SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-K
_X_ Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NO. 0-18602
ATS MEDICAL, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1595629
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3905 ANNAPOLIS LANE
MINNEAPOLIS, MINNESOTA 55447
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 553-7736
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock $.01
par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 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 _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of January 1, 1997 was approximately $111,360,742 (based on the
last sale price of such stock as reported by the NASDAQ National Market).
The number of shares outstanding of each of the registrant's classes of
common stock as of January 1,1997 was:
Common Stock, $.01 par value 15,288,042 shares
DOCUMENTS INCORPORATED BY REFERENCE
Pursuant to General Instruction G(3), the responses to Items 10, 11, 12
and 13 of Part III of this report are incorporated herein by reference to
certain information contained in the Company's definitive proxy statement for
its 1997 Annual Meeting of Shareholders to be filed with the Securities and
Exchange Commission on or before April 28, 1997.
ATS MEDICAL, INC.
1996 FORM 10-K
PART I
ITEM 1. BUSINESS
GENERAL
ATS Medical, Inc. ("ATS Medical" or the "Company") manufactures and markets a
pyrolytic carbon bileaflet mechanical heart valve. The Company believes, based
on preliminary clinical results, that the ATS Open Pivot(TM) valve (the "ATS
Medical valve" or the "Valve") offers superior performance compared to other
commercially available mechanical heart valves. The Company began selling the
ATS Medical(TM) valve in international markets in 1992. In December, 1996 the
U.S. Food and Drug Administration (FDA) conditionally approved the Company's
Investigational Device Exemption (IDE) allowing the Company to initiate a
clinical study of the valve with the eventual goal of regulatory approval in the
United States.
THE ATS OPEN PIVOT VALVE
The ATS Open Pivot valve is designed to advance the standard of existing
mechanical heart valves by combining a proprietary open pivot design and certain
innovative features with the widely accepted biocompatibility and durability of
pyrolytic carbon. Based on preliminary clinical results, the Company believes
that the ATS Medical valve offers superior performance compared to other
commercially available mechanical heart valves. The following characteristics
are the primary advances of the ATS Medical valve:
POTENTIAL FOR REDUCED RATES OF THROMBOEMBOLIC COMPLICATIONS
The ATS Medical valve's pivot areas are designed to protrude into the orifice
and be exposed to the washing action of the blood flowing through the Valve. All
other currently marketed bileaflet valves contain pivot cavities in the orifice
wall into which protrusions from the semi-circular leaflets extend to allow the
leaflets to swing open and shut. These cavities are areas of flow stagnation and
possible blood clot formation. The proprietary open pivot areas of the ATS
Medical valve feature spherical protrusions from the orifice that match
spherical notches in the leaflets. The pivot areas project into the normal blood
flow pattern where the pivots are washed by the flowing blood. By eliminating
the cavities in the orifice and placing the pivot areas within the normal blood
flow, the Company believes the improved washing action lowers the likelihood of
blood clot formation and the resulting incidence of thromboembolism. The open
pivot design as well as the angled inflow and outflow pivot stops also result in
low levels of hemolysis (damage to blood cells) which the Company believes
further contributes to a low rate of thromboembolic complications.
IMPROVED BLOOD FLOW EFFICIENCIES
The Company believes the Valve has several features that result in improved
blood flow efficiency as compared to other commercially available valves. The
Valve's orifice is a solid pyrolytic carbon ring. In contrast, the industry
standard valve orifice is composed of a soft graphite substrate which is coated
on all sides by pyrolytic carbon. By eliminating the graphite substrate, the
Company is able to make the orifice as durable but thinner, thereby resulting in
a larger inside diameter. The Company believes that this design results in lower
pressure gradients in the ATS Medical valve. The Valve also has less
regurgitation (backflow of blood when the valve is closing and closed) than
other valves due to geometry's that minimize the direct leakage paths. These
design characteristics result in superior blood flow efficiencies which should
reduce the workload on the heart.
EASE OF IMPLANT
The Valve and its supporting materials are designed for ease of use by the
implanting cardiac surgeon. The ATS Medical valve has a low profile design to
avoid complications in the implant procedure. The orifice also is rotatable,
thereby allowing the surgeon to optimize valve orientation by adjusting the
position of the leaflets after the Valve has been sutured in the natural
anatomical position in the patient's heart. The packaging and accessories of the
Valve also are designed to facilitate the implant procedure by including all of
the required items pre-assembled in a sterilized dual barrier container.
IMPROVED FOLLOW-UP DIAGNOSTIC CAPABILITY
The ATS Medical valve eases the follow-up diagnostic process by being more
visible to x-rays than other commercially available valves. The titanium
stiffening ring provides a clear image on x-rays taken from any angle. The
leaflets also have a higher percentage of tungsten impregnated in the substrate
than the industry standard valve, making them more visible to x-rays. This
increased visibility to x-rays assists cardiologists during follow-up
examinations.
IMPROVED PATIENT QUALITY OF LIFE THROUGH LOWER NOISE LEVELS
Patients with other implanted mechanical heart valves frequently complain of
disturbances resulting from the clicking sound created as the valve closes.
These disturbances range from irritability and insomnia to paranoia and
depression. Spouses of patients with implanted mechanical valves also report
disturbances resulting from the noise of the valve. Initial clinical reports and
preliminary studies indicate that the ATS Medical valve is quieter than
competitors' valves and below the threshold of hearing for most patients. The
Company believes that the reduced noise level of the Valve further improves the
quality of life of the patient.
CLINICAL DATA AND TESTING RESULTS
The Company began the development of the ATS Medical valve in November 1990.
During 1991 and 1992, the Company performed in vitro and animal testing of the
Valve. The in vitro testing included accelerated wear testing which subjected
the Valves to repeated opening and closing at speeds and forces greatly in
excess of those found in the human heart. The Company has continued these
accelerated wear tests beyond 1992 and, as of December 31, 1995, has accumulated
wear data in excess of 600 million cycles or equivalent to 15 years of
performance in a human. The results of these accelerated wear tests show average
wear rates similar to the St. Jude valves used as control valves. The results of
the animal testing and the other in vitro testing also show performance
characteristics either equivalent or superior to the St. Jude valves used as
control valves.
Beginning in May 1992, after obtaining approval from its Medical Advisory Board,
the Company commenced human implants in international markets. Through January
1, 1997, the Company estimates that over 14,000 ATS Medical valves have been
implanted in patients outside of the United States. The Company has received
implant registration data from over 130 institutions in 29 countries which have
implanted the ATS Medical valve in patients. While no long-term in vivo studies
of the Valve have yet been completed, the Company believes, based on discussions
with surgeons and analysis of short-term implant data, that the Valve is
demonstrating superior performance compared to the industry standard mechanical
valve. Based on these preliminary clinical reports, the Company believes that
the ATS Medical valve is experiencing a lower rate of thromboembolic events,
superior blood flow efficiencies, lower levels of hemolysis and lower noise
levels than the industry standard valve. In 1996, three prominent surgical
groups were recognized for their work with the ATS Open Pivot valve through the
publication of their clinical results in scientific journals. The published
materials were critical to the continued penetration of key European markets.
The first published paper detailed results of the Japanese clinical trials. It
was essential in aiding the rapid entry into the Japanese market following
regulatory approval which occurred two months after publication. In short order,
two more scientific articles appeared. These articles, originating from Belgium
and the United Kingdom, became very effective selling tools in Europe as well as
other parts of the world.
PROSTHETIC HEART VALVE MARKET
Prosthetic heart valves have been in general use since the 1960's and represent
an estimated $600 million worldwide market. The worldwide prosthetic heart valve
market has consistently grown at a rate of over 5 percent annually over the last
20 years, principally due to the expansion of cardiovascular surgery facilities
and the acceptance of valve replacement.
The worldwide prosthetic heart valve market is projected to continue to increase
at annual rates of 4 to 5 percent due to the aging of the population and the
expansion of cardiovascular surgery in international markets. One of the
principal causes of valve replacement is the deterioration of natural valves
through the aging process, with the average age of valve replacement patients in
excess of 50 years. As this segment of the population increases, the market for
prosthetic heart valves is expected to increase. In addition, rheumatic heart
disease is a principal cause of valve replacement, particularly in areas where
penicillin has been unavailable until relatively recently. As cardiovascular
surgery facilities expand in developing markets, the number of prosthetic heart
valve implants is expected to increase. The countries of Eastern Europe, the
Middle East and South America all offer the potential for greater than 10
percent annual growth in the number of implants of prosthetic valves.
Over 70 percent of the prosthetic valves implanted worldwide are mechanical
valves. Outside of the United States, mechanical valves represent approximately
75 percent of the prosthetic valve implants. Furthermore, as life expectancies
continue to increase, cardiac surgeons have been less likely to use tissue
valves in older patients and thereby subject the patient to the risks of a
possible re-operation. Mechanical valves are used in many instances to replace
degenerative prosthetic tissue valves.
MARKETING AND SALES
The Company's marketing strategy is to combine the substantial cardiovascular
sales experience of its senior officers with a network of experienced
independent distributors to sell the Valve internationally while pursuing
regulatory approval in the United States.
Manuel A. Villafana and Richard W. Kramp, the Company's Chief Executive Officer
and Chief Operating Officer, respectively, previously recruited, selected and
managed the independent distributor network of St. Jude Medical, Inc. ("St.
Jude"). St. Jude was founded in 1976 by Mr. Villafana to develop a bileaflet
mechanical heart valve that has become the world's most frequently implanted
prosthetic heart valve and is currently the industry standard. Mr. Kramp headed
St. Jude's worldwide sales and marketing efforts for almost 10 years. St. Jude
terminated most of its independent distributors as it converted to direct sales
of the St. Jude valve beginning in the United States in 1988 and internationally
in 1990. Many of these international distributors, who have long-established
relationships with cardiac surgeons and cardiologists, have contracted to serve
as independent distributors of the ATS Medical valve.
Since 1992, the Company has contracted with independent distributors in most of
the developed international markets. The Company believes that this independent
distributor network provides a rapid and cost efficient means of introducing the
Valve in a wide range of international markets through an experienced sales
force. The selection of an independent distributor does not involve significant
expense to the Company and does not expose the Company to currency fluctuation
risk since the distributor purchases Valves directly from the Company in United
States dollars. The Company has been able to attract experienced mechanical
valve sales organizations familiar with local markets and customs to act as
distributors.
The Company has a standard distributor agreement with variations for certain
distributors. Most of the distributor agreements establish quotas for sales of
the Valve in the distributor's territory. Most of the distributor agreements
also provide for termination at the option of the Company upon the departure of
certain key employees of the distributor or the change in control of ATS
Medical, Inc.
The Company supports its independent distributors through the Company's sales,
marketing and customer service personnel. The Company displays the Valve at
major international, national and regional medical meetings attended by
cardiovascular surgeons and cardiologists. The Company also develops and
distributes product brochures and product information bulletins and conducts
product training sessions. When feasible, the Company also responds to special
requests from physicians for supporting accessories and custom devices.
In January, 1996 over sixty distributors and their representatives convened in
Europe for the first all distributor sales meeting. The two day meeting included
the distribution of a complete set of new selling tools, followed by intensive
training by Senior Sales and Marketing management. In addition to continuing
training of our core group of distributors, the meeting also provided direct
training to the many new representatives who had joined the Company in 1995 or
who were starting as distributors in early 1996. Distributors from as far away
as Japan enjoyed the opportunity to learn, from the Company's staff as well as
their peers, the best methods for selling and supporting the valve in their
markets.
COMPETITION
The mechanical heart valve market is highly competitive with one dominant
company. In 1994, according to industry estimates, St. Jude represented
approximately 64% of the mechanical heart valves sold worldwide. St. Jude was
founded in 1976 by Mr. Villafana and has sold substantially the same bileaflet
valve since it was first introduced in 1977, although certain minor alterations
have recently been made to the valve.
Other companies that sell mechanical valves include Medtronic, Inc.,
CarboMedics, Inc. ("CMI"), Baxter Edwards and Sorin Biomedica sPa. Medtronic,
Inc. sells a monoleaflet mechanical valve that was introduced in the late 1970's
as well as a tissue valve. CMI, which manufactures pyrolytic carbon components
for the Company's valve, markets a bileaflet pyrolytic carbon valve with cavity
pivot areas resembling those in the St. Jude valve. CMI introduced its bileaflet
valve in international markets in 1986 and in 1993 received FDA approval to sell
the valve in the United States. Baxter Edwards reintroduced a bileaflet valve in
international markets. Sorin Biomedica sPa is an Italian company that sells a
monoleaflet and a bileaflet mechanical valve. These competitors have
significantly greater financial resources than the Company.
The Company also is aware of several companies that are developing new
prosthetic heart valves. Several companies are developing and testing new
autologous (created from the patient's own tissue) valves, more durable tissue
valves and new bileaflet and trileaflet mechanical valves. Advancements also are
being made in surgical procedures such as mitral valve reconstruction, whereby
the natural mitral valve is repaired, thereby delaying the need for a
replacement valve. Other companies are pursuing biocompatible coatings to be
applied to mechanical valves in an effort to reduce the incidence of
thromboembolic events.
The Company believes that the most important factors in a physician's selection
of a particular prosthetic valve are the physician's perceived benefits of the
valve and the physician's confidence in the valve design. As a result, valves
that have developed a favorable clinical performance record have a significant
marketing advantage over new valves. In addition, negative publicity resulting
from isolated incidents can have a significant negative effect on a valve's
overall acceptance. The Company competes with existing mechanical heart valves
by combining the advanced technical features of the Valve with the substantial
sales and heart valve marketing experience of its key management and independent
distributors. The Company's success is dependent upon the surgeon's willingness
to use a new prosthetic heart valve as well as the future clinical performance
of the Valve compared with the more established competition.
The Company believes that mechanical heart valves are currently being marketed
to hospitals at prices that vary significantly from country to country due to
market conditions, currency valuations, distributor mark-ups and government
regulations. The Company believes that, after distributor mark-up, the ATS
Medical valve sells at or above the current price of other valves in most
markets. In many markets, government agencies are imposing or proposing price
controls or restrictions on medical products. The Company works with its
independent distributors to price the Valve in each market to meet these
limitations. In addition, the Company's primary competitors have the ability,
due to their internal carbon manufacturing facilities and economies of scale, to
manufacture their valves at lower cost than the Company can manufacture the ATS
Medical valve.
MANUFACTURING AND COMPONENT SUPPLY
The basic design from which the ATS Medical valve evolved was developed by CMI.
CMI is the largest and most experienced manufacturer of pyrolytic carbon
components used in mechanical heart valves. CMI has designed and patented
numerous mechanical valves, and was in the process of pursuing the regulatory
and marketing steps for another mechanical valve that it had developed when it
agreed to license its patent (the "CMI Patent") on the basic design of an open
pivot bileaflet mechanical valve to the Company in 1990.
The Company commenced its valve development program by entering into four
agreements with CMI: a license agreement, a development agreement, a supply
agreement and an option agreement. Under the terms of the license agreement with
CMI (the "License Agreement"), the Company received a royalty-free worldwide
exclusive license to the licensed patent. The License Agreement does not include
the right to manufacture the pyrolytic carbon components, except that if CMI is
unable to produce the components, the Company has the right and license to make
or have made components. The License Agreement may be terminated by CMI or CMI
may declare the license to be non-exclusive if the Company fails to meet the
minimum purchase requirements under a supply agreement with CMI (the "Supply
Agreement"). Upon satisfaction of the Company's minimum purchase requirements
under the Supply Agreement, the Company will have a paid-up, exclusive,
royalty-free, worldwide license to the licensed patent. At the same time it
entered into the License Agreement, the Company entered into a development
agreement (the "Development Agreement") with CMI to complete design development
of the pyrolytic carbon components and perform testing of the Valve. The
Development Agreement provided that CMI, at the Company's direction, perform
preliminary tests of the Valve and assist the Company in making changes in the
design. As a result of these tests and certain design changes initiated by the
Company, the Company finalized the design of the Valve and filed and received an
additional U.S. patent covering the design modifications. The design
improvements and the U.S. patent covering the modifications are the exclusive
property of the Company. This today is the ATS Open Pivot valve.
In late 1992, upon completion of the Development Agreement, the Company began
purchasing sets of Valve components from CMI under the Supply Agreement. The
Company and CMI entered into an amendment to the Supply Agreement in December
1993 that modified the minimum purchase requirements. The Supply Agreement, as
amended, has a term of 15 contract years and provides that the Company purchase
a minimum number of Valve components in each of the first eight contract years.
The fourth contract year was completed in December 1996. The total commitment
for the next four contract years is approximately $60 million. If the minimum
purchase requirements are not met during any of the first eight contract years,
CMI may terminate the License Agreement or may declare the License Agreement to
be non-exclusive. The Company may not purchase Valve components from any source
other than CMI during the first eight contract years unless CMI is unable to
deliver the components. After the eighth contract year, the Company must
purchase the lower of either certain specified amounts or the number of Valves
sold and/or disposed of by any means by the Company. The price for each Valve
component set is determined for all fifteen contract years, with a price
reduction for volume purchases and sales into certain developing countries, and
a yearly price adjustment for changes in the U.S. Department of Labor Employment
Cost Index.
The Company's manufacturing operation consists of fabricating the sewing cuff
and assembling, inspecting, testing and packaging all of the components into a
finished Valve. The standard Valve is available in seven sizes ranging from 19mm
to 31mm in diameter, with each size available with sewing cuffs for either
aortic valve or mitral valve replacement. An extended sewing cuff is available
with the pyrolytic carbon components of a 31mm mitral valve to create a 33mm
valve for special mitral valve replacements.
The Company introduced the Advanced Performance ("AP") series of the ATS Medical
valve in international markets in early 1994 and is available in seven sizes
ranging from 16mm to 28mm in diameter. The AP series consists of a reconfigured
sewing cuff, allowing a larger valve to be used in small anulus situations.
The Company receives, inspects and assembles components in its Minneapolis,
Minnesota facility. The finished subassemblies are inspected, packaged and
shipped to Scotland where the Valve is assembled, inspected, packaged and
sterilized for shipment to distributors. Since it has now received approval of
its IDE application from the FDA, the Company has begun to assemble Valves for
implant in the United States, and certain other countries, at its Minneapolis,
Minnesota facility.
At any time during the ninth through the fifteenth contract years of the Supply
Agreement, the Company may exercise an option to acquire the carbon technology
necessary to manufacture the Valve under an option agreement with CMI (the
"Option Agreement"). The option may be exercised by paying a one time fee to
CMI. The Option Agreement may be terminated by CMI if the Company fails to meet
the minimum purchase levels for any of the first eight contract years of the
Supply Agreement or if the Company purchases carbon components from a source
other than CMI at any time during the term of the Supply Agreement.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's policy is to protect its proprietary position by, among other
methods, obtaining United States and international patents to protect
technology, inventions and improvements important to the development of its
business. The Company has received a royalty-free license on the basic design of
the Valve under the CMI Patent, subject to certain continuing component purchase
requirements. See "Business--Manufacturing and Component Supply." The Company
refined the design of the Valve to make it suitable for implantation and filed
an additional United States patent application covering the design improvements.
The United States patent on the design improvements was issued in October 1994.
The Company also has filed patent applications in Japan, Belgium, France,
Germany, Netherlands, Spain, Switzerland and the United Kingdom relating to the
design improvements. No assurance can be given that pending patent applications
will be approved or that any patents will not be challenged or circumvented by
competitors.
The Company also relies on trade secrets and technical know-how in its
manufacture and marketing of the Valve. The Company typically requires its
employees, consultants and contractors to execute appropriate confidentiality
agreements with respect to the Company's proprietary information.
The Company claims trademark protection to ATS Medical(TM) and ATS Open
Pivot(TM).
FDA AND OTHER GOVERNMENT REGULATIONS
As a manufacturer of medical devices, the Company is subject to extensive
regulation by the United States Food and Drug Administration (the "FDA") and, in
some jurisdictions, by state and foreign governmental authorities. These
regulations govern the introduction of new medical devices, the observance of
certain standards with respect to the manufacture, testing and labeling of such
devices, the maintenance of certain records, the ability to track devices and
the reporting of potential product defects and other matters. These regulations
have a material impact on the Company. Developments such as the enactment of the
Safe Medical Devices Act of 1990 reflect a trend toward more stringent product
regulation by the FDA. Recently, the FDA has pursued a more rigorous enforcement
program to ensure that regulated businesses comply with applicable laws and
regulations.
The sale and use of mechanical heart valves is regulated extensively in the
United States by the FDA. Pursuant to the Medical Device Amendments of 1976 to
the Federal Food, Drug and Cosmetic Act, medical devices intended for human use
are classified into three categories, Classes I, II and III, depending on the
degree of regulatory control to which they will be subject. Mechanical heart
valves are considered to be Class III devices which are subject to the strictest
testing requirements. Before clinical studies to determine safety and
effectiveness in humans can begin, a battery of laboratory and animal tests must
be conducted. The Company has proceeded with these pre-clinical tests on the
Valve since 1991.
The Company received conditional approval of an Investigational Device Exemption
(IDE) Application in December, 1996. The IDE allows limited clinical studies in
the U.S. during which the Company must submit reports to the FDA regarding
testing and patient follow-up. The IDE study and follow-up is expected to take
at least two years. After obtaining sufficient data from its clinical studies,
the Company may submit a Pre-Market Approval ("PMA") application. The PMA review
process is extremely lengthy and no assurance can be given concerning the
ultimate timing or outcome of a PMA application. Upon receipt of a PMA, the
Company would be able to commence full marketing of the Valve in the United
States.
In addition to the FDA approval process, the Company is subject to significant
additional FDA and other United States regulations. The Company's standard
operating procedures and system of documentation used in the manufacturing
process will be subject to the FDA's guidelines for Good Manufacturing Practices
("GMP's"). The Company also will become subject to periodic inspections by the
FDA to audit compliance with GMP's. To the extent the Company will sell the
Valve to Medicare or Medicaid beneficiaries, the Company will become subject to
the "fraud and abuse" laws and regulations promulgated by the U.S. Department of
Health and Human Services and the U.S. Health Care Finance Administration. These
regulations prohibit direct or indirect payment arrangements designed to induce
or encourage the purchase or recommendation of products reimbursable under
Medicaid or Medicare. The Company also will be required to comply with various
FDA regulations for advertising, labeling, patient tracking, post market studies
and reporting of any adverse experience. The FDA actively enforces regulations
and the failure to comply with applicable regulatory requirements can result in
fines, seizures, recalls and criminal prosecutions.
Regulation of heart valves varies widely in foreign countries, but generally is
less stringent than in the United States. Foreign countries vary from having no
regulations to having pre-market notice to a pre-market approval process. The
Company or its independent distributor must obtain the appropriate approval, if
any, from each country's regulatory agency prior to marketing the Valve in that
country. The Company received CE Mark approval for all European Union Countries
in March, 1995. The Company will continue to be subjected to various audits and
tests under the European Community directives. In June, 1996, the Company
received approval to begin commercial sales in the Japanese market through a
Shonin regulatory approval obtained by its distributor, Century Medical, Inc.
The Company is in the process of pursuing regulatory approval for the Valve in
Australia, Canada and Taiwan.
PRODUCT LIABILITY AND INSURANCE
Cardiovascular device companies are subject to an inherent risk of product
liability and other liability claims in the event that the use of their products
results in personal injury. A mechanical heart valve is a life-sustaining
device, and the failure of any mechanical heart valve usually results in the
death of the patient. ATS Medical has not received any reports of mechanical
failure of the Valves implanted to date and has not experienced any product
liability claims. Any future significant failure of the ATS Medical valve would
subject the Company to substantial litigation, damages and adverse publicity.
The Company currently maintains a $5 million product liability insurance policy,
which is required by the Supply Agreement. The Company is financially
responsible for any uninsured claims or claims which exceed the insurance policy
limits. At the present time, product liability insurance is expensive and
extremely difficult to obtain for mechanical valves. If insurance becomes
completely unavailable, the Company must either develop a self-insurance program
or sell without insurance, and the Company would be required to obtain the
consent of CMI. The development of a self-insurance program would require
significant capital.
CMI has made no warranty on the Valve components. The Company has agreed to hold
CMI harmless and indemnify CMI in the event claims are made or damages are
assessed against CMI as a result of the Valve.
EMPLOYEES
As of January 1, 1997, the Company had 50 full-time employees, of whom 13 were
engaged in regulatory affairs and quality assurance, 13 in production, 17 in
administrative, purchasing and marketing activities, and 7 in the Scotland
production facility.
DISCONTINUED OPERATIONS
The Company was organized in 1987 to design and operate a large-scale mammalian
cell culture system for contract protein manufacturing services to biotechnology
and pharmaceutical companies. In January 1991, the Company's Board of Directors
decided to suspend the biotechnology operations. In February 1992, the Company
entered into an agreement and sold all of the biotechnology assets and
technology. As a result of the sale of the biotechnology business, the Company's
current total operations consist of the Valve business.
ITEM 2. PROPERTIES
The Company currently maintains administrative offices, production and
engineering facilities in 20,535 square feet of leased space in a suburb of
Minneapolis, Minnesota. The lease expires on December 31, 1997. The Company
believes the current facility is adequate for its near-term needs.
The Company's wholly-owned subsidiary, ATS Medical, Ltd., entered into a lease
effective November 1993 for approximately 1,500 square feet of clean room and
administrative space in Glasgow, Scotland. The Scotland facility is used for
final assembly, packaging and shipping the ATS Medical valve. The Company leases
the facility on a month-to-month basis. The Company believes the Scotland
facility is adequate for its near-term needs.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
NAME AGE POSITION
Manuel A. Villafana 56 Chairman and Chief Executive Officer
Richard W. Kramp 51 President and Chief Operating Officer
Russell W. Felkey 46 Executive Vice President of Regulatory Affairs
and Secretary
John H. Jungbauer 47 Vice President, Treasurer and Chief Financial Officer
MANUEL A. VILLAFANA, a founder of the Company, has served as Chief Executive
Officer and Chairman of the Board since the Company's inception in 1987. From
1983 to 1987, Mr. Villafana served as Chairman of GV Medical, Inc., a company
co-founded by Mr. Villafana to develop, manufacture and market the LASTAC
System, a laser transluminal angioplasty catheter system. From 1976 to 1982, Mr.
Villafana served as President and Chairman of St. Jude Medical, Inc., a company
founded by Mr. Villafana to develop, manufacture and market a prosthetic
bileaflet heart valve manufactured from pyrolytic carbon. From 1972 to 1976, Mr.
Villafana served as President and Chairman of Cardiac Pacemakers, Inc., a
company founded by Mr. Villafana to develop, manufacture and market a new
generation of lithium powered pacemakers.
RICHARD W. KRAMP has served as President and Chief Operating Officer and a
Director of the Company since joining the Company in March 1988. Prior to
joining the Company, Mr. Kramp was Vice President of Sales and Marketing for St.
Jude Medical, Inc., where Mr. Kramp served in a variety of sales and marketing
capacities from 1978 to 1988. From 1976 through 1978, Mr. Kramp served as
Illinois Sales Manager for Life Instruments, a distributor of cardiovascular
products. From 1972 to 1976, Mr. Kramp was the Senior Design Engineer and then
Supervisor of Electrical Design for Cardiac Pacemakers, where he designed the
first lithium powered demand pacemaker for which he received a U. S. patent. Mr.
Kramp also is a director of MedAmicus, Inc., a medical products company.
RUSSELL W. FELKEY has served as Executive Vice President of Regulatory Affairs
of the Company since April 1991 and has served as Secretary since October, 1995.
From 1989 to 1991, Mr. Felkey was Vice President of Regulatory Affairs and
Quality Assurance at Cardiovascular Imaging Systems, Inc., a company involved in
the development of peripheral and coronary ultrasound catheters. From 1984 to
1989, Mr. Felkey was Vice President of Regulatory Affairs at GV Medical, Inc.
JOHN H. JUNGBAUER has served as Vice President of the Company since April 1,
1995 and has served as Treasurer and Chief Financial Officer of the Company
since October 1990. From 1988 to 1990, Mr. Jungbauer was Executive Vice
President of Titan Medical, Inc., a medical products company. Prior to 1987, Mr.
Jungbauer was Vice President of Finance at St. Jude Medical, Inc.
MEDICAL ADVISORY BOARD
The Company has a Medical Advisory Board that meets periodically to review and
guide the design and testing of the Valve as well as to provide assessments of
potential new cardiovascular products. The members of the Medical Advisory Board
are as follows:
DR. DEMETRE M. NICOLOFF is a world-renowned cardiac surgeon practicing with
Cardiac Surgical Associates in association with the Minneapolis Heart Institute
and St. Paul Heart and Lung Center. Previously, Dr. Nicoloff was an Associate
Professor of Surgery at the University of Minnesota and taught in the Department
of Surgery at the University of Minnesota for over 15 years. Dr. Nicoloff
participated in the first human implant of the ATS Medical valve in May 1992.
Dr. Nicoloff also participated in the design of the first generation of
bileaflet valves and performed the first human implant of the most frequently
implanted mechanical bileaflet valve. Dr. Nicoloff previously was a member of
the Scientific Advisory Board of St. Jude Medical, Inc. Dr. Nicoloff received
his medical degree from Ohio State University.
DR. H. DAVID FRIEDBERG is a Clinical Professor of Medicine and Cardiology at the
University of South Florida. Dr. Friedberg is certified in cardiac pacing and
electrophysiology. He is a Fellow of the American College of Cardiology,
American College of Chest Physicians and the Council of Clinical Cardiology of
the American Heart Association. Dr. Friedberg participated in the first implant
of the ATS Medical valve in May 1992. Dr. Friedberg previously was a member of
the Scientific Advisory Board of St. Jude Medical, Inc. Dr. Friedberg obtained
his medical degree in South Africa and performed his internal medicine studies
and residencies in London, England.
PART II
ITEM 5. MARKET OR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock (the "Common Stock") is traded on the Nasdaq National
Market under the symbol "ATSI." The following table sets forth the high and low
sale prices since January 1, 1995. Prices represent transactions between dealers
and do not reflect retail markups, markdowns or commissions.
1996 HIGH LOW 1995 HIGH LOW
First Quarter $12.00 $9.00 First Quarter $ 6.63 $ 3.75
Second Quarter 11.88 9.38 Second Quarter 9.75 5.63
Third Quarter 11.00 7.00 Third Quarter 9.88 7.75
Fourth Quarter 8.63 6.25 Fourth Quarter 9.75 7.75
As of December 31, 1996, there were 642 record holders of the Common Stock. The
Company has not paid cash dividends and has no present intentions of paying cash
dividends on its Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company have been
derived from its financial statements for the years ended December 31, 1996,
1995, 1994, 1993 and 1992, which financial statements have been audited by Ernst
& Young LLP. The data should be read in conjunction with the Company's audited
financial statements and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
herein.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------
STATEMENTS OF OPERATIONS DATA:
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
REVENUES:
<S> <C> <C> <C> <C> <C>
Net sales $ 11,859,765 $ 9,300,540 $ 6,763,408 $ 5,057,640 $ 634,226
Less cost of goods sold 7,474,065 6,011,025 4,189,426 3,082,169 430,648
------------ ------------ ------------ ------------ ------------
GROSS PROFIT FROM OPERATIONS 4,385,700 3,289,515 2,573,982 1,975,471 203,578
OPERATING EXPENSES:
Research, development and engineering 617,571 718,189 640,032 679,675 2,670,773
Selling, general and administrative 3,065,402 2,549,570 1,993,447 2,428,630 2,246,538
------------ ------------ ------------ ------------ ------------
TOTAL EXPENSES FROM OPERATIONS 3,682,973 3,267,759 2,633,479 3,108,305 4,917,311
Interest income 641,375 752,880 74,706 165,202 175,264
Other income 0 0 0 599,218 279
Interest expense 0 (31,224) (31,317) 0 0
Income taxes (22,500) (28,888) (25,243) 0 0
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 1,321,602 $ 714,524 ($ 41,351) ($ 368,414) ($ 4,538,190)
============ ============ ============ ============ ============
NET INCOME (LOSS) PER SHARE $ 0.08 $ 0.05 $ 0.00 ($ 0.03) ($ 0.48)
============ ============ ============ ============ ============
Cash dividends declared 0 0 0 0 0
Weighted average number of shares
outstanding during the period 16,303,317 15,328,596 11,177,881 10,841,123 9,404,587
============ ============ ============ ============ ============
December 31,
----------------------------------------------------------------------------
BALANCE SHEET DATA: 1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents............ $ 2,320,010 $ 2,213,632 $ 628,368 $ 2,735,421 $ 6,984,021
Working capital...................... 30,643,942 27,802,438 11,214,977 10,983,019 9,869,377
Total assets......................... 33,320,300 31,329,128 14,558,450 13,887,233 11,910,266
Long-term debt....................... 0 0 0 0 0
Total liabilities.................... 1,393,561 2,269,707 1,790,773 1,171,733 856,348
Accumulated deficit.................. (20,593,921) (21,915,523) (22,630,047) (22,588,696) (22,220,282)
Shareholders' equity................. 31,926,739 29,059,421 12,767,677 12,715,500 11,053,918
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATION
YEAR ENDED DECEMBER 31, 1996 COMPARED TO 1995
Net sales totaled $11,859,765 for the year ended December 31, 1996, an increase
of $2,559,225 or 28% over the net sales of $9,300,540 reported for the year
ended December 31, 1995. Unit sales increased 17% overall from 1995. During 1996
the Company's heart valve ("Valve") was approved for commercial distribution in
Japan which accounted for approximately 14% of the sales growth. The Company
sells to independent distributors with assigned territories (generally a
specific country or region) who in turn sell the valve to a hospital or clinic.
The Company sells in U.S. dollars so currency risk is borne by the distributor.
In 1996 and each of the previous years a portion of the sales increase has come
from opening new markets as well as increased usage within each market. The
Company has begun sales in most developed countries and several lesser developed
countries ("LDC's") so future sales growth is expected to come from increased
usage in existing markets.
In 1996, the Company instituted a volume/price discount program in its major
markets incorporating a 5% price increase which could be "averaged down" as
volume increased. The net price increase varied from market to market as volume
increases also varied. However an average price increase of 3% was achieved.
The Valve is sold in seven sizes and with three cuff designs. In order to be
prepared for surgery a hospital must stock or have available on the shelf a
minimum of seven to nine valves. Depending on the timing of opening hospital
accounts and the subsequent rate of implants, distributors will place bulk
orders which may fall just within or just outside of a particular period. As
such, the Company may receive fewer orders in one period than the next even
though market share is increasing in a given territory. In 1996, sales to
several distributors were lower than in 1995. Sales to many distributors
increased in 1996 compared to 1995 and in one case the increase was greater than
5% of total 1995 sales. Net unit sales increased at about three times the rate
of market growth.
All sales of Valves to December 31, 1996 were to customers outside of the United
States. In December, 1996 the Company's application for an Investigational
Device Exemption ("IDE") with the U.S. Food and Drug Administration ("FDA") was
approved. Consequently, the Company will commence a clinical study of the Valve
at a limited number of hospitals in the United States in 1997. During the study,
valves will be sold to the hospitals at prices comparable to other available
heart valves. The Company will be expected to pay the costs of additional tests
and to collect patient data so U.S. sales during the clinical study are not
expected to increase net income.
Cost of goods sold increased 24% to $7,474,065 for the year ended December 31,
1996 from $6,011,025 total cost of goods sold for the year ended December 31,
1995. Cost cost of goods sold as a percentage of sales declined from 65% for the
year ended December 31, 1995 to 63% for the year ended December 31, 1996,
primarily due to increased absorption of overhead which was the result of an
approximate 14% increase in production.
The Company purchases pyrolytic carbon components for the valve from
Carbomedics, Inc. ("CMI"). Approximately 75% of the total cost of a valve is
contained in the cost of the carbon components. The price of the components is
set under a multi-year supply agreement between the Company and CMI. The price
was established in 1990, and varies according to volumes and is adjusted
annually according to changes in the U.S. Department of Labor Employment Cost
Index. The Company uses the first-in first-out ("FIFO") method of accounting for
inventory. Approximately 75% of the valves sold in 1996 were made with carbon
purchased in 1994 (under FIFO) and the remainder with carbon purchased in 1995.
The cost of carbon components, after giving effect to volume discounts and
inflationary adjustments rose 11% in 1994 (the second contract year), 3.3% in
1995, and decreased .07% in 1996. For 1997 (the fifth contract year) the Company
expects to pay 3% more for carbon components than in 1996.
Gross profit increased from $3,289,515 for the twelve months ended December 31,
1995 to $4,385,700 for the twelve months ended December 31, 1996. Gross profit
as a percent of sales was 37% in 1996 and 35% in 1995. The increase in the
average selling price per unit was the most significant factor in the
improvement in the gross margin.
Research, development and engineering expenses totaled $617,571 for the year
ended December 31, 1996 compared to $718,189 for the year ended December 31,
1995. The Company's research efforts in 1996 were primarily on improved package
design and tooling for valve assembly. Approximately 56% of 1996 and 62% of 1995
R & D expenses related to the clinical study of the Valve outside the United
States and physical testing of the Valve and related consulting to support the
Company's IDE application to the FDA.
Selling, general and administrative expenses increased 20% from $2,549,570 for
the year ended December 31, 1995 to $3,065,402 for the year ended December 31,
1996. In November, 1996 the Company sponsored the Second International Symposium
on the ATS Medical Heart Valve. This two day meeting brought together surgeons
from 23 countries to exchange experiences with their colleagues on the Valve.
This meeting accounted for almost two thirds of the SG&A increase with salaries
and benefits increases accounting for the remainder. No equivalent meeting was
held in 1995 and no similar meeting is scheduled for 1997. The personnel hired
in the sales and marketing department in the middle of 1995 were on board for
all of 1996. For the first 10 months of 1995, the Company attempted to conserve
cash by scheduling a four day- 36 hour work week. For most of 1996, the
Company's work schedule was a five day 40 hour week. This increased payroll
expenses by 10%. The Company also had directors and officers liability insurance
(D & O) in place from November 1995 (2 months) through all of 1996 (12 months).
In early 1995, the Company borrowed against its line of credit and incurred
$31,224 of interest expense. The Company did not have any interest expense in
1996.
Following the Company's stock offering in March 1995, the Company had cash, cash
equivalents and short-term investments earning interest. Interest income in 1996
declined to $641,375 for the year ended December 31, 1996 compared to $752,880
for the year ended December 31, 1995. A decrease in the amount of cash invested
and lower market interest rates account for the decline.
The Company recorded $22,500 and $28,888 in income tax expense for 1996 and
1995, respectively. These taxes arose from certain items of income in the United
Kingdom.
Net income increased $607,078 from $714,524 for the twelve months ended December
31, 1995 to $1,321,602 for the twelve months ended December 31, 1996. The
increase in income from operations more than offset the decline in interest
income. This was due to the increased volume of business and the corresponding
increase in gross profit.
Net income per share increased from $.05 for 1995 to $.08 for 1996. The weighted
average number of shares outstanding increased 6% due to option and warrant
exercises.
The Company has accumulated net operating loss carryforwards in both the U.S.
and the U.K. Section 382 of the Internal Revenue Code of 1986, as amended,
provides, in part, that if an "ownership change" occurs with respect to any
corporation with net operating loss carryforwards, such as the Company, the net
operating loss carryforwards can be used to offset future income only to the
extent of the annual "Section 382 limitation." An ownership change generally
occurs if there has been more than a 50 percent change in the stock ownership of
a corporation over a three year period. The Section 382 limitation is an amount
determined by multiplying the value of the corporation's stock on the date of an
ownership change by the federal long-term tax-exempt rate which is published by
the Internal Revenue Service as in effect for the month of the ownership change.
As a result of Section 382, utilization of all or a portion of a corporation's
net operating loss carryforwards may be limited. The Company believes that as a
result of the Company's registered direct equity offering in early 1995, the
Company experienced an ownership change, and the Company's ability to fully
utilize $19 million of its existing net operating loss carryforwards will be
restricted to approximately $3 million per year. Due to the application of the
annual Section 382 limitation and the other provisions of Section 382, some of
the net operating loss carryforwards of the Company may expire before they can
be used by the Company to reduce its federal income tax liabilities.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO 1994
Net sales increased 38% from $6,763,408 in 1994 to $9,300,540 for 1995. Unit
sales increased 50% during the same period, while the average unit selling price
declined as the Company was selling into additional price sensitive markets and
the Company encountered price competition in developed markets.
Cost of goods sold totaled $6,011,025 for the year ended December 31, 1995, a
43% increase over cost of goods sold of $4,189,426 for the year ended December
31, 1994. Cost of goods sold as a percentage of sales increased from 62% during
1994 to 65% during 1995. The average selling price per unit declined slightly in
1995 as revenue from sales to customers in price sensitive markets increased.
Gross profit increased by 28% from $2,573,982 for the year ended December 31,
1994 to $3,289,515 for the year ended December 31, 1995. Gross profit as a
percent of sales was 35% in 1995 and 38% in 1994. The change in the average
selling price and cost of goods sold account for the decline in gross profit
percentage.
Research, development and engineering expenses totaled $718,189 for the twelve
months ended December 31, 1995 compared to $640,032 for the twelve months ended
December 31, 1994. The Company's research efforts are focused on packaging and
accessories for the Valve. In 1995, the Company began reporting costs associated
with its clinical studies of the Valve as research and development expense. As a
result, for the year ended December 31, 1994, $260,845 was reclassified from
selling, general and administrative expenses to research and development
expenses. Expenses for 1995 totaled $444,449. A significant portion of research
and development expenses is spent with independent laboratories and consultants
for testing and verifying the Valve and materials associated with the Valve.
Selling, general and administrative expenses increased by $556,123 to $2,549,570
for the year ended December 31, 1995 from $1,993,447 for the year ended December
31, 1994. This 28% increase was attributable to a number of factors. The Company
increased its allowance for doubtful accounts to $150,000 in 1995 compared to
$30,000 in 1994. The Company sells to a limited number of customers which
results in a concentration of credit risk among a few accounts. In addition, as
the Company expands its presence in emerging markets, the risk of non-payment or
delayed payment increases. The Company was accruing $10,000 per quarter to
establish an allowance for bad debts during the last three quarters of 1994 and
all of 1995. At the end of 1995, management reviewed specific accounts and
accrued an additional $80,000. An increase in insurance expenses constituted
nearly 20% of the selling, general and administrative increase. Product
liability premiums increased as sales volume increased. During 1995, the Company
also obtained D&O liability insurance. Insurance expenses for 1994 included the
benefit of a refund on 1993 premiums. Midway through 1995, the Company added a
Director of Sales and a Senior Product Manager.
The Company borrowed against its line of credit from September 1994 to March
1995. Interest expense for 1994 and 1995 was approximately $31,000 each year.
The proceeds of the Company's registered direct secondary stock offering were
received on March 9, 1995. Interest income on the net proceeds was $752,880
during 1995. The Company earned $74,706 in interest income during 1994. The
increase was due to the substantially larger amount of money invested.
The Company accrued $28,888 and $25,243 for income taxes in 1995 and 1994. These
amounts arise from state alternative minimum income taxes and the tax on certain
items of income in the United Kingdom.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, and short-term investments decreased by $2,796,982 from
$12,984,611 at December 31, 1995 to $10,187,620 at December 31, 1996. Inventory
increased by $4,820,321 from $13,421,745 at December 31, 1995 to $18,242,066 at
December 31, 1996. Under the terms of the multi-year agreement with CarboMedics,
Inc., the Company is required to purchase annual minimum quantities of
components. The minimum number of units which the Company purchased during each
of the first four years of the contract have exceeded unit sales and the Company
expects that until the Valve is approved for sale in the United States by the
FDA, the minimum required purchases will continue to exceed sales. During 1997,
the Company is obligated to purchase $11.4 million of heart valve components.
Over the three contract years subsequent to 1997, the aggregate purchases total
approximately $50 million.
Accounts receivable decreased by $85,548 from $3,225,107 at December 31, 1995 to
$3,139,559 at December 31, 1996. All of the Company's sales have been to
customers in international markets and, while the Company attempts to get
standard 60 day terms for receivables, competitive pressures and geographical
economic situations have caused the Company to selectively extend the terms for
payment. Accounts receivable represented 98 Days Sales Outstanding (DSO) at
December 31, 1996 and 188 DSO at December 31, 1995.
Accounts payable decreased by $797,231 from $1,988,189 at December 31, 1995 to
$1,190,958 at December 31, 1996. In 1995 and 1996, the Company scheduled the
receipt of over 50% of the entire year's components during the fourth quarter.
The decrease in accounts payable at December 31, 1996 is due to timing of
component shipments from CMI.
In May 1995 the Company entered into a new line of credit agreement with a bank.
Under the agreement, the Company may borrow up to $5,000,000 as long as it
maintains collateral defined as cash and marketable securities with a discounted
valve at least equal to the line amount. The agreement expires on June 30, 1997.
There were no borrowings under the line at December 31, 1996.
As explained in Note 12 to the Company's Consolidated Financial Statements, the
Company received $14.75 million in cash on February 7, 1997 through the sale of
1,568,940 shares of Common Stock. When added to the cash on hand at December 31,
1996, the Company's cash, cash equivalents and short-term investments total
approximately $25 million.
The Company expects the obligations under the supply agreement with CMI to
require more cash than will be generated by operations through the year 2000.
During these same years (1997 through 2000) the Company will be conducting a
clinical study of the Valve in the United States and submitting data obtained
from the study to the FDA for PreMarket Approval Application (PMA) and the
opportunity to sell the Valve in the United States. The Company estimates that
existing cash, cash equivalents and short-term investments will be sufficient to
satisfy its capital requirements through at least the year 2000.
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about their business, so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. ATS Medical, Inc.
desires to take advantage of the safe harbor provisions with respect to any
forward-looking statements it may make in this filing, other filings with the
Securities and Exchange Commission and any public oral statements or written
releases. The words or phrases "will likely," "is expected," "will continue,"
"is anticipated," "estimate," "projected," "forecast," or similar expressions
are intended to identify forward-looking statements within the meaning of the
Act. Such statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those projected. The Company
cautions readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made.
In accordance with the Act, the Company identifies the following important
general factors which if altered from the current status could cause the
Company's actual results to differ from those described in any forward-looking
statements: the continued acceptance of the Company's only product, a mechanical
heart Valve in international markets; the acceptance by the FDA of the Company's
regulatory submissions; the continued performance of the Company's mechanical
heart valve without structural failure; the actions of the Company's competitors
including pricing changes and new product introductions; the continued
performance of the Company's independent distributors in selling the Valve; and
the actions of the Company's supplier of pyrolytic carbon components for the
Valve. This list is not exhaustive, and the Company may supplement this list in
any future filing or in connection with the making of any specific
forward-looking statement.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company are included (with an index
listing all such statements) in a separate financial section at the end of this
Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See Part I of this Report. Pursuant to General Instruction G(3), reference is
made to information contained under the heading "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
definitive proxy statement for its 1997 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission on or before April 28, 1997,
which information is incorporated herein.
ITEM 11. EXECUTIVE COMPENSATION
See Part I of this Report. Pursuant to General Instruction G(3), reference is
made to information contained under the heading "Executive Compensation" in the
Company's definitive proxy statement for its 1997 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission on or before April 28,
1997, which information is incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3), reference is made to information contained
under the headings "Security Ownership of Certain Beneficial Owners and
Management" and "Election of Directors" in the Company's definitive proxy
statement for its 1997 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission on or before April 28, 1997, which
information is incorporated herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), reference is made to information contained
under the headings Election of Directors and Executive Compensation in the
Company's definitive proxy statement for its 1997 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission on or before April 28,
1997, which information is incorporated herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The financial statements of the Company are included (with an index listing all
such statements) in a separate financial section at the end of this Annual
Report on Form 10-K.
(a) 2. FINANCIAL STATEMENT SCHEDULES
The financial statement schedule is included (with an index listing such
schedule) in a separate financial section at the end of this Annual Report on
Form 10-K.
All other schedules have been omitted because of absence of conditions under
which they are required or because the required information is included in the
financial statements or notes thereto.
(a) 3. LISTING OF EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
3.1 Restated Articles of Incorporation, as amended to date (Incorporated by
reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993 (the "1993 Form 10-K")).
3.2 Bylaws of the Company, as amended to date.
4.1 Specimen certificate for shares of Common Stock of the Company
(Incorporated by reference to Exhibit 4.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992 (the "1992
Form 10-K")).
4.3 Form of Warrant issued in 1992 Private Placement (Incorporated by
reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1992).
4.4 Form of Warrant issued in 1993 Private Placement (Incorporated by
reference to Exhibit 4.4 to the 1993 Form 10-K).
10.1** 1987 Stock Option and Stock Award Plan (1991 Restatement) (Incorporated
by reference to Exhibit 3.2 to the 1991 Form 10-K).
10.2** Employment Agreement with Richard W. Kramp dated March 21, 1988
(Incorporated by reference to Exhibit 10(Q) to the Company's
Registration Statement on Form S-18, File No. 33-34785-C (the "Form
S-18")).
10.3** Agreement between the Company and Manuel A. Villafana dated January 26,
1995 (Incorporated by reference to Exhibit 10.3 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994 (the "1994
Form 10-K")).
10.4 Lease Agreement between the Company and Crow Plymouth Land Limited
Partnership dated December 22, 1987 (Incorporated by reference to
Exhibit 10(d) to the Form S-18).
10.5 Amendment No. 1 to Lease Agreement between the Company and Crow
Plymouth Land Limited Partnership, dated January 5, 1989 (Incorporated
by reference to Exhibit 10(e) to the Form S-18).
10.6 Amendment No. 2 to Lease Agreement between the Company and Crow
Plymouth Land Limited Partnership, dated January 1989 (Incorporated by
reference to Exhibit 10(f) to the Form S-18).
10.7 Amendment No. 3 to Lease Agreement between the Company and Crow
Plymouth Land Limited Partnership, dated June 14, 1989 (Incorporated by
reference to Exhibit 10(g) to the Form S-18).
10.8 Amendment No. 4 to Lease Agreement between the Company and Plymouth
Business Center Limited Partnership, dated February 10, 1992.
10.9 Development Agreement dated September 24, 1990, with CarboMedics, Inc.
(confidential treatment granted).*
10.10 O.E.M. Supply Contract dated September 24, 1990, with CarboMedics, Inc.
(confidential treatment granted).*
10.11 License Agreement dated September 24, 1990, with CarboMedics, Inc.
(confidential treatment granted).*
10.12 Option Agreement dated September 24, 1990, with CarboMedics, Inc.
(confidential treatment granted).*
10.13 Helix BioCore, Inc. Self-Insurance Trust Agreement dated February 28,
1991.
10.14 Amendment 1 to License Agreement dated December 16, 1993, with
CarboMedics, Inc. (Incorporated by reference to Exhibit 10.17 to the
1993 Form 10-K.)
10.15 Amendment 4 to O.E.M. Supply Contract dated December 16, 1993, with
CarboMedics, Inc. (confidential treatment granted)* (Incorporated by
reference to Exhibit 10.18 to the 1993 Form 10-K.)
10.16 Amendment 5 to O.E.M. Supply Contract dated September 1, 1994, with
CarboMedics, Inc. (confidential treatment granted)* (Incorporated by
reference to Exhibit 10.19 to the 1994 Form 10-K).
10.17 Amendment 1 to Option Agreement dated December 16, 1993, with
CarboMedics, Inc. (confidential treatment granted)* (Incorporated by
reference to Exhibit 10.19 to the 1993 Form 10-K.)
10.18 Line of Credit dated August 11, 1994, between the Company and First
Bank National Association (Incorporated by reference to Exhibit 10.1 to
the Company's Form 10-Q for the quarter ended September 30, 1994).
10.19 Form of Distributor Agreement. (Incorporated by reference to Exhibit
10.22 to the 1994 Form 10-K).
10.20** Form of Agreement between ATS Medical, Inc. and each officer dated June
30, 1995 concerning severance benefits upon a change in control.
(Incorporated by reference to Exhibit 10.23 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 (The "1995
Form 10-K")).
10.21 ATS Medical, Inc. Change in Control Severance Pay Plan. (Incorporated
by reference to Exhibit 10.24 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (the 1995 Form 10-K)).
10.22 Amendment No. 5 to Lease Agreement between the Company and St. Paul
Properties, Inc., dated May 30, 1996.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
24 Power of Attorney.
27 Financial Data Schedule.
*Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended,
confidential portions of this exhibit have been deleted.
**Represents a management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
None
(c) Exhibits
See Exhibit Index and Exhibits attached as a separate section of this report.
(d) Financial Statement Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 25, 1997 ATS MEDICAL, INC.
By /s/ John H. Jungbauer
---------------------
John H. Jungbauer
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
SIGNATURE TITLE
Manuel A. Villafana* Chairman, Chief Executive )
Officer, and Director )
(principal executive officer))
)
Richard W. Kramp* President, Chief Operating )
Officer and Director ) By:/s/ John H. Jungbauer
) ---------------------
) John H. Jungbauer
John H. Jungbauer* Vice President, Treasurer ) Pro se and
and Chief Financial Officer ) Attorney-in-fact
(principal financial )
accounting officer) )
) Dated: March 25, 1997
Charles F. Cuddihy, Jr.* Director )
)
James F. Lyons* Director )
)
A. Jay Graf* Director )
*By Power of Attorney filed with this report as Exhibit 24 hereto.
ATS MEDICAL, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1996
ITEM 8 AND ITEM 14(a) (1) AND (2) AND (d)
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
COMMISSION FILE NUMBER 0-18602
ATS MEDICAL, INC.
FORM 10-K ITEM 8 AND ITEM 14(a) (1) and (2) and (d)
LIST OF FINANCIAL STATEMENTS AND STATEMENT SCHEDULE
The following financial statements of ATS Medical, Inc. are incorporated in Part
II, Item 8 and Part IV, Item 14(a)(1) of this Annual Report on Form 10-K by this
reference:
Report of Independent Auditors.
Consolidated Statements of Financial Position at December 31, 1996 and 1995.
Consolidated Statements of Operations for the years ended December 31, 1996,
1995 and 1994.
Consolidated Statement of Changes in Shareholders Equity for the years ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994.
Notes to Consolidated Financial Statements.
The following financial statement schedule of ATS Medical, Inc. is incorporated
in Part IV, Item 14(a)(2) and (d) of this Annual Report on Form 10-K by this
reference:
Schedule II - Valuation and Qualifying Accounts and Reserves
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors F-2
Consolidated Statements of Financial Position
as of December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the
years ended December 31, 1996, 1995 and 1994 F-4
Consolidated Statement of Changes in
Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for
the years ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
Report of Independent Auditors
Board of Directors and Shareholders
ATS Medical, Inc.
We have audited the accompanying consolidated statements of financial position
of ATS Medical, Inc. and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. Our audit also included the financial statement schedule listed in the
index at item 14(a). These financial statements and schedule 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 consolidated financial position of ATS Medical, Inc.
and subsidiary at December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Minneapolis, Minnesota
February 6, 1997
ATS Medical, Inc.
Consolidated Statements of Financial Position
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
---------------------------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 2,320,010 $ 2,213,632
Short-term investments 7,867,619 10,770,979
---------------------------------
10,187,629 12,984,611
Accounts receivable, less allowance of $200,000
in 1996 and $150,000 in 1995 3,139,559 3,225,107
Inventories 18,242,066 13,421,745
Prepaid expenses 468,249 440,682
---------------------------------
Total current assets 32,037,503 30,072,145
Furniture and equipment, net 894,564 887,549
Other assets 388,233 369,434
---------------------------------
Total assets $ 33,320,300 $ 31,329,128
=================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,190,958 $ 1,988,189
Accrued payroll and expenses 202,603 281,518
---------------------------------
Total current liabilities 1,393,561 2,269,707
Shareholders' equity:
Common Stock, $.01 par value:
Authorized shares--40,000,000
Issued and outstanding shares--15,288,042 in 1996
and 14,963,604 in 1995 152,880 149,636
Additional paid-in capital 52,313,315 50,777,154
Other 54,465 48,154
Accumulated deficit (20,593,921) (21,915,523)
---------------------------------
Total shareholders' equity 31,926,739 29,059,421
Commitments
---------------------------------
Total liabilities and shareholders' equity $ 33,320,300 $ 31,329,128
=================================
</TABLE>
SEE ACCOMPANYING NOTES.
ATS Medical, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Net sales $ 11,859,765 $ 9,300,540 $ 6,763,408
Cost of goods sold 7,474,065 6,011,025 4,189,426
-------------------------------------------
Gross profit 4,385,700 3,289,515 2,573,982
Expenses:
Research, development and engineering 617,571 718,189 640,032
Selling, general and administrative 3,065,402 2,549,570 1,993,447
-------------------------------------------
3,682,973 3,267,759 2,633,479
-------------------------------------------
Operating income (loss) 702,727 21,756 (59,497)
Other income (expense):
Interest income 641,375 752,880 74,706
Interest expense -- (31,224) (31,317)
-------------------------------------------
641,375 721,656 43,389
-------------------------------------------
Income (loss) before income taxes 1,344,102 743,412 (16,108)
Income taxes 22,500 28,888 25,243
-------------------------------------------
Net income (loss) $ 1,321,602 $ 714,524 $ (41,351)
===========================================
Net income (loss) per share $ .08 $ .05 $ (.00)
===========================================
Weighted average number of shares outstanding 16,303,317 15,328,596 11,177,881
===========================================
SEE ACCOMPANYING NOTES.
</TABLE>
ATS Medical, Inc.
Consolidated Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL OTHER DEFICIT
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 11,177,881 $ 111,779 $ 35,198,622 $ (6,205) $(22,588,696)
Compensation expense on stock options -- -- 54,738 -- --
Change in foreign currency translation -- -- -- 38,790 --
Net loss for the year -- -- -- -- (41,351)
---------------------------------------------------------------------------------
Balance at December 31, 1994 11,177,881 111,779 35,253,360 32,585 (22,630,047)
Common Stock issued in public offering, net
of selling expenses of $1,400,447 3,600,000 36,000 14,763,553 -- --
Compensation expense on stock options -- -- 13,666 -- --
Change in unrealized gains on short-term
investments, net of tax -- -- -- 12,852 --
Stock options exercised 81,143 811 273,161 -- --
Stock warrants exercised 104,580 1,046 473,414 -- --
Change in foreign currency translation -- -- -- 2,717 --
Net income for the year -- -- -- -- 714,524
---------------------------------------------------------------------------------
Balance at December 31, 1995 14,963,604 149,636 50,777,154 48,154 (21,915,523)
Change in unrealized gains on short-term
investments, net of tax -- -- -- (7,262) --
Stock options exercised 58,643 586 129,804 -- --
Stock warrants exercised 265,795 2,658 1,406,357 -- --
Change in foreign currency translation -- -- -- 13,573 --
Net income for the year -- -- -- -- 1,321,602
---------------------------------------------------------------------------------
Balance at December 31, 1996 15,288,042 $ 152,880 $ 52,313,315 $ 54,465 $(20,593,921)
=================================================================================
SEE ACCOMPANYING NOTES
</TABLE>
ATS Medical, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
---------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ 1,321,602 $ 714,524 $ (41,351)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation 233,867 229,736 233,645
Loss on disposal of equipment 17,925 916 10,791
Compensation expense on stock options -- 13,666 54,738
Changes in operating assets and liabilities:
Accounts receivable 85,548 (437,975) (865,791)
Prepaid expenses (27,567) (182,574) (45,527)
Other assets (18,799) 255,764 25,946
Inventories (4,820,321) (4,089,603) (2,704,817)
Accounts payable and accrued expenses (876,146) 1,728,934 (630,960)
---------------------------------------------
Net cash used in operating activities (4,083,891) (1,766,612) (3,963,326)
INVESTING ACTIVITIES
Purchases of short-term investments (9,486,341) (16,564,890) --
Maturities of short-term investments 12,382,440 5,806,763 658,084
Purchases of furniture and equipment (258,808) (190,699) (90,601)
---------------------------------------------
Net cash provided by (used in) investing activities 2,637,291 (10,948,826) 567,483
FINANCING ACTIVITIES
Proceeds from notes payable -- -- 1,250,000
Payments on notes payable -- (1,250,000) --
Net proceeds from issuance of Common Stock 1,539,405 15,547,985 --
---------------------------------------------
Net cash provided by financing activities 1,539,405 14,297,985 1,250,000
Effect of exchange rate changes on cash 13,573 2,717 38,790
---------------------------------------------
Increase (decrease) in cash and cash equivalents 106,378 1,585,264 (2,107,053)
Cash and cash equivalents at beginning of year 2,213,632 628,368 2,735,421
---------------------------------------------
Cash and cash equivalents at end of year $ 2,320,010 $ 2,213,632 $ 628,368
=============================================
</TABLE>
SEE ACCOMPANYING NOTES.
ATS Medical, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
ATS Medical, Inc. (the "Company") manufactures and sells a bileaflet mechanical
heart valve. The principal markets for the Company's mechanical heart valve
include Europe, Asia, South Africa and South America. The Company is sponsoring
clinical trials of the valve in Australia, Canada and the United States in order
to demonstrate safety and effectiveness and be allowed to market the valve in
these countries. The Company has an assembly facility in Scotland.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, ATS Medical, Ltd., after elimination of significant
intercompany accounts and transactions.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less at the time of purchase to be cash equivalents. Cash equivalents
are carried at cost which approximates market value.
SHORT-TERM INVESTMENTS
Short-term investments are composed of debt securities and are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported as a separate
component of shareholders' equity. Realized gains and losses and declines in
value judged to be other than temporary on available-for-sale securities are
included in other income.
INVENTORIES
Inventories are carried at the lower of cost (first-in, first-out basis) or
market. The majority of inventory consists of purchased components.
OTHER ASSETS
Prior to obtaining directors' and officers' liability insurance, the Company had
placed $353,987 and $338,364 as of December 31, 1996 and 1995, respectively, in
a self-insurance trust. A VAT deferment account of $34,246 and $31,070 at
December 31, 1996 and 1995, respectively, was established to guarantee VAT
liabilities for transferring inventory transferred to Scotland for
manufacturing.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is provided for at
rates calculated to amortize the cost of the property over its estimated useful
life (three to ten years) using the straight-line method. Leasehold improvements
are amortized over the related lease term or estimated useful life, whichever is
shorter.
REVENUE RECOGNITION
The Company recognizes revenue at the time of shipment of the product.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
INCOME TAXES
Income taxes are accounted for under the liability method. Deferred income taxes
are provided for temporary differences between financial reporting and tax bases
of assets and liabilities.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES ("APB 25"), and related interpretations in accounting
for its stock options. Under APB 25, when the exercise price of stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding and dilutive common stock
equivalents, if applicable.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1995 financial
statements to conform to the 1996 presentation.
2. SHORT-TERM INVESTMENTS
The following is a summary of available-for-sale securities:
DECEMBER 31
1996 1995
--------------------------------------
U.S. Treasury debt securities:
Cost $7,858,301 $10,749,558
Unrealized gains 9,318 21,421
--------------------------------------
Fair value $7,867,619 $10,770,979
======================================
All investments have original maturity dates of one year or less.
3. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
DECEMBER 31
1996 1995
--------------------------------
Furniture and fixtures $ 168,960 $ 160,211
Equipment 1,347,034 1,221,890
Leasehold improvements 474,042 459,542
Construction in progress 24,403 7,477
--------------------------------
2,014,439 1,849,120
Less accumulated depreciation 1,119,875 961,571
--------------------------------
$ 894,564 $ 887,549
================================
4. FINANCING ARRANGEMENT
The Company has a $5 million revolving line of credit with a bank which accrues
interest at a rate .5% below the bank's reference rate (7.75% at December 31,
1996) and is secured by a portion of the Company's short-term investments. The
Company must repay any amounts owed under the line of credit by June 30, 1997.
Interest on the line of credit is payable monthly. The Company had no borrowings
against this facility at December 31, 1996.
5. COMMON STOCK
On June 25, 1990, the Company completed an initial public offering in which the
Company sold 1,840,000 shares of Common Stock at $3.50 per share, including a
warrant to the underwriters to purchase an additional 160,000 shares of Common
Stock exercisable at $4.20 per share. All of the warrants expire on November 13,
1997. As of December 31, 1996 and 1995, the Company had 8,000 and 68,000 of
these warrants outstanding, respectively.
On November 16, 1992, the Company completed a private placement of 1,613,944
units at $6.00 per unit. Each unit consisted of one share of the Company's
Common Stock and a warrant to purchase an additional share of Common Stock at
$9.00 per share. The Company also issued warrants to the agent in the private
placement to purchase 161,394 shares of Common Stock at $7.00 per share and
161,394 shares of Common Stock at $9.00 per share. All of the warrants expire on
November 13, 1997. As of December 31, 1996 and 1995, the Company had 1,850,485
and 1,924,152 of these warrants outstanding, respectively.
On December 21, 1993, the Company completed a private placement of 416,667 units
at $6.00 per unit. Each unit consisted of one share of the Company's Common
Stock and a warrant to purchase an additional share of Common Stock at $9.00 per
share. The warrants expire on December 22, 1998 and none have been exercised as
of December 31, 1996.
On March 2, 1995, the Company completed a public offering in which the Company
sold 3,600,000 shares of Common Stock at $4.50 per share, including warrants to
purchase an additional 900,000 shares of Common Stock exercisable at $6.75 per
share. As of December 31, 1996 and 1995, the Company had warrants outstanding to
purchase 826,813 and 900,000 shares of Common Stock, respectively. These
warrants expire on March 2, 1997. The Company also issued a warrant to the agent
to purchase 180,000 shares of Common Stock at $5.40 per share. The warrant
expires on March 9, 2000. In 1996, 121,059 shares were tendered in the exercise
of the warrant to purchase 180,000 shares for a net issuance of 58,941 shares.
6. STOCK OPTIONS
The Company has a Stock Option and Stock Award Plan (the "Plan") under which
options to purchase Common Stock of the Company may be awarded to employees and
non-employees of the Company. The options may be granted under the Plan as
incentive stock options (ISO) or as non-qualified stock options (non-ISO).
The following table summarizes the options to purchase shares of the Company's
Common Stock under the Plan:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING
SHARES UNDER THE PLAN WEIGHTED AVERAGE
RESERVED ----------------------------- EXERCISE PRICE
FOR GRANT ISO NON-ISO PER SHARE
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance January 1, 1994 666,754 340,250 555,000 $3.66
Options granted (706,750) 446,250 260,500 3.62
Options canceled 506,750 (308,750) (198,000) 5.83
---------------------------------------------
Balance December 31, 1994 466,754 477,750 617,500 2.60
Options granted (12,500) 2,500 10,000 7.90
Options exercised - (66,687) (18,500) 3.62
Options canceled 15,750 (7,750) (8,000) 3.63
---------------------------------------------
Balance December 31, 1995 470,004 405,813 601,000 2.56
Options granted (395,000) 299,500 95,500 9.00
Options exercised - (29,643) (29,000) 2.22
Options canceled 38,125 (21,000) (17,125) 6.07
---------------------------------------------
Balance December 31, 1996 113,129 654,670 650,375 $4.37
=============================================
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- -------------------------------------
WEIGHTED AVERAGE
REMAINING WEIGHTED AVERAGE WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES NUMBER OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISABLE EXERCISE PRICE
- ------------------------------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.0041 286,000 1 year $ 0.0041 286,000 $ 0.0041
1.00 - 3.63 636,545 6 years 3.40 483,296 3.32
6.25 - 8.25 202,500 9 years 7.80 25,625 7.20
9.00 - 10.13 215,000 9 years 9.88 21,500 9.57
===================== ================
$ 0.0041 - $10.13 1,340,045 6 years $ 4.37 816,421 $ 2.44
===================== ================
</TABLE>
The weighted-average fair value of options granted during the years ended
December 31, 1996 and 1995 was $9.00 and $7.90, respectively.
Non-Plan options to purchase 35,000 shares exercisable at a weighted-average
exercise price of $3.63 per share were outstanding at December 31, 1996, 1995
and 1994, respectively.
At December 31, 1996, 1995 and 1994, Plan and non-Plan options for 816,421,
744,687 and 620,936 shares of Common Stock, respectively, were exercisable at a
weighted-average exercise price of $2.44, $2.09 and $1.83 per share,
repectively. Options can be exercised by tendering shares previously acquired.
In 1995, 4,044 shares were tendered in the exercise of 85,187 options for a net
issuance of 81,143 shares. No options were exercised in 1994.
The issuance of certain stock options to employees and consultants caused the
Company to account for the excess of the fair market value of the Company's
Common Stock on the date of grant over the option exercise prices as
compensation. The expense is recognized over the period of expected services.
The compensation expense does not involve the outlay of cash. During the years
ended December 31, 1996, 1995 and 1994, $-0-, $13,666 and $54,738, respectively,
of expense had been recognized for the unexercised options.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION ("Statement 123"), requires use of
option valuation models that were not developed for use in valuing employee
stock options.
Pro forma information regarding net loss and loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of Statement 123. The fair
value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995: risk-free interest rate of 6.03% and 5.29%,
respectively; dividend yield of 0%; volatility factor of the expected market
price of the Company's common stock of .46 and a weighted-average expected life
of the option of 4 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:
1996 1995
--------------------------------
Pro forma net income $1,122,778 $679,801
Pro forma net income per share $.07 $.04
The pro forma effect on net income for 1996 and 1995 is not representative of
the pro forma effect on net income in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995.
7. LEASES
The Company has an operating lease for its facilities in Plymouth, Minnesota.
The lease is for a period of six years and expires December 31, 1997. Total rent
expense as of December 31, 1996, 1995 and 1994 was $147,101, $143,000 and
$143,000, respectively.
8. INCOME TAXES
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $18,782,000 plus credits for increasing research and development
costs of approximately $620,000 which are available to offset future taxable
income through 2011. The net operating loss carryforwards exclude results of
operations for ATS Medical, Ltd. for 1996, 1995 and 1994. The Company paid
income taxes of $23,000, $29,000 and $20,000 in 1996, 1995 and 1994,
respectively, consisting principally of foreign income taxes. The effective tax
rate differs from the federal statutory rate due to foreign income taxes as of
December 31, 1996, 1995 and 1994, respectively.
Components of deferred tax assets and liabilities are as follows:
DECEMBER 31
1996 1995
--------------------------
Deferred tax assets:
Net operating loss carryforwards $ 7,513,000 $ 8,748,000
Research and development credits 620,000 612,000
Accrued compensation 341,000 378,000
Other accrued expenses 27,000 26,000
--------------------------
8,501,000 9,764,000
Deferred tax liabilities:
Depreciation (555,000) (543,000)
Other -- (2,000)
--------------------------
(555,000) (545,000)
--------------------------
Net deferred tax assets before valuation allowance 7,946,000 9,219,000
Less valuation allowance (7,946,000) (9,219,000)
--------------------------
Net deferred tax assets $ -- $ --
==========================
The Company's ability to utilize its net operating loss carryforwards to offset
future taxable income is subject to certain limitations under Section 382 of the
Internal Revenue Code due to changes in the equity ownership of the Company.
Income tax expense consists of:
DECEMBER 31
1996 1995 1994
---------------------------
Current:
Federal $ -- $ -- $ --
State -- -- --
Foreign 22,500 28,888 25,243
---------------------------
$22,500 $28,888 $25,243
===========================
Reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
DECEMBER 31
1996 1995 1994
-------------------------
Tax at statutory rate 34.0% 34.0% (34.0%)
State income taxes 6.0 6.0 (6.0)
Foreign income taxes 1.7 3.9 156.7
Impact of net operating
loss carryforwards (40.0) (40.0) 40.0
-------------------------
1.7% 3.9% 156.7%
=========================
9. COMMITMENTS
On September 24, 1990, the Company entered into various agreements with
CarboMedics, Inc. giving the Company the exclusive worldwide license to
manufacture and sell a bileaflet mechanical heart valve under patents held by
CarboMedics, Inc. As part of the agreements, the Company entered into a 15 year
supply contract that was amended in December 1993. Under the amended supply
contract, as of December 31, 1996, the Company remains obligated to purchase a
minimum of $61 million of component sets through December 7, 2000. Thereafter,
the Company must purchase the lower of either certain specified amounts or the
number of component sets sold and/or disposed of by the Company. Payments to
CarboMedics, Inc. were $11,289,218, $6,182,596 and $5,710,545 in 1996, 1995 and
1994, respectively.
At December 31, 1996, the Company's inventory is in excess of its current
requirements based on the recent level of sales. Management feels that excess
quantities will be utilized upon FDA approval of its technology and believes no
loss will be incurred on its disposition. As of December 31, 1996, management
cannot estimate a range of amounts of loss that could occur if FDA approval is
not granted. Management is unable to make a meaningful estimate of inventory
usage for the next twelve months and, accordingly, inventory is classified as a
current asset as of December 31, 1996.
10. BENEFIT PLAN
The Company has a defined contribution salary deferral plan covering
substantially all employees under Section 401(k) of the Internal Revenue Code.
The plan allows eligible employees to contribute up to 12% of their annual
compensation with the Company contributing an amount equal to 25% of each
employee's contribution. The Company realized expense for contributions to the
plan of $38,125, $32,911 and $28,591 during 1996, 1995 and 1994, respectively.
11. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company sells to independent distributors who cover assigned international
territories. Approximately 49% and 56% of net sales for 1996 and 1995,
respectively, were a result of sales to three distributors. Approximately 63% of
net sales for 1994 were a result of sales to four distributors.
12. SUBSEQUENT EVENT
On February 7, 1997, the Company issued 1,568,940 shares of Common Stock at
$9.40 per share from which the Company received proceeds of $14,750,000 which
are available for general corporate purposes.
ATS MEDICAL, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
Additions
(1) (2)
Balance at Charged to Costs Charged to Balance at
Beginning and Expenses Other Accounts- Deductions- End of
Description of Period Describe Describe Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts $150,000 $ 50,000 -- -- $200,000
-------- -------- -------- -------- --------
Totals $150,000 $ 50,000 $ 0 $ 0 $200,000
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts $ 30,000 $120,000 -- -- $150,000
-------- -------- -------- -------- --------
Totals $ 30,000 $120,000 $ 0 $ 0 $150,000
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $ 0 $ 30,000 -- -- $ 30,000
-------- -------- -------- -------- --------
Totals $ 0 $ 30,000 $ 0 $ 0 $ 30,000
</TABLE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
3.1 Restated Articles of Incorporation, as amended to date (Incorporated by
reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993 (the "1993 Form 10-K")).
3.2 Bylaws of the Company, as amended to date .
4.1 Specimen certificate for shares of Common Stock of the Company
(Incorporated by reference to Exhibit 4.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992 (the "1992
Form 10-K")).
4.3 Form of Warrant issued in 1992 Private Placement (Incorporated by
reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1992).
4.4 Form of Warrant issued in 1993 Private Placement (Incorporated by
reference to Exhibit 4.4 to the 1993 Form 10-K).
10.1** 1987 Stock Option and Stock Award Plan (1991 Restatement) (Incorporated
by reference to Exhibit 3.2 to the 1991 Form 10-K).
10.2** Employment Agreement with Richard W. Kramp dated March 21, 1988
(Incorporated by reference to Exhibit 10(Q) to the Company's
Registration Statement on Form S-18, File No. 33-34785-C (the "Form
S-18")).
10.3** Agreement between the Company and Manuel A. Villafana dated January 26,
1995 (Incorporated by reference to Exhibit 10.3 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994 (the "1994
Form 10-K")).
10.4 Lease Agreement between the Company and Crow Plymouth Land Limited
Partnership dated December 22, 1987 (Incorporated by reference to
Exhibit 10(d) to the Form S-18).
10.5 Amendment No. 1 to Lease Agreement between the Company and Crow
Plymouth Land Limited Partnership, dated January 5, 1989 (Incorporated
by reference to Exhibit 10(e) to the Form S-18).
10.6 Amendment No. 2 to Lease Agreement between the Company and Crow
Plymouth Land Limited Partnership, dated January 1989 (Incorporated by
reference to Exhibit 10(f) to the Form S-18).
10.7 Amendment No. 3 to Lease Agreement between the Company and Crow
Plymouth Land Limited Partnership, dated June 14, 1989 (Incorporated by
reference to Exhibit 10(g) to the Form S-18).
10.8 Amendment No. 4 to Lease Agreement between the Company and Plymouth
Business Center Limited Partnership, dated February 10, 1992.
10.9 Development Agreement dated September 24, 1990, with CarboMedics, Inc.
(confidential treatment granted).*
10.10 O.E.M. Supply Contract dated September 24, 1990, with CarboMedics, Inc.
(confidential treatment granted).*
10.11 License Agreement dated September 24, 1990, with CarboMedics, Inc.
(confidential treatment granted).*
10.12 Option Agreement dated September 24, 1990, with CarboMedics, Inc.
(confidential treatment granted).*
10.13 Helix BioCore, Inc. Self-Insurance Trust Agreement dated February 28,
1991.
10.14 Amendment 1 to License Agreement dated December 16, 1993, with
CarboMedics, Inc. (Incorporated by reference to Exhibit 10.17 to the
1993 Form 10-K.)
10.15 Amendment 4 to O.E.M. Supply Contract dated December 16, 1993, with
CarboMedics, Inc. (confidential treatment granted)* (Incorporated by
reference to Exhibit 10.18 to the 1993 Form 10-K.)
10.16 Amendment 5 to O.E.M. Supply Contract dated September 1, 1994, with
CarboMedics, Inc. (confidential treatment granted)* (Incorporated by
reference to Exhibit 10.19 to the 1994 Form 10-K).
10.17 Amendment 1 to Option Agreement dated December 16, 1993, with
CarboMedics, Inc. (confidential treatment granted)* (Incorporated by
reference to Exhibit 10.19 to the 1993 Form 10-K.)
10.18 Line of Credit dated August 11, 1994, between the Company and First
Bank National Association (Incorporated by reference to Exhibit 10.1 to
the Company's Form 10-Q for the quarter ended September 30, 1994).
10.19 Form of Distributor Agreement. (Incorporated by reference to Exhibit
10.22 to the 1994 Form 10-K).
10.20** Form of Agreement between ATS Medical, Inc. and each officer dated June
30, 1995 concerning severance benefits upon a change in control.
(Incorporated by reference to Exhibit 10.23 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 (The "1995
Form 10-K")).
10.21 ATS Medical, Inc. Change in Control Severance Pay Plan. (Incorporated
by reference to Exhibit 10.24 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (the 1995 Form 10-K)).
10.22 Amendment No. 5 to Lease Agreement between the Company and St. Paul
Properties, Inc., dated May 30, 1996.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
24 Power of Attorney.
27 Financial Data Schedule.
*Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended,
confidential portions of this exhibit have been deleted.
**Represent a management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
Exhibit 3.2
AS AMENDED
1/24/92
BYLAWS
OF
HELIX BIOCORE, INCORPORATED
ARTICLE I.
OFFICES, CORPORATE SEAL
Section 1.01. Registered Office. The registered office of the
corporation in Minnesota shall be that set forth in the Articles of
Incorporation or in the most recent amendment of the Articles of Incorporation
or resolution of the directors filed with the Secretary of State of Minnesota
changing the registered office.
Section 1.02. Other Offices. The corporation may have such other
offices, within or without the State of Minnesota, as the directors shall, from
time to time, determine.
Section 1.02. Corporate Seal. The corporation shall have no seal.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 2.01. Place and Time of Meetings. Except as provided otherwise
by Minnesota Statutes Chapter 302A, meetings of the shareholders may be held at
any place, within or without the State of Minnesota, as may from time to time be
designated by the directors and, in the absence of such designation, shall be
held at the registered office of the corporation in the State of Minnesota. The
directors shall designate the time of day for each meeting and, in the absence
of such designation, every meeting of shareholders shall be held at ten o'clock
a.m.
Section 2.02. Regular Meetings.
(a) A regular meeting of the shareholders shall be held on such date as
the Board of Directors shall by resolution establish.
(b) At a regular meeting the shareholders, voting as provided in the
Articles of Incorporation and these Bylaws, shall designate the number of
directors to constitute the Board of Directors (subject to the authority of the
Board of Directors thereafter to increase or decrease the number of directors as
permitted by law), shall elect qualified successors for directors who serve for
an indefinite term or whose terms have expired or are due to expire within six
months after the date of the meeting and shall transact such other business as
may properly come before them.
Section 2.03. Special Meetings. Special meetings of the shareholders
may be held at any time and for any purpose and may be called by the President,
Treasurer, any two or more directors, or by one or more shareholders holding 10%
or more of the shares entitled to vote on the matters to be presented to the
meeting.
Section 2.04. Quorum, Adjourned Meetings. The holders of a majority of
the shares entitled to vote shall constitute a quorum for the transaction of
business at any regular or special meeting. In case a quorum shall not be
present at a meeting, those present may adjourn the meeting to such day as they
shall, by majority vote, agree upon, and a notice of such adjournment and the
date and time at which such meeting shall be reconvened shall be mailed to each
shareholders entitled to vote at least 5 days before such reconvened meeting. If
a quorum is present, a meeting may be adjourned from time to time without notice
other than announcement at the meeting. At adjourned meetings at which a quorum
is present, any business may be transacted which might have been transacted at
the meeting as originally noticed. If a quorum is present, the shareholders may
continue to transact business until adjournment notwithstanding of the
withdrawal of enough shareholders to leave less than a quorum.
Section 2.05. Voting. At each meeting of the shareholders every
shareholder having the right to vote shall be entitled to vote either in person
or by proxy. Each shareholder, unless the Articles of Incorporation or statute
provide otherwise, shall have one vote for each share having voting power
registered in such shareholder's name on the books of the corporation. Jointly
owned shares may be voted by any joint owner unless the corporation receives
written notice from any one of them denying the authority of that person to vote
those shares. Upon the demand of any shareholder, the vote upon any question
before the meeting shall be by ballot. All questions shall be decided by a
majority vote of the number of shares entitled to vote and represented at the
meeting at the time of the vote except if otherwise required by statute, the
Articles of Incorporation, or these Bylaws.
Section 2.06. Closing of Books. The Board of Directors may fix a time,
not exceeding 60 days preceding the date of any meeting of shareholders, as a
record date for the determination of the shareholders entitled to notice of, and
to vote at, such meeting, notwithstanding any transfer of shares on the books of
the corporation after any record date so fixed. The Board of Directors may close
the books of the corporation against the transfer of shares during the whole or
any part of such period. If the Board of Directors fails to fix a record date
for determination of the shareholders entitled to notice of, and to vote at, any
meeting of shareholders, the record date shall be the 20th day of preceding the
date of such meeting.
Section 2.07. Notice of Meetings. There shall be mailed to each
shareholder, shown by the books of the corporation to be a holder of record of
voting shares, at his address as shown by the books of the corporation, a notice
setting out the time and place of each regular meeting and each special meeting,
except where the meeting is an adjourned meeting and the date, time and place of
the meeting were announced at the time of adjournment, which notice shall be
mailed to all shareholders of record, whether entitled to vote or not, at least
fourteen days prior thereto. Every notice of any special meeting called pursuant
to Section 2.03 hereof shall state the purpose or purposes for which the meeting
has been called, and the business transacted at all special meetings shall be
confined to the purpose stated in the notice.
Section 2.08. Waiver of Notice. Notice of any regular or special
meeting may be waived by any shareholder either before, at or after such meeting
orally or in writing signed by such shareholder or a representative entitled to
vote the shares of such shareholder. A shareholder, by his attendance at any
meeting of shareholders, shall be deemed to have waived notice of such meeting,
except where the shareholder objects at the beginning of the meeting to the
transaction of business because the time may not lawfully be considered at that
meeting and does not participate in the consideration of the item at that
meeting.
Section 2.09. Written Action. Any action which might be taken at a
meeting of the shareholders may be taken without a meeting if done in writing
and signed by all of the shareholders entitled to vote on that action.
ARTICLE III.
DIRECTORS
Section 3.01. General Powers. The business and affairs of the
corporation shall be managed by or under the authority of the Board of
Directors, except as otherwise permitted by statute.
Section 3.02. Number, Qualification and Term of Office. Until the first
meeting of shareholders, the number of directors shall be the number named in
the Articles of Incorporation or, if no such number is named therein, the number
elected by the incorporator. Thereafter, the number of directors shall be
established by resolution of the shareholders (subject to the authority of the
Board of Directors to increase or decrease the number of directors as permitted
by law). In the absence of such shareholder resolution, the number of directors
shall be the number last fixed by the shareholders, the Board of Directors, the
incorporator or the Articles of Incorporation. Directors need not be
shareholders. Each of the directors shall hold office until the regular meeting
of shareholders next held after such director's election and until such
director's successor shall have been elected and shall qualify, or until the
earlier death, resignation, removal, or disqualification of such director;
provided, however, that no director shall be elected to a term in excess of five
years.
Section 3.03. Board Meetings. Meetings of the Board of Directors may be
held from time to time at such time and place within or without the State of
Minnesota as may be designated in the notice of such meeting.
Section 3.04. Calling Meetings; Notice. Meetings of the Board of
Directors may be called by the Chairman of the Board by giving at least
twenty-four hours' notice, or by any other director by giving at least five
days' notice, of the date, time and place thereof to each director by mail,
telephone, telegram or in person.
Section 3.05. Waiver of Notice. Notice of any meeting of the Board of
Directors may be waived by any director either before, at, or after such meeting
orally or in a writing signed by such director. A director, by his attendance at
any meeting of the Board of Directors, shall be deemed to have waived notice of
such meeting, except where the director objects at the beginning of the meeting
to the transaction of business because the meeting is not lawfully called or
convened and does not participate thereafter in the meeting.
Section 3.06. Quorum. A majority of the directors holding office
immediately prior to a meeting of the Board of Directors shall constitute a
quorum for the transaction of business at such meeting.
Section 3.07. Absent Directors. A director may give advance written
consent or opposition to a proposal to be acted on at a meeting of the Board of
Directors. If such director is not present at the meeting, consent or opposition
to a proposal does not constitute presence for purposes of determining the
existence of a quorum, but consent or opposition shall be counted as a vote in
favor of or against the proposal and shall be entered in the minutes or other
record of action at the meeting, if the proposal acted on at the meeting is
substantially the same or has substantially the same effect as the proposal to
which the director has consented or objected.
Section 3.08. Conference Communications. Any or all directors may
participate in any meeting of the Board of Directors, or of any duly constituted
committee thereof, by any means of communication through which the directors may
simultaneously hear each other during such meeting. For the purposes of
establishing a quorum and taking any action at the meeting, such directors
participating pursuant to this Section 3.08 shall be deemed present in person at
the meeting; and the place of the meeting shall be the place of origination of
the conference telephone conversation or other comparable communication
technique.
Section 3.09. Vacancies; Newly Created Directorships. Vacancies in the
Board of Directors of this corporation occurring by reason of death, or
resignation, removal or disqualification shall be filled for the unexpired term
by a majority of the remaining directors of the Board although less than a
quorum; newly created directorships resulting from an increase in the authorized
number of directors by action of the Board of Directors as permitted by Section
3.02 may be filled by a majority vote of the directors serving at the time of
such increase; and each director elected pursuant to this Section 3.09 shall be
a director until such director's successor is elected by the shareholders at
their next regular or special meeting.
Section 3.10. Removal. Any or all of the directors may be removed from
office at any time, with or without cause, by the affirmative vote of the
shareholders holding a majority of the shares entitled to vote at an election of
directors except, as otherwise provided by Minnesota Statutes Section 302A.223,
as amended, when the shareholders have the right to cumulate their votes. A
director named by the Board of Directors to fill a vacancy may be removed from
office at any time, with or without cause, by the affirmative vote of the
remaining directors if the shareholders have not elected directors in the
interim between the time of the appointment to fill such vacancy and the time of
the removal. In the event that the entire Board or any one or more directors be
so removed, new directors shall be elected at the same meeting.
In addition to the foregoing, any director may be removed at any time
by the affirmative vote of a majority of the remaining directors if the
remaining directors determine that the director to be removed is engaged in an
activity that is competitive with any business of the Company. A director may be
determined to be engaged in an activity if he or she is an employee, director,
partner, consultant, owner, representative, agent or shareholder (other than a
shareholder beneficially owning less than 1% of the outstanding stock) of a
company, partnership, sole proprietorship or other organization. An activity may
be deemed to be competitive with the Company if the product or service created
by the activity is the same as or an alternative to any of the products or
services of the Company. The Board of Directors shall determine whether a
director is engaged in a competitive activity utilizing the guidelines described
in the previous two sentences as well as any other guidelines it determines to
be relevant. The Board's decision shall not be overturned by any court unless
the decision is shown to be clearly erroneous.
Section 3.11. Committees. A resolution approved by the affirmative vote
of a majority of the Board of Directors may establish committees having the
authority of the board in the management of the business of the corporation to
the extent provided in the resolution. A committee shall consist of one or more
persons, who need not be directors, appointed by affirmative vote of a majority
of the directors present. Committees are subject to the direction and control
of, and vacancies in the membership thereof shall be filled by, the Board of
Directors, except as provided by Minnesota Statutes Section 302A.243.
A majority of the members of the committee present at a meeting is a
quorum for the transaction of business, unless a larger or small proportion or
number is provided in a resolution approved by the affirmative vote of a
majority of the directors present.
Section 3.12. Written Action. Any action which might be taken at a
meeting of the Board of Directors, or any duly constituted committee thereof,
may be taken without a meeting if done in writing and signed by all of the
directors or committee members, unless the Articles provide otherwise and the
action need not be approved by the shareholders.
Section 3.13. Compensation. Directors who are not salaried officers of
this corporation shall receive such fixed sum per meeting attended or such fixed
annual sum as shall be determined, from time to time, by resolution of the Board
of Directors. The Board of Directors may, by resolution, provide that all
directors shall receive their expenses, if any, of attendance at meetings of the
Board of Directors or any committee thereof. Nothing herein contained shall be
construed to preclude any director from serving this corporation in any other
capacity and receiving proper compensation therefor.
ARTICLE IV.
OFFICERS
Section 4.01. Number. The officers of the corporation shall consist of
a Chairman of the Board (if one is elected by the Board), the President, one or
more Vice Presidents (if desired by the Board), a Treasurer, a Secretary (if one
is elected by the Board) and such other officers and agents as may, from time to
time be elected by the Board of Directors. Any number of offices may be held by
the same person.
Section 4.02. Election Term of Office and Qualifications. The Board of
Directors shall elect or appoint, by resolution approved by the affirmative vote
of a majority of the directors present, from within or without their number, the
President, Treasurer and such other officers as may be deemed advisable, each of
whom shall have the powers, rights, duties, responsibilities, and terms in
office provided for in these Bylaws or a resolution of the Board of Directors
not inconsistent therewith. The President and all other officers who may be
directors shall continue to hold office until the election and qualification of
their successors, notwithstanding an earlier termination of their directorship.
Section 4.03. Removal and Vacancies. Any officer may be removed from
his office by the Board of Directors at any time, with or without cause. Such
removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy among the officers of the corporation
by reason of death, resignation or otherwise, such vacancy shall be filled for
the unexpired term by the Board of Directors.
Section 4.04. Chairman of the Board. The Chairman of the Board, if one
is elected, shall preside at all meetings of the shareholders and directors and
shall have such other duties as may be prescribed, from time to time, by the
Board of Directors.
Section 4.05. President. The President shall be the chief executive
officer and shall have general active management of the business of the
corporation. In the absence of the Chairman of the Board, he shall preside at
all meetings of the shareholders and directors. He shall see that all orders and
resolutions of the Board of Directors are carried into effect. He shall execute
and deliver, in the name of the corporation, any deeds, mortgages, bonds,
contracts or other instruments pertaining to the business of the corporation
unless the authority to execute and deliver is required by law to be exercised
by another person or is expressly delegated by the Articles or Bylaws or by the
Board of Directors to some other officer or agent of the corporation. He shall
maintain records of and, whenever necessary, certify all proceedings of the
Board of Directors and the shareholders, and in general, shall perform all
duties usually incident to the office of the President. He shall have such other
duties as may, from time to time, be prescribed by the Board of Directors.
Section 4.06. Vice President. Each Vice President, if one or more are
elected, shall have such powers and shall perform such duties as prescribed by
the Board of Directors or by the President. In the event of the absence or
disability of the President, the Vice President(s) shall succeed to his power
and duties in the order designed by the Board of Directors.
Section 4.07. Secretary. The Secretary, if one is elected, shall be
secretary of and shall attend all meetings of the shareholders and Board of
Directors and shall record all proceedings of such meetings in the minute book
of the corporation. He shall give proper notice of meetings of shareholders and
directors. He shall perform such other duties as may, from time to time, be
prescribed by the Board of Directors or by the President.
Section 4.08. Treasurer. The Treasurer shall be the chief financial
officer and shall keep accurate financial records for the corporation. He shall
deposit all moneys, drafts and checks in the name of, and to the credit of, the
corporation in such banks and depositaries as the Board of Directors shall, from
time to time, designate. He shall have power to endorse, for deposit, all notes,
checks and drafts received by the corporation. He shall disburse the funds of
the corporation, as ordered by the Board of Directors, making proper vouchers
therefor. He shall render to the President and the directors, whenever
requested, an account of all his transactions as Treasurer and of the financial
condition of the corporation, and shall perform such other duties as may, from
time to time, be prescribed by the Board of Directors or by the President.
Section 4.09. Compensation. The officers of this corporation shall
receive such compensation for their services as may be determined, from time to
time, by resolution of the Board of Directors.
ARTICLE V.
SHARES AND THEIR TRANSFER
Section 5.01. Certificates for Shares. All shares of the corporation
shall be certificated shares. Every owner of shares of the corporation shall be
entitled to a certificate, to be in such form as shall be prescribed by the
Board of Directors, certifying the number of shares of the corporation owned by
such shareholder. The certificates for such shares shall be numbered in the
order in which they shall be issued and shall be signed, in the name of the
corporation, by the President and by the Secretary or an Assistant Secretary or
by such officers as the Board of Directors may designate. If the certificate is
signed by a transfer agent or registrar, such signatures of the corporate
officers may be by facsimile if authorized by the Board of Directors. Every
certificate surrendered to the corporation for exchange or transfer shall be
canceled, and no new certificate or certificates shall be issued in exchange for
any existing certificate until such existing certificate shall have been so
canceled, except in cases provided for in Section 5.04.
Section 5.02 Issuance of Shares. The Board of Directors is authorized
to cause to be issued shares of the corporation up to the full amount authorized
by the Articles of Incorporation in such amounts as may be determined by the
Board of Directors and as may be permitted by law. No shares shall be allotted
except in consideration of cash or other property, tangible or intangible,
received or to be received by the corporation under a written agreement, of
services rendered or to be rendered to the corporation under a written
agreement, or of an amount transferred from surplus to state capital upon a
share dividend. At the time of such allotment of shares, the Board of Directors
making such allotments shall state, by resolution, their determination of the
fair value to the corporation in monetary terms of any consideration other than
cash for which shares are allotted.
Section 5.03 Transfer of Shares. Transfer of shares on the books of the
corporation may be authorized only by the shareholder named in the certificate,
or the shareholder's legal representative, or the shareholder's duly authorized
attorney- in-fact, and upon surrender of the certificate or the certificates for
such shares. The corporation may treat as the absolute owner of shares of the
corporation, the person or persons in whose name shares are registered on the
books of the corporation.
Section 5.04. Loss of Certificates. Except as otherwise provided by
Minnesota Statutes Section 302A.419, any shareholder claiming a certificate for
shares to be lost, stolen, or destroyed shall make an affidavit of that fact in
such form as the Board of Directors shall require and shall, if the Board of
Directors so requires, give the corporation a bond of indemnity in form, in an
amount, and with one or more sureties satisfactory to the Board of Directors, to
indemnify the corporation against any claim which may be made against it on
account of the reissue of such certificate, whereupon a new certificate may be
issued in the same tenor and for the same number of shares as the one alleged to
have been lost, stolen or destroyed.
ARTICLE VI.
DIVIDENDS, RECORD DATE
Section 6.01. Dividends. Subject to the provisions of the Articles of
Incorporation, of these Bylaws, and of law, the Board of Directors may declare
dividends whenever, and in such amounts as, in its opinion, are deemed
advisable.
Section 6.02 Record Date. Subject to any provisions of the Articles of
Incorporation, the Board of Directors may fix a date not exceeding 120 days
preceding the date fixed for the payment of any dividend as the record date for
the determination of the shareholders entitled to receive payment of the
dividend and, in such case, only shareholders of record on the date so fixed
shall be entitled to receive payment of such dividend notwithstanding any
transfer of shares on the books of the corporation after the record date. The
Board of Directors may close the books of the corporation against the transfer
of shares during the whole or any part of such period.
ARTICLE VII .
BOOKS AND RECORDS, FISCAL YEAR
Section 7.01. Share Register. The Board of Directors of the corporation
shall cause to be kept at its principal executive office, or at another place or
places within the United States determined by the board:
(1) a share register not more than one year old, containing the
names and addresses of the shareholders and the number and
classes of shares held by each shareholder; and
(2) a record of the dates on which certificates or transaction
statements representing shares were issued.
Section 7.02. Other Books and Records. The Board of Directors shall
cause to be kept at its principal executive office, or, if its principal
executive office is not in Minnesota, shall make available at its registered
office within ten days after receipt by an officer of the corporation of a
written demand for them made by a shareholder or other person authorized by
Minnesota Statutes Section 302A.461, originals or copies of:
(1) records of all proceedings of shareholders for the last three
years;
(2) records of all proceedings of the board for the last three
years;
(3) its articles and all amendments currently in effect;
(4) its bylaws and all amendments currently in effect;
(5) financial statements required by Minnesota Statutes Section
302A.463 and the financial statements for the most recent
interim period prepared in the course of the operation of the
corporation for distribution to the shareholders or to a
governmental agency as a matter of public records;
(6) reports made to shareholders generally within the last three
years;
(7) a statement of the names and usual business addresses of its
directors and principal officers;
(8) any shareholder voting or control agreements of which the
corporation is aware; and
(9) such other records and books of account as shall be necessary
and appropriate to the conduct of the corporate business.
Section 7.03. Fiscal Year. The fiscal year of the corporation shall be
determined by the Board of Directors.
ARTICLE VIII.
LOANS, GUARANTEES, SURETYSHIP
Section 8.01. The corporation may lend money to, guarantee an
obligation of, become a surety for, or otherwise financially assist a person if
the transaction, or a class of transactions to which the transaction belongs, is
approved by the affirmative vote of a majority of the directors present, and:
(1) is in the usual and regular course of business of the
corporation;
(2) is with, or for the benefit of, a related corporation, and
organization in which the corporation has a financial
interest, an organization with which the corporation has a
business relationship, or an organization to which the
corporation has the power to make donations;
(3) is with, or for the benefit of, an officer or other employee
of the corporation or a subsidiary, including an officer or
employee who is a director of the corporation or a subsidiary,
and may reasonably be expected, in the judgment of the board,
to benefit the corporation; or
(4) has been approved by the affirmative vote of the holders of
two-thirds of the outstanding shares.
The loan, guarantee, surety contract or other financial assistance may be with
or without interest, and may be unsecured, or may be secured in the manner as a
majority of the directors approve, including, without limitation, a pledge of or
other security interest in shares of the corporation. Nothing in this section
shall be deemed to deny, limit or restrict the power of guaranty or warranty of
the corporation at common law or under a statute of the State of Minnesota.
ARTICLE IX.
INDEMNIFICATION OF CERTAIN PERSONS
Section 9.01. The corporation shall indemnify such persons, for such
expenses and liabilities, in such manner, under such circumstances, and to such
extent as permitted by Minnesota Statutes Section 302A.521, as now enacted or
hereafter amended.
ARTICLE X.
AMENDMENTS
Section 10.01. These Bylaws may be amended or altered by a vote of the
majority of the whole Board of Directors at any meeting, provided that notice of
such proposed amendment shall have been given in the notice given to the
directors of such meeting. Such authority in the Board of Directors is subject
to the power of the shareholders to change or repeal such Bylaws by a majority
vote of the shareholders present or represented at any regular or special
meeting of shareholders called for such purpose, and the Board of Directors
shall not make or alter any Bylaws fixing a quorum for meetings of shareholders,
prescribing procedures for removing directors or filling vacancies in the Board
of Directors, or fixing the number of directors or their classifications,
qualifications, or terms of office, except that the Board of Directors may adopt
or amend any Bylaw to increase their number.
ARTICLE XI.
SECURITIES OF OTHER CORPORATIONS
Section 11.01. Voting Securities Held by the Corporation. Unless
otherwise ordered by the Board of Directors, the President shall have full power
and authority on behalf of the corporation (a) to attend any meeting of security
holders of other corporations in which the corporation may hold securities and
to vote such securities on behalf of this corporation; (b) to execute any proxy
for such meeting on behalf of the corporation; or (c) to execute a written
action in lieu of a meeting of such other corporation on behalf of this
corporation. At such meeting, the president shall possess and may exercise any
and all rights and power incident to the ownership of such securities that the
corporation possesses. The Board of Directors may, from time to time, grant such
power and authority to one or more other persons and may remove such power and
authority from the President or from any such other person or persons.
Section 11.02. Purchase and Sale of Securities. Unless otherwise
ordered by the Board of Directors, the President shall have full power and
authority on behalf of the corporation to purchase, sell, transfer or encumber
any and all securities of any other corporation owned by the corporation, and
may execute and deliver such documents as may be necessary to effectuate such
purchase, sale, transfer or encumbrance. The Board of Directors may, from time
to time, confer like powers upon any other person or persons.
EXHIBIT 10.8
AMENDMENT NO. 4
TO
LEASE AGREEMENT
This Amendment No. 4 made and entered into this 10th day of February,
1992 by and between Plymouth Business Center I Partnership, a Minnesota general
partnership ("Landlord") and Helix BioCore, Inc. ("Tenant").
WITNESSETH:
WHEREAS, Crow-Plymouth Land Limited Partnership and Tenant are the
parties to that certain lease agreement dated December 22, 1987 (the "Lease")
with regard to the leasing of approximately 18,305 square feet (the "Original
Leased Premises") in the building owned by Landlord and located at 3905
Annapolis Lane, Plymouth, Minnesota as more particularly described on Exhibit A
to the Lease; and
WHEREAS, Plymouth Business Center I Partnership is the successor to
Crow-Plymouth Land Limited Partnership's interest in the Lease and is
hereinafter referred to as "Landlord"; and
WHEREAS, Landlord and Tenant entered into a certain Amendment No. 1 to
Lease Agreement on January 5, 1989 to provide for the leasing to Tenant of an
additional 21,205 square feet in the Building (the "Surrender Space"); and
WHEREAS, Landlord and Tenant entered into a certain Amendment No. 2 to
Lease Agreement on January 12, 1989 in order to evidence their agreement in
regard to the use of the Original Leased Premises for manufacturing purposes;
and
WHEREAS, Landlord and Tenant entered into a certain Amendment No. 3 to
Lease Agreement in order to allow Tenant to vacate and surrender to Landlord the
Surrender Space and to evidence their agreement to extend the term of the Lease
as to the Original Leased Premises, as amended, for a period of three (3)
additional months; and
WHEREAS, Landlord and Tenant have agreed to enter into this Amendment
No. 4 to Lease Agreement in order to evidence their agreement to extend the term
of the Lease as to the Original Leased Premises, as amended, for a period of
thirty (30) additional months.
NOW, THEREFORE, in consideration of the foregoing, and the following
covenants and agreements and for other good and valuable consideration, the
receipt and adequacy whereof is hereby acknowledged by the parties, Landlord and
Tenant hereby agree as follows:
1. Interpretation of Amendment. The Lease is hereby modified and
supplemented. Wherever there exists a conflict between this Amendment No. 4 and
the Lease, as amended, the provisions of this Amendment No. 4 shall control.
Unless otherwise indicated, capitalized terms shall be defined in the manner set
forth in the Lease, as amended.
2. Extension of Term. The term of the Lease, as amended, is hereby
extended for a period of thirty (30) months from July 1, 1995 through December
31, 1997.
3. Base Rent. Notwithstanding anything to the contrary in the Lease, as
amended, Base Rent for the Original Leased Premises during the term as hereby
extended, shall be equal to $11,821.98 per month, payable in accordance with the
terms of the Lease, during the period commencing July 1, 1995 and continuing
through the expiration of the Lease term as extended hereby to December 31,
1997.
4. Additional Security Deposit. Tenant hereby deposits with Landlord,
on the date hereof, the sum of $10,000.00 as an additional security deposit to
be held by Landlord in accordance with Paragraph 2B of the Lease.
5. Contingency. It is acknowledged that the parties rights and
obligations under this Amendment No. 4 are contingent upon the execution of a
certain Termination of Lease Agreement (the "Termination") by and between
Landlord and Tenant, dated of even date herewith, for the surrender and
termination of the Lease of approximately 30,757 square feet in the building
located at 3955 Annapolis Lane, Plymouth, Minnesota and upon the satisfaction of
each contingency set forth in the Termination necessary for the terms of the
Termination to become fully effective between the parties.
6. Reference to an Effect on the Lease.
a. Upon the effectiveness on this Amendment, each reference in the
Lease to "this Lease", "hereunder", "hereof", "herein" or words of like import
referring to the Lease shall mean and be a reference to the Lease as amended
hereby.
b. Except as specifically set forth above, the Lease remains of full
force and effect and is hereby ratified and confirmed.
7. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Minnesota.
8. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 4 to
Lease Agreement as of the year and date first above written.
LANDLORD:
Plymouth Business Center I
Partnership
By /S/ Gary T. O'Brien
Gary T. O'Brien, Its Agent
TENANT:
Helix, BioCore, Inc.
By /S/ M.A. Villafana
Its___________________
Rule 24b-2 Confidential Treatment
Brackets Indicate Omissions
EXHIBIT 10.9
DEVELOPMENT AGREEMENT
THIS AGREEMENT made as of September 24, 1990, by and between
CarboMedics, Inc., a Texas corporation, having a place of business at 1300-B
East Anderson Lane, Austin, Texas 78752 (hereinafter referred to as "CMI"), and
Helix BioCore, Inc., 3905 Annapolis Lane, Minneapolis, Minnesota 55447
("Helix").
WHEREAS, under license agreement of even date herewith (the "License
Agreement"), CMI has granted a license to Helix to use and sell a certain
embodiment of a bileaflet mechanical cardiac valve prosthesis (hereinafter
referred to as the "Valve") which is claimed under United States patent
4,692,165 (the "Licensed Product") and
WHEREAS CMI manufactures and sells Pyrolite coated components for
mechanical cardiac valve protheses using CMI's proprietary technology, which
includes all knowledge and information relating to inventions, methods, systems,
devices, processes, trade secrets and other confidential information used in the
design, fabrication, inspection and testing of prosthetic heart valve components
incorporating CMI's proprietary carbon materials Pyrolite and Biolite and other
proprietary substrate materials (hereinafter referred to as "CMI's Proprietary
Technology") and
WHEREAS Helix desires to complete design development and clinical
trials and have the Valve approved and manufactured for commercial production in
the U.S. and international markets and
WHEREAS CMI desires to manufacture mechanical heart valve components
for the Valve and to undertake such work on a "best efforts" basis, all upon the
terms and conditions set forth in the OEM supply contract of even date herewith
between CMI and Helix (the "Supply Contract") and
WHEREAS the research and development required to develop manufacturing
processes for a mechanical cardiac valve prothesis and bring it to commercial
market is expensive and the consideration agreed to in this Agreement is not, in
itself, sufficient to induce CMI to enter into this Agreement and
WHEREAS CMI is unwilling to incur the expense of such research and
development without the additional consideration of a long-term supply contract
to manufacture components for the Valve in commercial quantities and
WHEREAS, under an option agreement of even date herewith, CMI has given
Helix an option to license certain technology on the terms stated in such option
agreement (the "Option Agreement") and
WHEREAS the parties acknowledge and agree that the Supply Contract is
partial consideration for the completion of the research and development project
outlined in this Agreement,
NOW, THEREFORE, in consideration of the premises and in reliance upon
the mutual covenants and agreements hereinafter set forth, the parties agree as
follows:
1. Purposes of Agreement. The purpose of this Agreement is to establish
a program to complete the design and testing of the Valve, (the "Program") so
that commercial distribution can begin.
2. The Program.
2.1 Scope of the Program. In consideration of the Supply
Agreement and Helix's payments in accordance with and subject to the
terms of Section 3 hereof, the parties agree that:
a. As promptly as possible after the execution hereof, CMI and
Helix will begin joint development and fabrication of a sewing
cuff for the Valve.
b. CMI will perform preliminary tests of prototype Pyrolite
components. Helix may, at its option, observe such tests. CMI
will report the results of the tests to Helix. Helix will make
such changes in the design as it deems necessary or desirable.
CMI will cooperate with Helix in making changes necessary to
facilitate manufacture of the design. Helix will have the sole
right and responsibility to approve the design which is
finally adopted.
c. CMI will provide Helix with Valve components in the
quantities and sizes identified on Exhibit A, attached to and
made part of this Agreement. Any Valve components manufactured
in the course of the Program in excess of the quantities set
out on Exhibit B will be supplied to Helix under the terms of
the Supply Agreement before the beginning of the First
Contract Year as that term is defined in the Supply Contract.
d. CMI will perform or cause to be performed with respect to
the Valve components all accelerated wear testing and animal
implants required by the United States Food and Drug
administration ("FDA") under the guidelines in effect at the
initiation of the Program and in accordance with GMP and GLP
regulations.
e. Helix will provide CMI with a complete set of drawings for
components for the Valve. CMI will provide drafting services
to aid Helix in the preparation of such drawings.
f. Helix will have the responsibility for obtaining all
approvals required by the FDA. CMI will provide information to
the FDA in the areas of its expertise as required by the FDA.
g. CMI will provide Helix with access to and information
regarding CMI's final inspection procedures for the
components.
h. Helix will be solely responsible for (i) manufacturing the
sewing cuff except as set forth in Section l(e) of the Supply
Contract, (ii) final assembly of all components, (iii)
sterilization and packaging of the Valve, (iv) design and
fabrication of the auxiliary instrumentation and (v)
preparation of all labels including instructions for use.
2.2 Program Schedule. Work on the Program will be scheduled
for completion as set forth in the schedule in Exhibit B attached to
and made part of this Agreement (the "Program Schedule"). CMI will use
its best efforts to meet the deadlines set forth in the Program
Schedule but does not guaranty that such deadlines can be met because
the Program Schedule assumes that there are no unforeseen technical
difficulties and that all current assumptions related to the design of
the Valve are proven correct. The Program Schedule does not allow for
redesigns or reiteration of any step. For purposes of this section, and
section 3 below, and section 17.1 below the term "unforeseen technical
difficulties" will include but not be limited to material-related
difficulties; failure in any FDA or CMI-recommended test; and
process-related events that prevent CMI from meeting the final
specifications.
3. Program Price. In consideration of the work to be performed under
this Agreement, Helix will pay CMI $2.39 million. Such sum will be payable in
the installments set out on Exhibit B. The first installment will be due upon
signing this Agreement. Each remaining installment will be due and payable
before CMI begins the applicable activity. This price is based upon the
assumption that the Program will proceed without encountering delays caused by
unforeseen technical problems and without changes to the drawings and/or
specifications. The parties agree that if such delays or changes occur, Helix
will bear the reasonable cost of such delays or changes as additional charges to
be paid before correction of the delay or problem is attempted by CMI, with
Helix's approval.
4. Periodic Reports.
4.1 Progress Reports. Within 15 business days after the end of
every second calendar month, CMI will submit to Helix a written status
report detailing CMI's efforts during the two preceding months and the
results thereof. CMI will also submit to Helix CMI's best estimate of
the tasks to be accomplished during the next two calendar months.
4.2 Progress Reviews. The parties will undertake joint
progress reviews as indicated in Exhibit B and at such other times as
may be mutually agreed to at CMI's facility.
5. Changes in Specifications. During the term of this Agreement Helix
will have the right, exercisable at any time or from time to time, to make any
changes(s) in the drawings or specifications. Helix acknowledges that any such
change may affect the costs or schedule or both.
6. Proprietary Rights; Inventions. Helix agrees that any invention,
discovery or improvement, patentable or not, that is related to CMI's
Proprietary Technology and is created, conceived or reduced to practice in the
performance of this Agreement by CMI will be the exclusive property of CMI.
7. Tooling and Fixtures. All tooling and fixtures which are designed
and built using funds provided by Helix will be the exclusive property of CMI.
Upon completion of the Program and commencement of production of components for
Helix, CMI will deliver to Helix, free of charge, the two wear testers used in
the development process.
8. Confidentiality and Proprietary Rights.
8.1 General. All knowledge and information which either party
may acquire from the other pursuant to the terms of this Agreement
respecting inventions, methods, systems, devices, processes,
improvements, trade secrets and other private matters (hereinafter
referred to as the "Information"), will for all time and for all
purposes be regarded as strictly confidential and held in trust solely
for the benefit and use of the party disclosing such Information, and
it is agreed that the use or public disclosure of any such Information
by the party receiving it would be wrongful and would cause irreparable
injury to the disclosing party.
8.2 Confidential Information of CMI. Without limiting the
generality of subsection 8.1 above, all CMI's information, inventions,
improvements, drawings, special tooling, fixtures, data, manufacturing
techniques, processes and research and development relating to the
manufacture, inspection and testing of the components will be the sole
property of CMI.
8.3 Confidential Information of Helix. Without limiting the
generality of Section 8.1 above, all Helix's proprietary information,
inventions, improvements, drawings, technology, research and
development and other rights of Helix in prosthetic cardiac components
and devices will be the sole property of Helix. Helix will acquire no
interest in CMI's Proprietary Technology, or in the manufacturing
tolerances or other related information as a result of the execution
and performance of this Agreement.
8.4 Procedures for Maintaining Confidentiality. Each party
agrees to maintain the confidentiality of any Information and to that
end agrees as follows:
(a) Not to make any use whatsoever of any Information
except for the purpose for which it is supplied,
either for itself or any other person, firm or
corporation;
(b) Not to reveal any Information to third parties,
without the prior written approval of the disclosing
party except that CMI may reveal such Information to
third parties who are bound by confidentiality
agreements to the extent such parties need to know
the Information to provide services required by CMI
pursuant to this Agreement or the Supply Contract;
(c) To keep all Information strictly secret and
confidential and to that end, without limiting the
generality of the foregoing, to cause all written
materials relating to or containing any Information
to be plainly marked to indicate the secret and
confidential nature thereof, and to prevent
unauthorized use or reproduction thereof;
(d) To maintain such Information in controlled files
accessible only to authorized personnel;
(e) To limit access to said Information to those of its
employees who are cleared for access to restricted
areas within each party's facilities, which employees
shall first have executed a confidentiality agreement
which requires, among other things, that such
employee will maintain the secrecy of all
confidential information which such employee may
obtain in the course of employment;
(f) In the event the receiving party receives a request
to disclose all or any part of the Information under
the terms of a valid and effective subpoena or order
issued by a court of competent jurisdiction, the
receiving party agrees to (i) notify immediately the
disclosing party of the existence, terms and
circumstances surrounding such request; (ii) consult
with the disclosing party on the advisability of
taking legally available steps to resist or narrow
such request, and (iii) if disclosure of such
Information is required, exercise its best efforts to
obtain an order or other reliable assurance that
confidential treatment will be accorded to such
portion of the Information as must be produced or
disclosed.
8.5 Exceptions. The foregoing restrictions will not apply to
any information which is (i) known to the receiving party prior to
receipt thereof from the disclosing party as evidenced by such
receiving party's written records kept in the ordinary course of its
business, or (ii) of public knowledge without breach by the receiving
party of its obligations hereunder, or (iii) rightfully received by the
receiving party from a third party without restriction on disclosure or
use, or (iv) disclosed by the disclosing party to a third party without
restriction on disclosure or use, or (v) independently developed by
personnel of the receiving party who have not had access to or
knowledge of the contents of the disclosing party's disclosure, or (vi)
disclosed after receiving the written consent therefor of an authorized
officer of the disclosing party; provided that in each event, the
receiving party can demonstrate same to the reasonable satisfaction of
the disclosing party.
9. Excusable Delay or Failure to Perform. Neither party will be liable
for a delay in performance of or failure to perform an obligation under this
Agreement (except an obligation to make payment promptly when due), if and to
the extent such delay or failure is attributable to any cause beyond the
reasonable control of such party to prevent. Such causes may include, but are
not limited to act of God, act of government, war or related actions, civil
insurrection, riot, sabotage, strike, epidemic, fire, flood, windstorm, or a
failure of suppliers, subcontractors or carriers, or inability to obtain
required materials or qualified labor, which are reasonably beyond the control
of the defaulting party to prevent. The party affected will give prompt notice
of the cause to the other party, and will resume performance with reasonable
diligence upon cessation of the cause of the delay or failure.
10. CMI's Representations and Warranties.
10.1 Performance of Obligations. CMI hereby represents and
warrants to Helix that CMI will faithfully perform all of the
obligations, covenants and agreements on its part to be performed as
set forth in this Agreement within the time limitations imposed with
respect to such obligations.
10.2 Disclaimer of Warranties. The parties acknowledge and
agree that components manufactured under this Agreement will be for
development purposes only and not manufactured in commercial
quantities. Therefore CMI makes no warranty of any kind. CMI EXPRESSLY
DISCLAIMS ANY AND ALL REPRESENTATIONS AND WARRANTIES WITH RESPECT TO
SUCH COMPONENTS, EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF
FITNESS FOR A PARTICULAR PURPOSE AND MERCHANTABILITY.
11. Helix's Representations and Warranties. Helix will faithfully and
fully perform all of the obligations, covenants and agreements on its part to be
performed as set forth in this Agreement within the time limitations imposed
with respect to such obligations.
12. Use of Information Developed by Helix. The design, engineering,
research, technology and the like which may be developed solely by Helix in
connection with its continuing improvement of existing designs or development of
new designs for the Valve will belong exclusively to Helix and may be
incorporated in Helix's future specifications.
13. Helix's Covenants.
13.1 Non-Liability of CMI.
(a) Limitation on CMI's Responsibility. Under no
circumstances will CMI be liable or responsible for direct,
incidental, consequential and/or special damages arising out
of any breach of this Agreement or out of the use or
implantation of prostheses employing components supplied
hereunder including, but not limited to, damage to property of
Helix or of other persons, or for injury to or death of any
person.
(b) Helix's Responsibility. CMI will have no control
over the uses to which the components will be devoted, or over
the circumstances of their use, storage, handling,
distribution or application. Helix will assume full
responsibility with respect to the use of any Component or
information furnished by CMI hereunder, and it is mutually
agreed that CMI assumes no liabilities of any kind with
respect to the use by Helix or any third party of such
components or information.
(c) Hold Harmless. If Helix undertakes to supply the
components in any form to others, it does so in its own
discretion and upon its own judgment as to risk. Helix agrees,
at its own expense, to defend, indemnify and hold harmless CMI
from and against any and all claims, suits, actions, damages,
costs, losses, and expenses (including but not limited to
court costs, attorney's fees and all other expenses of
litigation) for injury to or death of any person, or for
damage to any property, arising from or out of or in
connection with the design, manufacture, sale, implantation or
use of any Component supplied under this Agreement, regardless
of whether such injury, death or damage are caused in whole or
in part by the negligence of CMI or whether CMI is held
strictly liable for such injury, death or damage. It is the
express intention of the parties hereto, both CMI and Helix,
that the indemnity obligations and liabilities assumed by
Helix in this paragraph be without monetary limit and without
regard to causes thereof including but not limited to any
failure to warn, strict liability, or the negligence of CMI,
its officers, agents or employees, whether the negligence be
sole, joint, or concurrent, active or passive.
Helix further agrees, at its own expense, to defend, indemnify and hold
harmless CMI from and against any and all claims, suits, actions, damages,
costs, proceedings, losses and expenses (including but not limited to attorney's
fees) based on any claim that a design or design modification developed by
Helix, alone or with CMI, infringes a patent of another.
CMI will, at its own expense, defend, indemnify and hold Helix harmless
from and against any and all claims, suits, actions, damages, costs,
proceedings, losses and expenses (including but not limited to attorney's fees)
based on any claim that CMI's manufacturing processes or the materials used in
the fabrication or coating of the components infringe the patent of any third
party.
(d) Product Liability Insurance. Helix and/or its successor
and assigns will maintain general liability insurance, written on an
occurrence basis, during the term of this Agreement in the minimum
amount of $5 million. Said insurance must be obtained by Helix before
any Valve components suitable for human implant will be delivered by
CMI to Helix. The product liability insurance so maintained will be
written by an insurance carrier acceptable to CMI, include CMI as an
additional insured, and contain an endorsement to provide CMI with at
least 30 days prior written notice of any cancellation, non-renewal, or
coverage reduction. This insurance coverage will survive termination of
this Agreement and will, in any event, provide coverage during the
period any components supplied by CMI under the terms of this Agreement
remain implanted in any living patient. CMI may demand evidence of
coverage at any time during the term of this Agreement and during the
period Helix is required to maintain coverage thereafter. In the event
Helix fails to provide CMI with evidence of the product liability
insurance required to be maintained pursuant to the provisions of this
paragraph and the failure continues for 10 business days following
Helix's receipt of a notice advising Helix of its failure to provide
such evidence, then at any time thereafter during the pendency of such
failure, CMI will have the option in its sole discretion to purchase
the insurance required herein and bill Helix for the entire cost of
such insurance or to terminate this Agreement.
13.2 Patent Infringement. Helix will in no manner infringe any
patent or claim to patent held or asserted by CMI except the patent
pertaining to the Licensed Product but only to the extent permitted in
the License Agreement.
13.3 Use of Information Developed by CMI. The procedures,
methodology, processes, techniques and the like which may be developed
or learned by CMI relating to the use of CMI's Proprietary Technology
in connection with its manufacture of components for Helix will belong
exclusively to CMI and may be incorporated in CMI's general
manufacturing operations. The tolerances and other information relating
to CMI's Proprietary Technology developed by CMI and incorporated in
the drawings developed by CMI for the manufacture of the components for
the Valve will remain the exclusive confidential and proprietary
property of CMI. All claims in the patent pertaining to the Licensed
Product remain the sole and exclusive property of CMI except to the
extent licensed to Helix under the License Agreement.
14. Infringement. Should any action be commenced alleging that the
claims in the patent pertaining to the Licensed Product infringe the claims of
any Letters Patent or that the patent is invalid, each party will have the
rights and obligations set out in the License Agreement.
15. Term and Termination.
15.1 Term. The term of this Agreement will commence on the
date first written above and will continue in effect until completion
of the Program.
15.2 Termination by Helix. Notwithstanding the foregoing,
Helix will have the right to terminate this Agreement on 30 days prior
written notice to CMI, subject to the survival of all confidentiality
and indemnification provisions, and of all monetary obligations for
work, services, and equipment previously performed or contracted by CMI
under the Development Agreement.
15.3 Termination by CMI. Each payment pursuant to Section 3 of
this Agreement is due and payable before CMI begins the activity for
which payment is allocated. If Helix fails to make any such payment and
such failure continues for 30 days after the date of CMI's invoice for
such payment, then CMI may terminate this Agreement immediately upon
written notice. If any other payment to CMI is in arrears for 15 days
after the due date, or if Helix defaults in performing any of the other
provisions of this Agreement and such default continues for a period of
30 days, or if Helix is adjudicated bankrupt or becomes insolvent, or
enters into a composition with creditors, or if a receiver is
appointed, then CMI will have the right to terminate this Agreement
immediately upon written notice to Helix.
16. Relationship of Parties. The relationship between CMI and Helix as
established by this Agreement is that of independent contractors. As such,
subject to the provisions of this Agreement, CMI and Helix each will conduct
their respective business at their own initiative, responsibility and expense,
and each will have no authority to incur any obligation on behalf of the other.
17. Miscellaneous.
17.1 Assignment. Helix will have the right to assign its
rights or delegate its obligations under this Agreement, either in
whole or in part to any company controlling, controlled by or under
common control with Helix or succeeding to the entire business of
Helix. Assignment of rights and obligations by Helix is contingent upon
the successor's agreement in writing to CMI to continue the development
project for the Licensed Product per this Development Agreement and
specifically as it pertains to the work and payment schedules set forth
in Exhibit B. It is the intent of Helix and CMI, barring any unforeseen
technical difficulties, the development project will proceed in a
rapid, continuous manner to successfully develop the Licensed Product.
Failure of the successor to Helix to reaffirm this intent in writing
will constitute a default under this Agreement. CMI may freely assign
this Agreement to any entity controlling, controlled by or under co on
control with CMI or to a successor of the entire business of CMI.
17.2 Choice of Law. This Agreement has been entered into in
Travis County, Texas, and will be deemed made under the laws of the
State of Texas and for all purposes will be governed by, enforced under
and construed in accordance with the laws of said state, without regard
to principles of conflicts of law. In the event that any action is ever
commenced by CMI or Helix with respect to matters which are the subject
of this Agreement, Helix covenants and agrees to commence such action
only within the State of Texas if it is the plaintiff. Helix agrees and
hereby does submit to the jurisdiction of the State of Texas in the
event that it is the defendant in any such action and hereby
constitutes and appoints the Secretary of State for the State of Texas
as its agent for service of process in connection with the bringing of
any such litigation by CMI.
17.3 Setoffs. CMI reserves the right to set off any amounts it
owes Helix against any amounts Helix owes it.
17.4 Waiver and Delay. No delay or omission by any party in
enforcing any of the terms or conditions of this Agreement will be
construed as a waiver thereof, and no waiver of any conditions, breach
or default will be construed or determined to be a waiver of any other
or subsequent conditions, breach or default or a bar to the enforcement
of such terms and conditions on any future occasion.
17.5 Notices. All notices required or permitted hereunder,
will be effective upon their receipt and will be given in writing and
delivered in person or by certified or registered mail, postage
prepaid, addressed to the attention of the president of each respective
company at the respective address first above written or such other
address as may be given by notice.
17.6 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such a manner as to be effective and
valid under the applicable law, but if such provision is or becomes
invalid or unenforceable under such law, then such provision will be
reformed in order to conform to applicable law. If such reformation is
not possible, then such provision will be ineffective only to the
extent of such unenforceability or invalidity, and the remainder of the
Agreement will continue to be binding and in full force and effect.
17.7 Merger. This Agreement, together with the License, Supply
and Option Agreements, constitutes the entire understanding of the
parties with respect to this subject matter and supersedes all prior
agreements, understandings, discussions, and communication between the
parties respecting such subject matter. No modification of this
Agreement will be effective unless made in writing and signed by a duly
authorized officer of each party.
17.8 Benefit. This Agreement will be binding upon and will
inure to the benefit of the parties, their legal representatives,
successors and assigns, provided that the provisions with respect to
assignment and delegation are fully complied with.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
HELIX BIOCORE, INC. CARBOMEDICS, INC.
By:/S/ M.A. Villafana By: /S/ Terry Marlatt
Title: CEO Terry Marlatt, President
Printed Name: M.A. Villafana
GMP DEVELOPMENT VALVE COMPONENT SET
[*]
EXHIBIT A
- -----------------
[*] Denotes confidential information omitted pursuant to Rule 24b-2 of the
Securities and Exchange Act of 1934, as amended. The Securities and
Exchange Commission granted the company's confidential treatment
request in connection with this information.
PROGRAM AND PAYMENT SCHEDULE
[*]
EXHIBIT B
- -----------------
[*] Denotes confidential information omitted pursuant to Rule 24b-2 of the
Securities and Exchange Act of 1934, as amended. The Securities and
Exchange Commission granted the company's confidential treatment
request in connection with this information.
Rule 24b-2 Confidential Treatment
Brackets Indicate Omissions
EXHIBIT 10.10
O.E.M. SUPPLY CONTRACT
THIS AGREEMENT, effective as of September 24, 1990, by and between
CARBOMEDICS, INC., a corporation organized and existing under the laws of the
State of Texas, with its principal office located at 1300-B East Anderson Lane,
Austin, Texas 78752 ("CMI") and HELIX BIOCORE, INC., a corporation organized and
existing under the laws of the State of Minnesota, with its principal office
located at 3905 Annapolis Lane, Minneapolis, Minnesota 55447 (hereafter
"Manufacturer").
1. Recitals and Definitions.
(a) Manufacturer's Business. Manufacturer desires to be
engaged in the business of designing, manufacturing and selling medical
devices, including a proprietary cardiac valve prosthesis (the "Valve"
as that term is defined in the development agreement of even date
herewith between CMI and Manufacturer hereinafter called the
"Development Agreement").
(b) CMI's Business. CMI is engaged in the business of
manufacturing mechanical components for cardiac valve prostheses,
particularly such components coated with its proprietary Pyrolite and
Biolite pyrocarbon.
(c) Mechanical Heart Valve Components. The term "Mechanical
Heart Valve Components", (hereafter "Components"), means and includes
mechanical Components for use in cardiac valve prostheses manufactured
by CMI according to the written specifications and drawings of the
Manufacturer furnished to CMI which Components are coated with Pyrolite
and Biolite. The specifications are being developed pursuant to the
Development Agreement and will be attached to and made part of this
Agreement as Exhibit A.
(d) Component Set. The term "Component Set" means an orifice,
two leaflets, a stiffening ring, two lock rings, and a lock wire.
(e) Sewing Cuffs. Pursuant to one or more purchase orders from
Manufacturer, CMI will manufacture up to [*] sewing cuffs for aortic or
mitral applications.
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[*] Denotes confidential information omitted pursuant to Rule 24b-2 of the
Securities and Exchange Act of 1934, as amended. The Securities and
Exchange Commission granted the company's confidential treatment
request in connection with this information.
(f) License and Option Agreements. The parties have entered
into a license agreement of even date herewith (the "License
Agreement") and an option agreement (the "Option Agreement) also of
even date herewith.
(g) Consideration. Under the terms of the Development
Agreement, CMI has agreed to perform certain services for Manufacturer
related to the development of manufacturing processes and the testing
of Components for the Valve. The parties acknowledge and agree that the
research and development required to develop the Valve and bring it to
commercial market is expensive. The consideration agreed to in the
Development Agreement is not, in itself, sufficient to induce CMI to
participate in the project outlined in the Development Agreement. CMI
is unwilling to incur the expense of such a research and development
project without the additional consideration of a long-term supply
contract to manufacture Components for the valve in commercial
quantities. Therefore, Manufacturer and CMI acknowledge and agree that
a long-term supply contract is partial consideration for completion of
the research and development project outlined in the Development
Agreement.
2. Purchase of Goods.
(a) Manufacturer agrees to purchase, during the first five
Contract Years of this Agreement, at least the minimum quantity of the
Components per year specified in Exhibit B attached to and made part of
this Agreement. Thereafter the minimum purchase requirement each year
will be at least the lower of either the minimum number of Component
Sets set forth on Exhibit B or the number of valve sets actually sold
and/or disposed of by any means by Manufacturer.
(b) Manufacturer further agrees to purchase its requirements
for Components exclusively from CMI during the first five Contract
Years of this Agreement. Thereafter, Manufacturer may, at its option,
obtain Component Sets in excess of the minimum purchase requirements
set forth in the second column on Exhibit B from a source other than
CMI.
3. Price.
(a) CMI agrees to supply such Components and Biolite(R)
coating of sewing cuffs at the prices set forth in Exhibit B.
(b) CMI agrees to supply sewing cuffs at the following prices:
First [*] @ [*] each
Second [*] @ [*] each
[*] to [*] @ [*] each
(c) Prices for both Components and sewing cuffs will be
adjusted for inflation, effective the first day of each Contract Year
(as that term is defined in Section 14 below). The prices for the first
Contract Year will be determined in accordance with the price
adjustment mechanism set forth in Exhibit B. The adjusted price for
each subsequent Contract Year will be the price for the prior Contract
Year plus such prior price times an inflation factor equal to the
12-month average percentage increase in employment costs for private
industry workers (excluding farmers) as reported on the last day of the
last full calendar quarter of the prior Contract year as indicated on
Table 1 of the EMPLOYMENT COST INDEX published by the Bureau of Labor
Statistics of the United States Department of Labor or, if the
EMPLOYMENT COST INDEX should cease to be published, any comparable
category in a comparable index agreeable to both parties.
(d) If the EMPLOYMENT COST INDEX is not available when the
first purchase order(s) in any Contract Year is issued, the price for
purchases under such purchase order(s) will be retroactively adjusted.
(e) If the specifications and drawings for the Valve require
significantly more precision to manufacture than is reflected in the
drawings and specifications for the Valve as of the date hereof or if
CMI determines that the Components of the Valve are significantly more
difficult to manufacture than those Components CMI manufactures for its
other customers, the parties will, in good faith, negotiate an
increased price to reflect the increased precision and/or difficulties.
4. Schedule. Manufacturer will purchase Component Sets in approximate
equal weekly increments.
5. Ordering Procedure.
(a) Purchase Orders. Sales of Components will be made pursuant
to purchase orders issued by Manufacturer to CMI, specifying weekly
delivery schedules by size and quantity, price extension (based on
Exhibit B pricing) and method of shipment. Manufacturer will use its
best efforts to maintain a uniform weekly delivery schedule in terms of
size and quantity of Components ordered. Contemporaneously with the
completion of activity 18 on Exhibit B in the Development Agreement, or
earlier at Manufacturer's option, Manufacturer will issue purchase
orders for the first 26 weeks of the term of this Agreement.
Thereafter, beginning 13 weeks after the commencement of the term of
this Agreement, subsequent purchase orders will be issued by
Manufacturer to CMI at thirteen-week intervals, thirteen weeks in
advance. Issuance of purchase orders before the completion of activity
18 on Exhibit B of the Development Agreement will not accelerate the
commencement of the first Contract Year.
- ----------------------
[*] Denotes confidential information omitted pursuant to Rule 24b-2 of the
Securities and Exchange Act of 1934, as amended. The Securities and
Exchange Commission granted the company's confidential treatment
request in connection with this information.
(b) Limitations on Quantities Ordered. In order to enable CMI
to plan production and in order to assure Manufacturer a steady and
predictable supply of Components, Manufacturer agrees that each new
thirteen-week order for Components will not decrease by more than 10
percent from the immediately preceding thirteen-week order. The 10
percent variation will be calculated by comparing each new order(s) for
Components to the immediately preceding order(s) for Components. Any
new thirteen-week order which increases the immediately preceding
thirteen-week order by more than 10 percent is subject to acceptance by
CMI, and CMI may reject that portion of the order which exceeds 110% of
the preceding order. Manufacturer may, however, increase or decrease an
order by up to 40% (or 2000 Valves, if higher than 40%) over the prior
thirteen-week order if Manufacturer has notified CMI of this change and
issued a purchase order to reflect the increase, at least 26 weeks in
advance. Notwithstanding the foregoing, CMI will use its best efforts
to manufacture Components sufficient to fill Manufacturer's orders
which exceed the 10 percent maximum variation limitation.
(c) Raw Materials. Manufacturer acknowledges that certain raw
materials ("Raw Materials") which are identified on Exhibit C, attached
to and made part of this Agreement, are unique to the Component and are
sold in minimum quantities which may exceed a 13-week supply.
Manufacturer hereby authorizes CMI to maintain a sufficient supply of
Raw Materials to insure a steady production schedule.
6. Change in Specifications. Manufacturer will have the right, from
time to time, to make such changes in the specifications as it deems necessary
or desirable. All such changes, however, will be made by written notice. If any
change increases CMI's costs, CMI's price to Manufacturer will be increased
proportionately. The effective date for all such changes will be negotiated in
good faith between Manufacturer and CMI. If any inventory of Raw Materials, work
in process or finished goods should become obsolete as a result of such a
change, Manufacturer will reimburse CMI for the cost of such obsolete inventory
on a percentage-of-completion basis.
7. Transportation Costs. CMI will ship Components to Manufacturer
f.o.b. CMI's facility (point of origin). CMI will invoice Manufacturer for each
shipment the total purchase price and the cost of shipping or will charge the
cost of shipment to Manufacturer's account with the carrier, at Manufacturer's
option.
8. Payment. CMI will invoice Manufacturer on shipment or completion of
services, as applicable, for all amounts due under this Agreement, including
without limitation amounts due under Sections 10(b) and 14. Each invoice dated
within the first six months of this Agreement is due and payable at CMI's
offices, within 90 days after the date of invoice. Each invoice dated within the
second six months of this Agreement will be due and payable to CMI's offices
within 60 days after the date of invoice. Each invoice dated after the second
six months of this Agreement will be due and payable at CMI's offices within 30
days after the date of invoice. If Manufacturer is delinquent in payment of any
invoices, CMI may refuse to ship, require cash in advance, letters of credit or
other terms, without limiting CMI's remedies. Manufacturer will pay service
charge of 1.5 percent per month or the maximum rate allowed by law, whichever is
lower, on all invoiced amounts due but not paid from and after the date due.
9. Excusable Delay or Failure to Perform. Neither party will be liable
for a delay in performance of or failure to perform an obligation under this
Agreement (except an obligation to make payment promptly when due), if and to
the extent such delay or failure is attributable to any cause beyond the
reasonable control of such party (the "affected party"). Such causes may include
but are not limited to act of God, act of government, war or related actions,
civil insurrection, riot, sabotage, strike or other labor difficulties,
epidemic, fire, flood, windstorm, failure of suppliers, subcontractors or
carriers, inability to obtain required materials or qualified labor. The
affected party will give prompt notice of the cause to the other party, and will
resume performance with reasonable diligence upon cessation of the cause of the
delay or failure. If the affected party's performance is suspended or delayed
because of the operation of this paragraph, the term of this agreement will be
correspondingly extended. Six months after suspension or delay begins, whether
excused or not, Manufacturer will pay CMI for all unused Raw Materials, work in
process and finished goods on a percentage-of-completion basis. Upon receipt of
payment, CMI will ship the finished goods and Raw Materials to Manufacturer. CMI
may, however, hold all work in process in trust for Manufacturer for a period of
time not to exceed 12 months after the beginning of suspension or delay. CMI and
Manufacturer will each have the right to count the work in process. At the end
of the 12-month period and provided Manufacturer has paid for it, CMI will
destroy the work in process under the observation of representatives of
Manufacturer.
10. Inspection of Shipment and Approval by Manufacturer.
(a) Manufacturer's Inspection Procedures. Upon receipt by
Manufacturer of any particular shipment of Components, Manufacturer
will have the right to inspect each Component shipped and to submit
such Components to Manufacturer's reasonable quality control procedures
to determine that the Components conform to the agreed specifications.
Manufacturer has the responsibility prior to commencement of
manufacture of Components by CMI to describe to CMI the reasonable
quality control procedures which will be adopted by Manufacturer in
order that CMI, at its option, may integrate these quality control
procedures of Manufacturer with those adopted by CMI to insure that the
Components supplied by CMI conform to the specifications of the
Manufacturer. Manufacturer reserves the right to make any reasonable
change or modification in Manufacturer's quality control procedure,
provided that the precision must remain within the limits of the CMI's
capability to produce the Components at the agreed upon contract price
and terms. If any such change or modification increases CMI's cost,
CMI's price to Manufacturer will be increased. Manufacturer will notify
CMI, in writing, of any such change or modification in the quality
control procedure, and CMI will be allowed a reasonable time subsequent
to receipt by manufacturer of such notice within which to modify CMI's
quality control procedures.
(b) Manufacturer's Right to Reject. Manufacturer will have the
right to reject Components which fail to conform to the agreed
specifications and return same to CMI at Manufacturer's expense.
However, in conjunction with the rejection of such Components,
Manufacturer has the affirmative responsibility of providing CMI with a
written, comprehensive description of the basis of the rejection by
Manufacturer of the Components being returned and/or a description of
the mode in which the Components being returned fail to meet
Manufacturer's specification. If CMI, in its reasonable opinion and
confirmed by actual test, finds that the parts rejected by the
Manufacturer do not meet specifications, CMI will at its option repair
or replace the rejected Component or issue a credit memo to
Manufacturer for the cost of the Components returned as well as all
shipment costs to and from Manufacturer. For purposes of this
Agreement, Manufacturer is deemed to have accepted all Components
shipped which are not affirmatively rejected by Manufacturer within the
rejection period after receipt. The rejection period will be 90 days
for Components received during the first 12 months, of this Agreement,
and 60 days for Components received after the first 12 months of this
Agreement. If, during any 3-month period, the total number of
Pyrolite-coated Components returned by Manufacturer as non-conforming
and subsequently determined to be in fact conforming to specifications
exceeds 5 percent of the total number of Pyrolite-coated Components
delivered to Manufacturer during the same period, Manufacturer will pay
CMI an additional handling charge of $75.00 per Pyrolite-coated
Component for each in-specification Pyrolite-coated Component in excess
of that 5 percent level (subject to increase by a percentage equal to
the average percent of increase in prices for the Components shown on
Exhibit B as amended from time to time).
11. Warranties. Although CMI agrees to carry out this Agreement in
accordance with its standard operating practices, CMI makes no warranties of any
kind, express or implied, concerning the performance of the Components or of the
accuracy or completeness of any information CMI furnishes pursuant to this
Agreement. Specifically, CMI MAKES NO WARRANTY OF FITNESS FOR THE PURPOSE
INTENDED AND NO WARRANTY OF MERCHANTABILITY. CMI's sole responsibility will be,
at CMI's option, to repair, replace or issue credit respecting any Components
having defects in material and workmanship at the time of shipment by CMI,
provided any such Component is returned by Manufacturer to CMI f.o.b.
destination within 90 days after receipt of such Component(s), for Components
received during the first 12 months of this Agreement, and within 60 days after
receipt of such Components received after the first 12 months of this Agreement.
This paragraph concerning warranties states CMI's entire obligation and the sole
and exclusive remedy of Manufacturer and any third party claiming under
Manufacturer respecting the components or any defects therein.
12. Limitation of Liability and Indemnity.
(a) Limitation on CMI's Responsibility. Under no circumstances
will CMI be liable or responsible for direct, incidental, consequential
and/or special damages arising out of use or implantation of prostheses
employing Components supplied hereunder including, but not limited to,
damage to property of Manufacturer or of other persons, or for injury
to or death of any person.
(b) Manufacturer's Responsibility. CMI will have no control
over the uses to which the Components will be devoted, or over the
circumstances of their use, storage, handling, distribution or
application. Manufacturer will assume full responsibility with respect
to the use of any Component or information furnished by CMI hereunder,
and it is mutually agreed that CMI assumes no liabilities of any kind
with respect to the use by Manufacturer or any third party of such
Components or information.
(c) Hold Harmless. If Manufacturer undertakes to supply the
Components to others, it does so in its own discretion and upon its own
judgment as to risk. Manufacturer agrees, at its own expense, to
defend, indemnify, and hold harmless CMI, its officers, agents, and
employees from and against any and all claims, losses, damages, causes
of action, suits and liability of every kind, including all expenses of
litigation, court costs, and attorney's fees, for injury to or death of
any person, or for damage to any property, arising from or out of or in
connection with the design, manufacture, marketing, sale, implantation,
or use of any Component supplied under this Agreement or the failure by
CMI to warn Manufacturer or any person of any defect in or risk
associated with a Component supplied under this Agreement, regardless
of whether such injury, death, or damages are caused in whole or in
part by the negligence of CMI, its officers, agents, or employees or
whether CMI is determined to be strictly liable for such injury, death,
or damage. It is the express intention of the parties hereto, both CMI
and Manufacturer, that the indemnity obligations and liabilities
assumed by Manufacturer in this paragraph be without monetary limit and
without regard to causes thereof including but not limited to any
failure to warn, strict liability, or the negligence of CMI, its
officers, agents or employees, whether the negligence be sole, joint,
or concurrent, active or passive.
Manufacturer further agrees, at its own expense, to defend,
indemnify, and hold harmless CMI from and against any and all claims,
losses, damages, causes of action, suits, and liability of every kind,
including all expenses of litigation, court costs, and attorney's fees,
based on a claim alleging that the Components or any of the Components
infringe a patent of any third party.
CMI agrees, at its own expense, to defend, indemnify, and hold
harmless Manufacturer from and against any and all claims, losses,
damages, causes of action, suits, and liability of every kind,
including all expenses of litigation, court costs, and attorney's fees,
based on a claim that CMI's manufacturing processes or the materials
used in the fabrication or coating of the Components infringe the
patent or valid (as against CMI) trade secret of any third party.
(d) Product Liability Insurance. Manufacturer and any
successor or assigns will maintain general liability insurance, written
on an occurrence basis, during the term of this Agreement in the
minimum amount of $5 million. The product liability insurance so
maintained will be written by an insurance carrier acceptable to CMI,
include CMI as an additional insured, and contain an endorsement to
provide CMI with at least 30 days prior written notice of any
cancellation, non-renewal, or coverage reduction. CMI may demand
evidence of coverage at any time during the term of this Agreement. In
the event Manufacturer fails to provide CMI with evidence of the
product liability insurance required to be maintained pursuant to the
provisions of this paragraph and the failure continues for 10 days
following Manufacturer's receipt of a notice advising Manufacturer of
its failure to provide such evidence, then at any time thereafter
during the pendency of such failure, CMI will have the option in its
sole discretion to terminate this Agreement or to purchase the
insurance at Manufacturer's expense.
13. Confidentiality. Any information to be disclosed by either party to
the other pursuant to this Agreement, and which is deemed by the disclosing
party to constitute confidential or proprietary information must be disclosed in
writing and conspicuously labeled as confidential information of the disclosing
party, or with words of similar impact. Subject to Paragraph 14(d) below, any
such confidential information which is initially disclosed orally must be noted
at the outset by the disclosing party as confidential information, and must be
reduced to writing and submitted by the disclosing party to the receiving party
within 15 business days after the original oral disclosure.
All information, inventions and improvements relating to
pyrocarbon or coatings developed by the CMI will be the property of CMI.
The receiving party will hold all such information in strict
confidence and will use it solely for the purposes for which it is supplied
under this Agreement. The receiving party will not disclose such information to
any third party or use same for the benefit of any third party. The foregoing
restrictions will not apply to any information which
(i) is not disclosed and labeled as provided in the first paragraph of
this Section (except orally disclosed information for the first 15
business days thereafter, pending the submission of same in writing) or
(ii) known to the receiving party prior to receipt thereof from the
disclosing party or
(iii) of public knowledge without breach by the receiving party of its
obligations hereunder or
(iv) rightfully received by the receiving party from a third party
without restriction on disclosure or use or
(v) disclosed by the disclosing party to a third party without
restriction on disclosure or use or
(vi) independently developed by personnel of the receiving party who
have not had access to or knowledge of the contents of the disclosing
party's disclosure or
(vii) disclosed after receiving the written consent therefor of an
authorized officer of the disclosing party;
provided that in the events (ii), (iii), (iv), (v), (vi) and (vii), the
receiving party can demonstrate same to the reasonable satisfaction of the
disclosing party.
The restrictions on use and disclosure of information under this
Section will survive the expiration or termination of this Agreement.
14. Termination. This Agreement will become effective upon the date
first written above, but the obligation to purchase the minimum quantities will
not begin until the beginning of the first Contract Year. The first Contract
Year will be in on the day on which CMI ships the last component set of the [*]
component sets provided for in the Development Agreement. The twelve-month
period beginning on such day and month each year will be called a Contract Year.
Unless extended or earlier terminated as provided in this Agreement, this
Agreement will continue in effect for fifteen full Contract Years.
(a) CMI may terminate this Agreement on five days notice if
Manufacturer fails to make any payment promptly when due, or on 30 days
notice if Manufacturer infringes any patent of CMI (except to the
extent permitted by written license agreement) by making or having made
any product or using any method covered by such patent in or in
preparation for commercial sale of cardiac valve prostheses, or if
Manufacturer is in default of any of its material obligations under
this Agreement. CMI's remedies will not be deemed exclusive, but are in
addition to any and all other remedies available at law or under this
Agreement.
(b) Manufacturer may terminate this Agreement upon 90 days
written notice to CMI if CMI defaults on any of its material
obligations hereunder and such default is not cured within 30 days
after CMI receives notice.
(c) If Manufacturer terminates this Agreement for any reason
other than the default of CMI, or decides not to renew or extend this
Agreement, Manufacturer will pay for all completed Components
conforming to Manufacturer's specifications and pay the cost of all
work in process on a percentage-of-completion basis, the cost of all
expendable tooling, and the cost of any unused Raw Materials.
Inventories will be disposed of as provided in Section 9.
(d) Sections 8, 10, 11, 12, and 13 will survive termination or
expiration of this Agreement and remain in effect for the respective
periods specified therein, or, if no period is specified, for a period
which is reasonable in the circumstances.
(e) If, in any Contract Year, Manufacturer fails to meet the
minimum purchase requirements set forth on Exhibit B and CMI elects not
to terminate this Agreement for default, then the term of this
Agreement may, at CMI's election, be extended up to two years to permit
Manufacturer to make up the deficiencies. Purchase of such deficiencies
will not be credited against minimum purchase requirements for any
prior or subsequent year. If, because of the effects of this section,
the term of this Agreement is extended beyond 15 Contract Years, the
minimum purchase requirements after the fifteenth Contract Year will be
determined by mutual agreement, or if no mutual agreement can be
reached, will be the same as that in effect in the fifteenth Contract
Year. The price for Components purchased to satisfy such deficiencies
will be those in effect when the deficiency is made up.
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[*] Denotes confidential information omitted pursuant to Rule 24b-2 of the
Securities and Exchange Act of 1934, as amended. The Securities and
Exchange Commission granted the company's confidential treatment
request in connection with this information.
If such failure to meet minimum purchase requirements occurs
during the first five Contract Years, CMI has, at its option, the right
to do any one, all, or a combination of the following as well as any
other remedies that may be or become available:
1. terminate the License Agreement in its entirety,
2. terminate the exclusive right of Helix under the
License Agreement and make the Licensed Product
available to others and/or itself for any purpose,
3. terminate the Option Agreement for the manufacturing
process technology for the Licensed Product,
4. delay the start of the Option Period under the Option
Agreement to Manufacturer by two years and/or
5. extend the term of the License Agreement by two years
so that Manufacturer's paid up license does not
become effective until the deficiency is made up.
CMI's waiver of any or all defaults for failure to
purchase the minimum requirements in one Contract Year will
not limit or restrict CMI's remedies for failure of
Manufacturer to meet the minimum purchase requirements in
effect for a subsequent Contract Year.
15. Quality Assurance.
CMI's Quality Assurance Manual establishes the quality control system
to be employed throughout the performance of this Agreement. A copy of this
manual--with CMI's proprietary information, if any, deleted--will be made
available to Manufacturer.
16. Assignment. Neither party will have the right to assign this
Agreement, in whole or in part, to any third party without the prior written
consent of a duly authorized officer of the other party, which consent will not
be unreasonably withheld. An attempted assignment without consent will be
grounds for termination of this Agreement by such other party, without thereby
affecting any rights or remedies it may have under this Agreement or at law.
Notwithstanding the foregoing, either party may freely assign this Agreement to
any company controlling, controlled by or under common control with that party
or succeeding to the entire business of that party. This Agreement will be
binding upon and inure to the benefit of the parties and their successors and
assigns to which such consent, if necessary, is given.
17. General.
(a) Waivers. No waiver of any right or remedy hereunder will
be effective unless based upon a writing signed by the party against
whom it is sought to be enforced.
(b) Notices. All notices required or permitted under this
Agreement must be made in writing and delivered in person or by
certified or registered mail, postage prepaid, addressed to the
attention of the President of the other party at the respective address
first written above, or such other address as may be given by notice.
(c) Severability. If any provision of this Agreement is
declared invalid or unenforceable by a court of competent jurisdiction,
such provision will be severed from this Agreement and the remaining
provisions will be unaffected thereby. The parties will promptly meet
and negotiate a substitute provision meeting as closely as possible the
intent of the invalid or unenforceable provision and, with reasonable
precision, avoiding the defects of the original provision.
(d) Entire Agreement. This Agreement, together with the
License, Development and Option Agreements, constitutes the entire
agreement and understanding between the parties in respect of the
subject matter of this Agreement and supersedes all prior agreements,
understanding, discussions and communications between the parties
respecting such subject matter. No modification of this Agreement will
be effective unless made in writing signed by a duly authorized officer
of each party, except as otherwise expressly permitted herein. Nothing
in this Agreement will limit the scope of subsequent, written
agreements, signed by both parties, related to nondisclosure of
confidential information. In the event of a conflict between this
Agreement and the terms and conditions contained in Manufacturer's
purchase orders, the terms of this Agreement will control.
(e) Governing Law. This Agreement has been entered into under
the laws of the State of Texas and will be governed by and construed in
accordance with those laws.
Executed by the parties as of the day and year first written
above.
MANUFACTURER: CARBOMEDICS, INC.
By /S/ M.A. Villafana By /S/ Terry Marlatt
Terry Marlatt, President
Typed Name M.A. Villafana
Title CEO
SPECIFICATIONS
To be mutually agreed upon upon completion of the Program as defined in the
Development Agreement.
EXHIBIT A
PRICE AND QUANTITY SCHEDULES
MINIMUM PURCHASE REQUIREMENTS PER COMPONENT SET
Contract Year # Sets Per Year(1)
------------- ---------------
First Contract Year [*]
Second Contract Year [*]
Third Contract Year [*]
Fourth Contract Year [*]
Fifth Contract Year [*]
Sixth(2)Contract Year [*]
Seventh Contract Year [*]
Eighth Contract Year [*]
Ninth Contract Year [*]
Tenth Contract Year [*]
Eleventh Contract Year [*]
Twelfth Contract Year [*]
Thirteenth Contract Year [*]
Fourteenth Contract Year [*]
Fifteenth Contract Year, [*]
EXHIBIT B
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(1) Purchase requirements and/or actual purchases for each Contract Year
are independent of those for prior or succeeding years.
(2) The minimum purchase requirements for the first through the fifth years
determine Licensee's right to receive a paid-up exclusive license to
Licensed Product and an option to license the Licensed Process.
Beginning in the sixth year and continuing through the fifteenth year,
the minimum purchase requirement each year will be the lower of either
the minimum number of per year set forth in the second column above or
the number valves sold and/or disposed of by any means by manufacturer.
Amounts in excess of the minimum purchase requirements set forth in the
second column above are not required to be purchased CMI in the sixth
year and thereafter.
[*] Denotes confidential information omitted pursuant to Rule 24b-2 of the
Securities and Exchange Act of 1934, as amended. The Securities and
Exchange Commission granted the company's confidential treatment
request in connection with this information.
BASE PRICES
[*]
PRICE ADJUSTMENTS
The prices set forth on this Exhibit B are based upon the cost of manufacture of
Components for the Valve as of the date of this Agreement. The base price for a
Component Set as of the date of this Agreement is [*] adjusted to reflect volume
discount. The actual sales price to Manufacturer will be adjusted for each
12-month period prior to the first Contract Year so that the first Contract Year
reflects the impact of inflation, if any, between the date of this Agreement and
the date of first sales under this Agreement with a pro rata adjustment of any
period less than twelve months. To make such adjustment, CMI will use an
inflation factor equal to the 12-month average percentage increase in employment
costs for private industry workers (excluding farmers) as reported on Table 1 of
the EMPLOYMENT COST INDEX published by the Bureau of Labor Statistics of the
United States Department of Labor or, if the EMPLOYMENT COST INDEX should cease
to be published, any comparable category in a comparable index agreeable to both
parties. Such inflation factor will be that reported on the last day of the
calendar quarter in which this Agreement is dated and on the anniversary of each
such last day ("Adjustment Period(s)"). If the first Contract Year begins before
the completion of an Adjustment Period, the inflation factor will be that
reported on the last day of the last full calendar quarter before the start of
the first Contract Year, adjusted pro rata.
EXHIBIT B
- ------------------
[*] Denotes confidential information omitted pursuant to Rule 24b-2 of the
Securities and Exchange Act of 1934, as amended. The Securities and
Exchange Commission granted the company's confidential treatment
request in connection with this information.
L.D.C. CLAUSE
On purchasing a minimum of [*] non-L.D.C. valve sets per Contract Year,
Manufacturer is eligible to purchase valve sets, sold for sale and implantation
in less developed countries ("L.D.C.") at the price in effect at the time of
purchase for purchases of [*] Component Sets or more. To permit verification of
purchases eligible for L.D.C. pricing, Manufacturer will provide CMI with copies
of valid purchase orders from hospitals or distributors, as applicable, together
with written certifications by Manufacturer's Chief Executive Officer that such
valve sets were sold to hospitals or distributors in and for the less developed
country identified on the respective purchase order.
For purposes of this clause, less developed countries will be countries other
than Canada, United States and Territories, Japan, South Korea, Australia, New
Zealand, South Africa, United Kingdom, Ireland, Norway, Sweden, Finland,
Denmark, Netherlands, Belgium, Germany, France, Switzerland, Austria, Italy,
Turkey, Spain, Portugal, and Luxemburg.
Transferring of valves purchased under the L.D.C. Clause into non-L.D.C.
countries will be deemed a breach of this clause and allow for CMI's immediate
cancellation of this clause from the Agreement. On cancellation, all pricing on
orders in process for Manufacturer at CMI for L.D.C. valve sets will immediately
revert to the standard price in effect for non-L.D.C. valve sets.
L.D.C. valve sets will apply against minimum purchase requirements, but will not
apply toward quantity discount pricing in a Contract Year.
EXHIBIT B
- -----------------
[*] Denotes confidential information omitted pursuant to Rule 24b-2 of the
Securities and Exchange Act of 1934, as amended. The Securities and
Exchange Commission granted the company's confidential treatment
request in connection with this information.
RAW MATERIALS
AXF5Q-20W Graphite
AXFQ Graphite
Ti-6Al-4V ELI
EXHIBIT C
EXHIBIT 10.11
LICENSE AGREEMENT
This Agreement ("Agreement") is effective as of September 24, 1990, by
and between CarboMedics, Inc., a Texas corporation with a place of business at
1300-B East Anderson Lane, Austin, Texas 78752 ("Licensor") and Helix BioCore,
Inc., 3905 Annapolis Lane, Minneapolis, Minnesota 55447 ("Licensee").
WHEREAS Licensor has been instrumental in the development of a cardiac
valve prosthesis and
WHEREAS Licensee desires to license the cardiac valve prosthesis and
Licensor is willing to grant a license upon the terms and conditions contained
in this Agreement and
WHEREAS Licensor and Licensee have entered into a supply contract (the
"Supply Contract"), development agreement (the "Development Agreement") and
option agreement all of even date herewith,
NOW, THEREFORE, in consideration of the premises and the faithful
performance of the mutual covenants and obligations contained in this Agreement,
the parties agree as follows:
Article I. Definitions
1.1 "Licensed Product" means a specific configuration of a bileaflet heart valve
prosthesis embodying at least one of the claims of U.S.P.N. 4,692,165
(hereinafter called the "Patent") and having substantially flat leaflets and
opposed pivot posts on an interior surface of an annular body of said heart
valve, said pivot posts comprising spherical surface portions, each pivot post
being receivable in a notch in a leaflet or constituent parts for such a
bileaflet heart valve prosthesis. The Licensed Product will comprise leaflets as
shown in Fig. 17 of the Patent and pivots as shown in Fig. 25 of the Patent.
1.2 CMI currently is the holder of U.S.P.N. 4,822,353 dated April 1, 1989 which
utilizes some corresponding figure attachments used in U.S.P.N. 4,692,165.
Licensee has no rights or claims to U.S.P.N. 4,822,353.
Article II. License Grant
2.1 In consideration of entering the Supply Contract and purchasing the
Components (as defined in the Supply Agreement) required by the Supply
Agreement, Licensor hereby grants to Licensee during the term of this Agreement
the exclusive worldwide right and license to use and sell the Licensed Product
and the right to assemble Components for the Licensed Product and sterilize and
package the Licensed Product. This License does not include the right to
sublicense or, except as provided in Section 2.3 below, the right to make or
have made the Components for the Licensed Product. Nor does it include any
inventions, patents, know-how, information, trade secrets, innovations and
enhancements which the Licensor may have or acquire relating to the Licensed
Product which is not disclosed in the Patent.
2.2 Licensee will use its best efforts to obtain all approvals necessary for
marketing of the Licensed Product.
2.3 If Licensor or its successors or assigns should be unable or unwilling to
manufacture Components for Licensee under the Supply Contract and Licensee and
its successors and assigns are not in breach of any provisions of the Supply
Contract, then Licensee will have the right and license to make or have made
Licensed Product. Notwithstanding the foregoing, if the failure of Licensor to
supply Components under the Supply Contract is the result of force majeure and
within 18 months after the force majeure event Licensor is again able to supply
all of Licensee's needs under the Supply Contract, then the license granted
under this Section 2.3 will automatically terminate.
Article III. Assistance by Licensor
3.1 Licensee will actively pursue and be responsible for submitting IDE, 510(K)
or PMA applications to the FDA and seeking such other regulatory approvals as
are necessary to bring the Licensed Product to domestic and foreign markets for
sale. Licensor agrees to use its best efforts to assist Licensee in responding
to any questions which the FDA or other applicable regulatory agency may have
regarding the manufacture of the Components for the Licensed Product.
3.2 Licensee covenants and agrees that during the term of this Agreement it will
use its best efforts to sell and market the Licensed Product. In furtherance of
its best efforts commitment set forth above, Licensee agrees to conduct all
material, performance, and histological tests and studies reasonably required to
support the development and sale of the Licensed Product, including an
application for pre-market approval from the U.S. F.D.A. Licensee agrees to meet
such standards in developing, manufacturing, and marketing the Licensed Product
as are reasonable and customary in the industry.
Article IV. Patents
4.1 In the event Licensor wishes to discontinue the maintenance of the Patent on
the Licensed Product, timely notice will be given to Licensee and Licensee will
have the right to continue such maintenance at its own expense.
Article V. Term and Termination
5.1 The term of this Agreement will commence on the date first hereinabove set
forth and continue until the expiration of the fifth Contract Year as defined in
the Supply Agreement unless Licensee fails to meet the minimum purchase
requirements for any year as set out in the Supply Agreement in which event
Licensor will have the option, immediately upon notice, to terminate this entire
Agreement or to terminate that portion of this Agreement which gives Licensee
exclusive rights in and to the Licensed Product. Upon expiration or rightful
termination of this Agreement by Licensee, Licensee will have a paid-up,
exclusive license in and to the Licensed Product.
5.2 In the event that either party breaches any of the terms of this Agreement,
(except failure to meet minimum purchases which will be governed by section 5.1
above) the non-breaching party will notify the other party in writing of the
nature of the breach. The breaching party will have 3 months from the date of
such notice to correct such breach. Upon failure to correct the breach within
said 3-month period, the non-breaching party will have the option to terminate
the Agreement by written notice of termination to the breaching party.
5.3 Should Licensee discontinue the development program or, after initial
commercialization, the sale of the Licensed Product, or fail to submit an IDE
application to the U.S. F.D.A. within three Contract Years as defined in the
Supply Agreement, Licensor may terminate this Agreement by giving Licensee 30
days written notice.
Article VI. Infringement Claims
Should any action be commenced against Licensor or Licensee which
alleges that the Licensed Product infringes the claims of any Letters Patent or
that the patent on the Licensed Product is invalid, the Licensee will have the
right but not obligation, to defend and settle such action. If Licensee fails or
refuses to defend or settle such action, then Licensor will have the right to
defend or settle it. The party not defending or settling such action will
cooperate with the other party in any manner reasonably requested for such
defense and/or settlement, at the expense of the party defending or settling
such action.
Article VII. Third Party Infringement
Should any Letters Patent licensed hereunder be infringed by a third
party by virtue of a product substantially similar to the Licensed Product, the
Licensee will have the right but not the obligation to prosecute any such action
at its own expense and retain any money collected through such action.
Notwithstanding the foregoing Licensor will have the right to prosecute an
action at its own expense if Licensee fails or refuses to do so or if some
product other than one substantially similar to the Licensed Product should
infringe the Patent and retain any money collected from such action.
Article VIII. Indemnification
Licensee agrees to be solely responsible for and to defend and
indemnify Licensor and to hold it harmless from any and all demands, claims,
causes of action, or damages including attorneys fees and expenses, arising out
of, resulting from or related to the design, manufacture, sale, distribution,
implantation or use of Licensed Product, regardless of whether the damages are
caused in whole or in part by the negligence of Licensor. It is the express
intention of the parties hereto, both Licensor and Licensee, that the indemnity
obligations and liabilities assumed by Licensee in this paragraph be without
monetary limit and without regard to causes thereof including but not limited to
any failure to warn, strict liability, or the negligence of Licensor its
officers, agents or employees, whether the negligence be sole, point, or
concurrent, active or passive. This indemnity will survive expiration or
termination of this Agreement and will be applicable to all claims regardless of
the legal theory on which they are based including, but not limited to, claims
of Licensor's negligence, breach of warranty, strict liability, and violation of
statute or government regulations, but excluding claims that the Licensed
Product infringes the patent of another.
Article IX. Notices
9.1 Any notice or communication to be given under this Agreement will be sent
certified mail, postage prepaid to the following addresses:
Licensor: CarboMedics, Inc.
1300-B East Anderson Lane
Austin, Texas 78752
Attention: President
With a copy to: Intermedics, Inc.
Post Office Box 4000
Angleton, Texas 77515-4000
Attention: General Counsel
Licensee: Helix BioCore, Inc.
3905 Annapolis Lane
Minneapolis, Minnesota 55447
Attention: President
9.2 Each party will have the right to change its address upon written notice of
its new address to the other party.
Article X. Miscellaneous
10.1 Neither Licensee nor Licensor will assign this Agreement without the prior
written consent of the other party. Notwithstanding the foregoing, either party
may freely assign this Agreement to any entity controlling, controlled by or
under common control with that party or succeeding to the entire business of
that party.
10.2 This Agreement, together with the Development, Supply and Option
Agreements, contains the entire agreement between the parties with respect to
the subject matter. No waiver, alteration or modification of any of the
provisions hereof will be binding unless in writing and signed by the parties
hereto. No waiver will be implied or continuing.
10.3 Nothing in this Agreement will be deemed or construed to constitute or
create between the parties a partnership, joint venture or agency.
10.4 This Agreement will be governed by the laws of the State of Texas.
10.5 Should any provision of this Agreement be rendered unlawful or invalid
because of any existing or subsequently enacted law or by a decree or order of a
court of last resort, the remaining provisions will continue in full force and
effect.
10.6 Licensee will cause all packages containing Licensed Product to be marked
with the legend, "Mfd. under Lic. U.S. Pat. 4,692,165."
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered as of the date first hereinabove set forth.
LICENSOR: LICENSEE:
CARBOMEDICS, INC. HELIX BIOCORE, INC.
By: /S/ Terry Marlatt By: /S/ M.A. Villafana
Terry Marlatt, President
Title: CEO
Printed Name: M.A. Villafana
Rule 24b-2 Confidential Treatment
Brackets Indicate Omissions
EXHIBIT 10.12
OPTION AGREEMENT
This Agreement ("Agreement") is effective as of September 24, 1990, by
and between CARBOMEDICS, INC., ("Licensor") and HELIX BIOCORE, INC.
("Licensee").
WHEREAS Licensor and Licensee entered into certain development, supply
and license agreements of even date herewith respectively called the
"Development Agreement", the "Supply Agreement" and the "License Agreement" and
WHEREAS Licensee desires to acquire an option to license certain
technology and Licensor is willing to grant an option and license upon the terms
and conditions contained in this Agreement,
NOW, THEREFORE, in consideration of the premises and the faithful
performance of the mutual covenants and obligations contained in this Agreement,
the parties agree as follows:
ARTICLE I. Definitions
1.1 "Licensed Process" means the patents, trade secrets, know-how and other
technology necessary to manufacture the Licensed Product as defined in the
License Agreement.
ARTICLE II. Option
2.1 Licensor hereby grants to Licensee, on the terms and conditions set forth in
this Agreement, an option to acquire a non-exclusive worldwide right and license
to use the Licensed Process. Provided that Licensee has met the minimum purchase
requirements set forth in the Supply Agreement for the first five Contract
Years, the "Option Period" will be the period beginning upon completion of the
fifth Contract Year (as defined in the Supply Agreement) and ending upon
expiration or termination of the Supply Agreement for any reason. If Licensee
fails to meet the minimum purchase requirements for any of the first five Years,
this Option may be terminated at Licensor's election. If this option is
exercised, the minimum purchase requirements on Exhibit B of the Supply Contract
will be terminated effective as of the date the license fee provided in Section
3.3 of this Agreement is paid in full to Licensor. If Licensee elects to have
components to the product manufactured by anyone other than CMI during the term
of the Supply Contract, then this option may be terminated at CMI's election.
Licensee may exercise this option by delivering to Licensor during the Option
Period a written notice stating that Licensee elects to exercise the option and
whether it wishes Licensor to build the Production Line described in Article III
(the "Notice) together with the license fee or initial payment as applicable.
The Notice will be effective on the date Licensor receives such Notice and fee
at which time the provisions of the license set forth in Article III below will
apply and come into full force and effect.
2.2 If, on or before the expiration or termination of the Option Period,
Licensee does not deliver to Licensor the Notice or fee, the option will expire
or be terminated and be of no further force or effect. If the option expires or
is terminated, Licensee will have no right, claim or interest in or to the
Licensed Process, this Agreement will immediately terminate and be of no further
force and effect and neither party will have any further obligation to the other
party under this Agreement.
ARTICLE III. License
3.1 Effective upon exercise of the option provided in Article II of this
Agreement, Licensor hereby grants to Licensee the nonexclusive worldwide right
and license to use the Licensed Process, subject to rights, if any reserved by
General Atomic. This license expressly excludes the right to sublicense and the
right to permit others to use the Licensed Process for any reason whatever. This
license further is limited to the right to use the Licensed Process only to the
extent necessary to manufacture for use and sale the Licensed Product as defined
in the License Agreement. Licensee will have the obligation to obtain all
approvals necessary for manufacture and marketing of products using the Licensed
Process.
3.2 Licensor agrees, at Licensee's election which must be made at the time the
Notice is given, to build or cause to be built a state-of-the art component
manufacturing production line (the "Production Line") which will be
substantially equivalent to its own component manufacturing production line.
Licensor will prove out and supervise the operation of the Production Line until
it is fully operational and producing components to target yields and direct
labor hours comparable to its own for the Licensed Product.
3.3 In consideration of the license granted herein, Licensee will pay Licensor a
one-time license fee of [*] payable either a) in full upon exercise of the
option if Licensee does not elect to have Licensor build the Production Line or
b) if Licensee elects to have Licensor build the Production Line, as follows:
[*] upon exercise of the option; during construction, progress payments
amounting to a total of [*] payable in three installments over the course of
construction, [*] each at: [*] respectively, of completion as agreed to; and
upon completion of construction and the turning over to Licensee of the
Production Line, a final fee of [*].
- -----------------
[*] Denotes confidential information omitted pursuant to Rule 24b-2 of the
Securities and Exchange Act of 1934, as amended. The Securities and
Exchange Commission granted the company's confidential treatment
request in connection with this information.
3.4 In addition to the license fee provided for above, Licensee will pay
Licensor for all expenses incurred by Licensor in providing assistance to
Licensee, including direct material and labor expenses, as such expenses are
incurred. Licensee will be responsible for purchasing all equipment and paying
for all reasonable start up costs as incurred required for the construction of
such Production Line as reasonably determined by Licensor. All amounts payable
under this Section 3.4 will be due upon receipt of invoice from Licensor.
Amounts due and payable will bear interest at the maximum rate allowed by law
from and after the thirtieth day after receipt of invoice.
ARTICLE IV. Patents
4.1 Licensee will have the right to file a patent application or applications
relating to developments or improvements it has made related to the Licensed
Process in the United States or any foreign country at its own expense. Licensee
will have no right, however, to file patent application(s) on the Licensed
Process itself or any part of it.
4.2 If Licensee wishes not to file or to discontinue the prosecution or
maintenance of any patent or patent application related to the Licensed Process,
timely notice will be given to Licensor and Licensor will have the right to
continue such prosecution or maintenance at its own expense.
ARTICLE V. Term and Termination
5.1 This Agreement will commence on the date first hereinabove set forth.
5.2 In the event that either party breaches any of the terms of this Agreement,
the non-breaching party will notify the other party in writing of the nature of
the breach. The breaching party will have 3 months from the date of such notice
to correct such breach. Upon failure to correct the breach within said 3-month
period, the non-breaching party will have the option to terminate the Agreement.
5.3 Should Licensee discontinue the use of the Licensed Process or sale of the
Licensed Product, Licensor may terminate this Agreement by giving Licensee 30
days written notice.
ARTICLE VI. Third Party Infringement
Should any Letters Patent licensed hereunder be infringed by a third
party by virtue of a process substantially similar to the Licensed Process, the
Licensee will have the right but not the obligation to prosecute any such action
in the name of the Licensor but at its own expense.
ARTICLE VII. Indemnification
Licensee agrees to be solely responsible for and to defend and
indemnify Licensor and to hold him harmless from any and all demands, claims,
causes of action, or damages including attorneys fees and expenses, arising out
of, resulting from or related to the use of Licensed Process and any products
manufactured, sold or distributed by Licensee. This obligation will survive
termination of this Agreement and will be applicable to all claims regardless of
the legal theory on which they are based including, but not limited to, claims
of negligence, breach of warranty, strict liability, and violation of statute or
government regulations.
ARTICLE VIII. Notices
8.1 Any notice to be given under this Agreement will be sent certified mail,
postage prepaid to the following addresses:
Licensor: CarboMedics, Inc.
1300-B East Anderson Lane
Austin, Texas 78752
Attn: President
With copy to: Intermedics, Inc.
P.O. Box 4000
Angleton, Texas 77515-4000
Attn: General Counsel
Licensee: Helix BioCore, Inc.
3905 Annapolis Lane
Minneapolis, Minnesota 55447
Attn: President
8.2 Each party will have the right to change its address by giving at least 10
days prior written notice of its new address to the other party.
ARTICLE IX. Miscellaneous
9.1 Neither party may assign or sublicense this Agreement without the prior
written consent of the other party which consent may be withheld absolutely in
the other party's sole discretion. Notwithstanding, either party may freely
assign this Agreement to any entity controlling, controlled by or under common
control with that party.
9.2 Because it is contemplated that Licensor will be transferring to Licensee
confidential and proprietary information in connection with its obligations
hereunder, Licensee agrees to hold all such confidential information in strict
confidence and to afford it the same protection that Licensor uses for
protecting its confidential proprietary information as directed by Licensor.
9.3 This Agreement contains the entire agreement between the parties with
respect to the subject matter. No waiver, alteration or modification of any of
the provisions hereof will be binding unless in writing and signed by the
parties hereto. No waiver will be implied or continuing.
9.4 Nothing in this Agreement will be deemed or construed to constitute or
create between the parties a partnership, joint venture or agency.
9.5 The headings or captions of the paragraphs of this Agreement are inserted
for convenience only and will not be deemed a part hereof or used in the
construction or interpretation hereof.
9.6 This Agreement will be governed by the laws of the State of Texas.
9.7 Should any provision of this Agreement be rendered unlawful or invalid
because of any existing or subsequently enacted law or by a decree or order of a
court of last resort, the remaining provisions will continue in full force and
effect.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered as of the date first hereinabove set forth.
LICENSOR LICENSEE
CARBOMEDICS, INC. HELIX BIOCORE, INC.
By: /S/ Terry Marlatt, By: /S/ M.A. Villafana
Terry Marlatt, President
Printed Name: M.A. Villafana
Title: CEO
EXHIBIT 10.13
HELIX BIOCORE, INC.
SELF-INSURANCE
TRUST AGREEMENT
This Agreement is made as of this 28th day of February, 1991, by and
between Helix BioCore, Inc. a Minnesota corporation ("HBI") and Richfield Bank &
Trust Co.
("Trustee").
WHEREAS, HBI desires to indemnify its past and present directors and
officers, as listed on Exhibit A (the "Beneficiaries"), against liability claims
and expenses which they may become obligated to pay as a result of wrongful acts
or omissions or alleged wrongful acts or omissions arising out of duties which
they performed for HBI in their official capacity; and
WHEREAS, as of the effective date of this Agreement, commercial
insurance coverage is prohibitively expensive and inadequate; and
WHEREAS, qualified directors and officers would be unwilling to serve
in such capacities without adequate assurances of protection from such claims;
and
WHEREAS, HBI desires to contribute to a trust fund assets sufficient to
pay all expenses incurred in investigating, settling and defending against such
claims and amounts due from such claims or to use such funds to purchase
insurance to provide protection against said claims and expenses arising
therefrom for the Beneficiaries; and
WHEREAS, the Trustee is willing to receive and to hold such assets in
trust in accordance with the terms and conditions of this Agreement;
THEREFORE, the parties agree as follows:
ARTICLE I
ESTABLISHMENT OF TRUST
1.1 Purpose of Trust. HBI hereby establishes this Trust for the
purposes of (a) indemnifying Beneficiaries in accordance with, and to the
fullest extent permissible under, the provisions of the Minnesota Business
Corporation Act, as it may from time to time be amended, and (b) paying officers
and directors liability insurance premiums, and hereby delivers to the Trustee
the sum of $200,000, to be held in a fund (the "Trust Fund") for the benefit of
the Beneficiaries in accordance with the terms of this Trust Agreement. HBI may
deliver additional funds to the Trustee from time to time to be similarly held.
1.2 Initial Contribution. The Trustee acknowledges receipt of the
initial $200,000 contribution and agrees to hold, invest and reinvest such
assets as HBI may from time to time pay over, together with any income and
earnings thereon, in trust for the purposes stated herein in accordance with the
terms and conditions of this Agreement.
1.3 Contract Rights. The rights of the Beneficiaries under this Trust
are contract rights based upon good and valuable consideration and shall be
enforceable the same as if the provisions hereof were set forth in a separate
written contract between HBI and each Beneficiary. It is expressly intended that
the indemnification provided hereunder shall extend to derivative actions
against officers or directors that otherwise qualify for indemnification
pursuant to the Minnesota Business Corporation Act.
ARTICLE 2
CONSENT
2.1 Consent Defined. Wherever Consent is required in this Agreement,
Consent shall be defined as follows:
(a) HBI shall obtain a majority vote, approving the proposed
action, of each of two classes of Beneficiaries, namely,
current directors and officers of HBI (Class 1) and past
directors and officers of HBI (Class 2).
(b) The following Beneficiaries shall be excluded from such
classes and shall not be entitled to vote under this
Article:
(i) Heirs and personal representatives of deceased officers
and directors;
(ii) Mentally incompetent Beneficiaries;
(iii) Beneficiaries who cannot be located through the notice
procedures described in Section 8.7 and after additional
reasonable efforts;
(iv) Beneficiaries who do not respond to a notice requesting
Consent by the time designated in the notice; and
(v) If payment of a claim is involved, a Beneficiary on
whose behalf the claim would be paid.
(c) Class 2 shall not be entitled to vote on any Consent issues
until it contains at least 5 members, after the exclusions
in (b) above
2.2 Notice. HBI, when seeking Consent as required in this Agreement,
shall notify all Beneficiaries eligible to vote, in accordance with Section 8.7,
providing said Beneficiaries with a reasonable time in which to respond. The
Beneficiaries shall respond with notice of approval or disapproval within the
time limits set out in the notice.
2.3 Certificate of Consent. HBI shall promptly certify to the receipt
or non-receipt of such Consent upon written request of any party to this Trust
Agreement.
ARTICLE 3
BENEFICIARIES
3.1 Date of Coverage. New directors and officers of HBI shall become
Beneficiaries under this Trust Agreement and shall be listed on Schedule A upon
election as a director or officer of HBI. Beneficiary status shall last for the
duration of the Trust Agreement unless a Beneficiary elects out, in accordance
with Section 3.3 below.
3.2 Heirs and Representatives of Beneficiaries. The term Beneficiary
shall include heirs and representatives of deceased past directors and officers
against whom claims have been brought for wrongful acts or omissions arising out
of official duties performed for HBI.
3.3 Election Out of Coverage. Any past or present officer or director
may elect to not become a Beneficiary under this Trust Agreement. Written notice
of election out of Beneficiary status shall be delivered to the Trustee and to
HBI and shall be effective upon receipt of such notice by the Trustee.
3.4 Process of Indemnification. A Beneficiary seeking indemnification
under this Agreement shall submit to HBI a certificate containing the following
information:
(a) a description of the nature of the claim for which a right
to receive payments hereunder is asserted and the identity
of the persons who have made or threatened the claim;
(b) copies of all papers served on the Beneficiary in connection
with the claim;
(c) a written undertaking satisfactory to HBI to repay to the
Trust any amounts paid or applied to or for the use of the
Beneficiary pursuant to this Trust in the event a
determination is made by the Trustee that under applicable
law payments to the Beneficiary are not lawful and proper in
the circumstances; and
(d) a written undertaking satisfactory to HBI to keep HBI fully
informed of the progress of the claim and to deliver
promptly to HBI copies of all pleadings and other material
documents in relation to the proceeding.
3.5 Certificate and Payment of Claim. A certificate delivered pursuant
to Section 3.4 shall be approved or disapproved in accordance with paragraph
5.1(c) and, if approved, paid in accordance with paragraphs 4.1(d), (e) and (f).
ARTICLE 4
DUTIES AND POWERS OF TRUSTEE
4.1 Trustee Duties.
(a) General Duty. To discharge the duties with respect to this
Trust solely in accordance with the terms and conditions of
this Trust Agreement for the purposes of indemnifying
Beneficiaries in accordance with the standards set out in
this Trust Agreement and paying directors and officers
liability insurance premiums.
(b) Establishment of Trust Fund. To establish a fund from which
to pay amounts described in (a). The Trustee shall deposit
in said fund all cash, cash equivalents such as certificates
of deposit and marketable government securities, and notes
contributed thereto by HBI.
(c) Investment. To invest and reinvest the trust funds only in
Authorized Investments. "Authorized Investments" shall
consist only of the following:
(i) Obligations issued or guaranteed by the United States
Government, including obligations issued by its
agencies or by its instrumentalities;
(ii) Obligations (such as time deposits, Euro dollar time
deposits, letters of credit, certificates of deposit,
and bankers' acceptances) of commercial banks, savings
banks and savings and loan institutions participating
in the FDIC or FSLIC and organized under and regulated
by the United States Government and/or the State of
Minnesota, including the Trustee itself, and provided
that total principal and accrued income invested in any
such obligation shall at no time exceed the insured
limit of such obligation;
(iii) Money market funds whose funds are solely invested in
obligations described in paragraph (i) or (ii) above;
(iv) In exercising its investment authority with respect to
the Authorized Investments listed above, the Trustee
shall consider safety of principal, ready marketability
and interest yields (in that order) and may make
purchases and sales of investments through its own bond
department.
(d) Payment of Claims. To pay amounts from the Trust Fund,
consistent with the purposes stated in paragraph 1.1 as
follows: Upon receipt of a written notice of approval of a
claim by HBI or the arbitrator specified in Section 5.1(c)
of this Trust Agreement, the Trustee shall pay to the
Beneficiary from the Trust Fund the amount specified in the
written notice. In the event that the amount of cash held in
the Trust Fund is insufficient to make any payment required
pursuant to this Trust Agreement, the Trustee shall sell
investments in the Trust Fund so that the cash in the Trust
Fund is sufficient to make such payments.
(e) Notification of Insufficient Assets. If the Trustee is
instructed, in accordance with Section 4.1(d), to pay claims
and the assets in the Trust Fund are insufficient to pay all
of such claims, the Trustee shall immediately give written
notice to HBI and to the Beneficiary or Beneficiaries whose
claims are unpaid, of its inability to pay. HBI shall
respond to such notification in accordance with subparagraph
5.2(a).
(f) Priority of Claims. If the Trustee has two or more claims
and insufficient assets in the Trust Fund to satisfy all
claims, then the Trustee shall pay the claims according to
written instructions drafted by an authorized representative
of HBI, approved in accordance with the Consent procedures
described in Article 2. If no agreement is reached, the
priority of claims and division of funds in the Trust shall
be submitted to binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association, as then in effect, with instructions for the
arbitrator to make a decision based on the following
factors. First, the arbitrator shall determine if any
Beneficiary has significantly greater culpability for the
underlying loss and, if so, such Beneficiary's claim shall
be the first to be reduced. If there still is insufficient
assets or there is a determination that no beneficiary had
significantly greater culpability, the reduction shall be
pro rata in accordance with each of the remaining
Beneficiary's loss. The decision of the arbitrator shall be
binding and conclusive on the parties and HBI shall pay the
costs of the arbitration, not including the costs of counsel
for the Beneficiaries.
(g) Payment of Insurance Premiums. Provided HBI obtains Consent,
the Trustee shall pay directors and officers liability
insurance premiums to a commercial insurer selected by HBI
in accordance with instructions from an authorized
representative of HBI.
(h) Recordkeeping. The Trustee shall keep accurate records of
the operation of the Trust, including instructions to the
Trustee from HBI as to payments to be made from the Trust,
which shall be available for inspection during regular
business hours at the principal office of the Trustee by
authorized representatives of HBI or by any Beneficiary. The
Trustee shall not be responsible for keeping records of
claims information submitted by Beneficiaries; such records
shall be maintained by HBI, as provided in Section 5.1(d).
(i) Accounting. No later than 60 days after the end of each
calendar year (which is the fiscal year of the Trust and of
HBI) and after the end of each quarter therein, to forward a
financial statement to HBI stating the balance in the Trust
Fund at the beginning and end of the period, current period
contributions, investments and reinvestments, activities of
the Trust, the amount and nature of all payments including
final payments and those for claims management, legal
expenses, claims paid and the like, together with the Trust
Fund balance. The first financial statement will be for that
portion of the calendar quarter year extending from the date
of establishment of the Trust to the following March 31st.
The Trustee shall make such statements available for review
by any Beneficiary listed on Schedule A or a legal
representative thereof, upon advance written notice to the
Trustee and during the Trustee's regular business hours.
4.2 Trustee Powers.
(a) Exclusive Duties. The provisions of this Agreement set forth
exclusively the duties of the Trustee with respect to any
and all matters pertinent hereto and no implied duties or
obligations shall be read into this Trust Agreement against
the Trustee.
(b) Indemnity. The Trustee shall be indemnified and held
harmless by HBI against any and all costs, liabilities and
expenses (including expenses of litigation and counsel fees)
incurred by it with respect to payments made by reason of
any action or omission to act by the Trustee in good faith
under this Trust Agreement or otherwise incurred in good
faith by the Trustee, except such as arise from the
negligence or misconduct of the Trustee. The Trustee shall
be under no obligation to institute or defend any action,
suit or proceeding in connection with this Trust Agreement
unless first indemnified to its satisfaction. The Trustee
may consult counsel in respect of any question arising under
this Agreement and the Trustee shall not be liable for any
action taken or omitted in good faith upon advice of such
counsel.
(c) Reliance. The Trustee may conclusively rely upon and be
protected in acting upon any statement, certificate, notice,
request, consent, order or other document believed by it to
be genuine and to have been signed or presented by the
proper party or parties.
(d) To Employ Agents and Attorneys. The Trustee may select and
employ or retain such agents or attorneys as the Trustee
from time to time may deem necessary or advisable in
connection with the management and operation of the Trust
herein created, and pay the reasonable fees, commissions, or
salaries incurred on account thereof as an expense of
administration of the Trust.
(e) Compensation. The Trustee shall receive an annual
administrative fee of two hundred fifty dollars ($250) plus
seven-tenths of one percent (.7%) of the Trust assets,
valued as of December 31 of each year. Said fees shall be
paid by HBI or if HBI fails to so pay, said fee shall be
chargeable to, and constitute a direct charge against, the
Trust Fund. Fee schedules are subject to annual review and
adjustment, reasonably acceptable to both parties.
ARTICLE 5
DUTIES AND POWERS OF HBI
5.1 HBI Duties.
(a) Funding. HBI shall, contemporaneously with the execution of
this Agreement and in accordance with the Assignment
(Exhibit B), transfer to the Trustee $200,000 in cash, cash
equivalents or securities, as the initial funding of the
Trust. HBI in its discretion may make additional periodic
contributions of cash, cash equivalents or securities to the
Trust. Each such contribution shall be accompanied by an
Assignment (Exhibit B).
(b) Notification of Potential Claims. HBI shall notify the
Trustee of any potential claims by Beneficiaries as soon as
it is aware of such potential claims.
(c) Approval and Certification of Claims. The Board of Directors
of HBI shall appoint (1) a member or committee of said Board
(not including any director making a claim) or (2) special
independent legal counsel, to approve and certify claims of
certifying Beneficiaries pursuant to the provisions of this
Trust Agreement. Written notice of approval or denial of
each claim shall be given to the Beneficiary within 30 days
of receipt of the claim. If such appointed representative
rejects a claim as not within the indemnification provisions
of this Trust Agreement, the claimant may request in
writing, within 30 days of such denial, arbitration of the
claim as follows: The American Arbitration Association shall
be asked to appoint an arbitrator to rule on the matter in
accordance with its Commercial Arbitration Rules, as then in
effect. The decision of the Arbitrator shall be binding and
conclusive upon the parties and HBI shall pay the costs of
the arbitration, not including any costs of counsel for the
Beneficiary, unless the Beneficiary is successful in the
arbitration.
(d) Recordkeeping. HBI shall maintain records of all claims data
submitted by Beneficiaries for payment and shall make such
data available for inspection during regular business hours
by any Beneficiary.
(e) Authorized Representatives. HBI shall provide the Trustee
with a list of authorized representatives empowered to
instruct the Trustee as to all matters listed herein which
require instructions from an authorized representative of
HBI.
(f) Accounting. HBI shall provide the Trustee's year end
accounting statement to each Beneficiary and shall make all
accountings available for review by any Beneficiary or by
such Beneficiary's legal representative, upon advance
written notice to HBI and during HBI's regular business
hours.
5.2 HBI Powers.
(a) Insufficient Assets. Upon receipt of Notification of
Insufficient Assets by the Trustee in accordance with
subparagraph 4.1(e), HBI shall have the option to:
(i) Pay all or a portion of outstanding claims and
contribute a sum to the Trust Fund sufficient to enable
the Trust to continue in operation; or
(ii) Pay all or a portion of outstanding claims and
terminate the Trust according to the procedures set out in
paragraph 7.1(b); or
(iii) Seek payment from any insurer whose policy might cover
said claims; or
(iv) If it is unable to satisfy the claims under (i), (ii)
or (iii), not pay the claims and terminate the Trust in
accordance with paragraph 7.1(a).
(b) Insurance. Provided it has obtained Consent, HBI may direct
the Trustee to pay insurance premiums to a commercial
insurer for directors and officers liability insurance
premiums in accordance with subparagraph 4.1(g).
ARTICLE 6
RESIGNATION OR REMOVAL OF TRUSTEE
6.1 Resignation. The Trustee may resign from this Trust Agreement, and
thereby become discharged from the obligations hereby created other than its
duty to account, by notice in writing given to HBI no less than 60 days before
such resignation is to take effect, but such resignation shall take effect
immediately upon the substitution of a new trustee hereunder if such new trustee
shall be substituted before the time indicated by such notice and shall then
accept in writing the obligations thereof. If a successor trustee is not
appointed within said 60 days, the Trustee may petition any court of competent
jurisdiction to appoint a successor.
6.2 Removal. HBI may at any time, with Consent, remove the Trustee by
giving written notice to the Trustee, to be effective upon the substitution of a
new trustee hereunder. Such substitution, as evidenced by the written acceptance
of the successor trustee, shall occur no later than 60 days from the date of
notice of removal.
6.3 Successor Trustee Appointment. If, at any time hereafter the
Trustee shall resign, be removed, be dissolved or otherwise become incapable of
acting, or the bank or trust company acting as Trustee shall be taken over by
any governmental official, agency, department or board, the position of the
trustee shall thereupon become vacant. If the position of trustee shall become
vacant for any of the foregoing reasons or for any other reason, HBI shall
appoint a successor trustee to fill such vacancy, with Consent. Upon
substitution of the Trustee, a statement of accounts shall be rendered by the
Trustee to HBI.
6.4 Obligations on Change of Trustee. Every successor trustee appointed
hereunder shall execute, acknowledge and deliver to its predecessor and to HBI
an instrument in writing accepting such appointment hereunder, and thereupon
such successor trustee, without any further act, shall become fully vested with
all the rights, immunities, and powers, and subject to all of the duties and
obligations, of its predecessor; but such predecessor shall, nevertheless, on
the written request of its successor, and upon payment of the expenses, charges
and other disbursements of such predecessor which are payable pursuant hereto,
execute and deliver an instrument transferring to such successor trustee all the
rights, immunities and powers of such predecessor hereunder; and every
predecessor trustee shall deliver all property and monies held by it hereunder
to its successor. Should any instrument in writing from HBI be required by any
successor for more fully and certainly vesting in such trustee the rights,
immunities and powers hereby vested or intended to be vested in the predecessor
trustee, any such instrument in writing shall and will, on request, be executed,
acknowledged and delivered by HBI.
ARTICLE 7
EXTENSION, AMENDMENT AND TERMINATION OF TRUST
7.1 Extension, Amendment and Termination. Except as set forth in
subparagraphs (a), (b) and (c) below, this Trust Agreement shall be irrevocable,
including, without limitation, by HBI.
(a) Extension. The Trust term may be extended by HBI with Consent,
provided, however, that the Trust term shall not be extended
beyond 21 years after the death of the last surviving director
or officer serving as of the date of this Agreement.
(b) Amendment. The Trust Agreement may be amended by HBI, with the
consent of two-thirds of each class of Beneficiaries described
in paragraph 2.1(a), if needed at any time to bring it into
compliance with any applicable statutory or case law or
governmental regulations.
(c) Termination. This Trust Agreement may be terminated in
accordance with the provisions of this subparagraph.
(i) The Trust may be terminated at any time for the
following reasons:
(A) HBI is dissolved or liquidated as a corporate
entity; or
(B) Less than $50,000 in funds remains in the Trust
and HBI does not intend to further fund the
Trust; or
(C) There is a Change in Control of HBI defined as
follows:
(1) For purposes of this Article, "Change in
Control" shall mean a change in control
which would be required to be reported in
response to item 5(f) on Schedule 14A of
Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended
(the "Exchange Act"), whether or not HBI is
then subject to such reporting requirement,
including, without limitation, if:
(I) Any "person" (as such term is used
in Sections 13(d) and 14(d) of the
Exchange Act) becomes a "beneficial
owner" (as defined in Rule 13d-3
under the Exchange Act), directly
or indirectly, of securities of HBI
representing 30% or more of the
combined voting power of HBI's then
outstanding securities; or
(II) There ceases to be a majority of
the Board of Directors comprised of
individuals described in (III)
below.
(III) For purposes of this subsection
(1), "Board of Directors" shall
mean: (A) individuals who on the
effective date hereof constituted
the Board of HBI; and (B) any new
director who subsequently was
elected or nominated for election
by a majority of the directors who
held such office immediately prior
to a Change in Control.
(2) Change in Control shall also mean the
commencement of any insolvency proceeding by
or against HBI including the appointment of
a receiver.
(ii) The Trust may be terminated for a reason listed in (i)
in accordance with the following rules:
(A) If the Trust Fund contains less than $50,000 in
assets or if HBI is able to obtain liability
insurance for directors and officers covering
all acts up to the date of termination for six
years following termination, HBI may terminate
the Trust, provided it has obtained Consent. HBI
shall give 60 days advance written notice of
termination to the Trustee and to all
Beneficiaries.
(B) If Trust Fund assets total $50,000 or more, the
Trust shall go into frozen status for six years.
HBI shall give 60 days advance written notice of
frozen status to the Trustee and to all
Beneficiaries. Frozen status shall mean that no
new Beneficiaries will be added to Exhibit A.
During the six-year frozen status period, the
Trustee will pay duly certified claims which are
based upon acts or omissions occurring both
prior and subsequent to the date of notice of
frozen status. At such time as the Trust Fund is
depleted of all assets, the Trust shall
terminate, even if prior to the expiration of
the six-year period.
(iii) If this Trust Agreement has not terminated in accordance
with (i) and (ii) above by December 31, 2000, or if the
Trust term has not been extended in accordance with
paragraph 7.1(a), then the following rules shall apply:
(A) If the Trust Fund contains less than $50,000 in
assets as of December 31, 2000 or HBI obtains
Consent, then HBI may terminate the Trust as of
December 31, 2000, upon 60 days advance written
notice to all Beneficiaries and to the Trustee.
(B) If Trust Fund assets total $50,000 or more as of
December 31, 2000, the Trust shall go into
frozen status for six years as described in
subsection (ii) (B) above.
(iv) Upon termination of this Trust Agreement, any assets
remaining in the Trust Fund shall be distributed in the
following order of priority:
(A) To HBI; or
(B) If HBI is in voluntary or involuntary bankruptcy
as of that date, to the trustee in bankruptcy;
or
(C) If HBI shall have ceased to exist, then to the
successor thereto, or, if more than one
successor, then pro rata among such successors;
or
(D) If there is no successor thereto, then to the
HBI shareholders of record as of the date of
notice of termination or notice of frozen
status, whichever is applicable.
(E) If there are no shareholders, then to the State
of Minnesota.
ARTICLE 8
MISCELLANEOUS
8.1 Spendthrift Provision. The Trust principal and income shall not be
applied (a) to discharge the debts of HBI under any circumstances except as
specifically provided in this Trust Agreement to satisfy HBI's obligation to
indemnify its officers and directors, or (b) to discharge the debts of any
Beneficiary, except as specifically provided in this Agreement. No Beneficiary
shall have any power to sell, assign, transfer, encumber or in any other manner
to anticipate or dispose of his or her interest in the Trust, or the income
produced thereby, before distribution by the Trustee to said Beneficiary. Any
distribution from the Trustee to a Beneficiary shall be used to satisfy the
claims of creditors specified in the corresponding certificate submitted to the
Trustee by the Beneficiary. HBI shall have no power to sell, assign, transfer,
encumber or otherwise dispose of any Trust principal or interest, and no
creditor of HBI shall have any right to or claim against Trust income or
principal.
8.2 Binding Effect. This Trust shall be binding upon and inure to the
benefit of the heirs, personal representatives, successors and assigns of all
parties hereto.
8.3 Representations. No representations or warranties have been made by
or shall be implied against or as to any party with respect to the facts or
transactions upon which this Trust Agreement is based. The Trustee is and shall
be independent.
8.4 Partial Invalidity. The invalidity or unenforceability of any
provision of this Trust Agreement shall not affect the validity or
enforceability of any other provision of this Trust Agreement, which shall
remain in full force and effect.
8.5 Construction. Nothing in this Trust Agreement shall be construed to
eliminate or modify the indemnification requirements of Minnesota law.
8.6 Complete Agreement. This Trust Agreement constitutes the entire
understanding between the parties hereto with respect to the subject matter
hereof, and no agreements or representations, verbal or otherwise, express or
implied, other than those set forth expressly in this Trust Agreement have been
made by any party hereto with respect to the subject matter hereof.
8.7 Notice. All certificates, notices, requests for Consent and
otherwise, demands, instructions to the Trustee and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
addressed and delivered or deposited in the United States mails by certified
mail, return receipt requested, postage prepaid, to the parties as follows:
Helix BioCore, Inc.
3905 Annapolis Lane
Plymouth, Minnesota 55447
Attention: Chief Executive Officer
Richfield Bank & Trust Co.
6625 Lyndale Avenue South
Richfield, Minnesota 55423
Attention: Trust Department
8.8 Governing Law. This Trust Agreement shall be governed by, and
construed in accordance with, the laws of the State of Minnesota.
8.9 Execution. This Trust Agreement is executed in multiple copies,
each copy being an original counterpart and shall be deemed one and the same
instrument.
IN WITNESS WHEREOF, the Trustee and HBI have caused this Trust
Agreement to be signed as of the date and year first above written.
HELIX BIOCORE, INC.
By: /S/ M.A. Villafana
Its: Chairman and CEO
RICHFIELD BANK & TRUST CO.
By: /S/ Daniel E. Caswell
Its: Trust Officer
EXHIBIT A
NAMES AND ADDRESSES OF PAST AND PRESENT DIRECTORS AND OFFICERS
Manuel A. Villafana James F, Lyons
1482 Hunter Drive 1179 West Burke Avenue
Medina, MN 55391 Roseville, MN 55113
Richard W. Kramp
1285 Karth Lake Circle
Arden Hills, MN 55112
Charles F. Cuddihy, Jr.
16993 Chilton Hill Road
Minnetonka, MN 55345
John S. Salstrom
1250 W. Minnehaha Parkway
Minneapolis, MN 55419
John R. Holroyd
6905 Limerick Lane S.
Edina, MN 55435
Niguel O. Villarejos
1749 N. Farm Road
Long Lake, MN 55356
John H. Junghauer
12122 Everton Avenue N.
White Bear Lake, MN 55110
Howard C. Root
4128 Beard Avenue South
Minneapolis, MN 55410
Thierry Hermann
Fournitures Hospitalieres
Z.A. de Mulhouse-Heimabrunn
B.P. 9
68990 Heimsbrunn
FRANCE
David L. Boehnen
71 Otis Lane
St. Paul, MN 55104
Frank H. Voigt
5036 Belmont Avenue South
Minneapolis, MN 55419
Joel D. Hixson
225 Forest View Lane
Plymouth, MN 55441
EXHIBIT B
ASSIGNMENT
Helix BioCore, Inc., a Minnesota corporation ("HBI") hereby transfers
to Richfield Bank & Trust Co. (the "Trustee") the sum of Two Hundred Thousand
Dollars ($200,000) to be held by the Trustee pursuant to the Helix BioCore, Inc.
Self-Insurance Trust Agreement dated February 28, 1991 (the "Trust Agreement").
The Trustee undertakes to hold and invest the funds transferred hereby in
accordance with the terms of the Trust Agreement and to keep such funds separate
and free from any claim, interests or judgments of the Trustee or any person
claiming an interest through the Trustee.
Dated: March 18, 1991 HELIX BIOCORE, INC.
By: /S/ Howard C Root
Its: Secretary and General Counsel
RICHFIELD BANK & TRUST CO.
By: /S/ Daniel E. Caswell
Its: Trust Ofiicer
Exhibit 10.22
AMENDMENT NO. 5
TO
LEASE AGREEMENT
This Amendment No,. 5 is made and entered into this 30th day
of May, 1996 by and between St. Paul Properties, Inc., (a Delaware corporation),
(as "Landlord") and ATS Medical, Inc., (a Minnesota corporation), (as "Tenant").
W I T N E S S E T H:
WHEREAS, Crow-Plymouth Land Limited Partnership and Tenant are
the parties to that certain lease agreement dated December 22, 1987 (the
"Lease") with regard to the leasing of approximately 18,305 square feet (the
"Original Leased Premises") in the building owned by Landlord and located at
3905 Annapolis Lane, Plymouth, Minnesota as more particularly described on
Exhibit A to the Lease; and
WHEREAS, Plymouth Business Center I Partnership is the
successor to Crow-Plymouth Land Limited Partnership's interest in the Lease and
St. Paul Properties, Inc. is the successor of Plymouth Business Center I
Partnership is hereinafter referred to as "Landlord"; and
WHEREAS, Landlord and Tenant entered into a certain Amendment
No. 1 to Lease Agreement on January 5, 1989 to provide for the leasing to Tenant
of an additional 21,205 square feet in the Building (the "Surrender Space"); and
WHEREAS, Landlord and Tenant entered into a certain Amendment
No. 2 to Lease Agreement on January 12, 1989 in order to evidence their
agreement in regard to the use of the Original Leased Premises for manufacturing
purposes; and
WHEREAS, Landlord and Tenant entered into a certain Amendment
No. 3 to Lease Agreement in order to allow Tenant to vacate and surrender to
Landlord the Surrender Space and to evidence their agreement to extend the term
of the Lease as to the Original Leased Premises, as amended, for a period of
three (3) additional months; and
WHEREAS, Landlord and Tenant have entered into a certain
Amendment No. 4 to Lease Agreement in order to evidence their agreement to
extend the term of the Lease as to the Original Leased Premises, as amended, for
a period of thirty (30) additional months.
WHEREAS, Landlord and Tenant have agreed to enter into this
Amendment No. 5 to Lease Agreement in order to evidence their agreement to
expand the Demised Premises by Tenant leasing 2,230 square feet adjacent to the
Demised Premises ("Expansion Space") commencing June 1, 1996 and expiring
December 31, 1997. The total Leased Premises is 20,535 square feet.
NOW, THEREFORE, in consideration of the foregoing, and the
following covenants and agreements and for other good and valuable
consideration, the receipt and adequacy whereof is hereby acknowledged by the
parties, Landlord and Tenant hereby agree as follows:
1. Interpretation of Amendment. The Lease is hereby modified
and supplemented. Wherever there exists a conflict between this Amendment No. 5
to Lease Agreement and the Lease, as amended, the provisions of this Amendment
No. 5 shall control. Unless otherwise indicated, capitalized terms shall be
defined in the manner set forth in the Lease, as amended.
2. Base Rent. Notwithstanding anything to the contrary in the
Lease, as amended, Base Rent for the Expansion Space during the term as herein
indicated, shall be equal to $1,436.00 per month, payable in accordance with the
terms of the Lease, during the period commencing June 1, 1996 and continuing
through December 31, 1997.
3. Articles 28, 29, 30 and 32 of the Rider to the original
Lease dated December 22, 1987 and Article 5, 8 and 9 of Amendment #1 and
Articles 2 and 6 of Amendment #3 and Article 5 of Amendment #4 shall be deleted
entirely and of no future force and effect.
4. Reference to an Effect on the Lease.
a) Upon the effectiveness on this Amendment, each
reference in the Lease to "this Lease", "hereunder",
"hereof", "herein" or word of like import referring
to the Lease shall mean and be a reference to the
Lease as amended hereby.
b) Except as specifically set forth above, the Lease
remains of full force and effect and is hereby
ratified and confirmed.
5. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Minnesota.
6. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
IN WITNESS WHEREOF, the parties have executed this Amendment
No. 5 to Lease Agreement as of the year and date first above written.
LANDLORD:
St. Paul Properties, Inc.
(a Delaware corporation)
By: /S/ R. William Inserra
R. William Inserra
Its: Vice President
TENANT:
ATS Medical, Inc.
(a Minnesota corporation)
By: /S/ John H. Jungbauer
Its: Vice President
EXHIBIT "A"
[Site Plan showing Current Premises and Expansion Space under Lease Agreement]
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
ATS Medical, Ltd. (incorporated in Scotland)
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference on the Registration Statements on
Form S-8 NO. 33-44940 pertaining to the 1987 Stock Option and Stock Award Plan
of ATS Medical, inc. (formerly Helix BioCore, Inc.), Form S-3 No. 33-60104
pertaining to the registration of 3,710,676 shares of ATS Medical, Inc. common
stock, and Post-Effective Amendment No. 1 to Form S-3 No. 33-89070 pertaining to
the registration of 900,000 shares of ATS Medical, Inc. common stock, of our
report dated February 6, 1997, with respect to the consolidated financial
statements and schedule of ATS Medical, Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 1996.
Ernst & Young LLP
Minneapolis, Minnesota
March 25, 1997
Exhibit 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature
appears below hereby constitutes and appoints Manuel A. Villafana and John H.
Jungbauer, and each of them, his attorney-in-fact, with full power of
substitution, for the purpose of signing on his behalf, in any and all
capacities, the Annual Report on Form 10-K of ATS Medical, Inc. pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, for the
fiscal year ended December 31, 1996 (the "10-K Report") and of signing any and
all amendments to the 10-K Report and to deliver the 10-K Report and any and all
amendments thereto as each thereof is so signed for filing with the Securities
and Exchange Commission.
/s/ Manuel A. Villafana Dated: March 20, 1997
- ----------------------------------- --------------
Manuel A. Villafana
/s/ Richard W. Kramp Dated: March 20, 1997
- ---------------------------------- --------------
Richard W. Kramp
/s/ John H. Jungbauer Dated: March 20, 1997
- ---------------------------------- --------------
John H. Jungbauer
/s/ Charles F. Cuddihy, Jr. Dated: March 20, 1997
- ---------------------------------- --------------
Charles F. Cuddihy, Jr.
/s/ James F. Lyons Dated: March 20, 1997
- ---------------------------------- --------------
James F. Lyons
/s/ A. Jay Graf Dated: March 20, 1997
- ---------------------------------- --------------
A. Jay Graf
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,320,010
<SECURITIES> 7,867,619
<RECEIVABLES> 3,339,559
<ALLOWANCES> 200,000
<INVENTORY> 18,242,066
<CURRENT-ASSETS> 32,037,503
<PP&E> 2,014,439
<DEPRECIATION> 1,119,875
<TOTAL-ASSETS> 33,320,300
<CURRENT-LIABILITIES> 1,393,561
<BONDS> 0
0
0
<COMMON> 152,880
<OTHER-SE> 31,773,859
<TOTAL-LIABILITY-AND-EQUITY> 33,320,300
<SALES> 11,859,765
<TOTAL-REVENUES> 11,859,765
<CGS> 7,474,065
<TOTAL-COSTS> 7,474,065
<OTHER-EXPENSES> 3,041,598
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,344,102
<INCOME-TAX> 22,500
<INCOME-CONTINUING> 1,321,602
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<EPS-PRIMARY> .08
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