UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File Number: 1-9741
INAMED CORPORATION
State of Incorporation: Florida
I.R.S. Employer Identification No.: 59-0920629
3800 Howard Hughes Parkway, Suite #900, Las Vegas, Nevada 89109
Telephone Number: (702) 791-3388
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 No X
The aggregate market value of voting stock held by non-
affiliates as of August 31, 1997, was $39,370,364.
On August 31, 1997 there were 8,443,602 shares of Common Stock
outstanding.
This document contains 76 pages.
Exhibit index located on pages 71-74.
PART I
ITEM 1. BUSINESS.
General Development of Business
INAMED Corporation ("INAMED") (formerly First American
Corporation) was incorporated under the laws of the state of
Florida on February 6, 1961. In 1985, First American Corporation
acquired all of the outstanding shares of McGhan Medical
Corporation ("MMC") in a stock-for-stock, reverse merger
transaction. The Company changed its name in 1986 from First
American Corporation to INAMED Corporation in order to better
reflect its involvement in the medical field. The name was
chosen to promote the recognition of the concepts "Innovation
and Medicine". MMC now operates as a wholly-owned subsidiary of
INAMED Corporation. MMC entered the medical device business on
August 3, 1984, through the acquisition of assets related to
Minnesota Mining and Manufacturing Company's ("3M") silicone
implant product line.
Specialty Silicone Fabricators, Inc. ("SSF") was a
wholly-owned subsidiary of McGhan Medical Corporation at the time
McGhan Medical was acquired by First American Corporation. As a
result of the acquisition, SSF became a wholly-owned subsidiary
of First American Corporation, and operated as such until it was
divested in August 1993.
Unless otherwise indicated by context, the term
"Company" as used herein refers to INAMED and its subsidiaries.
The purpose of this method of filing as one company is to reflect
consolidation for the sole purpose of reporting in the required
SEC method and is not intended for any other purpose. INAMED
Corporation is the subsidiaries' parent through stock ownership.
INAMED's subsidiaries operate as individual corporations
corresponding to their state corporate filings, and under their
own daily management, to assist INAMED in accomplishing its
corporate objectives.
Since 1985, the Company has incorporated or acquired
several companies, which it has structured as subsidiaries, in
order to strengthen its position as a leading medical products
company. INAMED Development Company ("IDC") was incorporated in
1986 as a wholly-owned subsidiary to pursue research and
development of new medical devices primarily using silicone-based
technology.
In May 1989, the Company acquired 100% of the
outstanding shares of Cox-Uphoff Corporation and subsidiaries
("CUC"), a competitor of MMC in the silicone implant market.
Upon the acquisition, the company name was changed to CUI
Corporation ("CUI") which now operates as a wholly-owned
subsidiary of the Company.
In October 1989, INAMED incorporated its McGhan Limited
subsidiary which designed and equipped a new medical device
manufacturing plant in Arklow, County Wicklow, Ireland, to
supplement production of the Company's current and future
products. The location in Ireland was selected because it offers
many favorable conditions such as availability of labor at
reasonable rates, availability of attractive grants from the
Industrial Development Authority (IDA), geographic proximity to
INAMED B.V., favorable local tax treatment and membership in the
European Economic Community or EEC. The manufacturing plant in
Ireland was fully operational in 1993, and is capable of
supplying nearly all of the products sold in the international
market. Future new products will be produced by McGhan Limited
for sale internationally with limited support shipments from the
Company's U.S. manufacturing plants. In support of expected
future growing international demand, the Company incorporated its
Chamfield Limited subsidiary in 1993 to manufacture raw materials
to be used in McGhan Limited's manufacturing process. Chamfield
Limited's manufacturing facilities, which are not yet fully
operational, are located adjacent to McGhan Limited's facilities.
In November 1989, INAMED incorporated its INAMED B.V.
subsidiary in Breda, the Netherlands, to warehouse and distribute
the Company's products to the European Community, Asia and other
international locations. INAMED B.V. also markets products on a
direct sales basis throughout the Netherlands. In conjunction
with, and to further accomplish its long-range plans, the Company
incorporated INAMED GmbH in Germany and INAMED B.V.B.A. in
Belgium as subsidiaries in December 1989, thereby establishing a
base from which to initiate direct sales of its products in two
additional countries.
In 1991, INAMED concentrated on continued expansion
into the European and international market, increasing production
in its Irish manufacturing facility, continued efficiency and
quality evaluation of its manufacturing facilities in Ireland and
continued sales growth. The Company expanded its marketing base
in Europe by incorporating INAMED S.R.L. as a direct marketing
and distribution center for the Company's products in Italy in
May 1991.
In 1991, the Company also incorporated its BioEnterics
Corporation subsidiary in Carpinteria, California. BioEnterics
was incorporated in order to focus on the development,
production, international and ultimately global distribution of
high-quality, proprietary implantable devices and associated
instrumentation to the bariatric and general surgery markets for
the treatment of gastrointestinal disorders and serious obesity.
In 1992, the Company incorporated its Biodermis
Corporation subsidiary in Las Vegas, Nevada, in order to focus on
the development, production and global distribution of premium
products for dermatology, wound care and burn treatment.
In 1992, the Company also incorporated its Medisyn
Technologies Corporation subsidiary in Las Vegas, Nevada, in
order to focus on the development and promotion of the merits of
the use of silicone chemistry in the fields of medical devices,
pharmaceuticals and biotechnology.
The Company also continued development of its
international market base in 1992 by incorporating INAMED Ltd. to
market and distribute the Company's products in the United
Kingdom.
In 1993, the Company incorporated Bioplexus Corporation
in Las Vegas, Nevada, a wholly-owned subsidiary which is a
research and development company that develops, produces and
distributes specialty medical products for use by the general
surgery profession.
In 1993, the Company also incorporated Flowmatrix
Corporation in Las Vegas, Nevada, a wholly-owned subsidiary which
manufactures high-quality silicone components and devices for
INAMED's wholly-owned subsidiaries, and produces and distributes
a line of proprietary silicone surgical products internationally.
The Company continued to expand its international
marketing base in 1993 by incorporating INAMED S.A.R.L. in Paris,
France, a wholly-owned subsidiary of INAMED B.V.
In 1993, the Company sold its Specialty Silicone
Fabricators ("SSF") subsidiary and SSF's Innovative Surgical
Products subsidiary to Innovative Specialty Silicone Acquisition
Corporation (ISSAC), a private investment group which included
certain members of Specialty Silicone Fabricators' management.
The transaction was valued at approximately $10.8 million,
including $2.7 million in cash, $5.9 million in structured short-
term and long-term notes, and the retirement of $2.2 million in
intercompany notes due to SSF by the Company's subsidiaries.
Effective January 1994, the Company acquired the assets
of Novamedic, S.A. in Barcelona, Spain. Novamedic, S.A. was a
well-established distributor of medical products in Spain which
further strengthened the Company's presence in the international
market. The new subsidiary was renamed INAMED, S.A. and operates
as a wholly-owned subsidiary of the Company.
The Company has identified Spain, Portugal, South
America, Central America, and Mexico as the Iberian and Latin
American areas. The incorporation of INAMED do Brasil in 1995
and INAMED Mexico in 1996 has strengthened the Company's presence
in this area. INAMED do Brasil and INAMED Mexico operate as a
wholly-owned subsidiary of INAMED, S.A.
In 1995, the Company incorporated its INAMED Japan
subsidiary in Las Vegas, Nevada. INAMED Japan subsequently
acquired 95% of INAMED Medical Group, a Japanese corporation.
In 1996, INAMED Japan acquired the remaining 5% of INAMED Medical
Group. Additionally, the Company's McGhan Medical Corporation
subsidiary incorporated its McGhan Medical Asia Pacific, Ltd.
subsidiary in 1995. The formation of INAMED Japan and McGhan
Medical Asia Pacific, Ltd. has enabled the Company to continue
its expansion into the Asia-Pacific Rim market.
Principal Products and Markets
The Company is engaged in the development, manufacture
and marketing of a number of implantable products, including
breast implants, tissue expanders and facial implants for plastic
and reconstructive surgeons as well as custom prostheses for a
variety of surgical applications and procedures.
Breast implants are used for reconstruction and
augmentation. As part of its product line, the Company produces
different models, shapes and sizes of breast implants including
but not limited to double-lumen, saline and gel-filled breast
implants. In addition, the Company manufactures BioCellr
textured implants which incorporate the Company's patented low-
bleed technology with its textured surface technology. The
resulting implant has an open-cell silicone surface bio-
engineered for a more favorable implant-to-tissue interface. The
BioCellr textured product line has received notably favorable
market acceptance.
The Company is one of the leading world-wide
manufacturers of saline-filled breast implants. Saline implants
are manufactured at two different subsidiaries: McGhan Medical
Corporation and McGhan Limited. These products are made in
various shapes and sizes, and utilize various valve designs. The
surface construction of the finished implants provide the surgeon
the opportunity to select from a smooth silicone, the BioCellr
textured surface or the patented MicroCellr textured surface.
The Company has developed and currently manufactures
and markets a line of implantable and intraoperative tissue
expanders. A typical tissue expander is implanted at a site where
new tissue is desired. After the device is implanted fluid can
be injected into the injection port which then flows into the
larger expanding chamber. This causes increased pressure under
the skin resulting in tissue growth over a reduced period of
time. The expanded tissue can then be used to cover defects,
burns and injury sites or prepare a healthy site for an implant
with the extra tissue available without the trauma of skin
grafting. The Company has further developed its tissue expander
product line by incorporating a patented integral valve injection
area that is located by a magnetic detection system to enable the
doctor to determine location of the injection port.
The Company manufactures and markets its patented
BioSpan tissue expander product line that utilizes the BioCell
textured surface which allows more precise surgical placement.
Use of the BioSpan tissue expander surface decreases capsular
contracture and yields greater tissue laxity during expansion.
The Company produces the BioDimensional system for
breast reconstruction following radical mastectomy procedures.
The BioSpan tissue expanders and BioCell breast implants used
for this system were designed using computer-assisted modeling to
determine the ideal dimensions. Computer imaging programs were
also used to evaluate the expected aesthetic results. The
BioDimensional system matches the specific size tissue expander
to the breast implant that will be used for the breast
reconstruction procedure.
The Company also manufactures and markets the Ruiz-
Cohen intraoperative expander. The Ruiz-Cohen intraoperative
expander utilizes rapid intraoperative expansion as an effective
means of arterial elongation to provide the additional tissue
needed for end-to-end anastomosis. By eliminating the need for
arterial grafting, patient discomfort is greatly reduced and the
time and associated costs required to complete arterial
anastomosis are minimized. The Company has license agreements
and patents covering this product line, as well as patents
pending for the next generation of the product. Additionally,
the Company has patents and patent applications in nine countries
outside of the United States for the product.
The Company's group of products allows the plastic or
reconstructive surgeon a range of options. If requested, the
Company works with a surgeon to design, to the surgeon's
specifications, a custom implant suited to individual patients'
needs.
The Company manufactures silicone gel sheeting intended
for use in the treatment and control of old and new hypertrophic
or keloid scarring. The products are sold under the trade names
TopiGel, Epi-Derm, and Derma-Sof.
During 1996, 1995 and 1994, the Company's proprietary
products accounted for 100% of net sales. Comparatively, in
1993, silicone implant products and silicone components accounted
for 90% and 10% of net sales, respectively. The percentage of
sales represented by proprietary products has increased due to
the sale of Specialty Silicone Fabricators in August 1993.
Marketing
In the United States, the Company's implant products
are sold to plastic and reconstructive surgeons, facial and oral
surgeons, bariatric surgeons, dermatologists, outpatient surgery
centers and hospitals through the Company's own staff of direct
sales people and independent distributors. In Canada and Hawaii,
the Company is represented by independent distributors. The
Company reinforces its sales and marketing program with
telemarketing which produces sales by providing follow-up
procedures on leads and distributing product information to
potential customers. The Company supplements its marketing
efforts with appearances by its subsidiaries at trade shows and
advertisements in trade journals and sales brochures.
The Company sells its products directly and through
distributors in the Netherlands, Belgium, Germany, Italy, France,
Spain, the United Kingdom, Brazil, Mexico, Japan, and China. The
Company's Netherlands subsidiary markets to and supports
independent distributors in Denmark, Finland, Iceland, Norway,
Sweden, and Switzerland. The Company also sells its products to
independent distributors in Argentina, Australia, India, Korea,
New Zealand, Philippines and Taiwan. Sales outside the United
States and Canada are made directly to these and other
independent distributors and sales organizations through the
Netherlands subsidiary's inventory of the Company's products. The
Company believes its direct sales efforts internationally and
increased support of its overseas independent distributors has
greatly enhanced overall sales and will continue to do so
throughout calendar 1997.
Competition
The Company's sole significant competitor in the
production and sale of breast implants in the domestic market is
Mentor Corporation. Three other competitors discontinued
production of breast implants in 1992 largely as a result of
regulatory action by the Food and Drug Administration ("FDA").
The Company believes that the principal factors permitting its
products to compete effectively are its high-quality product
consistency, variety of product designs, management's knowledge
of and sensitivity to market demands, and the Company's ability
to identify, develop and/or obtain license agreements for
patented products embodying new technology. In compliance with
certain FDA regulations, the Company is allowed to sell one type
of silicone gel-filled breast implant to a limited number of
customers in the United States under stringent guidelines.
Internationally, the Company competes with several
other manufacturers in the production and sale of its breast
implants. Major competitors in Europe include Mentor
Corporation, Silimed, Laboratories Sebbin, L.P.I., Nigor, and
LipoMatrix. The Company believes that its extensive network of
marketing and distribution centers throughout Europe create the
strongest presentation of breast implants in the international
market and the most favorable acceptance by physicians.
Competition in the tissue expander product line is
generally driven by the same corporations as in the manufacture
and sale of breast implants. Management believes the Company's
implant market position in tissue expanders will continue to
improve due to the superior design and strong features of its
products and future additions to its product lines.
Research and Product Development
A qualified staff of doctorates, scientists, engineers
and technicians, working in material technology and product
design configurations, presently guide the Company's research and
development efforts. The Company is directing its research
toward new and improved products based on scientific advances in
technology and medical knowledge together with qualified input
from the surgical profession. The Company has incurred
approximately $5.7 million, $4.4 million, and $3.7 million of
research and development expense for the years ended December 31,
1996, 1995, and 1994 respectively.
The Company introduced the LAP-BANDr Adjustable Gastric
Banding (LAGBr) System to the international market as an
improvement to the earlier adjustable banding design. The LAGBr
System is in clinical trials in the United States. The LAGBr
System is designed to permit a laparoscopic procedure for severe
obesity. During the operation, which is usually done under
general anesthesia but without a large incision, the adjustable
gastric band is placed around the stomach slightly below the
opening, to constrict that portion of the stomach into a stoma,
and forming a small stomach pouch above the band. The system
utilizes special pouch and stoma measuring equipment, including
an electronic device and a special laparoscopic band placement
instrument. Unlike "stomach stapling" or "stomach bypass"
procedures, no cutting or stapling of the stomach is required and
usually no major incision. The band is designed to be adjustable
postoperatively without additional surgery. The LAGBr System is
currently being used for the long-term treatment of severe
obesity throughout Europe, as well as in Australia, Latin America
and the Middle East. The Company holds a license for the patent
and patent pending applications.
The Company also holds a license for the patent and
patent pending applications for EndoLuminar Illuminated Bougies,
devices designed to transilluminate the esophagus and other
organs of the body for improved visualization during a variety of
laparoscopic and other surgical procedures. These products are
on the market internationally and in the United States. The
Company is currently conducting research into special materials
and manufacturing techniques for providing increased
transillumination and miniaturization for new indications.
The Company holds a license for the U.S. and
international patents for a new device for the treatment of
severe gastroesophageal reflux. This device, with a cuff-like
design and a self-locking mechanism, is designed to improve the
safety and reliability of the laparoscopic treatment of
gastroesophageal reflux. It is anticipated that clinical use of
this device will begin during 1997.
The Company's BioEnterics Intragastric Balloon (BIBr)
is being marketed on a limited basis in Europe for preoperative
weight loss in severely obese patients, and as an aid to weight
reduction in moderately obese patients. The balloon is
endoscopically (non-surgically) placed in the patient's stomach
and inflated with saline. The balloon partially fills the
stomach, limiting the amount of food that can comfortably be
consumed, thereby inducing weight loss. Severely obese patients
have a higher incidence of surgical and perioperative
complications, and weight loss also facilitates laparoscopic
procedures in these patients.
The Company offers a full product line of silicone gel
sheeting intended for the treatment of old and new hypertrophic
and keloid scars. The Company has configurations for the scar
management of long incisional scars following cardiac of C-
Section surgery, custom configurations for treating small and mid-
size scars, and a full-sized sheet for reduction of post-burn
scarring. In addition, The Company is currently developing two
new silicone gel sheeting configurations for treating post-
mastopexy and areolar scars. As of March 19, 1997, the Company
received 510(k) clearance notification of substantial equivalency
from the FDA for the CRYOSILT Silicone Gel Sheeting Patch,
intended for the single use protection of tissue surrounding skin
lesions, such as basal cell carcinoma, or skin tabs, during
cryosurgery with spray refrigerants like liquid nitrogen and
nitrous oxide.
The Company is also continuing efforts to add to its
existing lines of breast implants.
The Company depends on the efforts and accomplishments
of dedicated staff in its Research and Development groups, and
will continue to support its current and future R&D projects and
activities.
Patents and License Agreements
It is the Company's policy to actively seek patent
protection for its products and/or processes when appropriate.
The Company developed and currently owns patents and trademarks
for both the product and processes used to manufacture low-bleed
breast implants and for the resulting barrier coat breast
implants. Intrashiel is the Company's registered trademark for
the products using this technology. Beginning in 1984, such
patents were granted in the United States, Australia, Canada,
France, the Netherlands, the United Kingdom and West Germany.
Trademarks for this product have been granted in the United
States and France. The Company has license agreements allowing
other companies to manufacture products using the Company's
select technology, such as the Company's patented Intrashiel
process, in exchange for royalty and other compensation or
benefits.
The Company's other patents include those relating to
its breast implants, tissue expanders, textured surfaces,
injection ports, valve systems, illumination and obesity
products. The Company also has various patent assignments or
license agreements which grant the Company the right to
manufacture and market certain products.
The Company believes its patents are valuable; however,
it has been the Company's experience that the knowledge,
experience and creativity of its product development and
marketing staffs, and trade secret information with respect to
manufacturing processes, materials and product design, have been
equally important in maintaining proprietary product lines.
Staying at the forefront of rapidly advancing medical technology
by quickly and effectively responding to the needs and concerns
of health care professionals and their patients is the key to the
Company's plans for future business expansion and financial
success. As a condition of employment, the Company requires each
of its employees to execute a confidentiality agreement relating
to proprietary information and patent rights.
Manufacturing and Product Dependability
The Company manufactures its silicone devices under
controlled conditions. The manufacturing process is accomplished
in conjunction with specialized equipment for precision
measurement, quality control, packaging and sterilization.
Quality control procedures begin with the Company's suppliers
meeting the Company's standards of compliance. The Company's in-
house quality control procedures begin upon the receipt of raw
components and materials and continue throughout production,
sterilization, and final packaging. The Company maintains
quality control and production records of each product
manufactured and encourages the return of any explanted units for
analysis. All of the Company's domestic activities are subject
to FDA regulations and guidelines, and the Company's products and
manufacturing procedures are continually monitored and/or
reviewed by the FDA.
In the Company's continued efforts to develop state-of-
the-art processes that are environmentally responsible, a dry-
heat sterilization process has been developed and is in place in
the Company's manufacturing plants in the United States at McGhan
Medical Corporation and BioEnterics Corporation and in Ireland at
McGhan Limited. Development of this dry heat packaging and
sterilization cycle was the result of over three years of
equipment design, identification and testing of materials and
products, and process development.
The Company had more than one source of supply for all
silicone materials used in the manufacture of its products until
Dow Corning Corporation ("DCC"), a major supplier of medical
grade silicone materials, announced it would discontinue the sale
of implant grade silicone materials as of March 31, 1993. A
majority of the silicone raw materials utilized by the Company
have been purchased from a supplier other than DCC. The Company
has studied the impact of the discontinuation of the supply of
certain raw materials on the Company's ongoing business, and has
established reliable alternate sources of high-quality critical
silicone materials. The Company has experienced increased costs
for its silicone materials, but the increase is not significant
to the overall cost of the finished products.
Limited Warranties
The Company provides a limited warranty to the effect
that it will replace without charge any product that proves
defective with a new product of comparable type.
McGhan Medical Corporation's Product Service Program II
(PSPT) is designed to provide limited financial assistance to
cover non-reimbursed operating room or surgical expenses due to a
loss of shell integrity for inflatable breast implants for a
period of five years from the date of implantation; in addition,
a no-charge replacement of the same or similar product is
provided for returned McGhan Medical breast implant products
covered within the program. The Company reserves the right to
make changes to its warranty policy from time to time within the
confines of its warranty documents.
Government Regulations
All of the Company's silicone implant products
manufactured or sold in the United States are classified as
medical devices subject to regulation by the FDA. FDA
regulations classify medical devices into three classes that
determine the degree of regulatory control to which the
manufacturer of the device is subject. In general, Class I
devices involve compliance with labeling and record keeping
requirements and other general controls. Class II devices are
subject to performance standards in addition to general controls.
A notification must be submitted to the FDA prior to the
commercial sale of some Class I and all Class II products. Class
II products are subject to fewer restrictions than Class III
products on their commercial distribution, such as compliance
with general controls and performance standards relating to one
or more aspects of the design, manufacturing, testing and
performance or other characteristics of the product. Tissue
expanders are currently proposed to be classified as Class II
devices. The Company's breast implants, silicone intragastric
balloon and gastric band system are Class III devices. Class
III devices require the FDA's Pre-Market Approval (PMA) or an FDA
Investigational Device Exemption (IDE) before commercial
marketing to assure the products' safety and effectiveness.
On April 10, 1991, the FDA issued a final ruling
requiring all manufacturers of silicone gel filled breast
implants to file a PMA application for their version(s) of the
product(s) within 90 days after the effective date of the
regulation or cease sale and/or distribution of their product(s).
The ruling reflects the FDA's discretion to require PMA's for any
device which predates the 1976 Medical Device Act. This ruling
is also in line with the FDA's stated priorities and Congress'
requirement that all Class III devices be submitted to PMA
review. In anticipation of this ruling, the Company had, for
some time, been gathering the required data, including the
results of laboratory, animal and clinical investigation and
testing. In July 1991, the Company submitted an application to
the FDA in response to the ruling. In November 1991, an FDA
advisory panel voted unanimously to recommend that the Company's
silicone gel-filled breast implants remain on the market while
more data on safety was gathered and evaluated by the agency.
While the advisory panel concluded that the original PMA
submitted by the Company's McGhan Medical subsidiary had failed
to provide sufficient data concerning the safety of the implants,
the FDA staff had not provided the panel members with updated and
additional test results that had been submitted to the PMA
application in late September 1991.
In January 1992, FDA Commissioner David Kessler requested that all
United States silicone breast implant manufacturers stop manufacturing
and marketing their silicone gel-filled implants as a voluntary action
and that surgeons refrain from implanting the devices in patients
pending further review of information relating to the safety of the
products. The FDA advisory panel reconvened in February 1992 and after
review of the new information, recommended that the gel-filled breast
implants remain available for all patients wishing reconstruction
following mastectomies and/or to correct severe deformities and,
under strictly controlled clinical studies, be available on a
limited basis to patients wishing augmentation. On April 16,
1992, the FDA announced that silicone gel-filled breast implants
would be available only under controlled clinical studies. Under
an Urgent Need protocol, the products would be available
immediately to patients requiring completion of reconstructive
surgery which was begun prior to the January 1992 moratorium.
All patients are required to sign detailed informed consent forms
prior to surgery under the Urgent Need program. Under an Adjunct
Study Program developed by the FDA, gel-filled implants would
also be available to women desiring them for reconstruction,
including the correction of severe deformities. As of December
31, 1994, the Company has not been a participant in the Adjunct
Study.
In the ongoing process of compliance with the Medical
Device Act, the Company has incurred, and will continue to incur,
substantial costs which relate to laboratory and clinical testing
of new products, data preparation and filing of documents in the
proper outline or format required by the FDA under the Medical
Device Act.
Further, the FDA has published a schedule which permits
the data required for PMA applications for saline-filled implants
to be submitted in phases, beginning with preclinical data that
was due in 1995, and ending with final submission of prospective
clinical data in 1998. The company has received from the FDA an
understanding that the agency will not call for final PMA
applications to be submitted prior to September, 1998. The date
for submission of PMA applications may be further extended by the
FDA. Notwithstanding any such extension, the Company intends to
submit its PMA application for saline-filled implants in a timely
fashion and is collecting data which will be necessary for this
application. However, neither the timing of such PMA application
nor its acceptance by the FDA can be assured, irrespective of the
time and money that the Company has expended. Should the
Company's PMA application for saline-filled implants not be filed
timely or be denied, it would have a material adverse effect on
the Company's operations and financial position. The Company
will decide on a product-by-product and subsidiary-by-subsidiary
basis whether to respond to any future calls for PMAs and
regulatory requirements, requested response or Company action.
The cost of any PMA filings is unknown until the call for a PMA
occurs and the Company has opportunity to review the filing
requirements.
There can be no assurance that other products under
development by the Company will be classified as Class I or Class
II products or that additional regulations restricting the sale
of its present or proposed products will not be promulgated by
the FDA. The Company is not aware of any changes required by the
FDA that would be so restrictive as to remove the Company from
the marketplace. However, the FDA has significantly restricted
the Company's right to manufacture and sell gel-filled breast
implants in the United States. As a result, the Company's sales
of saline-filled breast implant products increased significantly,
and are expected to continue to be the Company's main product for
1997.
As a manufacturer of medical devices, the Company's
manufacturing processes and facilities are subject to continual
review by the FDA, responsible state or local agencies such as
the California State Department of Health Services and other
regulatory agencies to insure compliance with good manufacturing
practices and public safety compliance. The Company's
manufacturing plants are also subject to regulation by the local
Air Pollution Control District and by the Environmental
Protection Agency as a user of certain solvents.
Geographic Segment Data
A description of the Company's net sales, operating
income (loss) and identifiable assets within the following
segments: United States, Europe, Asia Pacific and Iberian and
Latin America region, is detailed in footnote 13 of the Company's
financial statements. The European classification includes the
Netherlands, Belgium, United Kingdom, Italy, France and Germany.
The Iberian and Latin American classification includes Central
America, South America, Mexico, Spain, and Portugal. The Asia-
Pacific classification includes Hong Kong, China, Japan, Taiwan,
Singapore, Thailand, The Philippines, Korea, Indonesia, India,
Pakistan, New Zealand and Australia.
Employees
As of July 25, 1997, the Company employed 940 persons:
17 persons were employed by INAMED Corporation, 630 persons were
employed by various operating subsidiaries within the United
States; and 293 persons were employed by various operating
subsidiaries in the European, Asia-Pacific, Iberian and Latin
America regions engaged in production, marketing and sales
functions.
Except for the manufacturing operation in Ireland, the
employees are not represented by a labor union. The Company
offers its employees competitive benefits and wages comparable
with employees for the type of business and the location/country
in which the employment occurs. The Company considers its
employee relations to be good throughout its operations.
On April 1, 1997, the Company announced the resignations of Michael D.
Farney as Chief Executive Officer effective on March 31, 1997 and
Willem Oost-Lievense as Chief Financial Officer effective on March 19, 1997.
ITEM 2. PROPERTIES.
The Company leases a total of 29,531 square feet of
office and warehouse space in three locations in Las Vegas,
Nevada. The Company's corporate headquarters comprise 4,449
square feet of office space located in a multi-story office
building for a current rental rate of $12,389 per month with a
lease expiring July 31, 1998 and 9,850 square feet of office
space in the same building for a rate of $24,625 per month with
the lease expiring December 31, 1997. The Company leases 6,895
square feet of office space in a building adjacent to the
corporate headquarters which it subleases to Medisyn Technologies
Corporation. The current monthly lease rate is $13,101 with the
lease expiring May 31, 2001. The Company leases 7,337 square
feet of office and warehouse space in an industrial complex
adjacent to the Las Vegas Airport. The current rental rate is
$3,250 per month with the lease expiring August 31, 2000. The
lease contains three one-year options for renewal.
The Company also leases office and industrial space
comprising three buildings with an aggregate of 33,939 square
feet in Carpinteria, California. BioEnterics Corporation
subleases two buildings totaling 16,700 square feet. The Company
has exercised the option to extend the lease term to December
1997. The current rental rate is $14,908 per month (with cost of
living escalation in June of every year). The third building,
which has 17,239 square feet, is subleased to CUI Corporation.
The current rental rate is $13,279 per month with the lease
expiring December 31, 1999.
McGhan Medical Corporation leases manufacturing
facilities in Santa Barbara, California, aggregating 44,800
square feet for $40,613 per month (with cost of living
escalations in July of every year). The lease for these
buildings expires in 1998, with two one-year options to extend.
McGhan Medical Corporation also leases 27,992 square feet of
office space in an adjacent building. The lease term expires in
July 2005 with a seven-year option to extend. The rent is
$32,868 per month (with cost of living escalations in January of
every year). Additionally, McGhan Medical Corporation leases a
total of 24,892 square feet of adjacent office space with a
monthly rental of $23,692 and lease terms expiring July 31, 2005
with a five-year renewal option. In June 1994, McGhan Medical
Corporation entered into a lease for a manufacturing facility
aggregating 57,897 square feet with a monthly rental rate of
$61,792 (with cost of living escalation in June of every year)
expiring in July 2006. In March 1995, McGhan Medical Corporation
entered into a lease for office space of 23,697 square feet with
a monthly rental rate of $16,356 expiring in April 2000. McGhan
Medical Corporation also leases 8,800 square feet of warehouse
space for $4,634 per month and lease terms expiring December 1997
with two one-year options to extend. In May 1997, McGhan Medical
Corporation entered into an additional lease for office space of
3,000 square feet with a monthly rental of $3,450 expiring in
January 2001.
McGhan Limited's and Chamfield Limited's manufacturing
facilities are located in Arklow, County Wicklow, Ireland.
McGhan Limited leases a 28,000 square foot building from the
Ireland IDA at a current annual rate of 86,244 Irish punts for a
term ending in 2017. Chamfield Limited leases a 23,000 square
foot building at a current annual rental rate of 74,352 Irish
Punts for a term ending in 2029.
INAMED B.V. leases 1,639 square meters of office and warehouse space
in The Netherlands at a quarterly rate of 101,319 guilders (with cost
of living escalation in May of each year), for a lease term ending in
April 2000. INAMED B.V. also leases 72 square meters of office space in
Moscow, Russia for their representative office for a quarterly rental
rate of NLG 21,755 with the lease expiring in August 1997.
INAMED B.V.B.A. leases 220 square meters of office and
warehouse space in Turnhout, Belgium at a rate of 28,346 Belgian
francs per month (with a cost of living escalation in September
of each year) with a lease term expiring in November 1998. The
lease includes a renewal option for one year.
INAMED GmBH rents 286 square meters of office and
warehouse space in Dusseldorf, Germany at a rate of 7,150 German
marks per month on a five-year lease expiring in December 2000.
The lease provides for an automatic yearly extension thereafter
unless the contract is terminated nine months before renewal date
of the lease.
INAMED S.R.L. rents 460 square meters of office and
warehouse space in Verona, Italy for 4,744,370 Italian lira per
month with a lease term expiring in August 2000. INAMED S.R.L.
also leases 60 square meters of office space in Rome, Italy for
1,669,600 Italian lira per month with a lease term expiring in
August 2000.
INAMED Ltd. rents 1,550 square feet of office and
warehouse space in Workingham, United Kingdom under a two-year
lease expiring in July 1999. Under the terms of the lease,
payments are made on a quarterly basis. The current rate is
pound sterling 7,875 per quarter.
INAMED S.A.R.L. rents 288 square meters of office and
warehouse space in Paris, France for an annual rent of 345,825
francs with a lease term of nine years expiring in December 2004.
The first eight months of rent were free, therefore, the first
rent was due in August of 1996. Rent is paid in quarterly
installments in advance.
INAMED, S.A. rents 950 square meters of office and
warehouse space in Barcelona, Spain at a monthly rate of 864,438
pesetas with a lease term expiring in February 1998.
INAMED do Brasil rents 300 square meters of office and
warehouse space in Sao Paulo, Brazil at a monthly rate of 2,200
Brazilian real with a lease term expiring in March 1998.
INAMED Mexico, S.A. de C.V. rents office space in
Mexico City at a monthly rate of $6,885 plus V.A.T. with a lease
term expiring in May 2002.
McGhan Medical Asia Pacific, Ltd. rents 400 square feet
of office space in Hong Kong at a monthly rate of $5,052 with a
lease term expiring January 31, 1998.
INAMED Medical Group (Japan) rents 155 square meters of
office space in Tokyo, Japan at a monthly rate of $3,000 under a
lease which is automatically renewed upon expiration.
The Company believes its facilities and the facilities
of its subsidiaries are generally suitable and adequate to
accommodate its current operations, and suitable facilities are
readily available to accommodate future expansion as necessary.
ITEM 3. LEGAL PROCEEDINGS.
In 1987, the Company acquired two health insurance
subsidiaries. In 1988, the Company sold both subsidiaries. In
1991, the Company was sued for third party resolution in the
amount of $500,000, related to the acquiring company's inability
or failure to meet asset deposit requirements of the Illinois
Director of Insurance. The Company reached settlement with the
Illinois Department of Insurance in February 1993, whereby the
Company paid the third party demand of $500,000 for full release.
In October 1990, the Company's CUI Corporation
subsidiary brought action against Mr. Robert Uphoff, a former
employee for violation of a contractual non-compete agreement
entered into with the Company. A settlement was reached in August
of 1992 whereby the Company repurchased common stock acquired by
the former employee in exchange for the resolution of all issues
and legal proceedings and the elimination of any future Company
obligation to the former employee as to the non-compete
agreement. The Company made final payment for the stock under
this settlement in 1994.
During 1992, an action against the Company, two of its
subsidiaries and Donald K. McGhan was filed in California
Superior Court for the County of Santa Barbara (State Court).
The Company, through one of its subsidiaries, filed a lawsuit
against the plaintiff in the United States District Court for the
Central District of California (Federal Court). The State Court
action was filed as a contract dispute over an Exclusive License
Agreement and the Federal Court action was filed over the same
Exclusive License Agreement, but with different issues as subject
matter. The State action was settled in April 1993 and
discharged as an action with the Plaintiff Agreement remaining in
force as written, and the Company's subsidiaries agreed to and
complied with the terms as written in the Agreement. No changes
were made with the outcome that both of the Company's
subsidiaries will comply with the terms of the Agreement, as
written, for the subsidiaries' products over the life of the
patent. The Federal action was terminated by mutual agreement in
1994.
In July 1992, the County of Santa Barbara, California,
filed a complaint against the Company's McGhan Medical
Corporation subsidiary ("MMC") alleging that MMC supplied false
and inaccurate information regarding xylene emissions to the Air
Pollution Control District and had engaged in a pattern of unfair
business practices by failing to control its emissions. In March
1993, MMC reached a settlement with the County of Santa Barbara
Air Pollution Control District. The parties agreed to a
settlement to avoid prolonged litigation surrounding alleged
emission violations. By entering the agreement, the Company made
no admission of wrongdoing but assented to a one time payment of
$100,000 and installation of emissions control equipment at MMC's
facility. MMC's decision to settle allowed it to allocate the
Company's manpower and funds to the installation of the control
equipment rather than expending these resources on successful
defense against the complaint.
PRODUCT LIABILITY
The Company and/or its subsidiaries are defendants in
numerous state and federal court actions and a Federal class
action in the United States District Court, Northern District of
Alabama, Southern Division, under The Honorable Sam C. Pointer,
Jr., Chief Judge U.S. District Court, identified as Breast
Implant Products Liability Litigation, Multiple District
Litigation No. 926, Master File No. CV 92-P-10000-S ("MDL 926").
One of the federal cases, Lindsey, et al., v. Dow Corning Corp.,
et al., Civil Action No. CV 94-11558-S was conditionally
certified as a class action for purposes of settlements ("MDL
Settlement") on behalf of persons having claims against certain
manufacturers of breast implants. The alleged factual basis for
typical lawsuits include allegations that the plaintiffs' breast
implants caused specified ailments including, among others, auto-
immune disease, scleroderma, systemic disorders, joint swelling
and chronic fatigue.
A result of the MDL Settlement was the establishment of
a Claims Administration Office in Houston, Texas, under the
direction of Judge Ann Cochran. Class Members who had breast
implants prior to June 1993 have registered with the Claims
Office. Judge Pointer certified the "Global" Settlement by Final
Order and Judgment on September 1, 1994. Subsequently, a
preliminary review of claims produced projected payouts that were
greater than the amounts the breast implant manufacturers had
agreed to pay. On May 15, 1995, Dow Corning Corp., formerly one
of the manufacturers and a significant contributor to the Global
Settlement fund, filed for federal bankruptcy protection because
of lawsuits over the devices.
On December 29, 1995, the Company entered into an
agreement with the MDL 926 Settlement Class Counsel and certain
other defendants that is now identified as the "Bristol, Baxter,
3M, McGhan & Union Carbide Revised Breast Implant Settlement
Program" ("Revised Settlement"). The Revised Settlement provides
a procedure to resolve claims of current claimants and ongoing
claimants who are registered with the Claims Office.
Due to the nature of the Revised Settlement which
allowed ongoing registrations, "opt-ins", as well as a limited
potential for claimants, during the life of the program, to opt-
out of the Revised Settlement ("opt-outs"), the aggregate dollar
amount to be received by the class of claimants under the Revised
Settlement has not been fully ascertained.
The Revised Settlement is an approved-claims based
settlement. Therefore, to project a range of the potential cost
of the Revised Settlement, the parties utilized a court-sponsored
sample of claimants' registrations and claims filed through the
MDL 926 Settlement Claims Office against all defendants and
assumed approval of 100 percent of the claims as initially
submitted. Although adequate for negotiation purposes, the
sample is unsatisfactory for the purposes of determining an
aggregate dollar liability for accounting purposes because the
processing of current claims is not complete, the process of
ongoing claims will continue for fifteen years, and the
Settlement is subject to opt-ins and opt-outs.
The following is a recap of the certain events
involving the Company's product liability issues relating to
silicone gel breast implants which the Company manufactures and
markets.
The claims in Silicone Gel Breast Implant Products
Liability Litigation MDL 926 are for general and punitive damages
relating to physical and mental injuries allegedly sustained as a
result of silicone gel breast implants produced by the Company.
Although the amount of claims asserted against the Company is not
readily determinable, the Company believes that the stated amount
of claims substantially exceeds provisions made in the Company's
consolidated financial statements. The Company has been a
defendant in substantial litigation related to breast implants
which have adversely affected the liquidity and financial
condition of the Company. This raises substantial doubt about
the Company's ability to continue as a going concern. The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern and do
not include any adjustments that might result from this
uncertainty.
On June 25, 1992 the judicial panel on multi-district
litigation in re: Silicone Gel Breast Implant Products Liability
Litigation consolidated all federal breast implant cases for
discovery purposes in Federal District Court for the Northern
District of Alabama under the multi-district litigation rules.
Several U.S.-based manufacturers negotiated a settlement with the
Plaintiffs' Negotiating Committee ("PNC"), and on March 29, 1994
filed a Proposed Non-Mandatory Class Action Settlement in the
Silicone Breast Implant Products Liability (the "Settlement
Agreement") providing for settlement of the claims as to the
class (the "Settlement") as described in the Settlement
Agreement. The Settlement Agreement, upon approval, would have
provided resolution of any existing or future claims, including
claims for injuries not yet known, under any Federal or State
law, from any claimant who received a silicone breast implant
prior to June 1, 1993.
The Company was not originally a party to the
Settlement Agreement. However, on April 8, 1994 the Company and
the PNC reached an agreement which would join the Company into
the Settlement. The agreement reached between the Company and
the PNC added great value to the Settlement by enabling all
plaintiffs and U.S.-based manufacturers to participate in the
Settlement, and facilitating the negotiation of individual
contributions by the Company, Minnesota Mining and Manufacturing
Company ("3M"), and Union Carbide Corporation which total more
than $440 million.
A fairness hearing for the non-mandatory class was held
before Judge Pointer on August 18, 1994. On September 1, 1994,
Judge Pointer gave final approval to the non-mandatory class
action settlement. The deadline for plaintiffs to enter the
Settlement was March 1, 1995.
Under the terms of the Settlement Agreement, the
parties stipulated and agreed that all claims of the Settlement
Class against the Company regarding breast implants and breast
implant materials would be fully and finally settled and resolved
on the terms and conditions set forth in the Settlement
Agreement.
Under the terms of the Settlement Agreement, the
Company would have paid $1 million to the Settlement fund for
each of 25 years starting three years after Settlement approval
by the Court. The Settlement was approved by the court on
September 1, 1994. The Company recorded a pre-tax charge of $9.1
million in October of 1994. The charge represents the present
value (discounted at 8%) of the Company's settlement of $25
million over a payment period of 25 years, $1 million per year
starting three years from the date of Settlement approval.
Under the Settlement, $1.2 billion had been provided
for "current claims" (disease compensation claims). In May 1995,
Judge Pointer completed a preliminary review of current claims
against all Settlement defendants which had been filed as of
September 1994, in compliance with deadlines set by the court.
Judge Pointer determined that based on the preliminary review,
projected amounts of eligible current claims appeared to exceed
the $1.2 billion provided by the Settlement. Discrete
information as to each defendant was not made available by the
court and the Company is not aware of any information from
such findings that would affect the Company's $9.1 million
accrual. The Settlement provided that in the event of such over
subscription, the amounts to be paid to eligible current
claimants would be reduced and claimants would have a right to
"opt-out" of the Settlement at that time.
On October 1, 1995, Judge Pointer finalized details of
a scaled-back breast implant injury settlement involving
defendants Bristol-Myers Squibb, Baxter International, and 3M,
allowing plaintiffs to reject this settlement and file their own
lawsuits if they believe payments are too low. On November 14,
1995, McGhan Medical and Union Carbide were added to this list of
settling defendants to achieve the "Bristol, Baxter, 3M, McGhan &
Union Carbide Revised Settlement Program" (the "Revised
Settlement Program"). With respect to the parties thereto, the
Revised Settlement Program incorporated and superseded the
Settlement. The Revised Settlement Program does not fix the
liability of any defendants, but established fixed benefit
amounts for qualifying claims. The Company's obligations under
the Revised Settlement are cancelable if the Revised Settlement
is disapproved on appeal.
The Company recorded a pre-tax charge of $23.4 million
in the third quarter of 1995. The charge represented the present
value (discounted at 8%) of the maximum additional amount that
the Company then estimated it might be required to contribute to
the Revised Settlement Program - $50 million over a 15-year
period based on a claims-made and processed basis. Due to the
uncertainty of ultimate resolution and acceptance of the Revised
Settlement Program by the registrants, claimants and plaintiffs,
and the lack of information related to the substance of the
claims, the Company reversed this charge at year-end 1995 for the
third quarter of 1995.
At December 31, 1996, the Company's reasonable estimate
of its liability to fund the Revised Settlement Program was a
range between $9.1 million, the original accrual as noted above,
and the discounted present value of the $50 million aggregate the
Company estimated it might have been required to contribute under
the Revised Settlement Program. Again, due to the uncertainty of
the ultimate resolution and acceptance of the Revised Settlement
Program by the registrants, claimants and plaintiffs (which
acceptance and participation is necessary for any contributions
under the Revised Settlement Program) and the limited and
changing information related to the claims, no estimate of the
possible additional loss or range of loss can be made and,
consequently, the financial statements do not reflect any
additional provision for the litigation settlement.
However, preliminary information obtained prior to July 31, 1997,
concerning claims and opt-outs filed under the Revised Settlement
indicates that the range of costs to the Company of its
contributions, while likely to exceed $9.1 million, will be
substantially less than $50 million. This preliminary
information suggests that the cost for current claims, which will
be payable after the conclusion of all appeals relating to the
Revised Settlement, is not likely to exceed $16 million. This
estimate may change as further information is obtained. The
additional cost for ongoing claims payable over the 15-year life
of the program is still unknown, but is capped at approximately
$6 million under the terms of the Revised Settlement.
The Company has entered into a Settlement Agreement
with health care providers pursuant to which the Company is
required to pay, on or before December 17, 1996, or after the
conclusions of any and all disapproved appeals, $1 million into
the MDL Settlement Funds ("the Fund") to be administered by Edgar
C. Gentle, III, Esq. ("the Fund Agent"). The charge for
settlement will be applied against the $9.1 million accrual
previously established by the Company. The Company, in the
spirit of the Revised Settlement Program, also contributed
$600,000 in 1996 and $300,000 in 1997 to the claims
administration management for the settlement.
The Company has opposed the plaintiffs' claims in
these complaints and other similar actions, and continues to deny
any wrongdoing or liability to the plaintiffs of any kind.
However, the extensive burdens and expensive litigation the
Company would continue to incur related to these matters prompted
the Company to work toward and enter into the Settlement which
insures a more satisfactory method of resolving claims of women
who have received the Company's breast implants.
Management's commitment to the Revised Settlement
Program does not alter the Company's need for complete resolution
sought under a mandatory ("non-opt-out") settlement class (the
"Mandatory Class") or other acceptable settlement resolution. In
1994, the Company petitioned the United States District Court,
Northern District of Alabama, Southern Division, for
certification of a Mandatory Class under the provisions of
Federal Rules of Civil Procedure. Since that time, the Company
has been in negotiation with the plaintiffs concerning an updated
mandatory settlement class or other acceptable resolution. On
July 1, 1996, the Company filed an appearance of counsel and
status report on the INAMED Mandatory Class application to the
United States District Court, Northern District of Alabama,
Southern Division, Chief Honorable Judge Samuel C. Pointer, Jr.
There can be no assurance that the Company will receive Mandatory
Class certification or other acceptable settlement resolution.
If the Mandatory Class is not certified, the Company
will continue to be a party to the Revised Settlement Program.
However, if the Company fails to meet its obligations under the
program, parties in the program will be able to reinstate
litigation against the Company. In addition, the Company will
continue to be subject to further potential litigation from
persons who are not provided for in the Revised Settlement
Program and who opt out of the Revised Settlement Program. The
number of such persons and the outcome of any ensuing litigation
are uncertain. Failure of the Mandatory Class to be certified,
absent other acceptable settlement resolution, is expected to
have a material adverse effect on the Company.
The Company was a defendant with 3M in a case involving
three plaintiffs in Houston, Texas, in March 1994, in which the
jury awarded the plaintiffs $15 million in punitive damages and
$12.9 million in damages plus fees and costs. However, the
matter was resolved in March 1995 resulting in no financial
responsibility on the part of the Company.
In connection with 3M's 1984 divestiture of the breast
implant business now operated by the Company's subsidiary, McGhan
Medical Corporation, 3M has a potential claim for contractual
indemnity for 3M's litigation costs arising out of the silicone
breast implant litigation. The potential claim vastly exceeds
the Company's net worth. To date, 3M has not sought to enforce
such an indemnity claim. As part of its efforts to resolve
potential breast implant litigation liability, the Company has
discussed with 3M the possibility of resolving the indemnity
claim as part of the overall efforts for global resolution of the
Company's potential liabilities. Because of the uncertain nature
of such an indemnity claim, the financial statements do not
reflect any additional provision for such a claim.
In October 1995, the Federal District Court for the
Eastern District of Missouri entered a $10 million default
judgment against a subsidiary of the Company arising out of a
Plaintiff's claim that she was injured by certain breast implants
allegedly manufactured by the subsidiary. The Company did not
become aware of the lawsuit until November 1996, due to improper
service. The Plaintiff's attorney waited over one year to notify
the Company that a default judgment had been entered. The
Plaintiff's attorney refused to voluntarily set aside the
judgment, although it is clear from the allegations of the
complaint that the Plaintiff sued the wrong entity, since neither
the named subsidiary, the Company, nor any of its other
subsidiaries manufactured the device. The Company has moved to
have this judgment set aside. The Company has not made any
adjustment in its 1996 financial reports to reflect this
judgment.
The cost of the foregoing litigation has adversely
affected the Company's financial position, results of operations
and cash flows. Management believes that the Company may not
continue as a going concern if its efforts to resolve the breast
implant litigation are not successful. Although management is
optimistic that the Mandatory Class will be approved by the
Court, there can be no assurances that this outcome will be
achieved.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS.
The Company's common stock is traded in the over-the-
counter market and was listed on NASDAQ beginning in June 1986.
The Company's common stock also began trading on the Pacific
Exchange, Inc. on December 1, 1987. On August 31, 1997, the
Company had 839 stockholders of record. The Company's common
stock price at the close of business of August 31, 1997 was
$5.50.
Effective December 20, 1995, the Company had been
granted a temporary exception to the capital and surplus
requirement of the NASDAQ Small Cap Market by the NASDAQ Listing
Qualifications Committee. As part of its conditional listing,
the Company's stock symbol was changed from IMDC to IMDCC. The
Company was listed under this symbol, with the fifth character
"C" appended, until it was able to evidence compliance with all
NASDAQ listing criteria in a manner deemed acceptable by the
Listing Qualifications Committee. Effective May 24, 1996, the
NASDAQ Stock Market, Inc. removed the common stock of INAMED
Corporation from inclusion in the NASDAQ SmallCap Market for
failure to meet the capital and surplus requirements for
continued inclusion in such market. The Company was reinstated
in the NASDAQ SmallCap Market effective September 12, 1996.
On May 8, 1997, the Company announced that it submitted
to the NASDAQ Stock Market, Inc. its formal request for a hearing
on the Company's continued listing on the NASDAQ Small Cap
Market. The hearing was held on June 5, 1997. The Company's
request for such a hearing was necessitated by the Company's
failure to timely file its annual report on Form 10-K for
calendar/fiscal year 1996. The NASDAQ Listing Qualifications
Panel informed the Company that it had determined to delete the
Company's securities from the NASDAQ Stock Market effective June
11, 1997 in light of the filing deficiency and the likely capital
and surplus deficiency. The Company's common stock now trades on
the OTC Bulletin Board under the symbol IMDC. The Company's
common stock will also continue to trade on the Pacific Exchange,
Inc. under the symbol INA.
The Table below sets forth the high and low bid prices
of the Company's common stock for the periods indicated.
Quotations reflect prices between dealers, do not reflect retail
markups, markdowns or commissions, and may not necessarily
represent actual transactions. No cash dividends have been paid
by the Company during such periods.
High Low
1995
1st Quarter 4-1/4 3
2nd Quarter 4-1/8 3
3rd Quarter 14 3
4th Quarter 12-5/8 8-1/4
1996
1st Quarter 13-1/4 8-3/4
2nd Quarter 12-1/2 8-1/8
3rd Quarter 10-1/2 6-1/8
4th Quarter 9-7/8 6-3/8
The Company has never paid a cash dividend. It is the
present policy of the Company to retain earnings to finance the
growth and development of its business and to fund ultimate
litigation settlements. Therefore, the Company does not
anticipate paying cash dividends on its common stock in the
foreseeable future.
On June 10, 1997, the Company announced that its Board
of Directors unanimously adopted a Stockholder Rights Plan (the
"Plan") and has declared a dividend granting to its stockholders
the right to purchase for each share of the Company's common
stock, $.01 par value, one Common Share (a "Common Share") at an
initial price of $80. The record date for the Rights is June 13,
1997. The Company stated that the Plan is designed to protect
stockholders from various abusive takeover tactics, including
attempts to acquire control of the Company at an inadequate price
which would deny stockholders the full value of their
investments. The rights are attached to the Common Shares of the
Company and are not exercisable. They become detached from the
Common Shares and become immediately exercisable after any person
or group of persons becomes the beneficial owner of 15% or more
of the Common Shares or 10 days after any person or group of
persons publicly announces a tender or exchange offer that would
result in the same beneficial ownership level.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected
financial data of the Company and should be read in conjunction
with the related Consolidated Financial Statements of the Company
and accompanying Notes to Consolidated Financial Statements.
<TABLE>
Years Ended December 31
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
Income Statement Data: (unaudited)
Net sales $94,348,076 81,625,581 80,385,342 74,497,946 64,343,031
Operating income (loss) (2,237,726) (9,189,905) 3,578,025 (3,471,507) 611,836(2)
Gain on sale of subsidiaries -- -- -- 4,158,541 --
Income (loss) before income
tax expense (benefit) (5,986,269) (8,575,860) 5,007,103 449,448(1) 435,591(2)
Income tax expense (benefit) 1,085,391 (1,682,799) 2,260,792 4,533,142 1,807,000
___________ ___________ ___________ __________ __________
Net income (loss) $(7,071,660) (6,893,061) 2,746,311 (4,083,694)(1) (1,371,409) (2)
Net income (loss) per share
of common stock $ (.91) (0.91) 0.37 (0.52) (0.17)
=========== =========== ========== =========== ===========
Weighted average common
shares outstanding 7,811,073 7,544,335 7,410,591 7,850,853 7,873,504
=========== =========== =========== =========== ===========
</TABLE>
(1) Includes a pre-tax charge of $9.1 million under the terms of
the proposed class action settlement.
(2) Includes write-offs of assets for product inventory aggregating
$1,974,423 in 1992.
<TABLE>
As of December 31
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
Balance Sheet Data: (unaudited)
Working capital (deficiency) $23,613,930 (6,041,738) 1,087,925 (2,316,741) (1,921,514)
Total assets 70,100,427 50,384,944 47,810,401 37,857,3052 9,092,802
Long term debt, net of
current installments 34,607,170 89,437 50,801 235,170 454,274
Stockholders' (deficit) equity (5,600,776) (1,704,116) 4,478,827 1,347,425 6,545,891
Stockholders' (deficit) equity
per share of common stock $ (.72) (0.22) 0.60 0.18 0.82
========== ========== ========= =========== ==========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
he Company experienced substantial sales growth in
1996 with net sales of $94.3 million. This represented a 15.6%
increase over net sales of $81.6 million during the year ended
December 31, 1995. Net sales for 1995 increased 1.5% over 1994
sales which totaled $80.4 million. Although revenue is subject to
changes in price or volume, revenue increases during this period
were primarily a result of increased volume.
Domestically, net sales increased 10.5% in 1996 to
$61.8 million from $55.9 million in 1995. Net sales in 1995
decreased 5.6% from 1994 net sales of $59.2 million. Domestic
net sales in 1995 suffered because during the first quarter the
Company was temporarily unable to manufacture sufficient amounts
of finished goods to meet demand in the market. The reasons for
this decline in output were twofold. Shortages of raw materials
were partly a result of the Company's restricted cash flow
available to pre-purchase raw materials, and a shortage in
certain raw material components was due to a supplier's inability
to manufacture sufficient quantities of the components to meet
the Company's demand. The Company now sources this rather
specialized component from two suppliers. Another factor was the
significant diversion of productive time, energy and material to
FDA-mandated process validation which led to a decline in yield
of finished goods that was not overcome until the beginning of
the second quarter.
Internationally, significant sales growth was achieved
again in Europe where net sales were $24.0 million in 1996, an
increase of 15.5% over 1995 net sales of $20.8 million which in
turn represented an increase of 13.6% over 1994 net sales of
$18.3 million. Net sales by Central and South America, Mexico,
Spain and Portugal as a region continued to experience impressive
sales growth. Net sales reported by this region in 1996 totaled
$5.6 million which represents an increase of 27% over 1995 net
sales of $4.4 million which in turn was an increase of 52.1% over
1994 net sales of $2.9 million. Net sales by the Asia Pacific
region were first recorded in 1995 at $0.6 million and grew
significantly to $3.0 million in 1996.
Net sales to regions outside the United States
represented 35.3% of total Net sales in 1996, 31.5% of total net
sales in 1995 and 26.3% of total net sales in 1994. The Company
expects international sales to represent an increasing percentage
of net sales in future years, since this market is experiencing
increasing demand. Management anticipates that market growth,
continued increase of production capacity, both domestically and
internationally, and expansion of the international sales force
will allow an increase in sales growth throughout 1997.
Cost of goods sold were $34.1 million, $30.2 million,
and $26.3 million for the years ended December 31, 1996, 1995,
and 1994 respectively. Cost of goods sold as a percent of net
sales was 36% for the year ended December 31, 1996, compared to
37% for the year ended December 31, 1995 and 33% for the year
ended December 31, 1994. Management anticipates that the Company
may experience future quarters with higher costs of production as
modifications are made to accommodate changing FDA views and
related regulations.
Marketing expenses were $25.9 million, $23.4 million,
and $19.7 million for the years ended December 31, 1996, 1995,
and 1994 respectively. Marketing expenses as a percent of net
sales were 27% for the year ended December 31, 1996, compared to
29% for the year ended December 31, 1995 and 25% for the year
ended December 31, 1994. The increase in royalty expenses was
commensurate with the increase in sales of licensed product and
represents a significant variable expense. Royalty expenses were
$6.3 million, $5.5 million, and $4.3 million for the years ended
December 31, 1996, 1995, and 1994 respectively. As was expected
in 1995, while INAMED GmbH, INAMED S.R.L., INAMED Ltd. and INAMED
S.A.R.L. were in the start-up phase, marketing expenses as a
percent of net sales for their individual distribution networks
were somewhat higher than the consolidated percentages.
Moderating this increase was the relative stability of other
marketing expenses on a Company-wide basis. In 1996, marketing
expenses as a percentage of net sales for these units decreased
by approximately 2% points.
In 1996, general and administrative expenses decreased
to $30.9 million compared to 1995 general and administrative
expenses of $32.8 million. In 1994, general and administrative
expenses were $27.1 million. As a percentage of net sales,
general and administrative expenses were 33%, 40% and 34% for the
years ended December 31, 1996, 1995 and 1994 respectively. The
decline in legal fees related to the breast implant litigation
contributed to the decrease of general and administrative
expenses in 1996. Legal fees related to breast implant litigation
were approximately $1.0 million in 1996, $1.1 million in 1995 and
$3.0 million in 1994.
Research and development ("R&D") expenses have
increased to $5.7 million from $4.4 million and $3.7 million in
1996, 1995 and 1994 respectively, reflecting the Company's
continuing commitment to development of new and advanced medical
products. As a percentage of net sales, this expense has
consistently increased from 4.6% in 1994 to 5.4% in 1995 to 6.0%
in 1996. Diversification into other medical devices within the
industry through use of new technology has always been and
remains a goal of the Company. R&D expenses are planned to
increase in 1997, should cash flow be adequate. The Company is
also planning to increase R & D expenditures overseas to
moderate somewhat the impact of the relatively long time periods
required to achieve FDA approval of new devices in the U.S.
Additionally, increased costs to obtain FDA PMA
approvals are anticipated in 1997. Beginning in 1989, the
Company began the necessary work to address FDA regulations
related to premarket approval of both saline and silicone gel-
filled breast implants, and the Company anticipates continued
investment of employee hours and Company funds throughout
calendar 1997 to facilitate compliance with all FDA regulations
as determined by the PMA study and any new regulations which may
be adopted.
Interest expense was $5.4 million in 1996, $0.8 million
in 1995 and $0.6 million in 1994. The increase in 1995 was due
to interest incurred on outstanding federal and state income tax
liabilities. The significant increase in 1996 was a result of
interest totaling $3,593,086 on the Company's convertible notes
payable which were issued in January 1996 and the accounting
charge of $1,416,960 associated with the issuance of the shares
under the waiver of covenant default agreement.
The Company had an operating loss of $2.2 million in
1996 and an operating loss of $9.2 million in 1995 compared with
operating income of $3.6 million in 1994. The United States
regions incurred a $1.3 million operating loss in 1996, $7.6
million operating loss in 1995 and $4.7 million operating profit
in 1994. The Iberian and Latin American regions had a $0.7
million operating loss in 1996, $2.0 million operating loss in
1995 and $0.2 million operating loss in 1994. The European
region had an operating loss of $0.8 million in 1996, operating
profit of $0.3 million in 1995 and an operating loss of $0.9
million in 1994. The Asia-Pacific region posted operating income
of $0.5 million in 1996 and $0.1 million in 1995.
The Company had a net loss of $7.1 million or $0.91 per
share in 1996, a net loss of $6.9 million or $0.91 per share in
1995 and net income of $2.7 million or $0.37 per share in 1994.
Regulatory and legal costs relating to breast implants continue
to be a significant burden on the Company's bottom-line
profitability. Management believes that resolution of the breast
implant litigation through the Revised Settlement Program and
achievement of provisional certification of the Mandatory
Settlement Class or other resolution of the litigation will allow
the Company to anticipate and manage future legal costs and move
the Company toward profitability in the future.
Financial Condition
Liquidity
The current ratio (current assets to current
liabilities) has increased to 1.8 to 1 as of December 31, 1996
compared to 0.9 to 1 as of December 31, 1995. The Company's
ratio was positively affected in 1996 by the cash accrual for the
settlement fund of $14.8 million but negatively affected by the
Company's expansion domestically, legal costs due to breast
implant litigation and market development internationally.
For the year ended December 31, 1996 the Company's net
loss was $7,071,660 which when added to the December 31, 1995
accumulated deficit of $12,625,924 resulted in a total
accumulated deficit as of December 31, 1996 of $19,697,584. As
of December 31, 1996, the Company's current working capital was
$23,613,930. Significant contributors to working capital include
the cash for settlement purposes, increased accounts receivable,
increased inventory, decreased accounts payable and decreased
salaries and wages payable.
Significant uses of cash during the years ended
December 31, 1996, 1995 and 1994 respectively include increases
in inventory of $5.1 million, $2.5 million and $1.9 million,
purchases of property and equipment totaling $4 million, $4.7
million and $2.9 million and principal repayment of notes payable
and long-term debt of $0.8 million, $0.6 million and $1.1
million. Significant uses of cash in 1996 also included
decreases of accrued salaries, wages and payroll taxes of $4.6
million, accounts payable of $6.2 million, related party payables
of $1.8 million and interest payments totaling over $3.5 million.
In 1995 an additional significant use of cash was the reduction
of income taxes by $3.1 million.
Significant sources of cash during the year ended
December 31, 1996 include the proceeds from the issuance of the
secured convertible notes of $35 million in January, 1996 and the
issuance of common stock totaling $3,584,001. Three million
dollars of this was raised in a private Reg. S transaction
completed June 27, 1996. Significant sources of cash during the
years ended December 31, 1995 and 1994 respectively included
increases in accounts payable of $2.7 million and $1.6 million
accrued salaries, wages, and payroll taxes of $6.1 million and
$2.4 million, and increases of notes payable and long-term debt
from financing activities of $0.5 million, in 1995 and $1.1
million in 1994. Payment of related party receivables resulted
in cash inflow of $.01 million in 1996, $0.3 million in 1995 and
$0.5 million in 1994. An increase in related party payables of
$0.8 million in 1995 and $0.4 million in 1994 also provided
significant cash.
The Company's net deferred tax asset totaled $1,765,347
and $2,009,571 as of December 31, 1995 and 1994, respectively.
The net deferred tax asset will effectively reduce tax liability
going forward as allowed by Statement of Financial Accounting
Standards No. 109. Although realization is not assured,
management believes it is more likely than not that the net
deferred tax asset is fully recoverable against taxes previously
paid and thus no further valuation allowance for these amounts is
required. Deferred tax assets other than amounts expected to
cover taxes previously paid require a valuation allowance due to
certain negative evidence which include, but are not limited to,
the uncertainty surrounding settlement of the class action
litigation and cumulative losses resulting in accumulated deficit
and shareholders deficit.
The Company had net operating loss carryovers at the foreign companies
aggregating approximately $2,930,000 at December 31, 1996 (based on exchange
rates at that date) to be used by the individual foreign subsidiaries
that incurred those losses. These net operating loss carryovers have various
expiration dates. As of December 31, 1995, the Conpan had a net operating
loss carryover of approximately $4,000,000 and tax credits of approximately
$260,000 for California farnchise tax purposes. These loss carryovers
expire in 2000.
Breast implant product liability related issues are
expected to continue to draw on the Company's liquidity
throughout 1997. The Company is in the process of negotiating
extended payment terms on these expenses which the Company feels
will reduce the adverse effect on short-term and long-term
liquidity. However, there is no assurance that the extended
payment terms will be granted by the legal firms involved.
The cost of the foregoing litigation has adversely
affected the liquidity of the Company. Management believes that
the Company may not continue as a going concern if Mandatory
Class is not certified and no other acceptable settlement
resolution to the breast implant litigation against the Company
exists. Although management is optimistic that the Mandatory
Class will be approved by the Court, there can be no assurances
that this outcome will be achieved.
In January 1996, the Company completed a private
placement offering by issuing three-year collateralized
convertible, non-callable notes due March 31, 1999 bearing an
interest rate of 11%. The Company received $35 million in
proceeds from the offering to be used for a portion of the
anticipated litigation settlement, for capital investments and
improvements to expand production capacity, and for working
capital purposes. Of the proceeds received from the offering,
$14.8 million is held in an escrow account to be released upon
the granting and court approval of mandatory class certification.
During 1997 the Company has had discussions with
Noteholders in majority of the 11% Secured Convertible Notes due
1999 to restructure the terms of the notes. In July, the Company
reached a comprehensive settlement agreement with the Noteholders
in majority. The purpose of the restructuring was to cure and
waive all past defaults and provide certainty as to the
conversion price of the Notes, which the Company has agreed to
fix at $5.50 per share instead of 85% of the market. The
restructuring also reduces the Company's debt by approximately
$15 million through the redemption of Notes with the proceeds of
the escrow fund. Those monies would be replaced when needed to
fund the settlement of the breast implant litigation with the
capital raised through the mandatory redemption of warrants
issued to the Noteholders with an exercise price of $8.00 per
share (subject to adjustment), at the Company's option, if the
Common Stock maintains a value of at least $10.00 per share for a
specified measurement period.
On June 27, 1996 the Company entered into a Regulation
S transaction ("Offshore Stock Subscription Agreement") with
certain non-US investors outside the United States. This
agreement was in connection with an offer and sale by the Company
of 344,333 shares of common stock at $8.7125 per share. The
Company received $3 million in proceeds from this transaction.
In January 1997, the Company received $5.7 million in
proceeds from $6.2 million in financing via a 4% convertible
debenture purchase agreement, issued at an 8% discount, due
January 16, 2000. Interest is payable quarterly in arrears. The
proceeds received are to be used for working capital purposes.
As of December 31, 1996, proceeds of approximately $61,000 had
been received and were classified as a non-current liability.
The debentures become convertible into shares of common
stock at the option of the holder 60 days after the issue date.
The conversion price for each debenture is the lesser of the
average per share market value of INAMED common stock for the 5
trading days preceding the original issue date or the average per
share market value for the 5 trading days preceding conversion
and adjusted to halve any increase exceeding 33%, whichever is
greater, or 85% of the average per share market value for the
five trading days immediately preceding the conversion date.
The Company forecasts that the majority of cash
necessary for U.S. operations will continue to be generated by
operations. The Company currently continues to utilize a
combination of working capital and its overseas credit facility.
The Company is also working to establish a domestic credit
facility to meet periodic short-term cash requirements.
Increased sales activity throughout 1997 is expected to increase
the availability of cash resources. If cash is determined to be
inadequate for the level of activity, the Company may reduce
expenses such as those related to R & D projects. The future of
any affected project would then be uncertain. As cash flow
becomes more available, management may renew work on projects, or
elect to terminate them, a business decision that will be made on
a project-by-project basis.
The Company intends to seek out a suitable partner in
banking to achieve current and future credit facility needs for
domestic subsidiaries' support. Additionally, the Company
intends to develop other methods to achieve increased working
capital. These methods may be achieved through both the private
and/or public sector. However, there can be no assurance that
such financing will be available at acceptable terms, if at all.
Settlement of the breast implant litigation will greatly enhance
the Company's ability to obtain financing from banks or other
lending institutions.
In June of 1990, the Company established a $4.5 million
financing package for working capital with a major bank that
utilizes the domestic accounts receivable, inventories and
certain other assets as collateral. In December 1990, the line
of credit was increased to $5.3 million. As of December 31,
1995, approximately $0.3 million had been drawn on the line of
credit. The weighted average interest rate during 1995 was
11.3%.
The Company's line of credit was due for renewal in
August, 1993. The bank line was not renewable under acceptable
terms and conditions and was extended through March 31, 1996.
On January 24, 1996, the Company paid all amounts due under the
line of credit. The Company believes that it can start
reasonable discussions with lenders for a new credit facility now
that the Company has entered into global settlement agreements.
Although there are no assurances that the Company will be
successful in the engagement of a lender, the Company has made
progress in addressing lender concern surrounding the breast
implant litigation through settlement agreements which include
mandatory class certification. However, there can be no
assurance that such financing will be available at acceptable
terms, if at all.
In April 1994, the Company increased its international
line of credit with a major Dutch bank. The current line is
approximately $0.9 million and is collateralized by the accounts
receivable, inventories and certain other assets of INAMED B.V.
The line of credit was renegotiated in 1996 with no expiration
date. As of December 31, 1996, approximately $0.5 million had
been drawn on the line of credit. The interest rate on the line
of credit is 7% per annum.
The Company's international sales subsidiaries achieved
significant sales growth in 1996. In Ireland, grants have been
approved by the Irish Industrial Development Authority (IDA) to
fund portions of the costs of operations of McGhan Limited,
including reimbursement for training expenses, leasehold
improvements and capital equipment. As of December 31, 1996,
McGhan Limited had received grants from the IDA for approximately
$2.7 million and had obtained approval for additional grants from
other funding agencies for approved research and development
programs for up to $1.1 million. Chamfield Limited has received
grants of approximately $1.0 million from the IDA and $0.7
million in approval for additional grants from other funding
agencies for approved research and development programs.
Currently, the Company is not repatriating profits from
its foreign subsidiaries. All funds transferred to the Company
have been repayments of outstanding intercompany loans and
invoices. It has been the Company's practice to retain earnings
at its foreign entities for purposes of expanding the Company's
foreign operations. Although the Company is currently not
repatriating profits, there are no material restrictions on its
ability to do so.
The Company currently does not enter into hedging
transactions to control foreign exchange rate risks. Because
foreign sales represent increasing percentages of net sales, the
Company is closely monitoring the impact of foreign exchange
fluctuations. The Company has established a relationship with an
international bank to provide hedging so that the Company can
address this issue when they feel the foreign exchange risk
warrants hedging.
Management believes short-term liquidity will improve
as a result of increased sales throughout 1997, due to increased
sales areas and new product introduction, decreased litigation
costs as a result of projected global settlement and mandatory
class certification, and efforts by the Company to raise future
funding through a bank line, public, or private offering.
However, no assurances can be given as to the outcome of such
efforts.
The long-term liquidity of the Company is inextricably
intertwined with the Company's efforts and ultimate ability to
successfully resolve the breast implant litigation. Determining
the long-term liquidity needs of the Company is not currently
possible because the settlement process has not progressed to the
point where the numbers of current, ongoing, and future claimants
can be determined. Management's primary plan to overcome its
liquidity and financial condition difficulties is to continue to
vigorously defend the products liability litigation to which it
is a party and to seek a prompt and favorable settlement of such
litigation and to supplement its short-term liquidity using a
combination of cash generated from operations and debt and equity
financing. Management firmly believes that such plan is the only
viable plan available to the Company. The Company's counsel and
advisors are in agreement with Management that the extent of the
Company's liability cannot be determined at this time.
Capital Expenditures
Expenditures on property and equipment approximated $4
million in 1996 compared to $4.7 million in 1995. Additionally,
capital lease obligations of approximately $326,000 were incurred
during 1996 compared to capital lease obligations of
approximately $89,000 incurred during 1995. The majority of the
expenditures in each year were for building improvements and
equipment to increase production capacity and efficiency. The
Company is working on several development projects, any one of
which may require additional capital resources for completion,
production, and marketing. As of December 31, 1996 material
commitments for capital expenditures were approximately $370,000.
Significant Fourth Quarter Adjustments
The Company's provision for income taxes was adjusted
to reduce income tax expense by $4,162,607, or 5.1% of net sales
in 1995. The Company is working closely with its advisors to
anticipate ongoing tax responsibility and better reflect income
tax liability/benefits during the year.
In 1996, the provision for product liability was
increased by $254,176 or 0.3% of net sales, to more accurately
reflect the potential impact of the Company's limited product
warranty. The Company's royalty expense was also increased in
the fourth quarter of 1996 by $647,672 or 0.7% of net sales to
reflect royalty expense for products sold internationally under
various license agreements in the fourth quarter of 1996.
The provision for doubtful accounts and returns and
allowances was increased by $1,424,734 or 1.7% of net sales in
1995 due to a backlog of product returns developed in the fourth
quarter of 1995 as attention was diverted to other operating
issues. Management has implemented a policy mandating since its
inception in March, 1996 that returns be processed on a daily
basis to ensure a backlog does not develop again. This policy
has been adhered to. Returns are also being monitored quarterly
to determine when provisions need adjustment.
An adjustment to increase compensation expense in 1995
by $891,200 or 1.1% of net sales was made to reflect bonuses and
payments declared after year end for certain personnel. Whenever
possible, management has instructed compensation to be accrued
for in the year the activity occurred.
Impact of Inflation
The Company believes that inflation has had a
negligible effect on operations over the past three years. There
exists the opportunity to offset inflationary increases in the
cost of materials and labor by increases in sales prices and by
improved operating efficiencies.
ITEM 8(a). FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
(To come)
<TABLE>
INAMED CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited)
December 31,
Assets 1996 1995
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 923,291 $ 2,807,327
Restricted Cash, Settlement Fund 14,795,892
Trade accounts receivable, net of
allowance for doubtful accounts
and returns and allowances of
$4,477,187 in 1996 and $6,641,177
in 1995 12,427,797 10,470,375
Notes receivable - trade -- 157,534
Related party notes receivable 236,065 385,508
Inventories 21,929,981 17,695,847
Prepaid expenses and other current assets 1,547,322 1,825,213
Income tax refund receivable 150,575 95,580
Deferred income taxes 2,022,382 2,014,589
___________ ___________
Total current assets 54,033,305 35,451,973
Property and equipment, at cost:
Machinery and equipment 10,555,229 8,923,564
Furniture and fixtures 4,494,461 3,714,717
Leasehold improvements 9,147,570 7,567,208
___________ ___________
24,197,260 20,205,489
Less, accumulated depreciation and
amortization (11,937,738) (9,234,166)
___________ ___________
Net property and equipment 12,259,522 10,971,323
Notes receivable, net of allowance of
$1,066,958 in 1996 and 1995 2,108,334 2,047,535
Intangible assets, net 1,409,935 1,658,926
Deferred income taxes 1,759 --
Other assets, at cost 287,572 255,187
___________ ___________
Total assets $70,100,427 $50,384,944
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
INAMED CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited)
December 31,
Liabilities and Stockholders' (Deficit) Equity 1996 1995
<S> <C> <C>
Current liabilities:
Current installments of long-term debt $ 320,839 $ 51,735
Notes payable to bank 914,361 1,273,476
Notes payable -- 493,511
Related party notes payable -- 1,759,417
Accounts payable 12,445,123 18,596,800
Accrued liabilities:
Salaries, wages, and payroll taxes 4,891,054 9,559,348
Interest 3,110,179 1,609,947
Self-insurance 1,372,657 1,130,632
Stock option compensation 68,714 68,714
Other 1,538,758 2,200,860
Royalties payable 4,038,404 2,926,388
Income taxes payable 1,692,401 1,812,818
Deferred income taxes 26,885 10,065
___________ ___________
Total current liabilities 30,419,375 41,493,711
Long-term debt, excluding current installments 91,105 89,437
Convertible notes payable 34,516,065 --
Deferred grant income 1,269,123 1,114,735
Deferred income taxes 253,535 239,177
Litigation settlement 9,152,000 9,152,000
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value. Authorized
20,000,000 shares; issued and outstanding
8,036,550 in 1996 and 7,602,617 in 1995 80,366 76,027
Additional paid-in capital 13,585,509 9,963,635
Cumulative translation adjustment 430,933 882,146
Accumulated deficit (19,697,584) (12,625,924)
___________ ___________
Stockholders' equity (deficit) (5,600,776) (1,704,116)
___________ ___________
Total liabilities and stockholders' equity
(deficit) $70,100,427 $50,384,944
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
INAMED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (unaudited)
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
Net sales $94,348,076 $81,625,581 $80,385,342
Cost of goods sold 34,087,854 30,155,783 26,264,458
___________ ___________ ___________
Gross profit 60,260,222 51,469,798 54,120,884
___________ ___________ ___________
Operating expense:
Marketing 25,857,656 23,434,040 19,719,078
General and administrative 30,947,104 32,833,609 27,099,371
Research and development 5,693,188 4,392,054 3,724,410
___________ ___________ ___________
Total operating expenses 62,497,948 60,659,703 50,542,859
___________ ___________ ___________
Operating income (loss) (2,237,726) (9,189,905) 3,578,025
___________ ___________ ___________
Other income (expense):
Interest income 1,110,375 770,081 428,704
Interest expense (5,386,662) (833,086) (624,261)
Royalty income 480,569 351,376 419,675
Foreign currency transaction
gains (losses) 67,811 (252,525) 264,473
Miscellaneous income (expense) (20,636) 578,199 940,487
___________ ___________ ___________
Net other income (expense) (3,748,543) 614,045 1,429,078
___________ ___________ ___________
Income (loss) before income
tax expense (benefit) (5,986,269) (8,575,860) 5,007,103
Income tax expense (benefit) 1,085,391 (1,682,799) 2,260,792
___________ ___________ ___________
Net income (loss) $(7,071,660) $(6,893,061) $ 2,746,311
=========== =========== ===========
Net income (loss) per share of
common stock $ (0.91) $ (0.91) $ 0.37
=========== =========== ===========
Weighted average shares
outstanding 7,811,073 7,544,335 7,410,591
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
INAMED CORPORATION AND SUBSIDIARIES
<TABLE>
Consolidated Statements of Stockholders' (Deficit) Equity (unaudited)
Years ended December 31, 1996, 1995 and 1994
Additional Cumulative
Common Stock Paid-in Translation Accumulated Stockholders'
Shares Amount Capital Adjustment Deficit (Deficit)Equity
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 7,460,567 $74,606 $9,830,988 $ (78,995) $(8,479,174) $ 1,347,425
Net loss -- -- -- -- 2,746,311 2,746,311
Repurchases and retirement
of common stock (124,034) (1,240) (405,447) -- -- (406,687)
Issuances of common stock 129,606 1,296 273,804 -- -- 275,100
Translation adjustment -- -- -- 516,678 -- 516,678
____________________________________________________________________________
Balance December 31, 1994 7,466,139 74,662 9,699,345 437,683 (5,732,863) 4,478,827
Net income -- -- -- -- (6,893,061) (6,893,061)
Repurchases and retirement
of common stock (322) (3) (1,342) -- -- (1,345)
Issuances of common stock 136,800 1,368 265,632 -- -- 267,000
Translation adjustment -- -- -- 444,463 -- 444,463
____________________________________________________________________________
Balance December 31, 1995 7,602,617 76,027 9,963,635 882,146 (12,625,924) (1,704,116)
Net loss -- -- -- -- (7,071,660) (7,071,660)
Repurchases and retirement
of common stock (300) (3) (3,460) -- -- (3,463)
Issuances of common stock 434,233 4,342 3,625,334 -- -- 3,629,676
Translation adjustment -- -- - (451,213) -- (451,213)
___________________________________________________________________________
Balance December 31, 1996 8,036,550 $80,366 $13,585,509 $(19,697,584) $(5,600,776)
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
INAMED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(7,071,660) $(6,893,061) $ 2,746,311
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 2,728,301 2,432,554 2,058,642
Amortization of deferred grant income (95,957) (78,322) (61,442)
Amortization of intangible assets 328,290 297,722 254,391
Amortization of private offering costs 40,155 -- --
Non-cash stock compensation -- 29,500 29,000
Non-cash compensation to officers/directors -- 165,000 --
Provision for doubtful accounts and returns (2,150,187) 1,707,308 884,831
Provision for obsolescence 562,917 308,632 450,730
Deferred income taxes 24,019 243,430 199,897
Write-off of intangible assets -- -- 46,017
Disposal of fixed assets (43,478) -- --
Loss on Investments 99,733 -- --
Changes in current assets and liabilities:
Trade accounts receivable 76,944 503,114 (3,634,991)
Notes receivable 87,067 343,534 12,814
Inventories (5,116,144) (2,539,782) (1,854,374)
Prepaid expenses and other
current assets 273,001 791,350 (2,091,247)
Income tax refund receivable (60,861) 367,476 (113,304)
Other assets (173,234) (6,286) (62,376)
Accounts payable (6,181,955) 2,731,166 1,610,174
Accrued salaries, wages, and payroll taxe (4,588,076) 6,094,940 2,353,998
Accrued interest 1,500,232 1,042,582 342,294
Accrued self-insurance 242,025 (160,973) (1,631)
Other accrued liabilities (646,645) (284,380) (108,978)
Royalties payable 1,112,016 1,872,500 91,526
Income taxes payable (127,867) (3,147,534) 576,768
___________ ___________ ___________
Net cash provided by
operating activities (19,181,364) 5,820,470 3,729,050
___________ ___________ ___________
Cash flows from investing activities:
Purchase of property and equipment (3,959,230) (4,694,592) (2,948,945)
Purchase of intangible assets (80,033) -- --
Acquisition of INAMED, S.A. -- -- (400,050)
___________ ___________ ___________
Net cash used in
investing activities (4,039,263) (4,694,592) (3,348,995)
___________ ___________ ___________
Cash flows from financing activities:
Increases in notes payable and long-term debt $ 271,232 $ 493,511 $ 1,077,355
Increases in convertible notes payable
and debentures payable 34,516,065 -- --
Principal repayment of notes payable
and long-term debt (780,590) (608,784) (1,117,373)
(Increase) decrease in related party receivables 149,443 302,676 451,516
Increase (decrease) in related party payables (1,759,417) 788,807 420,610
Grants received, gross 210,434 228,453 157,728
Proceeds from exercise of stock options 45,675 72,500 26,100
Repurchase of common stock (3,463) (1,345) (406,687)
Issuance of common stock 3,584,001 -- --
___________ ___________ ___________
Net cash provided by (used in) financing
activities 36,233,380 1,275,818 609,249
___________ ___________ ___________
Effect of exchange rate changes on cash (100,897) (268,320) (315,353)
___________ ___________ ___________
Net increase (decrease) in cash
and cash equivalents 12,911,856 2,133,376 673,951
Cash and cash equivalents at beginning of year 2,807,327 673,951 --
___________ ___________ ___________
Cash and cash equivalents at end of year $15,719,183 $ 2,807,327 $ 673,951
=========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $ 3,518,915 $ 442,314 $ 311,876
=========== =========== ===========
Income taxes $ 1,335,746 $ 273,947 $ 1,639,755
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
INAMED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
Supplemental schedule of non-cash investing and financing activities:
Year ended December 31, 1996:
In 1996 the Company issued 58,400 shares of common stock and
recorded a corresponding $540,000 reduction of convertible notes payable
in connection with the 11% Secured Convertible Notes converted to common stock.
In 1996 the Company recorded an accounting/finance charge of $1,416,960
and corresponding liability in connection with the 5% bonus shares given to
the 11% Secured Convertible Noteholders for their consent and waiver of
default of the operating income covenant in the first quarter of 1996. The
liability will be extinguished upon the issuance of the shares in January 1997.
In 1996 the Company recorded a debt conversion charge of $44,000 in connection
with the 10% conversion inducement offered to the 11% Secured Convertible
Noteholders.
Year ended December 31, 1995:
In 1995 the Company issued 75,000 shares of common stock and recorded a
corresponding $165,000 reduction of a liability which had been incurred in
connection with the acquisition of INAMED, S.A.
Year ended December 31, 1994:
The 1994 statement of cash flows is presented net of the non-cash effects of
the acquisition of INAMED, S.A. In connection with the acquisition of INAMED,
S.A., the Company initially made cash payments of $250,050, recorded a note
payable for future cash payments of $700,000 and recorded a liability of
$385,000 for the future issuance of 175,000 shares of common stock. As of
December 31, 1994, the Company had paid $150,000 on the note payable and had
issued 100,000 shares of common stock.
See accompanying notes to consolidated financial statements.
(1) Basis of Presentation and Summary of Significant Accounting Policies
The Company
The Company and its subsidiaries are engaged primarily in
the development, manufacture and distribution of implantable
medical devices for the plastic and general surgery fields.
Its primary products include breast implants and tissue
expanders. The Company operates in both domestic and
foreign markets.
Basis of Presentation
The consolidated financial statements include the accounts
of INAMED Corporation and its wholly-owned subsidiaries
(collectively referred to as the Company). All significant
intercompany balances and transactions have been eliminated
in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates (also see Note 16).
Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Restricted Cash
Unused proceeds of debt incurred for the purpose of
financing a portion of the settlement of the breast implant
litigation are presented as short-term assets in the
accompanying financial statements. These funds have been
invested in highly liquid, interest bearing money market
instruments with maturities typically one month or less.
Accounts Receivable and Credit Risk
The Company grants credit terms in the normal course of
business to its customers, primarily hospitals, doctors and
distributors. As a part of its ongoing control procedures,
the Company monitors the credit worthiness of its customers.
Bad debts have been minimal. The Company does not normally
require collateral or other security to support credit
sales. An estimated provision for returns and credit losses
has been provided for in the financial statements and has
generally been within management's expectations.
Revenue Recognition
The Company recognizes revenue in accordance with Statement
of Financial Accounting Standards No. 48 "Revenue
Recognition When Right of Return Exists". Revenues are
recorded net of estimated sales returns and allowances when
product is shipped. The Company ships product with the
right of return and has provided an estimate of the
allowance for sales returns based on historical returns and
projected sales. Because management can reasonably estimate
future sales returns, the product sales prices are
substantially fixed and, among other reasons, the Company
recognizes net sales when the product is shipped. The
estimated allowance for sales returns is based on the
historical trend of returns, year-to-date sales, projected
future sales and other factors.
Inventories
Inventories are stated at the lower of cost (first-in, first-
out) or market (net realizable value). Estimated inventory
obsolescence has been provided for in the financial
statements and has generally been within management's
expectations.
Current Vulnerability Due to Certain Concentrations
The Company has primarily one source of supply for certain
raw materials which are significant to its manufacturing
process. Although there are a limited number of
manufacturers of the particular raw materials, management
believes that other suppliers could provide similar raw
materials on comparable terms. A change in suppliers,
however, could cause a delay in manufacturing and a possible
loss of sales, which would adversely affect operating
results.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Significant improvements and
betterments are capitalized while, maintenance and repairs
are charged to operations as incurred.
Depreciation of property and equipment is computed using the
straight-line method based on estimated useful lives ranging
from five to ten years. Leasehold improvements are
amortized on the straight-line basis over their estimated
economic useful lives or the lives of the leases, whichever
is shorter. Fully depreciated assets still in use at
December 31, 1996 and 1995 include machinery and leasehold
improvements of approximately $1,600,000 and $500,000
respectively.
Intangible and Long-Term Assets
Intangible and long-term assets are stated at cost less
accumulated amortization, and are amortized on a straight-
line basis over their estimated useful lives as follows:
Customer lists 5 years
Organization costs 5 years
Patents 17 years
Trademarks and technology 5 years
Goodwill 10-12 years
The Company classifies as goodwill the cost in excess of
fair value of the net assets acquired in purchase
transactions. The Company periodically evaluates the
realizability of goodwill. Based upon its most recent
analysis, no impairment of goodwill exists at December 31,
1996.
Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" (SFAS No. 121), was
issued and was adopted by the Company for the year ended
December 31, 1995. This statement requires that long-lived
assets and certain identifiable intangible assets to be held
and used be reviewed for impairment whenever events or
changes in circumstances indicate the carrying amount of
such assets may not be recoverable. The carrying value of
long-term assets is periodically reviewed by management, and
impairment losses, if any, are recognized when the expected
non-discounted future operating cash flows derived from such
assets are less than their carrying value. Impairment of
long-lived assets is measured by the difference between the
discounted future cash flows expected to be generated from
the long-lived asset against the fair value of the long-
lived asset. Fair value of long-lived assets is determined
by the amount at which the asset could be bought or sold in
a current transaction between willing parties. The adoption
of SFAS No. 121 did not have any impact on the financial
position, results of operations, or cash flows of the
Company.
Research and Development
Research and development costs are expensed when incurred.
Income Taxes
The Company accounts for its income taxes using the
liability method, under which deferred taxes are determined
based on the differences between the financial statement and
tax bases of assets and liabilities, using enacted tax rates
in effect for the years in which the differences are
expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount
expected to be realized.
Net Income/Loss Per Share
Net income/loss per share is computed using the weighted
average number of shares outstanding, and when dilutive,
common stock equivalents (stock options).
Impact of Year 2000 Issues
Management is in the process of assessing the impact and
alternative resolutions of the Year 2000 on management
information systems.
Foreign Currency Translation
The functional currencies of the Company's foreign
subsidiaries are their local currencies, and accordingly,
the assets and liabilities of these foreign subsidiaries are
translated at the rate of exchange at the balance sheet
date. Revenues and expenses have been translated at the
average rate of exchange in effect during the periods.
Unrealized translation adjustments do not reflect the
results of operations and are reported as a separate
component of stockholders' equity (deficit), while
transaction gains and losses are reflected in the
consolidated statement of operations. To date, the Company
has not entered into hedging transactions to protect against
changes in foreign currency exchange rates.
Recently Issued Accounting Standard
The Company has adopted the disclosure-only option under
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock Based Compensation", as of December
31, 1996. Pro-forma information regarding net income and
earnings per share using the fair value method is required
by SFAS No. 123; however, application of SFAS No. 123 would
not result in a significant difference from reported net
income and earnings per share at December 31, 1996.
In 1996, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 96-1,
"Environmental Remediation Liabilities", covering the
reporting of environmental remediation liabilities and
product liabilities effective for fiscal years beginning
after December 15, 1996. The initial application of this
statement will be reflected as a change in accounting
estimate. Revisions of previously issued financial
statements are not permitted. The Company is reviewing the
potential financial statement impact of adopting the
provision of the SOP.
In 1996, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standards (SFAS) No. 125,
"Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." This statement is to
be applied prospectively to transactions occurring after December 31,
1996. The Company is reviewing the potential financial
statement impact of adopting the new standard.
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share". This statement is effective for
financing statements issued for periods ending after
December 15, 1997 and requires restatement of all prior-
period EPS data presented. Earlier application is not
permitted. The Company is reviewing the potential financial
statement impact of adopting the new standard.
Reclassification
Certain reclassifications were made to the 1994 and 1995 consolidated
financial statements to conform to the 1996 presentation.
(2) Accounts and Notes Receivable
Accounts and notes receivable consist of the following:
December 31, 1996 December 31, 1995
Accounts receivable $16,904,984 $17,111,552
Allowance for doubtful accounts (714,145) (964,928)
Allowance for returns and credits (3,763,042) (5,676,249)
___________ ___________
Net accounts receivable $12,427,797 $10,470,375
=========== ===========
Notes receivable $ 3,175,292 $ 3,114,493
Allowance for doubtful notes (1,066,958) (1,066,958)
___________ ___________
Net notes receivable $ 2,108,334 $ 2,047,535
=========== ===========
The provision for doubtful accounts was reduced in 1996 to
$714,145 from $964,928 to bring the provision into line with the
Company's actual bad debt.
The provision for returns and credits was reduced in 1996 to
$3,763,042 from $5,676,249 to accurately reflect the declining
trend in product returns.
Terms under the note receivable are currently in dispute and,
therefore, the Company has established an estimated provision for
credit loss in the allowance for doubtful notes as of December
31, 1995 in the amount of $1,066,958.
(3) Inventories
Inventories are summarized as follows:
December 31, 1996 December 31, 1995
Raw materials $ 3,558,250 $ 2,513,862
Work in progress 3,917,259 3,773,579
Finished goods 15,780,401 12,167,768
___________ ___________
23,255,910 18,455,209
Less allowance for obsolescence (1,325,929) (759,362)
___________ ___________
$21,929,981 $17,695,847
=========== ===========
(4) Intangible Assets
Intangible assets, at cost, are summarized as follows:
December 31, 1996 December 31, 1995
Customer lists $ 125,000 $ 125,000
Organization and acquisition costs 239,529 251,539
Patents, trademarks and technology 2,655,033 2,585,961
Goodwill 1,785,451 1,785,451
Other 337,827 337,827
___________ ___________
5,142,840 5,085,778
Less accumulated amortization (3,732,905) (3,426,852)
___________ ___________
$ 1,409,935 $ 1,658,926
(5) Lines of Credit
As of December 31, 1995, the Company had outstanding
borrowings in the amount of $328,366 under a $5,300,000
revolving line of credit agreement with a domestic bank
which expired August 31, 1993 and was extended through March
31, 1996. The terms of the agreement required the Company
to make monthly principal payments ($30,000 per month at
December 31, 1995) and monthly interest payments at prime
plus 2.5% per annum (11.0% per annum at December 31, 1995).
In January, 1996, the obligation to the bank was satisfied.
Interest of $2,251, $62,519, and $105,417 was paid on the
line of credit in 1996, 1995, and 1994, respectively. The
line of credit was collateralized by the Company's domestic
accounts receivable, inventories and certain other assets.
In September 1994, the company entered into an agreement
with the bank which deleted the financial covenants which
had been part of the original line of credit agreement.
The Company's Dutch subsidiary, INAMED B. V., has a line of
credit with a major Dutch bank, currently totaling $860,000.
The line of credit as of December 31, 1995 totaled
$1,540,000. The line of credit is collateralized by the
accounts receivable, inventories and certain other assets of
INAMED B.V. The line of credit was renegotiated in 1996
with no expiration date. As of December 31, 1996 and 1995,
approximately $537,000 and $900,000, respectively, had been
drawn on the line of credit. The interest rate on the line
of credit is 7% per annum.
The Company's weighted average interest rate on short-term
borrowings was 7% and 8.9% in 1996 and 1995, respectively.
The Company is currently seeking alternative lending sources
from other financial institutions. However, no agreements
have been finalized to replace the domestic line of credit.
(6) Long-Term Debt
In January 1996, the Company completed a private placement
offering by issuing three-year secured convertible, non-
callable notes due March 31, 1999 bearing an interest rate
of 11%. The notes are collateralized by all the assets of
the Company. The indenture contains restrictive covenants
including, but not limited to, payment of dividends and
maintenance of operating profits. The Company received $35
million in proceeds from the offering to be used for the
anticipated litigation settlement, for capital investments
and improvements to expand production capacity, and for
working capital purposes. Of the proceeds received from
the offering, $15 million was deposited to escrow for
litigation settlement purposes based on the Company
receiving a mandatory non-opt certification by the Federal
Court. Interest on the convertible notes is payable
quarterly, within ten days of the end of such period, for
the periods ended March 31, June 30, September 30 and
December 31.
The notes became convertible into shares of common stock at
the option of the note holders on April 22, 1996. The
initial conversion rate was one share of common stock for
each $10 principal amount of notes. Alternatively, the
notes may automatically convert into shares of common stock
upon the occurrence of certain events in connection with
the certification of the Company's Mandatory Class. In
April 1996 the Company completed the Form S-3 registration
of 3.5 million shares of its common stock in direct
response to the private placement offering requirements.
The Company offered 10% bonus shares to note holders for
early conversion of the notes in May, 1996. As a result of
this inducement, $440,000 in notes were converted to common
stock. An additional $100,000 in notes was converted to
common stock in December, 1996.
Under the Indenture (the "Indenture") and pursuant to
certain financial covenants to which the Company issued its
11% Secured Convertible Notes due 1999 (the "Notes"), the
Company was required to generate Operating Profit (as
defined in the Indenture) in the quarter ended March 31,
1996 in excess of $2.0 million. Following the calculation
period set forth in the Indenture, the Company determined
that it did not meet such financial covenant; operating
profit for such quarter was $90,878. The default in
operating profit was subject to cure by the Company through
the issuance of additional securities (junior to the Notes)
within 60 days of March 31, 1996. The Company elected not
to issue such additional securities but instead negotiated
with the holders of the Notes regarding the waiver of the
default. In accordance with the terms of the Indenture, the
holders waived the default in consideration of the issuance
to each holder of record on the record date for granting
such waiver a number of shares of Common Stock of the
Company equal to 5% of the shares of Common Stock that would
have been issuable to such holder if all of such holder's
Notes had been converted on such record date (the
"Issuance"), the Issuance to be made on January 10, 1997.
Concurrently, with the consent of the Noteholders, the
Company amended the Indenture to exclude therefrom the
effects of the Issuance. The Company recorded a finance
charge and accompanying liability totaling $1,416,960 in
connection with the Issuance of the 172,800 shares. The
liability was eliminated when the shares were issued on
January 10, 1997.
In June 1997, the Company received a "Notice of Default"
from Appaloosa Management ("Appaloosa") and its affiliates,
who are holders of more than 50 percent in principal amount
of the Company's 11% Secured Convertible Notes due 1999 (the
"Notes'). Although the Company is current in its payment
obligations with respect to the Notes, the Notice of Default
relates to non-compliance with various financial covenants
and the non-delivery of opinions and certificates due under
the indenture governing the Notes. Specifically, the Notice
of Default is under Section 4.1(3) of the Indenture in the
performance of the Company's agreements and covenants in
Sections 8.6, 8.16, 8.18 and 12.2 of the Indenture and
Section 2.18 of the Note Purchase Agreement. The Notice of
Default was not an acceleration notice under the indenture;
instead, it simply purported to increase the interest rate
on the Notes to the default rate of 14.5%.
In July 1997, the Company reached a comprehensive settlement
agreement with Appaloosa. As a result, the Company has
agreed to amend certain provisions of the Notes. The
purpose of the restructuring was to cure and waive all past
defaults and provide certainty as to the conversion price of
the Notes, which the Company has agreed to fix at $5.50 per
share instead of 85% of the market. The restructuring also
reduces the Company's debt by approximately $15 million
through the redemption of Notes with the proceeds of the
escrow fund. Those monies would be replaced when needed to
fund the settlement of the breast implant litigation with
the capital raised through the mandatory redemption of
warrants issued to the Noteholders with an exercise price of
$8.00 per share (subject to adjustment), at the Company's
option, if the Common Stock maintains a value of at least
$10.00 per share for a specified measurement period.
Long-term debt is summarized as follows:
December 31,
1996 1995
11% Secured Convertible Note payable,
maturing January 1999, interest payable
quarterly, January 1, April 1, July 1,
and October 1 $34,460,000 $ --
4% Debenture payable, maturing January 2000
interest payable March 31, June 30,
September 30 and December 31 56,065 --
Capital lease obligations, collateralized by
related equipment, payable in monthly
installments aggregating $29,147, including
interest at 6.9% to 15.9%, expiring through
December 1999 411,944 141,172
___________ ________
34,928,009 141,172
Less, current installments (320,839) (51,735)
___________ ________
$34,607,170 $ 89,437
The aggregate installments of long-term debt as of December 31, 1996 are as
follows:
Year ending December 31:
1997 $ 320,839
1998 65,967
1999 34,485,138
2000 56,065
___________
$34,928,009
===========
(7) Deferred Grant Income
Deferred grant income represents grants received from the Irish
Industrial Development Authority (IDA) for the purchase of
capital equipment, and is amortized over the life of the related
assets against the related depreciation expense. Amortization
for the years ended December 31, 1996, 1995 and 1994 was
approximately $96,000, $78,000, and $61,000, respectively.
In addition, for the year ended December 31, 1994, approximately
$125,000 was received for training grants. This amount has been
offset against the related expenses on the accompanying
consolidated statements of operations.
IDA grants are subject to revocation upon a change of ownership
or liquidation of McGhan Limited. If the grant was revoked, the
Company would be liable on demand from the IDA for all sums
received and deemed to have been received by the Company in
respect to the grant. In the event of revocation of the grant,
the Company would be liable for the amount of $3,182,264 as of
December 31, 1996.
(8) Income Taxes
As the 1996 financial statements are unaudited, domestic income tax
expense/(benefit) has not been adjusted in the financial statements
and an adjustment to 1996 net income may be made in the future.
For financial reporting purposes, earnings from continued
operations before income taxes includes the following
components:
Year ended December 31, 1996 1995 1994
Pretax income:
Domestic $(5,332,874) (6,912,125) 5,422,396
Foreign (653,395) (1,663,735) (415,293)
____________ ___________ __________
Total Pretax Income $(5,986,269) (8,575,860) 5,007,103
The primary components of temporary differences which comprise the Company's
net deferred tax assets as of December 31,1996 and 1995 are as follows:
December 31, December 31,
1996 1995
Deferred tax assets:
Allowance for doubtful accounts $ 583,838 $ 576,350
Allowance for returns 2,314,409 2,895,564
Inventory reserves 90,090 90,090
Inventory capitalization 219,083 481,456
Accrued liabilities 955,799 599,605
Net operating losses -- 1,103,248
State taxes 954 2,554
Intangible assets 131,965 168,151
Litigation settlement 3,651,648 3,651,648
Tax credits -- 145,748
Other -- 8,322
Depreciation & amortization 32,229 --
Advances from customers 216,766 --
___________ ___________
Deferred tax assets 8,196,781 9,722,736
Valuation allowance (6,302,559) (7,377,074)
___________ ___________
Deferred tax assets 1,894,222 2,345,662
___________ ___________
Deferred tax liabilities:
Depreciation and amortization () (46,456)
Installment sale () (358,584)
Other foreign and state taxes () (175,275)
State taxes (191,844) --
___________ ___________
Deferred tax liability (191,844) (580,315)
___________ ___________
Net deferred tax asset $ 1,702,378 $ 1,765,347
=========== ===========
Although realization is not assured, management believes it
is more likely than not that the net deferred tax asset is
fully recoverable against taxes previously paid and thus no
further valuation allowance for these amounts is required.
The difference between actual tax expense (benefit) and the
"expected" tax expense
(benefit) computed by applying the Federal corporate tax
rate of 34% for the years ended December 31, 1996, 1995 and
1994 is as follows:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
"Expected" tax expense (benefit) $(1,671,108) $(2,915,792) $ 1,702,415
Litigation settlement -- -- --
Tax effect of nondeductible expenses 58,467 51,084 43,974
Goodwill amortization 49,924 49,924 61,525
Research tax credits (200,000) (1,099,596) (188,223)
Foreign taxes 1,071,245 406,965 483,550
State franchise tax (benefit),
net of Federal tax benefits 127,531 (268,488) 175,944
Losses of foreign operations (426,496) (48,256) (290,522)
Change in valuation allowance of
deferred tax assets -- 1,948,830 --
Tax penalties 151,870 276,708 150,726
Other 5,444 (84,178) 121,403
Net operating loss carryback (568,578) -- --
___________ ___________ ___________
$(1,401,701) $(1,682,799) $ 2,260,792
</TABLE>
The Company had net operating loss carryovers at the foreign
companies aggregating approximately $2,930,000 at December
31, 1996 (based on exchange rates at that date), to be used
by the individual foreign companies that incurred the
losses. These net operating loss carryovers have various
expiration dates. As of December 31, 1995, the Company had
a net operating loss carryover of approximately $4,000,000
and tax credits of approximately $260,000 for California
franchise tax purposes. These loss carryovers expire in 2000.
(9) Advertising costs
Advertising costs are generally charged to operations in the
year incurred and totaled approximately $590,000 in 1996,
$70,000 in 1995, and $142,000 in 1994.
(10) Royalties
The Company has entered into various license agreements
whereby the Company has obtained the right to produce, use
and sell patented technology. The Company pays royalties
ranging from 5% to 10% of the related net sales, depending
upon sales levels. Royalty expense under these agreements
was approximately $6,301,872, $5,511,000, and $4,326,000,
for the years ended December 31, 1996, 1995 and 1994,
respectively, and is included in marketing expense. The
license agreements expire at the expiration of the related
patents.
(11) Stockholders' Equity
The Company has adopted several incentive and non-statutory
stock option plans. Under the terms of the plans, 610,345
shares of common stock are reserved for issuance to key
employees at prices generally not less than the market value
of the stock at the date the options are granted, unless
previously approved by the Board of Directors.
Activity under these plans for the years ended December 31,
1996, 1995 and 1994 is as follows:
<TABLE>
1996 1995 1994
Weighted Avg. Weighted Avg. Weighted Avg.
Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
at beginning of year 146,500 1.46 202,500 1.46 247,854 1.52
Granted 28,500 1.45 -- -- -- --
Exercised (31,500) 1.45 (50,000) 1.45 (18,000) 1.45
Expired or canceled -- -- (6,000) 1.45 (27,354) 2.05
_______ ____ _______ ____ ________ ____
Options outstanding
at end of year 143,500 1.46 146,500 1.46 202,500 1.46
======= ==== ======= ==== ======= ====
Options exercisable
at end of year 90,000 1.47 94,000 1.47 122,500 1.46
======= ==== ======= ==== ======= ====
</TABLE>
The exercise price of all options outstanding under the
stock option plans range from $1.45 to $2.49 per share. All
options exercised in 1994, 1995 and 1996 were exercised at a
price of $1.45. At December 31, 1996, there were 86,254
shares available for future grant under these plans. Under
certain plans, the Company granted options at $1.45, which
was below the fair market value of the common stock at the
date of grant. Accordingly, the Company is amortizing the
difference between the fair market value and the exercise
price of the related outstanding options over the vesting
period of the options. Stock option compensation expense
for the years ended December 31, 1996, 1995 and 1994
aggregated $7,500, $9,000, and $10,000, respectively.
In 1984, McGhan Medical Corporation adopted an incentive
stock option plan (the 1984 Plan). Under the terms of the
plan, 100,000 shares of its common stock were reserved for
issuance to key employees at prices not less than the market
value of the stock at the date the option is granted. In
1985, INAMED Corporation agreed to substitute options to
purchase its shares (on a two-for-one basis) for those of
McGhan Medical Corporation. No options were granted under
the 1984 Plan during 1996.
In 1986, the Company adopted an incentive and nonstatutory
stock option plan (the 1986 Plan). Under the terms of the
plan, 300,000 shares of common stock have been reserved for
issuance to key employees. During 1996, 28,500 options were
granted under the 1986 Plan during 1996.
In 1987, the Company also adopted an incentive stock award
plan (the "1987 Plan"). Under the terms of the 1987 Plan,
300,000 shares of common stock were reserved for issuance to
employees at the discretion of the Board of Directors. The
Directors awarded 11,800 shares in 1995, and 11,600 shares
in 1994 with aggregate values of $29,500, and $29,000
respectively. No shares were awarded under the 1987 Plan in 1996.
At December 31, 1996, there were 119,612 shares available for future grant
under this plan.
In 1993 the Company adopted a Non-employee Director Stock
Option Plan which authorized the Company to issue up to
150,000 shares of common stock to directors who are not
employees of or consultants to the Company and who are thus
not eligible to receive stock option grants under the
Company's stock option plans. Pursuant to this Plan, each
non-employee director is automatically granted an option to
purchase 5,000 shares of common stock on the date of his or
her initial appointment or election as a director, and an
option to purchase an additional 5,000 shares of common
stock on each anniversary of his or her initial grant date
on which he or she is still serving as a director. The
exercise price per share is the fair market value per share
on the date of grant. As of December 31, 1996 no options
were granted under this plan.
(12) Foreign Sales Information
Net sales to customers in foreign countries for the years
ended December 31, 1996, 1995 and 1994 represented the
following percentages of net sales:
1996 1995 1994
Europe 25.1% 22.3% 21.5%
Asia - Pacific 1.7 3.5 2.7
Iberia & Latin America 5.9 5.4 1.4
Other 2.6 0.3 0.7
_____ _____ _____
35.3% 31.5% 26.3%
===== ===== =====
(The Europe classification above includes Netherlands, Belgium, United Kingdom,
Italy, France and Germany. The Asia-Pacific classification includes Hong Kong,
China, Japan, Taiwan, Singapore, Thailand, The Philippines, Korea, Indonesia,
India Pakistan, New Zealand and Australia. The Iberia and Latin American
classification includes Central America, South America, Mexico, Spain, and
Portugal.)
(13) Geographic Segment Data
The following table shows net sales, operating income (loss)
and identifiable assets by geographic segment for the years
ended December 31, 1996, 1995, and 1994:
1996 1995 1994
Net sales:
United States $61,765,485 55,881,262 59,196,401
Europe 24,026,965 20,803,402 18,310,708
Asia Pacific 2,988,818 562,894 --
Iberia & Latin America 5,566,808 4,378,023 2,878,233
___________ __________ __________
$94,348,076 81,625,581 80,385,342
=========== ========== ==========
Operating income (loss):
United States $(1,308,472) (7,601,277) 4,717,154
Europe (750,000) 340,049 (909,840)
Asia Pacific 534,595 105,533 --
Iberia and Latin America (713,849) (2,043,210) (229,289)
___________ __________ __________
$(2,237,726) (9,189,905) 3,578,025
=========== ========== ==========
Identifiable assets:
United States $43,109,198 25,976,480 29,337,456
Europe 21,533,176 18,351,644 15,899,258
Asia Pacific 837,661 593,423 --
Iberia and Latin America 4,620,392 5,463,397 2,573,687
___________ __________ __________
$70,100,427 50,384,944 47,810,401
(14) Related Party Transactions
Included in related party notes receivable in 1996 is a
10.5% note with McGhan Management Corporation, a Nevada
Corporation, in the amount of $202,510. Mr. Donald K.
McGhan, Chairman and Chief Executive Officer of the Company,
and his wife are the majority shareholders of McGhan
Management Corporation. This note has since been paid in
its entirety.
Included in general and administration expense on the income
statement in 1996 is $1.2 million in aircraft rental
expenses paid to a company that is controlled by the family
of Mr. Donald K. McGhan, Chairman and Chief Executive
Officer of the Company. No signed contract exists and the
Company is billed based on its usage.
Included in assets in 1995 is an unsecured note receivable
from Michael D. Farney, Chief Executive Officer and Chief
Financial Officer of the Company. This receivable
approximated $386,000 as of December 31, 1995. The note
bears interest at 9.5% per annum and was due in June 1996.
The note was primarily for various personal activities. On
March 4, 1996, the officer paid the balance of the note in full.
Included in liabilities in 1995 are notes payable to McGhan
Management Corporation, a Nevada Corporation and Donald K.
McGhan, Chairman and President of the Company.
These payables approximated $1,209,000 as of December 31,
1995. The notes bear interest at prime plus 2% per annum
(10.5% per annum at December 31, 1995) and were due June 30,
1996, or on demand. The Company paid the balance of these
notes in full on January 25, 1996. Also included in
liabilities in 1995 is a note payable of approximately
$550,000 to an officer of INAMED, S.A. in connection with
the Company's acquisition of this subsidiary. Final payment
on this note was made on February 6, 1996.
During 1992, the Company entered into a rental arrangement
with Star America Corporation, a Nevada Corporation of which
Michael D. Farney, former Chief Executive Officer and former
Chief Financial Officer of the Company is the only Director
and Officer for rental of a Beachcraft BE2000 Starship to
provide air transportation for corporate purposes. The
minimum rental through December 31, 1993 was $95,000 per
month. In January 1994 this rent was renegotiated to a
month-to-month arrangement with a monthly rent of $74,000
during 1994. Rent expense for 1995 and 1994 was $900,000 and
$888,000 respectively. In February 1995, the Company
received a credit voucher from Star America Corporation for
$800,000. This amount represented payments made during 1994
in excess of actual rent agreement. At December 31, 1995,
the credit voucher had an outstanding balance of $107,670.
This balance was paid to the Company on March 11, 1996. The
rental arrangement with Star America Corp. was terminated
effective December 31, 1995.
(15) Employee Benefit Plans
Effective January 1, 1990, the Company adopted a 401(k)
Defined Contribution Plan for all U.S. employees. After six
months of service, employees become eligible to participate
in the Plan. Participants may contribute to the plan up to
20% of their compensation annually, subject to the
limitations in the Internal Revenue Code. The Company can
match contributions equal to 10% of each participant's
contribution, limited to 5% of the participant's
compensation. The participants are 100% vested in their own
contributions and vesting in the Company's contributions is
based on years of credited service. Participants become
100% vested after five years of credited service.
Participants may invest elective contributions amongst funds
selected by the Company and the Trustee(s) of the plan. The
Trustee(s) and the Company may choose the investment options
for any employer non-elective contribution. Returns on the
various individual investment options in 1996 ranged from
4.4% to 18%. The Company has not contributed to this plan
for the years ended December 31, 1996, 1995, and 1994.
Effective January 1, 1990, a certain subsidiary adopted a
Defined Benefit Plan for all employees. After one year of
service, employees become eligible to participate in the
plan. Employees in active employment on January 1, 1990
were immediately eligible. Plan benefits, including pension
upon retirement or complete disability, are based on an
employee's years of service and average compensation prior
to retirement. The pension plan is financed by premiums
which are paid by the employer and the employees. The
premium is based on financing a pension of 70% of the salary
per person. Participants share in the cost of the plan by making contributions
of 3% to 5% of the pension basis. The funding policy is to pay the accrued
pension contribution currently. The premiums, paid to the external pension
management company, are invested 80% in government bonds and 20% in stocks
listed on the Amsterdam Exchange. The return on investments for the
pension management company was approximately 18% in 1996 and
24% in 1995. Administrative costs paid by the Company were
approximately $21,900 in 1996, $19,100 in 1995 and $12,900
in 1994. Contributions to the defined benefit pension plan
approximated $88,000, $75,000, and $49,000 for the years
ended December 31,1996, 1995, and 1994, respectively.
Effective February 1, 1990, a certain subsidiary adopted a
Defined Contribution Plan for all non-production employees.
Upon commencement of service, these employees become
eligible to participate in the plan and may contribute to
the plan up to 5% of their compensation. The Company's
matching contribution is equal to 200% of the participant's
contribution. The employee is immediately and fully vested
in the Company's contribution. The Company's contributions
to the plan approximated $254,000, $198,000, and $144,000
for the years ended December 31, 1996, 1995, and 1994,
respectively.
Effective January 1, 1991, a certain subsidiary adopted a
Defined Benefit Plan for all employees. After one year of
service, employees become eligible to participate in the
plan. Plan benefits, including pension upon retirement or
complete disability, are based on an employee's years of
service and average compensation prior to retirement. The
pension plan is financed by premiums which are paid by the
employer and the employee. The premium is based on 8% of
the current salary. Participants share in the cost of the
plan by making contributions of 2% to 3% of the pension
basis. The funding policy is to pay the accrued pension
contribution currently. The premiums are paid to an external
pension management company which invests the premiums in
government bonds. The pension management company guarantees
a return of 5% per year on investments. Administrative
costs paid to the pension management company are
approximately 20% of contributions or $4,000 in 1996, $3,400
in 1995 and $2,800 in 1994. Contributions to the defined
benefit pension plan approximated $20,000, $17,000, and
$14,000 for the years ended December 31, 1996, 1995, and
1994, respectively.
Effective February 1, 1991, a certain subsidiary adopted a
Defined Benefit Plan for all employees. After one year of
service, employees become eligible to participate in the
plan. Plan benefits, including additional pension upon
retirement or complete disability, are based on an
employee's years of service and average compensation prior
to retirement. Participants do not share in the cost of the
plan. The funding policy is to pay the accrued pension
contribution currently. The premiums, paid to the external
pension management company, are invested 52% in government
bonds, 13% in stocks, 25% in mortgages and 10% in buildings.
The Company pays the administrative costs to the pension
management company which totaled $,1,236 in 1996, $2,155 in
1995 and $1,344 in 1994. The Company's contributions to the
plan approximated $18,000, $24,000, and 10,000 for the years ended December
31, 1996, 1995, and 1994, respectively.
Effective July 1, 1992, a certain subsidiary adopted a
Defined Contribution Plan for all employees. After six
months of service, employees become eligible to participate
in the plan. They may contribute to the plan up to 5% of
their compensation. The Company's matching contribution is
equal to 100% of the participant's contribution. The
employee is immediately and fully vested in the Company's
contribution however, the pension can only be drawn upon
retirement or complete disability. All premiums are paid to
an external pension company which invests the accumulated
funds in government bonds. The return on investments has
been approximately 8% in 1996 and 1995. The Company pays
administrative costs to the pension management company which
totaled $320 in 1996 and 1995 and $310 in 1994. The
Company's contributions to the plan approximated $11,000,
$9,000, and $7,000 for the years ended December 31, 1996,
1995, and 1994, respectively.
Effective July 1, 1993, a certain subsidiary adopted a
Defined Benefit Plan for all employees. After one year of
service, employees become eligible to participate in the
plan. Plan benefits, including pension upon retirement or
complete disability, are based on an employee's years of
service and average compensation prior to retirement.
Participants do not share in the cost of the plan. The
funding policy is to pay the accrued pension contribution
currently. The Company's yearly contribution per employee is
equal to one month of an employee's salary. The premiums
are paid to an external pension management company which
invests 70% of the accumulated funds in government bonds and
30% in buildings and stocks. The pension management
company's return on investment has been approximately 11%
for 1996 and 1995. The Company has paid administrative
costs of approximately $3,200, $3,000 and $2,400 for the
years ended December 31, 1996, 1995 and 1994 respectively.
The Company's contributions to the plan approximated
$16,000, $15,000, and $12,000 for the years ended December
31, 1996, 1995 and 1994, respectively.
Effective January 1, 1995, a certain subsidiary adopted a
Defined Benefit Plan for all employees. After one year of
service, employees become eligible to participate in the
plan. Plan benefits, including a pension upon retirement at
age 65 or complete disability, are based on an employee's
years of service and average compensation prior to
retirement. The Company contributes 7% of the employees'
fixed salaries. Participants do not share in the cost of the
plan. The premiums are paid to an external pension
management company and are invested in government bonds,
loans, real estate and French and international stocks. The
pension management company's return on investment in 1995
was 6%. The Company paid administrative costs of an
insignificant amount in 1996 and 1995 to the pension
management company. The Company's contributions to the plan
approximated $21,000 and $15,000 for the years ended
December 31, 1996 and 1995, respectively.
Effective January 1, 1995, a certain subsidiary adopted a Defined Contribution
Plan for non-production employees. Upon commencement of service, these
employees become eligible to participate in the plan. They may contribute to
the plan up to 5% of their compensation. The Company's
matching contribution is equal to 10% of the participant's
contribution. The employee is immediately and fully vested
in the Company's contribution. The Company's contribution
to the plan approximated $18,000 and $17,000 for the years
ended December 31, 1996 and 1995, respectively.
(16) Litigation
The Company and/or its subsidiaries are defendants in
numerous state and federal court actions and a Federal class
action in the United States District Court, Northern
District of Alabama, Southern Division, under The Honorable
Sam C. Pointer, Jr., Chief Judge U.S. District Court,
identified as Breast Implant Products Liability Litigation,
Multiple District Litigation No. 926, Master File No. CV 92-
P-10000-S ("MDL 926"). One of the federal cases, Lindsey,
et al., v. Dow Corning Corp., et al., Civil Action No. CV 94-
11558-S was conditionally certified as a class action for
purposes of settlements ("MDL Settlement") on behalf of
persons having claims against certain manufacturers of
breast implants. The alleged factual basis for typical
lawsuits include allegations that the plaintiffs' breast
implants caused specified ailments including, among others,
auto-immune disease, scleroderma, systemic disorders, joint
swelling and chronic fatigue.
A result of the MDL Settlement was the establishment of a
Claims Administration Office in Houston, Texas, under the
direction of Judge Ann Cochran. Class Members who had
breast implants prior to June 1993 have registered with the
Claims Office. Judge Pointer certified the "Global"
Settlement by Final Order and Judgment on September 1, 1994.
Subsequently, a preliminary review of claims produced
projected payouts that were greater than the amounts the
breast implant manufacturers had agreed to pay. On May 15,
1995, Dow Corning Corp., formerly one of the manufacturers
and a significant contributor to the Global Settlement fund,
filed for federal bankruptcy protection because of lawsuits
over the devices.
On December 29, 1995, the Company entered into an agreement
with the MDL 926 Settlement Class Counsel and certain other
defendants that is now identified as the "Bristol, Baxter,
3M, McGhan & Union Carbide Revised Breast Implant Settlement
Program" ("Revised Settlement"). The Revised Settlement
provides a procedure to resolve claims of current claimants
and ongoing claimants who are registered with the Claims
Office.
Due to the nature of the Revised Settlement which allowed ongoing
registrations, "opt-ins", as well as a limited potential for claimants,
during the life of the program, to opt-out of the Revised Settlement
("opt-outs"), the aggregate dollar amount to be received by the class of
claimants under the Revised Settlement has not been fully ascertained.
The Revised Settlement is an approved-claims based settlement. Therefore,
to project a range of the potential cost of the Revised Settlement, the
parties utilized a court-sponsored sample of claimants' registrations and
claims filed through the MDL 926 Settlement Claims Office against all
defendants and assumed approval of 100 percent of the claims as initially
submitted. Although adequate for negotiation purposes, the sample is
unsatisfactory for the purposes of determining an aggregate dollar liability
for accounting purposes because the processing of current claims is not
complete, the process of ongoing claims will continue for fifteen years, and
the Settlement is subject to opt-ins and opt-outs.
The following is a recap of the certain events involving the
Company's product liability issues relating to silicone gel
breast implants which the Company manufactures and markets.
The claims in Silicone Gel Breast Implant Products Liability
Litigation MDL 926 are for general and punitive damages
relating to physical and mental injuries allegedly sustained
as a result of silicone gel breast implants produced by the
Company. Although the amount of claims asserted against the
Company is not readily determinable, the Company believes
that the stated amount of claims substantially exceeds
provisions made in the Company's consolidated financial
statements. The Company has been a defendant in substantial
litigation related to breast implants which have adversely
affected the liquidity and financial condition of the
Company. This raises substantial doubt about the Company's
ability to continue as a going concern. The accompanying
consolidated financial statements have been prepared
assuming that the Company will continue as a going concern
and do not include any adjustments that might result from
this uncertainty.
On June 25, 1992 the judicial panel on multi-district
litigation in re: Silicone Gel Breast Implant Products
Liability Litigation consolidated all federal breast implant
cases for discovery purposes in Federal District Court for
the Northern District of Alabama under the multi-district
litigation rules. Several U.S.-based manufacturers
negotiated a settlement with the Plaintiffs' Negotiating
Committee ("PNC"), and on March 29, 1994 filed a Proposed
Non-Mandatory Class Action Settlement in the Silicone Breast
Implant Products Liability (the "Settlement Agreement")
providing for settlement of the claims as to the class (the
"Settlement") as described in the Settlement Agreement. The
Settlement Agreement, upon approval, would have provided
resolution of any existing or future claims, including
claims for injuries not yet known, under any Federal or
State law, from any claimant who received a silicone breast
implant prior to June 1, 1993.
The Company was not originally a party to the Settlement
Agreement. However, on April 8, 1994 the Company and the
PNC reached an agreement which would join the Company into
the Settlement. The agreement reached between the Company
and the PNC added great value to the Settlement by enabling
all plaintiffs and U.S.-based manufacturers to participate
in the Settlement, and facilitating the negotiation of
individual contributions by the Company, Minnesota Mining
and Manufacturing Company ("3M"), and Union Carbide
Corporation which total more than $440 million.
A fairness hearing for the non-mandatory class was held before Judge Pointer
on August 18, 1994. On September 1, 1994, Judge Pointer gave final approval
to the non-mandatory class action settlement. The deadline for plaintiffs to
enter the Settlement was March 1, 1995.
Under the terms of the Settlement Agreement, the parties
stipulated and agreed that all claims of the Settlement
Class against the Company regarding breast implants and
breast implant materials would be fully and finally settled
and resolved on the terms and conditions set forth in the
Settlement Agreement.
Under the terms of the Settlement Agreement, the Company
would have paid $1 million to the Settlement fund for each
of 25 years starting three years after Settlement approval
by the Court. The Settlement was approved by the court on
September 1, 1994. The Company recorded a pre-tax charge of
$9.1 million in October of 1994. The charge represents the
present value (discounted at 8%) of the Company's settlement
of $25 million over a payment period of 25 years, $1 million
per year starting three years from the date of Settlement
approval.
Under the Settlement, $1.2 billion had been provided for
"current claims" (disease compensation claims). In May
1995, Judge Pointer completed a preliminary review of
current claims against all Settlement defendants which had
been filed as of September 1994, in compliance with
deadlines set by the court. Judge Pointer determined that
based on the preliminary review, projected amounts of
eligible current claims appeared to exceed the $1.2 billion
provided by the Settlement. Discrete information as to each
defendant was not made available by the court and the
Company is not aware of any information from such
findings that would affect the Company's $9.1 million accrual. The Settlement
provided that in the event of such over subscription, the amounts to be paid to
eligible current claimants would be reduced and claimants would have a right to
"opt-out" of the Settlement at that time.
On October 1, 1995, Judge Pointer finalized details of a
scaled-back breast implant injury settlement involving
defendants Bristol-Myers Squibb, Baxter International, and
3M, allowing plaintiffs to reject this settlement and file
their own lawsuits if they believe payments are too low. On
November 14, 1995, McGhan Medical and Union Carbide were
added to this list of settling defendants to achieve the
"Bristol, Baxter, 3M, McGhan & Union Carbide Revised
Settlement Program" (the "Revised Settlement Program").
With respect to the parties thereto, the Revised Settlement
Program incorporated and superseded the Settlement. The
Revised Settlement Program does not fix the liability of any
defendants, but established fixed benefit amounts for
qualifying claims. The Company's obligations under the
Revised Settlement are cancelable if the Revised Settlement
is disapproved on appeal.
The Company recorded a pre-tax charge of $23.4 million in
the third quarter of 1995. The charge represented the
present value (discounted at 8%) of the maximum additional
amount that the Company then estimated it might be required
to contribute to the Revised Settlement Program - $50
million over a 15-year period based on a claims-made and
processed basis. Due to the uncertainty of ultimate resolution and acceptance
of the Revised Settlement Program by the registrants, claimants and plaintiffs,
and the lack of information related to the substance of the claims, the
Company reversed this charge at year-end 1995 for the third quarter of 1995.
At December 31, 1996, the Company's reasonable estimate of
its liability to fund the Revised Settlement Program was a
range between $9.1 million, the original accrual as noted
above, and the discounted present value of the $50 million
aggregate the Company estimated it might have been required
to contribute under the Revised Settlement Program. Again,
due to the uncertainty of the ultimate resolution and
acceptance of the Revised Settlement Program by the
registrants, claimants and plaintiffs (which acceptance and
participation is necessary for any contributions under the
Revised Settlement Program) and the limited and changing
information related to the claims, no estimate of the
possible additional loss or range of loss can be made and,
consequently, the financial statements do not reflect any
additional provision for the litigation settlement.
However, preliminary information obtained prior to July 31,
1997, concerning claims and opt-outs filed under the Revised
Settlement indicates that the range of costs to the Company
of its contributions, while likely to exceed $9.1 million,
will be substantially less than $50 million. This preliminary information
suggests that the cost for current claims, which will be payable after the
conclusion of all appeals relating to the Revised Settlement, is not likely
to exceed $16 million. This estimate may change as further information is
obtained. The additional cost for ongoing claims payable over the 15-year life
of the program is still unknown, but is capped at approximately $6 million
under the terms of the Revised Settlement.
The Company has entered into a Settlement Agreement with
health care providers pursuant to which the Company is
required to pay, on or before December 17, 1996, or after
the conclusions of any and all disapproved appeals, $1
million into the MDL Settlement Funds ("the Fund") to be
administered by Edgar C. Gentle, III, Esq. ("the Fund Agent"). The charge
for settlement will be applied against the $9.1 million accrual previously
established by the Company. The Company, in the spirit of the Revised
Settlement Program, also contributed $600,000 in 1996 and $300,000 in 1997 to
the claims administration management for the settlement.
The Company has opposed the plaintiffs' claims in these complaints and other
similar actions, and continues to deny any wrongdoing or liability to the
plaintiffs of any kind. However, the extensive burdens and expensive litigation
the Company would continue to incur related to these matters prompted the
Company to work toward and enter into the Settlement which insures a more
satisfactory method of resolving claims of women who have received the Company's
breast implants.
Management's commitment to the Revised Settlement Program
does not alter the Company's need for complete resolution
sought under a mandatory ("non-opt-out") settlement class
(the "Mandatory Class") or other acceptable settlement
resolution. In 1994, the Company petitioned the United
States District Court, Northern District of Alabama,
Southern Division, for certification of a Mandatory Class
under the provisions of Federal Rules of Civil Procedure.
Since that time, the Company has been in negotiation with the plaintiffs
concerning an updated mandatory settlement class or other acceptable resolution.
On July 1, 1996, the Company filed an appearance of counsel and status report on
the INAMED Mandatory Class application to the United States District Court,
Northern District of Alabama, Southern Division, Chief Honorable Judge Samuel
C. Pointer, Jr. There can be no assurance that the Company will receive
Mandatory Class certification or other acceptable settlement resolution.
If the Mandatory Class is not certified, the Company will
continue to be a party to the Revised Settlement Program.
However, if the Company fails to meet its obligations under
the program, parties in the program will be able to
reinstate litigation against the Company. In addition, the
Company will continue to be subject to further potential
litigation from persons who are not provided for in the
Revised Settlement Program and who opt out of the Revised
Settlement Program. The number of such persons and the
outcome of any ensuing litigation is uncertain. Failure of
the Mandatory Class to be certified, absent other acceptable
settlement resolution, is expected to have a material
adverse effect on the Company.
The Company was a defendant with 3M in a case involving
three plaintiffs in Houston, Texas, in March 1994, in which
the jury awarded the plaintiffs $15 million in punitive
damages and $12.9 million in damages plus fees and costs.
However, the matter was resolved in March 1995 resulting in
no financial responsibility on the part of the Company.
In connection with 3M's 1984 divestiture of the breast
implant business now operated by the Company's subsidiary,
McGhan Medical Corporation, 3M has a potential claim for
contractual indemnity for 3M's litigation costs arising out
of the silicone breast implant litigation. The potential
claim vastly exceeds the Company's net worth. To date, 3M
has not sought to enforce such an indemnity claim. As part
of its efforts to resolve potential breast implant
litigation liability, the Company has discussed with 3M the
possibility of resolving the indemnity claim as part of the
overall efforts for global resolution of the Company's
potential liabilities. Because of the uncertain nature of
such an indemnity claim, the financial statements do not
reflect any additional provision for such a claim.
In October 1995, the Federal District Court for the Eastern
District of Missouri entered a $10 million default judgment
against a subsidiary of the Company arising out of a
Plaintiff's claim that she was injured by certain breast
implants allegedly manufactured by the subsidiary. The
Company did not become aware of the lawsuit until November
1996, due to improper service. The Plaintiff's attorney
waited over one year to notify the Company that a default
judgment had been entered. The Plaintiff's attorney
refused to voluntarily set aside the judgment, although it
is clear from the allegations of the complaint that the
Plaintiff sued the wrong entity, since neither the named
subsidiary, the Company, nor any of its other subsidiaries
manufactured the device. The Company has moved to have this
judgment set aside. The Company has not made any adjustment
in its 1996 financial reports to reflect this judgment.
The Company does not have product liability insurance and
therefore recovery from an insurance carrier for any
settlements paid is not possible.
(17) Commitments and Contingencies
The Company leases facilities under operating leases. The
leases are generally on an all-net basis, whereby the
Company pays taxes, maintenance and insurance. Leases that
expire are expected to be renewed or replaced by leases on
other properties. Rent expense for the years ended December
31, 1996, 1995, and 1994 aggregated $5,821,218, $4,927,677,
and $4,913,327, respectively.
Minimum lease commitments under all noncancelable leases as of December 31,
1996 are as follows:
Year ending December 31:
1997 $ 4,563,689
1998 3,671,841
1999 3,246,526
2000 2,705,170
2001 2,223,777
Thereafter 11,915,731
___________
$28,326,734
===========
(18) Sale of Subsidiaries
As of August 31, 1993, the Company announced the sale of its
wholly-owned subsidiary, Specialty Silicone Fabricators,
Inc. (SSF), a manufacturer of silicone components for the
medical device industry with production facilities in Paso
Robles, California. The sale included SSF's wholly-owned
subsidiary, Innovative Surgical Products, Inc. located in
Santa Ana, California, which assembles, packages and
sterilizes products for other medical device companies. The
Company received total consideration of approximately $10.8
million from the buyer, Innovative Specialty Silicone
Acquisition Corporation (ISSAC), a private investment group
which included certain members of SSF's management.
The consideration consisted of $2.7 million in cash, the
forgiveness of $2.2 million in intercompany notes due to
SSF, and $5.9 million in structured notes. The notes include
a note in the amount of $2,425,000 due on February 25, 1995
with interest of 10% per annum and a note in the amount of
$3,466,198 due on August 31, 2003, accruing interest
quarterly at a rate of prime plus 2% as quoted at the
beginning of the quarter, not to exceed 11%. The notes have
been reflected on the balance sheet net of a discount of
$643,663 and settlement of certain intercompany amounts
totaling approximately $957,000. The notes are
collateralized by all of the assets of ISSAC. The Company
has filed a UCC1 and its position is subordinated only to
that of ISSAC's primary lender.
At December 31, 1996, the current portion due from ISSAC
under the terms of the note agreement is in dispute. The
Company has classified all current amounts due as long-term
and an estimated provision for credit loss has been provided
for in the financial statements.
(19) Subsequent Events
During January, 1997, the Company received $5.7 million in
proceeds from $6.2 million in financing via a 4% convertible
debenture purchase agreement, issued at an 8% discount, due
January 16, 2000. Interest is payable quarterly in arrears.
The proceeds received are to be used for working capital
purposes. As of December 31, 1996, proceeds of
approximately $61,000 were received and classified as a non-
current liability.
The debentures become convertible into shares of common
stock at the option of the holder 60 days after the issue
date. The conversion price for each debenture is the lesser
of the average per share market value of INAMED common stock
for the 5 trading days preceding the original issue date or
the average per share market value for the 5 trading days
preceding conversion and adjusted to halve any increase
exceeding 33%, whichever is greater, or 85% of the average
per share market value for the five trading days immediately
preceding the conversion date.
(20) Quarterly Summary of Operations (unaudited)
The following is a summary of selected quarterly financial
data for 1996 and 1995:
Quarter
First Second Third Fourth
Net Sales:
1996 20,402,033 27,859,500 23,259,585 22,826,958
1995 21,744,875 24,112,600 18,279,111 17,488,995
Gross Profit:
1996 12,629,310 19,928,480 14,654,507 13,047,925
1995 15,410,563 16,431,581 11,439,933 8,187,721
Net Income (loss):
1996 (1,266,953) 1,143,064 (988,090) (5,959,681)
1995 1,140,496 2,744,448 (2,592,588) (8,185,417)
Net Income (loss)
per share:
1996 (0.17) 0.15 (0.12) (0.77)
1995 0.15 0.36 (0.34) (1.08)
=====================================================
Significant Fourth Quarter Adjustments, 1996
During the fourth quarter of the year ended December 31,
1996, significant adjustments to the results of operations
were as follows:
Provision for product liability 254,176
Royalty expense 647,672
Significant Fourth Quarter Adjustments, 1995
During the fourth quarter of the year ended December 31,
1995, significant adjustments to the results of operations
were as follows:
Provision for income taxes $(4,162,607)
Provision for doubtful accounts and
returns and allowances 1,424,734
Compensation expense 891,200
The Company's provision for income taxes was adjusted to reduce
income tax expense in 1995 and 1996. The Company is working
closely with tax advisors to anticipate ongoing tax
responsibility and better reflect income tax liability/benefits
during the year.
In 1996, the provision for product liability was increased by
$254,176 to more accurately reflect the potential impact of the
Company's limited product warranty. The Company's royalty
expense was also increased in the fourth quarter of 1996 by
$647,672 to reflect royalty expense for products sold
internationally under various license agreements.
In 1995, the provision for doubtful accounts, returns and
allowances was increased due to a backlog of returns that
developed in the fourth quarter 1995 as attention was diverted to
other operating issues. An adjustment was made in 1995 to
increase compensation expense to reflect bonuses and compensation
payments declared after year end for certain personnel.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
DISCLOSURE.
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names of the directors and
executive officers of the Company, together with their ages and
positions. Donald K. McGhan, Chairman of the Board and Chief
Executive Officer is the father of Jim J. McGhan, President and
Director. There are no other family relationships among these
directors and officers.
Name Age Position
Donald K. McGhan 63 Chairman of the Board and
Chief Executive Officer
Jim J. McGhan 44 President, Director
Jeffrey J. Barber 38 Executive Vice President,
Marketing & Corporate Development
Harrison E. Bull, Esq. 57 Director
Richard Wm. Talley 54 Director
John E. Williams, M.D. 76 Director
Donald K. McGhan
Mr. McGhan has served as Chairman of the Board of
INAMED since October 1985 and served as President of INAMED from
January 1987 to March 1997. He served as Chief Executive Officer
of INAMED from April 1987 until June 1992 and is again serving as
Chief Executive Officer effective March 1997. He is also
Chairman of the Board of McGhan Medical Corporation, INAMED
Development Company, BioEnterics Corporation, Biodermis
Corporation, Bioplexus Corporation, Flowmatrix Corporation,
Medisyn Technologies Corporation, McGhan Limited, INAMED B.V.,
INAMED B.V.B.A., INAMED GmbH., INAMED S.R.L., INAMED Ltd.,
INAMED, S.A., INAMED S.A.R.L., INAMED Japan, and INAMED Medical
Group (Japan).
Jim J. McGhan
Mr. McGhan has served as President and Director of
INAMED Corp. since March 31, 1997. He is also Chief Executive
Officer and Director of McGhan Medical Corporation, General
Manager of INAMED Development Company, and President and Director
of BioEnterics Corporation. He is a director of INAMED Japan,
INAMED Medical Group (Japan), McGhan Medical Asia/Pacific, Ltd.,
McGhan Medical Mexico, S.A. de C.V., BioEnterics L.A., S.A. de
C.V. and McGhan Limited. Mr. McGhan also served as President of
McGhan Medical Corporation from August 1992 to April 1996.
Jeffrey J. Barber
Mr. Barber has served as Executive Vice President and
Director of Corporate Development of INAMED since March 31, 1997.
Mr. Barber is also a Director of McGhan Medical Asia/Pacific,
Ltd., McGhan Medical Mexico, S.A. de C.V. and BioEnterics LA.,
S.A. de C.V. Beginning in 1996, Mr. Barber served the Company as
Vice President responsible for marketing, business development
and international development. Prior to this position, Mr.
Barber was the Vice President of Business Development of McGhan
Medical Corporation and the Vice President of Marketing for
McGhan Medical Corporation. Mr. Barber originally joined the
Company in 1992 as Worldwide Marketing Manager for McGhan Medical
Corporation. Prior to his employment with the Company, Mr.
Barber held positions with Chiron Corporation from 1987 to 1992
and Baxter Healthcare, Inc. from 1982 to 1987.
Harrison E. Bull, Esq.
Mr. Bull has served as a Director of INAMED since March
31, 1997. Mr. Bull is the senior partner of the law firm of
Bull, Cohn and Associates. The firm was established in 1974 and
was originally known as Harrison Bull and Associates until the
name was changed in 1989. The firm is primarily a general
practice law firm in Santa Barbara, California, with general
emphasis on civil litigation. The firm has developed a broad
base clientele that includes individuals, partnerships,
corporations and other entities. The firm is comprised of six
attorneys and has extensive litigation and trial experience
representing both plaintiffs and defendants. Mr. Bull has been a
member of the Florida Bar since 1973, the California Bar since
1974 and is a member of the American Bar Association. Mr. Bull
was admitted to practice before the Supreme Court of the United
States in 1984.
Richard Wm. Talley
Mr. Talley has served as a Director of INAMED since
March 31, 1997. Mr. Talley is currently with Talley, King & Co.,
a fully disclosed broker-dealer specializing in private placement
transactions, which he founded in 1993. Prior to that he founded
Talley, McNeil & Tormey, Inc., a regionally focused investment
bank, which merged in 1990 into a larger investment banking firm
in Irvine, California. Prior to that he founded the Santa
Barbara office of Shearson Lehman Brothers and managed that
location until the merger with American Express Corporation.
John E. Williams, M.D.
Dr. Williams has served as a Director of INAMED since
March 31, 1997. Dr. Williams is a plastic surgeon and has had
his own practice since 1962. He specializes in aesthetic
surgery. He has offices in Beverly Hills, California and Rancho
Mirage, California. He is a Diplomate of the American Board of
Plastic Surgery and is a Fellow of the American College of
Surgeons. He is a member of the American Society of Plastic and
Reconstructive Surgeons and the American Society of Aesthetic
Plastic Surgeons. He holds memberships in state, national and
international plastic surgery societies and is a member of the
American Medical Association and the Los Angeles County Medical
Association.
ITEM 11. EXECUTIVE COMPENSATION.
The Company established a Compensation Committee of
the Board of Directors in March 1997 consisting of the three
outside Directors: Messrs. Bull and Talley and Dr. Williams.
The Company believes that executive compensation should
be closely related to the value delivered to shareholders. This
belief has been adhered to by developing incentive pay programs
which provide competitive compensation and reflect Company
performance. Both short-term and long-term incentive
compensation are based on Company performance and the value
received by shareholders.
Compensation Philosophy
In designing its compensation program, the Company follows
its belief that compensation should reflect the value created for
shareholders while supporting the Company's strategic business
goals. In doing so, the compensation programs reflect the
following themes:
Compensation should encourage increased stockholder value.
Compensation programs should support the short and long-term strategic business
goals and objectives of the Company.
Compensation programs should reflect and promote the Company's values, and
reward individuals for outstanding contributions toward business goals.
Compensation programs should enable the Company to attract and retain highly
qualified professionals.
Compensation Make-Up and Measurement
The Company's executive compensation is based on three
components, base salary, short-term incentives and long-term
incentives, each of which is intended to serve the overall
compensation philosophy.
Base Salary
The Company's salary levels are intended to be
consistent with competitive pay practices and level of
responsibility, with salary increases reflecting competitive
trends, the overall financial performance of the Company, general
economic conditions as well as a number of factors relating to
the particular individual, including the performance of the
individual executive, and level of experience, ability and
knowledge of the job.
Short-Term Incentives
At the start of each fiscal year, target levels of pre-
tax profits and revenue growth are established by senior
management of the Company during the budgeting process and
approved by the Board of Directors. An incentive award
opportunity is established for each employee based on the
employee's level of responsibility, potential contribution, the
success of the Company and competitive conditions. Generally,
approximately 25% of an executive's potential bonus relates to
his or her achievement of personal objectives and 75% relates to
the Company's achievement of its pre-tax profit and revenue
goals.
The employee's actual award is determined at the end of
the fiscal year based on the Company's achievement of its pre-tax
profit and revenue goals and an assessment of the employee's
individual performance, including achievement of personal
objectives. This ensures that individual awards reflect an
individual's specific contributions to the success of the
Company.
Long-Term Incentives
Stock options are granted from time to time to reward
key employees' contributions. The grant of options is based
primarily on a key employee's potential contribution to the
Company's growth and profitability. Options are granted at an in-
the-money option price of $1.45 per share, and will increase in
value if the Company's stock price increases above that price.
An in-the-money option is an option which has an exercise price
for the common stock which is lower than the fair market value of
the common stock on a specified date. Generally, grants of
options vest over seven years and employees must be employed by
the Company for such options to vest.
Employment, Severance, and Change of Control Agreements
The Company has not entered into employment agreements
with any of its executive officers that exceed total compensation
of $100,000.
Stock Option Plans
In 1984, McGhan Medical Corporation adopted an
incentive stock option plan (the "1984 Plan"). Under the terms
of the 1984 Plan, 100,000 shares of its common stock were
reserved for issuance to key employees at prices not less than
the market value of the stock at the date the option is granted.
In 1985, INAMED Corporation agreed to substitute options to
purchase its shares (on a two-for-one basis) for those of McGhan
Medical Corporation. No options were granted under the 1984 Plan
during 1996.
In 1986, the Company adopted an incentive and
nonstatutory stock option plan (the "1986 Plan"). Under the
terms of the 1986 Plan, 300,000 shares of common stock have been
reserved for issuance to key employees. During 1996, 28,500
options were granted under the 1986 Plan.
Stock Award Plan
In 1987, the Board of Directors adopted a stock award plan (the "1987 Plan")
whereby 300,000 shares of the Company's common stock were reserved for issuance
to selected employees of the Company. The 1987 Plan was adopted to further
the Company's growth, development and financial success by providing additional
incentives to employees by rewarding them for their performance and providing
them the opportunity to become owners of common stock of the Company, and thus
to benefit directly from its growth, development and financial success. Shares
are awarded under the 1987 Plan to employees as selected by a committee
appointed by the Board of Directors to administer the plan. Stock awards
totaling 180,388 have been granted as of December 31, 1996.
Stock Appreciation Rights Plan
The Company has approved a stock appreciation rights
plan (the "SAR Plan") whereby key employees may be issued cash or
common stock based on the increase in the stock value. The SAR
Plan was adopted in 1988 by the Board of Directors. As of
December 31, 1992, 500,000 shares had been granted under the SAR
Plan. At December 31, 1996 and during the year then ended, there
were no SARs outstanding.
Summary Compensation Table
The following table sets forth information with respect
to the compensation of the Company's executive officers for
services in all capacities to the Company in 1994, 1995 and 1996:
<TABLE>
<S> <C> <C> <C> <C> <C>
Long-Term
Annual Compensation Compensation
Stock
Other Options/
Annual SARs Granted All Other
Name and Year Salary Bonus Compensation (in shares) Compensation
Principal
Position
Donald K. McGhan 1996 $ 6,427 -- -- -- 32,994
Chairman and 1995 299,676 -- -- -- --
Chief Executive 1994 253,187 -- -- -- --
Officer
Michael D. Farney(1) 1996 225,000 -- -- -- 19,302
Chief Executive 1995 245,165 714,227 -- -- --
Officer, Secretary 1994 207,354 -- -- -- --
Willem Oost-Lievense(2) 1996 169,231 30,000 -- -- 40,462
Chief Financial 1995 -- -- -- -- --
Officer 1994 -- -- -- -- --
Gerald L. Ehrens(3) 1996 -- -- -- -- --
Chief Operating 1995 -- -- -- -- --
Officer 1994 141,795 -- -- -- --
</TABLE>
_________________
(1) Mr. Farney resigned as Chief Executive Officer and Secretary of the
Company as of March 31, 1997.
(2) Mr. Oost-Lievense commenced employment with the Company on April 17, 1996
and left the Company on March 19, 1997.
(3) Mr. Ehrens commenced employment with the Company on May 1, 1992, and
terminated employment with the Company in September of 1994.
(4) Fringe benefits including automobile allowance and group term insurance.
Table of Stock Option Exercises in 1996 and Year-End Option Values
Not applicable.
COMPARISON OF TOTAL SHAREHOLDER RETURN
The following graph sets forth the Company's total
shareholder return as compared to the NASDAQ Market Index and the
Standard & Poor's Medical Products and Supplies Index over the
period from December 31, 1991 until December 31, 1996. The total
shareholder return assumes $100 invested at December 31, 1991 in
the Company's Common Stock, the NASDAQ Market Index and the
Standard & Poor's Medical Products and Supplies Index. It also
assumes reinvestment of all dividends.
* $100 Invested on 12/31/91 in Stock or Index - Including
reinvestment of dividends. Fiscal year ending December 31.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth information as to the
shares of common stock owned as of August 31, 1997, by (i) each
person who, insofar as the Company has been able to ascertain,
beneficially owned more than five percent of the outstanding
common stock of the Company, (ii) each director, and (iii) all
the directors and officers as a group. Unless otherwise
indicated in the footnotes following the table and subject to
community property laws where applicable, the person(s) as to
whom the information is given had sole voting and investment
power over the shares of common stock shown as beneficially
owned.
Name of Beneficial
Owner or Identity Number Percent
of Group of Shares of Class
Chancellor LGT Asset Management 874,200 10.4%
50 California Street
27th Floor
San Francisco, CA 94111
Appaloosa Management LP et al. 834,800 9.9%
50 John F. Kennedy Parkway
Short Hills, NJ 07078
Donald K. McGhan(1) 1,285,354(2) 15.2%
All officers and directors as a group. 1,285,354 15.2%
(1) Mr. McGhan's business address is 3800 Howard Hughes Parkway, Las Vegas,
Nevada 89109.
(2) Includes 207,310 shares of common stock owned by Shirley M. McGhan, the
wife of Donald K. McGhan, as to which Mr. McGhan disclaims beneficial
ownership; 107,985 shares owned by a corporation of which Mr. McGhan is
the chairman; 197,280 shares owned by a limited partnership of which Mr.
McGhan is the general partner; and 137,175 shares owned by a limited
liability corporation of which Mr. McGhan is the managing member.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Included in related party notes receivable in 1996 is a
10.5% note with McGhan Management Corporation, a Nevada
Corporation, in the amount of $202,510. Mr. Donald K.
McGhan, Chairman and Chief Executive Officer of the Company,
and his wife are the majority shareholders of McGhan
Management Corporation. This note has since been paid in
its entirety.
Included in general and administration expense on the income
statement in 1996 is $1.2 million in aircraft rental
expenses paid to a company that is controlled by the family
of Mr. Donald K. McGhan, Chairman and Chief Executive
Officer of the Company. No signed contract exists and the
Company is billed based on its usage.
Included in assets in 1995 is an unsecured note receivable
from Michael D. Farney, Chief Executive Officer and Chief
Financial Officer of the Company. This receivable
approximated $386,000 as of December 31, 1995. The note
bears interest at 9.5% per annum and was due in June 1996.
The note was primarily for various personal activities. On
March 4, 1996, the officer paid the balance of the note in
full.
Included in liabilities in 1995 are notes payable to McGhan
Management Corporation, a Nevada Corporation and Donald K.
McGhan, Chairman and President of the Company. These
payables approximated $1,209,000 as of December 31, 1995.
The notes bear interest at prime plus 2% per annum (10.5%
per annum at December 31, 1995) and were due June 30, 1996,
or on demand. The Company paid the balance of these notes
in full on January 25, 1996. Also included in liabilities
in 1995 is a note payable of approximately $550,000 to an
officer of INAMED, S.A. in connection with the Company's
acquisition of this subsidiary. Final payment on this note
was made on February 6, 1996.
During 1992, the Company entered into a rental arrangement
with Star America Corporation, a Nevada Corporation of which
Michael D. Farney, former Chief Executive Officer and former
Chief Financial Officer of the Company is the only Director
and Officer for rental of a Beachcraft BE2000 Starship to
provide air transportation for corporate purposes. The
minimum rental through December 31, 1993 was $95,000 per
month. In January 1994 this rent was renegotiated to a
month-to-month arrangement with a monthly rent of $74,000
during 1994. Rent expense for 1995 and 1994 was $900,000 and
$888,000 respectively. In February 1995, the Company
received a credit voucher from Star America Corporation for
$800,000. This amount represented payments made during 1994
in excess of actual rent agreement. At December 31, 1995,
the credit voucher had an outstanding balance of $107,670.
This balance was paid to the Company on March 11, 1996. The
rental arrangement with Star America Corp. was terminated
effective December 31, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a)(1) Consolidated Financial Statements: Page(s)
Report of Independent Accountants 29
Consolidated Balance Sheets as of
December 31, 1996, and 1995 30-31
Consolidated Statements of Operations for the
years ended December 31, 1996, 1995 and 1994 32
Consolidated Statements of Stockholders'
Equity for the years ended December 31,
1996, 1995, and 1994 33
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994 34-36
Notes to Consolidated Financial Statements 37-62
(a)(2) Consolidated Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts 75
All other schedules are omitted because the required information is not
present or is not present in amounts sufficient to require submission of the
schedule or because the information required is given in the consolidated
financial statements or notes thereto.
(a)(3) Exhibits:
Exhibit Description
3.1 Registrant's Articles of Incorporation. (Incorporated
herein by reference to Exhibit 3.1 of the Company's Financial
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-7101)).
3.2 Registrant's Bylaws. (Incorporated herein by reference
to Exhibit 3.2 of the Company's Financial Report on Form 10-K for
the year ended December 31, 1995 (Commission File No. 0-7101)).
4.1 Specimen Stock Certificate for INAMED Corporation Common Stock,
par value $.01 per Share. (Incorporated herein by reference to
Exhibit 3.3 of the Company's Financial Report on Form 10-K for the
year ended December 31, 1995 (Commission File No. 0-7101)).
4.2 Warrant Agreement dated as of July 2, 1997 between INAMED
Corporation and U.S. Stock Transfer Corporation. (Incorporated herein
by reference to Exhibit 10.6 of the Company's Current Report on Form
8-K filed with the Commission on July 9, 1997).
10.1 Stock Option Plan, together with form of Incentive
Stock Option Agreement and Nonstatutory Stock Option Agreement.
(Incorporated herein by reference to Exhibit 10.1 of the
Company's Financial Report on Form 10-K for the year ended
December 31, 1995 (Commission File No. 0-7101)).
10.2 Stock Award Plan. (Incorporated herein by reference to
Exhibit 10.2 of the Company's Financial Report on Form 10-K for
the year ended December 31, 1995 (Commission File No. 0-7101)).
10.3 Non-Employee Directors' Stock Option Plan.
(Incorporated herein by reference to Exhibit 10.3 of the
Company's Financial Report on Form 10-K for the year ended
December 31, 1995 (Commission File No. 0-7101)).
10.4 Form of INAMED Corporation February 27, 1997 Letter Agreement.
10.5 Form of INAMED Corporation 4% Convertible Debenture.
10.6 Form of Registration Rights Agreement.
10.7 Form of Convertible Debenture Agreement.
10.8 Rights Agreement, dated as of June 2, 1997, between INAMED
Corporation and U.S. Stock Transfer Corporation, which includes the
form of the Rights Certificate as Exhibit A and the Summary of Rights
to Purchase Common Stock as Exhibit B. (Incorporated herein by
reference to Exhibit 4.1 of the Company's Current Report on Form 8-K
filed with the Commission on May 23, 1997).
10.9 Form of Letter from the Board of Directors of INAMED Corporation to
Shareholders to be mailed with copies of the Summary of Rights
appearing as Exhibit B to Exhibit 1 hereto. (Incorporated herein by
reference to Exhibit 99.2 of the Company's Current Report on Form 8-K
filed with the Commission on May 23, 1997).
10.10 Amendment No. 1 to Rights Agreement, dated as of June
13, 1997, between INAMED Corporation and U.S. Stock Transfer
Corporation.
10.11 Letter Agreement dated as of July 2, 1997 by and among INAMED
Corporation, Appaloosa Management L.P., and Donald K. McGhan.
(Incorporated herein by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K filed with the Commission on July 9, 1997).
10.12 Second Supplemental Indenture, dated as of July 2, 1997, between
INAMED Corporation and Santa Barbara Bank & Trust. (Incorporated
herein by reference to Exhibit 10.2 of the Company's Current
Report on Form 8-K filed with the Commission on July 9, 1997).
10.13 Letter of Representation of INAMED Corporation dated as
of July 2, 1997 in favor of holders of 11% Secured Convertible
Notes due 1999. (Incorporated herein by reference to Exhibit
10.3 of the Company's Current Report on Form 8-K filed with the
Commission on July 9, 1997).
10.14 Consent and Waiver of certain holders of 11% Secured Convertible
Notes due 1999 dated as of July 8, 1997. (Incorporated herein by
reference to Exhibit 10.4 of the Company's Current Report on Form 8-K
filed with the Commission on July 9, 1997).
10.15 Letter executed by Appaloosa Investment Limited Partnership, Ferd
L.P. and Palomino Fund Ltd. withdrawing the notice of default under
the Indenture. (Incorporated herein by reference to Exhibit 10.5 of
the Company's Current Report on Form 8-K filed with the Commission
on July 9, 1997).
10.16 Amendment No. 2 to Rights Agreement, dated as of July
2, 1997, between INAMED Corporation and U.S. Stock Transfer
Corporation. (Incorporated herein by reference to Exhibit 10.7
of the Company's Current Report on Form 8-K filed with the
Commission on July 9, 1997).
10.17 Form of Note Purchase Agreement. (Incorporated herein
by reference to Exhibit 99.1 of the Company's Current Report on
Form 8-K filed with the Commission on April 19, 1996).
10.18 Indenture between the Registrant and Santa Barbara Bank
& Trust, as trustee. (Incorporated herein by reference to
Exhibit 99.2 of the Company's Current Report on Form 8-K filed
with the Commission on April 19, 1996.)
10.19 Form of 11% Secured Convertible Note due 1999. (Incorporated
herein by reference to Exhibit 99.3 of the Company's Current Report
on Form 8-K filed with the Commission on April 19, 1996.)
10.20 Security Agreement between the Registrant and Santa Barbara Bank
& Trust, as trustee. (Incorporated herein by reference to Exhibit
99.4 of the Company's Current Report on Form 8-K filed with the
Commission on April 19, 1996).
10.21 Guarantee and Security Agreement between certain subsidiaries of the
Registrant and Santa Barbara Bank & Trust, as trustee. (Incorporated
herein by reference to Exhibit 99.5 of the Company's Current Report
on Form 8-K filed with the Commission on April 19, 1996).
10.22 Guarantee Agreement between certain subsidiaries of the Registrant
and Santa Barbara Bank & Trust, as trustee. (Incorporated herein by
reference to Exhibit 99.6 of the Company's Current Report on Form
8-K filed with the Commission on April 19, 1996).
10.23 Loan Purchase Agreement between First Interstate Bank of California
and Santa Barbara Bank & Trust, as trustee. (Incorporated herein by
reference to Exhibit 99.7 of the Company's Current Report on Form 8-K
filed with the Commission on April 19, 1996).
10.24 Escrow Agreement between the Registrant and Santa Barbara Bank &
Trust, as trustee. (Incorporated herein by reference to Exhibit 99.8
of the Company's Current Report on Form 8-K filed with the Commission
on April 19, 1996).
10.25 Escrow Agreement between the Registrant and Santa Barbara Bank &
Trust, as trustee. (Incorporated herein by reference to Exhibit 99.9
of the Company's Current Report on Form 8-K filed with the
Commission on April 19, 1996).
21 Registrant's Subsidiaries
27 Financial Data Schedule
(b) Reports on Form 8-K:
Form 8-K dated March 19, 1997
Form 8-K dated June 10, 1997
Form 8-K dated July 9, 1997
<TABLE>
Schedule II
INAMED CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
<S> <C> <C> <C> <C>
Beginning End of
of period period
Description balance Additions Deductions balance
Year ended December 31, 1996:
Allowance for returns 5,676,249 -- 1,913,207 3,763,042
Allowance for doubtful
accounts 964,928 101,189 351,972 714,145
Allowance for obsolescence 759,362 566,567 -- 1,325,929
Valuation allowance for
deferred tax assets 7,377,074 -- 1,074,515 6,302,559
Self-insurance accrual 1,130,632 270,375 28,350 1,372,657
Allowance for doubtful
notes 1,066,958 -- -- 1,066,958
Year ended December 31, 1995:
Allowance for returns 5,346,885 329,364 -- 5,676,249
Allowance for doubtful
accounts 678,942 376,182 90,196 964,928
Allowance for obsolescence 450,730 600,847 292,215 759,362
Valuation allowance for
deferred tax assets 5,000,080 2,376,994 -- 7,377,074
Self-insurance accrual 1,291,605 9,000 169,973 1,130,632
Allowance for doubtful
notes -- 1,066,958 -- 1,066,958
Year ended December 31, 1994:
Allowance for returns 4,807,675 585,885 46,675 5,346,885
Allowance for doubtful
accounts 333,321 454,380 108,759 678,942
Allowance for obsolescence -- 450,730 -- 450,370
Valuation allowance for
deferred tax assets 5,606,666 -- 1,631 1,291,605
Self-insurance accrual 1,293,2 -- 1,631 1,291,6
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INAMED CORPORATION
By /s/ Donald K. McGhan
Donald K. McGhan, Chief Executive
Officer and Chairman of the Board
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of Registrant in the capacities and on the
dates indicated:
<TABLE>
<S> <C> <C>
/s/ Donald K. McGhan Chairman of the Board, Director, September 8, 1997
Donald K. McGhan and Chief Executive Officer
(Principal Executive Officer)
/s/ Jim J. McGhan President and Director September 8, 1997
Jim J. McGhan (Principal Operations Officer)
/s/ Jeffrey J. Barber Executive Vice President September 8, 1997
Jeffrey J. Barber (Marketing and Corporate Development)
/s/ Karyn G. Hyland-Cotto Financial Controller September 8, 1997
Karyn G. Hyland-Cotto (Principal Accounting Officer)
/s/ Harrison E. Bull, Esq. Director September 8, 1997
Harrison E. Bull, Esq.
/s/ Richard Wm. Talley Director September 8, 1997
Richard Wm. Talley
/s/ John E. Williams, M.D. Director September 8, 1997
John E. Williams, M.D.
</TABLE>
Exhibit 10.4
February 27, 1997
VIA Facsimile:
To All Note Holders of the 11% Convertible Notes due 1999
Re: Revision of Certain Terms and Conditions for the 11%
Secured Convertible Notes Due 1999 ("Notes")
Gentlemen:
Reference is hereby made to the (i) Note Purchase Agreement,
dated January 23, 1996 (as amended as of the date hereof,
the "Note Purchase Agreement"), among INAMED Corporation
(the "Company") and the purchasers of the Company's 11%
Secured Convertible Notes due 1999 (the "Notes") party
thereto, (ii) Indenture dated January 2, 1996 (as amended as
of the date hereof, the "Indenture") between the Company and
Santa Barbara Bank & Trust, as Trustee, governing the terms
of the Notes and (iii) Escrow Agreements, each dated as of
January 2, 1996 (as amended as of the date hereof, the
"Escrow Agreements"), between the Company and Santa Barbara
Bank & Trust, as Escrow Agent. Capitalized terms use herein
not otherwise defined shall have the meaning ascribed
thereto in the Indenture.
The Company is hereby requesting that the Holders agree to a
restructuring of the Company's indebtedness held by the
Holders in order to accomplish the following (a) conclude
the existence of the Escrow Agreement which contained an
original termination date of January 22, 1997, unless
amended by the Company and the Trustee, which amendment
needed to be consented to by the Holders of 66 2/3rds of the
outstanding Notes; (b) return the escrowed funds to the
Holder thus, reducing the Company's interest expenses; and
(c) resolve Note Purchase Agreement issues and amendments to
the Indenture that are in the best interest of both the
Company and the Holders. The Escrow Agreement has
previously been extended to February 22, 1997, as a result
of receiving approval of the Holders of 66 2/3rds of the
outstanding Notes.
The Company is hereby requests consent from the Holders to
instruct the Escrow Agent to maintain the escrowed funds by
accepting instructions to continue the Escrow Agreement
until March 5, 1997, or until the completion and execution
of any and all documents deemed necessary to revise the
terms and conditions of the Notes, whichever occurs earlier.
It is further agreed that interest charges will not accrue
on the escrowed funds after February 21, 1997.
As part of such restructuring, the Company is proposing that
(i) the Escrow Agreements be terminated and all of the
Escrow Fund (as defined in the Escrow Agreements) be paid
over to the Holders in a proportionate amount based on the
percentage of principal amount of the Notes surrendered by
each Holder in partial redemption thereof in accordance with
Article 9 of the Indenture, (ii) the Holders be issued
Warrants to purchase shares of Common Stock of the Company
(the "Warrants"), containing the terms described below, in a
pro rata amount based on the percentage of the principal
amount of the Notes outstanding on the date of issuance of
the Warrants (and before giving effect to the partial
redemption thereof contemplated in clause (i) of this
paragraph) and (iii) the terms of the Notes and certain of
the other Documents be amended as described below.
Issuance of Warrants.
The Warrants shall represent, in the aggregate, the right to
purchase 1,640,952 shares of Common Stock, and shall be
exercisable, at any time, in whole or in part, by the holder
thereof after August 15, 1997, and prior to March 31, 2000
at an exercise price of $9.00 per share.
The Company shall have the right to repurchase any
outstanding Warrants, upon not less than 30 days' prior
written notice to the Holders at a repurchase price of $.01
per warrant, only after (a) the earlier of (i) the issuance
by United States District Court, Northern District of
Alabama, Southern Division (or any successor court with
jurisdiction over the Silicone Gel breast Implant Products
Liability Litigation (MDL 926)), of a Final Order certifying
the Company's Mandatory (non-"opt-out" Limited Fund) Class
under Rule 23(b) (1) (B) of the Federal Rules of Civil
Procedure or (ii) "Circling of the Class" with ninety-seven
percent (97%) of the silicone breast implant litigation
currently existing against the Company settled in whatever
way is in the best interest of the Company; and (b) after
the occurrence of the earlier of events described in clause
(a) of this paragraph the closing volume weighted average
trading price of the Common Stock as reported on the
Bloomberg NASDAQ Market Reporting System, shall average
$13.00 per share for 20 consecutive trading days. The
giving of notice by the Company to the Holders to repurchase
the Warrants as contemplated by this paragraph shall not
affect the right of the Holders to exercise the Warrants
prior to the repurchase date specified in such notice.
The Company (i) shall use its best efforts to register with
the Commission on an appropriate form under the Securities
Act, on or before March 22, 1997 (or cause an appropriate
post-effective amendment to be made to an existing
registered registration statement on or prior to such date),
and use its best efforts to cause to become effective on or
before May 31, 1997, such registration statement with
respect to the Warrants and the aggregate amount of shares
of Common Stock to be issued upon exercise of the Warrants
and (ii) keep such registration statement effective for a
period of time required for the disposition of such Warrants
or Common Stock by the Holders. In the event such
registration statement is not filed or declared effective on
or prior to the applicable date set forth above, the
exercise price of the Warrants shall be reduced by $.50 and,
if such registration statement is not filed or declared
effective within 45 days after the applicable date set forth
above, the exercise price of the Warrants shall be reduced
by an additional $.50 (and thereafter reduced by an
additional $.50 for each subsequent period of 45 consecutive
days that such filing and/or effectiveness does not occur).
The Company shall use its best efforts to maintain a trading
market for the Warrants upon the effectiveness of such
registration statement. The Company acknowledges that its
obligation to register the Warrants and Common Stock
issuable upon exercise thereof shall not affect in any
manner any of its other obligations to register securities
under the Securities Act, including its obligations under
the Indenture with respect to the registration under the
Securities Act of the Common Stock issuable upon conversion
of the Notes to the extent necessary or appropriate, the
Company agrees to use it best efforts to amend the Company's
existing effective S-3 registration statement in order to
register under the Securities Act all of the shares of
Common Stock issuable upon conversion of the Notes (as the
terms of such Notes are to be amended as described below)
and keep such registration statement effective for a period
of time required for the disposition of such Common Stock by
the Holders. The Holders agree that they will not sell the
Warrants until after August 15, 1997.
Amendment of Notes and other Documents.
The conversion terms of the Notes not redeemed in connection
with the payment of the Escrow Fund to the Holders as
contemplated above shall be amended such that such Notes may
be converted at any time, in whole or in part, by the
Holders thereof into that number of shares of Common Stock
obtained by dividing the principal amount of the Note or
portion thereof to be converted by a conversion price equal
to the lesser of (i) $8.00 per share, as adjusted from time
to time as provided in the Indenture (as amended as
contemplated below), and (ii) an amount equal to 85% of the
closing volume weighted average trading price of the Common
Stock as reported on the Bloomberg NASDAQ Market Reporting
System for the 10 day period prior to delivery of a
conversion notice to the Company by the applicable Holder;
provided, however, that each Holder may only convert up to
forty percent (40%) of the initial aggregate principal
amount of Notes held by such Holder (after giving effect to
the partial redemption of Notes contemplated in connection
with the payment of the Escrow Fund to the Holders as
described above) in any 60-day period.
The limitations with respect to conversion of the Notes
contained in the immediately preceding sentence shall not be
applicable to the extent that (i) a Holder owns Notes in an
aggregate principal amount less than $100,000 (the "De
Minimis Amount") and (ii) the De Minimis Amount did not
result from a previous conversion made when such Holder
owned Notes in excess of the De Minimis Amount.
Section 10.5 of the Indenture shall be amended to include
the full ratchet price protections with respect to the
conversion price of the Notes not redeemed in connection
with the payment of the Escrow Fund to the Holders.
The Notes shall have (A) full rachet price protection,
substantially in the form set forth in Appendix A, in the
event shares of capital stock of the Company (i) are issued
or sold by the Company (or shares of capital stock may be
issued upon exercise of options, warrants, convertible
securities or similar securities issued or sold after the
date hereof) for $5.50 or less per share (subject to any
appropriate proportionate adjustments as a result of the
occurrence of certain events relating to the capital stock
as contemplated herein) other than shares issued as part of
a settlement of identified breast implant product litigation
, or (ii) are issued or sold by the Company outside the
United States in a transaction or series of transactions
pursuant to Regulation S of the Securities Act of 1933, as
amended (the "Securities Act"), or any successor regulation,
and (B) other anti-dilutive adjustment features with respect
to the number of shares of Common Stock of the Company.
Letter of Representations.
The Company shall also provide to the Holders in connection
with the delivery of the Warrants and the effectiveness of
the amendments contemplated above a Letter of
Representations and warranties of the Company set forth in
the Note Purchase Agreement, other than with respect to the
representation in Section 2.18 of the Note Purchase
Agreement with respect to the requirement that approximately
$10 million of the proceeds from the issuance of the Notes
be used for long-term capital investments and improvements.
The Company agrees to provide the Holders as soon as
possible after the date hereof, and in any event within 7
days of the date hereof, with drafts of all documents
necessary to effect the transactions contemplated hereby
(including, without limitation, a form of Warrant, but
excluding registration statement) and, after the terms of
such documents have been approved by the Holders, to use its
best efforts to cause the execution and delivery of all such
documents within 10 days of the date hereof.
This Agreement shall not constitute a waiver by the Holders
of any default under any of the Documents; provided,
however, that, upon the performance by the Company of all of
its obligations hereunder in accordance with the provisions
hereof, including the execution and delivery of all
documents contemplated hereby, the Holders hereby agree to
waive any default of Section 2.18 of the Note Purchase
Agreement with respect to the requirement that approximately
$10 Million of the proceeds from the issuance of the Notes
be used for long-term capital investments and improvements.
The undersigned Holders expressly retain and have the right
to exercise all rights, powers and remedies granted to them
under the Documents (including, without limitation, the
Escrow Agreements), under applicable law and otherwise.
If you are in agreement with the foregoing, please so
indicate by signing two copies of this letter in the space
set forth below and returning one of such copies to the
undersigned, whereupon this letter shall constitute our
binding agreement in accordance with the terms and
provisions set forth above.
Yours truly,
INAMED CORPORATION AGREED AND ACKNOWLEDGED
THIS DAY OF FEBRUARY, 1997
/s/
Donald K. McGhan
Chairman and President
Exhibit 10.5
No. _____ U.S. _________________
INAMED Corporation 4% CONVERTIBLE DEBENTURE DUE JANUARY 16, 2000
THIS DEBENTURE is one of a duly authorized issue of
Debentures of INAMED Corporation, a Florida corporation
having a principal place of business at 3800 Howard Hughes
Pkwy., Suite 900, Las Vegas, Nevada (the "Company"),
designated as its 4% Convertible Debentures Due January 16,
2000 (the "Debentures"), in an aggregate principal amount of
up to U.S. $4,200,000.
FOR VALUE RECEIVED, the Company promises to pay to
___________________, or registered assigns (the "Holder"),
the principal sum of ____________________________Dollars
(U.S. $__________), on or prior to January 16, 2000 (the
"Maturity Date") and to pay interest to the Holder on the
principal sum, at the rate of 4% per annum, payable
quarterly, in arrears. Interest shall accrue daily
commencing on the Original Issue Date (as defined in Section
6) until payment in full of the principal sum, together with
all accrued and unpaid interest, has been made or duly
provided for. Interest shall be calculated on the basis of
a 360-day year. Interest due and payable hereunder will be
paid on each December 31, March 31, June 30 and September 30
(each, an "Interest Due Date"), and at the Maturity Date, to
the person in whose name this Debenture (or one or more
predecessor Debentures) is registered on the records of the
Company regarding registration and transfers of the
Debentures (the "Debenture Register") on the first business
day prior to the Interest Due Date or the Maturity Date, as
the case may be; provided, however, that the Company's
obligation to a transferee of this Debenture arises only if
such transfer, sale or other disposition is made in
accordance with the terms and conditions hereof and of the
Convertible Debenture Purchase Agreement, dated as of
January 17, 1997, as amended from time to time (the
"Purchase Agreement"), executed by the original Holder. All
accrued and unpaid interest shall bear interest at the rate
of 14% per annum from the Maturity Date or earlier date on
which this Debenture is accelerated through and including
the date of payment. The principal of, and interest on,
this Debenture are payable in such coin or currency of the
United States of America as at the time of payment is legal
tender for payment of public and private debts, at the
address of the Holder last appearing on the Debenture
Register. A transfer of the right to receive principal and
interest under this Debenture shall be transferable only
through an appropriate entry in the Debenture Register as
provided herein.
This Debenture is subject to the following additional
provisions:
Section 1. The Debentures are issuable in
denominations of One Hundred Thousand Dollars (U.S.
$100,000) and integral multiples of Fifty Thousand Dollars
(U.S.$50,000) in excess thereof. The Debentures are
exchangeable for an equal aggregate principal amount of
Debentures of different authorized denominations, as
requested by the Holder surrendering the same, but shall not
be issuable in denominations of less than integral multiples
of Fifty Thousand Dollars (U.S. $50,000). No service charge
will be made for such registration of transfer or exchange.
Section 2. In the event any interest or principal due
hereunder is subject to any withholding tax under the income
tax or other applicable laws of the United States, the
Company will pay to the Holder, in addition to the payments
otherwise due hereunder, such additional amount as is
necessary to provide that the net amount actually received
by the Holder (free and clear of any such withholding tax,
whether assessed against the Company or the Holder) will
equal the full amount the Holder would have received had
such withholding tax not been assessed.
Section 3. This Debenture has been issued subject to
certain investment representations of the original Holder
set forth in the Purchase Agreement and may be transferred
or exchanged only in compliance with the Securities Act of
1933, as amended (the "Act"), including Regulation D
promulgated thereunder. Prior to due presentment to the
Company for transfer of this Debenture, the Company and any
agent of the Company may treat the person in whose name this
Debenture is duly registered on the Debenture Register as
the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any
such agent shall be affected by notice to the contrary.
Section 4. Events of Default.
"Event of Default", wherever used herein means any one of
the following events (whatever the reason and whether it
shall be voluntary or involuntary or effected by operation
of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any
administrative or governmental body):
(a) any default in the payment of the principal of
or interest on this Debenture as and when the same shall
become due and payable either at the Maturity Date, by
acceleration or otherwise;
(b) the Company shall fail to observe or perform any
other covenant, agreement or warranty contained in, or
otherwise commit any breach of this Debenture, and such
failure or breach shall not have been remedied within 30
days after the date on which notice of such failure or
breach shall have been given;
(c) the occurrence of any event or breach or default by
the Company under the Purchase Agreement;
(d) the Company or any of its subsidiaries shall
commence a voluntary case under the United States Bankruptcy
Code as now or hereafter in effect or any successor thereto
(the "Bankruptcy Code"); or an involuntary case is commenced
against the Company under the Bankruptcy Code and the
petition is not controverted within 30 days, or is not
dismissed within 60 days after commencement of the case; or
a "custodian" (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or any substantial
part of the property of the Company, or the Company
commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any
jurisdiction, whether now or hereafter in effect relating to
the Company, or there is commenced against the Company any
such proceeding which remains undismissed for a period of 60
days; or the Company is adjudicated insolvent or bankrupt;
or any order of relief or other order approving any such
case or proceeding is entered; or the Company suffers any
appointment of any custodian or the like for it or any
substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or the
Company makes a general assignment for the benefit of
creditors; or the Company shall fail to pay, or shall state
that it is unable to pay, or shall be unable to pay its
debts generally as they become due; or the Company shall
call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company shall
by any act or failure to act indicate its consent to,
approval of or acquiescence in any of the foregoing; or any
corporate or other action is taken by the Company for the
purpose of effecting any of the foregoing;
(e) the Company shall default in any of its
obligations under any mortgage, indenture or instrument,
whether such indebtedness now exists or shall hereafter be
created and such default shall result in such indebtedness
becoming or being declared due and payable prior to the date
on which it would otherwise become due and payable;
(f) the Company shall have its Common Stock (as defined
in Section 6) delisted from the NASDAQ Small Cap Market or
other national securities exchange or market on which such
Common Stock is listed for trading or suspended from trading
thereon, and shall not have its Common Stock relisted or
have such suspension lifted, as the case may be, within five
days; or
(g) the Company shall be a party to any merger or
consolidation or shall dispose of all or substantially all
of its assets in one or more transactions, or shall redeem
more than a de minimis amount of its outstanding shares of
Common Stock.
If any Event of Default occurs and is continuing, and in
every such case, then so long as such Event of Default shall
then be continuing, the Holder may, by notice to the
Company, declare the full principal amount of this
Debenture, together with all accrued but unpaid interest to
the date of acceleration, to be, whereupon the same shall
become, immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which
are waived by the Company, notwithstanding anything herein
contained to the contrary, and the Holder may, immediately
and without expiration of any grace period, enforce any and
all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such
declaration may be rescinded and annulled by Holder at any
time prior to payment hereunder. No such rescission or
annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.
Section 5. Conversion.
(a) This Debenture shall be convertible into shares of
Common Stock at the Conversion Ratio, at the option of the
Holder, in whole or in part at any time after the expiration
of 60 days after the Original Issue Date. Any conversion
under this Section 5(a) shall be of a minimum principal
amount of U.S. $50,000 of Debentures. The Holder shall
effect conversions by surrendering the Debentures (or such
portions thereof to be converted to the Company, together
with the form of conversion notice attached hereto as
Exhibit A (the "Holder Conversion Notice") in the manner set
forth in Section 5(j). Each Holder Conversion Notice shall
specify the principal amount of Debentures to be converted
and the date on which such conversion is to be effected (the
"Holder Conversion Date"). Subject to Section 5(c), each
Holder Conversion Notice, once given, shall be irrevocable.
If the Holder is converting less than all of the principal
amount represented by the Debenture(s) tendered by the
Holder with the Holder Conversion Notice, the Company shall
promptly deliver to the Holder a new Debenture for such
principal amount as has not been converted.
(b) This Debenture shall be convertible into shares of
Common Stock at the Conversion Ratio, at the option of the
Company, in whole or in part at any time on or after the
expiration of one year after the Original Issue Date;
provided, however, that the Company is not permitted to
deliver a Company Conversion Notice (as defined below)
within 10 days of issuing any press release or other public
statement relating to such conversion and provided, further,
that the shares of Common Stock deliverable on any such
conversion shall have been registered for resale in
accordance with the Registration Rights Agreement. The
Company shall effect such conversion by delivering to the
Holder a written notice in the form attached hereto as
Exhibit B (the "Company Conversion Notice"), which Company
Conversion Notice, once given, shall be irrevocable. Each
Company Conversion Notice shall specify the principal amount
of Debentures to be converted and the date on which such
conversion is to be affected (the "Company Conversion
Date"). The Company shall give such Company Conversion
Notice in accordance with Section 5(j) below at least two
Trading Days before the Company Conversion. Any such
conversion shall be effected on a pro rata basis among all
holders of Debentures. Upon the conversion of the
Debentures pursuant to a Company Conversion Notice, the
Holder shall surrender its Debentures at the office of the
Company or of any transfer agent for the Debentures or
Common Stock. If the Company is converting less than the
aggregate principal amount of all Debentures, the Company
shall, upon conversion of such Debentures subject to such
Company Conversion Notice and receipt of the Debentures
surrendered for conversion, deliver to the Holder, and each
other such holder of Debentures, a certificate for such
principal amount of Debentures as have not been converted.
Each of a "Holder Conversion Notice" and a "Company
Conversion Notice" is sometimes referred to herein as a
"Conversion Notice", and each of a "Holder Conversion Date"
and a "Company Conversion Date" is sometimes referred to
herein as a "Conversion Date".
(c) Not later than three Trading Days after the Conversion
Date, the Company will deliver to the Holder (i) a
certificate or certificates which shall be free of
restrictive legends and trading restrictions (other than
those then required by law), representing the number of
shares of Common Stock being acquired upon the conversion of
Debentures and (ii) Debentures in principal amount equal to
the principal amount of Debentures not converted; provided,
however that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable
upon conversion of any Debentures, until Debentures are
either delivered for conversion to the Company or any
transfer agent for the Debentures or Common Stock, or the
Holder notifies the Company that such Debentures have been
lost, stolen or destroyed and provides a bond (or other
adequate security reasonably acceptable to the Company)
satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection therewith. The
Company shall, upon request of the Holder, use its best
efforts to deliver any certificate or certificates required
to be delivered by the Company under this Section 5(c)
electronically through the Depository Trust Corporation or
another established clearing corporation performing similar
functions. In the case of a conversion pursuant to a Holder
Conversion Notice, if such certificate or certificates are
not delivered by the date required under this Section 5(c),
the Holder shall be entitled by written notice to the
Company at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately
return the Debentures tendered for conversion.
(d) (i) The conversion price ("Conversion Price") for each
Debenture in effect on any Conversion Date shall be the
lesser of X OR Y: where X is the greater of (a) [ $F ] or
(b) [ C ] / [ ( { C / F } + 1.33 ) / 2 ] (where C = the
average Per Share Market Value for the five (5) Trading Days
immediately preceding the Conversion Date and F = the
average Per Share Market Value for the five (5) Trading Days
immediately preceding the Original Issue Date ("Initial
Conversion Price")); and Y = 85 % of the average Per Share
Market Value for the five (5) Trading Days immediately
preceding the Conversion Date; provided, however, if the
registration statement to be filed by the Company in
accordance with the Registration Rights Agreement is not
declared effective by the Commission for any reason by the
Effectiveness Date (as defined in the Registration Rights
Agreement), then for each of the first two months after such
Effectiveness Date that such registration statement shall
not have been so declared effective, the conversion price as
computed above shall be decreased by 3% (i.e., 3% at the end
of the first such month and 6% at the end of the second such
month). The provisions of this section are not exclusive
and shall in no way limit the Company's obligations under
Section 5 of the Registration Rights Agreement. For
purposes of this Section the "Closing Price" on any Trading
Day shall mean the last reported closing price of the Common
Stock of the Company on such day on the principal national
securities exchange on which the Common Stock is listed or,
if the Common Stock is not so listed, the last reported bid
price of the Common Stock as reported on The NASDAQ National
Market or the NASDAQ Small Cap Market, as applicable, on
such date or, if the Common Stock is neither so listed nor
so reported, the last reported bid price of the Common Stock
as quoted by a registered broker-dealer for which such
quotes are available on such date.
(ii) If the Company, at any time while any Debentures
are outstanding, (a) shall pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior
Securities payable in shares of its capital stock (whether
payable in shares of its Common Stock or of capital stock of
any class), (b) subdivide outstanding shares of Common Stock
into a larger number of shares, (c) combine outstanding
shares of Common Stock into a smaller number of shares, or
(d) issue by reclassification of shares of Common Stock any
shares of capital stock of the Company, the Initial
Conversion Price designated in Section 5(d)(i) shall be
multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock of the Company outstanding
before such event and of which the denominator shall be the
number of shares of Common Stock outstanding after such
event. Any adjustment made pursuant to this Section
5(d)(ii) shall become effective immediately after the record
date for the determination of stockholders entitled to
receive such dividend or distribution and shall become
effective immediately after the effective date in the case
of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any
Debentures are outstanding, shall issue rights or warrants
to all holders of Common Stock entitling them to subscribe
for or purchase shares of Common Stock at a price per share
less than the Per Share Market Value of Common Stock at the
record date mentioned below, the Initial Conversion Price
designated in Section 5(d)(i) shall be multiplied by a
fraction, of which the denominator shall be the number of
shares of Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common
Stock offered for subscription or purchase, and of which the
numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding on the date
of issuance of such rights or warrants plus the number of
shares which the aggregate offering price of the total
number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective
immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to
purchase Common Stock, the issuance of which resulted in an
adjustment in the Initial Conversion Price designated in
Section 5(d)(i) pursuant to this Section 5(d)(iii), if any
such right or warrant shall expire and shall not have been
exercised, the Initial Conversion Price designated in
Section 5(d)(i) shall immediately upon such expiration be
recomputed and, effective immediately upon such expiration,
be increased to the price which it would have been (but
reflecting any other adjustments in the Initial Conversion
Price made pursuant to the provisions of this Section 5
after the issuance of such rights or warrants) had the
adjustment of the Initial Conversion Price made upon the
issuance of such rights or warrants been made on the basis
of offering for subscription or purchase only that number of
shares of Common Stock actually purchased upon the exercise
of such rights or warrants actually exercised.
(iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common Stock
(and not to holders of Debentures) evidences of its
indebtedness or assets or rights or warrants to subscribe
for or purchase any security (excluding those referred to in
Section 5(d)(iii) above) then in each such case the Initial
Conversion Price at which each Debenture shall thereafter be
convertible shall be determined by multiplying the Initial
Conversion Price in effect immediately prior to the record
date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the
denominator shall be the Per Share Market Value of Common
Stock determined as of the record date mentioned above, and
of which the numerator shall be such Per Share Market Value
of the Common Stock on such record date, less the then fair
market value at such record date of the portion of such
assets or evidence of indebtedness so distributed applicable
to one outstanding share of Common Stock as determined by
the Board of Directors in good faith, provided, however that
in the event of a distribution exceeding ten percent (10%)
of the net assets of the Company, such fair market value
shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent
certified public accountants of recognized standing (which
may be the firm that regularly examines the financial
statements of the Company) (an "Appraiser") selected in good
faith by the holders of a majority of the principal amount
of the Debentures then outstanding; and provided, further
that the Company, after receipt of the determination by such
Appraiser, shall have the right to select an additional
Appraiser, in which case the fair market value shall be
equal to the average of the determinations by each such
Appraiser. In either case the adjustments shall be
described in a statement provided to the Holder and all
other holders of Debentures of the portion of assets or
evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution
is made and shall become effective immediately after the
record date mentioned above.
(v) All calculations under this Section 5 shall be made to
the nearest cent or the nearest 1/100th of a share, as the
case may be.
(vi) Whenever the Initial Conversion Price is adjusted
pursuant to Section 5(d)(ii), (iii), (iv) or (v), the
Company shall promptly mail to the Holder and to each other
holder of Debentures, a notice setting forth the Initial
Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.
(vii) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or
into another person, the sale or transfer of all or
substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock
is converted into other securities, cash or property, then
each holder of Debentures then outstanding shall have the
right thereafter to convert such Debentures only into the
shares of stock and other securities and property receivable
upon or deemed to be held by holders of Common Stock
following such reclassification consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled
upon such event to receive such amount of securities or
property as the shares of the Common Stock into which such
Debentures could have been converted immediately prior to
such reclassification, consolidation, merger, sale, transfer
or share exchange would have been entitled. The terms of
any such consolidation, merger, sale, transfer or share
exchange shall include such terms so as to continue to give
to the Holder the right to receive the securities or
property set forth in this Section 5(d)(vii) upon any
conversion following such consolidation, merger, sale,
transfer or share exchange. This provision shall similarly
apply to successive reclassifications, consolidations,
mergers, sales, transfers or share exchanges.
(viii) If:
(A) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(C) the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
(D) the approval of any stockholders of the Company shall
be required in connection with any reclassification of the
Common Stock of the Company (other than a subdivision or
combination of the outstanding shares of Common Stock), any
consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets
of the Company, or any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or
property; or
(E) the Company shall authorize the voluntary or
involuntary dissolution liquidation or winding-up of the
affairs of the Company;
then the Company shall cause to be filed at each office or
agency maintained for the purpose of conversion of
Debentures, and shall cause to be mailed to the Holder and
each other holder of Debentures at their last addresses as
it shall appear upon the Debenture Register, at least 30
calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are
to be determined, or (y) the date on which such
reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding-up is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding-up;
provided, however, that the failure to mail such notice or
any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be
specified in such notice.
(e) If at any time conditions shall arise by
reason of action taken by the Company which in the opinion
of the Board of Directors are not adequately covered by the
other provisions hereof and which might materially and
adversely affect the rights of the Holder and all other
holders of Debentures (different than or distinguished from
the effect generally on rights of holders of any class of
the Company's capital stock), or if at any time any such
conditions are expected to arise by reason of any action
contemplated by the Company, the Company shall, at least 30
calendar days prior to the effective date of such action,
mail a written notice to each holder of Debentures briefly
describing the action contemplated and the material adverse
effects of such action on the rights of such holders and an
Appraiser selected by the holders of majority in principal
amount of the outstanding Debentures shall give its opinion
as to the adjustment, if any (not inconsistent with the
standards established in this Section 5), of the Conversion
Price (including, if necessary, any adjustment as to the
securities into which Debentures may thereafter be
convertible) and any distribution which is or would be
required to preserve without diluting the rights of the
holders of Debentures; provided, however, that the Company,
after receipt of the determination by such Appraiser, shall
have the right to select an additional Appraiser, in which
case the adjustment shall be equal to the average of the
adjustments recommended by each such Appraiser. The Board
of Directors shall make the adjustment recommended forthwith
upon the receipt of such opinion or opinions or the taking
of any such action contemplated, as the case may be;
provided, however, that no such adjustment of the Conversion
Price shall be made which in the opinion of the Appraiser(s)
giving the aforesaid opinion or opinions would result in an
increase of the Conversion Price to more than the Conversion
Price then in effect.
(f) The Company covenants that it will at all
times reserve and keep available out of its authorized and
unissued Common Stock solely for the purpose of issuance
upon conversion of Debentures as herein provided, free from
preemptive rights or any other actual contingent purchase
rights of persons other than the holders of Debentures, such
number of shares of Common Stock as shall be issuable
(taking into account the adjustments and restrictions of
Section 5(b) and Section 5(d) hereof) upon the conversion of
the aggregate principal amount of all outstanding
Debentures. The Company covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly
and validly authorized, issued and fully paid and
nonassessable.
(g) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions
of shares of Common Stock, but may if otherwise permitted,
make a cash payment in respect of any final fraction of a
share based on the Per Share Market Value at such time. If
the Company elects not to, or is unable to, make such a cash
payment, the Holder shall be entitled to receive, in lieu of
the final fraction of a share, one whole share of Common
Stock.
(h) The issuance of certificates for shares of Common Stock
on conversion of Debentures shall be made without charge to
the Holder for any documentary stamp or similar taxes that
may be payable in respect of the issue or delivery of such
certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the
Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or
persons requiring the issuance thereof shall have paid to
the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been
paid.
(i) Debentures converted into Common Stock shall be
canceled.
(j) Each Holder Conversion Notice shall be given by
facsimile and by mail, postage prepaid, addressed to the
Chief Financial Officer of the Company at the facsimile
telephone number and address of the principal place of
business of the Company. Each Company Conversion Notice
shall be given by facsimile and by mail, postage prepaid,
addressed to each holder of Debentures at the facsimile
telephone number and address of such holder appearing on the
books of the Company or provided to the Company by such
holder for the purpose of such Company Conversion Notice, or
if no such facsimile telephone number or address appears or
is so provided, at the principal place of business of the
holder. Any such notice shall be deemed given and effective
upon the earliest to occur of (i) receipt of such facsimile
at the facsimile telephone number specified in this Section
5(j), (ii) five days after deposit in the United States
mails, or (iii) upon actual receipt by the party to whom
such notice is required to be given.
Section 6. Definitions. For the purposes hereof,
the following terms shall have the following meanings:
"Business Day" means any day of the year on which commercial
banks are not required or authorized to be closed in New
York City.
"Common Stock" means shares now or hereafter authorized of
the class of Common Stock, $.01 par value, of the Company
and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction of which
the numerator is the principal amount represented by any
Debenture plus accrued but unpaid interest, and of which the
denominator is the Conversion Price at such time.
"Junior Securities" means the Common Stock, all other equity
securities of the Company, and all other debt that is
subordinated to the Convertible Debentures by its terms.
"Original Issue Date" shall mean the date of the first
issuance of this Debenture regardless of the number
transfers hereof.
"Per Share Market Value" means on any particular date (a)
the last sale price per share of the Common Stock on such
date on The NASDAQ Small Cap Market or other stock exchange
on which the Common Stock has been listed or if there is no
such price on such date, then the last price on such
exchange on the date nearest preceding such date, or (b) if
the Common Stock is not listed on The NASDAQ Small Cap
Market or any stock exchange, the average of the bid and
asked price for a share of Common Stock in the over-the-
counter market, as reported by the NASDAQ Stock Market at
the close of business on such date, or (c) if the Common
Stock is not quoted on the NASDAQ Stock Market, the average
of the bid and asked price for a share of Common Stock in
the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or similar organization or
agency succeeding to its functions of reporting prices), or
(d) if the Common Stock is no longer publicly traded, the
fair market value of a share of Common Stock as determined
by an Appraiser (as defined in Section 5(d)(iv) above)
selected in good faith by the holders of a majority of
principal amount of outstanding Debentures; provided,
however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to
select an additional Appraiser, in which case, the fair
market value shall be equal to the average of the
determinations by each such Appraiser.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or
political subdivision thereof or a governmental agency.
"Trading Day" means (a) a day on which the Common Stock is
traded on The NASDAQ Small Cap Market or principal stock
exchange on which the Common Stock has been listed, or (b)
if the Common Stock is not listed on The NASDAQ Small Cap
Market or any stock exchange, a day on which the Common
Stock is traded in the over-the-counter market, as reported
by the NASDAQ Stock Market, or (c) if the Common Stock is
not quoted on the NASDAQ Stock Market, a day on which the
Common Stock is quoted in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or
any similar organization or agency succeeding its functions
of reporting prices).
Section 7. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and
unconditional, to pay the principal of, and interest on,
this Debenture at the time, place, and rate, and in the coin
or currency, herein prescribed. This Debenture is a direct
obligation of the Company. This Debenture ranks pari passu
with all other Debentures now or hereafter issued under the
terms set forth herein. The Company may not prepay any
portion of the outstanding principal amount on the
Debentures.
Section 8. This Debenture shall not entitle the Holder
to any of the rights of a stockholder of the Company,
including without limitation, the right to vote, to receive
dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other
proceedings of the Company, unless and to the extent
converted into shares of Common Stock in accordance with the
terms hereof.
Section 9. If this Debenture shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver,
in exchange and substitution for and upon cancellation of a
mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost,
stolen or destroyed but only upon receipt of evidence of
such loss, theft or destruction of such Debenture, and of
the ownership hereof and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. This Debenture shall be governed by and
construed in accordance with the laws of the State of New
York, without giving effect to conflict of laws thereof.
Section 11. All notices or other communications hereunder
shall be given, and shall be deemed duly given and received,
if given in the manner set forth in Section 5(j).
Section 12. Any waiver by the Company or the Holder or a
breach of any provision of this Debenture shall not operate
as nor be construed to be a waiver of any other breach of
such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Debenture
on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this
Debenture. Any waiver must be in writing.
Section 13. If any provision of this Debenture is
invalid, illegal or unenforceable, the balance of this
Debenture shall remain in effect, and if any provision is
inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and
circumstances.
Section 14. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day,
such payment shall be made on the next succeeding Business
Day (or, if such next succeeding Business Day falls in the
next calendar month, the preceding Business Day in the
appropriate calendar month).
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed by an officer thereunto duly
authorized as of the date first above indicated.
INAMED CORPORATION
Attest:
Name: Donald K. McGhan
Title: Chairman and Chief
Executive Officer
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the
above Debenture No. ____ into shares of Common Stock, par
value U.S. $.01 per share (the "Common Stock"), of INAMED
Corporation (the "Company") according to the conditions
hereof as of the date written below. If shares are to be
issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates
and opinions as reasonably requested by the Company in
accordance therewith. No fee will be charged to the Holder
for any conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Principal Amount of Debentures to be Converted
Applicable Conversion Price
Signature
Name
Address
EXHIBIT B
INAMED Corporation
NOTICE OF CONVERSION
AT THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of INAMED
Corporation (the "Company") hereby notifies the addressee
hereof that the Company hereby elects to exercise its right
to convert the above Debenture No. _____ into shares of
Common Stock, $.01 par value per share (the "Common Stock"),
of the Company according to the conditions hereof, as of the
date written below. No fee will be charged to the Holder
for any conversion hereunder, except for such transfer
taxes, if any, which may be incurred by the Company if
shares are to be issued in the name of a person other than
the person to whom this notice is addressed.
Conversion calculations:
Date to Effect Conversion
Principal Amount of Debentures to be Converted
Applicable Conversion Price
Signature
Name
Address
Exhibit 10.6
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this
Agreement), is made and entered into as of [ , 1997], by
and among [ ], a Delaware limited
partnership ("Purchaser"), and INAMED Corporation, a Florida
corporation (the "Company").
This Agreement is made pursuant to the Regulation
D 4% Convertible Debenture Purchase Agreement, dated [ , 1997],
by and among [ ] and the Company
(the "Purchase Agreement").
The Company and [ ] hereby agree
as follows:
1. Definitions
Capitalized terms used and not otherwise defined
herein shall have the meanings given such terms in the
Purchase Agreement. As used in this Agreement, the
following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 4(o).
"Affiliate" means, with respect to any Person, any
other Person that directly or indirectly controls or is
controlled by or under common control with such Person. For
the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or
indirect, of the power to direct or cause the direction of
the management and policies of such Person, whether through
the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and
"controlled" have meanings correlative to the foregoing.
"Blackout" shall have the meaning set forth in Section 3(b).
"Business Day" means any day except Saturday,
Sunday and any day which shall be a legal holiday or a day
on which banking institutions in the state of New York
generally are authorized or required by law or other
government actions to close.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock,
$.01 par value per share.
"Debentures" means the 4% Convertible Debentures
purchased by [ ] pursuant to the
Purchase Agreement.
"Effectiveness Date" means the 60th day following
the date of this Agreement.
"Effectiveness Period" shall have the meaning set
forth in Section 2(a).
"Event" shall have the meaning set forth in Section 5.
"Event Date" shall have the meaning set forth in Section 5.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Filing Date" means the 14th day following the date of this Agreement.
"Holder" or "Holders" means the holder or holders,
as the case may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 7(c).
"Indemnifying Party" shall have the meaning set forth in Section 7(c).
"Losses" shall have the meaning set forth in Section 7(a).
"New York Courts" shall have the meaning set forth in Section 9(i).
"Person" means an individual or a corporation,
partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint
stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit,
investigation or proceeding (including, without limitation,
an investigation or partial proceed-ing, such as a
deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the
Registration Statement (including, without limitation, a
prospectus that includes any information previously omitted
from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under to
the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities
covered by the Registration Statement, and all other
amendments and supplements to the Prospectus, including post-
effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such
Prospectus.
"Registrable Securities" means the shares of
Common Stock into which the Debentures purchased by [] pursuant to
the Purchase Agreement are convertible pursuant to the Purchase Agreement
and the terms of the Debentures.
"Registration Statement" means the registration
statement, contemplated by Section 2(a), including the
Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material
incorporated by reference or deemed to be incorporated by
reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the
Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 144A" means Rule 144A promulgated by the
Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the
Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the
Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means any special counsel to the
Holders, for which the Holders will be reimbursed by the
Company pursuant to Section 6.
"Underwritten registration or underwritten
offering" means a registration in connection with which
securities of the Com-pany are sold to an underwriter for
reoffering to the public pursuant to an effective
registration statement.
2. Shelf Registration
(a) On or prior to the Filing Date, the Company
shall prepare and file with the Commission a "shelf"
Registration Statement covering all Registrable Securi-ties
(which Registrable Securities shall include no less than
1,300,000 shares of Common Stock or such other number of
shares agreed to by the parties to the Purchase Agreement)
for an offering to be made on a continuous basis pursuant to
Rule 415. The Registration Statement shall be on Form S-3
or another appropriate form permitting registration of
Registrable Securities for resale by the Holders in the
manner or manners designated by them (including, without
limitation, public or private sales and one or more
underwritten offerings). The Company shall (i) not permit
any securities other than the Registrable Securities to be
included in the Registration Statement and (ii) use its best
efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as
practicable after the filing thereof, but in any event prior
to the Effectiveness Date, and to keep such Registration
Statement continuously effec-tive under the Securities Act
until the date which is three years after the date of this
Agreement or such earlier date when all Registrable
Securities covered by such Registration Statement have been
sold or may be sold without restriction or limitation
pursuant to Rule 144 as determined by the counsel to the
Company pursuant to a written opinion letter, addressed to
the Holders, to such effect (the "Effectiveness Period");
provided, however, that the Company shall not be deemed to
have used its best efforts to keep the Registration
Statement effective during the Effectiveness Period if it
voluntarily takes any action that would result in the
Holders not being able to sell the Registrable Securities
covered by such Registration Statement during the
Effectiveness Period, unless such action is required under
applicable law or the Company has filed a post-effective
amendment to the Registration Statement and the Commission
has not declared it effective or except as otherwise
permitted by Section 3(a).
(b) If the Holders of Debentures representing a
majority of the Registrable Securities so elect, an offering
of Registrable Securities pur-suant to the Registration
Statement may be effected in the form of an underwritten
offering. In such event, and if the man-aging underwriters
advise the Company and such Holders in writing that in their
opinion the amount of Registrable Securities proposed to be
sold in such offering exceeds the amount of Registrable
Securities which can be sold in such offering, there shall
be included in such underwritten offering the amount of such
Registrable Securities which in the opinion of such managing
underwriters can be sold, and such amount shall be allocated
pro rata among the Holders proposing to sell Registrable
Securities in such underwritten offering.
(c) If any of the Registrable Securities are to
be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a
majority of the Registrable Securities included in such
offering, to be reasonably acceptable to the Company. No
Holder may participate in any underwritten offering
hereunder unless such Person (i) agrees to sell its
Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled
hereunder to approve such arrangements and (ii) completes
and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents
required under the terms of such arrangements.
3. Hold-Back Agreements
(a) Restrictions on Public Sale by the Holders.
Subject to paragraph (b) of this Section 3, the Company
hereby understands and agrees that the registration rights
of [ ] pursuant to this
Agreement and its ability to offer and sell Registrable
Securi-ties pursuant to the Registration Statement are
limited by the provisions of the immediately following
sentence. If the Company determines in its good faith
judgment that the filing of the Registration Statement in
accordance with Section 2 or the use of any Prospectus would
require the disclosure of material information which would
impede the Company's ability to consummate a significant
transaction, upon written notice of such determination by
the Company, the rights of [ ]
to offer, sell or distribute any Registrable Securities
pursu-ant to the Registration Statement or to require the
Company to take action with respect to the registration or
sale of any Registrable Securities pursuant to the
Registration Statement (including any action contemplated by
Section 4) will for up to 60 days in any 12-month period be
suspended until the date upon which the Company notifies the
Holders in writing that suspension of such rights for the
grounds set forth in this Section 3(a) is no longer
necessary.
(b) Limitation on Blackouts. Notwithstanding
anything contained herein to the contrary, the aggregate
number of days (whether or not consecu-tive) during which
the Company may delay the effectiveness of the Registration
Statement or prevent offerings, sales or dis-tributions by [
] pursuant to paragraph (a) above or the last paragraph of
Section 4 (collectively, a "Blackout") shall in no event
exceed 90 days during any 12-month period and no Blackout
may continue after the initial twelve-month period in which
such suspension has occurred.
4. Registration Procedures
In connection with the Company's registration
obligations hereunder, the Company shall:
(a) Prepare and file with the Commission within
the time period set forth in Section 2 a Registration
Statement on Form S-3 in accordance with the method or
methods of distribution thereof as specified by the Holders,
and cause the Registration Statement to become effective and
remain effective as provided herein; provided, however, that
not less than 5 Business Days prior to the filing of the
Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that
would be incorporated or deemed to be incorporated therein
by reference), the Company shall (i) furnish to the Holders,
their Special Counsel and any managing underwriters, copies
of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated
by reference) will be subject to the review of such Holders,
their Special Counsel and such managing underwriters, and
(ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such
inquiries as shall be necessary, in the opinion of
respective counsel to such Holders and such underwriters, to
conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration
Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of
the Registrable Securities, their Special Counsel, or any
managing underwriters, shall reasonably object on a timely
basis.
(b) (i) Prepare and file with the Commission
such amendments, including post-effective amendments, to the
Registration Statement as may be necessary to keep the
Registration Statement continuously effective for the
applicable time period; (ii) cause the related Prospectus to
be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed
pursuant to Rule 424 (or any similar provisions then in
force) promulgated under the Securities Act; (iii) respond
as promptly as practicable to any comments received from the
Commission with respect to the Registration Statement or any
amendment thereto; and (iv) comply with the provisions of
the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in
accordance with the intended methods of disposition by the
Holders thereof set forth in the Registration Statement as
so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities
to be sold, their Special Counsel and any managing
underwriters immediately (and, in the case of (i)(A) below,
not less than 5 days prior to such filing) and (if requested
by any such Person) confirm such notice in writing no later
than one Business Day following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective;
amendment to the Registration Statement is proposed to be
filed and, (B) with respect to the Registration Statement or
any post-effective amendment, when the same has become
effective; (ii) of any request by the Commission or any
other Federal or state governmental authority for amendments
or supplements to the Registration Statement or Prospectus
or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of
the Registration Statement covering any or all of the
Registrable Securities or the initiation of any Proceedings
for that purpose; (iv) if at any time any of the
representations and warranties of the Company contained in
any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all
material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the
qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or
Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material
respect or that requires any revisions to the Registration
Statement, Prospectus or other documents so that, in the
case of the Registration Statement or the Prospectus, as the
case may be, it will not contain any untrue statement of a
material fact or omit to state any material fact required
to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
(d) Use its best efforts to avoid the issuance
of, or, if issued, obtain the withdrawal of (i) any order
suspending the effectiveness of the Registration Statement
or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for
sale in any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or
the Holders of a majority of the Registrable Securities to
be sold in connection with an underwritten offering, (i)
promptly incorporate in a Prospectus supplement or post-
effective amendment to the Registration Statement such
information as such managing underwriters and such Holders
reasonably agree should be included therein and (ii) make
all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the
Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective
amendment; provided, however, that the Company shall not be
required to take any action pursuant to this Section 4(e)
that would, in the opinion of counsel for the Company,
violate applicable law.
(f) Furnish to each Holder, their Special Counsel
and any managing underwriters, without charge, at least one
complete copy of each Registration Statement and each
amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the
extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their
Special Counsel, and any underwriters, without charge, as
many copies of the Prospectus or Prospectuses (including
each form of prospectus) and each amendment or supplement
thereto as such Persons may reasonably request; and the
Company hereby consents to the use of such Prospectus and
each amendment or supplement thereto by each of the selling
Holders and any underwriters in connection with the
offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable
Securities, use its best efforts to register or qualify or
cooperate with the selling Holders, any underwriters and
their respective counsel in connection with the registration
or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder or
underwriter requests in writing, to keep each such registration
or qualification (or exemption therefrom)
effective during the Effectiveness Period and to do any and
all other acts or things necessary or advisable to enable
the disposition in such jurisdictions of the Registrable
Securities covered by a Registration Statement; provided,
however, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject
it to general service of process in any such jurisdiction
where it is not then so subject or subject the Company to
any material tax in any such jurisdiction where it is not
then so subject.
(i) Cooperate with the Holders and any managing
underwriters to facilitate the timely preparation and
delivery of certificates representing Registrable Securities
to be sold, which certificates shall be free of all
restrictive legends, and to enable such Registrable
Securities to be in such denominations and registered in
such names as any such managing underwriters or Holders may
request at least two Business Days prior to any sale of
Registrable Securities.
(j) Upon the occurrence of any event contemplated
by Section 4(c)(vi), as promptly as practicable, prepare a
supplement or amendment, including a post-effective
amendment, to the Registration Statement or a supplement to
the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference, and file any
other required document so that, as thereafter delivered,
neither the Registration Statement nor such Prospectus will
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable
Securities relating to such Registration Statement to be
listed on the NASDAQ Small Cap Market or any other
securities exchange, market or over-the-counter bulletin
board, if any, on which similar securities issued by the
Company are then listed.
(l) Enter into such agreements (including an
underwriting agreement in form, scope and substance as is
customary in underwritten offerings) and take all other
customary actions in connection therewith (including those
reasonably requested by any managing underwriters and the
Holders of a majority of the Registrable Securities being
sold) in order to expedite or facilitate the disposition of
such Registrable Securities, and whether or not an
underwriting agreement is entered into, (i) make such
representations and warranties to such Holders and such
underwriters as are customarily made by issuers to
underwriters in underwritten public offerings, and confirm
the same if and when requested; (ii) obtain and deliver
copies thereof to each Holder and the managing underwriters,
if any, of opinions of counsel to the Company and updates
thereof addressed to each selling Holder and each such
underwriter, in form, scope and substance reasonably
satisfactory to any such managing underwriters and Special
Counsel to the selling Holders covering the matters
customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably
requested by such Special Counsel and underwriters; (iii)
immediately prior to the effectiveness of the Registration
Statement, and, in the case of an underwritten offering, at
the time of delivery of any Registrable Securities sold
pursuant thereto, obtain and deliver copies to the Holders
and the managing underwriters, if any, of "cold comfort"
letters and updates thereof from the independent certified
public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary of
the Company or of any business acquired by the
Company for which financial statements and financial data
is, or is required to be, included in the Registration
Statement), addressed to each selling Holder and each of the
underwriters, if any, in form and substance as are customary in
connection with underwritten offerings; (iv) if an
underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less
favorable to the selling Holders and the underwriters, if
any, than those set forth in Section 7 (or such other
provisions and procedures acceptable to the managing
underwriters, if any, and holders of a majority of
Registrable Securities participating in such underwritten
offering; and (v) deliver such documents and certificates as
may be reasonably requested by the Holders of a majority of
the Registrable Securities being sold, their Special Counsel
and any managing underwriters to evidence the continued
validity of the representations and warranties made pursuant
to clause 4(l)(i) above and to evidence compliance with any
customary conditions contained in the underwriting agreement
or other agreement entered into by the Company.
(m) Make available for inspection by the selling
Holders, any representative of such Holders, any underwriter
participating in any disposition of Registrable
Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where
normally kept, during reasonable business hours, all
financial and other records, pertinent corporate documents
and properties of the Company and its subsidiaries, and
cause the officers, directors, agents and employees of the
Company and its subsidiaries to supply all information in
each case requested by any such Holder, representative,
underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any
information that is determined in good faith by the Company
in writing to be of a confidential nature at the time of
delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is
required by court or administrative order or is necessary to
respond to inquiries of regulatory authorities; (ii)
disclosure of such information, in the opinion of counsel
to such Person, is required by law; (iii) such information
becomes generally available to the public other than as a
result of a disclosure or failure to safeguard by such
Person; or (iv) such information becomes available to such
Person from a source other than the Company and such source
is not known by such Person to be bound by a confidentiality
agreement.
(n) Comply with all applicable rules and
regulations of the Commission and make generally available
to its security-holders earning statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule
158 not later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if
such period is a fiscal year) (i) commencing at the end of
any fiscal quarter in which Registrable Securities are sold
to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to underwriters
in such an offering, commencing on the first day of the
first fiscal quarter of the Company after the effective date
of the Registration Statement, which statement shall cover
said 12-month period, or such shorter periods as is
consistent with the requirements of Rule 158.
(o) Provide a CUSIP number for all Registrable
Securities, not later than the effective date of the
Registration Statement.
The Company may require each selling Holder to
furnish to the Company such information regarding the
distribution of such Registrable Securities as is required
by law to be disclosed in the Registration Statement and the
Company may exclude from such registration the Registrable
Securities of any such Holder who unreasonably fails to
furnish such information within a reasonable time after
receiving such request.
If the Registration Statement refers to any Holder
by name or otherwise as the holder of any securities of the
Company, then such Holder shall have the right to require
(i) the inclusion therein of language, in form and substance
reasonably satisfactory to such Holder, to the effect that
the ownership by such Holder of such securities is not to be
construed as a recommendation by such Holder of the
investment quality of the Company's securities covered
thereby and that such ownership does not imply that such
Holder will assist in meeting any future financial
requirements of the Company, or (ii) if such reference to
such Holder by name or otherwise is not required by the
Securities Act or any similar Federal statute then in force,
the deletion of the reference to such Holder in any
amendment or supplement to the Registration Statement filed
or prepared subsequent to the time that such reference
ceases to be required.
[ ] covenants and
agrees that (i) it will not offer or sell any Registrable
Securities under the Registration Statement until it has
received copies of the Prospectus as then amended or
supplemented as contemplated in Section 4(g) and notice from
the Company that such Registration Statement and any post-
effective amendments thereto have become effective as
contemplated by Section 4(c) and (ii) [ ] and its officers,
directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the
Securities Act as applicable to them in connection with
sales of Registrable Securities pursuant to the Registration
Statement.
Each Holder agrees by its acquisition of such
Registrable Securities that, upon receipt of a notice from
the Company of the occurrence of any event of the kind
described in Section 4(c)(ii), 4(c)(iii), 4(c)(iv), 4(c)(v)
or 4(c)(vi), such Holder will forthwith discon-tinue
disposition of such Registrable Securities pursuant to the
Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended
Registration Statement contemplated by Section 4(j), or
until it is advised in writing (the "Advice") by the Company
that the use of the applicable Pro-spectus may be resumed,
and, in either case, has received copies of any additional
or supplemental filings that are incorporated or deemed to
be incorporated by reference in such Prospectus or
Registration Statement.
5. Liquidated Damages. The Company acknowledges
and agrees that the Holders will suffer damages, and that it
would not be feasible to ascertain the extent of such
damages with precision, if the Company fails to fulfill its
obligations hereunder and (a) a Registration Statement is
not filed with the Commission on or prior to the Filing
Date, (b) a Registration Statement is not declared effective
by the Commission on or prior to the Effectiveness Date or
(c) a Registration Statement is filed and declared effective
but thereafter ceases to be effective at any time during the
Effectiveness Period without being succeeded within 30 days
by a subsequent Registration Statement filed with and
declared effective by the Commission (any such failure being
hereinafter referred to as an "Event", and for purposes of
clauses (a) and (b) the date on which such Event occurs, or
for purposes of clause (c) the date on which such 30-day
limit is exceeded, being hereinafter referred to as an
"Event Date").
Upon the occurrence of an Event, the Company
agrees to decrease the Conversion Price applicable to a
conversion of Debentures in accordance with the terms of the
Debentures by three percent (3%) per month for each of the
first two months after each Event Date. Commencing on the
third month after an Event Date, the three percent (3%)
monthly penalty shall be paid to the Holder in cash. Such
adjustment to the Conversion Price and/or payment in cash,
as the case may be, shall be paid as liquidated damages, and
not as a penalty, to each Holder; provided, that such
liquidated damages will, in each case, cease to accrue
(subject to the occurrence of another Event) on the date in
which the applicable Registration Statement is no longer
subject to an order suspending the effectiveness thereof or
Proceedings relating thereto or a subsequent Shelf
Registration is declared effective.
The Company shall notify each Holder within five
(5) days of each Event and Event Date. The Company shall
pay the liquidated damage due on the Registrable Securities
to each Holder of record as at the Event Date on the first
Business Day of each month in which such liquidated damages
shall accrue by check delivered to the address for notice of
such Holder set forth herein.
6. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company
shall be borne by the Company whether or not the
Registration Statement is filed or becomes effective and
whether or not any Registrable Securities are sold pursuant
to the Registration Statement. The fees and expenses
referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with
respect to filings required to be made with the National
Associa-tion of Securities Dealers, Inc. and (B) in
compliance with state securities or Blue Sky laws
(including, without limitation, fees and disbursements of
counsel for the underwriters or Holders in connection with
Blue Sky qualifications of the Registrable Securities and
determination of the eligibility of the Registrable
Securities for investment under the laws of such
jurisdictions as the managing underwriters, if any, or
Holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without
limita-tion, expenses of printing certificates for
Registrable Securi-ties and of printing prospectuses if the
printing of prospectuses is requested by the managing
underwriters, if any, or by the holders of a majority of the
Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery
expenses, (iv) fees and disbursements of counsel for the
Company and Special Counsel for the Holders (subject to the
provisions of Section 6(b)), (v) fees and disbursements of
all independent certified public accountants referred to in
Section 4(1)(iii) (including, without limitation, the
expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (vi)
Securities Act liability insurance, if the Company so
desires such insurance, and (vii) fees and expenses of all
other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this
Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with
the consummation of the transactions contemplated by this
Agreement (including, without limitation, all salaries and
expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of
the Registrable Securities on any securities exchange on
which similar securities issued by the Company are then
listed.
(b) In connection with the Registration
Statement, the Company shall reimburse the Holders for the
reasonable fees and disbursements of one firm of attorneys
chosen by the Holders of a majority of the Registrable
Securities.
7. Indemnification
(a) Indemnification by the Company. The Company
shall, notwithstanding termination of this Agreement and
without limitation as to time, indemnify and hold harmless
each Holder, the officers, directors, agents (including any
underwriters retained by such Holder in connection with the
offer or sale of Registrable Securities), brokers, investment advisors
and employees of each of them, each Person who
controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and
the offi-cers, directors, agents and employees of each such
controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation,
costs of preparation and attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or
relating to any untrue or alleged untrue statement of a
material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or
arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in
light of the circumstances under which they were made) not
misleading, except to the extent, but only to the extent,
that such untrue statements or omissions are based solely
upon information regarding such Holder furnished in writ-ing
to the Company by or on behalf of such Holder expressly for
use therein, which information was reasonably relied on by
the Company for use therein or to the extent that such
information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and
was reviewed and expressly approved in writing by such
Holder expressly for use in the Registration Statement, such
Prospec-tus or such form of Prospectus or in any amendment
or supplement thereto. The Company shall notify the Holders
promptly of the institution, threat or assertion of any
Proceeding of which the Company is aware in connection with
the transactions contemplated by this Agreement.
(b) Indemnification by Holders. In connection
with the Registration Statement, each Holder shall furnish
to the Company in writing such information as the Company
reasonably requests for use in connection with the
Registration Statement or any Prospectus and agrees, jointly
and not severally, to indemnify and hold harmless the Company, their
directors, officers, agents and employees, each
Person who controls the Company (within the meaning of
Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents or
employees of such controlling Persons, to the fullest extent
permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final
judgment not subject to appeal or review) arising solely out
of or based solely upon any untrue statement of a material
fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or arising solely out
of or based solely upon any omission of a material fact
required to be stated therein or necessary to make the
statements therein not misleading to the extent, but only to
the extent, that such untrue statement or omission is
contained in any information so furnished in writing by such
Holder to the Company specifically for inclusion in the
Registration Statement or such Prospectus and that such
information was reasonably relied upon by the Company for
use in the Registration Statement, such Prospectus or such
form of prospectus or to the extent that such information
relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for
use in the Registration Statement, such Prospec-tus or such
form of Prospectus. In no event shall the liability of any
selling Holder hereunder be greater in amount than the
dollar amount of the proceeds received by such Holder upon
the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. If
any Proceeding shall be brought or asserted against any
Person entitled to indemnity hereunder (an "Indemnified
Party"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "Indemnifying
Party") in writing, and the Indemnifying Party shall assume
the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with
defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities
pursuant to this Agreement, except (and only) to the extent
that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal
or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to
employ separate counsel in any such Proceeding and to
participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such
Indem-nified Party or Parties unless: (1) the Indemnifying
Party has agreed to pay such fees and expenses; or (2) the
Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding
(including any impleaded parties) include both such
Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party
(in which case, if such Indemnified Party notifies the Indemnifying
Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to
assume the defense thereof and such counsel shall be at the
expense of the Indemnifying Party). The Indemnifying Party
shall not be liable for any settlement of any such
Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying
Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a
party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on
claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred
in connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section)
shall be paid to the Indemnified Party, as incurred, within
10 Business Days of written notice thereof to the Indemnifying
Party (regard-less of whether it is ultimately determined that an
Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying
Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is
finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification
under Section 7(a) or 7(b) is unavailable to an Indemnified
Party or is insufficient to hold such Indemnified Party
harmless for any Losses in respect of which this Section
would apply by its terms (other than by reason of exceptions
provided in this Section), then each Indemnifying Party, in
lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified
Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with
the actions, statements or omissions that resulted in such
Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material
fact, has been taken or made by, or relates to information
supplied by, such Indemnifying Party or Indemnified Party,
and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable
by a party as a result of any Losses shall be deemed to
include, subject to the limitations set forth in Section
7(c), any attorneys' or other fees or expenses incurred by
such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section
was available to such party.
The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 7(d)
were determined by pro rata allocation or by any other
method of allocation that does not take into account the
equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of
this Section 7(d), the Company shall not be required to
contribute, in the aggregate, any amount in excess of the
amount by which the proceeds actually received by [ ]
from the sale of the Registrable Securities subject to the
Proceeding exceeds the amount of any damages that the
Company has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements
contained in this Section are in addition to any liability
that the Indemnifying Parties may have to the Indemnified
Parties.
8. Rule 144
The Company shall file the reports required to be
filed by it under the Securities Act and the Exchange Act in
a timely manner and, if at any time the Company is not
required to file such reports, they will, upon the request
of any Holder, make publicly available other information so
long as necessary to permit sales of its securities pursuant
to Rule 144. The Company further covenants that it will
take such further action as any Holder may reasonably
request, all to the extent required from time to time to
enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation
of the exemptions provided by Rule 144. Upon the request
of any Holder, the Company shall deliver to such Holder a
written certification of a duly authorized officer as to
whether it has complied with such requirements.
9. Miscellaneous
(a) Remedies. In the event of a breach by the
Company or by a Holder, of any of their obliga-tions under
this Agreement, each Holder or the Company, as the case may
be, in addition to being entitled to exercise all rights
granted by law and under this Agreement, including recovery
of damages, will be entitled to specific performance of its
rights under this Agreement. The Company and each Holder
agree that monetary damages would not provide adequate compensation
for any losses incurred by reason of a breach by
it of any of the provisions of this Agreement and hereby
further agrees that, in the event of any action for specific
performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. None of the
Company nor any of its subsidiaries has, as of the date
hereof, nor shall the Company or any of its subsidiaries, on
or after the date of this Agreement, enter into any
agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof.
None of the Company nor any of its subsidiaries has
previously entered into any agreement granting any
registration rights with respect to any of its securities to
any Person. Without limiting the generality of the
foregoing, without the written consent of the Holders of a
majority of the then outstanding Registrable Secu-rities,
the Company shall not grant to any Person the right to
request the Company to register any securities of the
Company under the Securities Act unless the rights so
granted are subject in all respects to the prior rights in
full of the Holders set forth herein, and are not otherwise
in conflict or inconsistent with the provisions of this
Agreement.
(c) No Piggyback on Registrations. None of the
Company nor any of its security holders (other than the
Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement
other than the Common Stock to be issued under the Purchase
Agreement, and the Company shall not enter into any
agreement providing any such right to any of its security
holders.
(d) Entire Agreement; Amendments. This
Agreement, together with the Exhibits, Annexes and Schedules
hereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect
to such matters.
(e) Amendments and Waivers. The provisions of
this Agreement, including the provisions of this sentence,
may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the
Company and the Holders of at least a majority of the then
outstanding Debentures and Registrable Securities; provided,
however, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or
indirectly, by the Company, or an Affiliate of the Company
are not deemed outstanding. Notwithstanding the fore-going,
a waiver or consent to depart from the provisions hereof
with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly
affect the rights of other Holders may be given by Holders
of at least a majority of the Registrable Securities to
which such waiver or consent relates; provided, however,
that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the
provisions of the immediately preceding sentence.
(f) Notices. Any notice or other communication
required or permitted to be given hereunder shall be in
writing and shall be deemed to have been received (a) upon
hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile
(with transmission confirmation report) at the address or
number designated below (if delivered on a business day
during normal business hours where such notice is to be
received), or the first business day following such delivery
(if delivered other than on a business day during normal
business hours where such notice is to be received) or (b)
on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications
shall be:
If to the Company:
Willem Oost-Lievense
Chief Financial Officer
INAMED Corporation
3800 Howard Hughes Pkwy.
Suite 900
Las Vegas, NV 89109
Telephone: (702) 791-3388
Telefax: (702) 791-1922
If to [ ]:
If to any other Person who is then the regis-tered Holder:
To the address of such Holder as it appears in the stock transfer
books of the Company or such other address as may be designated in writing
hereafter, in the same manner, by such Person.
(g) Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors
and permitted assigns of each of the parties and shall inure
to the benefit of each Holder. The Company may not assign
its rights or obligations hereunder without the prior
written consent of each Holder.
(h) Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so
executed shall be deemed to be an original and, all of which
taken together shall constitute one and the same Agreement.
In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and
effect as if such facsimile signature were the original
thereof.
(i) Governing Law; Submission to Jurisdiction;
Waiver of Jury Trial. This Agreement shall be governed by
and construed in accordance with the laws of the State of
New York, without regard to principles of conflicts of law.
The Company hereby irrevocably submits to the jurisdiction
of any New York state court sitting in the Borough of
Manhattan in the City of New York or any federal court
sitting in the Borough of Manhattan in the City of New York
(collectively, the "New York Courts") in respect of any
Proceeding arising out of or relating to this Agreement, and
irrevocably accepts for itself and in respect of its
property, generally and unconditionally, jurisdiction of the
New York Courts. The Company irrevocably waives to the
fullest extent it may effectively do so under applicable law
any objection that it may now or hereafter have to the
laying of the venue of any such Proceeding brought in any
New York Court and any claim that any such Proceeding
brought in any New York Court has been brought in an
inconvenient forum. Nothing herein shall affect the right
of any Holder to serve process in any manner permitted by
law or to commence legal proceedings or otherwise proceed
against the company in any other jurisdiction.
(j) Cumulative Remedies. The remedies provided
herein are cumulative and not exclusive of any remedies
provided by law.
(k) Severability. If any term, provision,
covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void
or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use
their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed
the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(l) Headings. The headings in this Agreement are
for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.
(m) Shares held by The Company and its
Affiliates. Whenever the consent or approval of Holders of
a specified percentage of Registrable Securities is required
hereunder, Registrable Securities held by the Company or its
Affiliates (other than [ ] or transferees or successors
or assigns thereof if such Persons are deemed to be
Affiliates solely by reason of their holdings of such
Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of
such required percentage.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
By:
Name: Willem Oost-Lievense
Title: Chief Financial Officer
By:
Name:
Title:
Exhibit 10.7
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
Between
INAMED Corporation
and
[ ]
______________________________
Dated as of __________, 1997
______________________________
TABLE OF CONTENTS
Page
ARTICLE I CERTAIN DEFINITIONS 1
Section 1.1. Certain Definitions. 1
ARTICLE II PURCHASE OF CONVERTIBLE DEBENTURES 3
Section 2.1. Purchase of Convertible Debentures; Closing 3
ARTICLE III REPRESENTATIONS AND WARRANTIES 4
Section 3.1. Representations and Warranties of the Company 4
Section 3.2. Representations and Warranties of
the Purchaser 8
ARTICLE IV OTHER AGREEMENTS OF THE PARTIES 10
Section 4.1. Transfer Restrictions 10
Section 4.2. Stop Transfer Instruction 11
Section 4.3. Furnishing of Information 11
Section 4.4. Notice of Certain Events 11
Section 4.5. Copies and Use of Disclosure Materials 12
Section 4.6. Modification to Disclosure Materials 12
Section 4.7. Blue Sky Laws 12
Section 4.8. Integration 12
Section 4.9. Furnishing of Rule 144A Materials 13
Section 4.10. Solicitation Materials 13
Section 4.11. Subsequent Financial Statements 13
Section 4.12. Certain Agreements 13
Section 4.13. Purchaser Ownership of Common Stock 14
Section 4.14. Listing of Underlying Shares 15
Section 4.15. Conversion Procedures 15
ARTICLE V CONDITIONS PRECEDENT TO CLOSING 15
Section 5.1. Conditions Precedent to Obligations of the
Purchaser. 15
Section 5.2. Conditions Precedent to Obligations of the
Company 17
ARTICLE VI TERMINATION 17
Section 6.1. Termination by Mutual Consent 17
Section 6.2. Termination by the Company or the Purchaser 17
Section 6.3. Termination by the Company 18
Section 6.4. Termination by the Purchaser 18
ARTICLE VII MISCELLANEOUS 19
Section 7.1. Fees and Expenses 19
Section 7.2. Entire Agreement; Amendments 19
Section 7.3. Notices 19
Section 7.4. Amendments; Waivers 20
Section 7.5. Headings 21
Section 7.6. Successors and Assigns 21
Section 7.7. No Third Party Beneficiaries 21
Section 7.8. Governing Law 21
Section 7.9. Survival 21
Section 7.10. Counterpart Signatures 21
Section 7.11. Publicity 21
Section 7.12. Severability 22
Section 7.13. Remedies 22
Exhibit A Form of 4% Convertible Debenture
Exhibit B Registration Rights Agreement
Exhibit C Form of Opinion of Nida & Maloney, counsel for the Company
Schedule 3.1(a) Subsidiaries
Schedule 3.1(c) Capitalization
Schedule 3.1(f) Required Consents and Approvals
Schedule 3.1(g) Litigation
Exhibit 10.7
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, dated as
of [ , 1997] (this "Agreement"), by and among
INAMED Corporation, a Florida corporation (the "Company"),
and [ ], a limited partnership
organized and existing under the laws of Delaware (the
"Purchaser").
WHEREAS, the Company desires to issue and sell to
the Purchaser and the Purchaser desires to acquire certain
of the Company's 4% Convertible Debentures, due [ ,
2000] (the "Convertible Debentures").
IN CONSIDERATION of the mutual covenants and agreements set forth
herein and for good and valuable
consideration, the receipt of which is hereby acknowledged,
the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Certain Definitions. As used in this
Agree-ment, and unless the context requires a different
meaning, the following terms have the meanings indicated:
"Affiliate" means, with respect to any Person, any
Person that, directly or indirectly, controls, is controlled
by or is under common control with such Person. For the
purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under
com-mon control with") shall mean the possession, directly
or indi-rectly, of the power to direct or cause the
direction of the management and policies of such Person,
whether through the ownership of voting securities or by
contract or otherwise.
"Business Day" means any day except Saturday,
Sunday and any day which shall be a legal holiday or a day
on which bank-ing institutions in the state of New York are
autho-rized or required by law or other government actions
to close.
"Closing" shall have the meaning set forth in
Section 2.1(b).
"Closing Date" shall have the meaning set
forth in Section 2.1(b).
"Code" means the Internal Revenue Code of 1986, as
amended, and the rules and regulations thereunder as in
effect on the date hereof.
"Commission" means the Securities and Exchange
Commission.
"Common Stock" means the Company's common stock,
$.01 par value per share.
"Convertible Debentures" shall have the meaning
set forth in the recitals hereto.
"Disclosure Materials" means, collectively, the
SEC Documents, any disclosure package delivered to the
Purchaser in connection with the offering by the Company of
the Convertible Debentures and the Schedules to this
Agreement furnished by or on behalf of the Company pursuant
to Section 3.1.
"Exchange Act" means the Securities Exchange Act
of 1934, as amended.
"Lien" means, with respect to any asset, any mort-
gage, lien, pledge, encumbrance, charge or security interest
of any kind in or on such asset or the revenues or income
thereon or therefrom.
"Material Adverse Effect" shall have the meaning
set forth in Section 3.1(a).
"NASD" means the National Association of
Securities Dealers, Inc.
"Person" means an individual or a corporation,
partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint
stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Purchase Price" shall have the meaning set forth
in Section 2.1(a).
"Registration Rights Agreement" means the registra-
tion rights agreement, substantially in the form of Exhibit
B, as the same may be amended, supplemented or otherwise
modified in accordance with its terms.
"Required Approvals" shall have the meaning set
forth in Section 3.1(f).
"SEC Documents" shall have the meaning set forth
in Section 3.1(l).
"Securities Act" means the Securities Act of 1933,
as amended.
"Subsidiaries" shall have the meaning set forth in
Section 3.1(a).
"Underlying Shares" means the shares of Common
Stock into which the Convertible Debentures are convertible
in accordance with the terms hereof and the Convertible
Debentures.
ARTICLE II
PURCHASE OF CONVERTIBLE DEBENTURES
Section 2.1. Purchase of Convertible Debentures;
Closing.
(a) Subject to the terms and conditions herein
set forth, the Company shall issue and sell to the
Purchaser, and the Purchaser shall purchase from the Company
on the Closing Date, an aggregate principal amount of
US$4,200,000 Convertible Debentures in denominations of
US$100,000 and integral multiples of US$50,000 in excess
thereof, which shall be in the form of Exhibit A. The
aggregate purchase price for the Convertible Debentures
shall be US$[ ] (the "Purchase Price").
(b) The closing of the purchase and sale of the
Convertible Debentures (the "Closing") shall take place at
the offices of Nida & Maloney, immediately following the
execution hereof, or at such other time and/or place as the
Purchaser and the Company may agree, provided, however, in
no case shall the Closing take place later than the fifth
day after the last of the conditions listed in Article V is
satisfied or waived by the appropriate party. The date of
the Closing is hereinafter referred to as the "Closing
Date".
(c) At the Closing, (i) the Company shall deliver
to the Purchaser (A) one or more Convertible Debentures in
the principal amounts indicated on the signature page
thereof, registered in the name of the Purchaser and (B) all
documents, instruments and writings required to have been
delivered at or prior to Closing by the Company pursuant to
this Agreement, (ii) the Purchaser shall deliver to the
Company (A) the Purchase Price as determined pursuant to
this Article I in United States dollars in immediately
available funds by wire transfer to an account designated in
writing by the Company prior to the Closing and (B) all
documents, instruments and writings required to have been
delivered at or prior to Closing by the Purchaser pursuant
to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of
the Company. The Company hereby represents and warrants to
the Purchaser as follows:
(a) Organization and Qualification. The Company
is a corporation, duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its
incorporation, with the requisite corporate power and
authority to own and use its properties and assets and to
carry on its business as currently conducted. The Company
has no material subsidiaries other than as set forth in the
SEC Documents or in Schedule 3.1(a) (collectively, the
"Subsidiaries"). Each of the Subsidiaries is a corporation,
duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation,
with the full corporate power and authority to own and use
its properties and assets and to carry on its business as
currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in
which the nature of the business conducted or property owned
by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case
may be, could not reasonably be expected to have,
individually or in the aggregate, a material adverse effect
on the results of operations, assets, prospects, or
financial condition of the Company and the Subsidiaries,
taken as a whole (a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has
the requisite corporate power and authority to enter into
and to consummate the transactions contemplated hereby and
by the Registration Rights Agreement and otherwise to carry
out its obligations hereunder and thereunder. The execution
and delivery of this Agreement and the Registration Rights
Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the
Company. Each of this Agreement and the Registration Rights
Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of
the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights
and remedies or by other equitable principles of general
application.
(c) Capitalization. The authorized, issued and
outstanding capital stock of the Company and each of the
Subsidiaries is set forth in Schedule 3.1(c). No shares of
Common Stock are entitled to preemptive or similar rights.
Except as specifically disclosed in Schedule 3.1(c), there
are no outstanding options, warrants, script rights to
subscribe to, calls or commitments of any character
whatsoever relating to, or, except as a result of the
purchase and sale of the Convertible Debentures hereunder,
securities, rights or obligations convertible into or
exchangeable for, or giving any person any right to
subscribe for or acquire any shares of Common Stock, or
contracts, commitments, understandings, or arrangements by
which the Company or any Subsidiary is or may become bound
to issue additional shares of Common Stock, or securities or
rights convertible or exchangeable into shares of Common
Stock. Neither the Company nor any Subsidiary is in
violation of any of the provisions of its respective
certificate of incorporation, bylaws or other charter
documents.
(d) Issuance of Convertible Debentures. The
Convertible Debentures have been duly and validly authorized
for issuance, offer and sale pursuant to this Agreement and,
when issued and delivered as provided hereunder against
payment in accordance with the terms hereof, shall be valid
and binding obligations of the Company enforceable in
accordance with their terms. The Company has and at all
times while the Debentures are outstanding will maintain an
adequate reserve of shares of Common Stock to enable it to
perform its obligations under this Agreement and the
Convertible Debentures. When issued in accordance with the
terms hereof and the Convertible Debentures, the Underlying
Shares will be duly authorized, validly issued, fully paid
and nonassessable.
(e) No Conflicts. The execution, delivery and
performance of this Agreement and the Registration Rights
Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby do not
and will not (i) conflict with or violate any provision of
its certificate of incorporation or bylaws or (ii) subject
to obtaining the consents referred to in Section 3.1(f),
conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default)
under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company is a party, or
(iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of
any court or govern-mental authority to which the Company is
subject (including Federal and state securities laws and
regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of
clauses (ii) and (iii), such conflicts, defaults,
terminations, amendments, accel-era-tions, cancellations and
violations as would not, individually or in the aggregate,
have a Material Adverse Effect. The business of the Company
is not being conducted in violation of any law, ordinance or
regulation of any governmental authority, except for
violations which, individually or in the aggregate, do not
have a Material Adverse Effect.
(f) Consents and Approvals. Except as
specifically set forth in Schedule 3.1(f), neither the
Company nor any Subsidiary is required to obtain any
consent, waiver, authorization or order of, or make any
filing or registration with, any court or other federal,
state, local or other govern-mental authority or other
Person in connection with the execu-tion, delivery and
performance by the Company of this Agreement and the
Registration Rights Agreement, other than the filing of the
registration statement covering the Underlying Shares with
the Commission and the making of the applicable blue-sky
filings under state securities laws, each as contemplated by
the Registration Rights Agreement and other than, in all
cases, where the failure to obtain such consent, waiver,
authorization or order, or to give or make such notice or
filing, would not materially impair or delay the ability of
the Company to effect the Closing and deliver to the
Purchaser the Convertible Debentures and, upon conversion,
the Underlying Shares free and clear of all liens and
encumbrances (collectively, the "Required Approvals").
(g) Litigation; Proceedings. Except as
specifically dis-closed in the Disclosure Materials or in
Schedule 3.1(g), there is no action, suit, notice of
violation, proceeding or investigation pending or, to the
best knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries or any of
their respective properties before or by any court,
governmen-tal or administrative agency or regulatory
authority (Federal, State, county, local or foreign) which
(i) relates to or chal-lenges the legality, validity or
enforceability of this Agree-ment, the Registration Rights
Agreement or the Convertible Debentures (ii) could,
individually or in the aggregate, have a Material Adverse
Effect or (iii) could, indi-vidually or in the aggregate,
materially impair the ability of the Company to perform
fully on a timely basis its obligations under this Agreement
or the Regis-tration Rights Agreement.
(h) No Default or Violation. Neither the Company
nor any Subsidiary (i) is in default under or in vio-lation
of any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which
it or any of its properties is bound, except such conflicts
or defaults as do not have a Material Adverse Effect, (ii)
is in violation of any order of any court, arbitrator or
governmental body, except for such violations as do not have
a Material Adverse Effect, or (iii) is in violation of any
statute, rule or regu-lation of any governmental authority
which could (individually or in the aggregate) (x) adversely
affect the legality, validity or enforceability of this
Agree-ment or the Registration Rights Agreement, (y) have a
Material Adverse Effect or (z) adversely impair the
Company's ability or obligation to perform fully on a timely
basis its obligations under this Agreement or the
Registration Rights Agreement.
(i) Certain Fees. No fees or commission will be
payable by the Company to any broker, finder, investment
banker or bank with respect to the consummation of the
transactions contemplated hereby.
(j) Disclosure Materials. The Disclosure
Materials do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order
to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(k) Private Offering. Neither the Company nor
any Person acting on its behalf has taken or will take any
action (including, without limitation, any offering of any
securities of the Company under circumstances which would
require the integration of such offering with the offering
of the Convertible Debentures under the Securities Act)
which might subject the offering, issuance or sale of the
Convertible Debentures or the issuance of the Underlying
Shares to the registration requirements of Section 5 of the
Securities Act.
(l) SEC Documents. The Company has filed all
reports required to be filed by it under the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter
period as the Company was required by law to file such
material) (the foregoing materials being collectively
referred to herein as the "SEC Documents") on a timely
basis, or has received a valid exten-sion of such time of
filing. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of
the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and
none of the SEC Documents, when filed, contained any untrue
statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents
comply as to form in all material respects with applicable
accounting requirements and the published rules and
regulations of the Commission with respect thereto. Such
financial statements have been prepared in accordance with
generally accepted accounting principles applied on a
consistent basis during the periods involved, except as may
be otherwise indicated in such financial statements or the
notes thereto, and fairly present in all material respects
the financial position of the Company as of and for the
dates thereof and the results of operations and cash flows
for the periods then ended, subject, in the case of
unaudited statements, to normal year-end audit adjustments.
Since the date of the financial statements included in the
Company's last filed Quarterly Report on Form 10-Q, there
has been no event, occurrence or development that has had a
Material Adverse Effect which is not specifically disclosed
in any of the Disclosure Materials.
(m) No Prior Private Placements. The Company has
not offered or sold any of its equity or equity-equivalent
securities, or securities convertible into equity securities
under Section 4(2) of the Securities Act or Regulation D
promulgated under the Securities Act in a private placement
for financing purposes within the immediately preceding 180
days.
Section 3.2. Representations and Warranties of
the Purchaser. The Purchaser hereby represents and warrants
to the Company as follows:
(a) Organization; Authority. The Purchaser is a
limited partnership duly and validly existing and in good
standing under the laws of the jurisdiction of its
formation. The Purchaser has the requisite power and
authority to enter into and to consummate the transactions
contemplated hereby and by the Registration Rights Agreement
and otherwise to carry out its obligations hereunder and
thereunder. The purchase of the Convertible Debentures by
the Purchaser hereunder has been duly authorized by all
necessary action on the part of the Purchaser. Each of this
Agreement and the Registration Rights Agreement has been
duly executed and delivered by the Purchaser or on its
behalf and constitutes the valid and legally binding
obligation of the Purchaser, enforceable against the
Purchaser in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and to
general principles of equity.
(b) Investment Intent. The Purchaser is
acquiring the Convertible Debentures and the Underlying
Shares for its own account for investment purposes only and
not with a view to or for distributing or reselling such
Convertible Debentures or Underlying Shares or any part
thereof or interest therein, without prejudice, however, to
the Purchaser's right, sub-ject to the provisions of this
Agreement and the Registration Rights Agreement, at all
times to sell or otherwise dispose of all or any part of
such Convertible Debentures or Underlying Shares under an
effective registration statement under the Securities Act
and in compliance with applicable State securities laws or
under an exemption from such registration.
(c) Purchaser Status. At the time the Purchaser
(and any account for which it is purchasing) was offered the
Convertible Debentures, it (and any account for which it is
purchasing) was, and at the date hereof, it (and any account
for which it is purchasing) is, and at the Closing Date, it
(and any account for which it is purchasing) will be, an
"accredited investor" as defined in Rule 501(a) under the
Securities Act.
(d) Experience of Purchaser. The Purchaser,
either alone or together with its representatives, has such
knowledge, sophistication and experience in busi-ness and
financial matters so as to be capable of evaluating the
merits and risks of the prospective investment in the
Convertible Debentures, and has so evaluated the merits and
risks of such investment.
(e) Ability of Purchaser to Bear Risk of
Investment. The Purchaser is able to bear the economic risk
of an investment in the Convertible Debentures and, at the
pre-sent time, is able to afford a complete loss of such
investment.
(f) Prohibited Transactions. The Convertible
Debentures to be purchased by the Purchaser are not being
acquired, directly or indirectly, with the assets of any
"employee benefit plan", within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as
amended.
(g) Access to Information. The Purchaser
acknowledges receipt of the Disclosure Materials and further
acknowledges that it has been afforded (i) the opportunity
to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the
Convertible Debentures and the merits and risks of investing
in the Convertible Debentures; (ii) access to information
about the Company and the Company's financial condition,
results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its
investment in the Convertible Debenture; and (iii) the
opportunity to obtain such additional information which the
Company possesses or can acquire without unreasonable effort
or expense that is necessary to make an informed investment
decision with respect to the Convertible Debentures and to
verify the accuracy and completeness of the information
contained in the Disclosure Materials.
(h) Reliance. The Purchaser understands and
acknowledges that (i) the Convertible Debentures are being
offered and sold, and the Underlying Shares are being
offered, to it without registration under the Securities Act
in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability
of such exemption, depends in part on, and that the Company
will rely upon the accuracy and truth-fulness of, the
foregoing representations and the Purchaser hereby consents
to such reliance.
The Company acknowledges and agrees that the
Purchaser makes no representation or warranty with respect
to the transactions contemplated hereby other than those
specifically set forth in Article III herein.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
Section 4.1. Transfer Restrictions. If the
Purchaser should decide to dispose of any of the Convertible
Debentures to be purchased by it hereunder (and upon
conversion thereof, any Underlying Shares), the Purchaser
understands and agrees that it may do so only (i) pursuant
to an effective registration statement under the Securities
Act, (ii) to the Company or (iii) pursuant to an available
exemption from registration under the Securities Act. In
connection with any transfer of any Convertible Debentures
other than pursuant to an effective registration statement
or to the Company, the Company may require that the
transferor of such Convertible Debentures provide to the
Company an opinion of counsel experienced in the area of
United States securities laws selected by the transferor,
the form and substance of which opinion shall be, reasonably
satis-factory to the Company, to the effect that such
transfer does not require registration of such Convertible
Debentures under the Securities Act or any State securities
laws.
The Purchaser agrees to the imprinting, so long
as appropriate, of the following legend on certificates
representing the Convertible Debentures:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO
WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER.
The legend set forth above shall be removed if and
when the Convertible Debentures represented by such
certificate or the Underlying Shares, as the case may be,
are dis-posed of pursuant to an effective registration
statement under the Securities Act or in the opinion of
counsel to the Company experienced in the area of United
States securities laws such legend is no longer required
under applicable requirements of the Securities Act. The
certificates representing the Convertible Debentures and the
Underlying Shares shall also bear any other legends required
by applicable Fed-eral or state securities laws, which
legends may be removed when, in the opinion of counsel to
the Company experienced in the applicable securities laws,
such legends are no longer required under the applicable
requirements of such securities laws. The Company agrees
that it will provide the Purchaser, upon request, with a
substitute certificate or certificates, free from such
legend at such time as such legend is no longer applicable.
The Purchaser agrees that, in connection with any transfer
of Convertible Debentures or Underlying Shares by it
pursuant to an effective registration statement under the
Securities Act, the Purchaser will comply with all
prospectus delivery requirements of the Securities Act. The
Company makes no representation, warranty or agreement as to
the availability of any exemption from registration under
the Securities Act with respect to any resale of Convertible
Debentures or Underlying Shares.
Section 4.2. Stop Transfer Instruction. The
Purchaser agrees that the Company shall be entitled to make
a notation on its records and give instructions to any
transfer agent of the Company in order to implement the
restrictions on transfer set forth in this Agreement.
Section 4.3. Furnishing of Information. As long
as the Purchaser owns Convertible Debentures or Underlying
Shares, the Company will promptly furnish to it all reports
filed by the Company pursuant to Section 13(a) or 15(d) of
the Exchange Act (or if the Company is not at the time
required to file reports pursuant to such sections, annual
and quarterly reports comparable to those required by
Section 13(a) or 15(d) of the Exchange Act).
Section 4.4. Notice of Certain Events. The
Company shall (i) advise the Purchaser promptly after
obtaining knowledge thereof, and, if requested by the
Purchaser, confirm such advice in writing, of (A) the
issuance by any state securities commission of any stop
order suspending the qualification or exemption from
qualification of the Convertible Debentures or the Common
Stock for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purpose by any state
securities commission or other regulatory authority, or (B)
any event that makes any statement of a material fact made
in the Disclosure Materials untrue or that requires the
making of any additions to or changes in the Disclosure
Materials in order to make the statements therein, in the
light of the circumstances under which they are made, not
misleading, (ii) use its best efforts to prevent the
issuance of any stop order or order suspending the
qualification or exemption from qualification of the
Convertible Debentures or the Common Stock under any state
securities or Blue Sky laws, and (iii) if at any time any
state securities commission or other regulatory authority
shall issue an order suspending the qualification or
exemption from qualification of the Convertible Debentures
or the Common Stock under any such laws, use its best
efforts to obtain the withdrawal or lifting of such order at
the earliest possible time.
Section 4.5. Copies and Use of Disclosure
Materials. The Company shall furnish the Purchaser, without
charge, as many copies of the Disclosure Materials, and any
amendments or supplements thereto, as the Purchaser may
reasonably request. The Company consents to the use of the
Disclosure Materials, and any amendments and supplements
thereto, by the Purchaser in connection with resales of the
Convertible Debentures or the Underlying Shares other than
pursuant to an effective registration statement.
Section 4.6. Modification to Disclosure
Materials. If any event shall occur as a result of which,
in the reasonable judgment of the Company or the Purchaser,
it becomes necessary or advisable to amend or supplement the
Disclosure Materials in order to make the statements
therein, in the light of the circumstances at the time the
Disclosure Materials were delivered to the Purchaser, not
misleading, or if it is necessary to amend or supplement the
Disclosure Materials to comply with applicable law, the
Company shall promptly prepare an appropriate amendment or
supplement to the Disclosure Materials (in form and
substance reasonably satisfactory to the Purchaser) so that
(i) as so amended or supplemented the Disclosure Materials
will not include an untrue statement of material fact or
omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances
existing at the time it is delivered to Purchaser, not
misleading and (ii) the Disclosure Materials will comply
with applicable law.
Section 4.7. Blue Sky Laws. The Company shall
qualify the Underlying Shares under the securities or Blue
Sky laws of such jurisdictions as the Purchaser may request
and continue such qualification at all times through the
third anniversary of the Closing Date; provided, however,
that neither the Company nor its Subsidiaries shall be
required in connection therewith to qualify as a foreign
corporation where they are not now so qualified and that the
Company shall not be required to qualify generally to do
business in any jurisdiction where it is not then so
qualified or to take any action that would subject it to
general service of process in any such jurisdiction where it
is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then
so subject.
Section 4.8. Integration. The Company shall not
and shall use its best efforts to ensure that no Affiliate
shall sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined
in Section 2 of the Securities Act) that would be integrated
with the offer or sale of the Convertible Debentures or the
Underlying Shares in a manner that would require the
registration under the Securities Act of the sale of the
Convertible Debentures or Underlying Shares to the
Purchaser.
Section 4.9. Furnishing of Rule 144A Materials.
The Company shall, for so long as any of the Convertible
Debentures or Underlying Shares remain outstanding and
during any period in which it is not subject to Section 13
or 15(d) of the Exchange Act, make available to any
registered holder of Convertible Debentures or Underlying
Shares in connection with any sale thereof and any
prospective purchaser of such Convertible Debentures or
Underlying Shares from such Person, the following
information in accordance with Rule 144A(d)(4) under the
Securities Act: a brief statement of the nature of the
business of the Company and the products and services it
offers and the Company's most recent audited balance sheet
and profit and loss and retained earnings statements, and
similar audited financial statements for such part of the
two preceding fiscal years as the Company has been in
operation.
Section 4.10. Solicitation Materials. The
Company shall not (i) distribute any offering materials in
connection with the offering and sale of the Convertible
Debentures or Underlying Shares other than the Disclosure
Materials and any amendments and supplements thereto
prepared in compliance herewith or (ii) solicit any offer to
buy or sell the Convertible Debentures or Underlying Shares
by means of any form of general solicitation or advertising.
Section 4.11. Subsequent Financial Statements.
The Company shall furnish to the Purchaser, promptly after
they are filed with the Commission, a copy of all financial
statements for any period subsequent to the period covered
by the financial statements included in the Disclosure
Materials.
Section 4.12. Certain Agreements. (a) The
Company covenants and agrees that it shall not directly or
indirectly, without the prior consent of the Purchaser, (i)
offer, sell, grant any option to purchase, or otherwise
dispose (or announce any offer, sale, grant or any option to
purchase or other disposition) of any of its or its
Affiliates equity or equity-equivalent securities to a third
party (a "Subsequent Financing") other than stock issued
under the 11% Secured Convertible Notes due March 1999 and
stock options issued in the normal course of business for a
period of 90 days after the date of this Agreement, except
when such issuance is for the sole purpose of extinguishing
breast implant litigation, or (ii) enter into a Subsequent
Financing within a period of 90 days following the foregoing
90-day period without first offering the Purchaser the
opportunity (which shall remain open for a period of five
business days from the date the Purchaser receives notice
thereof) to purchase up to all of such additional equity or
equity-equivalent securities, except for shares issued upon
exercise of any currently outstanding warrants and upon
conversion of any currently outstanding convertible
debentures disclosed in Schedule 3.1(c), exercise of the
existing rights under Section 8.12 of the 11% Secured
Convertible Notes due March 1999 and shares of Common Stock
issued upon conversion of Convertible Debentures in
accordance herewith, unless (A) the Company provides the
Purchaser a written notice (the "Subsequent Financing
Notice") of its intention to effect such Subsequent
Financing, which Subsequent Financing Notice shall describe
in reasonable detail the proposed terms of such Subsequent
Financing and the amount of proceeds intended to be raised
thereunder and (B) the Purchaser shall not have notified the
Company within forty-eight (48) hours of its receipt of the
Subsequent Financing Notice of its willingness to enter into
good faith negotiations to provide (or to cause its sole
designee to provide) financing to the Company on
substantially the terms set forth in the Subsequent
Financing Notice. If the Purchaser shall fail to notify the
Company of its intention to enter into such negotiations
within such forty-eight (48) hour period, the Company may
effect the Subsequent Financing substantially upon the terms
set forth in the Subsequent Financing Notice; provided, that
the Company shall provide the Purchaser with a second
Subsequent Financing Notice, and the Purchaser shall again
have the right of first refusal set forth above in this
paragraph (a), if the Subsequent Financing subject to the
initial Subsequent Financing Notice shall not have been
consummated for any reason on the terms set forth in such
Subsequent Financing Notice within 30 days after the date of
the initial Subsequent Financing Notice.
(b) From the date hereof through the Closing
Date, the Company shall not and shall cause the Subsidiaries
not to, without the consent of the Purchaser, (i) amend its
Certificate of Incorporation, bylaws or other charter
documents so as to adversely affect any rights of the
Purchaser; (ii) split, combine or reclassify its outstanding
capital stock; (iii) declare, authorize, set aside or pay
any dividend or other distribution with respect to the
Common Stock; (iv) repay, repurchase or offer to repay,
repurchase or other-wise acquire shares of its Common Stock;
or (v) enter into any agreement with respect to any of the
foregoing.
Section 4.13. Purchaser Ownership of Common
Stock. The Purchaser may not use its ability to convert
Convertible Debentures hereunder or under the terms of the
Convertible Debentures to the extent that such conversion
would result in the Purchaser owning more than 4.9% of the
outstanding shares of the Common Stock. The Company shall,
promptly upon its receipt of a Holder Conversion Notice
tendered by the Purchaser (or its sole designee) under the
Convertible Debentures, notify the Purchaser of the number
of shares of Common Stock outstanding on such date and the
number of Underlying Shares which would be issuable to the
Purchaser (or its sole designee, as the case may be) if the
conversion requested in such Conversion Notice were effected
in full, whereupon, notwithstanding anything to the contrary
set forth in the Convertible Debentures, the Purchaser may
revoke such conversion to the extent that it determines that
such conversion would result in the Purchaser owning in
excess of 4.9% of such outstanding shares of Common Stock.
Section 4.14. Listing of Underlying Shares. The
Company shall take all steps necessary to cause the
Underlying Shares to be approved for listing in the NASDAQ
Small Cap Market (or other national securities exchange or
market on which the Common Stock is listed) no later than
thirty (30) days from the date of this Agreement, and shall
provide to the Purchaser evidence of such listing, and shall
maintain the listing of its Common Stock on such exchange.
Section 4.15. Conversion Procedures - Form of Debentures attached hereto.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
Section 5.1. Conditions Precedent to Obligations
of the Purchaser. The obligation of the Purchaser to
purchase the Convertible Debentures is subject to the
satisfaction or waiver by the Purchaser, at or prior to the
Closing, of each of the following conditions:
(a) Legal Opinion. The Purchaser shall have
received the legal opinion, addressed to it and dated the
Closing Date, of Nida & Maloney, counsel for the Company,
substantially in the form of Exhibit C;
(b) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the
Company contained herein and in the Registration Rights
Agreement shall be true and correct in all material respects
as of the date when made and as of the Closing Date as
though made at that time (except that representations and
warranties that are made as of a specific date need be true
in all material respects only as of such date);
(c) Performance by the Company. The Company
shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions
required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing;
(d) No Material Adverse Effect. Since the date
of the financial statements included in the Company's last
filed Quarterly Report on Form 10-Q, no event which had a
Material Adverse Effect shall have occurred which is not
disclosed in the Disclosure Materials;
(e) No Prohibitions. The purchase of and payment for the Convertible
Debentures (and upon conversion
thereof, the Underlying Shares) hereunder (i) shall not be
prohibited or enjoined (temporarily or permanently) by any
applicable law or governmental regulation and (ii) shall
not subject the Purchaser to any penalty, or in its
reasonable judgment, other onerous condition under or
pursuant to any applicable law or governmental regulation
that would materially reduce the benefits to the Purchaser
of the purchase of the Convertible Debentures or the
Underlying Shares (provided, however, that such regula-tion,
law or onerous condition was not in effect in such form at
the date of this Agreement);
(f) Company Certificates. The Purchaser shall
have received a certificate, dated the Closing Date, signed
by the Secretary or an Assistant Secretary of the Company
and certifying (i) that attached thereto is a true, correct
and complete copy of (A) the Company's Certificate of
Incorporation, as amended to the date thereof, (B) the
Company's By-Laws, as amended to the date thereof, and (C)
resolutions duly adopted by the Board of Directors of the
Company authorizing the execution and delivery of this
Agreement and the Registration Rights Agreement and the
issuance and sale of the Convertible Debentures and the
Underlying Shares and (ii) the incumbency of officers
executing this Agreement and the Registration Rights Agreement;
(g) Registration Rights Agreement. The Company
shall have executed the Registration Rights Agreement;
(h) No Suspensions of Trading in Common Stock.
Trading in the Common Stock shall not have been suspended by
the Commission or the NASD or other exchange or market on
which the Common Stock is listed or quoted (except for any
suspension of trading of limited duration solely to permit
dissemination of material information regarding the
Company);
(i) Required Approvals. All Required Approvals
shall have been obtained; and
(j) Delivery of Convertible Debentures. The
Company shall have delivered to the Purchaser the
Convertible Debentures, registered in the name of the
Purchaser, each in form satisfactory to the Purchaser.
Section 5.2. Conditions Precedent to Obligations
of the Company. The obligation of the Company to issue and
sell the Convertible Debentures hereunder is subject to the
satisfaction or waiver by the Company, at or to the Closing,
of each of the following conditions:
(a) Accuracy of the Purchaser's Representations
and Warranties. The representations and warranties of the
Purchaser shall be true and correct in all material respects
as of the date when made and as of the Closing Date as
though made at that time (except that representations and
warranties that are made as of a specific date need be true
in all material respects only as of such date);
(b) Performance by the Purchaser. The Purchaser
shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions
required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by it
at or prior to the Closing; and
(c) No Prohibitions. The sale of the Convertible
Debentures (and upon conversion thereof, the Underlying
Shares) hereunder (i) shall not be prohibited or enjoined
(temporarily or permanently) by any applicable law or
governmental regula-tion and (ii) shall not subject the
Company to any penalty, or in its reasonable judgment, any
other onerous condition under or pursuant to any applicable
law or governmental regulation that would materially reduce
the benefits to the Company of the sale of Convertible
Debentures or the Underlying Shares to the Purchaser
(provided, however, that such regulation, law or onerous
condition was not in effect in such form at the date of this
Agreement).
(d) Delivery of Purchase Price. The Purchaser
shall have delivered to the Company the Purchase Price as
determined Pursuant to Article I in United States dollars in
immediately available funds by wire transfer to an account
designated in writing by the Company.
ARTICLE VI
TERMINATION
Section 6.1. Termination by Mutual Consent".
This Agreement may be terminated at any time prior to
Closing by the mutual consent of the Company and the
Purchaser.
Section 6.2. Termination by the Company or the
Purchaser". This Agreement may be terminated prior to
Closing by either the Company or the Purchaser, by giving
written notice of such termination to the other party, if:
(a) the Closing shall not have occurred by [
]; provided that the terminating party is not then in
material breach of its obligations under this Agreement in
any manner that shall have caused the failure referred to in
this paragraph (a);
(b) there shall be in effect any statute,
rule, law or regulation that prohibits the consummation of
the Closing or if the consummation of the Closing would
violate any non-appealable final judgment, order, decree,
ruling or injunction of any court of or governmental
authority having competent jurisdiction; or
(c) there shall have been an amendment to
Regulation D or an interpretive release promulgated or
issued thereunder, which, in the reasonable judgment of the
terminating party, would materially adversely affect the
transactions contemplated hereby and by the Registration
Rights Agreement.
Section 6.3. Termination by the Company". This
Agreement may be terminated prior to Closing by the Company,
by giving notice of such termination to the Purchaser, if
the Purchaser has materially breached any representation,
warranty, covenant or agreement contained in this Agreement
or the Registration Rights Agreement and such breach is not
cured within five business days following receipt by the
Purchaser of notice of such breach.
Section 6.4. Termination by the Purchaser".
This Agreement may be terminated prior to Closing by the
Purchaser, by giving notice of such termination to the
Company, if:
(a) the Company has breached any
representation, warranty, covenant or agreement contained in
this Agreement or the Registration Rights Agreement and such
breach is not cured within five business days following
receipt by the Company of notice of such breach;
(b) there has occurred an event since the
date of the financial statements included in the Company's
last filed Quarterly Report on Form 10-Q which could
reasonably be expected to have a Material Adverse Effect and
which is not disclosed in the Disclosure Materials; or
(c) trading in the Common Stock has been
suspended by the Commission or the NASD or other exchange or
market on which the Common Stock is listed or quoted (except
for any suspension of trading of limited duration solely to
permit dissemination of material information regarding the
Company).
ARTICLE VII
MISCELLANEOUS
Section 7.1. Fees and Expenses". Each party
shall pay the fees and expenses of its advisers, counsel
(except the Company shall reimburse Purchaser for its legal
fees that do not, in the aggregate exceed $10,000),
accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this
Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the
Convertible Debentures (and upon conversion thereof, the
Underlying Shares) pursuant hereto. The Purchaser shall be
responsible for its own tax liability that may arise as a
result of the investment hereunder or the transactions
contemplated by this Agreement. Whether or not the
transactions contemplated by this Agreement are consummated
or this Agreement is terminated, the Company shall pay (i)
all costs, expenses, fees and all taxes incident to and in
connection with: (A) the preparation, printing and
distribution of the Disclosure Materials and all amendments
and supplements thereto (including, without limitation,
financial statements and exhibits), (B) the issuance and
delivery of the Convertible Debentures and, upon conversion
thereof, the Underlying Shares, (C) the qualification of the
Underlying Shares for offer and sale under the securities or
Blue Sky laws of the several states (including, without
limitation, the fees and disbursements of the Purchasers'
counsel relating to such registration or qualification), (D)
furnishing such copies of the Disclosure Materials and all
amendments and supplements thereto, as may reasonably be
requested for use in connection, with resales of the
Convertible Debentures and, upon conversion thereof, the
Underlying Shares, and (E) the preparation of certificates
for the Convertible Debentures and, upon conversion thereof,
the Underlying Shares (including, without limitation,
printing and engraving thereof), (ii) all fees and expenses
of the counsel and accountants of the Company and (iii) all
expenses and listing fees in connection with the application
for quotation of the Underlying Shares on the NASDAQ Small
Cap Market.
Section 7.2. Entire Agreement; Amendments".
This Agreement, together with the Exhibits, Annexes and
Schedules hereto, and the Registration Rights Agreement
contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect
to such matters.
Section 7.3. Notices". Any notice or other
communication required or permitted to be given hereunder
shall be in writing and shall be deemed to have been
received (a) upon hand delivery (receipt acknowledged) or
delivery by telex (with correct answer back received),
telecopy or facsimile (with transmission confirmation
report) at the address or number designated below (if
delivered on a business day during normal business hours
where such notice is to be received), or the first business
day following such delivery (if delivered other than on a
business day during normal business hours where such notice
is to be received) or (b) on the second business day
following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
If to the Company:
Willem Oost-Lievense
Chief Financial Officer
INAMED Corporation
3800 Howard Hughes Pkwy.
Suite 900
Las Vegas, NV 89109
Telephone: (702) 791-3388
Telefax: (702) 791-1922
If to the Purchaser:
or such other address as may be designated in writing
hereafter, in the same manner, by such person.
Section 7.4. Amendments; Waivers. No provision
of this Agreement may be waived or amended except in a
written instrument signed, in the case of an amendment, by
both the Company and the Purchaser, or, in the case of a
waiver, by the party against whom enforcement of any such
waiver is sought. No waiver of any default with respect to
any provision, condition or requirement of this Agreement
shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement
hereof, nor shall any delay or omission of either party to
exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
Section 7.5. Headings. The headings herein are
for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of
the provisions hereof.
Section 7.6. Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of
the parties and their successors and permitted assigns.
Neither the Company nor the Purchaser may assign this
Agreement or any rights or obligations hereunder without the
prior written consent of the other. The assignment by a
party of this Agreement or any rights hereunder shall not
affect the obligations of such party under this Agreement.
Section 7.7. No Third Party Beneficiaries. This
Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns and is
not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 7.8. Governing Law. This Agreement
shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law
thereof.
Section 7.9. Survival. The representations and
warranties of the Company and the Purchaser contained in
Article III and the agreements and covenants of the parties
contained in Article IV and this Article VII shall survive
the Closing (or any earlier termination of this Agreement)
and any conversion of Convertible Debentures hereunder.
Section 7.10. Counterpart Signatures. This
Agreement may be executed in two or more counterparts, all
of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts
have been signed by each party and delivered to the other
party, it being understood that both parties need not sign
the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall
create a valid and binding obligation of the party executing
(or on whose behalf such signature is executed) the same
with the same force and effect as if such facsimile
signature page were an original thereof.
Section 7.11. Publicity. The Company and the
Purchaser shall consult with each other in issuing any press
releases or otherwise making public statements with respect
to the transactions contemplated hereby and neither party
shall issue any such press release or otherwise make any
such public statement, except for such disclosure as shall
be required under 2(c) of Form 10Q, without the prior
written consent of the other, which consent shall not be
unreasonably withheld or delayed.
Section 7.12. Severability. In case any one or
more of the provisions of this Agreement shall be invalid or
unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affecting or impaired
thereby and the parties will attempt to agree upon a valid
and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate
such substitute provision in this Agreement.
Section 7.13. Remedies. In addition to being
enti-tled to exercise all rights provided herein or granted
by law, including recovery of damages, the Purchaser will be
entitled to specific performance of the obligations of the
Company under this Agreement and the Company will be
entitled to specific performance of the obligations of the
Purchaser hereunder with respect to the subsequent transfer
of Convertible Debentures and the Underlying Shares. Each
of the Company and the Purchaser agrees that monetary
damages would not be adequate compensation for any loss
incurred by reason of any breach of its obligations
described in the foregoing sentence and hereby agrees to
waive in any action for specific performance of any such
obligation the defense that a remedy at law would be
adequate.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed as of the date first
indicated above.
Company:
INAMED Corporation
By:
Name: Willem Oost-Lievense
Title: Chief Financial Officer
Purchaser:
By:
Name:
Title:
Schedule 3.1(a)
[SUBSIDIARIES TO BE PROVIDED BY COMPANY PRIOR TO CLOSING]
Schedule 3.1(c)
[CAPITALIZATION TABLE TO BE PROVIDED BY COMPANY PRIOR
TO CLOSING]
Schedule 3.1(f)
[REQUIRED CONSENTS AND APPROVALS TO BE PROVIDED BY
COMPANY PRIOR TO CLOSING]
Schedule 3.1(g)
[LITIGATION TO BE PROVIDED BY COMPANY PRIOR TO CLOSING]
Exhibit 10.10
AMENDMENT NO. 1 TO RIGHTS AGREEMENT
This amendment, dated as of June 13, 1997, amends the
Rights Agreement dated as of June 2, 1997 (the "Rights
Agreement") between Inamed Corporation (the "Company") and
U.S. Stock Transfer Corporation, as Rights Agent (the
"Rights Agent"). Terms defined in the Rights Agreement and
not otherwise defined herein are used herein as so defined.
W I T N E S S E T H
WHEREAS, on May 23, 1997, the Board of Directors of the
Company authorized the issuance of Rights to purchase, on
the terms and subject to the provisions of the Rights
Agreement, one share of the Company's Common Stock; and
WHEREAS, the Board of Directors of the Company
authorized and declared a dividend distribution of one Right
for every share of Common Stock of the Company outstanding
on June 13, 1997 and authorized the issuance of one Right
(subject to certain adjustments) for each share of Common
Stock of the Company issued between the Record Date and the
Distribution Date; and
WHEREAS, on June 2, 1997, the Company and the Rights
Agent entered into the Rights Agreement to set forth the
description and terms of the Rights; and
WHEREAS, pursuant to Section 27 of the Rights
Agreement, the Continuing Directors now unanimously desire
to amend certain provisions of the Rights Agreement in order
to supplement certain provisions therein;
NOW, THEREFORE, the Rights Agreement is hereby amended
as follows:
1. Section 1(a) is amended by adding the following at
the end thereof:
"Notwithstanding the foregoing, no officer or
director of the Company who or which, together with all
Affiliates of such Person, is the Beneficial Owner of 15% or
more of the outstanding shares of Common Stock of the
Company as of the Record Date shall be deemed an Acquiring
Person for any purpose of this Agreement, provided, that
such officer or director together with his Affiliates does
not become the Beneficial Owner of 20% or more of the
outstanding shares of Common Stock of the Company."
2. Except as expressly herein set forth, the
remaining provisions of the Rights Agreement shall remain in
full force and effect.
3. This Amendment may be executed in any number of
counterparts, and each of such counterparts shall for all
purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, this Amendment No. 1 has been
signed to be effective as of the close of business on this
13th day of June, 1997 by authorized representatives of each
of the Company and the Rights Agent.
INAMED CORPORATION
By: /s/ Donald K. McGhan
Donald K. McGhan
Chairman and Chief Executive Officer
US STOCK TRANSFER CORPORATION
By: /s/ Richard C. Brown
Richard C. Brown
Vice President
Exhibit 21
SUBSIDIARIES OF INAMED CORPORATION
State/Country of
Name Incorporation
BIODERMIS CORPORATION Nevada
BIODERMIS LTD. Ireland
BIOENTERICS CORPORATION California
BIOENTERICS LATIN AMERICA S.A. de C.V. Mexico
BIOENTERICS LTD. Ireland
BIOPLEXUS CORPORATION Nevada
BIOPLEXUS LTD. Ireland
CHAMFIELD LTD. Ireland
CUI CORPORATION California
FLOWMATRIX CORPORATION Nevada
INAMED B.V. The Netherlands
INAMED B.V.B.A. Belgium
INAMED DEVELOPMENT COMPANY California
INAMED do BRASIL, LTDA Brazil
INAMED GmbH Germany
INAMED LTD. United Kingdom
INAMED JAPAN Nevada
INAMED MEDICAL GROUP Japan
INAMED, S.A. Spain
INAMED S.A.R.L. France
INAMED S.R.L. Italy
McGHAN LTD. Ireland
McGHAN MEDICAL CORPORATION California
McGHAN MEDICAL ASIA PACIFIC Hong Kong
McGHAN MEDICAL MEXICO, S.A. de C.V. Mexico
MEDISYN TECHNOLOGIES CORPORATION Nevada
MEDISYN TECHNOLOGIES LTD. Ireland
DOCUMENT TYPE EX-27
DOCUMENT DESCRIPTION FINANCIAL DATA SCHEDULE
PERIOD TYPE 12 MONTHS
FISCAL YEAR END DECEMBER 31, 1996
PERIOD START JANUARY 1, 1996
PERIOD END DECEMBER 31, 1996
CASH 15,719,183
SECURITIES 0
RECEIVABLES 16,904,984
ALLOWANCES 4,477,187
INVENTORY 21,929,981
CURRENT ASSETS 54,033,305
PP&E 24,197,260
DEPRECIATION 11,937,738
TOTAL ASSETS 70,100,427
CURRENT LIABILITIES 30,419,375
BONDS 0
PREFERRED - MANDATORY 0
PREFERRED 0
COMMON 13,665,875
OTHER SE (19,266,651)
TOTAL LIABILITIES & EQUITY 70,100,427
SALES 94,348,076
TOTAL REVENUE 94,348,076
CGS 34,087,854
TOTAL COSTS 96,585,802
OTHER EXPENSES 0
LOSS PROVISION 0
INTEREST EXPENSE 5,386,662
INCOME - PRETAX (5,986,269)
INCOME TAX 1,085,392
INCOME - CONTINUING (7,071,660)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET INCOME (7,074,992)
EPS - PRIMARY (0.91)
EPS - DILUTED (0.91)
