SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB
[X] Annual Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended June 30, 1996
Commission File Number: 0-16375
THERMOGENESIS CORP.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3018487
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
11431 SUNRISE GOLD CIRCLE, STE. A, RANCHO CORDOVA, CA 95742
(Address of principal executive offices) (Zip
code)
Registrant's telephone number, including area code:
(916) 638-8357
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 Per Share
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__
[X] Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation SB, and no disclosures will be contained, to the
best of the Registrants knowledge, in definitive proxy or information
statements incorporated by reference in part III of the Form 10KSB.
State issuer's revenues for its most recent fiscal year. $4,124,634
The aggregate market value of the voting stock held by non-affiliates of
the registrant was $47,805,593 as of June 30, 1996.
The Registrant had 12,898,967 shares of common stock outstanding on September
23, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for the annual meeting of
shareholders to be held on January 7, 1997 are incorporated by reference
into Part III.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
SUMMARY
THERMOGENESIS CORP., formerly known as Insta Cool, Inc. Of North America,
was incorporated in Delaware on September 26, 1986 and subsequently merged
with Refrigeration Systems International, Inc., a California corporation.
In January of 1995, the company changed its name to THERMOGENESIS CORP.
(the "Company") to better reflect the thermodynamic segment of the
biotechnology industry that the Company hopes to service through
development of new products. On June 14, 1996, the Company implemented a
one-for-two stock consolidation as approved by the shareholders on May 29,
1996.
The Company designs, markets and sells products and devices which utilize
its proprietary thermodynamic technology for the processing of biological
substances (THERMOGENESIS Proprietary Technology) including the
cryopreservation, thawing, and harvesting of blood components.
Historically, the Company's primary revenues have been from sales of ultra
rapid blood plasma freezers to hospitals, blood banks and blood transfusion
centers. In the last three fiscal years, sales of blood plasma thawers to
hospitals and transfusion centers has accounted for up to 50% of the
Company's revenues. Currently, the Company is manufacturing several
categories of thermodynamic devices which are sold to the blood plasma
industry with Food and Drug Administration ("FDA") permission. The
Company's products are marketed and sold worldwide in over 32 countries to
customers such as the Red Cross agencies in most of these countries. Other
potential applications and markets for the THERMOGENESIS Proprietary
Technology include medical applications, pharmaceutical applications, and
industrial applications.
During fiscal years 1988 through 1994, the Company focused its efforts on
the development and refinement of a core line of FDA Class I products with
the intention of achieving and maintaining a high market share of several
small, but medically important, niche markets: devices for blood freezing,
blood thawing, blood collecting and blood container sealing. In January
1993, the Company began to shift its major research and development ("R&D")
efforts to developing five unique FDA Class II medical systems which also
thermodynamically process blood products, but feature the use of various
sterile plastic containers and applicators that come into direct contact
with the blood product. These plastic devices must be disposed of and
replaced after each use, thereby transforming EACH capital equipment sale
into a potentially high margin revenue stream stretching into the future.
The Company is on schedule to complete development of the first two of
these Class II systems by the end of calendar 1996 and has formed strategic
business relationships with Asahi Medical Co., Ltd., of Japan and Daido
Hoxan Corp., of Japan, to assist its marketing efforts.
The two FDA Class II products nearest market introduction are the
CryoSeal<trademark> System and BioArchive<trademark> System. The
CryoSeal<trademark> System is used for the rapid preparation of
Cryoprecipitated AHF blood product that is currently licensed by the FDA
for the treatment of clotting protein deficient patients. The Company
believes this same blood product is potentially useful for hemostasis and
tissue adhesion in surgery. The BioArchive<trademark> System is used for
the controlled rate freezing and inventory management of biological samples
requiring LN2 storage temperatures (-196*C), such as stem and progenitor
cells, sperm, cell lines and other tissues.
The Company's progress in developing and marketing these medical and other
food products applications can be summarized as follows:
MEDICAL
The Food and Drug Administration ("FDA") regulations require a manufacturer
to obtain regulatory permission before medical devices can be marketed in
the United States.
In the medical field, the Company's research and development ("R&D")
efforts were focused on FDA Class I core line products and FDA Class II
pipeline products, illustrated as follows:
TABLE I: CORE LINE PRODUCTS
Core Line PRODUCT R & D STATUS FDA CLASS FDA PERMISSION
R & D No. TO MARKET
1 Device for the Completed I 1988
ultra-rapid cryo-
preservation of
human blood
plasma
2 Portable device Completed I 1991
for the ultra-
rapid
cryopreservation
of human blood
plasma
3 Device for the Completed I 1992
rapid thawing of
frozen plasma for
hospital patient
care
4 Device for the Completed I 1995
hermetic sealing
of blood tissue
containers
5 "Smart" Blood In Field I 510(k)
Collection Trials application
Monitor filed,
1994
withdrawn, 1995
resubmitted
Oct. 1 1996
6 Vial In Field I Daido Hoxan
BioArchive<trademark> Trials Corp. and JRC
System for the responsible for
Japanese Red MHW approval
Cross (JRC)
<PAGE>
TABLE II: PIPELINE PRODUCTS
Pipe PRODUCT R & D STATUS FDA CLASS REGULATORY STATUS
LineR&D
No.
1 CRYOSEAL<trademark> SYSTEM In Final II FDA 510(k)
Stages re-filed
DEVICE Sept. 12, 1996
Thermodynamic *
processor Japan MHW
filing, (est.)
DISPOSABLES Dec. 1996
*PP-1 *
*SA-1 Canada MHW
*DA-1 filing, Dec. 1996
2 LN{2} BIOARCHIVE<trademark> In Final II Initially, only
SYSTEM Stages sold to centers
with IND
DEVICE exemptions for
Computerized LN{2} cord blood
storage dewar with banking
robotic arm *
FDA 510k filing
DISPOSABLES (est.) Jan. 1997
*HR-1
*SCP-1
*PC-1
3 CRYOFACTOR<trademark> In Progress II Not Filed
SYSTEM
DEVICE
Thermodynamic
processor
DISPOSABLES
*Bag Set
*Spray Applicator
*Line Applicator
4 MICROSEALANT<trademark> In Progress II Not Filed
SYSTEM
DEVICE
Bench top
thermodynamic
processor
DISPOSABLES
*Collection Syringe
*Filter Bag Set
*Micro Applicators
5 CRYOPLATELET<trademark> In Progress II Not Filed
SYSTEM
DEVICE
Thermodynamic
processor
DISPOSABLE
*Bag Set
<PAGE>
FOOD PRESERVATION
The Company has used resources in the past to explore the application of
the THERMOGENESIS Proprietary Technology to the frozen food industry. While
well suited to freezing food products, the Company did not have the
resources to produce the large production equipment required. Therefore,
the Company has elected, for the foreseeable future, to concentrate its
resources on biotechnical applications.
PRODUCTS
The Company's ultra rapid freezing products use heat transfer liquids,
rather than gases like air, carbon dioxide or nitrogen, to transfer heat to
and from a biological substance. From 1988 to 1992, Company devices were
designed to transfer heat by causing heat transfer liquids to directly
contact the plastic sealed biological substances. However, since those
liquids contained a chlorofluoro-carbon ("CFC") chemical, an improved heat
transfer method was developed and patented which automatically interposed a
thin flexible plastic membrane between the heat transfer liquid and the
biological substance. This flexible membrane allowed the use of silicone
and water based heat transfer liquids thereby allowing the Company to
produce CFC-free devices.
The Company's blood plasma thawers utilize water as the heat transfer
medium with the patented flexible membrane system. In tests performed by
the Company's R&D staff, the Company compared the rate and homogenous
quality of temperature rise in four bags of frozen plasma in a
THERMOGENESIS plasma thawer and a microwave oven. The Company found that
the frozen plasma in the THERMOGENESIS thawer rose to a transfusible
temperature (20{o}C) faster than the frozen plasma in the microwave and
that the plasma in the THERMOGENESIS thawer had less temperature variation
throughout its volume than the plasma thawed in the microwave oven.
The Company currently manufactures the following core line freezing and
thawing equipment:
TABLE III: CORE LINE MEDICAL DEVICES
<TABLE>
<CAPTION>
MODEL CAPACITY APPLICATION TARGET MARKET
<S> <C> <C> <C>
MP2000 168 Plasma Bags/Hr. Freeze Blood Plasma Blood Banks,
Transfusion Boards,
Red Crosses
MP1000 64 Plasma Bags/Hr.
MP750 32 Plasma Bags/Hr.
MP500 24 Plasma Bags/Hr.
MPIII 12 Plasma Bags/Day Portable Blood Blood Banks,
Plasma Freezing Transfusion Boards,
and Storage Red Crosses
MPII 6 Plasma Bags/Day
MPIIIt 24 Plasma Bags/Day
MT202 2 Plasma Bags/12 Min. Thaw Blood Plasma Blood Banks, Hospitals
MT204 4 Plasma Bags/12 Min.
MT210 10 Plasma Bags/12 Min.
</TABLE>
The freezers differ in size and capacity and have suggested retail prices which
range from $2,000 for the frozen transport containers to $65,000 for the larger
capacity plasma freezers. The price also varies within each model depending
upon configuration and accessory equipment purchased. The Company sometimes
offers discounts from its list price to meet geographic specific competitive
conditions.
The Company's plasma thawers have suggested retail prices of between $2,850 to
$10,000 and are marketed in the U.S. and Canada, predominately through inside
direct telemarketing sales staff and through distributors in most foreign
markets.
Materials used to produce the Company's products are readily available from
numerous sources. Based upon current information from the manufacturers of
materials and component parts, the Company does not anticipate any shortage of
supply. In 1992, the Company introduced a replacement heat transfer liquid and
refrigerant for freezing which is free of CFC for use in the THERMOGENESIS
proprietary process. The replacement chemicals are readily available and the
Company does not anticipate any shortages or constraints on supplies.
The initial market thrust of the Company has been, and continues to be, to
penetrate the blood processing industry. The Company has targeted the major
blood fractionation manufacturers, Red Cross facilities, hospitals and
independent blood collection facilities as its primary market. The
THERMOGENESIS freezers and thawers are marketed on the basis of speed of
operation, energy savings, precision of temperature control and the increased
yields of important blood proteins.
The Company expects limited growth in the market for blood plasma freezers and
thawers and, as a result, the continued growth of the Company is dependent upon
the development of new applications for the THERMOGENESIS Proprietary
Technology in the medical blood processing field and other markets. It is
management's belief that its freezers and thawers have an approximate service
life of between 6-10 years and the Company is beginning to experience a
replacement market for its products within the blood plasma industry. The
Company has developed advanced versions of the THERMOGENESIS freezers utilizing
non-CFC based liquids and refrigerants and patented flexible membranes.
On May 1, 1990, the Company entered into an year exclusive marketing agreement
with Liquid Carbonic, Canada. Under the terms of the agreement, Liquid Carbonic
became the Company's exclusive sales agent for all non-blood plasma commercial
freezers utilizing the THERMOGENESIS Proprietary Technology for the territory
of Canada. As of June 30, 1996, no significant sales were made under this
agreement and it was terminated.
MANUFACTURING
The Company has in-house manufacturing capabilities and is currently
manufacturing approximately 70-80% of its products for sale. The Company
believes that vendors used by the Company are capable of producing sufficient
quantities of all required components. The Company moved to a larger 11,000
square foot facility in July 1994 where it has consolidated its activities and
is in the process of upgrading its manufacturing practices to ISO 9000
standards. In December 1995, the Company moved its sales, marketing and
administrative functions into a 5,000 square foot facility thereby dedicating
the 11,000 square foot facility exclusively to manufacturing and engineering
operations.
In addition to the Company's current manufacturing facility, it also entered
into a manufacturing license agreement with On-Time Manufacturing, Inc. ("On -
Time") for the manufacture of certain components and Company products,
including new products and prototypes in development. On-Time has certain
sophisticated high technology manufacturing capability. The agreement s for an
initial term of thirty months and contemplates approximately up to $2,500,000
in manufacturing costs for products, which the Company will pay in cash or, at
the option of On-Time, through the issuance of restricted shares of the
Company's common stock at a 25% discount from market price on the date the
election is made.
Products manufactured or sold by the Company are warranted against defects in
workmanship for a period of 12 months from delivery when used for the
equipment's intended purpose, which warranties exclude consequential damages to
the extent allowed by law.
MARKETING AND DISTRIBUTION
The Company sells its medical products to blood banks and hospitals in 32
countries including the Red Cross or Blood Transfusion agencies of the United
States, Australia, Belgium, Canada, Denmark, France, Germany, Japan, Korea, the
Netherlands, Sweden, and Switzerland.
The Company has primarily targeted the blood processing industry which consists
of approximately 7,000 hospitals and blood collection centers in the United
States and approximately 20,000 hospitals and blood collection centers in the
industrial nations outside the United States. The United States accounts are
serviced either by employees of the Company or by a manufacturing
representative. International sales are serviced by regional manufacturing
representatives or distributors. In 1993, the Company instituted a
comprehensive telemarketing program to increase market coverage in the United
States and Canada, and in September, 1994, the Company began to upgrade its
customer service department with telemarketing support.
During fiscal years ended June 30, 1996 and 1995 the Company expended
approximately $1,173,000 and $827,000, respectively, on selling and marketing
activities.
During the fiscal year ended June 30, 1996, sales to the American Red Cross
regional centers, Asahi Medical Co., Ltd. - Japan, Centeon, Melville Biological
and Hemotech Sa. represented 10%, 10%, 9%, 7% and 7%, respectively of the
Company's total revenues and export sales were 41% of total revenues. The loss
of any one major customer during a particular year would have a material
adverse affect on the Company. During the fiscal year ended June 30, 1995,
sales to Daido-Hoxan Corporation of Japan (for resale to the Japanese Red
Cross), the American Red Cross regional centers, the Canadian Red Cross and
HemoTech represented 10%, 5%, 4% and 3%, respectively of the Company's total
revenues and export sales were 55% of total revenues.
The Company is currently focusing on developing a pipeline of new Class II
products which process blood by utilizing disposable sterile containers with
each and every use. This type of medical device is economically important
because it transforms a capital equipment sale into an ongoing revenue stream
that only stops when the equipment is no longer used. Typically sterile
disposable profit margins are higher than device profit margins. The Company's
initial efforts to develop these hybrid products have focused on: (1) the
CryoSeal<trademark> System for harvesting fibrinogen-rich cryoprecipitate from
a donor's blood plasma, a blood component that is currently licensed by the FDA
for the treatment of clotting protein deficient patients. The Company believes
this same blood component can be used by surgeons as an autologous hemostatic
agent and tissue sealant for their surgical patients, and (2) the LN{2}
BioArchive<trademark> System for controlled rate freezing, storage and
retrieval and inventory management of biological samples which require LN2
storage temperatures, such as placental, stem and progenitor cells. No
assurances can be made that products or markets under development will be
successful or that the Company will be able to obtain the necessary
governmental approvals, if required, for these products.
In July 1993, the Company exclusively licensed to the newly formed Blood
Division of the Stryker Corporation the marketing rights for distribution of
the Company's proprietary system for the intraoperative harvesting of
autologous fibrinogen-rich cryoprecipitate (now called the CryoSeal<trademark>
System) for use as a hemostatic agent and tissue sealant for which the Company
had applied for a patent. In fiscal 1994, the Company received a development
fee of $250,000 payable over twelve months and a royalty agreement payable on
all sales of equipment and associated disposable products. As the system was
still in the prototype stage there were no sales of the product by Stryker. In
January 1994, the Company and Stryker filed for FDA 510K permission to utilize
the fibrinogen rich cryoprecipitate harvested by the system for surgical
hemostasis and as a tissue adhesive.
The FDA has repeatedly declined to license fibrinogen sourced from "pooled"
plasma in the USA, consequently precise descriptions of efficacy for topical
surgical use are undefined. The Company believes the FDA's concern for the
spread of infectious diseases (AIDS, hepatitis, etc.) may be the cause of
withholding marketing approval for Fibrinogen sourced from pooled plasma. The
FDA also declined to approve the autologous fibrinogen-rich cryoprecipitate
sourced from the Company's system for the claims requested in the 510K
application, which were all surgical uses of Fibrinogen identified in the
literature of clinical applications for fibrin glue. The FDA did, however,
agreed to constructively review a resubmitted application for a few narrow
uses, such as Factor VIII deficiency and Fibrinogenemia. The FDA's position
would have required Stryker or the Company to present further clinical data in
order to expand the FDA-approved claims for efficacy. Stryker believed that
restriction to these few narrow uses would significantly reduce initial sales
and force Stryker to rely on marketing "off label" uses in an attempt to expand
sales in the near term. By September, 1995, faced with a reduced initial
market and no clear plan to expand the "claims" for efficacy, Stryker decided
to dissolve their Blood Division. Therefore, Stryker agreed to terminate their
license agreement with the Company, and to provide the Company all of their
prototypes and documentation for the CryoSealant<trademark> device and
disposables for a 7% royalty which declines over time. On September 12, 1996,
after an intensive year long engineering development to improve the
manufacturability and performance of the CryoSeal system, the Company filed an
amended 510K with the FDA as a system for the rapid automated preparation of
cryoprecipated AHF.
SALE OF LICENSE AND DISTRIBUTION RIGHTS
In June 1995, the Company sold the Japanese distribution rights to its LN{2}
BioArchive<trademark> System and the Vial BioArchive<trademark> System to
Daido-Hoxan, Japan. The Company received $350,000 for the distribution rights
and access to the necessary technology. The Company recognized $280,000 of
revenue and offset $10,000 in expenses in fiscal 1995 and recognized the
remaining $60,000 of revenue in fiscal 1996.
In June, 1996, the Company awarded an exclusive manufacturing license and
distribution agreement for the CryoSeal<trademark> System for the country of
Japan to Asahi Medical Co., Ltd., of Japan, a division of Asahi Chemical. Asahi
Medical is a leading supplier of artificial kidneys, blood purification systems
and leukocyte removal systems, with annual revenues of $270 million. Asahi
intends to manufacture the CP-1 disposable bag set, purchase the
CryoSeal<trademark> System thermodynamic processing device (CS-1) and SA-1 and
DA-1 surgical applicators from the Company, and market the CryoSeal<trademark>
System in Japan. The Company received a $400,000 license fee, a commitment from
Asahi to purchase the CS-1 device and related surgical applicators from the
Company and payment of a 10% royalty on the sale of the sterile bag set. The
Company has recognized $400,000 of revenue for the license fee in fiscal 1996.
FEDERAL REGULATION
The FDA regulations require that the Company obtain regulatory permission
before its medical devices can be marketed in the United States.
See "Description of Business-Medical" above for summary of regulatory status of
the Company's projects.
TABLE IV: PATENT STATUS
<TABLE>
<CAPTION>
#. PATENT DESCRIPTION USA FILING USA ISSUED JAPAN EEC
DATE DATE
<S> <C> <C> <C> <C> <C>
1 Flexible membrane heat 1992 1993 Pending Pending
transfer
2 Portable heat transfer 1991 1993 Pending Pending
and storage device
3 Blood component 1992 1993 Pending Pending
thawing device
4 Cryoprecipitating 1993 1994 Not Filed Not Filed
device
5 Device and method for 1993 1996 Pending Pending
harvesting and
producing fibrinogen-
rich cryoprecipitate
6 Sterile bag set for 1995 Pending Filed, 1996 Filed, 1996
harvesting, processing
and cryoprotecting
placental stem and
progenitor cells*
7 Computer controlled 1995 Pending Filed, 1996 Filed, 1996
device and disposable
container for the
storage and retrieval
of thermolabile
substances**
8 Apparatus, method and 1996 Pending Will be Will be
container for Filed, 1997 Filed, 1997
fibrinogen-rich
cryosealant
9 Freezing and thawing 1996 Pending Will be Will be
bag, mold, apparatus Filed, 1997 Filed, 1997
and method***
</TABLE>
*Jointly developed with The New York Blood Center, (Revenue: 20% TG,
80% NYBC)
**Jointly developed with The New York Blood Center, (Revenue: 100%
TG)
***Jointly developed with The New York Blood Center, (Revenue: 80%TG,
20% NYBC)
While patents have been issued or are pending, the Company realizes (a)
that the Company will benefit from patents issued, if and only if, it is
able to market its products in sufficient quantities of which there is no
assurance; (b) that substitutes for these patented items, if not already in
existence, may be developed; (c) that the granting of a patent is not
determinative of the validity of a patent (such validity can be attacked in
litigation or the Company or owner of the patent may be forced to institute
legal proceedings to enforce validity); and (d) that the costs of patent
litigation, if any, could be substantial and could adversely affect the
Company.
RESEARCH AND DEVELOPMENT
The Company incurred approximately $1,317,000 and $447,000 in research and
development expenses for the years ended June 30, 1996 and 1995,
respectively. Research was primarily devoted to developing Class II devices
for the thermodynamic processing of blood products. The Company
anticipates significant R&D expenses to continue as a cost of doing
business, and in order to maintain a competitive edge for new products.
COMPETITION
The Company hopes to develop a competitive advantage in the medical
applications of its thermodynamic technology, but it realizes that there
are many companies engaged in related areas. These companies often have
substantially larger operations and possess greater financial resources and
personnel with which to compete with the Company. There are approximately
13 companies with sales in excess of $50,000,000 which manufacture blast
air chillers and freezers or liquid nitrogen and carbon dioxide systems.
The Company's principal market is the users of ultra-rapid blood plasma
freezing and thawing equipment. Based upon attendance at trade shows and
discussions with customers and potential customers, management has
identified four companies which sell freezers in the industry: Revco, a
division of Rheem Manufacturing, Forma Scientific, a division of
Mallinckrodt, Inc., Harris Corporation, and the Company. The Company is
unable to ascertain its specific competitive position within the blood
plasma freezer industry and management has no knowledge of whether Harris
Corporation is a subsidiary of another Company. The Company competes
primarily based on performance of its products. Based upon conversations
with customers and potential customers and attendance at trade shows,
management believes that the Company's products are in some instances more
expensive than its competitors, ranging in price from $2,000 to $65,000 for
the Company's products compared to $2,000 to $16,000 for competing
products.
EMPLOYEES
The Company has fifty four (54) full time employees. Six (6) employees
provide administrative support, ten (10) provide sales and marketing
support, fifteen (15) employees are devoted to engineering and product
development and twenty three (23) employees are dedicated to manufacturing.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates primarily in one principal industry segment: the
design, manufacture and marketing of thermodynamic devices for the
processing of biological substances that utilize the patented and non-
patented THERMOGENESIS proprietary technology.
BACKLOG
The Company's cancelable backlog as of June 30, 1996 was not significant.
However, on August 30, 1996, the Company received a non-cancelable order
for $2,800,000 for freezers and related services. As of June 30, 1995, the
Company's cancelable backlog was approximately $180,000.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
The Company has no foreign manufacturing operations. For fiscal 1996
foreign sales were approximately $1,692,000 or 41% of total sales. For
fiscal 1995 foreign sales were approximately $1,805,000 or 55% of total
sales.
ITEM 2. DESCRIPTION OF PROPERTY
In July 1994, the Company occupied an 11,000 square foot facility located
in Rancho Cordova, California where it is in the process of upgrading its
manufacturing practices to ISO 9000 standards. In December 1995, the
Company moved its sales, marketing and administrative functions into a
5,000 square foot facility thereby dedicating the 11,000 square foot
facility to manufacturing and engineering. The Company is located in close
proximity to the suppliers of component parts of its equipment.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending or threatened legal proceedings
nor is its property subject to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting on May 29, 1996. The following is a
summary of the results of managements proposals:
AFFIRMATIVE WITHHELD AGAINST
Election of Directors:
Noel K. Atkinson 17,640,130 7,205,314
Philip H. Coelho 17,640,562 7,204,488
Sid V. Engler 17,779,506 7,075,944
Charles deB. Griffiths 17,769,906 7,165,144
Walter J. Ludt, III 17,769,706 7,576,680
Proposition 1, Approval of
Amendment to the
Stock Option Plan: 15,797,942 1,371,680 102,270
Proposition 2, Staggered Board
of Directors 8,629,359 849,686 41,070
Proposition 3, Fair Price
Provision 8,586,414 777,960 178,470
Proposition 4, Amendment
to the Certificate of
Incorporation for a one-for-two
reverse stock split 16,604,733 660,212 68,320
Based upon the above vote, the slate of directors was elected, Propositions
1 and 4 were approved and Propositions 2 and 3 failed to achieve the
necessary vote for approval.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is traded in the over-the-counter market. The
following table sets forth the range of high and low bid prices for the
Company's common stock for fiscal 1995 and 1996 reported in the Nasdaq
over-the-counter market. Such prices reflect inter-dealer quotation
without adjustment for retail markups, markdowns or commissions and may not
represent actual transactions.
High (1) Low (1)
Fiscal 1996:
First quarter $3.25 $1.88
Second quarter $2.13 $1.25
Third quarter $3.63 $1.50
Fourth quarter $5.63 $2.63
Fiscal 1995:
First quarter $3.00 $1.94
Second quarter $3.50 $2.50
Third quarter $4.06 $2.38
Fourth quarter $3.94 $3.00
(1) Restated for a 1 for 2 stock consolidation effective June 14, 1996.
The Company has not paid cash dividends on its common shares and does not
intend to pay a cash dividend in the foreseeable future. The future
ability of the Company to pay dividends is dependent on the realization of
profits. The number of shareholders of record on June 30, 1996 (NOT
INCLUDING STREET NAME) was approximately 504.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following is Management's discussion and analysis of certain
significant factors which have affected the Company's financial condition
and results of operations during the periods included in the accompanying
financial statements.
RESULTS OF OPERATIONS
SALES AND REVENUES:
Net sales increased for fiscal 1996 by 25%. This sales increase was
primarily due to increased sales of human blood plasma freezers and
$400,000 for license fees.
COST OF SALES:
The decrease in cost of sales as a percent of sales from 63% in fiscal 1995
to 47% before license fees in fiscal 1996 is primarily attributable to
increased production efficiencies as the Company increased inventory levels
from approximately $1,014,000 in 1995 to $2,137,000 in 1996 and a 36%
increase in freezer sales which have a higher gross margin than other
Company products.
The Company has sometimes used discount programs to induce customers to
purchase the Company's freezers over competing freezers. The Company plans
to continue these programs only as long as market conditions dictate such
programs are necessary. The Company is not aware of any specific industry-
wide practices utilizing discount programs.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses increased in fiscal 1996 by 28% from
fiscal 1995. While general and administrative expenses increased in total
dollars, they remained fairly constant at approximately 10% of revenues.
This increase was due to increased salaries from temporary personnel.
SELLING AND MARKETING EXPENSES:
Selling and marketing expenses increased in fiscal 1996 by 42% from fiscal
1995. This increase was due to increased salaries from added personnel as
sales volume increased.
RESEARCH AND DEVELOPMENT EXPENSES:
Research and development expenses increased in fiscal 1996 by 195% from
fiscal 1995. The increase was due to increases in development efforts for
the CryoSeal<trademark> System, which harvests fibrinogen-rich
cryoprecipitate from a donor's blood plasma, a blood component that is
currently licensed by the FDA for the treatment of clotting protein
deficient patients. FDA permission to market has been received for the DA-
1 drop applicator and SA-1 spray applicator. Additionally, significant
resources were dedicated to two BioArchive<trademark> Systems: (1) LN{2}
BioArchive<trademark> System for the storage and preservation of biological
samples, such as placental stem and progenitor cells, sperm cells and cell
lines which require -196*C storage temperatures and (2) Vial
BioArchive<trademark> System for the storage and preservation of 6 ml.
vials of blood samples for the Japanese Red Cross. Field trials for the
Vial BioArchive<trademark> System are expected to begin in Japan in October
1996 and filed trials for the LN{2} BioArchive<trademark> System are
expected to begin in October 1996 at The New York Blood Center where 25 ml.
Stem Cell donations sourced from placental blood will be stored in LN{2}.
In conjunction with the development of the LN{2} BioArchive<trademark>
System as an optimum storage system for placental stem and progenitor
cells, the Company has also developed disposable containers for use in the
system.
This increased activity created increased compensation expense, increased
consulting expense, increased depreciation expense for state of the art
computer equipment and increased purchases of supplies.
Currently the Company's primary R&D efforts are focused on ongoing product
development, refinement, and preparation of FDA applications for the
pipeline products shown in Table II on Page 4.
Management believes that product development and refinement is essential to
maintaining the Company's market position. Therefore, the Company considers
these costs as a continuing cost of doing business. No assurances can be
given that the products or markets under development will be successful.
ISSUANCE OF STOCK OPTIONS FOR SERVICES:
The Company has recorded $60,000 of consulting expense for the issuance of
stock options issued to Biovest at the market value on the date of grant
for financial consulting services. While the $60,000 is a non-monetary
transaction, the Company recorded the estimated fair value under generally
accepted accounting principles. Biovest assists the Company in financial
public relations and potential equity investments.
LIQUIDITY AND CAPITAL RESOURCES
The Company consumed significant cash resources for operating activities
since its formation in 1987 primarily in developing products and markets.
During fiscal 1994, the Company realized the benefits of its product and
market developments. Freezer sales increased by 36% and plasma thawing
equipment sales increased by 62% as the Company achieved profitable
operations. During fiscal 1995 and 1996, the Company's sales continued to
expand, growing by 24% and 25%, respectively. The Company began development
of new generation products (see Research and Development expenses) and
consumed more resources, which resulted in losses for fiscal 1995 and 1996.
However, the Company continues to search for further funding and new
products that may provide future growth opportunities and is currently
evaluating financing options to provide working capital to fund expected
growth in fiscal 1997. The Company has no significant outstanding capital
commitments at June 30, 1996.
The Company does not require extensive capital equipment to produce or sell
its current product. However, when significant capital equipment is
required, the Company purchases from a vendor base or is pursuing strategic
partners. Production of the Company's product is more labor intensive, and
therefore, manufacturing capital expenditures have not been material during
fiscal years 1995 and 1996. However, in expanding the Company's R&D
efforts, the Company expended approximately $450,000 on state of the art
design computer systems for its expanded engineering staff.
The Company is currently contemplating additional equity financing to fund
research and development of five pipeline, class II products: (1)
CryoSeal<trademark> System, (2) LN{2} and Vial BioArchive<trademark>
Systems, (3) CryoFactor<trademark> System, (4) MicroSeal<trademark> System
and (5) CryoPlatelet<trademark> System. There can be no assurances that
adequate financing will be available on satisfactory terms, if at all.
On July 30, 1996, the Company entered into an agreement to issue up to
$2,500,000 of common stock at market value less a 25% discount on the date
invoices are converted to stock for manufacturing services provided by a
vendor. While the Company can use this resource, it is not obligated to do
so unless the product is required by the Company, its price is competitive
and can be produced by the vendor in compliance with all required
standards.
Working capital increased from $1,413,156 at June 30, 1995 to $3,620,939 at
June 30, 1996 primarily due to equity investment and financing of fixed
asset purchases. At its current operating level, management believes it has
sufficient working capital to operate for the next twelve months.
Management does not believe that inflation has had a significant impact on
the Company's results of operations.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
Page
Report of Independent Auditors 17
Balance Sheet at June 30, 1996 18
Statements of Operations for the
years ended June 30, 1996 and 1995 20
Statements of Shareholders' Equity
for the years ended June 30, 1996 and 1995 21
Statements of Cash Flows for the
years ended June 30, 1996 and 1995 22
Notes to Financial Statements 23
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
THERMOGENESIS Corporation
We have audited the accompanying balance sheet of THERMOGENESIS
CORP. as of June 30, 1996, and the related statements of
operations, shareholders' equity, and cash flows for the years
ended June 30, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
THERMOGENESIS CORP. at June 30, 1996 and the results of its
operations and its cash flows for the years ended June 30, 1996 and
1995, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Sacramento, California
September 17, 1996
<PAGE>
THERMOGENESIS CORP.
Balance Sheet
June 30, 1996
ASSETS
Current assets:
Cash and cash equivalents $1,243,079
Accounts receivable, net of allowance
for doubtful of $97,913 1,441,148
Inventory 2,137,198
Net investment in sales-type leases 31,882
Prepaid expenses 44,177
Total current assets 4,897,484
Equipment, at cost less accumulated
depreciation of $312,307 689,562
Long-term net investment in sales-type leases 50,716
Prepaid royalties, net of accumulated
amortization of $332,733 221,767
Leased equipment, net of accumulated
depreciation of $101,337 20,228
Other assets 57,383
$5,937,140
See accompanying notes.
<PAGE>
THERMOGENESIS CORP.
Balance Sheet (Cont'd)
June 30, 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $931,944
Current portion of long-term capital lease obligations 124,050
Accrued payroll and related expenses 184,660
Customer deposits 35,891
Total current liabilities 1,276,545
Deferred rent 3,365
Long-term capital lease obligations 282,919
Commitments
Shareholders' equity:
Common stock, $.001 par value;
25,000,000 shares authorized:
12,708,967 issued and outstanding 12,709
Paid in capital in excess of par 10,744,530
Accumulated deficit (6,382,928)
Total shareholders' equity 4,374,311
$5,937,140
See accompanying notes.
<PAGE>
THERMOGENESIS CORP
Statements of Operations
Years Ended June 30, 1996 and 1995
1996 1995
Net sales $4,124,634 $3,311,880
Cost of sales 1,759,659 2,096,116
Gross profit 2,364,975 1,215,764
Development and distribution fees 60,000 280,000
Expenses:
General and administrative 426,318 334,028
Selling and marketing 1,173,254 827,269
Research and development 1,317,330 446,780
Issuance of stock options for services 60,000 -
Interest 41,454 -
Total expenses 3,018,356 1,608,077
Interest income 24,847 11,498
Other income - 12,519
Net loss ($568,534) ($88,296)
Net loss per share ($0.05) ($0.01)
Shares used in computing
net loss per share 11,491,000 10,170,000
See accompanying notes.
<PAGE>
THERMOGENESIS CORP
Statement of Cash Flows
Years Ended June 30, 1996 and 1995
Increase (Decrease) in Cash and Cash Equivalents
1996 1995
Cash flows from operating activities:
Net loss ($568,534) ($88,296)
Adjustments to reconcile net loss to
net cash provided (used) by operating activities:
Depreciation and amortization 190,356 162,811
Issuance of stock options for services 60,000 -
Net changes in operating assets and liabilities:
Accounts receivable (790,908) 198,912
Allowance for doubtful accounts 25,000 14,458
Investment in sales type leases 39,593 (37,496)
Inventory (1,122,889) (460,222)
Prepaid expenses (34,466) 34,235
Other assets (39,096) -
Accounts payable and
accrued liabilities 419,013 199,514
Accrued payroll and related
expenses 129,314 (7,320)
Customer deposits 16,368 (34,156)
Deferred revenue (60,000) 60,000
Deferred rent (11,091) 14,456
Total adjustments (1,178,806) 145,192
Net cash provided(used)by operating activities (1,747,340) 56,896
Cash flows from investing activities:
Capital expenditures (152,547) (139,742)
Sale of investment - 45,000
Investment in leased equipment - (2,200)
Net cash usedin investing activities (152,547) (96,942)
Cash flows from financing activities:
Principal payments on long-term lease obligations (65,261) -
Issuance of common stock 2,882,262 18,242
Net cash provided by financing activities 2,817,001 18,242
Net increase(decrease) in cash and cash equivalents 917,114 (21,804)
Cash and cash equivalents at beginning of period 325,965 347,769
Cash and cash equivalents at end of period $1,243,079 $325,965
See accompanying notes.
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
THERMOGENESIS CORP (the Company) was incorporated in Delaware on
September 26, 1986. The Company designs and sells devices which
utilize its proprietary thermodynamic technology for the
processing of biological substances including the
cryopreservation, thawing and harvesting of blood components
(THERMOGENESIS Proprietary Technology). Currently, the Company
is manufacturing six core line, FDA Class I thermodynamic
devices which are being sold to the blood collection industry
with FDA permission. Other potential applications for the
technology include medical and pharmaceutical uses, and
industrial applications. During fiscal 1988 through 1996, the
Company has focused on refining product design of the core line
products and developing a pipeline of five FDA Class II devices
which utilize sterile disposable containers for processing of
the blood components.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
INVENTORY
Inventory is stated at the lower of cost (first-in first-out basis) or
market and consists of the following at June 30, 1996:
Raw materials $1,273,889
Work in process 1,490
Finished goods 861,819
Total $2,137,198
<PAGE>
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS (Cont'd)
June 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
EQUIPMENT
Depreciation is computed under the straight-line method over the useful
lives of 3 to 10 years.
In 1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." SFAS 121 requires recognition of impairment of long-lived assets in
the event the net book value of such assets exceeds the future undiscounted
cash flows attributable to such assets. SFAS 121 is effective for fiscal
years beginning after December 15, 1995. Adoption of SFAS is not expected
to have a material impact on the Company's financial position or results of
operations.
PREPAID ROYALTIES
Prepaid royalties are amortized on a straight line basis over an estimated
useful life of 10 years.
NET INVESTMENT IN SALES-TYPE LEASE
The net investment in sales-type leases consists of the following at June
30, 1996:
Total minimum lease payments receivable $91,888
Less unearned interest (9,290)
Net investment in sales type leases $82,598
<PAGE>
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS (Cont'd)
June 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
INCOME TAXES
The liability method is used for accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse. The Company
uses the flow-through method to account for income tax credits.
NET LOSS PER SHARE
Net loss per share is computed by dividing the net loss by the weighted
average number of common shares outstanding.
SUPPLEMENTAL CASH FLOW INFORMATION
Year ended Year ended
June 30, 1996 June 30, 1995
Cash paid for state income taxes $ - $1,600
Cash paid for interest $41,454 $ -
The Company incurred approximately $472,000 in capital lease obligations
for the purchase of equipment during the year ended June 30, 1996.
<PAGE>
THERMOGENESIS CORP
NOTES TO FINANCIAL STATEMENTS (Cont'd)
June 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
REVENUE RECOGNITION
Revenues from the sale of the Company's products are recognized at the time
of shipment.
CREDIT RISK
The Company manufactures and sells thermodynamic devices principally to the
blood component processing industry and performs ongoing evaluations of the
credit worthiness of its customers. The Company believes that adequate
provisions for uncollectible accounts have been made in the accompanying
financial statements.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with the
intrinsic value method prescribed by APB 25, "Accounting for Stock Issued
to Employees" ("APB 25"). Under the intrinsic value-based method,
compensation cost is the excess, if any, of the quoted market price or
fair value of the stock at the grant date or other measurement date over
the amount an employee must pay to acquire the stock.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards 123, Accounting for Stock-Based
Compensation" ("SFAS 123"), which is effective for the Company in fiscal
1997. SFAS 123 allows companies the option of estimating and recognizing
compensation cost under the provisions of APB 25, or alternatively, by
estimating and recognizing stock-based compensation using a "fair value"
based methodology. Under the fair value based method, compensation cost
is estimated at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
The Company anticipates that it will continue the use of the intrinsic
value method for accounting for stock-based compensation, and accordingly,
the adoption of SFAS 123 is expected to have a significant effect on the
Company's financial condition or results of operations.
2. SHAREHOLDERS' EQUITY
On May 29, 1996, the Company's Board of Directors approved to amend the
Certificate of Incorporation to decrease the number of authorized shares
of common stock from 50,000,000 shares to 25,000,000 and to effect a one-
for -two reverse stock split which was effective on June 14, 1996 to
holders of record on June 14, 1996. All share and per share data have
been restated for all periods presented to reflect the reverse stock
split.
<PAGE>
THERMOGENESIS CORP
NOTES TO FINANCIAL STATEMENTS (Cont'd)
June 30, 1996
2. SHAREHOLDERS' EQUITY (CONT'D)
COMMON STOCK
The Company completed a private placement of 2,200,000 common shares on
December 9, 1995 and received $1,890,212 net of expenses. The placement
consisted of 88 units. Each unit consisted of 25,000 common shares and
6,250 warrants to purchase common shares at $3.00 per share for six months.
The Company filed a registration statement covering the shares issued
within 90 days of completion of the offering as required by the terms of
the financing.
WARRANTS
In conjunction with the above placement, warrants to purchase 550,000
common shares of the company at $3.00 per share were issued. At June 30,
1996, 326,250 warrants were exercised, 180,000 were exercised before the
expiration date of July 31, 1996 and the remaining 43,750 warrants expired.
In conjunction with the placement of Series C Preferred stock in 1993, the
placement agent, Paradise Valley Securities, received warrants to purchase
42,500 shares of the Company's common stock at $1.20 per share. The
warrants expire in February 1998.
STOCK OPTIONS
The Company has issued options to purchase shares of common stock pursuant
to its Amended 1994 Stock Option Plan. These options are granted at prices
which are equal to 100% of the fair market value on the date of grant, and
expire over a term not to exceed ten years. Options generally vest rateable
over a five year period. A summary of activity of the Plan follows:
Number of
Available Shares
for Grant Outstanding Price Per Share
Balance at June 30, 1994 255,000 945,000 $1.06-$2.70
Options cancel 67,500 (67,500) $2.70
Options exercised - (10,000) $1.06
Balance at June 30, 1995 322,500 867,500 $1.06-$2.70
Options granted (606,000) 606,000 $1.64-$3.88
Options canceled 304,167 (304,167) $1.06-$2.32
Options exercised - (5,000) $1.06
Balance at June 30, 1996 20,667 1,164,333 $1.64-$3.88
Options for 1,048,667 shares are exercisable at June 30, 1996.
<PAGE>
THERMOGENESIS CORP
NOTES TO FINANCIAL STATEMENTS (Cont'd)
June 30, 1996
2. SHAREHOLDERS' EQUITY (CONT'D)
STOCK OPTIONS (CONT'D)
On May 29, 1996, the Company issued options to purchase 100,000 common
shares of the Company for consulting services. The exercise price is equal
to the market value of $4.25 per share on the date of grant. Accordingly,
the Company has recorded consulting expense recognizing the estimated fair
value of the options of $60,000.
3. COMMITMENTS
PURCHASE AND ROYALTY COMMITMENTS
In July 1990 the Company acquired the THERMOGENESIS Proprietary Technology
including but not limited to all patents, drawings, know-how, trademarks
and trade names and prepaid all future royalties for a total consideration
which was recorded at $554,500. This amount represents the present value of
the future royalty payment obligation. The consideration was comprised of
$50,000 cash, a 10% four year convertible note for $200,000 and 900,000
shares of the Company's common stock. The transaction has been accounted
for as a prepayment of future royalties and is being amortized on a
straight line basis over an estimated useful life of 10 years.
OPERATING LEASES
The Company leases its manufacturing and research and development
facilities, and its corporate, and sales and marketing facilities, pursuant
to operating leases. The annual obligations under these leases are as
follows:
1997 $101,976
1998 80,106
1999 52,860
2000 22,025
$256,967
<PAGE>
THERMOGENESIS CORP
NOTES TO FINANCIAL STATEMENTS (Cont'd)
June 30, 1996
PURCHASE AND ROYALTY COMMITMENTS (CONT'D)
OPERATING LEASES (CONT'D)
Rent expense was $78,587 in 1996 and $53,560 in 1995.
CAPITAL LEASES
The Company leases certain equipment under capital leases. As of June
30, 1996, the following amounts are included in equipment as assets under
these capital leases:
Cost $ 472,230
Less: accumulated amortization 48,555
Net assets under capital leases $423,675
The future minimum lease payments under these capital leases along with
the present value of the minimum lease payments as of June 30, 1996 are as
follows:
1997 $183,912
1998 183,912
1999 110,236
2000 27,559
2001 24,314
Total minimum lease payments 529,933
Less amount representing interest 122,964
Present value of minimum lease payments 406,969
Less: current portion of long-term capital
leaseobligations 124,050
Long-term capital lease obligations $282,919
<PAGE>
THERMOGENESIS CORP
NOTES TO FINANCIAL STATEMENTS (Cont'd)
June 30, 1996
4. RELATED PARTY TRANSACTIONS
Transactions and balances with related party shareholders or companies
owned in whole or in part by related party shareholders are as follows at
June 30 and for the years then ended:
1996 1995
Marketing expense, salaries $99,536 $123,277
5. MAJOR CUSTOMERS AND FOREIGN SALES
During the fiscal year ended June 30, 1996, sales to the American Red Cross
regional centers, Asahi Medical Co. Ltd. Japan, Centeon, Melville
Biological and Hemotech Sa. represented 10%, 10%, 9%, 7%, and 7%,
respectively of the Company's total revenues and export sales were 41% of
total revenues. During fiscal 1995, sales to four major customers accounted
for 10%, 5%, 4% and 3%, respectively and foreign sales were 55% of total
revenues.
<PAGE>
THERMOGENESIS CORP
NOTES TO FINANCIAL STATEMENTS (Cont'd)
June 30, 1996
6. DEVELOPMENT AND DISTRIBUTION FEES
In July 1993, the Company exclusively licensed to the newly formed blood
division of the Stryker Corporation the rights to market and distribute the
Company's proprietary system for the intraoperative harvesting of
autologous fibrinogen-rich cryoprecipitate (now called the
CryoSeal<trademark> System) for use as a hemostatic agent and tissue
sealant for which the Company had applied for a patent. In fiscal 1994, the
Company received a development fee of $250,000 payable over twelve months
and a royalty agreement payable on all sales of equipment and associated
disposable products. As the system was still in the prototype stage there
were no sales of the product by Stryker.
In January 1994, the Company and Stryker filed for FDA 510K permission to
utilize the fibrinogen rich cryoprecipitate harvested by the system for
surgical hemostasis and as a tissue adhesive. Subsequently, the FDA
declined to approve the autologous fibrinogen-rich cryoprecipitate sourced
from the system for the claims requested in the 510K application.
By September, 1995, Stryker decided to dissolve their Blood Division and
agreed to terminate their license agreement with the Company and to provide
the Company all of their prototypes and documentation for the
CryoSealant<trademark> device and disposables for a 7% royalty which
declines over time. No royalties have been paid to date under the new
agreement.
On September 12, 1996, after an intensive year long engineering development
to improve the manufacturability and performance of the CryoSeal system,
the Company filed an amended 510K with the FDA as a system for the rapid
automated preparation of cryoprecipated AHF.
SALE OF DISTRIBUTION RIGHTS FOR BIOARCHIVE FREEZER SYSTEM
In June 1995, the Company sold the Japanese distribution rights to LN2
BioArchive<trademark> System and the Vial BioArchive<trademark> System to
Daido-Hoxan, Japan for $350,000. Of the $350,000, $280,000 was received at
the time of signing the agreement and is non-refundable, and $70,000 was
due when the Company delivered a prototype of the Vial
BioArchive<trademark> System. The Company has recognized $280,000 of
revenue and offset $10,000 in expenses in fiscal 1995 and recognized
$60,000 of revenue in fiscal 1996.
<PAGE>
THERMOGENESIS CORP
NOTES TO FINANCIAL STATEMENTS (Cont'd)
June 30, 1996
7. SALE OF LICENSE RIGHTS FOR CRYOSEALANT SYSTEM
In June 1996, the Company entered into an exclusive manufacturing and
distribution agreement for the territory of Japan for the
CryoSealant<trademark> System with Asahi Medical Co., Ltd., of Japan, a
division of Asahi Chemical. Asahi Medical is a leading supplier of
artificial kidneys, blood purification systems and leukocyte removal
systems. Under the terms of the agreement, Asahi will manufacture the CP-1
disposable processing container, purchase the CS-1 device and SA-1 and DA-1
surgical applicators from the Company, and market the
CryoSealant<trademark> system in Japan. The Company received a $400,000
license fee, a commitment from Asahi to purchase the CryoSealant<trademark>
system and related fibrin applicators from the Company and a 10% royalty on
the sale of the CP-1 container. The Company has recognized $400,000 of
revenue for the license fee in fiscal 1996.
8. INCOME TAXES
The reconciliation of federal income tax attributable to operations
computed at the federal statutory tax rates (34%) to income tax expense is
as follows:
JUNE 30, 1996 JUNE 30, 1995
Statutory federal income benefit $ (197,000) $(30,000)
Net operating loss with no tax benefit 197,000 30,000
Total federal income tax $ - $ -
At June 30, 1996, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $5,882,000 and
$2,519,000 respectively, that are available to offset future income. The
loss carryforwards expire between the years 1998 and 2011 for federal and
state income tax purposes.
At June 30, 1996, the Company has research and experimentation credit
carryforwards of approximately $63,000 for federal tax purposes that expire
between the years of 2002 and 2008 and $39,000 for state income tax
purposes that do not have an expiration date.
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes as of June 30, 1996 and June 30, 1995
are as follows:
JUNE 30, 1996 JUNE 30, 1995
Deferred tax assets:
Net operating loss carryforwards $2,154,000 $1,963,000
Research credits 102,000 75,000
Other 137,000 87,000
Total deferred taxes 2,393,000 2,125,000
Valuation allowance for deferred tax assets (2,393,000) (2,125,000)
Net deferred taxes $ - $ -
<PAGE>
THERMOGENESIS CORP
NOTES TO FINANCIAL STATEMENTS (Cont'd)
June 30, 1996
8. INCOME TAXES (CONT'D)
Because of the "change of ownership" provisions of the Tax Reform Act of
1988, a portion of the Company's federal net operating loss and credit
carryovers may be subject to an annual limitation regarding their
utilization against taxable income in future periods. The Company expects
that this limitation should not have a material adverse effect on the
Company's ability to utilize the net operating loss and credit carryovers
prior to the expiration of the carryover periods.
9. SUBSEQUENT EVENTS
On July 30, 1996, the Company entered into an agreement with On-Time
Corporation, Inc. a current vendor, to produce up to $2,500,000 of product
for the Company. Under the terms of the agreement, On-Time can elect to
receive payment in restricted common stock of the Company at a 25% discount
from the market price on the date the election to receive stock is made. If
under the terms of the agreement On-Time elects to receive stock, the
Company will, in accordance with generally accepted accounting principles,
record the 25% discount from market price as additional costs for
inventory. On July 30, 1996, On-Time elected to convert $225,000 of
existing payables from the Company to common stock. The Company is not
obligated to purchase product that is not required or at a price that is
not competitive and built to all required standards.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change of accountants or disagreements as to any
accounting and/or financial disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information called for in Item 9 is incorporated by reference from the
definitive proxy material of the Company to be filed in connection with its
January 7, 1997, annual Meeting of Shareholders.
ITEM 10. EXECUTIVE COMPENSATION
The information called for in Item 10 is incorporated by reference from the
definitive proxy material of the Company to be filed in connection with its
January 7, 1997, Annual Meeting of Shareholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for in Item 11 is incorporated by reference from the
definitive proxy material of the Company to be filed in connection with its
January 7, 1997, Annual Meeting of Shareholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
The information called for in Item 12 is incorporated by reference from the
definitive proxy material of the Company to be filed in connection with its
January 7, 1997, Annual Meeting of Shareholders.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits listed on the accompanying index to exhibits are filed as
part of this Form10-KSB. See page 43.
(b) Reports on Form 8-K
Form 8-K filed on May 29, 1996; Agreement Between Asahi Medical and
THERMOGENESIS CORP
<PAGE>
THERMOGENESIS CORP
Index to Exhibits
Exhibit Description
- ------- -------------------------------- ----
3.1 (a) Amended and Restated Certificate of Incorporation ... (5)
(b) Bylaws ... (5)
10 (a) Letter of Agreement between Liquid Carbonic, Inc.
Canada and THERMOGENESIS CORP. ... (2)
(b) Letter of Agreement between Fujitetsumo USA and
THERMOGENESIS CORP. ... (2)
(c) Letter of Agreement between Fujitetsumo Japan and
THERMOGENESIS CORP. ... (2)
(d) License Agreement between Stryker Corp. and
THERMOGENESIS CORP. ... (7)
(e) Lease of Office and Mfg. Space ... (5)
(f) Executive Development Agreement and Distribution
Agreement between THERMOGENESIS CORP. and
Daido-Hoxan, Inc. ... (4)
(g) Administrative Office lease ... (8)
(h) Employment Agreement for Philip H. Coelho *
(i) Employment Agreement for Charles Griffiths *
(j) Employment Agreement for Walter J. Ludt, III *
23.1 Consent of Ernst & Young, LLP +
27.1 Financial Data Schedule *
footnotes to index
(2) Incorporated by reference to Registration Stmt. No. 33-37242 of
THERMOGENESIS CORP. filed on Feb. 7, 1991.
(3) Incorporated by reference to Form 8-K for July 19, 1993.
(4) Incorporated by reference to Form 8-K for June 9, 1995.
(5) Incorporated by reference to Form 10-KSB for the year ended June 30, 1994.
(6) Incorporated by reference to Form 10-KSB for the year ended June 30, 1995.
(7) Incorporated by reference to Form 8-K for September 27, 1995.
(8) Incorporated by reference to Form 10-QSB for the quarter ended 12-31-95.
* Filed herewith.
+ Contained as part of this report.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-08661) pertaining to the THERMOGENESIS CORP. Amended 1994
Stock Option Plan and in the Registration Statements (Form S-3 No. 333-1479
and No. 33-63676) of THERMOGENESIS CORP. and in the related prospectus of
our report dated September 17, 1996, with respect to the financial statements
of THERMOGENESIS CORP. included in this Annual Report (Form 10-KSB) for the
year ended June 30, 1996.
ERNST & YOUNG LLP
Sacramento, California
September 26, 1996
<PAGE>
THERMOGENESIS CORP.
Signatures
In accordance with section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THERMOGENESIS CORP.
s/ Philip H. Coelho
By: Philip H. Coelho, President
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: s/ Philip H. Coelho Dated Sept. 20, 1996
Philip H. Coelho, Chief Executive
Officer and Chairman of the Board
(Principal Executive Officer)
By: s/ Walter J. Ludt, III Dated Sept. 20, 1996
Walter J. Ludt, III
(Principal Financial and Principal
Accounting Officer, and Director)
By: s/ Noel Atkinson Dated Sept. 20, 1996
Noel Atkinson, Director
By: s/ Charles Griffights Dated Sept. 20, 1996
Charles Griffiths, Director
By: s/ S.V. Engler Dated Sept. 20, 1996
S.V. Engler, Director
THERMOGENESIS CORP.
EMPLOYMENT AGREEMENT
FOR
PHILIP H. COELHO
THERMOGENESIS CORP. ("Employer"), and , Philip H. Coelho ("Employee"),
agree as follows:
1. EMPLOYMENT. Employer employs Employee and Employee accepts employment
with Employer on the terms and conditions set forth in this Employment
Agreement ("Agreement").
2. POSITION; SCOPE OF EMPLOYMENT. Employee shall have the position of
Chief Executive Officer and President for Employer, and shall have the
duties and authority set forth below, and as detailed on the position
description attached as EXHIBIT "A", which duties and authority may be
modified from time to time by Employer.
2.1. ENTIRE TIME AND EFFORT. Employee shall devote Employee's full
working time, attention, abilities, skill, labor and efforts to the
performance of his employment. Employee shall not, directly or indirectly,
alone or as a member of a partnership or other organizational entity, or as
an officer of any corporation (other than any which are owned by or
affiliated with Employer) (i) be substantially engaged in or concerned with
any other commercial duties or pursuits, (ii) engage in any other business
activity that will interfere with the performance of Employee's duties
under this Agreement, except with the prior written consent of Employer, or
(iii) join the board of directors of any other corporation; PROVIDED,
however, that Employee may join the board of directors of no more than two
unaffiliated corporations so long as such corporations are not competitive
to the current or future operations of Employer and those corporations
offer some synergistic prospects or other support for the Employer's goals.
Notwithstanding the foregoing, Employer hereby consents to Employee being a
member of the board of directors of Patient Education Media, Inc.
2.2. RULES AND REGULATIONS. Employee agrees to observe and comply
with Employer's rules and regulations as provided by Employer and as may be
amended from time to time by Employer and will carry out and perform
faithfully such orders, directions and policies of Employer. To the extent
any provision of this Agreement is contrary to an Employer rule or
regulation, as such may be amended from time to time, the terms of this
Agreement shall control.
2.3. LIMITATIONS UPON AUTHORITY TO BIND EMPLOYER. Employee shall not
engage in any of the following actions on behalf of Employer without the
prior approval of Employer: (i) borrow or obtain credit in any amount or
execute any guaranty, except for items purchased from vendors in the
ordinary course of Employer's operations; (ii) expend funds for capital
equipment in excess of expenditures expressly budgeted by Employer, if
applicable, or in the event not budgeted, not to exceed the amounts set
forth in subparagraph (iii); (iii) sell or transfer capital assets
exceeding One Hundred Thousand Dollars ($100,000) in market value in any
single transaction or exceeding Two Hundred and Fifty Thousand Dollars
($250,000) in the aggregate during any one fiscal year; (iv) execute any
lease for real or personal property; or (v) exercise any authority or
control over the management of any employee welfare or pension benefit plan
maintained by Employer or over the disposition of the assets of any such
plan.
3. TERM. The term of this Agreement shall be for a period of three (3)
years begin which shall commence on July 1, 1996 and end on July 1, 1999;
unless terminated earlier as provided below in section 5.
4. COMPENSATION. Employer shall pay to or provide compensation to
Employee as set forth in this section 4. All compensation of every
description shall be subject to the customary withholding tax and other
employment taxes as required with respect to compensation paid to an
employee.
4.1. BASE SALARY. Employer shall pay Employee a base salary of one
hundred and sixty thousand Dollars ($160,000) per year commencing on July
1, 1996 ("Base Salary"). Employee's Base Salary shall be payable in
accordance with Employer's regular pay schedule, but not less frequently
than twice per month. In addition to the Base Salary provided herein, the
Employee shall also be paid a car allowance of $800 per month commencing on
July 1, 1996, and continuing during the term of this agreement.
4.2. ANNUAL REVIEW. On the date of the Employer's annual meeting of
shareholders, or within thirty (30) days thereafter, and on each subsequent
annual meeting of shareholders during the term of this Agreement, Employer
shall review the previous year's performance of Employee for the purpose of
making reasonable increases to Employee's Base Salary; PROVIDED that
Employer shall not be required to increase Employee's Base Salary, but may
do so at its discretion.
4.3. CASH BONUSES. In addition to the Base Salary provided for in
sections 4.1 and 4.2, Employee is eligible to receive bonuses based on
Employer performance and Employee's attainment of objectives periodically
established by Employer. Annual bonuses to be provided to Employee shall
not exceed thirty percent (30%) of Employee's Base Salary then in effect.
4.4. STOCK OPTION GRANTS. In addition to Base Salary provided for in
sections 4.1 and 4.2, Employee is eligible to receive, in addition to any
cash bonus provided for in section 4.3, an award of stock options as may be
determined from time to time by Employer's Compensation Committee which
consists of disinterested directors who administer Employer's Amended 1994
Stock Option Plan.
4.5. PROFIT SHARING. In addition to the Base Salary provided for in
sections 4.1 and 4.2, cash bonuses provided in section 4.3 and stock option
awards provided in section 4.4, Employer shall pay to Employee as incentive
compensation for each fiscal year of Employer, promptly after the
determination thereof, a sum equal to one-half of one percent (0.5%) of
Employer's net profits ("Net Profits"); provided, however, that such
incentive compensation shall not exceed ten percent (10%) of Employee's
Base Salary then in effect. Net Profits, as shown in Employer's year-end
statement of income, shall be determined solely by Employer. Net Profits
shall not include income or expense resulting from Employer loans to, or
investments in, other corporations or business entities, and without regard
to nonrecurring items of income or expense (including gain or loss on
disposition of capital assets or other assets used in Employer's business)
appearing separately on Employer's financial statements and before
deduction of any federal taxes on, or measured by, income. The share of
Net Profits payable to Employee under this section 4.4 shall be prorated
for any partial year that occurs during the employment term. Employee's
share of Net Profits shall be prorated by multiplying the total Net Profits
for the fiscal year within which such partial year occurs by (a) the
decimal equivalent of Employee's percentage share of Net Profits (as shown
above), and by (b) the fraction equal to the number of months during any
such partial year in which Employee is employed by Employer within the
meaning of this Agreement divided by twelve months.
4.6. VACATION AND SICK LEAVE. Employee shall be entitled to accrue up
to four (4) weeks vacation annually; provided, however, that vacation time
may not accrue beyond two weeks of accrued and unused time. Vacation pay
shall not accrue beyond two (2) weeks at any given time. Employee shall be
entitled to sick leave in accordance with Employer's sick leave policy, as
amended from time to time. At the end of each anniversary of this
Agreement, subject to the limit on two weeks accrued and unused vacation,
all such unused and accrued vacation time shall be paid in cash.
4.7. OTHER FRINGE BENEFITS. Employee shall participate in all of
Employer's fringe benefit programs in substantially the same manner and to
substantially the same extent as other similar employees of Employer,
excluding only those benefits expressly modified by the terms hereof.
4.8. EXPENSES. Employee shall be reimbursed for his reasonable
business expenses; subject to the presentation of evidence of such expenses
in accordance with established policies adopted by Employer from time to
time.
4.9. COMPENSATION FROM OTHER SOURCES. Any proceeds that Employee
shall receive by virtue of qualifying for disability insurance, disability
benefits, or health or accident insurance shall belong to Employee.
Employee shall not be paid Base Salary in any period in which he receives
benefits as determined and paid under Employer's long-term disability
policy. Benefits paid to Employee under Employer's short-term disability
policy shall reduce, by the same amount, Base Salary payable to Employee
for such period.
5. EARLY TERMINATION. Employee's employment with Employer may be
terminated prior to the expiration of the term of this Agreement, upon any
of the following events: (i) the mutual agreement of Employer and Employee
in writing; (ii) the disability of Employee, which shall, for the purposes
of this Agreement, mean Employee's inability, for a period exceeding three
(3) months as determined by a qualified physician, and which qualifies
Employee for benefits under Employer's long-term disability policy, to
perform in the usual manner the material duties usually and customarily
pertaining to Employee's long-term employment; (iii) Employee's death;
(iv) notice of termination by Employer for cause; (v) Employer's cessation
of business; (vi) written notice of termination by Employer without cause
upon fourteen (14) days' notice, subject to the provisions for compensation
upon early termination in section 5.3(b); or (vii) upon a Change in
Control (as defined below) of Employer (as defined in and under the
circumstances described in section 5.4).
5.1. DEFINITION OF CAUSE. For purposes of this Agreement, any of the
following shall constitute cause: (i) willful or habitual breach of
Employee's duties; (ii) fraud or intentional material misrepresentation by
Employee to Employer or any others; (iii) theft or conversion by Employee;
(iv) unauthorized disclosure or other use of Employer's trade secrets,
customer lists or confidential information; (v) habitual misuse of alcohol
or any nonprescribed drug or intoxicant; or (vi) willful violation of any
other standards of conduct as set forth in Employer's employee manual.
5.2. DAMAGES. If Employer terminates Employee for cause, Employer
shall be entitled to damages and all other remedies to which Employer may
otherwise be entitled.
5.3. COMPENSATION UPON EARLY TERMINATION.
(a)If Employee resigns during the term of this Agreement, or if this
Agreement is terminated by Employer for cause, Employee shall be entitled
to all accrued but unpaid Base Salary and vacation pay accrued through the
date of delivery of notice of termination.
(b)If Employee is terminated without cause, Employer shall pay to
Employee as liquidated damages and in lieu of any and all other claims
which Employee may have against Employer the greater of (i) six (6) months
of Employee's salary excluding any amounts for benefits or automobile
allowance; or (ii) an amount equal to the then current per month Base
Salary multiplied by the number of calendar months remaining of the term of
this Agreement. Employer's payment pursuant to this subparagraph shall
fully and completely discharge any and all obligations of Employer to
Employee arising out of or related to this Agreement and shall constitute
liquidated damages in lieu of any and all claims which Employee may have
against Employer not including any obligation under the workers'
compensation laws including Employer's liability provisions.
Initials: Employee _________ Employer _________
(c)If Employee's employment is terminated as a result of death or
total disability, Employee shall be entitled to accrued but unpaid Base
Salary to date of termination. The date of termination shall be deemed the
date of death or, in the event of disability, the date Employee qualified
for total disability payments under Employer's long-term disability plan.
(d)If Employee's employment is terminated as a result of a Change in
Control of Employer, Employee shall be entitled to a lump-sum payment
equal to three times Employee's Base Salary at the time. A "Change in
Control" shall mean an event involving one transaction or a related series
of transactions in which one of the following occurs: (i) Employer issues
securities equal to 33% or more of Employer's issued and outstanding voting
securities, determined as a single class, to any individual, firm,
partnership or other entity, including a "group" within the meaning of
section 13(d)(3) of the Securities Exchange Act of 1934; (ii) Employer
issues securities equal to 33% or more of the issued and outstanding common
stock of Employer in connection with a merger, consolidation or other
business combination; (iii) Employer is acquired in a merger or other
business combination transaction in which Employer is not the surviving
company; or (iv) all or substantially all of Employer's assets are sold or
transferred.
(e)Except as expressly provided in paragraph (d) above, all
compensation described in this section 5.3 shall be due and payable in
installments at least bi-weekly or at the time of the delivery of notice of
termination, at Employer's discretion.
6. CONFIDENTIAL INFORMATION OF CUSTOMERS OF EMPLOYER. Employee during
the course of his duties will be handling financial, accounting,
statistical, marketing and personnel information of customers of Employer.
All such information is confidential and shall not be disclosed, directly
or indirectly, or used by Employee in any way, either during the term of
this Agreement or at any time thereafter except as required in the course
of Employee's employment with Employer.
7. UNFAIR COMPETITION. During the term of this Agreement, Employee shall
not, directly or indirectly, whether as a partner, employee, creditor,
shareholder, or otherwise, promote, participate, or engage in any activity
or other business which is competitive in any way with Employer's business.
The obligation of the Employee not to compete with the Employer shall not
prohibit the Employee from owning or purchasing any corporate securities
that are regularly traded on a recognized stock exchange or on over-the-
counter market. In order to protect the trade secrets of Employer, after
the term, or upon earlier termination of this Agreement, the Employee shall
not, directly or indirectly, either as an employee, employer, consultants,
agent, principal, partner, stockholder, corporate officer, director, or any
other individual or representative capacity, engage or participate in any
business that is in direct competition with the business of the Employer
for a period of one (1) year from the date of the expiration of this
Agreement in the areas related to blood processing equipment or procedures.
8. TRADE SECRETS. Employee shall not disclose to any others, or take or
use for Employee's own purposes or purposes of any others, during the term
of this Agreement or at any time thereafter, any of Employer's trade
secrets, including without limitation, confidential information, customer
lists, computer programs or computer software of Employer. Employee agrees
that these restrictions shall also apply to (i) trade secrets belonging to
third parties in Employer's possession and (ii) trade secrets conceived,
originated, discovered or developed by Employee during the term of this
Agreement. Information of Employer shall not be considered a trade secret
if it is lawfully known outside of Employer by anyone who does not have a
duty to keep such information confidential.
8.1 INVENTIONS; OWNERSHIP RIGHTS. Employee agrees that all ideas,
techniques, inventions, systems, formulas, discoveries, technical
information, programs, prototypes and similar developments ("Developments")
developed, created, discovered, made, written or obtained by Employee in
the course of or as a result, directly or indirectly, of performance of his
duties hereunder, and all related industrial property, copyrights, patent
rights, trade secrets and other forms of protection thereof, shall be and
remain the property of Employer. Employee agrees to execute or cause to be
executed such assignments and applications, registrations and other
documents and to take such other action as may be requested by Employer to
enable Employer to protect its rights to any such Developments. If
Employer requires Employee's assistance under this section 8.1 after
termination of this Agreement, Employee shall be compensated for his time
actually spent in providing such assistance at an hourly rate equivalent to
the prevailing rate for such services and as agreed upon by the parties.
9. ARBITRATION. Any disputes regarding the rights or obligations of the
parties under this Agreement shall be conclusively determined by binding
arbitration. Any controversy or claim arising out of or relating to this
contract, or the breach thereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
10. ACTIONS CONTRARY TO LAW. Nothing contained in this Agreement shall be
construed to require the commission of any act contrary to law, and
whenever there is any conflict between any provision of this Agreement and
any statute, law, ordinance, or regulation, contrary to which the parties
have no legal right to contract, then the latter shall prevail; but in such
event, the provisions of this Agreement so affected shall be curtailed and
limited only to the extent necessary to bring it within legal requirements.
11. MISCELLANEOUS.
11.1. NOTICES. All notices and demands of every kind shall be
personally delivered or sent by first class mail to the parties at the
addresses appearing below or at such other addresses as either party may
designate in writing, delivered or mailed in accordance with the terms of
this Agreement. Any such notice or demand shall be effective immediately
upon personal delivery or three (3) days after deposit in the United States
mail, as the case may be.
EMPLOYER: THERMOGENESIS CORP.
11431 Sunrise Gold Cir., Suite A
Rancho Cordova, California 95742
With a copy to: David C. Adams, Esq.
WEINTRAUB GENSHLEA & SPROUL
400 Capitol Mall, Eleventh Floor
Sacramento, California 95814
EMPLOYEE: Philip H. Coelho
________________
________________
11.2. ATTORNEYS' FEES; PREJUDGMENT INTEREST. If the services of an
attorney are required by any party to secure the performance hereof or
otherwise upon the breach or default of another party to this Agreement, or
if any judicial remedy or arbitration is necessary to enforce or interpret
any provision of this Agreement or the rights and duties of any person in
relation thereto, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and other expenses, in addition to any other relief
to which such party may be entitled. Any award of damages following
judicial remedy or arbitration as a result of the breach of this Agreement
or any of its provisions shall include an award of prejudgment interest
from the date of the breach at the maximum amount of interest allowed by
law.
11.3. CHOICE OF LAW, JURISDICTION, VENUE. This Agreement is drafted to
be effective in the State of California, and shall be construed in
accordance with California law. The exclusive jurisdiction and venue of
any legal action by either party under this Agreement shall be the County
of Sacramento, California.
11.4. AMENDMENT, WAIVER. No amendment or variation of the terms of
this Agreement shall be valid unless made in writing and signed by Employee
and Employer. A waiver of any term or condition of this Agreement shall
not be construed as a general waiver by Employer. Failure of either
Employer or Employee to enforce any provision or provisions of this
Agreement shall not waive any enforcement of any continuing breach of the
same provision or provisions or any breach of any provision or provisions
of this Agreement.
11.5. ASSIGNMENT; SUCCESSION. It is hereby agreed that Employee's
rights and obligations under this Agreement are personal and not
assignable. This Agreement contains the entire agreement and understanding
between the parties to it and shall be binding on and inure to the benefit
of the heirs, personal representatives, successors and assigns of the
parties hereto.
11.6. INDEPENDENT COVENANTS. All provisions herein concerning unfair
competition and confidentiality shall be deemed independent covenants and
shall be enforceable without regard to any breach by Employer unless such
breach by Employer is willful and egregious.
11.7. ENTIRE AGREEMENT. This document constitutes the entire agreement
between the parties, all oral agreements being merged herein, and
supersedes all prior representations. There are no representations,
agreements, arrangements, or understandings, oral or written, between or
among the parties relating to the subject matter of this Agreement that are
not fully expressed herein.
11.8. SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid or unenforceable, the
remainder of the Agreement which can be given effect without the invalid
provision shall continue in full force and effect and shall in no way be
impaired or invalidated.
11.9. CAPTIONS. All captions of sections and paragraphs in this
Agreement are for reference only and shall not be considered in construing
this Agreement.
EMPLOYER: THERMOGENESIS CORP.
By:
(Noel Atkinson, Chairman Compensation
Committee)
EMPLOYEE: PHILIP H. COELHO
7156\5596\DCA\123082.2
<PAGE>
EXHIBIT "A"
EMPLOYEE POSITION DESCRIPTION
7156\5596\DCA\123082.2
THERMOGENESIS CORP.
EMPLOYMENT AGREEMENT
FOR
WALTER J. LUDT, III
THERMOGENESIS CORP. ("Employer"), and Walter J. Ludt, III
("Employee"), agree as follows:
1. EMPLOYMENT. Employer employs Employee and Employee accepts employment
with Employer on the terms and conditions set forth in this Employment
Agreement ("Agreement").
2. POSITION; SCOPE OF EMPLOYMENT. Employee shall have the position of
Chief Operating Officer and Chief Financial Officer for Employer, and shall
have the duties and authority set forth below, and as detailed on the
position description attached as EXHIBIT "A", which duties and authority
may be modified from time to time by Employer.
2.1. ENTIRE TIME AND EFFORT. Employee shall devote Employee's full
working time, attention, abilities, skill, labor and efforts to the
performance of his employment. Employee shall not, directly or indirectly,
alone or as a member of a partnership or other organizational entity, or as
an officer or director of any corporation (other than any which are owned
by or affiliated with Employer) (i) be substantially engaged in or
concerned with any other commercial duties or pursuits, (ii) render
services to any third party for compensation, or other benefit, or
(iii) engage in any other business activity that will in any way interfere
with the performance of Employee's duties under this Agreement, except with
the prior written consent of Employer.
2.2. RULES AND REGULATIONS. Employee agrees to observe and comply
with Employer's rules and regulations as provided by Employer and as may be
amended from time to time by Employer and will carry out and perform
faithfully such orders, directions and policies of Employer. To the extent
any provision of this Agreement is contrary to an Employer rule or
regulation, as such may be amended from time to time, the terms of this
Agreement shall control.
2.3. LIMITATIONS UPON AUTHORITY TO BIND EMPLOYER. Employee shall not
engage in any of the following actions on behalf of Employer without the
prior approval of Employer: (i) borrow or obtain credit in any amount or
execute any guaranty, except for items purchased from vendors in the
ordinary course of Employer's operations; (ii) expend funds for capital
equipment in excess of expenditures expressly budgeted by Employer, if
applicable, or in the event not budgeted, not to exceed the amounts set
forth in subparagraph (iii); (iii) sell or transfer capital assets
exceeding Ten Thousand Dollars ($10,000) in market value in any single
transaction or exceeding Twenty-Five Thousand Dollars ($25,000) in the
aggregate during any one fiscal year; (iv) execute any lease for real or
personal property; or (v) exercise any authority or control over the
management of any employee welfare or pension benefit plan maintained by
Employer or over the disposition of the assets of any such plan.
3. TERM. The term of this Agreement shall be for a period of three (3)
years begin which shall commence on July 1, 1996 and end on July 1, 1999;
unless terminated earlier as provided below in section 5.
4. COMPENSATION. Employer shall pay to or provide compensation to
Employee as set forth in this section 4. All compensation of every
description shall be subject to the customary withholding tax and other
employment taxes as required with respect to compensation paid to an
employee.
4.1. BASE SALARY. Employer shall pay Employee a base salary of one
hundred and twenty thousand Dollars ($120,000) per year commencing on July
1, 1996 ("Base Salary"). Employee's Base Salary shall be payable in
accordance with Employer's regular pay schedule, but not less frequently
than twice per month. In addition to the Base Salary provided herein, the
Employee shall also be paid a car allowance of $750 per month commencing on
July 1, 1996, and continuing during the term of this agreement.
4.2. ANNUAL REVIEW. On the date of the Employer's annual meeting of
shareholders, or within thirty (30) days thereafter, and on each subsequent
annual meeting of shareholders during the term of this Agreement, Employer
shall review the previous year's performance of Employee for the purpose of
making reasonable increases to Employee's Base Salary; PROVIDED that
Employer shall not be required to increase Employee's Base Salary, but may
do so at its discretion.
4.3. CASH BONUSES. In addition to the Base Salary provided for in
sections 4.1 and 4.2, Employee is eligible to receive bonuses based on
Employer performance and Employee's attainment of objectives periodically
established by Employer.
4.4. STOCK OPTION GRANTS. In addition to Base Salary provided for in
sections 4.1 and 4.2, Employee is eligible to receive in addition to any
cash bonus provided for in section 4.3. an award of stock options as may be
determined from time to time by Employer's Compensation Committee which
consists of disinterested directors who administer Employer's Amended 1994
Stock Option Plan.
4.5. PROFIT SHARING. In addition to the Base Salary provided for in
sections 4.1 and 4.2, cash bonuses provided in section 4.3 and stock option
awards provided in section 4.4, Employer shall pay to Employee as incentive
compensation for each fiscal year of Employer, promptly after the
determination thereof, a sum equal to one-half of one percent (0.5%) of
Employer's net profits ("Net Profits"); provided, however, that such
incentive compensation shall not exceed ten percent (10%) of Employee's
Base Salary then in effect. Net Profits, as shown in Employer's year-end
statement of income, shall be determined solely by Employer. Net Profits
shall not include income or expense resulting from Employer loans to, or
investments in, other corporations or business entities, and without regard
to nonrecurring items of income or expense (including gain or loss on
disposition of capital assets or other assets used in Employer's business)
appearing separately on Employer's financial statements and before
deduction of any federal taxes on, or measured by, income. The share of
Net Profits payable to Employee under this section 4.4 shall be prorated
for any partial year that occurs during the employment term. Employee's
share of Net Profits shall be prorated by multiplying the total Net Profits
for the fiscal year within which such partial year occurs by (a) the
decimal equivalent of Employee's percentage share of Net Profits (as shown
above), and by (b) the fraction equal to the number of months during any
such partial year in which Employee is employed by Employer within the
meaning of this Agreement divided by twelve months.
4.6. VACATION AND SICK LEAVE. Employee shall be entitled to accrue up
to four (4) weeks vacation annually; provided, however, that vacation time
may not accrue beyond two weeks of accrued and unused time. Vacation pay
shall not accrue beyond two (2) weeks at any given time. Employee shall be
entitled to sick leave in accordance with Employer's sick leave policy, as
amended from time to time. At the end of each anniversary of this
Agreement, subject to the limit on two weeks accrued and unused vacation,
all such unused and accrued vacation time shall be paid in cash.
4.7. OTHER FRINGE BENEFITS. Employee shall participate in all of
Employer's fringe benefit programs in substantially the same manner and to
substantially the same extent as other similar employees of Employer,
excluding only those benefits expressly modified by the terms hereof.
4.8. EXPENSES. Employee shall be reimbursed for his reasonable
business expenses; subject to the presentation of evidence of such expenses
in accordance with established policies adopted by Employer from time to
time.
4.9. COMPENSATION FROM OTHER SOURCES. Any proceeds that Employee
shall receive by virtue of qualifying for disability insurance, disability
benefits, or health or accident insurance shall belong to Employee.
Employee shall not be paid Base Salary in any period in which he receives
benefits as determined and paid under Employer's long-term disability
policy. Benefits paid to Employee under Employer's short-term disability
policy shall reduce, by the same amount, Base Salary payable to Employee
for such period.
5. EARLY TERMINATION. Employee's employment with Employer may be
terminated prior to the expiration of the term of this Agreement, upon any
of the following events: (i) the mutual agreement of Employer and Employee
in writing; (ii) the disability of Employee, which shall, for the purposes
of this Agreement, mean Employee's inability, for a period exceeding three
(3) months as determined by a qualified physician, and which qualifies
Employee for benefits under Employer's long-term disability policy, to
perform in the usual manner the material duties usually and customarily
pertaining to Employee's long-term employment; (iii) Employee's death;
(iv) notice of termination by Employer for cause; (v) Employer's cessation
of business; (vi) written notice of termination by Employer without cause
upon fourteen (14) days' notice, subject to the provisions for compensation
upon early termination in section 5.3(b); or (vii) upon a Change in
Control (as defined below) of Employer (as defined in and under the
circumstances described in section 5.4).
5.1. DEFINITION OF CAUSE. For purposes of this Agreement, any of the
following shall constitute cause: (i) willful or habitual breach of
Employee's duties; (ii) fraud or intentional material misrepresentation by
Employee to Employer or any others; (iii) theft or conversion by Employee;
(iv) unauthorized disclosure or other use of Employer's trade secrets,
customer lists or confidential information; (v) habitual misuse of alcohol
or any nonprescribed drug or intoxicant; or (vi) willful violation of any
other standards of conduct as set forth in Employer's employee manual.
5.2. DAMAGES. If Employer terminates Employee for cause, Employer
shall be entitled to damages and all other remedies to which Employer may
otherwise be entitled.
5.3. COMPENSATION UPON EARLY TERMINATION.
(a)If Employee resigns during the term of this Agreement, or if this
Agreement is terminated by Employer for cause, Employee shall be entitled
to all accrued but unpaid Base Salary and vacation pay accrued through the
date of delivery of notice of termination.
(b)If Employee is terminated without cause, Employer shall pay to
Employee the greater of (i) six (6) months of Employee's salary excluding
any amounts for benefits or automobile allowance; or (ii) an amount equal
to the then current per month Base Salary multiplied by the number of
calendar months remaining of the term of this Agreement. Employer's
payment pursuant to this subparagraph shall fully and completely discharge
any and all obligations of Employer to Employee arising out of or related
to this Agreement and shall constitute liquidated damages in lieu of any
and all claims which Employee may have against Employer not including any
obligation under the workers' compensation laws including Employer's
liability provisions.
Initials: Employee _________ Employer _________
(c)If Employee's employment is terminated as a result of death or
total disability, Employee shall be entitled to accrued but unpaid Base
Salary to date of termination. The date of termination shall be deemed the
date of death or, in the event of disability, the date Employee qualified
for total disability payments under Employer's long-term disability plan.
(d)If Employee's employment is terminated as a result of a Change in
Control of Employer, Employee shall be entitled to a lump-sum payment
equal to three times the Employee's Base Salary at the time. A "Change in
Control" shall mean an event involving one transaction or a related series
of transactions in which one of the following occurs: (i) Employer issues
securities equal to 33% or more of Employer's issued and outstanding voting
securities, determined as a single class, to any individual, firm,
partnership or other entity, including a "group" within the meaning of
section 13(d)(3) of the Securities Exchange Act of 1934; (ii) Employer
issues securities equal to 33% or more of the issued and outstanding common
stock of Employer in connection with a merger, consolidation or other
business combination; (iii) Employer is acquired in a merger or other
business combination transaction in which Employer is not the surviving
company; or (iv) all or substantially all of Employer's assets are sold or
transferred.
(e)Except as expressly provided in paragraph (d) above, all
compensation described in this section 5.3 shall be due and payable in
installments at least bi-weekly or at the time of the delivery of notice of
termination, at Employer's discretion.
6. CONFIDENTIAL INFORMATION OF CUSTOMERS OF EMPLOYER. Employee during
the course of his duties will be handling financial, accounting,
statistical, marketing and personnel information of customers of Employer.
All such information is confidential and shall not be disclosed, directly
or indirectly, or used by Employee in any way, either during the term of
this Agreement or at any time thereafter except as required in the course
of Employee's employment with Employer.
7. UNFAIR COMPETITION. During the term of this Agreement, Employee shall
not, directly or indirectly, whether as a partner, employee, creditor,
shareholder, or otherwise, promote, participate, or engage in any activity
or other business which is competitive in any way with Employer's business.
The obligation of the Employee not to compete with the Employer shall not
prohibit the Employee from owning or purchasing any corporate securities
that are regularly traded on a recognized stock exchange or on over-the-
counter market. In order to protect the trade secrets of Employer, after
the term, or upon earlier termination of this Agreement, the Employee shall
not, directly or indirectly, either as an employee, employer, consultants,
agent, principal, partner, stockholder, corporate officer, director, or any
other individual or representative capacity, engage or participate in any
business that is in direct competition with the business of the Employer
for a period of one (1) year from the date of the expiration of this
Agreement in the areas related to blood processing equipment or procedures.
8. TRADE SECRETS. Employee shall not disclose to any others, or take or
use for Employee's own purposes or purposes of any others, during the term
of this Agreement or at any time thereafter, any of Employer's trade
secrets, including without limitation, confidential information, customer
lists, computer programs or computer software of Employer. Employee agrees
that these restrictions shall also apply to (i) trade secrets belonging to
third parties in Employer's possession and (ii) trade secrets conceived,
originated, discovered or developed by Employee during the term of this
Agreement. Information of Employer shall not be considered a trade secret
if it is lawfully known outside of Employer by anyone who does not have a
duty to keep such information confidential.
8.1 INVENTIONS; OWNERSHIP RIGHTS. Employee agrees that all ideas,
techniques, inventions, systems, formulas, discoveries, technical
information, programs, prototypes and similar developments ("Developments")
developed, created, discovered, made, written or obtained by Employee in
the course of or as a result, directly or indirectly, of performance of his
duties hereunder, and all related industrial property, copyrights, patent
rights, trade secrets and other forms of protection thereof, shall be and
remain the property of Employer. Employee agrees to execute or cause to be
executed such assignments and applications, registrations and other
documents and to take such other action as may be requested by Employer to
enable Employer to protect its rights to any such Developments. If
Employer requires Employee's assistance under this section 8.1 after
termination of this Agreement, Employee shall be compensated for his time
actually spent in providing such assistance at an hourly rate equivalent to
the prevailing rate for such services and as agreed upon by the parties.
9. ARBITRATION. Any disputes regarding the rights or obligations of the
parties under this Agreement shall be conclusively determined by binding
arbitration. Any controversy or claim arising out of or relating to this
contract, or the breach thereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
10. ACTIONS CONTRARY TO LAW. Nothing contained in this Agreement shall be
construed to require the commission of any act contrary to law, and
whenever there is any conflict between any provision of this Agreement and
any statute, law, ordinance, or regulation, contrary to which the parties
have no legal right to contract, then the latter shall prevail; but in such
event, the provisions of this Agreement so affected shall be curtailed and
limited only to the extent necessary to bring it within legal requirements.
11. MISCELLANEOUS.
11.1. NOTICES. All notices and demands of every kind shall be
personally delivered or sent by first class mail to the parties at the
addresses appearing below or at such other addresses as either party may
designate in writing, delivered or mailed in accordance with the terms of
this Agreement. Any such notice or demand shall be effective immediately
upon personal delivery or three (3) days after deposit in the United States
mail, as the case may be.
EMPLOYER: THERMOGENESIS CORP.
11431 Sunrise Gold Cir., Suite A
Rancho Cordova, California 95742
With a copy to: David C. Adams, Esq.
WEINTRAUB GENSHLEA & SPROUL
400 Capitol Mall, Eleventh Floor
Sacramento, California 95814
EMPLOYEE: Walter J. Ludt, III
________________
________________
11.2. ATTORNEYS' FEES; PREJUDGMENT INTEREST. If the services of an
attorney are required by any party to secure the performance hereof or
otherwise upon the breach or default of another party to this Agreement, or
if any judicial remedy or arbitration is necessary to enforce or interpret
any provision of this Agreement or the rights and duties of any person in
relation thereto, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and other expenses, in addition to any other relief
to which such party may be entitled. Any award of damages following
judicial remedy or arbitration as a result of the breach of this Agreement
or any of its provisions shall include an award of prejudgment interest
from the date of the breach at the maximum amount of interest allowed by
law.
11.3. CHOICE OF LAW, JURISDICTION, VENUE. This Agreement is drafted to
be effective in the State of California, and shall be construed in
accordance with California law. The exclusive jurisdiction and venue of
any legal action by either party under this Agreement shall be the County
of Sacramento, California.
11.4. AMENDMENT, WAIVER. No amendment or variation of the terms of
this Agreement shall be valid unless made in writing and signed by Employee
and Employer. A waiver of any term or condition of this Agreement shall
not be construed as a general waiver by Employer. Failure of either
Employer or Employee to enforce any provision or provisions of this
Agreement shall not waive any enforcement of any continuing breach of the
same provision or provisions or any breach of any provision or provisions
of this Agreement.
11.5. ASSIGNMENT; SUCCESSION. It is hereby agreed that Employee's
rights and obligations under this Agreement are personal and not
assignable. This Agreement contains the entire agreement and understanding
between the parties to it and shall be binding on and inure to the benefit
of the heirs, personal representatives, successors and assigns of the
parties hereto.
11.6. INDEPENDENT COVENANTS. All provisions herein concerning unfair
competition and confidentiality shall be deemed independent covenants and
shall be enforceable without regard to any breach by Employer unless such
breach by Employer is willful and egregious.
11.7. ENTIRE AGREEMENT. This document constitutes the entire agreement
between the parties, all oral agreements being merged herein, and
supersedes all prior representations. There are no representations,
agreements, arrangements, or understandings, oral or written, between or
among the parties relating to the subject matter of this Agreement that are
not fully expressed herein.
11.8. SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid or unenforceable, the
remainder of the Agreement which can be given effect without the invalid
provision shall continue in full force and effect and shall in no way be
impaired or invalidated.
11.9. CAPTIONS. All captions of sections and paragraphs in this
Agreement are for reference only and shall not be considered in construing
this Agreement.
EMPLOYER: THERMOGENESIS CORP.
By:
(Noel Atkinson, Chairman Compensation
Committee)
EMPLOYEE: Walter J. Ludt, III
7156\5596\DCA\123139.2
<PAGE>
EXHIBIT "A"
EMPLOYEE POSITION DESCRIPTION
7156\5596\DCA\123139.2
THERMOGENESIS CORP.
EMPLOYMENT AGREEMENT
FOR
CHARLES DE B. GRIFFITHS
THERMOGENESIS CORP. ("Employer"), and Charles de B. Griffiths
("Employee"), agree as follows:
1. EMPLOYMENT. Employer employs Employee and Employee accepts employment
with Employer on the terms and conditions set forth in this Employment
Agreement ("Agreement").
2. POSITION; SCOPE OF EMPLOYMENT. Employee shall have the position of
Vice-President of Marketing and Sales for Employer, and shall have the
duties and authority set forth below, and as detailed on the position
description attached as EXHIBIT "A", which duties and authority may be
modified from time to time by Employer.
2.1. ENTIRE TIME AND EFFORT. Employee shall devote Employee's full
working time, attention, abilities, skill, labor and efforts to the
performance of his employment. Employee shall not, directly or indirectly,
alone or as a member of a partnership or other organizational entity, or as
an officer or director of any corporation (other than any which are owned
by or affiliated with Employer) (i) be substantially engaged in or
concerned with any other commercial duties or pursuits, (ii) render
services to any third party for compensation, or other benefit, or
(iii) engage in any other business activity that will in any way interfere
with the performance of Employee's duties under this Agreement, except with
the prior written consent of Employer.
2.2. RULES AND REGULATIONS. Employee agrees to observe and comply
with Employer's rules and regulations as provided by Employer and as may be
amended from time to time by Employer and will carry out and perform
faithfully such orders, directions and policies of Employer. To the extent
any provision of this Agreement is contrary to an Employer rule or
regulation, as such may be amended from time to time, the terms of this
Agreement shall control.
2.3. LIMITATIONS UPON AUTHORITY TO BIND EMPLOYER. Employee shall not
engage in any of the following actions on behalf of Employer without the
prior approval of Employer: (i) borrow or obtain credit in any amount or
execute any guaranty, except for items purchased from vendors in the
ordinary course of Employer's operations; (ii) expend funds for capital
equipment in excess of expenditures expressly budgeted by Employer, if
applicable, or in the event not budgeted, not to exceed the amounts set
forth in subparagraph (iii); (iii) sell or transfer capital assets
exceeding Ten Thousand Dollars ($10,000) in market value in any single
transaction or exceeding Twenty-Five Thousand Dollars ($25,000) in the
aggregate during any one fiscal year; (iv) execute any lease for real or
personal property; or (v) exercise any authority or control over the
management of any employee welfare or pension benefit plan maintained by
Employer or over the disposition of the assets of any such plan.
3. TERM. The term of this Agreement shall be for a period of three (3)
years begin which shall commence on July 1, 1996 and end on July 1, 1999;
unless terminated earlier as provided below in section 5.
4. COMPENSATION. Employer shall pay to or provide compensation to
Employee as set forth in this section 4. All compensation of every
description shall be subject to the customary withholding tax and other
employment taxes as required with respect to compensation paid to an
employee.
4.1. BASE SALARY. Employer shall pay Employee a base salary of one
hundred and twenty thousand Dollars ($120,000) per year commencing on July
1, 1996 ("Base Salary"). Employee's Base Salary shall be payable in
accordance with Employer's regular pay schedule, but not less frequently
than twice per month. In addition to the Base Salary provided herein, the
Employee shall also be paid a car allowance of $750 per month commencing on
July 1, 1996, and continuing during the term of this agreement.
4.2. ANNUAL REVIEW. On the date of the Employer's annual meeting of
shareholders, or within thirty (30) days thereafter, and on each subsequent
annual meeting of shareholders during the term of this Agreement, Employer
shall review the previous year's performance of Employee for the purpose of
making reasonable increases to Employee's Base Salary; PROVIDED that
Employer shall not be required to increase Employee's Base Salary, but may
do so at its discretion.
4.3. CASH BONUSES. In addition to the Base Salary provided for in
sections 4.1 and 4.2, Employee is eligible to receive bonuses based on
Employer performance and Employee's attainment of objectives periodically
established by Employer.
4.4. STOCK OPTION GRANTS. In addition to Base Salary provided for in
sections 4.1 and 4.2, Employee is eligible to receive in addition to any
cash bonus provided for in section 4.3. an award of stock options as may be
determined from time to time by Employer's Compensation Committee which
consists of disinterested directors who administer Employer's Amended 1994
Stock Option Plan.
4.5. PROFIT SHARING. In addition to the Base Salary provided for in
sections 4.1 and 4.2, cash bonuses provided in section 4.3 and stock option
awards provided in section 4.4, Employer shall pay to Employee as incentive
compensation for each fiscal year of Employer, promptly after the
determination thereof, a sum equal to one-half of one percent (0.5%) of
Employer's net profits ("Net Profits"); provided, however, that such
incentive compensation shall not exceed ten percent (10%) of Employee's
Base Salary then in effect. Net Profits, as shown in Employer's year-end
statement of income, shall be determined solely by Employer. Net Profits
shall not include income or expense resulting from Employer loans to, or
investments in, other corporations or business entities, and without regard
to nonrecurring items of income or expense (including gain or loss on
disposition of capital assets or other assets used in Employer's business)
appearing separately on Employer's financial statements and before
deduction of any federal taxes on, or measured by, income. The share of
Net Profits payable to Employee under this section 4.4 shall be prorated
for any partial year that occurs during the employment term. Employee's
share of Net Profits shall be prorated by multiplying the total Net Profits
for the fiscal year within which such partial year occurs by (a) the
decimal equivalent of Employee's percentage share of Net Profits (as shown
above), and by (b) the fraction equal to the number of months during any
such partial year in which Employee is employed by Employer within the
meaning of this Agreement divided by twelve months.
4.6. VACATION AND SICK LEAVE. Employee shall be entitled to accrue up
to four (4) weeks vacation annually; provided, however, that vacation time
may not accrue beyond two weeks of accrued and unused time. Vacation pay
shall not accrue beyond two (2) weeks at any given time. Employee shall be
entitled to sick leave in accordance with Employer's sick leave policy, as
amended from time to time. At the end of each anniversary of this
Agreement, subject to the limit on two weeks accrued and unused vacation,
all such unused and accrued vacation time shall be paid in cash.
4.7. OTHER FRINGE BENEFITS. Employee shall participate in all of
Employer's fringe benefit programs in substantially the same manner and to
substantially the same extent as other similar employees of Employer,
excluding only those benefits expressly modified by the terms hereof.
4.8. EXPENSES. Employee shall be reimbursed for his reasonable
business expenses; subject to the presentation of evidence of such expenses
in accordance with established policies adopted by Employer from time to
time.
4.9. COMPENSATION FROM OTHER SOURCES. Any proceeds that Employee
shall receive by virtue of qualifying for disability insurance, disability
benefits, or health or accident insurance shall belong to Employee.
Employee shall not be paid Base Salary in any period in which he receives
benefits as determined and paid under Employer's long-term disability
policy. Benefits paid to Employee under Employer's short-term disability
policy shall reduce, by the same amount, Base Salary payable to Employee
for such period.
5. EARLY TERMINATION. Employee's employment with Employer may be
terminated prior to the expiration of the term of this Agreement, upon any
of the following events: (i) the mutual agreement of Employer and Employee
in writing; (ii) the disability of Employee, which shall, for the purposes
of this Agreement, mean Employee's inability, for a period exceeding three
(3) months as determined by a qualified physician, and which qualifies
Employee for benefits under Employer's long-term disability policy, to
perform in the usual manner the material duties usually and customarily
pertaining to Employee's long-term employment; (iii) Employee's death;
(iv) notice of termination by Employer for cause; (v) Employer's cessation
of business; (vi) written notice of termination by Employer without cause
upon fourteen (14) days' notice, subject to the provisions for compensation
upon early termination in section 5.3(b); or (vii) upon a Change in
Control (as defined below) of Employer (as defined in and under the
circumstances described in section 5.4).
5.1. DEFINITION OF CAUSE. For purposes of this Agreement, any of the
following shall constitute cause: (i) willful or habitual breach of
Employee's duties; (ii) fraud or intentional material misrepresentation by
Employee to Employer or any others; (iii) theft or conversion by Employee;
(iv) unauthorized disclosure or other use of Employer's trade secrets,
customer lists or confidential information; (v) habitual misuse of alcohol
or any nonprescribed drug or intoxicant; or (vi) willful violation of any
other standards of conduct as set forth in Employer's employee manual.
5.2. DAMAGES. If Employer terminates Employee for cause, Employer
shall be entitled to damages and all other remedies to which Employer may
otherwise be entitled.
5.3. COMPENSATION UPON EARLY TERMINATION.
(a)If Employee resigns during the term of this Agreement, or if this
Agreement is terminated by Employer for cause, Employee shall be entitled
to all accrued but unpaid Base Salary and vacation pay accrued through the
date of delivery of notice of termination.
(b)If Employee is terminated without cause, Employer shall pay to
Employee the greater of (i) six (6) months of Employee's salary excluding
any amounts for benefits or automobile allowance; or (ii) an amount equal
to the then current per month Base Salary multiplied by the number of
calendar months remaining of the term of this Agreement. Employer's
payment pursuant to this subparagraph shall fully and completely discharge
any and all obligations of Employer to Employee arising out of or related
to this Agreement and shall constitute liquidated damages in lieu of any
and all claims which Employee may have against Employer not including any
obligation under the workers' compensation laws including Employer's
liability provisions.
Initials: Employee _________ Employer _________
(c)If Employee's employment is terminated as a result of death or
total disability, Employee shall be entitled to accrued but unpaid Base
Salary to date of termination. The date of termination shall be deemed the
date of death or, in the event of disability, the date Employee qualified
for total disability payments under Employer's long-term disability plan.
(d)If Employee's employment is terminated as a result of a Change in
Control of Employer, Employee shall be entitled to a lump-sum payment
equal to three times the Employee's Base Salary at the time. A "Change in
Control" shall mean an event involving one transaction or a related series
of transactions in which one of the following occurs: (i) Employer issues
securities equal to 33% or more of Employer's issued and outstanding voting
securities, determined as a single class, to any individual, firm,
partnership or other entity, including a "group" within the meaning of
section 13(d)(3) of the Securities Exchange Act of 1934; (ii) Employer
issues securities equal to 33% or more of the issued and outstanding common
stock of Employer in connection with a merger, consolidation or other
business combination; (iii) Employer is acquired in a merger or other
business combination transaction in which Employer is not the surviving
company; or (iv) all or substantially all of Employer's assets are sold or
transferred.
(e)Except as expressly provided in paragraph (d) above, all
compensation described in this section 5.3 shall be due and payable in
installments at least bi-weekly or at the time of the delivery of notice of
termination, at Employer's discretion.
6. CONFIDENTIAL INFORMATION OF CUSTOMERS OF EMPLOYER. Employee during
the course of his duties will be handling financial, accounting,
statistical, marketing and personnel information of customers of Employer.
All such information is confidential and shall not be disclosed, directly
or indirectly, or used by Employee in any way, either during the term of
this Agreement or at any time thereafter except as required in the course
of Employee's employment with Employer.
7. UNFAIR COMPETITION. During the term of this Agreement, Employee shall
not, directly or indirectly, whether as a partner, employee, creditor,
shareholder, or otherwise, promote, participate, or engage in any activity
or other business which is competitive in any way with Employer's business.
The obligation of the Employee not to compete with the Employer shall not
prohibit the Employee from owning or purchasing any corporate securities
that are regularly traded on a recognized stock exchange or on over-the-
counter market. In order to protect the trade secrets of Employer, after
the term, or upon earlier termination of this Agreement, the Employee shall
not, directly or indirectly, either as an employee, employer, consultants,
agent, principal, partner, stockholder, corporate officer, director, or any
other individual or representative capacity, engage or participate in any
business that is in direct competition with the business of the Employer
for a period of one (1) year from the date of the expiration of this
Agreement in the areas related to blood processing equipment or procedures.
8. TRADE SECRETS. Employee shall not disclose to any others, or take or
use for Employee's own purposes or purposes of any others, during the term
of this Agreement or at any time thereafter, any of Employer's trade
secrets, including without limitation, confidential information, customer
lists, computer programs or computer software of Employer. Employee agrees
that these restrictions shall also apply to (i) trade secrets belonging to
third parties in Employer's possession and (ii) trade secrets conceived,
originated, discovered or developed by Employee during the term of this
Agreement. Information of Employer shall not be considered a trade secret
if it is lawfully known outside of Employer by anyone who does not have a
duty to keep such information confidential.
8.1 INVENTIONS; OWNERSHIP RIGHTS. Employee agrees that all ideas,
techniques, inventions, systems, formulas, discoveries, technical
information, programs, prototypes and similar developments ("Developments")
developed, created, discovered, made, written or obtained by Employee in
the course of or as a result, directly or indirectly, of performance of his
duties hereunder, and all related industrial property, copyrights, patent
rights, trade secrets and other forms of protection thereof, shall be and
remain the property of Employer. Employee agrees to execute or cause to be
executed such assignments and applications, registrations and other
documents and to take such other action as may be requested by Employer to
enable Employer to protect its rights to any such Developments. If
Employer requires Employee's assistance under this section 8.1 after
termination of this Agreement, Employee shall be compensated for his time
actually spent in providing such assistance at an hourly rate equivalent to
the prevailing rate for such services and as agreed upon by the parties.
9. ARBITRATION. Any disputes regarding the rights or obligations of the
parties under this Agreement shall be conclusively determined by binding
arbitration. Any controversy or claim arising out of or relating to this
contract, or the breach thereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
10. ACTIONS CONTRARY TO LAW. Nothing contained in this Agreement shall be
construed to require the commission of any act contrary to law, and
whenever there is any conflict between any provision of this Agreement and
any statute, law, ordinance, or regulation, contrary to which the parties
have no legal right to contract, then the latter shall prevail; but in such
event, the provisions of this Agreement so affected shall be curtailed and
limited only to the extent necessary to bring it within legal requirements.
11. MISCELLANEOUS.
11.1. NOTICES. All notices and demands of every kind shall be
personally delivered or sent by first class mail to the parties at the
addresses appearing below or at such other addresses as either party may
designate in writing, delivered or mailed in accordance with the terms of
this Agreement. Any such notice or demand shall be effective immediately
upon personal delivery or three (3) days after deposit in the United States
mail, as the case may be.
EMPLOYER: THERMOGENESIS CORP.
11431 Sunrise Gold Cir., Suite A
Rancho Cordova, California 95742
With a copy to: David C. Adams, Esq.
WEINTRAUB GENSHLEA & SPROUL
400 Capitol Mall, Eleventh Floor
Sacramento, California 95814
EMPLOYEE: Charles de B. Griffiths
________________
________________
11.2. ATTORNEYS' FEES; PREJUDGMENT INTEREST. If the services of an
attorney are required by any party to secure the performance hereof or
otherwise upon the breach or default of another party to this Agreement, or
if any judicial remedy or arbitration is necessary to enforce or interpret
any provision of this Agreement or the rights and duties of any person in
relation thereto, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and other expenses, in addition to any other relief
to which such party may be entitled. Any award of damages following
judicial remedy or arbitration as a result of the breach of this Agreement
or any of its provisions shall include an award of prejudgment interest
from the date of the breach at the maximum amount of interest allowed by
law.
11.3. CHOICE OF LAW, JURISDICTION, VENUE. This Agreement is drafted to
be effective in the State of California, and shall be construed in
accordance with California law. The exclusive jurisdiction and venue of
any legal action by either party under this Agreement shall be the County
of Sacramento, California.
11.4. AMENDMENT, WAIVER. No amendment or variation of the terms of
this Agreement shall be valid unless made in writing and signed by Employee
and Employer. A waiver of any term or condition of this Agreement shall
not be construed as a general waiver by Employer. Failure of either
Employer or Employee to enforce any provision or provisions of this
Agreement shall not waive any enforcement of any continuing breach of the
same provision or provisions or any breach of any provision or provisions
of this Agreement.
11.5. ASSIGNMENT; SUCCESSION. It is hereby agreed that Employee's
rights and obligations under this Agreement are personal and not
assignable. This Agreement contains the entire agreement and understanding
between the parties to it and shall be binding on and inure to the benefit
of the heirs, personal representatives, successors and assigns of the
parties hereto.
11.6. INDEPENDENT COVENANTS. All provisions herein concerning unfair
competition and confidentiality shall be deemed independent covenants and
shall be enforceable without regard to any breach by Employer unless such
breach by Employer is willful and egregious.
11.7. ENTIRE AGREEMENT. This document constitutes the entire agreement
between the parties, all oral agreements being merged herein, and
supersedes all prior representations. There are no representations,
agreements, arrangements, or understandings, oral or written, between or
among the parties relating to the subject matter of this Agreement that are
not fully expressed herein.
11.8. SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid or unenforceable, the
remainder of the Agreement which can be given effect without the invalid
provision shall continue in full force and effect and shall in no way be
impaired or invalidated.
11.9. CAPTIONS. All captions of sections and paragraphs in this
Agreement are for reference only and shall not be considered in construing
this Agreement.
EMPLOYER: THERMOGENESIS CORP.
By:
(Noel Atkinson, Chairman Compensation
Committee)
EMPLOYEE: Charles de B. Griffiths
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EXHIBIT "A"
EMPLOYEE POSITION DESCRIPTION
7156\5596\DCA\123155.2
1
MANUFACTURING LICENSE AGREEMENT
THERMOGENESIS CORP., a Delaware corporation ("THERMO"), and On-Time
Manufacturing, Inc., a Nevada corporation ("On-Time"), enter into this
Manufacturing License Agreement (the "Agreement"), and each agrees,
effective July 30, 1996, as follows:
1. BACKGROUND AND PURPOSE.
1.1. THERMO has obtained from the Food and Drug Administration
("FDA") preliminary market notification approval (a "510(k) approval")
for the sale of certain plasma freezers ("Freezers"), plasma thawers
("Thawers"), and for the sale of applicators for use with fibrinogen and
thrombin (the "Applicators") and is seeking approval, or will seek approval
upon final development, of its (i) system for harvesting fibrinogen rich
cryoprecipitate from an autologous source (the "Fibrinogen System"), (ii)
stem cell CRF storage and retrieval system (the "Stem Cell System"), and
(iii) long term blood sample storage and retrieval system (the "Blood
Archive System"), including system and component parts (collectively
"Systems"). THERMO has filed patent applications, or is in the process of
preparing patent applications, with respect to its products and desires to
have parts and components of its Freezers, Thawers and Systems manufactured
by On-Time pursuant to the terms of this Agreement.
1.2. On-Time has specialized manufacturing facilities and experience,
and desires to manufacture THERMO products pursuant to the license and
terms of this Agreement, and further desires to provide for payment of such
manufacturing services through issuance of THERMO common stock to On-Time,
as provided in this Agreement.
1.3. On-Time and THERMO contemplate manufacturing costs of $2,500,000
over the next thirty months, and THERMO is committed to use On-Time
manufacturing capabilities to that extent, subject to the conditions and
limitations set forth in this Agreement.
2. MANUFACTURE RIGHTS; PRODUCTS; AND MANUFACTURE OF PRODUCTS.
2.1. PRODUCTS TO BE MANUFACTURED; APPOINTMENT. During the term of
this Agreement, and subject to the conditions and limitations set forth
below, THERMO appoints and licenses On-Time as its manufacturer for the
product, parts, components, templates and tooling (and assembly to the
extent requested by THERMO) listed on Exhibit A, as may be amended by
THERMO in its sole discretion from time to time (the "Products").
2.2. SEMI-EXCLUSIVE RIGHT TO MANUFACTURE PRODUCTS. THERMO appoints
and licenses On-Time, and On-Time accepts from THERMO, the semi-exclusive
right, license and privilege, as an independent manufacturer for THERMO to
manufacture the Products on THERMO's behalf. By this appointment, THERMO
agrees that On-Time shall have the exclusive right to produce and
manufacture the Products for THERMO, subject to the conditions set forth in
below:
2.2.1. FAIR PRICE PROVISION. All prices bid or invoiced for parts
and service expended on THERMO's behalf in the manufacture of any Product
shall be approximately equal to competitive prices of similar manufacturing
facilities, wherever located, and in no event more than standard or
customary costs On-Time charges to any other customer.
2.2.2. ADEQUATE FACILITIES. On-Time shall insure that at all times
there is adequate availability of equipment and resources to meet THERMO's
manufacturing requirements, and shall use its best efforts to meet all
designated delivery dates for Products to be manufactured. Notwithstanding
the foregoing, any delivery that is actually made more than ten (10) days
beyond the scheduled date shall be deemed a technical breach of the semi-
exclusive grant, and THERMO retains the right to have manufactured all
Products necessary to fulfill its commitments outside of On-Time and upon
such terms as THERMO may negotiate.
2.2.3. QUALITY CONTROL. On-Time shall insure at all times adequate
quality controls, including ISO certification if required and FDA good
manufacturing practices, and shall obtain all required approvals or reviews
by the FDA or any other state agency for the manufacture of the Products.
2.2.4. FAILURE TO COMPLY. Failure of On-Time to comply with any of
the provisions under this section 2.2. shall result in an automatic loss of
the semi-exclusive license granted hereunder, and THERMO retains all right
to contract for manufacture of the Products from whatever source upon such
occurrence; provided, however, that such termination of the semi-exclusive
right shall be stayed, and shall not result in a loss of the right, if the
non-compliance is cured by On-Time within thirty (30) days from the date
THERMO notifies On-Time of the non-compliance.
2.3. MANUFACTURE EQUIPMENT, TOOLS, MOLDS, AND IMPLEMENTS. On-Time will
cooperate with THERMO in design, mold construction, tooling, templates, and
other instruments required to manufacture Products. THERMO shall be
invoiced and pay for all actual costs of tools, molds, templates and other
instruments designed or created for the manufacture of products, which
items will remain in the possession of On-Time as agent for THERMO during
the Initial Term of this Agreement and delivered pursuant to THERMO's
direction at any time.
2.4. OWNERSHIP. THERMO shall retain all right, title and interest in
and to all molds, templates, tooling and other instruments designed or
created specifically for the manufacture of Products. Upon written
request, On-Time will deliver to THERMO any and all such templates, tools,
molds or other instruments. On-Time shall, during the term of this
Agreement, insure that all specially designed tools, molds, templates and
other instruments related to the Products are segregated and marked as
"owned by THERMOGENESIS", and take other reasonable precautions to insure
that such items are not secured by, or seized pursuant to any security
interest granted to, any third party.
2.5. PRODUCT LABELING. All Products shall be identified as belonging to
THERMOGENESIS, contain all required trademarks and patent notification, as
THERMO may designate from time to time, and otherwise be labeled in full
compliance with all requirements of the FDA.
2.6. WARRANTY OF TITLE. On-Time warrants that all Products delivered or
shipped shall be shipped free and clear of all liens or encumbrances and
title shall pass to the designated purchaser, end user, or THERMO, as
appropriate.
2.7. PRODUCT WARRANTY AND REPAIR. On-Time warrants that all Products
shall be free from defects in material and workmanship in the manufacture
of such Products (exclusive of design) for a period of one (1) year
following shipment. On-Time shall repair or replace at no cost to THERMO,
or any purchaser or end-user of THERMO Products, any Products found to be
defective in manufacturing material or workmanship.
2.8. REPLACEMENTS AND RETURN. Products may be returned for replacement
only during the applicable warranty period, as identified in paragraph 2.7
above. Upon receipt of an allegedly defective item, On-Time shall
immediately ship a replacement item. All shipping charges shall be borne
by On-Time. On-Time shall notify THERMO promptly of any returned
Products, and will hold such Products at its facility until such time as an
officer of THERMO clears the Products for repair and redistribution. If
any Product is deemed incapable of repair, it shall be destroyed and not
distributed.
2.9. TERM. The semi-exclusive rights granted by THERMO to On-Time with
respect to the manufacture of the Products shall continue for thirty (30)
months from the date of this Agreement ("Initial Term"), unless terminated
or limited earlier as provided in this Agreement.
3. ORDERS AND DELIVERIES.
3.1. ORDERS. THERMO will submit orders for manufacture of Products as
needed on a semi-monthly basis. All orders for products shall be on
THERMO's standard Purchase Order Form, a copy of which is attached hereto
as Exhibit D.
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2
3.2. PRICING. Upon execution of this Agreement, and from time to time
as changes are made, On-Time shall provide THERMO in writing with its
current pricing schedule and any changes or anticipated changes. The On-
Time price list may be changed from time to time upon thirty days prior
written notice to THERMO before the effective date of any proposed change.
Nothing herein shall be construed to limit in any respect the fair pricing
provision in section 2.2.1. above.
3.3. DELIVERY OF PRODUCTS. On-Time agrees to deliver all of the Products
ordered in accordance with written instructions from THERMO during the term
of this Agreement. All costs of delivery shall be borne by THERMO.
3.4. TITLE AND RISK OF LOSS. Title to all Products shipped and all risk
of loss or damage for any Products will be passed on to THERMO or to such
financing institution or other party or parties as may have been designated
by THERMO upon delivery to shipper FOB On-Time. On-Time will bear the risk
of loss or damage prior to delivery to the designated carrier.
4. INVOICING AND PAYMENT FOR MANUFACTURING SERVICES. Invoices for
manufacturing costs and services rendered will be sent to THERMO by On-Time
on the fifteenth and last day of each month through out the term of this
Agreement. THERMO shall pay all invoices received within thirty (30) days
from receipt in accordance with the following schedule:
4.1. Cash , or
4.2 At the election of On-Time, each invoice or portion thereof will be
paid through issuance of THERMO common stock to On-Time, subject to the
limitation on amount of stock provided in section 4.3 and valued as
provided in section 4.4 below.
4.3. At no time during the term of this Agreement shall On-Time be
entitled to receive in the aggregate more than 1,000,000 shares of THERMO
common stock through payment of invoices and the amount of the election
will not be less than 25% of the average total monthly invoices presented
to THERMO by On-Time.
4.4. For purposes of payment on the invoices, the shares of THERMO
common stock shall be valued as follows: (i) On-Time shall convert on July
30, 1996 all current payables from THERMO to On-Time accumulated through
June 30, 1996 at $2.40 per share and (ii) subsequently, all payables from
THERMO to On-Time shall convert to THERMO common stock at a rate of a 25%
discount from the market price of THERMO stock on the date the election is
made by On-Time.
4.5 Dilution. All references to price per share and number of shares
will be adjusted for any subsequent stock consolidations, stock splits or
stock splits in the form of a dividend.
4.6. On-Time acknowledges that the THERMO shares of common stock and
the warrant, and the shares of common stock issuable upon exercise of the
warrant, have not been registered with the Securities and Exchange
Commission or pursuant to applicable state securities laws and, therefore,
such shares are "restricted securities" as that term is defined in the
Securities Act of 1933, as amended (the "Act"). On-Time further
acknowledges that such restricted securities may not be transferred, sold
or otherwise hypothecated unless first registered under the Act and
applicable state laws, unless an opinion of counsel satisfactory to THERMO
is first delivered and states that such transfer is exempt from the
registration requirements under state and federal securities laws. However,
should THERMO file a registration statement in conjunction with an equity
placement,THERMO will grant to On-Time piggyback registration rights for
the then outstanding THERMO common shares held by On-Time in accordance
with section 5 below.
4.7. In connection with THERMO's agreement to issue stock in payment of
invoices as provided herein, On-Time makes the representations and
warranties contained on Exhibit B, and shall affirm those representations
and warranties prior to transmitting to THERMO each invoice for
manufacturing services and costs.
5. REGISTRATION RIGHTS.
5.1 DEFINITIONS. For purposes of this Section 5:
(a) ACT. The term "Act" means the Securities Act of 1933, as
amended;
(b) 1934 ACT. The term "1934 Act" means the Securities Exchange
Act of 1934, as amended;
(c) HOLDER. The term "Holder" means On Time;
(d) REGISTRABLE SECURITIES. The term "Registrable Securities"
means: (i) Common Stock issued to Holder upon conversion of outstanding
invoices and debt as set forth in this Agreement and (ii) any Common Stock
of Company issued as a dividend or other distribution with respect to, or
in exchange for or in replacement of, such Common Stock;
(e) REGISTRATION; REGISTER OR REGISTERED. The terms "Register,"
"Registered," and "Registration" refer to a registration effected by
preparing and filing a registration statement in compliance with the Act
and the declaration or ordering of the effectiveness of such registration
statement;
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3
(f) RULE 144. The term "Rule 144" means Rule 144 as promulgated by
the SEC under the Act, as amended from time to time, or any similar or
successor rule that may be promulgated by the SEC;
(g) SEC. The term "SEC" means the Securities and Exchange
Commission.
5.2 COMPANY REGISTRATION. Subject to paragraph 5.6, if at any time
within the next twelve months the Company proposes to Register any of its
Common Stock under the Act in connection with the public offering of such
securities solely for cash on a form that would also permit the
Registration of the Registrable Securities, Company shall, each such time,
promptly give Holder written notice of such determination. Upon the written
request of Holder given within twenty (20) days after the mailing of any
such notice by Company, Company shall use its best efforts to include in
such Registration and cause to be Registered all of the Registrable
Securities that Holder has requested be Registered.
5.3 REGISTRATION PROCEDURES. Whenever required under paragraph 5.2 to
use its best efforts to effect the Registration of any Registrable
Securities, Company shall accomplish the following as expeditiously as
reasonably possible:
(a) REGISTRATION STATEMENT. Prepare and file with the SEC a
registration statement with respect to such Registrable Securities
("Registration Statement") and use its best efforts to cause such
Registration Statement to become and remain effective. In connection with
any proposed Registration intended to permit an offering of any securities
from time to time, Company shall in no event be obligated to cause any such
Registration to remain effective for more than one hundred and twenty (120)
days or until Holder has completed the distribution; provided, that such
one hundred twenty (120) day period shall be extended (i) for such period
of time as the Holder refrains from selling any securities included in such
Registration at the request of an underwriter of Common Stock or other
securities of Company; and (ii) in the case of any registration on Form S-3
of Registrable Securities which are intended to be offered on a continuous
or delayed basis, for such period of time as is necessary to keep the
Registration Statement effective until all such Registrable Securities are
sold. The foregoing exception contained in clause (ii) of paragraph 16.3(a)
shall apply only if Rule 145 permits an offering on a continuous or delayed
basis, and applicable rules under the Act permit the incorporation by
reference in the Registration Statement of the Required Information
contained in periodic reports filed by Company pursuant to Section 13 or
15(d) of the 1934 Act in lieu of filing a posteffective amendment. As used
herein "Required Information" means (i) facts or events representing a
material or fundamental change in the information included in the
Registration Statement or (ii) prospectus required by Section 19(a)(3) of
the Act;
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4
(b) AMENDMENTS. Prepare and file with the SEC such amendments and
supplements to such Registration Statement as may be necessary to comply
with the provisions of the Act for the disposition of securities covered by
such Registration Statement;
(c) COPIES. Furnish to Holder copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Act and
all applicable SEC rules and regulations, and such other documents as the
Holder may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them, including without limitation an
earnings statement which satisfies the provisions of Section 11(a) of the
Act;
(d) BLUE SKY. Use its best efforts to Register and qualify the
securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions as shall reasonably be
appropriate for the distribution of the securities covered by the
Registration Statement; provided, that Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such jurisdictions.
If any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in the jurisdiction be borne by the selling shareholders, then
expenses shall be payable by the selling shareholders pro rata, to the
extent required by such jurisdiction; and
(e) TRANSFER AGENT. Provide a transfer agent and registrar for all
Registrable Securities to be registered pursuant to such Registration
Statement and a CUSIP number for all Registrable Securities, in each case
not later than the effective date of such Registration.
5.4 HOLDER INFORMATION. As a condition precedent to the obligations of
Company to take any action pursuant to this Agreement, Holder shall furnish
to Company such information regarding them, the Registrable Securities held
by them, and the intended method of disposition of such securities as
Company shall reasonably request and as shall be required in connection
with the action to be taken by Company.
5.5 REGISTRATION EXPENSES. Company shall bear all expenses of
Registration (excluding underwriting discounts and all legal fees and
expenses of the Holder). Such expenses of Registration shall include
without limitation, Registration, qualification and filing fees and legal
fees of Company. All underwriting discounts with respect to such shares
shall be borne by Holder requesting registration in proportion to the
number of shares registered on behalf of Holder.
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5
5.6 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares being issued by Company, Company shall
not be required under paragraph 5.2 to include any of Holder's Registrable
Securities in such underwriting unless Holder accept the terms of the
underwriting as agreed upon between Company and the underwriters selected
by it and then only in such quantity as will not, in the written opinion of
the underwriters, jeopardize the success of the offering by Company. If
the total amount of securities that Holder requests to be included in such
offering exceeds the amount of securities that the underwriters reasonably
believe to be compatible with the success of the offering, Company shall
only be required to include in the offering so many of the securities of
Holder as the underwriters believe will not jeopardize the success of the
offering.
5.7 ALLOCATION OF RIGHTS. If the total number of shares of Registrable
Securities and other Common Stock with registration rights (including
Common Stock to be received upon conversion of convertible
securities)("Other Shares") exceeds the number of shares to be included in
a Registration, then the number of shares of Registrable Securities and
Other Shares to be included in the Registration shall be allocated among
Holder of the Registrable Securities and shareholders of the Other Shares
on the basis of the proportionate number of shares held by Holder (assuming
full conversion). If Holder or other selling shareholder does not request
inclusion of the maximum number of shares of Registrable Securities and
Other Shares allocated to him or her, then the remaining portion of his or
her allocation shall be reallocated among those requesting Holder and other
selling shareholders whose allocations did not satisfy their requests on
the basis of the number of shares of Registrable Securities and Other
Shares held by Holder and other selling shareholders (assuming full
conversion). This procedure shall be repeated until all Registrable
Securities and Other Shares which may be included in the Registration have
been so allocated.
5.8 NO DELAY OF REGISTRATION. Holder shall have no right to take any
action to restrain, enjoin, or otherwise delay any Registration as the
result of any controversy that might arise with respect to the
interpretation or implementation of this Agreement.
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6
5.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement pursuant to this Agreement:
(a) INDEMNIFICATION BY COMPANY. To the extent permitted by law,
Company shall indemnify and hold harmless Holder requesting or joining in a
Registration, its legal counsel, any underwriter (as defined in the Act)
for it, and each person, if any, who controls such Holder or underwriter
within the meaning of the Act, against any losses, claims, damages or
liabilities, joint or several, to which they may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) (i) arise out of or are based on any untrue
or alleged untrue statement of any material fact contained in such
Registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii)
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (iii) arise out of any violation
by Company of any rule or regulation promulgated under the Act applicable
to Company and relating to action or inaction required of Company in
connection with any such Registration. In such event Company shall
reimburse Holder, such underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this paragraph 5.9(a)
shall not apply to (i) amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the
consent of Company (which consent shall not be unreasonably withheld) nor
(ii) any such loss, claim, damage, liability or action to the extent that
it arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in connection with such
Registration statement, preliminary prospectus, final prospectus or
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished expressly for use in connection with such
Registration by any such Holder, underwriter or controlling person;
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7
(b) INDEMNIFICATION BY HOLDER. To the extent permitted by law,
Holder joining in a Registration will indemnify and hold harmless Company,
each of its officers, legal counsel and directors, and each person, if any,
who controls Company within the meaning of the Act and each agent and any
underwriter for Company (within the meaning of the Act) against any losses,
claims, damages or liabilities to which Company or any such director,
officer, legal counsel, controlling person, agent or underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) (i) arise out of or
are based upon any untrue statement or any material fact contained in such
Registration statement, including any preliminary prospectus or final
prospectus therein or any amendments or supplements thereto, (ii) arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such Registration statement,
preliminary or final prospectus, or amendments or supplements thereto, in
reliance upon and in conformity with written information furnished by
Holder expressly for use in connection with such registration. Holder will
reimburse any legal or other expenses reasonably incurred by Company or any
such director, officer, legal counsel, controlling person, agent or
underwriter in connection with investigating or defending any such loss,
claim, damage, liability or action. The indemnity agreement contained in
this paragraph 5.9(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of such Holder (which consent shall not be
unreasonably withheld);
(c) NOTICE. Promptly after receipt by an indemnified party under
this paragraph 5.9 of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against any indemnifying party under this paragraph, notify the
indemnifying party in writing of the commencement thereof and the
indemnifying party shall have the right to participate in and, jointly with
any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to
notify an indemnifying party promptly of the commencement of any such
action, if prejudicial to his ability to defend such action, shall relieve
such indemnifying party of any liability to the indemnified party under
this paragraph, but the failure to notify the indemnifying party shall not
relieve him of any liability that the indemnifying party may have to any
indemnified party otherwise than under this paragraph 5.9; and
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8
(d) CONTRIBUTION. If the indemnification provided for in this
paragraph 5.9 is held by a court of competent jurisdiction to be
unavailable to an indemnified party hereunder with respect to any loss,
liability, claim, damage or expense, then the indemnifying party, in lieu
of indemnifying such indemnified party shall contribute to the amount paid
or payable by such indemnified party as a result of such loss, liability,
claim, damage or expense in such proportion as is appropriate to reflect
the relative fault of the indemnifying party and of the indemnified party
in connection with the statement or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or the indemnified party, and the opportunity to correct
or prevent such statement or omission.
5.10 TERMINATION OF COMPANY'S OBLIGATIONS. The right of Holder to obtain
Registration pursuant to this Agreement shall terminate on, or on the first
date after, the earlier of (i) the first anniversary of this Agreement, or
(ii) the closing of the first Registered public offering of Company's
Common Stock initiated by Company if all shares of Registrable Securities
held or entitled to be held upon conversion by Holder may immediately be
sold under Rule 144 of the Act during any ninety (90)-day period.
5.11 REPORTS UNDER 1934 ACT. In order to allow the Holders the benefits
of Rule 144 promulgated under the Act and any other rule or regulations of
the SEC that may at any time permit the Holder to sell securities of
Company to the public without Registration, Company agrees to use its best
efforts to:
(a) PUBLIC INFORMATION. Make and keep public information
available, as those terms are understood and defined in Rule 144, at all
times subsequent to ninety (90) days after the effective date of the first
Registration Statement covering an underwritten public offering filed by
Company;
(b) FILING. File with the SEC in a timely manner all reports and
other documents required of Company under the Act and the 1934 Act; and
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9
(c) COPIES OF REPORTS. Furnish upon request to any Holder, so long
as such Holder owns any Registrable Securities: (i) a written statement by
Company that Company has complied with the reporting requirements of Rule
144, the Act and the 1934 Act (at any time after it has become subject to
such reporting requirements); (ii) a copy of the most recent annual or
quarterly report of Company; and (iii) such other reports and documents so
filed by Company as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC permitting the selling of any such
securities without Registration.
5.12 LOCKUP AGREEMENT. Upon the request of Company or the underwriters
managing any underwritten offering of Company's securities, in connection
with any Registration, Holder agrees not to sell, make any short sale of,
loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in the Registration)
without the prior written consent of Company or such underwriters, as the
case may be, for such period of time (not to exceed one hundred eighty
(180) days) from the effective date of such Registration as Company or
other underwriters may specify. The obligations of the Holders under this
paragraph 5.12 shall not apply to a registration relating solely to
employee benefit plans on Form S-1 or Form S-8 or similar forms that may be
promulgated in the future. Company may impose stop-transfer instructions
with respect to all shares (or securities) subject to the foregoing
restriction until the end of such one hundred eighty (180)-day period.
5.13 NO LIMITATION ON FUTURE REGISTRATION RIGHTS. Other than the
obligations imposed hereunder on Company to allocate registration rights,
Company shall not be restricted from granting any form of registration
rights to any person.
5.14 TRANSFER OF REGISTRATION RIGHTS. The registration rights of Holder
under this Agreement may not be transferred to any other party.
6. REPRESENTATIONS AND WARRANTIES. Each of the parties represents and
warrants to the other as specified below and acknowledges that each such
representation and warranty is a material inducement to the agreement of
the other party hereunder:
6.1. THERMO and On-Time each represents and warrants that the
execution, delivery and performance by each of their respective obligations
hereunder are duly authorized by all necessary corporate action;
6.2. On-Time represents and warrants that it has not granted any rights
to any third party inconsistent with the rights granted THERMO hereunder;
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10
6.3. THERMO and On-Time each represents and warrants respectively that
it has, and will continue to maintain the capacity, facilities and
personnel necessary to perform its obligations under this Agreement;
6.4. On-Time and THERMO each represents and warrants respectively that
it will make no representations, warranties or guarantees to anyone with
respect to the specifications or capabilities of the Products;
7. SATISFACTION OF REQUIREMENTS. On-Time shall maintain a reasonable
inventory, to be determined mutually by On-Time and THERMO, of the
Products sufficient to serve adequately the needs of prospective Purchasers
on a reasonable and timely basis. On-Time shall use its best efforts to
advise THERMO in advance of any inability to produce or deliver the
Products which THERMO has previously ordered. On-Time shall indemnify
THERMO from any and all expenses, costs or liability that THERMO may incur
as a result of On-Time's failure to produce an adequate number of Products
at times specified.
8. COMPLIANCE WITH LAWS. Each party shall comply with all laws, rules and
regulations applicable to the manufacture, marketing and distribution of
the Products.
9. EVENTS OF GOD. Neither party shall be responsible for any failure to
perform due to unforeseen circumstances or to causes beyond its control,
including but not limited to acts of God, war, riot, embargoes, acts of
civil or military authorities, fire, floods, accidents, strikes or
shortages of transportation, facilities, fuel, energy, labor or materials.
In the event of any such delay, the affected party may defer the delivery
date for a period equal to the time of such delay.
10. INSURANCE. On-Time shall purchase and maintain all appropriate
insurance relating to the manufacture, storage and shipment of the
Products in appropriate amounts. On-Time shall provide THERMO with proof
of such insurance promptly upon obtaining such insurance and name THERMO as
an alternate loss payee.
11. CONFIDENTIALITY. On-Time, its officers, directors and key
employees, shall enter into THERMO's standard form of confidentiality
agreement, the form of which is attached as Exhibit C, and On-Time shall
take reasonable precautions to protect THERMO proprietary and confidential
information from improper release, disclosure, or use.
12. NO ASSIGNMENT. This Agreement shall not be assigned by any party
without the prior written consent of the other. Any assignment contrary
to the provisions of this Agreement shall be null and void.
7156\5598\DCA\130363.1
<PAGE>
11
13. RELATIONSHIP. Except as expressly provided herein, neither party
shall have any authority to represent the other as agent or bind the other
in any manner. Neither this Agreement nor the performance of any part of
its provisions shall be construed to in any manner that would render one
party the agent or representative of the other, nor shall this Agreement be
deemed to establish a joint venture or partnership. This Agreement shall
not give rise to any rights in any third parties.
14. TERMINATION; EFFECT.
14.1. TERMINATION. THERMO shall have the right to terminate this
Agreement immediately, upon written notification and without further
action, if:
(a) Any of the terms or conditions of this Agreement are breached by
On-Time and THERMO, in its sole discretion, determines that such breach is
material and may result in an impairment of its rights to the trademarks
and other intellectual property rights in and to its Products, or which may
result in impairment of the value of the trademarks or other intellectual
property rights in and to the Products; provided, however, that On-Time
shall have a thirty (30) day period from the date of notification by THERMO
to cure any identified breach.
(b) On-Time fails to use the appropriate trade mark and logo
designations in conjunction with the manufacture of the Products, or
otherwise takes any action that would be inconsistent with THERMO's
ownership and rights in and to the trademarks or Products.
(c) Harold Hucakaba becomes incapacitated or otherwise unable to
perform day to day duties at On-Time, whether by death, disability or
otherwise ("Incapacity"); provided, however, that a termination will not
result if the Incapacitation does not impair the service and quality of the
service to THERMO, or otherwise impair the ability of On-Time to meet its
obligations under this Agreement.
14.2. AUTOMATIC TERMINATION. This Agreement shall terminate, without
any action by THERMO, upon the bankruptcy or insolvency of either party, or
upon an assignment of rights or accounts for the benefit of creditors,
appointment of a receiver, or other relief from creditors.
7156\5598\DCA\130363.1
<PAGE>
12
14.3. EFFECT OF TERMINATION. Upon the expiration of this Agreement by
its terms, or upon the earlier termination as provided above, all rights
granted hereunder shall revert back to THERMO and On-Time shall immediately
cease and thereafter refrain from all use of the trademarks and manufacture
of the Products. If this Agreement is terminated earlier, as provided
above, On-Time shall deliver to THERMO, within one (1) week, all molds,
dies, templates, and other tooling developed for the manufacture of THERMO
products, and shall deliver all work in progress and completed work held in
inventory to such location as THERMO may designate.
15. MISCELLANEOUS.
15.1. ENTIRE AGREEMENT. This document and its exhibits constitute the
entire agreement between the parties, all oral agreements being merged
herein, and supersede all prior representations. There are no
representations, agreements, arrangements, or understandings, oral or
written, between or among the parties relating to the subject matter of
this Agreement that are not fully expressed herein or therein.
15.2. AMENDMENT. The provisions of this Agreement may be modified at any
time by agreement of the parties. Any such agreement hereafter made shall
be ineffective to modify this Agreement in any respect unless in writing
and signed by the parties against whom enforcement of the modification or
discharge is sought.
15.3. WAIVER. Any of the terms or conditions of this Agreement may be
waived at any time by the party entitled to the benefit thereof, but no
such waiver shall affect or impair the right of the waiving party to
require observance, performance or satisfaction either of that term or
condition as it applies on a subsequent occasion or of any other term or
condition.
15.4. NOTICES. Any notice under this Agreement shall be in writing, and
any written notice or other document shall be deemed to have been duly
given (i) on the date of personal service on the parties, (ii) on the third
business day after mailing, if the document is mailed by registered or
certified mail, (iii) one day after being sent by professional or overnight
courier or messenger service guaranteeing one-day delivery, with receipt
confirmed by the courier, or (iv) on the date of transmission if sent by
telegram, telex, telecopy or other means of electronic transmission
resulting in written copies, with receipt confirmed. Any such notice shall
be delivered or addressed to the parties at the addresses set forth below
or at the most recent address specified by the addressee through written
notice under this provision. Failure to conform to the requirement that
mailings be done by registered or certified mail shall not defeat the
effectiveness of notice actually received by the addressee.
7156\5598\DCA\130363.1
<PAGE>
13
15.5. ATTORNEYS' FEES. If the services of an attorney are required by
any party to secure the performance of this Agreement or otherwise upon the
breach or default of another party to this Agreement, or if any judicial
remedy or arbitration is necessary to enforce or interpret any provision of
this Agreement or the rights and duties of any person in relation thereto,
the prevailing party shall be entitled to reasonable attorneys' fees, costs
and other expenses, in addition to any other relief to which such party may
be entitled. Any award of damages following judicial remedy or arbitration
as a result of the breach of this Agreement or any of its provisions shall
include an award of prejudgment interest from the date of the breach at the
maximum amount of interest allowed by law.
15.6. POST-JUDGMENT ATTORNEYS' FEES. If the services of an attorney are
required by any party to enforce a judgment rendered in connection with
this Agreement, the judgment creditor shall be entitled to reasonable
attorneys' fees, costs and other expenses, and such fees, costs and
expenses shall be recoverable as a separate item. This provision shall be
severable from all other provisions of this Agreement, shall survive any
judgment, and shall not be deemed merged into the judgment.
15.7. GOVERNING LAW. The rights and obligations of the parties and the
interpretation and performance of this Agreement shall be governed by the
law of California, excluding its conflict of laws rules. Each party
consents to the jurisdiction of, and any actions arising under this
Agreement shall be heard and resolved in, courts in the the County of
Sacramento, State of California such forum shall be the sole and exclusive
venue for any such action.
THERMOGENESIS CORP.
(A DELAWARE CORPORATION)
DATE: ___________ BY: _________________________________
(WALTER J. LUDT, III)
ITS: VICE-PRESIDENT AND CHIEF OPERATING OFFICER
Address: 11431 Sunrise Gold Circle, Suite A
Rancho Cordova, California 95742
Fax: (916) 635-2163
ON-TIME MANUFACTURING, INC.
(A __________ CORPORATION)
DATE: ___________ BY: _________________________________
(HAROLD HUCKABA)
ITS: PRESIDENT
Address: 5230 Hwy 50 East
Carson City, NV 89706
Fax: (702) 883-8748
7156\5598\DCA\130363.1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED JUNE 30, 1996, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,243,079
<SECURITIES> 0
<RECEIVABLES> 1,441,148
<ALLOWANCES> 97,913
<INVENTORY> 2,137,198
<CURRENT-ASSETS> 4,897,484
<PP&E> 689,562
<DEPRECIATION> 312,307
<TOTAL-ASSETS> 5,937,140
<CURRENT-LIABILITIES> 1,276,545
<BONDS> 0
0
0
<COMMON> 12,709
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,937,140
<SALES> 4,124,634
<TOTAL-REVENUES> 4,209,481
<CGS> 2,364,975
<TOTAL-COSTS> 1,173,254
<OTHER-EXPENSES> 1,803,648
<LOSS-PROVISION> 25,000
<INTEREST-EXPENSE> 41,454
<INCOME-PRETAX> (568,534)
<INCOME-TAX> 0
<INCOME-CONTINUING> (568,534)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (568,534)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
