products" shall mean any chemical, device, process,
substance or technique which utilizes the Technology and is
intended or adapted for use to enhance firbroblast or other
cellular ingrowth into homograft, xenograft and bioprosthetic
grafts.
"Science" shall mean the filed relating to enhancing
fibroblast and other cellular ingrowth into homograft, xenograft
and bioprosthetic grafts, including any methods, procedures and
materials related thereto.
2
<PAGE>
"Subsidiaries" shall mean (a) any person or entity directly
or indirectly owning, controlling, or holding power to vote 25%
or more of the outstanding voting securities of Company, (b) any
person or entity 25% or more of whose outstanding voting
securities are directly or indirectly owned, controlled or held
with power to vote by Company, or (c) any executive officer,
director, or general partner of an entity defined under (a) or
(b) in the foregoing. As used in this definition, "control"
means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of
an entity or of Company.
"Technology" shall mean any trade secrets, know-how and
patents heretofore or hereafter owned, developed or acquired by
CSURF which are related to the Science, including, without
limitation, the Patents.
SECTION II. LICENSE.
1. LICENSE GRANT. CSURF hereby grants Company the sole
and exclusive, worldwide license to the Technology to develop,
manufacture, use and sell Products. Such license shall continue
for the longer of 15 years or the life of any and all Patent(s).
2. SUBLICENSES. The Company shall have the right to grant
sublicenses of any rights granted to it under this License,
provided that Company shall have received the prior approval of
CSURF, which shall not be unreasonably withheld. CSURF's consent
shall not be required for sublicenses to Company Subsidiaries or
for contract processing or manufacturing sublicenses entered into
to facilitate the Company's development or production of
Products.
3. PERFORMANCE GOALS. The Company agrees to use its
reasonable best efforts to achieve performance goals agreed upon
by CSURF and the Company. The Company's performance goals for
the 1996 Calendar year are set forth on "Exhibit A" attached
hereto. Performance goals will be determined by CSURF and the
Company upon consultation with the Principal Investigator in the
years following 1996. The performance goals shall be replaced by
the Company's payment of minimum royalties under Section III(3)
once payments are first made pursuant to Section III(3)(b).
4. RECEIPT AND DELIVERY OF TECHNOLOGY. The Company
acknowledges both the receipt of the information which presently
constitutes the Technology and fact that neither CSURF nor
Principal Investigator represent or promise that they will
develop or acquire any additional information or rights that
would fall within the definition of Technology. To the extent
CSURF or Principal Investigator develop or acquire any such
information or rights, CSURF agrees to promptly disclose same to
the Company.
3
<PAGE>
SECTION III. PAYMENT OBLIGATIONS.
1. PERCENTAGE ROYALTIES. Company shall pay CSURF a
royalty on Net Sales (gross sales minus sales tax, returns,
discounts and freight, if any) of Product(s) in each country
where Product(s) are protected by a Patent(s) equal to:
(i) 6% of the first $1 million in Net Sales;
(ii) 4% of Net Sales in excess of $1 million and up to
and including $5 million; plus
(iii)3% of Net Sales in excess of $5 million.
Percentage Royalties on Net Sales of Product(s) where Product(s)
are not protected by Patent(s) shall be payable at one-half of
the foregoing rates.
2. SUBLICENSES. In the event that the Company sublicenses
the License granted in Section II(1), the Company shall remain
obligated to the terms of this agreement. Company shall either
require the sublicensee to, pay the Percentage Royalties required
by this Section III(1) or, at the election of the Company in
sublicenses that are not to Subsidiaries, the Company shall pay
CSURF one third of the Percentage Royalties received by Company
from such sublicenses. Company shall also pay CSURF one third of
any upfront, milestone, benchmark or any other miscellaneous
income received from a sublicensee.
3. MINIMUM ROYALTIES. In consideration of the exclusive
nature of the license grant contained in Section II, Company
agrees to pay CSURF Minimum Royalties as follows:
(a) $10,000 per year beginning with a first payment on
March 31, 1996 and continuing each year thereafter until such
time as the Company receives U.S. Government approval permitting
Commercialization of Products.
(b) $20,000 per year beginning in two equal $10,000
installments payable on January 31, and July 31, in each of the
first two years after the Company receives U.S. Government
approval permitting Commercialization of the Products; and,
(c) $50,000 per year thereafter in quarterly installments
of $12,500 each payable on January 31, April 30, July 31, and
October 31.
The Company shall be entitled to credit Minimum Royalties paid in
any year against Percentage Royalties earned in the same year but
not against Percentage Royalties earned in prior years or
subsequent years.
4
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4. MILESTONE PAYMENTS. The Company shall make the
following Milestone Payments to CSURF:
(a)$10,000 within 30 days after the filing of a product
license application.
(b)$20,000 within 30 days after receipt of premarket
approval from the FDA permitting Commercialization of the
Products within the United States.
The Company shall be entitled to credit Milestone Payments
made as well as out-of-pocket expenses incurred by the Company in
the prosecution of the Patent(s) against future Percentage
Royalties but the amount of the credit that may be taken in any
year shall be limited, in that year, to the 50% of the amount by
which Percentage Royalties exceed Minimum Royalties in that year.
For example, if $30,000 in Milestone Payments and Patent
prosecution costs were incurred before year 2 and Percentage
Royalties in year 2 exceeded Minimum Royalties paid in year 2 by
the sum of $40,000, the Company would be entitled to credit only
$20,000 of such amount as a credit to Milestone Payments and
Patent prosecution costs in that year. The remaining $10,000 of
Milestone Payments and unreimbursed Patent prosecution costs
would be reimbursed in the same fashion in future years.
5. NONEXCLUSIVE LICENSE PAYMENTS. At any time after the
third anniversary of Commercialization, the Company may elect to
convert this License from an exclusive license to a nonexclusive
license by notifying CSURF in writing. In the event the license
is converted to a nonexclusive license as provided in the
preceding sentence, the Company's obligation thereafter to make
minimum royalty and milestone payments shall terminate. If CSURF
thereafter relicenses the Technology to any third party at a
lower percentage royalty rate than that provided in this
Agreement, CSURF shall notify the Company of the lower royalty
rate and offer the Company the opportunity to thereafter pay such
lower royalty rate in lieu of the rate it would otherwise be
obligated to pay hereunder.
6. ACCOUNTING FOR PAYMENTS. (a) Payments of Percentage
Royalties shall be made on or before the last business day of
January, April, July and October of each year for the sale of all
Products sold during the preceding quarterly periods ending on
the last days of December, March, June and September. Such
payments shall be accompanied by a statement showing the sales of
the Products by the Company to all parties, and such other
particulars as are necessary or which may be reasonably requested
by CSURF for an account of the royalties payable pursuant to this
Agreement. Payment of the amount of royalties due shall
accompany such statement.
5
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(b) The Company shall keep complete and accurate records of
the sales by the Company of Products. Within 60 days following
the end of each quarter of a calendar year during which the
royalties are due under this Agreement, the Company shall render
to CSURF a written report setting forth the amount of royalties
due and payable based on sales of Products during such quarter,
and upon rendering such report, remit to CSURF the amount of
royalties shown thereby to be due on sales of products.
(c) CSURF shall have the right for a period of five years
after receiving any royalty report to appoint an independent
certified public accountant who is acceptable to the Company who
shall have access to the Company's records during reasonable
business hours for the purpose of verifying the royalties payable
under this Agreement, but this right may not be exercised more
than once in any calendar year, and the accountant shall disclose
to CSURF only information relating solely to the accuracy of the
royalty report and the royalty payments made in accordance with
this Agreement. The failure of CSURF to request verification of
any royalty report during said five year period shall be
considered acceptance of the accuracy of such report and the
Company shall have no obligation to maintain any records
pertaining to such report beyond said five year period.
SECTION IV. REGULATORY AND PATENT RESPONSIBILITIES.
1. REGULATORY APPROVALS. The Company agrees, at its own
expense, to take reasonable steps to obtain regulatory approval
from the FDA to manufacture, use and sell Product(s) within the
United States. If at any time the Company ceases to use
reasonable efforts to seek regulatory approval from the FDA, the
Company shall notify CSURF in writing identifying the reasons the
Company no longer seeks FDA approval and the Agreement shall
terminate. However, if CSURF is successful in licensing the
Technology to a third party, CSURF will pay to the Company 50% or
any income (royalties, upfront payments, milestone, benchmark or
other miscellaneous payments) received from such license in any
given fiscal year, for the term of such license in consideration
of the Company's efforts and expenses incurred in development and
commercialization costs and in consideration of patent related
expenses incurred by the Company in connection with the
Technology.
2. PATENT PROSECUTION. (a) The Company shall upon written
request from CSURF bear the reasonable costs and responsibility
for the preparation, filing and prosecution of the United States
Patent Applications under the Technology, but in no case beyond
an appeal to and a decision by the United States Patent and
Trademark Office Board of Appeals, unless the Company
specifically agrees otherwise in writing. With respect to
foreign patent applications, the procedure shall be as follows:
foreign patent applications shall be filed by the Company on
behalf of CSURF in such countries as selected by the Company.
Such selection of countries is to be made in writing by the
Company to CSURF within nine months after the filing date of any
corresponding U.S. application, and the filing of such designated
foreign patent application will be made in CSURF's name within
one year after the filing date of the corresponding U.S.
6
<PAGE>
application. The Company will pay the reasonable costs of the
preparation, filing and prosecution of such foreign applications
and the maintenance of the resulting patents for so long as the
Company remains a licensee under the patents. CSURF may file and
prosecute applications and maintain the resulting foreign patents
at its own expense in countries not selected by the Company. The
Company having elected to file a foreign patent application, may
advise CSURF without loss of any right granted by this Agreement
that it does not wish to pursue further prosecution or
maintenance in a particular country and the Company will have no
further obligations for payment of any costs for patent
prosecution or maintenance in the country. CSURF may then, if it
so desires, continue such prosecution or maintenance at its
expense. Such election by the Company to discontinue prosecution
or maintenance in a particular country shall not prejudice the
Company's rights under this Agreement in other countries.
(b) Company will keep CSURF informed of all patent activity
related to the Technology by sending CSURF copies of all Patent
filings (U.S. and foreign) and Patent prosection related
information. Company will also notify and allow the Principal
Investigator the opportunity to be involved in the decisions
related to the Science of any Patent application or Patent
prosecution related to the Technology.
(c) In the event that during the course of this Agreement,
a patentable invention is made jointly by one or more members of
the Company and one or more researchers at CSU, as determined by
the laws of patent inventorship, title to any Patent or Patents
maturing therefrom shall be held by CSURF.
(d) If CSURF files Patent applications or otherwise obtains
rights which relate to the Technology, the Company shall have a
right to an exclusive worldwide license under such Patent rights
as are set forth in Section II(1) and the exclusive license
granted to the Company under Section II(l) shall be extended to
the expiration date of the last expired patent which issues in
any particular country. If CSURF decides not to file a Patent
application on any CSURF invention which relates to the
Technology, CSURF will promptly notify the Company of the
decision and disclose such invention to the Company. The Company
will then, at its option, have the right to file Patent
applications throughout the world and to have an exclusive
license, with a right to grant sublicenses, under such Patent
rights as are set forth in Section II(l) and exclusive license
granted to the Company under Section II(1) shall be extended
through the expiration date of the last to expire patent which
issues in any particular country.
(e) CSURF shall be the sole and exclusive owner of said
Patent(s), subject to the terms of this Agreement.
7
<PAGE>
3. PATENT ENFORCEMENT. (a) CSURF does not warrant that the
Technology licensed hereunder shall not infringe any patents.
However, CSURF is not presently aware of the existence of such
patents owned by third parties.
(b) CSURF and Company agree to inform each other in the
event that it becomes aware of any potential infringement of the
Technology. CSURF shall then, at its expense, have the right to
take appropriate action against any potential infringer. In the
event that CSURF elects not to take action against the potential
infringer, the Company may elect to do so at its expense, in
either its own name or in CSURF's name. In either event, CSURF
and the Company agree to cooperate fully with any such
proceedings. The Company may not, as part of settlement
negotiations, offer or grant non-exclusive licenses without the
written consent of CSURF, such consent shall not be unreasonably
withheld. If the Company pursues litigation, it shall be
entitled to offset the cost of litigation against 50% of the
royalty payments coming due during the litigation. If the
Company succeeds in obtaining a damage judgment in the
litigation, it shall be entitled to recoup its costs of
litigation, to the extent not previously recouped out of
royalties, plus 2/3 of the remaining amount of the judgment, if
any. The remainder of the judgment, if any, shall be paid to
CSURF as payment, in full, of royalties withheld by the Company
during the litigation. If neither party pursues litigation and
there is no acceptable settlement, the Company shall be entitled
to withhold royalties until a settlement is reached, but only
after obtaining an opinion from patent counsel reasonably
acceptable to both parties that the Patents have been infringed.
SECTION V. ASSISTANCE FROM DR. ORTON AND REPORTING.
1. ASSISTANCE FROM DR. ORTON. CSURF warrants, that at the
time of the signing of this Agreement, Dr. Orton has agreed to
provide reasonable assistance (as long as he is a CSU employee)
to the Company, as reasonably requested by the Company, in
evaluating or testing Product(s) prototypes. The Company agrees
to pay Dr. Orton a reasonable amount for out-of-pocket expenses
and time in excess of ten hours per month associated with Dr.
Orton's assistance.
2. REPORTING RESPONSIBILITIES. CSURF, through the
Principal Investigator, will provide semi-annual written reports
to the Company summarizing the progress of ongoing research
conducted by Dr. Orton and CSU on the Technology and will
otherwise keep the Company fully and promptly informed of all
progress on the Technology. The Company will provide semi-annual
written reports to CSURF which summarize the progress of the
Company's efforts to meet its Performance Goals and to complete
development of the Product.
8
<PAGE>
SECTION VI. REPRESENTATION OF CSURF. CSURF hereby
represents and warrants that it owns all right, title, and
interest in and to the Technology and has the authority to enter
into and perform its obligations under this Agreement. Except as
provided in this Agreement, CSURF expressly disclaims all
Warranties, express or implied, including without limitation
warranties of merchantability or fitness of Technology for a
particular purpose. CSURF further warrants that neither Dr.
Chris Orton nor any other Colorado State University employee or
others involved with Dr. Orton in the development of the
Technology retains any rights in or to the Technology which are
inconsistent with or encumber or limit the rights to the
Technology which are granted to the Company by this Agreement.
SECTION VII. INDEMNIFICATION. Except as provided above,
Company shall indemnify, defend, and hold CSURF harmless from and
against any and all Damages incurred by CSURF arising out of any
Claim of a third party based upon the production, distribution,
or marketing by Company of the Products or upon an allegation
that any of the Products infringes upon any patent of a third
party.
SECTION VIII. CONFIDENTIALITY. Except as otherwise
expressly provided in this Agreement, the Company and CSURF shall
use their best efforts to retain in confidence for a period of
five years after the termination of the Agreement all information
received from the other party in the course of pursuing the
Science, provided, however, that such information may be
disclosed insofar as such disclosure is necessary to defend
itself against litigation, to file and prosecute patent
applications or to comply with governmental regulations, and
provided, further, that such obligation of confidentiality shall
be waived as to information which (i) is in the public domain,
(ii) which comes into the public domain through no fault of the
party claiming waiver, or (iii) was known to the party claiming
waiver prior to its disclosure by the other party.
SECTION IX. PUBLICATIONS. While it is understood that
CSURF and the Principal Investigator are free to publish the
results of their studies carried out under this Agreement, CSURF
agrees to provide the Company the opportunity to review any
proposed manuscripts at least thirty (30) days prior to their
intended submission for publication and, at the Company's
request, shall delay submission for a period sufficient to permit
adequate steps to be taken to secure patent protection for any
patentable subject matter.
9
<PAGE>
SECTION X. TERMINATION. This license shall continue in full
force and effect until the end of its term as determined by
Section II(l). CSURF may earlier terminate this Agreement should
Company commit any material breach of the terms and conditions of
this Agreement and if such failure or breach shall continue for a
period of 30 days after written notice thereof is delivered by
CSURF to Company, said termination to be effective at the
expiration of said 30 day period if such failure or breach is not
cured, likewise Company may terminate this Agreement if CSURF
commits any material breach of the terms and conditions of this
Agreement and such failure or breach shall continue for a period
of 30 days after written notice thereto is delivered by Company
to CSURF, said termination to be effective at the expiration of
said 30 day period if such failure or breach is not cured.
This Agreement will automatically terminate if Company makes
any general assignment for the benefit of its creditors, a
petition is filed by or against Company initiating a proceeding
under any provision of the Bankruptcy Act, or a receiver or
similar officer is appointed by a court of competent jurisdiction
to take charge of all or any part of Company's property.
SECTION XI. GENERAL PROVISIONS.
1. ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement and understanding of the parties with respect to
the Technology and supersedes and terminates all other prior
commitments, arrangements, or understandings, both oral and
written, including the 1991 Agreement, between the parties with
respect to the Technology.
2. MODIFICATION. This Agreement may not be modified or
amended except by an instrument in writing executed by each of
the parties.
3. BINDING; ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective
successors and assigns. This Agreement shall not be assignable
by CSURF without the prior written consent of the Company. This
Agreement shall not be assignable by the Company without the
prior written consent of CSURF except that the Company may assign
to a successor in ownership of all or substantially all of the
business assets to which the Agreement pertains, which successor
shall expressly assume in writing the performance of all the
terms and conditions of this Agreement to be performed by the
Company.
4. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Colorado.
10
<PAGE>
5. NOTICES. Any notices or other communications required
or permitted hereunder shall be in writing and shall be sent by
(a) personal delivery (including delivery by Federal Express or
similar overnight courier), (b) mailed registered or certified
mail, return receipt requested, postage prepaid, or (c)
transmitted by facsimile, telex, or telecopy to the numbers set
forth below and with originals of such transmissions sent by
registered or certified mail. Notices shall be sent to the
addresses as set forth below or to such other addresses as may be
hereafter furnished by one party to the other party in compliance
with the terms hereof.
If to CSURF: CSURF
Attn: President
P.O. Box 483
Fort Collins, CO 80522
If to Company: CryoLife, Inc.
Attn: President
Suite 142
2211 New Market Parkway
Marietta, Georgia 30067
Facsimile Number: 404-952-9743
With a copy to: Arnell Golden & Gregory
1201 West Peachtree Street
2800 One Atlantic Center
Atlanta, Georgia 30309-3400
Attn: Clinton D. Richardson, Esq.
Facsimile Number: 404-873-8665
Notices shall be effective (a) upon receipt by the
addressee, if sent by personal delivery or mail, or (b) upon
transmission, if sent by telecopy, telex, or facsimile provided
that the telecopy, telex or facsimile transmittal is verified by
an officer of the receiving party that the document was actually
received.
6. WAIVER. None of the provisions of this Agreement shall
be deemed to have been waived by any act or acquiescence on the
part of either party, their agents or employees, but may be
waived only by instruments in writing signed by an authorized
officer of the respective party. No waiver of any provision of
this Agreement shall constitute a waiver of any other provision
or of the same provision on another occasion.
11
<PAGE>
7. COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall
be deemed an original and all of which together shall constitute
but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date set forth herein by their
duly authorized representatives.
COLORADO STATE UNIVERSITY
RESEARCH FOUNDATION
By: Kathleen Byington
_______________________________________
Title: Pres/CEO
_______________________________________
Date:3/28/96
_______________________________________
CRYOLIFE, INC.
By: Kirby S. Black
_______________________________________
Title: Vice President, Research and Development
________________________________________
Date: 4/11/96
_________________________________________
12
<PAGE>
EXHIBIT A
GOALS AND OBJECTIVES - 1996
SYNERGRAFT HEART VALVE DEVELOPMENT
CryoLife Responsibilities
OBJECTIVE COMPLETION
Demonstrate applicability of SynerGraft October-December
technology to intact heart valve construct 1996 (in stages
which includes unstented leaflets and described below)
and unfixed conduit
Large animal model Stage I February 1996
Allograft aortic valve: test of depopulation
effects on valve integrity; implants in sheep
Large animal model Stage II April 1996
Depopulated xenograft aortic valve: test of
insertion of pig valve in aortic position in
sheep; evaluation of size matching parameters
Decision point: do non-repopulated valve appear to function well
without cellular repopulation. If so, go into long-term 6-9
month study). If not, procede with stages III and IV.
Large animal model Stage III July 1996
Repopulated allograft heart valve; assessment of
autogenous dermal fibroblast survival in an
allograft heart valve matrix
Large animal model Stage IV October 1996
Repopulated xenograft heart valve; assessment of
autogenous dermal fibroblast survival and function
in an xenograft heart valve matrix
Colorado State Responsibilities
Parallel studies to animal implant models as October -December 1996
noted above, but in pig to dog model of aortic
valve grafting
page 13
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Three Months ended March 31, 1996
Weighted Average Shares Outstanding 4,716,651
Dilutive Options (1) 161,346
---------
4,877,997
---------
Three Months ended March 31, 1995
Weighted Average Shares Outstanding 4,675,530
Dilutive Options (1) 31,661
---------
4,707,191
---------
(1) Includes dilutive options calculated using the treasury stock method.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000784199
<NAME> CRYOLIFE, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,273,142
<SECURITIES> 4,485,974
<RECEIVABLES> 6,352,965
<ALLOWANCES> 43,187
<INVENTORY> 333,884
<CURRENT-ASSETS> 19,275,685
<PP&E> 8,592,933
<DEPRECIATION> 5,069,543
<TOTAL-ASSETS> 25,098,513
<CURRENT-LIABILITIES> 3,723,505
<BONDS> 0
0
0
<COMMON> 50,059
<OTHER-SE> 21,324,949
<TOTAL-LIABILITY-AND-EQUITY> 21,375,008
<SALES> 0
<TOTAL-REVENUES> 8,433,807
<CGS> 0
<TOTAL-COSTS> 2,878,849
<OTHER-EXPENSES> 4,315,765
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,239,193
<INCOME-TAX> 456,696
<INCOME-CONTINUING> 782,497
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 782,497
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
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