<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
----------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------- ---------
COMMISSION FILE NO. 0-24882
CORVITA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-2745022
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8210 N.W. 27TH STREET
MIAMI, FLORIDA 33122
(Address of principal executive offices)
(305) 599-3100
(Registrant's telephone number, including area code)
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
--- ---
At May 14, 1996, Registrant had 7,158,631 shares of Common Stock, par value
$.001 per share, outstanding.
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<PAGE> 2
CORVITA CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
10-Q INDEX
<TABLE>
<CAPTION>
PART I. - FINANCIAL INFORMATION PAGE NO.
- - --------------------------------- --------
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1995 and March 31,
1996 (unaudited) 3
Consolidated Statements of Operations for each of the three and
nine month periods ended March 31, 1995 and 1996 and
the period April 7, 1987 (inception) through March 31, 1996
(unaudited) 4
Consolidated Statements of Cash Flows for each of the nine month
periods ended March 31, 1995 and 1996 and the period
April 7, 1987 (inception) through March 31, 1996 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. - OTHER INFORMATION
- - -------------------------------
Items 1 through 6 20
Exhibit Index 20
Signatures Page 22
</TABLE>
-2-
<PAGE> 3
PART I
Item 1. FINANCIAL STATEMENTS
CORVITA CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(In 000's)
<TABLE>
<CAPTION>
June 30, March 31,
1995 1996
---------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,303 $ 324
Commercial paper 4,491 -
Accounts receivable 220 245
Inventory 105 54
Prepaid expenses & other current assets 384 247
---------- -------------
Total current assets 6,503 870
PROPERTY AND EQUIPMENT - Net 1,100 1,201
PATENTS AND TRADEMARKS - Net 533 527
INVESTMENT IN AFFILIATE 26 46
---------- -------------
TOTAL ASSETS $ 8,162 $ 2,644
========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 401 $ 764
Accrued expenses 734 3,154
Current portion of notes payable 321 254
---------- -------------
Total current liabilities 1,456 4,172
---------- -------------
LONG-TERM NOTES PAYABLE - Net of current portion 785 810
---------- -------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock; $.001 par value; 18,750,000 shares authorized;
7,042,081 and 7,106,149 shares outstanding at June 30, 1995 and
March 31, 1996, respectively 7 7
Additional paid-in capital 31,541 31,605
Deficit accumulated during the development stage (25,601) (33,930)
Cumulative translation adjustments (26) (20)
---------- -------------
Total stockholders' equity (deficit) 5,921 (2,338)
---------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 8,162 $ 2,644
========== =============
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 4
CORVITA CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
April 7, 1987
For the three months ended For the nine months ended (Inception)
March 31, March 31, Through
---------------------------- -------------------------- March 31,
1995 1996 1995 1996 1996
------------ -------------- ----------- ------------ ------------
(In 000's) (In 000's) (In 000's) (In 000's) (In 000's)
<S> <C> <C> <C> <C> <C>
REVENUES
Product sales $ 224 $ 288 $ 597 $ 667 $ 3,050
Royalties - 9 - 11 11
Consulting services and other 41 - 182 20 1,038
License fee - - - - 1,000
Sale of invention records 250 - 250 - 525
------------ -------------- ------------ ------------ ---------
Total revenues 515 297 1,029 698 5,624
------------ -------------- ------------ ------------ ---------
MANUFACTURING EXPENSES
Cost of sales and manufacturing overhead 484 480 1,446 1,580 7,289
------------ -------------- ------------ ------------ ---------
Gross profit (loss) 31 (183) (417) (882) (1,665)
------------ -------------- ------------ ------------ ---------
OPERATING EXPENSES
Research and development 734 1,252 2,041 3,406 19,541
Research purchased - - - 2,000 2,000
Selling, general and administrative 632 700 1,678 2,258 11,380
------------ -------------- ------------ ------------ ---------
Total operating expenses 1,366 1,952 3,719 7,664 32,921
------------ -------------- ------------ ------------ ---------
OTHER INCOME (EXPENSE)
Interest income (expense), net 93 (2) 86 47 641
Grants and other income (expense), net 283 (1) 289 150 799
Withdrawn public offering expense - - (200) - (456)
Loss on partial sale of affiliate - - - - (146)
Equity in net income (loss) of affiliate 22 (25) (52) 20 (104)
Gain (loss) from foreign currency, net (2) - - - (78)
------------ -------------- ------------ ------------ ---------
Total other income (expense) 396 (28) 123 217 656
------------ -------------- ------------ ------------ ---------
NET LOSS $ (939) $ (2,163) $ (4,013) $ (8,329) $ (33,930)
============ ============== ============ ============ =========
Net loss per common share $ (0.13) $ (0.30) $ (0.88) $ (1.18)
============ ============== ============ ============
Weighted average shares outstanding 7,073,258 7,104,373 4,535,973 7,077,655
============ ============== ============ ============
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE> 5
CORVITA CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended April 7, 1987
March 31, (Inception)
--------------------- Through
1995 1996 March 31, 1996
---------- --------- --------------
(In 000's) (In 000's) (In 000's)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,013) $ (8,329) $ (33,930)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 272 349 2,108
Gain on the sale or disposition of equipment (25) (4) (28)
Proceeds received from equipment in construction contract 181 20 60
Loss from patent abandonment - 22 22
Foreign exchange gain - - (12)
Loss on partial sale of affiliate - - 146
Equity in net (income) loss of affiliate 52 (20) 104
Interest expense satisfied by issuance of stock - - 73
Common stock issued for services received - - 47
(Increase)/decrease in -
Accounts receivable 157 (24) (205)
Accrued interest income receivable (133) 128 -
Inventories 105 47 (40)
Additions to construction in progress of equipment for resale (80) - (88)
Prepaid expenses and other current assets (450) 133 (367)
Increase/(decrease) in -
Accounts payable (47) 381 734
Accrued expenses (468) 2,465 3,379
---------- --------- --------------
Net cash used by operating activities (4,449) (4,832) (27,997)
---------- --------- --------------
INVESTING ACTIVITIES
Net sale (purchase) of treasury bills and commercial paper (6,346) 4,363 -
Additions to property and equipment (154) (471) (3,167)
Additions to patents (38) (57) (528)
Proceeds from the sale of property and equipment - - 151
Effect of partial sale of affiliate - - (224)
---------- --------- --------------
Net cash provided (used) by investing activities (6,538) 3,835 (3,768)
---------- --------- --------------
FINANCING ACTIVITIES
Proceeds from issuance of short-term notes payable 600 - 3,600
Proceeds from issuance of common stock, net 11,868 64 12,351
Proceeds from issuance of Series A, B, C, D and E
preferred stock, net - - 18,062
Proceeds from sale of treasury shares - - 4
Proceeds from issuance of notes payable 31 179 3,510
Principal repayment of short-term notes payable (2,100) - (3,600)
Principal repayment of notes payable (252) (207) (1,829)
---------- --------- --------------
Net cash provided by financing activities 10,147 36 32,098
Effect of exchange rate changes on cash 31 (18) (9)
---------- --------- --------------
NET INCREASE (DECREASE) IN CASH (809) (979) 324
CASH, BEGINNING OF PERIOD 1,639 1,303 -
---------- --------- --------------
CASH, END OF PERIOD $ 830 $ 324 $ 324
========== ========= ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest $ 131 $ 42 $ 531
========== ========= ==============
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE> 6
CORVITA CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - NATURE OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Corvita Corporation (the "Company") is a Florida corporation founded in
December 1986, which commenced operations in April 1987. The Company is a
development stage company which is developing several lines of vascular grafts
(i.e., artificial arteries) to be used to bypass, repair or replace diseased
human arteries during bypass surgery or introduced via catheters and minimal
invasive surgical techniques. The Company's vascular grafts utilize
Corethane(R), a specialty medical polymer developed and manufactured by the
Company. Substantially all of the Company's products are in various stages of
development and clinical trials or early stages of sales in the United States,
Western Europe, Japan and Latin America. To achieve profitable operations, the
Company must successfully complete the development and clinical trials of its
products, obtain required regulatory approvals, manufacture in sufficient
quantities on a cost effective basis and achieve market acceptance. There can
be no assurance that the Company's efforts in these regards will be successful.
BASIS OF PRESENTATION. The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern.
The Company has accumulated a significant deficit during the development stage
and requires additional financing to continue funding the development and
marketing of its products. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
The accompanying consolidated financial statements include the accounts of
Corvita Corporation and its wholly-owned subsidiary Corvita Europe, S.A.
(collectively, the "Company"). Corvita Europe, S.A. includes the accounts of
its 90%-owned subsidiary, Laboratoire Corvita, S.A.R.L. (Corvita Corporation
owns an additional 9% of Laboratoire Corvita, S.A.R.L.). The Company's
investment and 48% equity in the results of operations of Corvita Canada, Inc.
are reflected in the Company's consolidated statements on the equity method.
From April 1994 through March 31, 1996, the Company recognized approximately
($104,000) representing its 48% share of equity in the net loss of Corvita
Canada, Inc. At March 31, 1996, the value of the Company's 48% interest in
Corvita Canada, Inc. was approximately $46,000.
-6-
<PAGE> 7
CORVITA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary for the fair presentation of the
consolidated balance sheets, statements of operations and cash flows. The
consolidated statements of operations for the nine months ended March 31,
1996, are not necessarily indicative of the results to be expected for the
fiscal year ending June 30, 1996.
NOTE 2 - INCOME TAXES
At March 31, 1996, the Company had net operating loss carryforwards (including
estimates for the first nine months of fiscal 1996) of approximately
$25,200,000 for income tax purposes, expiring in the years 2002 through 2011.
Additionally, at March 31, 1996, the Company had research and development
credit carryforwards (including estimates for the first nine months of fiscal
1996) of approximately $930,000 expiring in the years 2003 through 2012. As a
result of certain equity transactions, the Company has experienced a greater
than 50% change of ownership, on each of May 23, 1990 and November 5, 1992, as
defined in Section 382 of the Internal Revenue Code. As a result, there are
annual limitations with respect to approximately $7.5 million of the net
operating loss carryforwards, and approximately $300,000 of research and
development costs credits. Net operating losses of approximately $17.7 million
and research and development credits of approximately $630,000 arising after
November 5, 1992, remain unrestricted. The Company has not recognized any
benefit for these operating loss and credit carryforwards because their
ultimate realization is not certain.
The Company has entered into an agreement with Pfizer, Inc. HPG Acquisition
Corp. in which a change of greater than fifty percent ownership is expected to
occur with respect to the Company during the latter part of May 1996. As a
result of this change of ownership, annual limitations will apply to all net
operating losses and research credits that have arisen before the change date.
NOTE 3 - NET LOSS PER COMMON SHARE
Net loss per common share is computed based upon the weighted average number of
common shares outstanding during the period. Common equivalent shares are not
included in the per share calculations where the effect of their inclusion
would be antidilutive.
-7-
<PAGE> 8
CORVITA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which will be effective for the Company beginning July 1, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25,
which recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to
its stock based compensation awards to employees and will disclose the required
pro forma effect on net income and earnings per share.
NOTE 5 - SUBSEQUENT EVENT
On April 11, 1996, the Company and Pfizer Inc. ("Pfizer") jointly announced
that they had signed an Agreement and Plan of Merger ("Merger Agreement")
pursuant to which HPG Acquisition Corp., a wholly-owned subsidiary of Pfizer,
will acquire all of the outstanding stock of Corvita at $10.25 per share, or
approximately $85 million. To implement the agreement, Pfizer's subsidiary
commenced a cash tender offer on April 17, 1996. Consummation of the merger is
conditioned on, among other things, the tender of at least a majority of the
outstanding shares of Corvita, on a fully diluted basis, in the tender offer.
Shareholders owning approximately 20% of the outstanding shares of Corvita have
entered into binding agreements to tender their shares. Assuming the
successful completion of the prospective merger, Corvita will operate as a
business of the Pfizer Hospital Products Group (HPG).
-8-
<PAGE> 9
CORVITA CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
PART I.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Since the commencement of operations in 1987, the Company has been engaged in
designing, developing, clinically testing, producing and marketing artificial
arteries. These artificial arteries are also known as endoluminal grafts and
synthetic vascular grafts (the "Corvita Grafts"). Endoluminal grafts and
synthetic vascular grafts reline, replace, repair or bypass occluded, damaged,
dilated or severely diseased arteries. Endoluminal grafts combine a graft lining
with a metallic stent which holds the graft in place inside an artery. The
Corvita Grafts include (i) the Corvita Endoluminal Grafts, implanted with
minimally invasive techniques similar to those used for balloon angioplasty,
which are designed to treat damaged, occluded or aneurysmal arteries, (ii) the
Corvita Peripheral Grafts, used to surgically replace diseased arteries
primarily in patients' legs, and (iii) the Corvita AV Access Grafts,
arterial-to-venous grafts which are surgically implanted primarily in patients'
arms and used to draw and return blood during hemodialysis.
Substantially all of the Company's revenues to date have been attributable to
product sales (primarily of Corvita Peripheral Grafts in Europe), sales of
invention records, license fees, consulting services and technology.
Corvita Peripheral Grafts have been studied for the past three years in the U.S.
under a Food and Drug Administration (FDA) controlled human clinical trial. A
510(k) application to market Corvita Peripheral Grafts in the U.S. was completed
and filed with the FDA on December 7, 1995, the FDA responded with questions on
March 8, 1996, and the Company responded with answers to the FDA's questions on
April 22, 1996. Corvita AV Access Grafts have been studied for almost two years
in the U.S. under an FDA-controlled human clinical trial. A feasibility
Investigational Device Exemption ("IDE") for the Corvita Endoluminal Grafts for
trauma applications was granted by the FDA in 1995, and human clinical trials
commenced in the second quarter of fiscal 1996. Additional clinical studies are
proceeding in Western Europe, South America and Japan.
The Company, a development stage company, has incurred a loss in each period
since its inception and expects to incur continued losses for the fiscal year
ending June 30, 1996. For the period from April 7, 1987 (inception) through
March 31, 1996, the Company incurred a cumulative net loss of approximately
($33,930,000).
-9-
<PAGE> 10
CORVITA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
On November 1, 1994 the Company consummated an initial public offering of
2,625,000 shares of Common Stock, realizing net proceeds of approximately
$11,850,000.
On April 11, 1996, the Company and Pfizer Inc. ("Pfizer") jointly announced that
they had signed an Agreement and Plan of Merger ("Merger Agreement") pursuant to
which HPG Acquisition Corp., a wholly-owned subsidiary of Pfizer, will acquire
all of the outstanding stock of Corvita at $10.25 per share, or approximately
$85 million. To implement the agreement, Pfizer's subsidiary commenced a cash
tender offer on April 17, 1996. Consummation of the merger is conditioned on,
among other things, the tender of at least a majority of the outstanding shares
of Corvita, on a fully diluted basis, in the tender offer. Shareholders owning
approximately 20% of the outstanding shares of Corvita have entered into binding
agreements to tender their shares. Assuming the successful completion of the
prospective merger, Corvita will operate as a business of the Pfizer Hospital
Products Group (HPG).
Certain Risks
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has accumulated
a significant deficit during the development stage and requires additional
financing to continue funding the development, manufacturing scale-up and
marketing of its products. In April, 1996, the Company exhausted the remaining
portion of the proceeds from its 1994 initial public offering, and since that
point it has been funding operations via proceeds of a loan from its prospective
merger partner Pfizer.
One compound which the Company uses to synthesize its proprietary Corethane(R)
polymers has until recently been supplied from a single source. The Company
does not have a supply contract with the supplier, and there can be no assurance
that the supplier will continue to provide sufficient quantities of the compound
to meet the Company's requirements. Should the supply of this compound be
interrupted, or should the supplier be unable to meet the Company's quality
requirements, the Company could be materially adversely affected. However, the
patent on this compound has expired, and the Company, if need be, has the
technical capabilities to manufacture the compound and could redirect resources
to accomplish this if necessary. In addition, a second supplier of this
compound has recently been established and the Company is in the process of
qualifying such second supplier for Company applications.
Hospitals have historically received reimbursement from third party payers,
including Medicare and Medicaid, for medical devices used in clinical studies,
but not yet approved
-10-
<PAGE> 11
CORVITA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
by the FDA. In June 1994, the U.S. Inspector General ("IG") issued a subpoena
to over 100 hospitals asking for information regarding their billing of Medicare
and Medicaid for reimbursement for procedures using medical devices not approved
by the FDA. Subsequently, the IG narrowed its probe to focus on the use of 10
types of unapproved cardiac devices manufactured by various companies (not
including the Company), including another manufacturer's vascular graft which
was undergoing trials during the period covered by the subpoena. The IG's
investigation has resulted in hospitals rejecting certain patients from clinical
trials of certain devices due to the risk of not being reimbursed for the costs
of the procedure or the device. Consequently, future participation by some
hospitals in clinical studies remains questionable. Because of these actions,
as well as the duration of regulatory review required in the past by the FDA,
many companies have increased their development, clinical trials and commercial
activities outside of the U.S. As a result of the potential consequences on
medical innovation in the U.S., regulatory and reimbursement issues have been
the subject of numerous discussions and debates in and among members of the
United States Congress. As a result of Congressional interest, FDA review times
have been reduced and the Health Care Financing Administration has announced the
change of reimbursement policies effective November 1, 1995, to permit Medicare
and Medicaid reimbursement for most investigational devices used in
FDA-controlled clinical trials in the U.S. There can be no assurance that this
policy change will enhance the rate at which patients are enrolled in the U.S.
clinical trials being sponsored by the Company.
To date, the Company's manufacturing activities have consisted primarily of
manufacturing limited quantities of its products for use in U.S., European,
Japanese and South American clinical trials and for limited commercial sales of
Corvita Peripheral Grafts, principally in Europe. The Company has continued to
increase manufacturing, quality control and engineering headcount and
infrastructure at its U.S. and European facilities. From inception through
March 31, 1996, the Company's operating revenues have been approximately
$5,624,000, including approximately $3,050,000 in product sales; and cost of
goods sold and manufacturing overhead (including quality control and
manufacturing engineering) in the comparable period have been approximately
$7,289,000.
The Company's manufacturing experience is limited. The Company has expended
significant resources on expanding the product line for Corvita Endoluminal
Grafts, and is in the process of moving additional products from development
engineering pilot lab production into production by manufacturing and quality
control personnel operating in clean room manufacturing environments. The
Company has periodically encountered manufacturing interruptions and low yields
while carefully controlling the scale-up of manufacturing infrastructure, and
there can be no assurance that the Company will be able to make the transition
to cost-effective commercial production successfully.
-11-
<PAGE> 12
CORVITA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
To date, the Company's limited marketing and sales efforts have utilized
distributors in several European and Latin American countries, as well as an
affiliated corporation in Canada. Upon filing of pre-marketing applications (as
noted above, the U.S. pre-market notification to the FDA for Corvita Peripheral
Grafts was filed on December 7, 1995) and receipt of FDA approvals for the
Corvita Grafts, the Company may begin U.S. sales and marketing activities. The
Company has elected to introduce Corvita Grafts by selecting leading clinicians
and researchers as investigators in its clinical trials who will publish and
otherwise report results to their peers in research and clinical publications
and at trade shows.
The Company's success will depend in part on its ability to maintain and protect
its intellectual property, including proprietary products, processes, materials,
trade secrets, and U.S. and foreign patents, patents pending and trademarks.
The Company currently holds 19 issued United States patents, has obtained rights
under 12 other U.S. patents by license, and has pending 18 U.S. patent
applications that cover various aspects of its technology. Other companies may
have proprietary rights or may have filed patent applications for materials,
products or processes competitive with those of the Company. There can be no
assurance that any of the Company's pending patent applications will be
approved, that its patents will be upheld or not circumvented by competitors,
that any patents or licenses will provide commercially significant protection
for the Company's products, or that the intellectual property laws of foreign
countries in which the Company does or may do business will protect the
Company's intellectual property to the same extent as U.S. laws. Further, there
can be no assurance that any licenses which might be required by the Company
would be available on reasonable terms, if at all. The failure by the Company to
acquire or maintain necessary patents or licenses could have a material adverse
effect on the Company's ability to commercialize its products.
There has been substantial litigation regarding patent and other intellectual
property rights in the medical device industry. Litigation, which could result
in substantial cost to and diversion of efforts by the Company, may be necessary
to enforce patents issued to the Company, to protect trade secrets or know-how
owned by the Company, to defend the Company against claimed infringement of the
rights of others or to determine the scope and validity of the proprietary
rights of others. Adverse determinations in litigation could subject the
Company to substantial litigation costs and/or significant liabilities to third
parties, could require the Company to seek licenses from third parties or could
prevent the Company from manufacturing, selling or using its products, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company is not currently a party to any
material patent or other litigation.
-12-
<PAGE> 13
CORVITA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Certain of the Company's operations are transacted in foreign currencies. To
the extent that the Company conducts operations and sells or licenses its
products or technologies outside of the United States, the Company is subject to
fluctuations in currency exchange rates. To date, volatility in foreign
currency exchange rates has not had a significant impact on the Company's
financial position or results of operations.
-13-
<PAGE> 14
CORVITA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Results of Operations
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1995. Total revenues decreased, principally as a result of decreased sales of
invention records and technology, to approximately $297,000 for the three
months ended March 31, 1996 (comprised of approximately $288,000 in product
sales and approximately $9,000 in royalties) from approximately $515,000
(comprised of approximately $224,000 in product sales, $250,000 from the sale
of intellectual property and approximately $41,000 in consulting services and
other operating revenues) for the comparable period of the prior year.
Cost of sales and manufacturing overhead for the three months ended March 31,
1996, decreased slightly to approximately $480,000 from approximately $484,000
in the corresponding period of the previous year. Gross loss was approximately
($183,000) in the three months ended March 31, 1996 compared to a gross profit
of approximately $31,000 for the comparable three months of the prior year
principally because of reduced sales of technology and intellectual property.
Research and development expenses (including clinical and regulatory expenses)
increased to approximately $1,252,000 for the third quarter of fiscal year 1996
from approximately $734,000 in the comparable period of the prior fiscal year,
principally as a result of the development, product line expansion and clinical
testing costs in the U.S., Europe and South America for Corvita Endoluminal
Grafts.
Selling, general and administrative expenses for the three months ended March
31, 1996, were approximately $700,000 versus approximately $632,000 in the
corresponding period of fiscal 1995. Increases were primarily due to an
increase of approximately $137,000 in professional expenses principally relating
to negotiations for a strategic corporate alliance, partially offset by
decreases in marketing expenses.
Net interest expense was approximately ($2,000) in the third quarter of fiscal
1996 compared to net interest income of approximately $93,000 in the
corresponding period of the prior year. The difference was due to a decrease in
interest-bearing cash and short-term investment balances as a result of
development stage expenditures reducing the remaining balance of proceeds
received on November 1, 1994 from the Company's initial public offering of
Common Stock, along with an increase in interest expense related to additional
bank loans.
-14-
<PAGE> 15
CORVITA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Other expense (excluding interest) increased to approximately ($26,000) for the
three months ended March 31, 1996 from other income of approximately $303,000 in
the corresponding period of the prior year. The difference was principally due
to recognition during the prior fiscal year's third quarter of approximately
$283,000 from a European research grant.
Net loss increased to approximately ($2,163,000) for the three months ended
March 31, 1996 from approximately ($939,000) for the comparable period of the
prior year, principally as a result of decreased sales of technology and
intellectual property, increased development and clinical expenses related to
Corvita Endoluminal Grafts, increased professional expenses relating to
negotiations for a corporate strategic alliance, and decreased grant receipts.
The Company expects to incur additional losses in future quarters.
NINE MONTHS ENDED MARCH 31, 1996 COMPARED TO NINE MONTHS ENDED MARCH 31,
1995. Total revenues decreased, principally as a result of decreased sales of
technology and intellectual property, to approximately $698,000 for the nine
months ended March 31, 1996 (comprised of approximately $667,000 in product
sales, approximately $11,000 in royalties and approximately $20,000 in
consulting services and technology sales) from approximately $1,029,000 for the
comparable period of the prior year (comprised of approximately $597,000 in
product sales, approximately $250,000 from the sale of intellectual property and
approximately $182,000 in consulting services and technology sales).
Cost of sales and manufacturing overhead for the nine months ended March 31,
1996, increased to approximately $1,580,000 from approximately $1,446,000 in the
corresponding period of the previous year, principally as a result of producing
a broader product line and a moderate increase in headcount in preparation for
expanded future production activity. Gross loss was approximately ($882,000) in
the nine months ended March 31, 1996 compared to a gross loss of approximately
($417,000) for the comparable nine months of the prior year principally because
of reduced sales of technology and intellectual property coupled with a moderate
increase in cost of sales and manufacturing overhead as noted above.
Research and development expenses (including clinical studies and regulatory
expenses) increased to approximately $3,406,000 for the nine months of fiscal
year 1996 from approximately $2,041,000 in the comparable period of the prior
fiscal year, principally as a result of the development, product line expansion
and clinical studies costs in the U.S., Europe and South America for Corvita
Endoluminal Grafts.
-15-
<PAGE> 16
CORVITA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Company has accrued $2,000,000 of purchased research for the future
obligation to buy a Japanese clinical study and regulatory report on the Corvita
Peripheral Grafts when filed with the Japanese Ministry of Health and Welfare.
Such obligation, related to regaining certain marketing rights in Japan, was a
necessary pre-condition to the signing of a definitive merger agreement with
Pfizer.
Selling, general and administrative expenses for the nine months ended March 31,
1996 were approximately $2,258,000, versus approximately $1,678,000 in the
corresponding period of the prior fiscal year. Increases were primarily due to
an increase of approximately $352,000 in professional expenses principally
relating to negotiations involving a strategic corporate alliance, and $250,000
in marketing expenses for the repurchase of Japanese marketing rights for
certain Corvita products, including the Corvita Peripheral Graft and the Corvita
AV Access Graft, moderately offset by decreases in European marketing expenses.
Net interest income was approximately $47,000 in the first three quarters of
fiscal 1996 compared to approximately $86,000 in the corresponding period of the
prior year. The difference was principally due to a decrease in interest bearing
cash and short-term investment balances along with increases in interest expense
related to additional bank loans.
Other income (excluding interest) increased to approximately $170,000 for the
nine months ended March 31, 1996 from approximately $37,000 in the corresponding
period of the prior year. The difference was principally due to approximately
$20,000 from equity in net income (compared to ($52,000) from equity in net loss
in the corresponding period of the prior fiscal year) of the Canadian
affiliate, along with decreases in other expenses (approximately $200,000)
recognized in connection with an unsuccessful initial public offering during the
first nine months of prior year. Both of these were partially offset by
decreases of approximately $139,000 in European research grants. The Company
received approximately $150,000 in European research grants during the first
nine months of fiscal 1996 and approximately $289,000 during the comparable
period of the prior fiscal year.
Net loss increased to approximately ($8,329,000) for the nine months ended March
31, 1996 from approximately ($4,013,000) for the comparable period of the prior
year, principally as a result of decreased sales of technology and intellectual
property, the cost of clinical research and marketing rights purchased from
Akita Sumitomo Bakelite, Ltd. in Japan, increased development and clinical
expenses related to Corvita Endoluminal Grafts, and professional expenses
relating to discussions and negotiations for a strategic corporate alliance.
The Company expects to incur additional losses in future quarters.
-16-
<PAGE> 17
CORVITA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Liquidity and Capital Resources
The Company has financed its operations since inception principally through
private placements of Preferred Stock (converted into Common Stock upon the
Company's initial public offering), net proceeds from its November 1, 1994
initial public offering, product sales (predominantly sales of Corvita
Peripheral Grafts in Europe), sales of consulting services and technology,
license fees, grant receipts, interest on available cash balances and loans
(including loans from Pfizer).
Cash and short term investments equaled approximately $324,000 at March 31,
1996, compared to approximately $5,794,000 at June 30, 1995. The decrease in
cash and short term investments was a result of paying development stage
expenditures from proceeds of the Company's initial public offering consummated
on November 1, 1994. As previously disclosed, the proceeds of the Company's
initial public offering funded operations through April, 1996, while the Company
negotiated a strategic corporate alliance and considered other financing
alternatives.
Inventory totaled approximately $54,000 at March 31, 1996, compared to
approximately $105,000 at June 30, 1995. The Company has encountered
manufacturing interruptions and low yields while controlling the scale-up of
manufacturing infrastructure.
Accrued expenses were approximately $3,154,000 at March 31, 1996 compared to
approximately $734,000 at June 30, 1995. The increase in accrued expenses is
principally attributable to $2,000,000 projected not to be billable before June,
1996, by Akita Sumitomo Bakelite, Ltd. upon submission to the Japanese Ministry
of Health and Welfare of the clinical study report on the Corvita Peripheral
Graft.
For the nine months ended March 31, 1996, cash consumed by operating activities
increased to approximately ($4,832,000) from approximately ($4,449,000) for the
comparable nine months in the prior year, principally as a result of the
substantial increase in the Company's net operating loss, largely offset by the
increase in accounts payable and accrued expenses.
Investing activities for the nine months ended March 31, 1996 consisted of the
sale of short term investments to fund continued development stage expenses, and
expenditures of approximately $528,000 for equipment (principally for
manufacturing and manufacturing engineering) and the filing and issuance of new
patents. In the prior year, the Company purchased short-term investments with
proceeds from the Company's initial public offering, and expenditures for
equipment and patents totaled approximately $192,000.
-17-
<PAGE> 18
CORVITA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
At March 31, 1996, the Company had negative working capital of approximately
($3,302,000) and a stockholders deficit of approximately ($2,338,000). Both
became negative during the second quarter of fiscal 1996 as a result of
development stage losses including the $2,000,000 Akita Sumitomo Bakelite, Ltd.
accrual which will not be payable until at least the fourth quarter of fiscal
1996. Long term debt principally consisted of a non interest-bearing Belgian
development loan, payable as a percent of operating revenues. In April, 1996,
the Company exhausted the remaining portion of the proceeds from its 1994
initial public offering, and since that point it has been funding operations
via proceeds of a loan from its prospective merger partner Pfizer.
Pfizer agreed to make advances to the Company from time to time until the
earlier of (i) the termination of the Agreement and Plan of Merger, or (ii)
August 9, 1996, in an amount not to exceed $2,000,000. Funds will be advanced
in amounts not to exceed $150,000 once every five businessdays, after an initial
funding of $500,000. On April 11, 1996, the Company executed a promissory note
bearing interest on all outstanding amounts at a rate per annum equal to 8.25%.
Interest will be paid monthly in arrears on the last day of each month.
On April 11, 1996, the Company and Pfizer Inc. ("Pfizer") jointly announced that
they had signed an Agreement and Plan of Merger ("Merger Agreement") pursuant to
which HPG Acquisition Corp., a wholly-owned subsidiary of Pfizer, will acquire
all of the outstanding stock of Corvita at $10.25 per share, or approximately
$85 million. To implement the agreement, Pfizer's subsidiary commenced a cash
tender offer on April 17, 1996. Consummation of the merger is conditioned on,
among other things, the tender of at least a majority of the outstanding shares
of Corvita, on a fully diluted basis, in the tender offer. Shareholders owning
approximately 20% of the outstanding shares of Corvita have entered into binding
agreements to tender their shares. Assuming the successful completion of the
prospective merger, Corvita will operate as a business of the Pfizer Hospital
Products Group (HPG). On April 8, 1996, the Company filed a Schedule 14D-9,
Solicitation/Recommendation Statement Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934 which was mailed to each shareholder of record
as of April 4, 1996. Schedule 14-D9 states that the Board of Directors of the
Company has unanimously determined that the consideration to be paid for each
Share in the Offer and the Merger is fair to the shareholders of the Company and
that the Offer and the Merger are otherwise in the best interests of the Company
and its shareholders, has approved and adopted the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger, and
recommends that all holders of Shares accept the Offer and tender their Shares
pursuant to the Offer. Among the number of factors considered by the Board, as
set forth fully in Schedule 14D-9 were: Dillon Read & Co., Inc.'s ("Dillon
Read") analysis of the Pfizer Offer from a financial point of view, as that
analysis was presented to the Board, and the Board s expectation that Dillon
Read would supply an
-18-
<PAGE> 19
CORVITA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
opinion to the effect that as of the date of this opinion and based upon and
subject to certain matters dated therein, the $10.25 per share cash
consideration to be received by the holders of Shares pursuant to the Pfizer
Offer and the Merger Agreement is fair from a financial point of view to the
public shareholders of the Company (Dillon Read did deliver a final opinion to
that effect on April 11, 1996); the fact that on January 18, 1996, the Company
issued a press release that stated that the Company was in discussions regarding
a possible acquisition of the Company in the $10 per Share range, and the fact
that neither prior nor subsequent to such press release did any other party
indicate a willingness to pursue an acquisition of the Company for a cash price
in excess of the $10.25 per Share price offered by Pfizer; information with
regard to the financial condition, results of operations, competitive position,
business and prospects of the Company, as reflected in the Company's
projections; the historical market price of, and recent trading activity in the
Shares; and current economic and market conditions and the going concern value
of the Company. The Board of Directors was advised by counsel to the Company,
Epstein Becker and Green, P.C. as to its duties in considering the offer.
-19-
<PAGE> 20
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
On April 11, 1996, the Company and Pfizer Inc. ("Pfizer")
jointly announced that they had signed an Agreement
and Plan of Merger ("Merger Agreement") pursuant to which HPG
Acquisition Corp., a wholly-owned subsidiary of Pfizer, will
acquire all of the outstanding stock of Corvita at $10.25 per
share, or approximately $85 million. To implement the
agreement, Pfizer's subsidiary commenced a cash tender offer on
April 17, 1996. Consummation of the merger is conditioned on,
among other things, the tender of at least a majority of the
outstanding shares of Corvita, on a fully diluted basis, in the
tender offer. Shareholders owning approximately 20% of the
outstanding shares of Corvita have entered into binding
agreements to tender their shares. Assuming the successful
completion of the prospective merger, Corvita will operate as a
business of the Pfizer Hospital Products Group (HPG).
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.67 Second Lease Amendment, dated
January 22, 1996, with The Graham
Companies (amending the Lease,
dated February 12, 1990, with The
Graham Companies, as amended).
10.68 Letter Agreement, dated March 4,
1996, with Acuson Corporation.
10.69 License Agreement, dated April 9,
1996, with The Polymer Technology
Group.
10.70 Consent to Assignment of License
and Supply Agreement, dated April 9,
1996, with Vascor, Inc.
-20-
<PAGE> 21
10.71 Agreement and Plan of Merger among
Pfizer Inc., HPG Acquisition
Corporation and Corvita Corporation
dated as of April 11, 1996. (Included
by reference to the Schedule 14D-9
with exhibits filed on April 18, 1996.)
10.72 License Agreement dated April 11,
1996 entered between Corvita
Corporation and Pfizer Inc. (Included
by reference to the Schedule 14D-9
with exhibits filed on April 18, 1996.)
10.73 Stock Purchase Agreement, dated as
of April 11, 1996 among Corvita
Corporation, and George A. Adams,
David C. MacGregor, Gregory J.
Wilson and Jennie M. Wilson, as
trustees for the Gregory Wilson
Family Trust, and Jennie M. Wilson.
(Included by reference to the
Schedule 14D-9 with exhibits filed on
April 18, 1996.)
10.74 Stock Purchase Agreement between
Corvita Corporation and Research
Visions Canada, Inc., dated as of
April 11, 1996. (Included by reference
to the Schedule 14D-9 with exhibits
filed on April 18, 1996.)
10.75 Loan Agreement among Pfizer Inc.,
HPG Acquisition Corporation, and
Corvita Corporation, dated as of
April 11, 1996. (Included by reference
to the Schedule 14D-9 with exhibits
filed on April 18, 1996.)
10.76 Confidentiality and Standstill
Agreement, dated August 16, 1995,
between Dillon, Read & Co. Inc. on
behalf of Corvita Corporation and
Pfizer Inc. (Included by reference to
the Schedule 14D-9 with exhibits
filed on April 18, 1996.)
10.77 Letter to Shareholders of Corvita
Corporation, dated April 17, 1996.
(Included by reference to the
Schedule 14D-9 with exhibits
filed on April 18, 1996.)
10.78 Opinion of Dillon, Read & Co. Inc.,
dated April 11, 1996, and Consent By
Dillon Read to the inclusion of the
Opinion as an Exhibit, dated
April 16, 1996. (Included by
reference to the Schedule 14D-9 with
exhibits filed on April 18, 1996.)
10.79 Shareholders Agreement, dated as of
April 11, 1996, among Pfizer Inc.,
HPG Acquisition Corp. and certain
shareholders named therein, and
including Schedule 1 thereto.
(Included by reference to the
Schedule 14D-9 with exhibits filed on
April 18, 1996.)
27 Financial Data Schedule (for SEC use
only)
b. Reports on Form 8-K
None
-21-
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORVITA CORPORATION
Date: May 10, 1996 /s/ Norman R. Weldon
--------------------------------
Norman R. Weldon
President and Chief Executive
Officer
Date: May 10, 1996 /s/ Robert E. Boyett
--------------------------------
Robert E. Boyett
Treasurer (Principal Accounting
Officer)
-22-
<PAGE> 1
EXHIBIT 10.67
SECOND LEASE AMENDMENT
This Second Lease Amendment (the "Amendment"), is made and entered into
this 22nd day of Janaury, 1996, by and between THE GRAHAM COMPANIES, a Florida
corporation, as Lessor and CORVITA CORPORATION as Lessee.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, The Graham Companies as Lessor, and Symbiosis Corporation as
Lessee, entered into that certain Lease dated February 12, 1990, (the "Lease")
and as assigned to Corvita Corporation as evidenced by the Assignment and
Assumption of Lease dated December 15, 1992, and as amended by the First
Lease Amendment dated December 31, 1994, for the demise of the real property
more particularly described as Building 41 in the OAK SQUARE INDUSTRIAL CENTER
A/K/A 5801 MIAMI LAKES DRIVE, MIAMI LAKES, DADE COUNTY, FLORIDA 33014.
WHEREAS, Lessor and Lessee desire to modify certain of the terms and
provisions of the Lease as hereinafter set forth,
NOW, THEREFORE, for Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Lessor and Lessee agree as follows:
DEMISE, TERM. This paragraph shall be amended to include the
following:
The current lease term, February 1, 1995 through January 31, 1996 shall
be extended for one (1) year beginning FEBRUARY 1, 1996 AND ENDING JANUARY 31,
1997.
Paragraph 1.1. RENTAL shall be amended to include the following:
Lessee shall pay to Lessor an additional rental of SEVENTY THREE
THOUSAND FOUR HUNDRED TWENTY TWO AND 00/100 U.S. DOLLARS ($73,422.00) for the
term of this lease extension together with all other amounts payable by Lessee,
pursuant to the terms of this Lease, including the increase, if any under
Paragraph 3.24 hereof.
Said additional rental shall be paid as follows:
$6,118.50 rent plus Florida Sate Sales tax in effect at the time, which
is currently 6 1/2%, equalling 397.70, making a total payment of $6,515.20 in
advance on or before the first of each month beginning February 1, 1996, and
continuing during the term of this Lease extension subject to increase in
accordance with the provisions of Paragraph 3.24 of this Lease as amended
herein.
Paragraph 3.14 INDEMNITY is amended to include the following:
As it relates to the term beginning February 1, 1996 and ending January
31, 1997, and the option term, if exercised, beginning on February 1, 1997 and
ending January 31, 1998, there is no broker involvement.
Paragraph 3.26 OPTION TO RENEW is amended to include the following:
Lessor hereby grants to Lessee the exclusive right and option to renew
this Lease for an additional term of one (1) year beginning February 1, 1997
and ending January 31, 1998. The renewal term will be upon the same annual
rental (including the increase, if any, in accordance with paragraph 3.24),
terms and conditions as the original term. LESSEE shall not be entitled to
exercise this option if at the time of exercise Lessee is in
<PAGE> 2
default under this Lease. Lessee shall give Lessor written
notice of Lessee's intention to exercise the option at least ninety
(90) days before the beginning of the option term, otherwise, the term
shall be automatically renewed. There is no further option or right to
renew this Lease beyond the term ending January 31, 1998. In the
event that the original term shall be terminated under the provisions
of this Lease or by operation of law, then the option to renew also
shall be terminated.
Except as modified and amended herein, all provisions of the
Lease shall remain in full force and effect.
EXECUTED as of the date first above written in several
counterparts, any one of which shall be deemed an original, but all
constituting only one instrument.
LESSOR
THE GRAHAM COMPANIES, A Florida
corporation
BY: /s/ Carol Willie
---------------------------
(Lessor Corporate Seal) Executive Vice-President
Attest: /s/ Tracy Gordon
-----------------------
Asst. Secretary
LESSEE
CORVITA CORPORATION, a Florida
corporation
Witness as to Lessee: BY: /s/ Norman R. Weldon
---------------------------
/s/ Robert E. Boyett
--------------------- Attest /s/ Linda Craig
/s/ Matthew Miller ------------------------
--------------------- Title: Assistant to President
January 22, 1996
<PAGE> 1
EXHIBIT 10.68
March 4, 1996
Norman R. Weldon, Ph.D.
President & Chief Executive Officer
Corvita Corporation
8210 N.W. 27th Street
Miami, Florida 33122
Re: Memorandum of Agreement dated as of June 1, 1991 between
Acuson Corporation and Corvita Corporation
Dear Dr. Weldon:
This letter is supplied to you in connection with a proposed acquisition of
Corvita Corporation ("Corvita") by a third party (the "Acquisition"). Acuson
Corporation ("Acuson") understands that providing this letter is a condition to
the consummation of the Acquisition.
With this understanding, and subject to the condition that the Acquisition is in
fact consummated, Acuson agrees that, except as set forth in this letter, the
Memorandum of Agreement dated as of June 1, 1991 between Acuson and Corvita (the
"MOA") is terminated.
This letter will confirm that all technology and intellectual property agreed to
be transferred to Acuson by Corvita pursuant to the MOA consisted of
manufacturing know-how and research and testing data related to Acuson
ultrasound probes and the manufacture of Guidetubes for such probes, and all
such technology and intellectual property has been transferred and delivered to
Acuson or its designee. Acuson is not looking to Corvita for any further
manufacturing services, product development services, products, technology or
intellectual property under Section 7(d) or any other provision of the MOA,
except as set forth in the following paragraph.
Acuson understands that the third party proposing to acquire Corvita in the
Acquisition does not intend to continue to supply Corvita's proprietary
polycarbonate urethane to third parties. However, Acuson is considering using a
polycarbonate urethane in its Guidetubes and in this connection, may require
Leonard Pinchuk's assistance in finding an alternative source for polycarbonate
urethanes and in understanding how to manufacture Guidetubes using such material
("Services"). Mr. Pinchuk agrees to provide to Acuson free of charge up to ten
hours of Services upon Acuson's request. If Acuson requires more than ten hours
of Services, Mr. Pinchuk agrees to provide up to 50 hours of such Services on
reasonable terms, including a reasonable consulting fee, to be agreed. If
Acuson requires Mr. Pinchuk to travel in connection with providing Services,
Acuson shall reimburse Mr. Pinchuk for his reasonable, documented expenses
incurred in connection with such travel.
You have asked us to confirm your understanding that Corvita's proprietary
polycarbonate urethane, Corethane(R), is not currently used in making components
of any Acuson product, and we confirm that this understanding is correct.
<PAGE> 2
Norman R. Weldon, Ph.D.
March 4, 1996
Page 2
Paragraph 5 of the MOA is amended as follows, and so amended shall survive
termination of the MOA:
Corvita recognizes that Product Intellectual Property will be
an extremely valuable asset of Acuson. In order to assure
protection of Product Intellectual Property, for a period of 7
years following termination of this Agreement, if Acuson pays
Corvita any amounts pursuant to Paragraph 3, then (a) for as
long as each of them is employed by Corvita, Corvita will not
permit Norman R. Weldon, Leonard Pinchuk or John Martin to work
on, consult for, or assist in any way with projects in the medical
diagnostic ultrasound field, and (b) Corvita will not transfer,
license, sell or otherwise disclose its proprietary polycarbonate
urethane or any rights thereto to unaffiliated persons or companies
for use in the medical diagnostic ultrasound field; provided,
however, that Corvita may license one or more unaffiliated third
parties to manufacture, use and sell Corvita's proprietary
polycarbonate urethane, subject to the condition that such
unaffiliated third parties may not transfer, license, sell or
otherwise disclose Corvita's proprietary polycarbonate urethane
or rights thereto for sale or use in the medical diagnostic
ultrasound field by anyone other than Acuson.
Paragraphs 3 and 6 of the MOA survives termination of the MOA.
Paragraph 1(d) of the MOA shall be amended as follows and, as so amended, shall
survive termination of the MOA:
It is hoped by both parties that any Guidetubes created by Corvita
and Acuson will use existing FDA-approved polyurethanes. If
requested by Acuson, however, Corvita will (i) provide Corvita's
proprietary polycarbonate urethane for use in production Guidetubes
at a cost not to exceed $20 per Guidetube, and (ii) permit Acuson
to reference Corvita's Device Master File in FDA submissions for
Acuson Guidetubes. Corvita may provide its proprietary
polycarbonate urethane under arrangements with a duly licensed
third-party manufacturer.
If neither Corvita, nor the third party proposing to acquire Corvita, nor any of
Corvita's affiliated persons or companies, nor any licensed unaffiliated
third-party manufacturer supplies Corvita's proprietary polycarbonate urethane
to other third parties, then Paragraph 1(d) of the MOA shall not survive.
Paragraph 2 also survives termination, except that Paragraph 2(c) shall be
modified to read as follows:
All right, title and interest to all Product Intellectual Property
has invested exclusively with Acuson and such Product Intellectual
Property has been assigned to Acuson. Corvita agrees to cooperate
with Acuson or its designee(s) (at Acuson's expense), both during
and after the term of the Agreement, in the procurement and
maintenance of Acuson's rights in the Product Intellectual Property,
and to execute and deliver all documents, agreements and instruments
that Acuson may consider necessary and desirable from time to time
in order to vest in or disclose or make available to Acuson or its
designee(s) such right, title
<PAGE> 3
Norman R. Weldon, Ph.D.
March 4, 1996
Page 3
and interest anywhere in the world. Corvita agrees not to assert
any patent, trade secret or other intellectual property right
against Acuson as a result of Acuson's making, having made, using
or selling probes or other medical diagnostic ultrasound devices
containing Corvita's proprietary polycarbonate urethane or using
the Product Intellectual Property or using any manufacturing
know-how or research or testing data related to Acuson ultrasound
probes and the manufacture of Guidetubes for such probes that was
transferred to Acuson by Corvita pursuant to the MOA.
If the Acquisition is not consummated, this letter shall be of no further force
and effect.
Paragraph 8 of the MOA shall apply to this letter agreement, except that (a)
Corvita may assign this letter agreement to the third party acquiring Corvita or
its assets pursuant to the Acquisition, and (b) Corvita may assign any of its
obligations arising under Paragraph 1(d) of the MOA, as it may be amended by
this letter agreement, to one or more licensed third-party manufacturers. In
the event that the MOA is assigned pursuant to the Acquisition, the term
"Corvita", as defined in the MOA, as amended hereby, shall be deemed to refer to
Corvita and to the third party so acquiring Corvita.
Sincerely,
ACUSON CORPORATION
By:
-----------------------------
Jay Plugge
Director, Transducer Division
By:
--------------------------------
Charles H. Dearborn
Vice President, General Counsel & Secretary
AGREED AND ACCEPTED:
CORVITA CORPORATION
By: /s/ Norman R. Weldon
-----------------------------
Norman R. Weldon
President & Chief Executive
Officer
And personally as to the 4th
paragraph of this letter only:
/s/ Leonard Pinchuk
------------------------------
Leonard Pinchuk
<PAGE> 1
LICENSE AGREEMENT
This Agreement, dated April 9, 1996, is entered into by and
between CORVITA CORPORATION, a corporation organized under the laws of Florida
and having its principal place of business at 8210 N.W. 27th Street, Miami,
Florida 33122 ("Licensor") and THE POLYMER TECHNOLOGY GROUP, a corporation
organized under the laws of California and having its principal place of
business at 4561-A Horton, Emeryville, California 94608 ("Licensee").
WHEREAS:
Licensor is the owner of certain United States patents, and
foreign counterparts and applications for foreign counterparts of such patents,
covering a certain polycarbonate urethane material manufactured and sold by
Licensor under the registered trademark "Corethane" and Licensor is willing to
grant a non-exclusive license in the Licensed Patents to Licensee;
Licensee manufactures and sells urethane materials and
therefore desires a license under the Licensed Patents, subject to the terms
and conditions set forth in this Agreement, to manufacture and sell Licensor's
polycarbonate urethane material;
Licensor previously has entered into certain supply agreements
(the "Supply Agreements") whereby Licensor has agreed to supply its
polycarbonate urethane materials to customers (the "Supply Agreement
Customers") who use the material in the development, manufacture and sale of
medical devices, including implantable medical devices;
Licensor previously has supplied its polycarbonate urethane
material to a number of other customers (the "Casual Customers") who use the
material in the development, manufacture and sale of medical devices, including
implantable medical devices; and
Licensee is willing to undertake, assume and satisfy
Licensor's obligations to supply the polycarbonate urethane material to the
Supply Agreement Customers, if so requested by the Supply Agreement Customers
and by Licensor, and Licensee also desires to manufacture the polycarbonate
urethane material for sale to the Casual Customers.
NOW, THEREFORE, the parties agree as follows:
<PAGE> 2
ARTICLE I
DEFINITIONS
1.1 Affiliate. The term "Affiliate" shall mean, with
respect to any person or entity, any other person or entity that directly or
indirectly controls, is under common control with or is controlled by that
person or entity. For purposes of this definition, "control" (including, with
correlative meaning, the terms "controlled by" and "under common control
with"), as used with respect to any person or entity, shall mean the
possession, directly or indirectly, of the power to direct or to cause the
direction of the management and policies of such person or entity, whether
through the ownership of voting securities, by contract or otherwise.
1.2 Claim. The term "Claim" shall mean a patent claim
which has not expired and which has not been disclaimed, canceled or finally
held invalid or unenforceable by a court or administrative body of competent
jurisdiction from which no further appeal is possible or has been taken within
the time period provided under applicable law for such appeal.
1.3 Coated Stent. The term "Coated Stent" shall mean a
combination of a stent with a biocompatible material whereby some or all of the
structural elements of the stent are coated with or bound to the biocompatible
material, which is used in any tubular biological structure including, but not
limited to, an artery, a vein, the esophagus, bile ducts, or ureters.
1.4 Covered Stent. The term "Covered Stent" shall mean a
combination of a stent with a biocompatible material whereby some or all of the
structural elements of the stent are covered with the biocompatible material,
which is used in any tubular biological structure including, but not limited
to, an artery, a vein, the esophagus, bile ducts, or ureters. The term
"Covered Stent" includes, but is not limited to, Endovascular Grafts.
1.5 Effective Date. The "Effective Date" of this
Agreement shall be April 12, 1996, provided that this agreement shall be null
and void and of no further force and effect, ab initio, if a tender offer for
the stock of Licensor is not commenced by April 19, 1996, or if a tender offer
has been so commenced, but is terminated, for any reason, prior to the
acquisition by the offeror of at least 51 percent (on a fully diluted basis) of
the common stock of Licensor.
1.6 Endovascular Graft. The term "Endovascular Graft"
shall mean a Covered Stent including as a component thereof a Vascular Graft or
the blood-contacting component of a Vascular Graft, used in an artery or a
vein.
1.7 Licensed Device. The term "Licensed Device" shall
mean a device other than a Vascular Graft, Patch, Stent, Coated Stent, Covered
Stent, or any medical diagnostic ultrasound device containing one or more parts
composed of, in whole or in part, a Licensed Material; provided, however, that
the term "Licensed Device" shall include any medical diagnostic ultrasound
device manufactured by Acuson Corporation.
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1.8 Licensed Know-How. The term "Licensed Know-How"
shall mean manufacturing know-how related to the manufacture of any Licensed
Material, which manufacturing know-how is known to and practiced commercially
by the Licensor on or around the Effective Date of this Agreement, as licensed
hereunder for any end-use products other than Vascular Grafts, Patches, Stents,
Coated Stents, Covered Stents, or medical ultrasound devices manufactured by
any person other than Acuson Corporation.
1.9 Licensed Material. The term "Licensed Material"
shall mean a polycarbonate urethane material that is covered by, whose method
of making or use is covered by, or that is a component of an article of
manufacture covered by at least one Claim of a Licensed Patent and that is
manufactured, used or sold for any end-use in products other than Vascular
Grafts, Patches, Stents, Coated Stents, Covered Stents, or any medical
diagnostic ultrasound product; provided, however, that the term "Licensed
Material" shall include a polycarbonate urethane material that is covered by,
whose method of making or use is covered by, or that is a component of an
article of manufacture covered by at least one Claim of a Licensed Patent and
that is manufactured, used or sold for end-use in a medical diagnostic
ultrasound product of Acuson Corporation.
1.10 Licensed Patent. The term "Licensed Patent" shall
mean and include any of the patents and patent applications listed on Exhibit A
attached hereto, as licensed hereunder for any end-use in products other than
Vascular Grafts, Patches, Stents, Coated Stents, Covered Stents, or medical
diagnostic ultrasound devices manufactured by any person other than Acuson
Corporation; provided, however, that the term shall not include any
improvements to any Licensed Patent or to any Licensed Material invented by the
Licensor or by any of its Affiliates after the Effective Date.
1.11 Licensed Use. The term "Licensed Use" shall mean any
use by a User of a Licensed Material for the development, improvement,
manufacture, sale, or use of Licensed Devices.
1.12 Patch. The term "Patch" shall mean a non-tubular
material used for surgical repair, reinforcement or replacement of a damaged,
deteriorated, or diseased tubular biological structure including, but not
limited to, an artery, a vein, the esophagus, bile ducts, or ureters.
1.13 Stent. The term "Stent" shall mean a tubular
structure, typically constructed of metal or of a biocompatible or
bioresorbable polymer, used to reinforce and hold open, or to define the
circumference of, either a vascular graft, an artery, a vein, or any other
tubular biological structure including, but not limited to, the esophagus, bile
ducts, or ureters.
1.14 Supply Agreements. The term "Supply Agreements"
shall mean and include any of the agreements listed on Exhibit B attached
hereto.
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1.15 Territory. The term "Territory" shall mean a
territory consisting of all of the countries of the world.
1.16 User. The term "User" shall mean any person or
entity that uses Licensed Material in the manufacture, sale and use of Licensed
Devices, including without limitation Licensor's Supply Agreement Customers and
Casual Customers.
1.17 Vascular Graft. The term "Vascular Graft" shall mean
a tubular conduit for blood used to repair, replace or bypass a damaged,
deteriorated, or diseased artery or vein including, but not limited to, repair,
replacement, or bypassing of peripheral or coronary arteries or veins. This
term includes AV access vascular grafts, i.e., grafts used to shunt blood from
an artery to a vein. Vascular Grafts may be synthetic, biosynthetic or
biological.
ARTICLE II
Grant
2.1 Worldwide License.
(a) Licensed Material. The Licensor hereby
grants to Licensee the non-exclusive right and license under the Licensed
Patents and the Licensed Know-How to make, use, sell and otherwise dispose of
Licensed Material during the term hereof throughout the Territory, subject to
all of the terms and conditions of this Agreement. The foregoing grant
excludes the right to sublicense, with the following exceptions:
(i) The Licensee shall have the right to
sublicense any of its rights under the foregoing grant to any one or more of
its Affiliates, on such terms and conditions as the Licensee in its sole
discretion deems appropriate, to the full extent, and subject to all of the
limitations and conditions of the grant to Licensee hereunder. Each such
sublicense to a Licensee Affiliate shall be treated as if the applicable
Licensee Affiliate separately entered into this Agreement with the Licensor,
but any such separate agreement shall not be construed to diminish in any
respect Licensee's rights or obligations hereunder.
(ii) The Licensee, and any Licensee
Affiliate sublicensed in accordance with paragraph 2.1(a)(i) hereof, shall have
the right to license, sell or otherwise dispose of Licensed Material to Users
for any Licensed Use and to other persons or entities indirectly through the
sale, lease or other disposition by Users of Licensed Devices. Such
sublicenses for Licensed Use shall not include any right to further sublicense
for any purpose whatsoever.
(iii) In the event that the Licensor
grants to any third party, other than an Affiliate of the Licensor, a successor
to any substantial part of the business of the Licensor, or a successor to any
substantial part of the business of such an Affiliate, a license under the
Licensed Patents and the Licensed Know-How to make and sell (or to make, use,
and
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sell) the Licensed Material on terms and conditions that include rights to
sublicense that are greater, broader, or in addition to the sublicense rights
granted in paragraphs 2.1(a)(i) and 2.1(a)(ii) hereof, the Licensor will grant
to the Licensee sublicense rights that are at least as extensive as those
granted to such third party on terms and conditions (x) that are at least as
favorable to the Licensee as those applicable to such third party and (y) that
shall not include any royalty or other requirement of payment except to the
extent that a royalty or other payment is separately stated with respect to the
sublicense rights granted to such third party.
(b) Labelling. The Licensee or its applicable
Licensed Affiliate, at its own expense, shall affix to the packaging of
Licensed Material which is sold or otherwise disposed of after the Effective
Date by Licensee or by any Licensed Affiliate any such label respecting the
Licensed Patents as is reasonably requested by the Licensor.
(c) Licensed Mark. No right or license is
granted hereunder with respect to the registered trademark "Corethane."
Notwithstanding the foregoing, the Licensor hereby agrees that in the event
that the Licensor grants to any third party, other than an Affiliate of the
Licensor, a successor to any substantial part of the business of the Licensor,
or a successor to any substantial part of the business of such an Affiliate, a
license to use such registered trademark in connection with marketing and sale
of the Licensed Material, the Licensor will grant to the Licensee a license
containing rights that are at least as extensive as those granted to such third
party on terms and conditions (i) that are at least as favorable to the
Licensee as those applicable to such third party and (ii) that shall not
include any royalty or other requirement of payment except to the extent that a
royalty or other payment is separately stated with respect to the trademark
rights granted to such third party.
2.2 Improvements.
(a) Licensor's Improvements. All right, title
and interest in and to any improvements of the Licensed Patents or of the
Licensed Material invented by the Licensor or by any of its Affiliates after
the Effective Date shall remain the exclusive property of the Licensor and the
Licensee shall not be entitled to receive any license or other interest in such
improvements.
(b) Licensee's Improvements. All right, title
and interest in and to any improvements of the Licensed Material invented by
the Licensee or by any of its Affiliates after the Effective Date shall remain
the exclusive property of the Licensee and the Licensor shall not be entitled
to receive any license or other interest in such improvements.
2.3 Efforts. Licensee's only obligation under this
Agreement with respect to the promotion and marketing of Licensed Material is
to use such reasonable efforts as Licensee in the exercise of its sole
discretion deems appropriate.
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ARTICLE III
Payment
3.1 Initial Payment. No initial or other payment shall
be payable by the Licensee for the licenses granted hereunder, it being
acknowledged that the making and performance by the Licensee of its covenants
herein is full and sufficient consideration for the licenses granted herein.
3.2 Royalty. No royalty shall be payable by the Licensee
with respect to Licensed Material made, sold or otherwise disposed of after the
Effective Date of this Agreement.
ARTICLE IV
Representations and Warranties
4.1 Licensor's Representations. The Licensor represents
and warrants to the Licensee as of the Effective Date that (a) the Licensor is
the sole owner of the Licensed Patents, subject to certain non-exclusive
licenses that may arise under the Supply Agreements, (b) the Licensor has the
right to grant to the Licensee the rights and licenses granted hereunder, (c)
no approvals or consents of any governmental entity are necessary with respect
to the execution and performance by the Licensor of this Agreement, (d) to the
best of the Licensor's knowledge, the manufacture, use and sale of the Licensed
Material as practiced commercially by the Licensor on or around the Effective
Date of this Agreement and its use in the manufacture of Licensed Devices will
not infringe the patents of third parties and no claim of any such infringement
has been made by any third party, and (e) the Licensor has provided the
Licensee with a complete copy of each of the Supply Agreements, together with
any amendments or modifications thereof.
4.2 Mutual Representations. The Licensor and the
Licensee each represent and warrant to the other as of the Effective Date that
it has the full power and authority to enter into this Agreement and carry out
the transactions and activities contemplated hereby.
4.3 Licensee's Representations. The Licensee represents
and warrants that (a) as of the Effective Date there have been no material
adverse changes to its financial condition as shown in its financial statements
as at December 31, 1995, such financial statements are its most recent
financial statements and are the financial statements regularly prepared by the
Licensee for reporting to its shareholders, lenders, and others with whom the
Licensee conducts financial or commercial dealings, and such financial
statements fairly present the financial condition of the Licensee at December
31, 1995, (b) the Licensee has full power and authority to enter into and
perform its obligations under this Agreement, and (c) no approvals or consents
of any person, firm or governmental entity are necessary with respect to the
execution and performance by the Licensee of this Agreement.
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ARTICLE V
Records and Inspections
5.1 Records. The Licensee shall keep and maintain
records showing with respect to each User the quantity of Licensed Material
sold, leased or otherwise disposed of by Licensee or any Licensee Affiliate,
and all information reasonably necessary to determine the particular Licensed
Use and Licensed Device for which such User has indicated it purchased Licensed
Material. The Licensee shall have no duty to monitor any User's use of
Licensed Material except to make reasonable inquiry and except that Licensee
shall not knowingly supply Licensed Material for other than a Licensed Use.
5.2 Inspection.
(a) Selection of Inspector. The Licensor shall,
at its own expense, have the right at any time to designate an inspector, who
is reasonably approved by the Licensee without unreasonable delay, to conduct
an inspection in accordance with this Section 5.2 The Licensor shall provide
the Licensee with reasonable advance notice of an inspection and such
inspection shall be conducted only during the Licensee's regular business
hours.
(b) Inspection of Records. The inspector shall
have the right, exercisable by the Licensor no more frequently than once in
every fiscal year of the Licensee during the term hereof, to inspect on behalf
of the Licensor all records of the Licensee and its Affiliates maintained in
accordance with Section 5.1 hereof for the eight most recent calendar quarters
prior to the date of the inspection and to make copies of such records as the
inspector deems appropriate.
(c) Cooperation. The Licensee hereby agrees to
cooperate with any inspection conducted by the inspector in accordance with
this Article V and to comply with all reasonable requests of the inspector.
(d) Confidentiality. Prior to the commencement
of any inspection hereunder, the Licensee may require the Licensor to provide
it with a written agreement, consistent with the provisions of Articles V and
VI hereof and signed by the inspector, under which the inspector agrees to hold
in confidence and not to disclose to the Licensor or to any of the directors,
officers, employees or agents of the Licensor or of any of its Affiliates, or
to any other person or entity, and not to use except for the purpose of the
inspection, any confidential information provided to or acquired by the
inspector in connection with any such inspection, except that the inspector may
prepare a report of the results of the inspections which shall report to the
Licensor only as to the identities of the Users, the quantities of Licensed
Material sold or otherwise disposed of to such Users, the Licensed Uses of such
Users, and the Licensed Devices for which such Users purchased the Licensed
Material.
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ARTICLE VI
Confidential Information
6.1 Non-Disclosure of Confidential Information. Neither
the Licensor nor the Licensee shall disclose to any third party or use except
in furtherance of this Agreement any confidential information disclosed by the
other party or its Affiliates in connection with the Agreement, except that
either party may disclose such confidential information to the extent necessary
to comply with an order of a court or a government agency provided that the
disclosing party shall use its reasonable best efforts to notify the other
party of the disclosing party's intention to make the disclosure, and shall
provide the other party with a copy of the court or government agency's order,
identify precisely the confidential information the disclosing party intends to
disclose, and cooperate with the other party in devising reasonable measures to
protect the confidentiality of such information including, but not limited to,
obtaining a protective order from the court or government agency that issued
the order to disclose. For purposes of this Agreement, confidential
information shall include at least any customer list, any Supply Agreements,
and any non- patented technology, data, know-how or technical information
provided to the Licensee by the Licensor in connection with this Agreement and
performance of the transactions and activities contemplated hereby.
6.2 Return of Confidential Information. Upon the
termination of this Agreement for any reason prior to the expiration of its
term, the Licensee shall return to the Licensor all confidential information
including, without limitation, any customer list, any Supply Agreements, and
any non-patented technology, data, know-how or technical information provided
to the Licensee by the Licensor.
6.3 Non-Confidential Information. Neither any party nor
the inspector shall be under any obligation with respect to information of the
other party or, in the case of the inspector, information of the Licensee,
which the party receiving the information or the inspector can demonstrate,
preferably by reference to documents:
(a) through no act or failure on the part of the
party receiving the information or the inspector, becomes known or available to
the public;
(b) is known by the party receiving the
information or by the inspector prior to its receiving such information from
the other party; or
(c) is furnished to the party receiving the
information or to the inspector by any person not legally precluded from making
disclosure of the information without restriction.
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ARTICLE VII
Covenants
7.1 No Sublicenses. Except as set forth in paragraphs
2.1(a)(i) and (ii) of this Agreement, or as permitted pursuant to the
provisions of paragraph 2.1(a)(iii), the Licensee will not sublicense any of
its rights hereunder to any person or entity.
7.2 Supply Agreements.
(a) Supply.
(i) The Licensee hereby agrees that it will
perform or cause to be performed by a duly sublicensed Affiliate all of the
Licensor's obligations under the Supply Agreements (other than pursuant to
Section 7 of the License and Supply Agreement, dated November 30, 1993, between
Vascor, Inc. and Licensor (the "Vascor Agreement")) that arise or are to be
performed on or after the Effective Date as if such Supply Agreements had been
separately entered into with the Licensee. Without limiting the generality of
the foregoing sentence, the Licensee or its duly sublicensed Affiliate will
supply Licensed Material to the Licensor's Supply Agreement Customers, upon the
request of any such Supply Agreement Customer, and will supply the Licensed
Material to a requesting Supply Agreement Customer at prices and on terms no
less favorable to such Supply Agreement Customer than the terms of the
applicable Supply Agreement. Subject to the requirements of Section 7.2(e)
below, the Licensee also agrees that it or its duly sublicensed Affiliate will
supply the Licensor's Casual Customers in a manner and on terms generally
consistent with the Licensor's past practices, which are set forth on Exhibit C
hereto.
(ii) The Licensor hereby agrees that for so
long as the Licensee performs its obligations under this Agreement, including
without limitation the Licensee's obligations under paragraph 7.2(a)(i) hereof,
the Licensor will not cause any other person to perform, and will not compete
with the Licensee for the right to perform, the Licensor's obligations under
the Supply Agreements or any of them.
(b) Assignment and Assumption of Supply
Agreements.
(i) The Licensee hereby agrees that,
upon the Licensor's receipt of consent from a Supply Agreement Customer to the
assignment of the Supply Agreement applicable to such Supply Agreement
Customer, the Licensee will accept the assignment of, and assume and perform or
cause to be performed by a duly sublicensed Affiliate, all of the Licensor's
obligations arising under such applicable Supply Agreement (other than pursuant
to Section 7 of the Vascor Agreement) on or after the date of such assignment
as if such Supply Agreement had been separately entered into with the Licensee.
(ii) The Licensor hereby agrees that it
will assign to the Licensee each and every Supply Agreement as to which the
Licensor receives appropriate
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consent to such assignment from the relevant Supply Agreement Customer; and the
Licensor further agrees that for so long as the Licensee performs its
obligations under this Agreement, including without limitation the Licensee's
obligations under paragraph 7.2(b)(i) hereof to accept assignment of, and
assume and perform, any such Supply Agreement, the Licensor will not assign to
any other person, and will not seek consent to assign to any other person, any
such Supply Agreement. Nothing herein shall be construed to require the
Licensor to seek from any Supply Agreement Customer consent to the assignment
of any Supply Agreement, or to prevent or restrict the Licensor from
terminating any Supply Agreement in accordance with its terms prior to its
assignment to the Licensee.
(c) Performance by Individuals. Notwithstanding
anything to the contrary herein, the parties hereby acknowledge that the
Licensee is without legal power or authority respecting the actions, duties, or
services of the Licensor's current or former employees generally or the
actions, duties, or services of any particular such employee or former
employee; and, accordingly, the Licensee's obligation to perform or to accept
assignment of, and assume and perform, all of the Licensor's obligations under
the Supply Agreements shall not be construed to require the Licensee to deliver
or guarantee performance by any individuals other than performance, during and
after their term of employment by the Licensee, by individuals who are at the
Effective Date or who become in the future employed by the Licensee or by an
Affiliate of the Licensee.
(d) Preparedness. The Licensee hereby agrees
that it or its Affiliate will be ready, willing and able to supply Licensed
Material to the Supply Agreement Customers, or to assume and perform the
Licensor's obligations under the terms of any of the Supply Agreements no later
than May 15, 1996.
(e) Casual Customer Agreements. Notwithstanding
the foregoing, neither the Licensee nor any of its Affiliates shall be required
to sell or supply Licensed Material to a Casual Customer or other customer or
User (except a Supply Agreement Customer) unless such Casual Customer, customer
or User agrees to exoneration, limitation of liability, limitation of remedy,
insurance, indemnity and quantity provisions substantially similar to those
contained in Exhibit D attached hereto. Nothing in this Section 7.2(e) shall
be construed to limit Licensee's obligation to supply Licensed Material to
Supply Agreement Customers.
7.3 Services. The Licensor hereby agrees to make
available to Licensee, at the Licensee's request upon reasonable advance
notice, the services of Leonard Pinchuk for up to five full working days (which
may be consecutive or non-consecutive) during the first three months following
the Effective Date of this Agreement for the purpose of assisting the
Licensee's preparations for and commencement of manufacturing Licensed
Material. Additional days of Mr. Pinchuk's services shall be available in the
sole discretion of the Licensor, with Mr. Pinkchuk's consent. Mr. Pinchuk's
services will be available only in increments of a full working day and only on
normal business days (excluding any federal holiday and any day that is a
general holiday for employees of either the Licensee or the Licensor). If the
Licensee requests Mr. Pinchuk's services under this Section 7.3, it shall pay
to Licensor, in addition to
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any other moneys that may be due the Licensor under the terms of this
Agreement, an amount equal to $2,000 for each day on which Mr. Pinchuk provides
services to the Licensee plus the amount of Mr. Pinchuk's reasonable,
documented expenses for travel, lodging, and meals incurred in connection with
providing such services to the Licensee; provided, however, that the first five
days shall be without cost to Licensee except that Licensee shall pay the
amount of Mr. Pinchuk's reasonable, documented expenses for travel, lodging,
and meals incurred in connection with providing such services to the Licensee.
7.4 Regulatory Submissions.
(a) Submissions for Licensed Devices. If
requested by any Supply Agreement Customer or by any User licensed for a
Licensed Use pursuant to paragraph 2.1(a)(ii) hereof, the Licensor will permit
such Supply Agreement Customer or User, as the case may be, to reference the
Licensor's Device Master File in Food and Drug Administration ("FDA")
submissions for Licensed Devices. Such Supply Agreement Customers and Users
shall not be supplied with access to the Licensor's Device Master File.
(b) Licensor Data. The Licensor's Device Master
File shall remain the property of the Licensor and shall remain confidential,
proprietary information of the Licensor. The Licensee shall be allowed access
to data contained or referenced in the Licensor's Device Master File as of the
Effective Date for the purpose of establishing the Licensee's FDA Master File.
(c) Licensee Data. The Licensee's FDA Master
File shall remain the property of the Licensee and shall remain confidential,
proprietary information of the Licensee. However, upon the request of any
Supply Agreement Customer, any User, or of the Licensor, the Licensee will
permit such Supply Agreement Customer, User, or Licensor to reference all data
that may be generated by or for the Licensee and contained in the Licensee's
FDA Master File demonstrating the safety of the Licensed Material.
ARTICLE VIII
Patent Infringement
8.1 Patent Infringement. In the event of infringement of
any of the Licensed Patents which occurs in the field of the license granted to
the Licensee under this Agreement, the Licensee shall provide notice to the
Licensor within thirty days after the Licensee becomes aware of such
infringement or of facts suggesting that infringement is occurring. The
Licensor shall have the sole right, which it may or may not exercise in its
sole discretion, to institute litigation or take any other action in connection
with a suspected infringement of the Licensed Patents or otherwise with respect
to the Licensed Material. The Licensee shall cooperate with all reasonable
requests for assistance with such litigation or other action. The Licensee may
not take any legal or other action with respect to any suspected infringement
except with the express written consent of the Licensor. Nothing in this
Article VIII shall be construed as preventing
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or restricting the Licensor from taking any action that it deems, in its sole
discretion, to be necessary or appropriate to defend, assert, or protect the
Licensed Patents against the actions of any infringer.
8.2 Indemnity for Claims of Infringement. The Licensor
shall indemnify, defend and hold harmless the Licensee, its Affiliates, its
successors and assigns, and their directors, officers, employees, agents and
representatives from and against any loss, damage, cost or expense of any kind
or nature (including reasonable attorneys' and other professionals' fees and
expenses) incurred as a result of or in responding to any demand, claim,
action, proceeding or suit that is brought or threatened to be brought against
any of them by any third party and that asserts a claim of patent infringement
arising from such third party's assertion of the ownership or co-ownership of
rights in or to or related to the Licensed Material; provided, however, that
the Licensor shall have no obligation to indemnify any person or entity with
respect to any demand, claim, action, proceeding or suit that is brought or
threatened to be brought by any third party and that asserts a claim of patent
infringement to the extent the claim results from any modification of the
Licensed Material from the commercial practice of the Licensor on or around the
Effective Date of this Agreemnent; and provided, further, that notwithstanding
anything to the contrary contained herein, the limit of the Licensor's
aggregate liability with respect to all indemnification obligations under this
Section 8.2 shall be an amount equal to $5,000,000.
ARTICLE IX
Assignments and Transfers
9.1 Transfers Generally. Except as provided in this
Article IX, the Licensee shall not be permitted to assign or transfer any of
its rights, obligations or duties under this Agreement without the express
written consent of the Licensor. The Licensor shall be permitted to assign or
transfer any or all of its rights, obligations or duties under this Agreement,
without any requirement of consent, provided that the net worth of such
assignee or transferee is at least as great and its financial condition is at
least as sound as the net worth and financial condition of Licensor as of the
date hereof.
9.2 Exceptions. Notwithstanding anything to the contrary
contained herein, the Licensee may assign its rights and obligations under this
Agreement to any one or more of its Affiliates, and its or their successors and
assigns, provided that the net worth of such assignee is at least as great, and
its financial condition is at least as sound, as the net worth and financial
condition of the assigning party. In addition, the Licensee (and any permitted
assignee) may assign its rights and obligations under this Agreement to any
successor by way of merger, consolidation or acquisition of substantially all
of such party's assets associated with its Licensed Patents or License
Materials business. Upon any permitted assignment, the Licensee's agreement to
perform all of its obligations hereunder through the effective date of the
assignment shall nevertheless continue until expressly released by the
Licensor, which release shall not be unreasonably withheld.
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ARTICLE X
Term and Termination
10.1 Term. The term of this Agreement shall commence on
the Effective Date, subject to its subsequent nullification as provided in
Section 1.5 of this Agreement, and unless sooner terminated as herein provided,
shall end on the date on which the last to expire of the Licensed Patents
covering the Licensed Material expires.
10.2 Termination. This Agreement may be terminated prior
to the expiration of its term (a) if mutually agreed by the parties in writing,
or (b) in the event of the breach of this Agreement by either party, at the
option of the non-breaching party; provided that the non-breaching party has
provided written notice to the breaching party of the breach and the
non-breaching party's intention to terminate the Agreement, and the breaching
party has failed to cure its breach within ninety days following the date such
notice was sent to the breaching party.
10.3 Disposition of Licensed Patents. In the event that
this Agreement is terminated prior to the expiration of its term pursuant to
the provisions of Section 10.2, all rights in and to the license granted
hereunder shall immediately revert to and become the property of the Licensor,
and the Licensee shall be obligated to return all confidential information of
Licensor as provided in Section 6.2 hereof.
10.4 Survival. Any provision of this Agreement with
respect to the subject matter described in this Article X shall continue in
effect after the expiration of the term of, or termination of, this Agreement
to the extent necessary to permit the complete fulfillment or discharge of any
obligation that so continues:
(a) Any Licensee obligation to maintain records
that relate to any period ending on or before the expiration or termination of
this Agreement, and any right of the Licensor to conduct any inspection with
respect thereto;
(b) The Licensor's right to receive or recover,
and the Licensee's obligation to pay, any amounts due the Licensor under
Section 7.3 of this Agreement which had accrued and were earned at any time on
or prior to its expiration or termination;
(c) Any agreement, including the provisions of
Article VI of this Agreement, in effect at the time of such expiration or
termination with respect to confidential information of any party to this
Agreement;
(d) Any cause of action or claim or remedy of the
Licensor or the Licensee arising from any breach of or failure to perform any
obligation under this Agreement that occurred on or prior to the date of
termination;
(e) The representations and warranties of any
party that are contained in Article IV of this Agreement; and
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(f) Any right, duty or obligation of either party
hereto which is expressly stated elsewhere in this Agreement to survive the
expiration or termination hereof.
10.5 Sales after Termination. Upon termination or
expiration of this Agreement for any reason, the Licensee shall have the right
to sell or otherwise dispose of any stock of Licensed Material which it or any
of its Affiliates has in its possession or for which it has acquired
constituent materials that cannot be returned without costs exceeding, in the
aggregate $5,000.00.
10.6 Termination Payment. In the event that this
Agreement becomes null and void as provided in Section 1.5 of this Agreement,
the Licensor immediately shall reimburse to the Licensee the amount of the
Licensee's reasonable, documented expenses (including without limitation
reasonable attorneys' fees and expenses) actually and directly incurred in
connection with the negotiation and execution of this Agreement; provided,
however, that the amount of such expenses to be reimbursed by the Licensor
shall not exceed, in the aggregate, the sum of $25,000.
ARTICLE XI
Miscellaneous
11.1 Notice. Any notice given pursuant to this Agreement
shall be in writing and, except as otherwise expressly provided herein, shall
be deemed to have been duly delivered when it actually is delivered in person
or by facsimile transmission; seven days after it is mailed by certified or
registered mail, postage and mailing expense prepaid; and one day after it is
sent by overnight express mail or by overnight courier service (such as FedEx
or DHL), postage or shipping expense prepaid and designated for next-day
delivery; and, if given or rendered to
Licensee, addressed to:
The Polymer Technology Group, Inc.
4561-A Horton Street
Emeryville, CA 94608
Attention: Chief Operating Officer
or if given or rendered to Licensor, addressed to:
Corvita Corporation
8210 N.W. 27th Street
Miami, Florida 33122
Attention: Chief Operating Officer
Either party may specify a different address by notice in writing in accordance
with this Section 11.1.
- 14 -
<PAGE> 15
11.2 Entire Agreement; Amendment. This agreement sets
forth the entire agreement and understanding between the parties as to the
subject matter hereof and has priority over any and all agreements, documents,
verbal consents or understandings previously made between the parties with
respect to the subject matter hereof. None of the terms of this Agreement
shall be amended or modified except as set forth in a writing signed by both
the Licensor and the Licensee.
11.3 Waiver. A waiver by any party of any term or
condition of this Agreement in any one instance shall not be deemed or
construed to be a waiver of such term or condition for any similar instance in
the future or of any subsequent breach thereof. No failure by a party to take
action against default or breach of this Agreement shall constitute a waiver of
such party's right to enforce any provision of this Agreement or to take action
against such default or breach or against any subsequent default or breach.
All rights, remedies, undertaking, obligations, and agreements contained in
this Agreement shall be cumulative and none of them shall be a limitation of
any other remedy, right, undertaking, obligation or agreement of any party.
11.4 Severability. If, and solely to the extent that, any
provision of this Agreement shall be invalid or unenforceable, or shall render
this entire Agreement invalid or unenforceable, such offending provision shall
be of no effect and shall not affect the validity of the remainder of this
Agreement or of any of its other provisions.
11.5 No Agency. Nothing in this Agreement shall be deemed
to appoint or authorize the Licensee to act as an agent of the Licensor or to
assume or incur any liability or obligation in the name of or on behalf of the
Licensor.
11.6 Disclaimer. LICENSOR HEREBY DISCLAIMS ALL
WARRANTIES, WHETHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE
LICENSED MATERIAL, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE USE OF THE LICENSED
MATERIAL IN IMPLANTABLE DEVICES OR IN ANY OTHER MEDICAL APPLICATIONS. IN NO
EVENT SHALL LICENSOR BE LIABLE FOR SPECIAL, INCIDENTAL, CONSEQUENTIAL,
EXEMPLARY OR PUNITIVE DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS.
11.7 Headings. Headings in this Agreement are included
for ease of reference only and shall have no effect on the meaning or
interpretation of this Agreement.
11.8 Singular/Plural. Whenever in the context it appears
appropriate, each term stated either in the singular or the plural shall
include both the singular and the plural.
11.9 Applicable Law/ Jurisdiction. All disputes arising
out of the validity, interpretation or application of this Agreement shall be
submitted to the courts of competent jurisdiction sitting in the County
and State of New York. This Agreement shall be interpreted
- 15 -
<PAGE> 16
and construed in accordance with the law of New York, without reference to its
conflicts of laws provisions.
11.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
11.11 No Third-Party Beneficiaries. The provisions of this
Agreement are for the exclusive benefit of the parties hereto, and no other
person, firm, institution or other entity shall have any right or claim against
any party to this Agreement by reason of such provisions or shall be entitled
to enforce any such provision against any party.
11.12 Retained Rights. Notwithstanding anything to the
contrary contained herein, nothing in this Agreement prohibits, or in any way
restricts, the Licensor's rights to (i) license the Licensed Patents and
Licensed Know-how to any other party, or (ii) grant access or right of
reference to the data contained in the Licensor's Device Master File for any
purpose; provided, however, that the Licensor shall not, for 24 months after
the Effective Date, license the Licensed Patents or Licensed Know-How to the
persons listed on Exhibit E hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
LICENSOR
Corvita Corporation
By: /s/ Karen C. Vinjamuri
----------------------------------------
Title: Vice President, Business Development
LICENSEE
The Polymer Technology Group, Inc.
By: /s/ James M. Smith
----------------------------
Title: Executive Vice President,
Chief Operating Officer
- 16 -
<PAGE> 17
EXHIBIT A
Licensed Patents
U.S. Patent No. 5,133,742, L. Pinchuk, "Crack-Resistant Polycarbonate Urethane
Polymer Prostheses and the Like," July 28, 1992
U.S. Patent No. 5,229,431, L. Pinchuk, "Crack-Resistant Polycarbonate Urethane
Prostheses and the Like," July 20, 1993
U.S. Patent No. 4,810,749, L. Pinchuk, "Polyurethanes," March 7, 1989
All pending and issued reissues, re-examinations, divisions, continuations,
continuations-in-part, renewals, extensions and additions thereto, and all
foreign counterparts and applications for foreign counterparts of the
foregoing.
- 17 -
<PAGE> 18
EXHIBIT B
Supply Agreements
1. Supply Agreement, dated August 18, 1995, between Ventritex and Corvita
Corporation.
2. Supply Agreement, dated October 11, 1994, between Intermedics, Inc.
and Corvita Corporation.
3. Supply Agreement, dated February 22, 1994, between Siemens Pacesetter,
Inc. and Corvita Corporation.
4. License and Supply Agreement, dated November 30, 1993, between Corvita
Corporation and Vascor, Inc.
5. Supply Agreement, dated July 27, 1993, between Medtronic, Inc. and
Corvita Corporation.
6. Memorandum of Agreement, dated as of June 1, 1991, between Acuson
Corporation and Corvita Corporation, as amended March 4, 1996.
- 18 -
<PAGE> 19
EXHIBIT C
Licensor's Past Practices With Respect to
Supply of the Licensed Material to Casual Customers
CORVITA CORPORATION MEMORANDUM
DATE: 18 MARCH 1996
TO: KCV
FROM: JNW
SUBJECT: RESPONSE TO YOUR INQUIRY ON CASUAL CUSTOMER REQUEST
______________________________________________________________________________
For customers requesting CorethaneR pellets or tubing, or other Corvita
specialty products, without an approved supply agreement in force, we have
adopted the following price guidelines.
<TABLE>
<CAPTION>
ITEM UNIT SOLD MINIMUM QTY UNIT COST
---- --------- ----------- ---------
<S> <C> <C> <C>
pellets* pound one $ 50.00
tubing* foot $2000.00 $ 12.00
CorehesiveR pound one $100.00
CoremerR pound one $145.00
</TABLE>
* - any grade
In addition, some customers request FDA access to our DMF which we grant, via
written authorization, following execution of an approved Supply Agreement. In
general, we do not provide access to our DMF to any customers prior to
completion of said Supply Agreement.
I hope this satisfies your requirements. Should you need any additional
information please do not hesitate to call either Londa or me.
Regards,
/s/ JNW
cc: LSC
<PAGE> 20
EXHIBIT D
Form of Agreement for Casual Customers
Pursuant to Section 7.2(e) hereof, the Licensee may require
Casual Customers, other customers (except Supply Agreement Customers) and Users
to:
1. Agree to warranty disclaimers and limitations on
liability similar to those set forth in Section 11.6 of this Agreement.
2. Maintain and provide evidence of insurance covering
the customer and the Licensee, for liability, including products liability,
with coverage and limits reasonably acceptable to Licensor.
3. Agree to indemnify Licensor for any cost, expense,
loss or liability resulting from bodily injury or death resulting from any
product made from the Licensed Material.
4. Agree to reasonable provisions regarding allocation
of supply among customers in the case of demand exceeding Licensor's capacity.
- 20 -
<PAGE> 21
EXHIBIT E
Persons Referred to in Section 11.12
Pursuant to the provisions of Section 11.12, in the event that
Norman R. Weldon, Karen C. Vinjamuri, or Leonard Pinchuk ceases to be an
employee of the Licensor or of an Affiliate of the Licensor within 24 months
after the Effective Date (any of such individuals in such event being referred
to for the purposes of this Exhibit E as a "Former Key Employee"), the Licensor
shall not license such Former Key Employee, or any Affiliate of such Former Key
Employee.
- 21 -
<PAGE> 1
VASCOR, INC.
566 Alpha Drive
Pittsburgh, PA 15238-2960
April 9, 1996
Norman R. Weldon, Ph.D.
President and Chief Executive Officer
Corvita Corporation
8210 N.W. 27th Street
Miami, Florida 33122
Re: Consent to Assignment of License and Supply Agreement dated
November 30, 1993
Dear Dr. Weldon:
Vascor, Inc. ("Vascor") understands that Corvita Corporation
("Corvita") is contemplating entering into an agreement for its acquisition by
a third party, and that if such an acquisition occurs, Corvita expects to
discontinue its business of supplying CorethaneR polycarbonate urethane to
manufacturers of medical device products. Vascor also understands that,
substantially contemporaneously with entering into an acquisition agreement,
Corvita expects to enter into an agreement (the "License Agreement") with The
Polymer Technology Group ("PTG") of Emeryville, California, pursuant to which
(1) Corvita will grant a non-exclusive license to PTG under Corvita
polycarbonate urethane technology (including, among other technology, United
States Patents No. 5,133,742 and No. 5,229,431) to make, use, and sell, for a
field of use that includes implantable cardiac assist device products, the
polycarbonate urethane material that Corvita has agreed to supply to Vascor,
(2) PTG will agree to perform, or cause to be performed by a duly sublicensed
affiliate, all of Corvita's obligations under the License and Supply Agreement
between Vascor and Corvita dated November 30, 1993 (the "Supply Agreement")
(other than pursuant to Section 7 of the Supply Agreement), and (3) PTG will
agree further that upon Corvita's receipt of consent from Vascor to the
assignment of the Supply Agreement, PTG will accept assignment of, and assume
and perform or cause to be performed by a duly sublicensed affiliate, all of
Corvita's remaining obligations under the Supply Agreement (other than pursuant
to Section 7 of the Supply Agreement), as if such Supply Agreement had been
separately entered into with PTG.
Accordingly, Vascor agrees, subject to the conditions described
below, that Corvita may transfer and assign to PTG (the "Assignment") all of
Corvita's rights, benefits, undertakings and obligations under the Supply
Agreement that remain unsatisfied or unperformed at the date of such an
assignment, and that PTG may accept the assignment of, and assume and perform,
all of such rights, benefits, undertakings and obligations as if the Supply
Agreement had been separately entered into with PTG.
<PAGE> 2
Norman R. Weldon, Ph.D.
April 9, 1996
Page 2
The conditions of Vascor's agreement as set forth above are (a) that
the License Agreement with PTG be effective on or before the date of any such
Assignment; (b) that Corvita notify Vascor of any such Assignment to PTG within
seven days after such Assignment becomes effective; and (c) that PTG accept
such Assignment and notify Vascor of its acceptance within seven days after
such Assignment becomes effective.
Effective on the effective date of an Assignment to PTG, Vascor
hereby releases Corvita and its successors and assigns from any and all claims
Vascor has or may have against Corvita through the effective date of such an
Assignment; provided, however, that this release excludes: (i) any and all
rights that Vascor has or may have hereunder; (ii) any and all rights that
Vascor has or may have under the terms of the non-exclusive license set forth
in Section 2 of the Supply Agreement; and (iii) any and all rights that Vascor
has or may have to receive an award or indemnification payment pursuant to the
terms of Section 6 or Section 7 of the Supply Agreement. It is acknowledged
that as a term of the Assignment, Corvita shall retain its rights and benefits
under Section 6 of the Supply Agreement; and it is further acknowledged that
Vascor may make or have a third party make the Licensed Material for use in
Products pursuant to the terms of Section 2.1 of the Supply Agreement.
Vascor hereby further releases Corvita, its successors, and its
assigns other than PTG from any obligation to supply CorethaneR polycarbonate
urethane to Vascor or otherwise to perform any of its obligations under the
Supply Agreement on or after the effective date of an Assignment to PTG.
Notwithstanding anything to the contrary set forth in the preceding sentence,
Corvita, its successors, and its assigns other than PTG shall not be released
from any continuing obligations that may arise under the terms of the
non-exclusive license granted to Vascor by Corvita under Section 2 of the
Supply Agreement, or from any obligation to pay an award or to make an
indemnification payment pursuant to the terms of Section 6 or Section 7 of the
Supply Agreement, whether any such continuing obligations, obligation to pay an
award, or indemnification obligation arises with respect to events or claims
occurring prior to, on, or after the effective date of an Assignment to PTG.
We look forward to working with PTG.
Sincerely,
VASCOR, INC.
By: /s/ Steven A. Kolenik
----------------------------
Steven A. Kolenik, President
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