<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
REGENERATION TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8731 59-3466543
(State or other jurisdiction (Primary Standard (I.R.S. Employer Number)
of Industrial Identification No.)
incorporation or organization) Classification Code)
</TABLE>
ONE INNOVATION DRIVE
ALACHUA, FLORIDA 32615
(904) 418-8888
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JAMES M. GROOMS
CHIEF EXECUTIVE OFFICER
REGENERATION TECHNOLOGIES, INC.
ONE INNOVATION DRIVE
ALACHUA, FLORIDA 32615
(904) 418-8888
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
WARREN J. NIMETZ, ESQ. JOSEPH E. MULLANEY III, ESQ.
FULBRIGHT & JAWORSKI L.L.P. PETER T. BUTTERFIELD, ESQ.
666 FIFTH AVENUE MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.
NEW YORK, NEW YORK 10103 ONE FINANCIAL CENTER
(212) 318-3000 BOSTON, MASSACHUSETTS 02111
(617) 542-6000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE (1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $.001 par value per share..................... $86,250,000 $22,770.00
</TABLE>
(1) Estimated solely for purpose of calculating the registration fee pursuant to
Rule 457(o) under the Securities Act of 1933, as amended.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Prospectus (Not Complete)
The information in this prospectus is not complete and may be changed without
notice. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities, and we are not soliciting offers to buy these
securities, in any state where the offer or sale of these securities is not
permitted.
<PAGE>
Issued , 2000
Shares
[LOGO]
Common Stock
----------------
Regeneration Technologies, Inc. is offering shares of common
stock, and the selling stockholder is offering shares of our common
stock in our initial public offering. We will not receive any of the proceeds
from the sale of shares by the selling stockholder. No public market currently
exists for our common stock. We anticipate that the initial public offering
price will be between $ and $ per share.
------------------------
We will apply to have our common stock quoted on the Nasdaq National Market
under the symbol "RTIX."
------------------------
Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 4.
---------------------
<TABLE>
<CAPTION>
Per Share Total
--------- --------
<S> <C> <C>
Offering Price.............................................. $ $
Discounts and Commissions to Underwriters................... $ $
Offering Proceeds to Regeneration Technologies.............. $ $
Offering Proceeds to the Selling Stockholder................ $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We have granted the underwriters the right to purchase up to an additional
shares of our common stock to cover any over-allotments. The underwriters
can exercise this right at any time within thirty days after this offering. Banc
of America Securities LLC expects to deliver the shares of common stock to
investors on , 2000.
Banc of America Securities LLC
Lehman Brothers
Warburg Dillon Read LLC
Stephens Inc.
------------------------
, 2000
<PAGE>
Regeneration Technologies, Inc.
Product Families
[Photograph of spinal allografts]
Spinal allografts: MD-Dowel, Cornerstone-SR, Osteofil Injectable Bone Paste,
Osteofil ICM Moldable Paste, Tangent Wedge, Precision Wedge, allograft segments.
Surgeons have used these allografts for spinal procedures such as discectomies.
[Two photographs of sports medicine allografts]
Sports medicine allografts: Interference screw, bone pins, Osteofil
Injectable Bone Paste, meniscus, Pre-shaped BTB (Soon to be released: HTO Wedge,
AlloAnchor, Interference Screw ST). These allografts have been used in a variety
of sports medicine procedures, such as ACL and other ligament repair, small bone
repair (hands/feet) and tissue reattachment.
[Photograph of oral/maxillofacial allografts]
Oral/Maxillofacial allografts: Regenafil Injectable Bone Paste, Regenaform
Moldable Bone Paste, pericardium. Surgeons have used these in oral/maxillofacial
procedures such as ridge augmentation, sinus lift, or orthognathic surgery.
[Photograph of urologic allograft]
Urologic allograft: FasLata fascia lata tissue has bee used for urinary
incontinence (sling) procedures.
[Photograph of conventional tissue]
Conventional tissue: Osteoarticular grafts (femur), milled and blended bone
implants (cancellous chips), fashioned bone implants (cancellous blocks, fibula
wedges). These have been used for oncology procedures, mass tumor resection, hip
and knee revision, trauma and ligament repair.
[Photograph of cardiovascular allograft]
Cardiovascular allograft: Heart valves, for valve replacement.
The BioCleanse-TM- Advantage
[Photograph of a cross section of a conventionally processed human femur, as
well as photograph of femur bone that has been cleansed with BioCleanse
technology.]
Untreated tissue
BioCleansed tissue
Removes blood and fat
Kills bacteria and fungi
Eliminates viruses
Retains tissue functionality/strength
Preserves biocompatibility
[Photograph of Class 100 packaging room.]
Class 100 packaging room: Cleaned, processed tissue being packaged for
distribution
BioCleanse-TM-: Advanced Allograft Processing only from RTI
Automation: Critical steps are completely automated to ensure reproducible
sterilization.
Efficient Processing: The BioCleanse sterilization process allows for
processing large groups of tissue at one time.
<PAGE>
Regulatory Compliance: This automated, validated process is designed to meet
or exceed proposed tissue regulations.
Tissue Functionality: The BioCleanse process sterilizes without altering the
strength or biocompatibility of allograft.
Sterile Tissue: The system sterilizes tissue, eliminating bacteria and
enveloped and non-enveloped viruses such as HIV and Hepatitis.
[Photograph of BioCleanse chamber]
BioCleanse-TM- chamber
[Photograph of processing room]
Processing room: cleaning tissue in preparation for the BioCleanse-TM-
process
[Photograph of chemical mix unit]
Chemical mix unit
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Use of Proceeds............................................. 13
Dividend Policy............................................. 13
Capitalization.............................................. 14
Dilution.................................................... 15
Selected Consolidated Financial Data........................ 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Business.................................................... 24
Management.................................................. 48
Related Party Transactions.................................. 56
Principal and Selling Stockholders.......................... 58
Description of Capital Stock................................ 59
Shares Eligible for Future Sale............................. 62
Underwriting................................................ 64
Legal Matters............................................... 66
Experts..................................................... 66
Where You Can Find More Information......................... 66
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We based these
forward-looking statements on our current expectations and projections about
future events. Our actual results could differ materially from those discussed
in, or implied by, these forward-looking statements. Forward-looking statements
are identified by words such as "believe," "anticipate," "expect," "intend,"
"plan," "will," "may" and other similar expressions. In addition, any statements
that refer to expectations, projections or other characterizations of future
events or circumstances are forward-looking statements. Forward-looking
statements in these documents include, but are not necessarily limited to, those
relating to:
- our ability to obtain human tissue from our current and future sources;
- our ability to maintain or obtain protection for the know-how and
proprietary technologies necessary to develop, market and distribute our
technologies and allografts;
- current and future tissue repair or replacement treatment options offered
by our competitors;
- the state of government regulation of our allografts, processes and
technologies in the United States and internationally, and our ability to
comply with these regulations;
- our plans to develop and market new allografts and technologies; and
- our ability to carry out our business strategy.
Factors that could cause actual results or conditions to differ from those
anticipated by these and other forward-looking statements include those more
fully described in the "Risk Factors" section and elsewhere in this prospectus.
We are not obligated to update or revise these forward-looking statements to
reflect new events or circumstances.
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS
PROSPECTUS IS ACCURATE AS OF THE DATE ON THE FRONT COVER OF THIS PROSPECTUS
ONLY. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY
HAVE CHANGED SINCE THAT DATE.
i
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS"
SECTION AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES
CONTAINED HEREIN. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS
ASSUMES THAT THE UNDERWRITERS WILL NOT EXERCISE THEIR OVER-ALLOTMENT OPTION, THE
CONVERSION OF ALL SHARES OF OUR OUTSTANDING PREFERRED STOCK INTO SHARES OF OUR
COMMON STOCK UPON CLOSING OF THIS OFFERING, A FOR STOCK SPLIT OF OUR COMMON
STOCK, THE REORGANIZATION OF OUR COMPANY AS A DELAWARE CORPORATION AND THE
CLOSING OF OUR ACQUISITION OF THE TISSUE PROCESSING AND DISTRIBUTION BUSINESS OF
ALABAMA TISSUE CENTER IMMEDIATELY PRIOR TO THE CLOSING OF THIS OFFERING.
REGENERATION TECHNOLOGIES, INC.
We are a leader in the use of biologics and tissue-based innovations that
are used to repair and promote the natural healing of human bone and other human
tissues. Using core human physiology--the basic biology of natural tissues as
they function in the body--our allografts are improving surgical outcomes. Our
goal is to replace conventional implant approaches, including metals, synthetics
and autograft implants, with allograft and for an allograft to become the
implant of choice for tissue repair. In an allograft procedure, tissue is
recovered from a cadaveric donor and is then transplanted into a patient's body
to make the needed repair. An autograft procedure is one in which the surgeon
harvests tissue from one part of a patient's body for transplant to another part
of the body to make the needed repair.
We are a leading worldwide provider of comprehensive healing and biologic
tissue products in a broad range of markets. In addition, we are the largest
U.S. processor and distributor of precision tooled allografts both in terms of
revenues and number of surgical procedures for the year ended December 31, 1999,
with our allografts being distributed in all 50 states and in nine countries
internationally. We also continue to be one of the leading processors of
conventional allografts in the United States. We process human musculoskeletal
and other tissues, including bone, cartilage, tendon, ligament, pericardial and
cardiovascular tissue in producing our allografts. These tissues are then used
to repair and promote the healing of a wide variety of bone and other tissue
defects, including spinal vertebrae repair, musculoskeletal reconstruction,
fracture repair, periodontal repair, urinary incontinence and heart valve
disorders. Our current grafts range from conventional allografts to precision
tooled grafting material, including bone dowels, wedges, pastes and pins,
urological allografts and heart valves. During 1999, we shipped over 90,000
processed allografts used in an estimated 60,000 procedures. Often, more than
one allograft is used in a given procedure.
The overall market in the United States for tissue repair and healing
through the use of surgical implants, including metals, synthetics, and
allografts, has grown considerably over the last several years, with revenues in
the orthopedic and cardiovascular segments of this market exceeding an estimated
$6.4 billion in 1999. In these segments, procedures using allografts, either
conventional graft, bone paste, or specialty tooled tissues, totaled over
310,000 during 1999, accounting for revenues of over $410.0 million.
Processors of tissue supply allografts to hospitals and surgeons for use in
surgery. The need for tissue is increasing each year and currently is being
served by approximately 30 tissue banks in the United States that process and/or
distribute bone or cardiovascular allografts. We have one of the most extensive
tissue recovery programs in the United States, recovering bone or cardiovascular
tissue from over 4,000 human donors during 1999, up from over 2,300 in 1998 and
1,500 in 1997. We believe our network of recovery groups accounted for
approximately 34% of the human tissue recovered in the United States during
1999.
We pursue a market-by-market approach to distribution of our allografts,
including strategic distribution arrangements in order to increase our
penetration of selected markets. We have an alliance
1
<PAGE>
with Medtronic Sofamor Danek in the spinal market, with Exactech, Inc. in
portions of the non-spinal molded bone paste market, and with C.R. Bard, Inc. in
the urological market.
Using our proprietary, patent-pending BioCleanse system, we believe we are
the only tissue processor currently able to safely process tissue from multiple
donors simultaneously. This system, which kills or inactivates all classes of
conventional pathogens, viruses, microbes, bacteria and fungi, and which
cleanses tissue both before and after processing, allows us to safely process
tissue from up to 100 donors at the same time thereby significantly increasing
the efficiency of tissue processing. In addition, our BioCleanse system is able
to remove blood, fats, lipids and cellular debris from the tissue we process
more successfully than traditional aseptic processing. We believe the removal of
all blood, fat, lipids and cellular debris results in faster patient healing
since it eliminates the need for the patient's body to remove these substances
using natural processes following surgery. In contrast to traditional aseptic
processing, our BioCleanse system also permits us to process tissue at lower
average cost, and to process tissue safely and economically from donors and age
groups that might not have been feasible without BioCleanse.
We plan to continue to develop new allografts and technologies within the
orthopedics, urological and cardiovascular markets, and to develop additional
tissue-related technologies for other markets. To accomplish this, we intend to
continue to make use of our core technologies and processes which include
precision machined cortical bone, osteoinductive allograft bone pastes, our
proprietary BioCleanse system, segmentally demineralized bone allografts,
osteoarticular grafts designed to fit specific surgical instruments, growth
factors to stimulate bone or tissue growth, cortical allografts assembled from
various smaller bone pieces, xenograft, or animal tissue, and bone treated to
reduce materials that could cause immune responses.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by:
Regeneration Technologies, Inc............................ shares
Selling stockholder....................................... shares
Total................................................. shares
Common stock to be outstanding after the offering........... shares
Use of proceeds............................................. To fund continued research and
development, to construct and equip a
new manufacturing facility, to
construct additional BioCleanse systems
and other automated processing systems,
to expand our tissue recovery and
distribution activities, and for
general corporate purposes, including
working capital. We will not receive
any proceeds from the shares sold by
the selling stockholder. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol...................... RTIX
</TABLE>
------------------------
The above information excludes:
- shares of our common stock subject to options granted under
our Omnibus Stock Option Plan and outstanding as of December 31, 1999 at a
weighted average exercise price of $ per share; and
- shares of our common stock reserved for issuance upon the
exercise of warrants outstanding as of December 31, 1999 at a weighted
average exercise price of $ per share.
2
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
You should read the following summary consolidated financial data in
conjunction with our consolidated financial statements and accompanying notes
and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.
Set forth below are the statement of operations data for the period from
February 12, 1998 to December 31, 1998 and the year ended December 31, 1999, and
the balance sheet data as of December 31, 1999 (1) on an actual basis and
(2) on an as-adjusted basis to give effect to the sale by us of
shares of our common stock in this offering at an assumed initial public
offering price of $ per share, after deducting underwriting discounts and
commissions and the estimated offering expenses payable by us, and the
application of net proceeds from this offering.
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12, 1998 YEAR ENDED
TO DECEMBER 31, 1998 DECEMBER 31, 1999
STATEMENT OF OPERATIONS DATA: -------------------- -----------------
<S> <C> <C>
Total revenues............................................. $35,257 $73,020
Net revenues............................................... 11,128 33,026
Total costs and expenses................................... 15,304 30,587
------- -------
Operating (loss) income.................................... (4,176) 2,439
Net (loss) income.......................................... $(4,142) $ 2,959
======= =======
Net (loss) income per common share--basic.................. $ $
Net (loss) income per common share--diluted................ $ $
Weighted average shares outstanding--basic.................
Weighted average shares outstanding--diluted...............
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
BALANCE SHEET DATA:
<S> <C> <C>
Cash and cash equivalents................................... $ 7,536
Working capital............................................. 14,052
Total assets................................................ 48,538
Long-term debt, less current portion........................ 2,027
Total stockholders' equity.................................. 15,437
</TABLE>
------------------------
We originally incorporated in Florida on August 21, 1997 and began
operations on February 12, 1998 upon our separation from the University of
Florida Tissue Bank, Inc. Prior to the closing of this offering, we intend to
reorganize as a Delaware corporation. Our principal executive offices are
located at One Innovation Drive, Alachua, Florida 32615 and our telephone number
is (904) 418-8888. Our Web site is located at www.rtitechnology.com. We do not
intend for the information contained on our Web site to be considered a part of
this prospectus.
Alloanchor-TM-, BioCleanse-TM-, Cornerstone-TM- SR, FasLata-TM- Fascia Lata
Allograft, MD-Series-TM- Threaded Bone Dowels, Opteform-TM-, Osteofil-TM-,
Precision-TM- Cortical Bone Wedge, Regenaderm-TM-, Regenafil-TM-,
Regenaform-TM-, Regeneration Technologies, Inc.-TM- and Tangent-TM- Cortical
Bone Wedge are some of our trademarks. Any other trademark, trade name or
service mark of any other company appearing in this prospectus belongs to its
holder.
3
<PAGE>
RISK FACTORS
THIS OFFERING AND AN INVESTMENT IN OUR COMMON STOCK INVOLVE A HIGH DEGREE OF
RISK. YOU SHOULD CONSIDER EACH OF THE RISKS AND UNCERTAINTIES DESCRIBED IN THIS
SECTION AND ALL OF THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO
INVEST IN OUR COMMON STOCK. OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS COULD BE SEVERELY HARMED BY ANY OF THE FOLLOWING RISKS. THE TRADING
PRICE OF OUR COMMON STOCK COULD DECLINE IF ANY OF THESE RISKS OR UNCERTAINTIES
DEVELOP INTO ACTUAL EVENTS. YOU MAY LOSE ALL OR PART OF THE MONEY YOU PAID TO
BUY OUR COMMON STOCK.
WE HAVE A LIMITED OPERATING HISTORY, ARE AT AN EARLY STAGE OF DEVELOPMENT
AND MAY NOT SUCCEED OR CONTINUE TO BE PROFITABLE.
We incorporated in 1997 and commenced operations as an independent entity in
1998, and are at an early stage of development. Accordingly, we have a limited
operating history on which to base an evaluation of our business and prospects.
We expect our operating expenses to increase and we will need to generate
significant revenues to maintain profitability. We may not be able to achieve
growth in our revenues at levels which will sustain or increase profitability on
a quarterly or annual basis.
Many of the risks inherent in the development of a new enterprise will
affect our business, including:
- market acceptance of our existing and future allografts;
- our ability to continue to develop markets for our technologies;
- our ability to raise sufficient capital to support the cost of
commercializing our current allografts and technologies and developing new
allografts and technologies to remain competitive; and
- our ability to attract and retain qualified management, sales, technical
and scientific staff.
Our limited operating history and the uncertain nature of the markets in
which we compete make it difficult for us to predict our future results of
operations. As we increase our operating expenses to continue our research and
development, expand manufacturing and add to our tissue recovery and
distribution programs, these expenditures may not result in increased revenues
and we may incur sizable losses.
WE DEPEND HEAVILY UPON A LIMITED NUMBER OF SOURCES OF HUMAN TISSUE, AND ANY
FAILURE TO OBTAIN TISSUE FROM THESE SOURCES IN A TIMELY MANNER WILL INTERFERE
WITH OUR ABILITY TO PROCESS AND DISTRIBUTE ALLOGRAFTS.
The University of Florida Tissue Bank, Inc., Tutogen Medical, Inc. and
Allograft Resources of Wisconsin collectively supplied us with approximately 58%
of the human tissue we obtained in the year ended December 31, 1999. The limited
supply of human tissue has at times limited our growth, and may not be
sufficient to meet our future needs. In addition, due to seasonal changes in
mortality rates, some scarce tissues that we use for our allografts are at times
in particularly short supply. We cannot be sure that our supply of tissue will
continue to be available at current levels or will be sufficient to meet our
needs. If we no longer are able to obtain tissue from these sources sufficient
to meet our needs, we may not be able to locate replacement sources of tissue on
commercially reasonable terms, if at all. Any interruption of our business
caused by the need to locate additional sources of tissue could adversely affect
our business and results of operations.
OUR SUCCESS WILL DEPEND ON THE CONTINUED ACCEPTANCE OF OUR ALLOGRAFTS AND
TECHNOLOGIES BY THE MEDICAL COMMUNITY.
Our new allografts, technologies or enhancements to existing allografts may
never achieve broad market acceptance, which can be affected by numerous
factors, including:
- clinical acceptance of our allografts and technologies;
4
<PAGE>
- introduction of competitive tissue repair treatment options which render
our allografts and technologies obsolete;
- lack of availability of third-party reimbursement; and
- our ability to train surgeons in the use of our allografts and
technologies.
Market acceptance also will depend on our ability to demonstrate that our
existing and new allografts and technologies are an attractive alternative to
existing tissue repair treatment options. Our ability to do so will depend on
surgeons' evaluations of the clinical safety, efficacy, ease of use, reliability
and cost-effectiveness of these tissue repair options and technologies. For
example, we believe that a small portion of the medical community has lingering
concerns over the risk of disease transmission through the use of allografts.
Furthermore, we believe that even if our allografts and technologies receive
general acceptance within the medical community, recommendations and
endorsements by influential surgeons will be important to the commercial success
of our allografts and technologies.
IF WE FAIL TO ACHIEVE AND MAINTAIN THE HIGH PROCESSING AND MANUFACTURING
STANDARDS THAT OUR ALLOGRAFTS REQUIRE OR IF WE ARE UNABLE TO DEVELOP ADDITIONAL
MANUFACTURING CAPACITY, OUR COMMERCIAL OPPORTUNITY WILL BE REDUCED OR
ELIMINATED.
Our allografts require careful calibration and precise, high-quality
processing and manufacturing. Achieving precision and quality control requires
skill and diligence by our personnel. If we fail to achieve and maintain these
high processing and manufacturing standards, including the avoidance of the
incidence of manufacturing errors, design defects or component failures, we
could experience recalls or withdrawals of our allografts, delays or failures in
allograft testing or delivery, cost overruns or other problems that would
adversely affect our business. We can never completely eliminate the risk of
errors, defects or failures. Further, to be successful, we will need to increase
our manufacturing capacity, which we intend to do using a portion of the
proceeds from this offering. We may experience difficulties in scaling-up
manufacturing of our allografts, including problems related to yields, quality
control and assurance, tissue availability, adequacy of control policies and
procedures, and lack of skilled personnel. If we are unable to process and
produce our allografts on a timely basis, at acceptable quality and costs, and
in sufficient quantities, or if we experience unanticipated technological
problems or delays in production, our business would be adversely affected.
RAPID TECHNOLOGICAL CHANGE WILL AFFECT US AND OUR CUSTOMERS, WHICH COULD
RESULT IN REDUCED DEMAND FOR OUR ALLOGRAFTS.
Our industry is characterized by rapidly changing technology and frequent
introductions of new technologies. For example, steady improvements have been
made in synthetic human tissue substitutes which compete with our allografts.
Unlike allografts, synthetic tissue technologies are not dependent on the
availability of human tissue. The successful introduction of synthetic
technologies using recombinant technologies could result in a decline in demand
for allografts. Although our growth strategy contemplates the introduction of
new allografts and technologies, including the use of recombinant technologies,
the development of these new allografts and technologies is a complex and
uncertain process, requiring a high level of innovation, as well as the ability
to accurately predict future technology and market trends. The allografts we
currently have in development will require significant additional development,
investment and testing. We may need to undertake costly and time-consuming
efforts to achieve these objectives. We may not be able to respond effectively
to technological changes and emerging industry standards, or to successfully
identify, develop or support new technologies or enhancements to existing
allografts in a timely and cost-effective manner, if at all. If we are unable to
achieve the improvements in our allografts necessary for their successful
commercialization, the demand for our allografts will suffer.
5
<PAGE>
OUR INDUSTRY IS HIGHLY COMPETITIVE AND WE MAY NOT HAVE THE RESOURCES
REQUIRED TO COMPETE SUCCESSFULLY.
The medical technology/biotechnology industry is intensely competitive. We
compete with companies in the United States and internationally that engage in
the development and production of medical technologies and processes including:
- biotechnology, orthopedic, pharmaceutical, biomaterial, chemical and other
companies;
- academic and scientific institutions; and
- public and private research organizations.
Allograft implants compete with autograft, metals and synthetic tissues, as
well as with alternative medical procedures. For the foreseeable future, we
believe a significant number of surgeons will continue to choose to perform
autograft procedures when feasible, despite the necessity for performing a
second operation. In addition, many members of the medical community will
continue to prefer the use of metals and synthetics due in part to their
familiarity with these products and the procedures required for their use.
Many of our competitors have much greater financial, technical, research,
marketing, sales, distribution, service and other resources than we do.
Moreover, our competitors may offer a broader array of tissue repair treatment
products and technologies or may have greater name recognition than we do in the
marketplace. Our competitors, including several development stage companies, may
develop or market technologies that are more effective or commercially
attractive than ours, or that may render our technologies obsolete. For example,
the successful development of a synthetic tissue product that permits remodeling
of bones could result in the eventual decline in the demand for allograft-based
products and technologies.
WE ARE DEPENDENT UPON THE SUCCESS OF OUR STRATEGIC DISTRIBUTION
RELATIONSHIPS IN DISTRIBUTING OUR ALLOGRAFTS TO GENERATE OUR REVENUES.
While we market a portion of our current technologies directly to our
customers, we currently derive the majority of our revenues through our
relationships with a few distributors. In the year ended December 31, 1999, we
derived approximately 52% of our net revenues through our management services
distribution relationship with one company, Medtronic Sofamor Danek. This
company provides nearly all of the instrumentation, surgeon training,
distribution services and marketing materials for our line of spinal allografts.
If our relationship with this distributor was terminated for any reason, it
would materially and adversely affect our ability to generate revenues and
profits.
We may need to obtain the assistance of additional distributors to market
and distribute our new allografts and technologies, as well as to market and
distribute our existing allografts and technologies to new market segments or
geographical areas. We may not be able to find additional distributors who will
agree to market and distribute our allografts and technologies on commercially
reasonable terms, if at all. If we are unable to establish new distribution
relationships or renew our current distribution arrangements on commercially
acceptable terms, our operating results will suffer.
OUR ALLOGRAFTS COULD BECOME SUBJECT TO SIGNIFICANTLY GREATER REGULATION BY
THE FDA, WHICH COULD DISRUPT OUR BUSINESS.
The U.S. Food and Drug Administration has statutory authority to regulate
allograft processing and allograft-based materials. Since 1997, the FDA has been
working to establish a more comprehensive regulatory framework for human
tissue-based allografts. The framework under FDA consideration would establish
criteria for determining whether a particular human tissue-based product will be
classified as human tissue, a medical device or biologic drug requiring
premarket clearance or
6
<PAGE>
approval. Our heart valve allografts currently are regulated as medical devices
and we cannot be sure that the FDA will not seek to regulate our other
allografts as medical devices or biologics in the future.
If the FDA decides to adopt and implement its proposed regulatory framework,
one or more of our current allografts would then be regulated to a much greater
extent. In addition to our heart valve allografts, one or more of our allografts
in development may become subject to regulation as medical devices or biologic
drugs. For allografts regulated as medical devices, we will need to obtain
premarket clearance or approval through either the 510(k) premarket notification
process, or the FDA's premarket approval process. Some of our proposed grafts
also contain tissue derived from animals, commonly referred to as xenografts.
Xenografts also are subject to premarket review by the FDA.
To obtain the necessary approvals or clearances, we would be required to
submit premarket notifications, premarket approval applications and/or biologics
license applications. The clinical testing and preparation of required
applications would be time consuming and costly. In addition, we cannot be sure
the FDA would approve our applications. The FDA could also require us to stop
marketing our current allografts pending their approval or clearance. The FDA
may require post-market testing and surveillance to monitor the effects of
approved allografts, may restrict the commercial applications of our allografts,
and may conduct periodic inspections of our facility and our suppliers'
facilities. The FDA may withdraw our product approvals or clearances if we do
not comply with its regulatory standards or if we encounter problems after the
initial marketing. If we encounter delays during the FDA approval process, the
period during which we have the exclusive right to commercialize any allografts
for which we have received patent protection may be shortened.
From time to time, allegations may be made against us or against donor
recovery groups or tissue banks, including those with which we have a
relationship, about possible non-compliance with applicable FDA regulations or
other relevant statutes and regulations. Allegations such as these could cause
regulators or other authorities to take investigative or other action, or could
cause negative publicity for us or our industry generally.
WE DEPEND ON PATENTS AND OTHER MEANS TO PROTECT OUR INTELLECTUAL PROPERTY,
WHICH MAY NOT ALWAYS BE ADEQUATE.
The law of patents and trade secrets is constantly evolving and often
involves complex legal and factual questions. The coverage we seek in our patent
applications can either be denied or significantly reduced before or after a
patent is issued. Consequently, we cannot be sure that any particular patent we
apply for will be issued, that the scope of the patent protection will exclude
our competitors, that interference proceedings regarding any of our patent
applications will not be filed, or that a patent will provide any other
competitive advantage to us. In addition, we cannot be sure that any of our
patents will be held valid if challenged or that others will not claim rights in
or ownership of the patents and other proprietary rights held by us.
Because patent applications are secret until patents are actually issued and
the publication of discoveries in the scientific or patent literature lags
behind actual discoveries, we cannot be certain if our patent application was
the first application filed covering a particular invention. If another party's
rights to an invention are superior to ours, we may not be able to obtain a
license to use that party's invention on commercially reasonable terms, if at
all. In addition, our competitors, many of which have greater resources than we
do, could seek to apply for and obtain patents that will prevent, limit or
interfere with our ability to make use of our inventions either in the United
States or in international markets. Further, the laws of some foreign countries
do not always protect our intellectual property rights to the same extent as do
the laws of the United States. Litigation or regulatory proceedings in the
United States or foreign countries also may be necessary to enforce our patent
or other intellectual property rights or to determine the scope and validity of
our competitors' proprietary rights. These proceedings can be costly, result in
product development delays, and divert our management's attention from our
business.
7
<PAGE>
We also rely upon unpatented proprietary technology, and we cannot assure
you that others will not independently develop substantially equivalent
technology or otherwise gain access to or disclose our proprietary technology.
We may not be able to meaningfully protect our rights in this proprietary
technology, which would reduce our ability to compete in the market.
In 1996, a law was passed in the United States that limits the enforcement
of patents covering the performance of surgical or medical procedures on a human
body. This law prevents medical practitioners and health care entities who
practice these procedures from being sued for patent infringement. Therefore,
depending upon how these limitations are interpreted by the courts, they could
have a material adverse effect on our ability to enforce any of our proprietary
methods or procedures deemed to be surgical or medical procedures.
ALTHOUGH WE HAVE CONFIDENTIALITY AGREEMENTS WITH OUR EMPLOYEES AND OTHERS,
THESE AGREEMENTS MAY NOT ADEQUATELY PREVENT DISCLOSURE OF TRADE SECRETS AND
OTHER PROPRIETARY INFORMATION.
Our policy is to execute confidentiality agreements with our employees and
consultants upon the commencement of their employment or consulting arrangement
with us. These agreements generally require that all confidential information
developed by an individual or to which the individual is exposed during the
course of his or her relationship with us must be kept confidential even after
the individual has left our employment. These agreements also generally provide
that inventions conceived by the individual in the course of rendering services
to us shall be our exclusive property. We cannot be sure that these agreements
will provide meaningful protection of our proprietary and other confidential
information. In addition, in some situations, these agreements may conflict
with, or be subject to, the rights of third parties with whom our employees or
consultants have prior employment or consulting relationships. We may be forced
to engage in costly and time-consuming litigation to determine the scope of and
to enforce our proprietary rights. Even if successful, any litigation could
divert our management's attention from our business.
OUR SUCCESS WILL DEPEND IN PART ON OUR ABILITY TO OPERATE WITHOUT INFRINGING
ON OR MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS.
We cannot be certain that U.S. or foreign patents or patent applications of
other companies do not exist or will not be issued that would materially and
adversely affect our ability to commercialize our grafts. We may be sued for
infringing or misappropriating the patent or other intellectual property rights
of others. Intellectual property litigation is costly and, even if we prevail,
the cost of this litigation could negatively affect our business. If we do not
prevail in litigation, in addition to any damages we might have to pay, we could
be required to stop the infringing activity or obtain a license requiring us to
make royalty payments. Any license we are required to obtain may not be
available to us on commercially acceptable terms, if at all. In addition, any
license we are required to obtain may be non-exclusive, and therefore our
competitors may have access to the same technology licensed to us. If we fail to
obtain a required license or are unable to design around another company's
patent, we may be unable to make use of some of our technologies or distribute
our grafts.
WE DEPEND ON THE CONTINUED SERVICE OF A NUMBER OF OUR KEY EMPLOYEES, AND WE
FACE INTENSE COMPETITION FOR PERSONNEL.
We are highly dependent on the members of our management and scientific
staff, the loss of one or more of whom could have a material adverse effect on
us. In particular, we believe our success to be particularly dependent upon the
services of our Chief Executive Officer, James M. Grooms. In addition, we
believe that our future success will depend in large part upon our ability to
attract and retain highly skilled, scientific, managerial and manufacturing
personnel. We face significant competition for personnel from other companies,
research and academic institutions, government entities and other organizations.
We may not be successful in hiring or retaining the personnel we need and this
could adversely affect our business.
8
<PAGE>
WE MAY BE EXPOSED TO PRODUCT LIABILITY CLAIMS WHICH COULD NEGATIVELY IMPACT
OUR BUSINESS.
Our business entails an inherent risk of product liability claims, and
substantial product liability claims may be asserted against us. Although we
have not received any material product liability claims to date and have a
$20.0 million insurance policy to cover these claims should they arise, claims
could arise in the future for which our insurance will not be adequate.
Moreover, insurance covering our business may not always be available in the
future on commercially reasonable terms, if at all. In addition, successful
product liability claims made against one of our competitors could cause claims
to be made against us or expose us to a perception that we are vulnerable to
similar claims. Any product liability claim, if successful, could have a
detrimental effect on our financial condition. In addition, claims against us,
regardless of their merit or potential outcome, may also hurt our ability to
obtain surgeon endorsement of our allografts or to expand our business.
NEGATIVE PUBLICITY CONCERNING METHODS OF TISSUE RECOVERY AND SCREENING OF
DONOR TISSUE IN OUR INDUSTRY COULD REDUCE DEMAND FOR OUR ALLOGRAFTS AND IMPACT
THE SUPPLY OF AVAILABLE DONOR TISSUE.
Widespread market acceptance of our allografts may be limited by media
reports or other negative publicity concerning both improper methods of tissue
recovery from donors and the risk of disease transmission from donated tissue.
Unfavorable reports of illegal tissue recovery practices, both in the United
States and internationally, as well as incidents of improperly processed tissue
leading to transmission of disease, may broadly affect the rate of future tissue
donation and market acceptance of allograft technologies. Potential patients may
not distinguish between our allografts, technologies and the tissue recovery and
processing procedures we have in place, versus those of our competitors or
others engaged in tissue recovery. In addition, families of potential donors may
become reluctant to agree to donate tissue to "for profit" tissue processors.
Any adverse consequences resulting from tissue recovery or processing practices
could adversely affect patient acceptance of allografts as a tissue repair
treatment option, which could materially and adversely affect our business.
WE MAY NEED TO RAISE ADDITIONAL FUNDS TO OPERATE AND GROW OUR BUSINESS, AND
IF WE ARE UNABLE TO RAISE THESE FUNDS, OUR ABILITY TO EFFECT OUR GROWTH STRATEGY
COULD BE DISRUPTED.
We may need additional funds to operate our business and to pursue our
growth strategy. The extent of our future capital requirements and the adequacy
of available funds will depend on numerous factors, including:
- market acceptance of our existing and future allografts and tissue-based
technologies;
- progress in our efforts to develop new allografts and tissue-based
technologies;
- our success in commercializing technologies we have in development; and
- the development of strategic distribution alliances.
We may be required to obtain additional funds through equity or debt
financings, strategic alliances or other sources. The terms of any future equity
financings may be dilutive to our stockholders and the terms of any debt
financings likely will contain restrictive covenants that limit our ability to
pursue particular courses of action, including paying dividends. Our ability to
obtain financing is dependent upon the status of our future business prospects,
as well as conditions prevailing in the capital markets. Additional sources of
financing may not be available to us on commercially reasonable terms, if at
all.
WE MAY NOT BE SUCCESSFUL IN EXPANDING OUR DISTRIBUTION ACTIVITIES INTO
INTERNATIONAL MARKETS.
We are seeking to expand our operations outside the United States. To date
we have limited experience operating internationally. In the year ended
December 31, 1999, international sales
9
<PAGE>
comprised approximately 2.6% of our net revenues. Our international operations
will be subject to a number of risks which may vary from the risks we face in
the United States, including:
- the need to obtain regulatory approvals in foreign countries before we can
offer our grafts and technologies for use;
- longer distribution-to-collection cycles, as well as difficulty in
collecting amounts owed to us;
- dependence on local distributors;
- limited protection of intellectual property rights;
- fluctuations in the values of foreign currencies; and
- political and economic instability.
If we are unable to effectively expand our operations in international
markets, our business strategy would be negatively impacted.
ANY ACQUISITIONS WE MAKE WILL CAUSE US TO INCUR A VARIETY OF COSTS AND MAY
POTENTIALLY EXPOSE US TO ADDITIONAL RISKS.
We may consider acquiring other businesses or technologies that we believe
are a strategic fit with our business. If we do make acquisitions, we could:
- issue equity securities which could be dilutive to our stockholders;
- incur substantial debt; or
- assume contingent liabilities or liabilities of which we may be unaware at
the time we make the acquisition or which may be larger than we believed.
In addition, we may have difficulty integrating the personnel, operations or
technologies we acquire, which could disrupt our business, distract our
management and employees, and increase our operating expenses. Future
acquisitions also might negatively impact our strategic distribution alliances.
OUR INDUSTRY IS SUBJECT TO GOVERNMENT REGULATIONS WHICH CAN SIGNIFICANTLY
IMPACT OUR BUSINESS.
Some aspects of our business are subject to local, state, federal or
international regulation. Changes in the laws or new interpretations of existing
laws could negatively affect our business, revenues or prospects, and increase
the costs associated with conducting our business. In particular, the
procurement and transplantation of allograft tissue is subject to federal
regulation under the National Organ Transplant Act, or NOTA, a criminal statute
that prohibits the purchase and sale of human organs, including bone and other
tissue. NOTA permits the payment of reasonable expenses associated with the
transportation, processing, preservation, quality control and storage of human
tissue, which are the types of services we perform. If in the future NOTA were
amended or interpreted in a way that makes us unable to include some of these
costs in the amounts we charge our customers, it could adversely affect our
business. It is possible that more restrictive interpretations or expansions of
NOTA could be adopted in the future which could require us to change one or more
aspects of our method of operations, at a substantial cost, in order to continue
to comply with this statute.
We also are subject to a variety of local, state and federal government laws
and regulations relating to the storage, handling, generation, manufacture and
disposal of medical wastes from the production of our allografts. If we fail to
conduct our business in compliance with these laws and regulations, it could
subject us to significant liabilities, which could have a negative impact on our
financial results.
10
<PAGE>
IF THIRD PARTY PAYORS FAIL TO PROVIDE APPROPRIATE LEVELS OF REIMBURSEMENT
FOR THE USE OF OUR ALLOGRAFTS, OUR REVENUES WOULD BE ADVERSELY AFFECTED.
Our revenues depend largely on the reimbursement of patients' medical
expenses by government health care programs and private health insurers.
Governments and private insurers closely examine medical procedures
incorporating new technologies to determine whether the procedures will be
covered by payment, and if so, the level of payment which may apply. We cannot
be sure that third party payors will continue to reimburse us or provide payment
at levels which will be profitable to us.
CHANGES TO THE EXISTING HEALTHCARE INDUSTRY COULD LOWER THE AMOUNT WE ARE
PAID FOR OUR SERVICES, DECREASING OUR REVENUES.
Political, economic and regulatory influences are subjecting the healthcare
industry in the United States to fundamental change. Any new federal or state
legislation could result in significant changes in the availability, delivery,
pricing and payment for healthcare services and products. It is not possible to
predict whether any significant new healthcare legislation will have a negative
impact on our business. Any significant healthcare legislation, if adopted,
could have a material adverse effect on our business, financial condition and
results of operations.
OUR STOCK PRICE MAY DECLINE AFTER THIS OFFERING AND MAY BE VOLATILE IN THE
FUTURE.
The market for shares in newly public technology companies, particularly
medical device or biotechnology-related companies, is subject to extreme price
and volume fluctuations. These broad fluctuations may materially and adversely
affect the market price of our common stock. You may not be able to resell any
shares you buy from us at or above the initial public offering price due to a
number of factors, including:
- actual or anticipated fluctuations in our operating results;
- changes in investors' and securities analysts' expectations as to our
future financial performance or changes in financial estimates of
securities analysts;
- announcement of new allografts or product enhancements by us or our
competitors;
- technological innovations by us or our competitors;
- negative publicity concerning methods of tissue recovery and screening;
and
- the operating and stock price performance of comparable companies.
In addition, although our common stock will be quoted on the Nasdaq National
Market, an active trading market may not develop or sustain itself after this
offering.
OWNERSHIP OF OUR STOCK IS HEAVILY CONCENTRATED AND THESE STOCKHOLDERS WILL
CONTROL ALL MATTERS REQUIRING STOCKHOLDER APPROVAL.
After giving effect to this offering and assuming the full exercise of the
underwriters' over-allotment option, our directors, executive officers, and
stockholders holding greater than 5% of our common stock beneficially owned
approximately % of our outstanding common stock. As a result, these
stockholders are able to control all matters requiring stockholder approval,
including the election of directors and approval of significant transactions.
This concentration of ownership may also have the effect of delaying or
preventing a change in control of our company.
11
<PAGE>
PROVISIONS OF OUR GOVERNING DOCUMENTS AND DELAWARE LAW COULD DISCOURAGE
ACQUISITION PROPOSALS OR DELAY A CHANGE IN OUR CONTROL.
Our certificate of incorporation and by-laws contain anti-takeover
provisions, including those listed below, that could make it more difficult for
a third party to acquire control of us, even if that change in control would be
beneficial to stockholders:
- our board of directors has the authority to issue common stock and
preferred stock and to determine the price, rights and preferences of any
new series of preferred stock without stockholder approval;
- our board of directors is divided into three classes, with each class
serving staggered three-year terms;
- supermajority voting is required to amend key provisions of our
certificate of incorporation and by-laws;
- there are limitations on who can call special meetings of stockholders;
- stockholders may not take action by written consent; and
- advance notice is required for nominations of directors and for
stockholder proposals to be voted upon at stockholder meetings.
In addition, provisions of Delaware law and our stock option plans may also
discourage, delay or prevent a change of control of our company or unsolicited
acquisition proposals.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION AS TO THE USE OF PROCEEDS OF THIS
OFFERING.
Our management will have broad discretion as to how to use the net proceeds
of this offering. You will be relying on the judgment of our management
regarding the application of the proceeds of this offering. The results and
effectiveness of the use of the proceeds are uncertain.
YOU WILL INCUR IMMEDIATE DILUTION IN THIS OFFERING.
The initial public offering price of our common stock will be substantially
higher than the pro forma net tangible book value per share of our outstanding
shares of common stock immediately after this offering. Therefore, if you
purchase our common stock in this offering at the initial public offering price
of $ per share, you will incur immediate dilution of $ in
the net tangible book value per share from the price you pay for the shares you
purchase.
FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT THE MARKET PRICE OF
OUR COMMON STOCK.
Sales of our common stock in the public market following this offering could
adversely affect the market price of our common stock. Of the shares
that will be outstanding upon the closing of this offering:
- all of the shares offered under this prospectus will be freely tradable in
the public market;
- approximately additional shares may be sold after the expiration of
the 180-day lock-up agreements entered into by our officers, directors and
existing stockholders; and
- approximately additional shares may be sold upon the exercise
of stock options and warrants after the expiration of the 180-day lock-up
period.
12
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds to us from the sale of the shares of
common stock we are offering, after deducting underwriting discounts and
commissions and the estimated offering expenses payable by us, will be
approximately $ million, assuming an initial public offering price of
$ per share. We will not receive any proceeds from the sale of shares by
the selling stockholder. See "Underwriting."
We intend to use the net proceeds of this offering for continued research
and development, to construct and equip a new manufacturing facility, to
construct additional BioCleanse systems and other automated processing systems,
to expand our tissue recovery and distribution activities, and for general
corporate purposes, including working capital.
In addition, we may also use a portion of the net proceeds from this
offering to acquire businesses, assets, technologies or product lines that
complement our existing business if we could make these acquisitions on terms
which we deem to be favorable. Other than our acquisition of the tissue
processing and distribution business of Alabama Tissue Center immediately prior
to the closing of this offering, we do not have any commitments to make any
acquisition and have not allocated a specific amount of the net proceeds for
this purpose.
Our management will have significant flexibility in applying the net
proceeds of the offering. Pending any use as described above, we intend to
invest unused proceeds in short-term, interest-bearing investment-grade
instruments.
DIVIDEND POLICY
We have never declared nor paid any cash dividends on our capital stock. In
addition, our current credit facility restricts our ability to pay any dividends
and any future facility may contain similar restrictions. We currently
anticipate that we will retain any future earnings for the development and
operation of our business. Accordingly, we do not anticipate paying cash
dividends on our capital stock in the foreseeable future.
13
<PAGE>
CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table sets forth our capitalization as of December 31, 1999:
(1) on an actual basis; and (2) on an as adjusted basis to reflect the
conversion of our outstanding preferred stock into common stock and the sale of
the shares of common stock to be sold by us (assuming an initial public offering
price of $ per share) after deducting underwriting discounts and
commissions and other estimated offering expenses and the application of the
estimated net proceeds. This table should be read along with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and accompanying notes included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Long-term debt, including current portion................... $ 2,926 $
Stockholders' equity:
Series A preferred stock, $.001 par value, shares
authorized, issued and outstanding, actual; , as
adjusted................................................ 2
Series B preferred stock, $.001 par value, shares
authorized, issued and outstanding, actual; , as
adjusted................................................ 6,580
Series C preferred stock, $.001 par value, shares
authorized, issued and outstanding, actual; , as
adjusted................................................ 10,000
Preferred stock, $.001 par value, shares authorized;
none issued and outstanding, actual; 5,000,000 shares
authorized and none issued and outstanding, as
adjusted................................................
Common stock, $.001 par value, shares authorized and
shares issued, actual; shares issued, as
adjusted................................................ 1
Additional paid-in capital.................................. 447
Accumulated deficit......................................... (1,183)
Deferred compensation....................................... (400)
Due from stockholder-net of due to stockholder.............. (4)
Less treasury stock, shares, actual, as adjusted...... (6)
------- -------
Total stockholders' equity.................................. 15,437
------- -------
Total capitalization.................................... $18,363 $
======= =======
</TABLE>
The above information excludes:
- shares of our common stock subject to options granted under our Omnibus
Stock Option Plan and outstanding as of December 31, 1999 at a weighted
average exercise price of $ per share; and
- shares of our common stock reserved for issuance upon the exercise of
warrants outstanding as of December 31, 1999, at a weighted average
exercise price of $ per share.
14
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $ , or $ per share of common stock, after giving effect
to the conversion of all outstanding shares of preferred stock. Pro forma net
tangible book value per share is equal to the amount of our tangible net assets,
less total liabilities, divided by the pro forma number of shares of our common
stock outstanding as of December 31, 1999. After giving effect to the sale by us
of the shares of common stock offered hereby, assuming an initial public
offering price of $ per share, and the application of the net proceeds from
this offering, our pro forma net tangible adjusted book value at December 31,
1999 would have been approximately $ , or $ per share of our common
stock. This amount represents an immediate increase in our pro forma net
tangible book value of $ per share to existing stockholders and an
immediate dilution in net tangible book value of $ per share to new
investors in the offering. To the extent any of these options or warrants are
exercised, there will be further dilution to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at December
31, 1999................................................ $
Increase per share attributable to new investors..........
----
Pro forma net tangible book value per share after the
offering..................................................
----
Dilution per share to new investors......................... $
====
</TABLE>
If the underwriters' over-allotment option is exercised in full, our pro
forma as adjusted net tangible book value at December 31, 1999 would have been
approximately $ per share, representing an immediate increase in
net tangible book value of $ per share to existing stockholders and an
immediate dilution in net tangible book value of $ per share to new
investors.
The following table summarizes, on a pro forma basis as of December 31,
1999, the total number of shares of our common stock purchased from us, the
total consideration paid for these shares, and the average price per share paid
by our existing stockholders and by new investors purchasing shares in this
offering:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
------------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............................. % $ % $
New investors......................................
------ ----- ------ ------
Total............................................ 100.0% $ 100.0%
====== ===== ====== ======
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares of common stock held by our existing stockholders will be reduced to
approximately % of the total number of shares of our common stock to be
outstanding after this offering, and will increase the number of shares of our
common stock held by the new investors to shares, or approximately % of
the total number of shares of our common stock to be outstanding immediately
after this offering.
The above information excludes:
- shares of our common stock subject to options granted under our
Omnibus Stock Option Plan and outstanding as of December 31, 1999 at a
weighted average exercise price of $ per share; and
- shares of our common stock reserved for issuance upon the
exercise of warrants outstanding as of December 31, 1999 at a weighted
average exercise price of $ per share.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The statement of operations data set forth below for the period from
February 12, 1998, when we began operations, to December 31, 1998 and the year
ended December 31, 1999 and selected balance sheet data as of December 31, 1998
and 1999 have been derived from our consolidated financial statements, which
have been audited by Deloitte & Touche LLP, independent auditors. The selected
financial data in the table below should be read along with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
our consolidated financial statements and accompanying notes included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12, 1998 YEAR ENDED
TO DECEMBER 31, 1998 DECEMBER 31, 1999
-------------------- -----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues from core operations:
Fees from tissue distribution............................ $31,892 $70,783
Other revenues from core operations...................... 3,365 2,237
------- -------
Total revenues........................................... 35,257 73,020
Management services fees................................... 24,129 39,994
------- -------
Net revenues............................................. 11,128 33,026
Cost of processing and distribution........................ 9,845 19,172
------- -------
Gross profit............................................. 1,283 13,854
Expenses:
Marketing, general and administrative.................... 3,987 9,740
Research and development................................. 1,472 1,675
------- -------
Total expenses........................................... 5,459 11,415
Operating (loss) income.................................... (4,176) 2,439
------- -------
Interest (expense) income:
Interest expense......................................... (153) (285)
Interest income.......................................... 187 187
------- -------
Total interest income (expense)--net..................... 34 (98)
------- -------
(Loss) income before income tax benefit.................... (4,142) 2,341
Income tax benefit......................................... -- 619
------- -------
Net (loss) income.......................................... $(4,142) $ 2,960
======= =======
Net (loss) income per common share--basic..................
Net (loss) income per common share--diluted................
Weighted average shares outstanding--basic.................
Weighted average shares outstanding--diluted...............
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,926 $ 7,536
Working capital............................................. (13) 14,052
Total assets................................................ 19,268 48,538
Long-term obligations....................................... 1,522 2,027
Total stockholders' (deficiency) equity..................... (1,431) 15,437
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a leader in the use of biologics and tissue-based innovations that
repair and promote the natural healing of human bone and other human tissues. We
are the largest U.S. processor and distributor of precision tooled allografts
both in terms of revenues and surgical procedures for the year ended
December 31, 1999. These allograft implants are used in surgical reconstruction,
bone healing and tissue repair, and are made from bone, cartilage, tendon,
ligament and other soft tissues recovered from cadaveric tissue donors primarily
through a national network of organ and tissue recovery agencies.
We were incorporated in 1997 as a wholly owned subsidiary of the University
of Florida Tissue Bank, Inc., or UFTB. We began operations on February 12, 1998
when UFTB contributed to us its allograft manufacturing and processing
operations, related equipment and technologies, distribution arrangements,
research and development activities and certain other assets in exchange for
shares of preferred stock. We also assumed various liabilities of UFTB that were
related to the transferred business. At approximately the same time, we sold
shares of preferred stock to a number of unrelated investors.
In addition, UFTB assigned to us various agreements to which it was party at
the time of the separation, including an agreement with Medtronic Sofamor Danek
under which that company was given the right to be the exclusive provider of
management services for our current line of allografts for use in spinal and
cranial medical procedures, including our bone dowels. Under this agreement, we
are required to pay Medtronic Sofamor Danek 70% of the amount charged for our
spinal allografts.
At approximately the time of our separation from UFTB, James M. Grooms, our
President and Chief Executive Officer and former officer of UFTB prior to our
separation from that entity, contributed his royalty rights in certain
intellectual property to us in exchange for shares of our preferred stock. We
recorded the assets acquired from UFTB and Mr. Grooms and the liabilities
assumed from UFTB at their historical cost basis since these were deemed to be
transactions between entities under common control.
On April 15, 1999, we entered into a Programs Transfer Agreement with UFTB
under which UFTB transferred to us its tissue recovery operations outside of
Florida and Georgia, conventional allograft distribution services, allograft
inventory, certain equipment and fixtures and its interest in agreements with
various tissue recovery programs in exchange for the offset of amounts owed to
us by UFTB. On April 15, 1999, we also entered into a Tissue Recovery Agreement
with UFTB under which UFTB functions as one of our tissue recovery agencies,
supplying to us the majority of the tissue it recovers.
On November 1, 1999, we acquired the net assets of Georgia Tissue
Bank, Inc. along with certain equipment owned by a director of Georgia Tissue
Bank. We financed this acquisition with a cash payment of $0.5 million and
promissory notes totaling $1.3 million. We recorded our acquisition of the net
assets of Georgia Tissue Bank under the purchase method of accounting.
On April 27, 2000, we entered into an agreement to acquire the tissue
processing and distribution business of Alabama Tissue Center. Under that
agreement, we are obligated to pay the seller $3.5 million in shares of our
common stock, valued at a price equal to the initial public offering price, and
$0.3 million in cash, with the possible payment of an additional $0.3 million in
cash if specified milestones are achieved by the acquired business following the
acquisition. If our initial public offering is not consummated, we are not
obligated to consummate the acquisition.
All of our operations are located in the United States, although we
distribute our allografts to customers both within and outside the United
States. In 1999, 97.4% of our net revenues were from
17
<PAGE>
domestic tissue distribution compared to 100% of our net revenues in 1998. We
expect the portion of our net revenues attributable to international operations
will increase in the future.
In general, tissue recovery rates increase during the month of March and
decrease during the month of August. Although this seasonality in tissue
recovery affects the availability of donor tissue during these periods, it
historically has not affected our ability to continue processing available donor
tissue or supply needed allografts. We attempt to manage our business so that
these short-term reductions in donor tissue recoveries do not affect the
quarterly results of our business.
RESULTS OF OPERATIONS
The following table sets forth, in both dollars and as a percentage of net
revenues, the results of our operations for the periods indicated:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12, 1998 YEAR ENDED
TO DECEMBER 31, 1998 DECEMBER 31, 1999
STATEMENT OF OPERATIONS DATA: --------------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues from core operations:
Fees from tissue distribution....................... $31,892 $70,783
Other revenues from core operations................. 3,365 2,237
------- -------
Total revenues........................................ 35,257 73,020
Management services fees.............................. 24,129 39,994
------- -------
Net revenues.......................................... 11,128 100.0% 33,026 100.0%
Costs of processing and distribution.................. 9,845 88.5 19,172 58.1
------- ----- ------- -----
Gross profit.......................................... 1,283 11.5 13,854 41.9
------- ----- ------- -----
Expenses:
Marketing, general and administrative............... 3,987 35.8 9,740 29.5
Research and development............................ 1,472 13.2 1,675 5.1
------- ----- ------- -----
Total expenses........................................ 5,459 49.0 11,415 34.6
------- ----- ------- -----
Operating (loss) income............................... (4,176) (37.5) 2,439 7.3
------- ----- ------- -----
Interest (expense) income:
Interest expense.................................... (153) (1.4) (285) (0.9)
Interest income..................................... 187 1.7 187 0.6
------- ----- ------- -----
Total interest income (expense)--net.................. 34 0.3 (98) (0.3)
------- ----- ------- -----
(Loss) income before income tax benefit............... (4,142) (37.2) 2,341 7.0
Income tax benefit.................................... -- -- 619 1.9
------- ----- ------- -----
Net (loss) income..................................... $(4,142) (37.2)% $ 2,960 8.9%
======= ===== ======= =====
</TABLE>
18
<PAGE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO PERIOD ENDED DECEMBER 31, 1998
AMOUNTS STATED BELOW FOR THE PERIOD ENDED DECEMBER 31, 1998 INCLUDE ONLY
APPROXIMATELY TEN AND ONE-HALF MONTHS OF OPERATIONS, COMPARED TO A FULL
12 MONTHS FOR THE YEAR ENDED DECEMBER 31, 1999.
TOTAL REVENUES. Our total revenues increased by $37.7 million, or 106.8%,
to $73.0 million for the year ended December 31, 1999 from $35.3 million for the
period ended December 31, 1998.
Fees from tissue distribution increased by $38.9 million, or 121.9%, to
$70.8 million for the year ended December 31, 1999 from $31.9 million for the
period ended December 31, 1998. The increase in fees from tissue distribution
was due largely to an increase of $26.7 million in revenues from the
distribution of our spinal allografts, an increase of $8.0 million from the
distribution of conventional tissue and an increase of $4.2 million from the
distribution of other precision tooled allografts. The increase in our revenues
from spinal allografts was due primarily to our introduction of three new spinal
allografts in late 1998. Conventional tissue revenues increased due to our
assumption of UFTB's conventional tissue distribution business in April 1999. Of
the increase in our revenues from precision tooled allografts, $3.6 million was
related to the introduction of five new allografts in 1998, and $0.6 million was
related to the introduction of four new allografts in 1999.
Other revenues from core operations, which consist of tissue processing
fees, biomedical laboratory fees and manufacturing royalties, decreased by
$1.2 million, or 33.5%, to $2.2 million for the year ended December 31, 1999
from $3.4 million for the period ended December 31, 1998. This decrease was due
largely to a reduction during 1999 of processing fees from UFTB as a result of
our assumption of their conventional tissue distribution business in April 1999
rather than continuing to process its conventional tissue for a fee.
MANAGEMENT SERVICES FEES. Management services fees, which consist of
amounts paid to Medtronic Sofamor Danek for distribution of our allografts for
which they provide management services, increased by $15.9 million, or 66.0%, to
$40.0 million for the year ended December 31, 1999 from $24.1 million for the
period ended December 31, 1998. The increase in the absolute amount of these
fees was due to the greater revenues generated through the management services
of Medtronic Sofamor Danek. As a percentage of total revenues, however, these
fees decreased from 68.4% for the period ended December 31, 1998 to 54.8% for
the year ended December 31, 1999. This decrease in management fees as a
percentage of total revenues was attributable to a decrease in the management
services fee payable by us on certain of our allografts from 80% to 70% during
the first quarter of 1999. In addition, an increase in distribution of our
non-spinal allografts, for which we do not pay a management services fee,
contributed to the reduction in management services fees as a percentage of
total fees.
NET REVENUES. Our net revenues increased by $21.9 million, or 197.3%, to
$33.0 million for the year ended December 31, 1999 from $11.1 million for the
period ended December 31, 1998. As a percentage of total revenues, our net
revenues increased from 31.6% for the period ended December 31, 1998 to 45.2%
for the year ended December 31, 1999. This increase was due mainly to the impact
of distribution of our non-spinal allografts, for which we do not pay management
services fees.
COSTS OF PROCESSING AND DISTRIBUTION. Costs of processing and distribution
increased by $9.4 million, or 95.9%, to $19.2 million for the year ended
December 31, 1999 from $9.8 million for the period ended December 31, 1998. As a
percentage of net revenues, however, these costs decreased from 88.5% for the
period ended December 31, 1998 to 58.0% for the year ended December 31, 1999.
This reduction was attributable primarily to improvements in processing
efficiencies achieved through our introduction of automated processing
machinery, as well as efficiencies associated with increased volume. In
addition, the increase in our net revenues due to reduced management services
fees payable by us, also resulted in a reduction of the percentage of our net
revenues attributable to costs of processing and distribution.
19
<PAGE>
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses increased by $5.7 million, or 142.3%, to $9.7 million
for the year ended December 31, 1999 from $4.0 million for the period ended
December 31, 1998. Contributing to this increase was an increase of
$1.1 million in marketing and direct distribution payroll expense, as well as an
increase of $0.7 million in administrative expenses to support the growth of our
business. Also contributing to the increase was a $0.7 million increase in
facilities expense during 1999 as we went from leasing one building at the
beginning of 1998 to two buildings in the last quarter of 1998. Other cost
increases included an increase in distributor commissions, primarily on
conventional tissue, of $1.2 million, increased depreciation expense of $0.4
million, increased royalties on conventional tissue of $0.3 million and
increased professional fees and travel related expenses of $0.9 million to
support our distribution and marketing efforts. As a percentage of net revenues,
marketing, general and administrative expenses decreased from 35.8% for the
period ended December 31, 1998 to 29.5% for the year ended December 31, 1999.
This decrease was due to our net revenues rising without a commensurate increase
in marketing, general and administrative expenses.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $0.2 million, or 13.3%, to $1.7 million for the year ended
December 31, 1999 from $1.5 million for the period ended December 31, 1998. This
increase was due largely to the hiring of additional personnel to develop new
allografts and technologies. All research and development costs are expensed as
incurred. As a percentage of net revenues, research and development expenses
decreased from 13.2% for the period ended December 31, 1998 to 5.1% for the year
ended December 31, 1999. This decrease was due to our net revenues rising
without a commensurate increase in research and development expenses.
INTEREST INCOME AND EXPENSE--NET. Net interest expense for the year ended
December 31, 1999 was $98,000 compared to net interest income of $34,000 for the
period ended December 31, 1998. The increase in the amount of interest we paid
was due largely to borrowings under our line of credit facility entered into
during 1999, as well as interest paid on a number of capital leases entered into
during 1999.
INCOME TAX BENEFIT. In 1998 we recorded a valuation allowance with respect
to a deferred tax asset since we believed at the time that it was unlikely to be
realized. In 1999, as a result of achieving positive net income for that year,
this valuation allowance was reversed resulting in an income tax benefit of $0.6
million for 1999.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following tables present unaudited quarterly statement of operations
data in both dollars and as percentages of net revenues for each of the quarters
for the fiscal periods ended December 31, 1998 and 1999. This information is
unaudited, but in our opinion has been prepared substantially on the same basis
as the audited consolidated financial statements which appear elsewhere in this
prospectus. All necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts to present fairly the unaudited
quarterly results. You should read the quarterly data presented below in
conjunction with our consolidated financial statements and the accompanying
notes appearing elsewhere in this prospectus. You should not view the results of
operations for any quarter as an indication of the results of operations for any
future period.
20
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
PERIOD ENDED --------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
------------ -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues from core
operations:
Fees from tissue
distribution............. $4,345 $8,696 $ 8,794 $10,057 $13,901 $16,273
Other revenues from core
operations............... 713 977 897 778 919 468
------ ------ ------- ------- ------- -------
Total revenues........... 5,058 9,673 9,691 10,835 14,820 16,741
Management services fees..... 3,319 6,698 6,685 7,427 8,617 8,845
------ ------ ------- ------- ------- -------
Net revenues............... 1,739 2,975 3,006 3,408 6,203 7,896
Costs of processing and
distribution............... 956 2,467 2,791 3,631 4,398 4,592
------ ------ ------- ------- ------- -------
Gross profit............. 783 508 215 (223) 1,805 3,304
------ ------ ------- ------- ------- -------
Expenses:
Marketing, general and
administrative........... 410 861 1,118 1,598 1,673 2,346
Research and development... 157 328 484 503 376 465
------ ------ ------- ------- ------- -------
Total expenses........... 567 1,189 1,602 2,101 2,049 2,811
------ ------ ------- ------- ------- -------
Operating income (loss)...... 216 (681) (1,387) (2,324) (244) 493
------ ------ ------- ------- ------- -------
Interest (expense) income:
Interest expense........... (20) (37) (36) (60) (57) (56)
Interest income............ -- 64 57 66 67 23
------ ------ ------- ------- ------- -------
Total interest (expense)
income-net............. (20) 27 21 6 10 (33)
------ ------ ------- ------- ------- -------
Income (loss) before income
tax (expense) benefit...... 196 (654) (1,366) (2,318) (234) 460
Income tax (expense)
benefit.................... -- -- -- -- (62) 121
------ ------ ------- ------- ------- -------
Net income (loss)............ $ 196 $ (654) $(1,366) $(2,318) $ (296) $ 581
====== ====== ======= ======= ======= =======
<CAPTION>
QUARTER ENDED
----------------------------
SEPTEMBER 30, DECEMBER 31,
1999 1999
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues from core
operations:
Fees from tissue
distribution............. $18,938 $21,671
Other revenues from core
operations............... 426 424
------- -------
Total revenues........... 19,364 22,095
Management services fees..... 10,682 11,850
------- -------
Net revenues............... 8,682 10,245
Costs of processing and
distribution............... 4,725 5,457
------- -------
Gross profit............. 3,957 4,788
------- -------
Expenses:
Marketing, general and
administrative........... 2,693 3,028
Research and development... 580 254
------- -------
Total expenses........... 3,273 3,282
------- -------
Operating income (loss)...... 684 1,506
------- -------
Interest (expense) income:
Interest expense........... (76) (96)
Interest income............ 4 93
------- -------
Total interest (expense)
income-net............. (72) (3)
------- -------
Income (loss) before income
tax (expense) benefit...... 612 1,503
Income tax (expense)
benefit.................... 162 397
------- -------
Net income (loss)............ $ 774 $ 1,900
======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
PERIOD ENDED --------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
------------ -------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF NET REVENUES:
Net revenues................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of processing and
distribution............... 55.0 82.9 92.8 106.5 70.9 58.2
----- ----- ----- ----- ----- -----
Gross profit............. 45.0 17.1 7.2 (6.5) 29.1 41.8
Expenses:
Marketing, general and
administrative........... 23.6 28.9 37.2 46.9 27.0 29.7
Research and development... 9.0 11.1 16.1 14.8 6.0 5.9
----- ----- ----- ----- ----- -----
Total expenses........... 32.6 40.0 53.3 61.7 33.0 35.6
----- ----- ----- ----- ----- -----
Operating income (loss)...... 12.4 (22.9) (46.1) (68.2) (3.9) 6.2
----- ----- ----- ----- ----- -----
Interest (expense) income:
Interest expense........... (1.1) (1.2) (1.2) (1.7) (0.9) (0.7)
Interest income............ -- 2.1 1.9 1.9 1.0 0.3
----- ----- ----- ----- ----- -----
Total interest (expense)
income-net............. (1.1) 0.9 0.7 0.2 0.1 (0.4)
----- ----- ----- ----- ----- -----
Income (loss) before income
tax (expense) benefit...... 11.3 (22.0) (45.4) (68.0) (3.8) 5.8
Income tax (expense)
benefit.................... -- -- -- -- (1.0) 1.5
----- ----- ----- ----- ----- -----
Net income (loss)............ 11.3% (22.0)% (45.4)% (68.0)% (4.8)% 7.3%
===== ===== ===== ===== ===== =====
<CAPTION>
QUARTER ENDED
----------------------------
SEPTEMBER 30, DECEMBER 31,
1999 1999
------------- ------------
<S> <C> <C>
PERCENTAGE OF NET REVENUES:
Net revenues................. 100.0% 100.0%
Costs of processing and
distribution............... 54.4 53.3
----- -----
Gross profit............. 45.6 46.7
Expenses:
Marketing, general and
administrative........... 31.0 29.6
Research and development... 6.7 2.4
----- -----
Total expenses........... 37.7 32.0
----- -----
Operating income (loss)...... 7.9 14.7
----- -----
Interest (expense) income:
Interest expense........... (0.9) (0.9)
Interest income............ 0.0 0.9
----- -----
Total interest (expense)
income-net............. (0.9) (0.0)
----- -----
Income (loss) before income
tax (expense) benefit...... 7.0 14.7
Income tax (expense)
benefit.................... 1.9 3.9
----- -----
Net income (loss)............ 8.9% 18.6%
===== =====
</TABLE>
21
<PAGE>
Our quarterly operating results have fluctuated significantly since we began
operations. One of the primary reasons for these fluctuations is our historical
and current dependence upon our MD-Series Threaded Bone Dowels. In an effort to
smooth these fluctuations, we have attempted to diversify the allografts we
offer, including the introduction of eight new allografts during 1998. While
these new allografts accounted for only $2.9 million of total revenues during
1998, they accounted for $31.3 million of the $37.7 million increase in our 1999
total revenues. Also accounting for a portion of the increase in our total
revenues for 1999 was an increase of $8.0 million in conventional tissue
revenues when we assumed UFTB's conventional tissue processing business in
April 1999.
Our revenue diversification efforts also favorably impacted our gross profit
as a percentage of net revenues, which increased from 11.5% of our net revenues
in 1998 to 41.9% in 1999. Adding to this impact was a decrease in the first
quarter of 1999 in the management services fees we are required to pay to
Medtronic Sofamor Danek for certain of our spinal allografts from 80% to 70%.
The impact of this decrease was an effective increase in the net revenues from
each allograft distributed through that company without any change in direct
costs. Also increasing our 1999 gross margin was an increase in distribution of
our bone paste allografts for the spinal market, which bear lower management
services fees.
In order to permit the expansion of our business and increase revenues, we
incurred additional manufacturing costs and material usage in the fourth quarter
1998. The result of these activities was a negative gross margin of $0.2 million
or 6.5% of net revenues during the fourth quarter of 1998. These additional
costs included higher payroll costs of approximately $0.2 million due to the
hiring of additional personnel and approximately $0.3 million for additional lab
testing, packaging and tools and equipment. We also incurred higher material
costs of $0.4 million due to higher material usage during the early phases of
production.
In addition to the higher manufacturing costs incurred in the fourth quarter
of 1998, we also hired additional marketing, distribution and administrative
staff in the second through fourth quarters of 1998 to support the anticipated
growth in our business. These staff increases and related costs contributed to
our operating losses in the second through fourth quarters of 1998 and the first
quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since we began operations, we have financed our operations primarily through
our sale of preferred stock, totaling $6.4 million in net proceeds in 1998 and
$10.0 million in net proceeds in 1999.
Our net cash used in operating activities increased by $9.9 million to
$6.5 million for the year ended December 31, 1999 from net cash provided by
operating activities of $3.4 million for the period ended December 31, 1998.
This increase was largely due to the payment of a $4.5 million non-refundable
fee by Medtronic Sofamor Danek during 1998 related to our agreement with that
company and an increase in our working capital of approximately $5.5 million for
the year ended December 31, 1999. For accounting purposes, we deferred the
$4.5 million fee we received from Medtronic Sofamor Danek and we are recognizing
it on a straight-line basis over the 20 year life of the agreement.
Our net cash used in investing activities increased by $1.0 million to
$2.9 million for the year ended December 31, 1999 from $1.9 million for the
period ended December 31, 1998. This increase was due primarily to the $0.5
million we paid for our acquisition of the net assets of Georgia Tissue Bank,
plus an increase of $0.5 million in the amount paid for the purchase of
property, plant and equipment during 1999. During the year ended December 31,
1999, $0.8 million of cash was used in the purchase of property, plant and
equipment largely related to our BioCleanse processing facility.
Net cash provided by financing activities increased by $10.6 million to
$13.0 million for the year ended December 31, 1999 from $2.4 million for the
period ended December 31, 1998. This increase
22
<PAGE>
was due primarily to the $10.0 million in net proceeds we realized from our sale
of preferred stock during 1999, $2.8 million in net borrowings under our line of
credit facility, and $0.7 million in proceeds due from a stockholder. In 1998,
we received $6.6 million of proceeds from our sale of preferred stock and
financed $3.8 million in receivables from UFTB. Our line of credit facility
permits us to borrow up to $6.0 million on a revolving basis and is
collateralized by our accounts receivable. This line of credit facility expires
in September 2000. As of December 31, 1999, we had excess borrowing capacity of
approximately $3.2 million under this facility.
On March 30, 2000, we purchased the buildings and land that we currently
occupy, plus an additional 20.8 acres of land for future expansion. The purchase
price for the two buildings and 6.2 acres on which they are situated was
$3.6 million, with the additional parcel of land costing approximately
$0.6 million. In order to finance the purchase, we entered into a 20-year term
loan in the amount of $2.8 million, collateralized by the property. The
remainder of the purchase price was financed with a portion of the proceeds from
our sale of preferred stock during 1999. We continue to lease approximately
18,000 square feet of space in buildings adjacent to those we purchased and
8,800 square feet of warehouse space.
We currently believe that the net proceeds from this offering, cash from
operations and our existing cash and cash equivalents will be sufficient to meet
our anticipated cash requirements for at least the next 12 months. The
completion of one or more acquisitions by us could affect our need for capital.
IMPACT OF INFLATION
Inflation generally affects us by increasing our cost of labor, equipment
and processing tools and supplies. We do not believe that the relatively low
rates of inflation experienced in the United States since the time we began
operations has had any material effect on our business.
INTEREST RATE RISK
We are subject to market risk from exposure to changes in interest rates
based upon our financing, investing and cash management activities. We use a
balanced mix of debt maturities along with both fixed-rate and variable-rate
debt to manage its exposure to changes in interest rates. We do not expect
changes in interest rates to have a material adverse effect on our income or our
cash flows in 2000. However, we cannot assure you that interest rates will not
significantly change in 2000.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES--DEFERRAL OF EFFECTIVE DATE OF FASB STATEMENT NO. 133.
SFAS No. 137 defers for one year the effective date of SFAS No. 133, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The rule now will apply to
all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS
No. 137 permits early adoption as of the beginning of any fiscal quarter after
its issuance. SFAS No. 133 will require us to recognize all derivatives on our
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, of firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings. We
have not completed our evaluation of the impact of SFAS No. 133, if any, on our
consolidated financial statements.
23
<PAGE>
BUSINESS
INDUSTRY OVERVIEW
Defects in bone and other human tissue can be caused by a variety of sources
including trauma, congenital defect, infectious disease, cancer and other
disease conditions. The prevalent method used by surgeons to repair and promote
the healing of defective tissue is surgery, principally through the use of
surgical implants. When considering a surgical procedure for tissue repair,
surgeons and patients face a number of treatment options including metals and
synthetics, "autograft" tissue, "allograft" tissue and "xenograft" tissue. An
autograft procedure is one in which the surgeon harvests tissue from one part of
a patient's body for transplant to another part of the body to make the needed
repair. In an allograft procedure, tissue is recovered from a cadaveric donor
and is then transplanted into the patient's body to make the repair. Procedures
using xenograft tissue, while not widely used in the United States other than
for heart valves, involve recovering animal tissue, typically bovine or porcine,
which is then transplanted into the patient's body.
The overall market in the United States for tissue repair and healing
through the use of surgical implants, including metals, synthetics, and
allografts, has grown considerably over the last several years, with revenues in
the orthopedic and cardiovascular segments of this market exceeding
$6.4 billion in 1999. In these segments, procedures using allografts, either
conventional graft, bone paste, or specialty tooled tissues, totaled over
310,000 during 1999, accounting for revenues of over $410.0 million.
Processors of tissue supply allografts consisting of bone tissue and various
soft tissues, including cardiovascular and connective tissues, to hospitals and
surgeons for use in surgery. The need for tissue is increasing each year and
currently is being served by approximately 30 tissue banks in the United States
that process and/or distribute bone or cardiovascular allografts. We believe
there will continue to be an increase in the use of surgical implants for repair
and healing, and in particular allograft implants. These reasons include:
- the aging of the baby boom generation will result in a greater percentage
of the population requiring tissue repair products;
- as life expectancies increase overall, the need for tissue repair products
will increase;
- as patients and their families become increasingly proactive in
determining the nature of the health care they receive and as they
increasingly use the Internet to research health care alternatives,
pressure will increase on medical providers for more natural healing
alternatives;
- continuing emphasis placed on health and fitness in our society will
continue to drive the growth of sports medicine-related tissue repair and
tissue healing;
- increasing awareness of the safety and benefits of allografts will
increase the acceptance of allografts by surgeons and patients; and
- as the federal and state governments continue to promote organ and tissue
donation, more allograft tissue will become available.
TISSUE REPAIR TREATMENT OPTIONS
METALS AND SYNTHETICS. Historically, the medical community turned to metals
and other synthetics for implant procedures, in part because they can be
precision tooled for specific uses within the body. These metal and synthetic
implants also can be designed for use with instrument sets designed specifically
for the implant procedure. This permits faster and more precise surgeries, with
the patient spending less time on the operating table, and allows the surgeon to
use a uniform process that can be repeated easily.
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<PAGE>
Metal and synthetic technologies, however, have several shortcomings. One of
the principal drawbacks to the use of these materials is that they do not
promote bone "remodeling." As part of normal skeletal growth and maintenance,
human bones renew themselves by a continual process of breakdown and build-up
known as "remodeling," the same process involved in the natural healing of
fractures. Metal is stiffer than bone and its use in orthopedics can cause
"stress shielding," where the bone adjoining the metal does not remodel densely
enough and becomes weak and fragile or disappears altogether. This problem can
be of particular concern to elderly patients, who are more likely to suffer from
osteoporosis. Also, a small percentage of patients display sensitivity to
certain kinds of metals, such as nickel. Additionally, a number of synthetics
tend to break down in the body and slowly drift from their initial implant
position. Finally, metal pins and screws used in sports medicine procedures and
small bone repairs have a number of significant disadvantages including a
potentially painful removal process, uncertainty over the long-term consequences
of a hard metal implant adjacent to joints, and tissue inflammation due to metal
particulate debris.
XENOGRAFT. While used in other parts of the world, including Europe, the
use of xenograft, or animal tissue, is not prevalent in the United States other
than for heart valve replacements. One of the reasons for this is a higher risk
of immune system response to implanted xenograft tissue due principally to the
greater difficulty in cleansing the tissue, prior to implant, of all the
substances that can cause an immune response. An additional reason for limited
use of xenograft tissue in the United States is the perceived risk of disease
transmission. One area, however, in which the use of xenograft tissue within the
United States is prevalent is in the cardiovascular market. This is due mainly
to its long accepted use in this market and the reduced difficulty in cleaning
this particular type of tissue due to its thinness.
AUTOGRAFT AND ALLOGRAFT. In order to overcome the drawbacks to the use of
metals, other synthetics and xenograft tissue, surgeons have increasingly turned
to autograft and allograft procedures. Autografts and allografts, in contrast to
metals and synthetics, are not only "osteoconductive," meaning they provide a
scaffold for new bone to attach itself to, but can be "osteoinductive" as well,
meaning they stimulate the growth of new bone. Historically, however, allograft
and autograft procedures were not as easy to perform as procedures using metals
and other synthetics since grafting procedures often required the surgeon to
shape the tissue by hand, using standard operating room instruments prior to
implanting the tissue. This requirement generally increases the amount of time
required to be spent in surgery.
In addition to a lack of pre-tooling, another drawback to autograft
procedures is that they require an additional and potentially dangerous surgery
to harvest the tissue from a second site on the patient's body. In approximately
20% of autograft procedures, morbidity complications arise at the harvest site,
with one out of four of these considered serious. Additional possible
complications involved with autograft procedures include infection, pain, nerve
and arterial injury, joint instability and hernia. Moreover, a patient may not
have sufficient quantities of quality autograft tissue in other parts of his or
her body available for transplant, a particular problem for elderly patients,
who are more likely to suffer from osteoporosis which can compromise the quality
of autograft tissue transplanted. Balanced against these disadvantages is the
belief among some surgeons that a patient's own bone will remodel better than
allograft, as well as lingering concern over the safety of allograft.
Since the introduction of modern, precision tooled processed allograft
implants, however, more surgeons are turning to allograft procedures to treat
musculo-skeletal and other tissue defects. Among the reasons for this shift are
that patients can enjoy the benefits of an implant that promotes bone growth and
better healing without having to undergo the potentially risky second surgery to
obtain autograft tissue for transplant. In addition, surgeons increasingly
prefer allograft implants since, with the introduction of precision tooled
allografts and accompanying custom implant instrumentation, allograft implants
now share the same convenience and ease-of-use advantages as metals and
synthetics without the shortcomings. Also, concerns within the medical community
about the transmission of HIV
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<PAGE>
and other infectious diseases through the use of allograft largely have been
addressed and more surgeons now accept allograft as safe and effective. Finally,
patients and their families increasingly have become more proactive in
determining the nature of the healthcare they receive, due in part to the
availability of healthcare information on the Internet, and increasingly prefer
natural healing alternatives such as allograft.
An historical limitation within the tissue processing industry has been the
requirement that tissue processing be done using clean room technology on a
donor-by-donor basis in order to eliminate the risk of cross contamination of
other donor tissue potentially caused by the contaminated tissue from just one
donor. As a result, tissue processors are required to process donor tissue in a
labor intensive process requiring extensive use of custom machinery and tools to
create these allografts.
ALLOGRAFT MARKETS
The allograft market is limited by the supply of available cadaveric donor
tissue. Of the 3.6 million deaths that occurred during 1999 in the United
States, of which we believe 50% would have been eligible to donate, less than
0.4% actually resulted in donated tissue.
The allograft market can be broken down into a number of distinct segments,
including orthopedic, urological and cardiovascular. The following table
contains selected U.S. information for 1999 about the portions of these segments
that can be addressed through the use of allograft implants:
<TABLE>
<CAPTION>
TOTAL ALLOGRAFT ALLOGRAFT
MARKET PROCEDURES PROCEDURES REVENUES
- ------ ---------- ---------- --------------
<S> <C> <C> <C>
ORTHOPEDIC
Spinal Fusions..................................... 445,000 113,000 $226.0 million
Sports Medicine.................................... 870,000 52,000 $ 73.0 million
Oral-Maxillofacial................................. 67,900 15,000 $ 4.5 million
Conventional Tissue................................ 485,000 125,000 $ 66.0 million
UROLOGICAL(1)
Slings............................................. 250,000 37,000 $ 33.0 million
CARDIOVASCULAR(2)
Heart Valves....................................... 95,000 6,500 $ 41.0 million
</TABLE>
- ------------------------
(1) Data for 1998.
(2) Data for 1997.
ORTHOPEDIC MARKETS
The market for orthopedic tissue can be broken down into the following
distinct segments:
- Spinal Fusions. The spinal market includes approximately 6.0 million
people in the United States who seek treatment for back pain each year, of
which approximately 650,000 to 700,000 result in surgery. Of this number,
approximately 445,000 in 1999 resulted in a spinal fusion, approximately
90% of which included the use of an autograft or allograft implant.
Autograft or allograft implants are commonly used to induce fusion in
metal or bone spinal fusions. Surgeons also frequently use bone paste
allografts as part of these procedures. The U.S. market for spinal
fusions, including metals, synthetics, autograft and allograft, has grown
considerably over the last several years. Total revenues in the United
States for spinal fusions grew from approximately $484.6 million in 1997
to $735.7 million in 1999. Over the same period, the number of spinal
fusion procedures performed in the United States grew from approximately
312,000 in 1997 to approximately 445,000 in 1999. Of these 445,000
procedures, approximately 113,000 involved the use of an allograft
implant, accounting for approximately $226.0 million in revenues.
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<PAGE>
- Sports Medicine. The sports medicine market includes a number of
segments, including arthroscopy, powered shavers, soft goods, video
imaging and "procedure-specific" surgeries. The procedure-specific segment
of this market that can be addressed through the use of allograft implants
includes repairs to the anterior cruciate ligament, or ACL, rotator cuff,
labrum, meniscus, posterior cruciate ligament, small bone repair,
osteochondral repairs and wedge osteotomies. The number of procedures
performed in the United States in the arthroscopy and procedure-specific
segments of this market has grown from approximately 2.6 million in 1997
to over 3.0 million in 1999. The U.S. market for procedure-specific
surgeries in the sports medicine market that used an implant has grown at
a 6% average annual rate between 1997 and 1999. During 1999, there were
approximately 870,000 procedure-specific surgeries in the United States
that used an implant. Of these 870,000 procedures, approximately 52,000
involved the use of an allograft implant, accounting for approximately
$73.0 million in revenues. We believe a significant number of surgical
procedures which currently are treated only by abrasion or removal of soft
tissue could benefit from allograft technologies, including a portion of
the approximately 400,000 chondroplasty procedures performed in the United
States in 1999. Worldwide, the procedure-specific segment of the sports
medicine market grew from approximately $315.0 million in 1997 to
approximately $360.0 million in 1999.
- Oral-Maxillofacial. The oral-maxillofacial market includes surgeries of
the nose, face, jaw and mouth, including surgery for periodontal disease.
These surgeries typically are either cosmetic or to treat disease or
trauma. As with the sports medicine market, the aging population is
fueling growth in this market by increasing demand for bone pastes used in
jaw reconstruction and for support of dental implants as an alternative to
dentures. Total revenues in the United States from oral-maxillofacial
implants grew from approximately $195.0 million in 1997 to $224.0 million
in 1999. During 1999, approximately 67,900 oral-maxillofacial procedures
were performed in the United States, of which approximately 15,000
involved the use of an allograft implant, accounting for approximately
$4.5 million in revenues.
- Conventional Tissue. The conventional allograft market encompasses
tissues used in orthopedic surgery that have not been precision tooled and
for which custom surgical instrumentation does not exist. Uses of
conventional allograft include osteoarticular grafts for hip and knee
reconstruction, ground bone and bone chips for trauma and bone filler,
fashioned bone for various orthopedic procedures and soft tissue for
ligament repair. During 1999, approximately 485,000 procedures were
performed in the United States, of which approximately 125,000 involved
the use of an allograft implant, accounting for approximately
$66.0 million in revenues.
UROLOGICAL MARKET
The urological allograft market includes tissue implant procedures to treat
urinary incontinence, primarily among older women. Urinary incontinence is a
problem for more than 17 million Americans, approximately 85% of them women. A
widely used procedure for treatment of this condition is re-suspension of the
bladder neck with a "sling" of fibrous material. This sling can be made from
synthetic materials or from various natural tissues. During 1998, approximately
250,000 procedures made use of this sling technique in the United States, of
which approximately 37,000 involved the use of allograft implant, accounting for
approximately $33.0 million in revenues. Although urinary incontinence can be
improved in eight out of ten cases, less than half of those afflicted seek
treatment.
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<PAGE>
CARDIOVASCULAR MARKET
The cardiovascular allograft market includes transplantation of human heart
valves as an alternative to mechanical, synthetic or xenograft substitutes. An
estimated 349,000 heart valve and vascular graft procedures for which allograft
would be appropriate were performed in the United States in 1997, of which
95,000 were heart valve replacement procedures. Of the approximately 69,000
heart valve replacements for which more detailed data are available,
approximately 6,500, or 9.4%, were performed using allograft. Total revenues in
the United States from heart valve replacement procedures using allograft during
1997 totaled approximately $41.0 million.
COMPANY OVERVIEW
We are a leader in the use of biologics and tissue-based innovations that
are used to repair and promote the natural healing of human bone and other human
tissues. Using core human physiology--the basic biology of natural tissues as
they function in the body--our allografts are improving surgical outcomes. Our
goal is to replace conventional implant approaches, including metals, synthetics
and autograft implants, with allograft and for our allografts to become the
implant of choice for tissue repair. We are a leading worldwide provider of
comprehensive healing and biologic tissue products in a broad range of markets.
In addition we are the largest processor of precision tooled allografts in the
United States, with our allografts being distributed in all 50 states and in
nine countries internationally. We also continue to be one of the leading
processors of conventional allograft in the United States.
We process human musculoskeletal and other tissue, including bone,
cartilage, tendon, ligament, pericardial and cardiovascular tissue in producing
our allografts. These tissues are then used to repair and promote the healing of
a wide variety of bone and other tissue defects, including spinal vertebrae
repair, musculoskeletal reconstruction, fracture repair, periodontal repair,
urinary incontinence and heart valve disorders. Our current grafts range from
conventional allografts to precision tooled grafting material, including bone
dowels, wedges, pastes and pins, urological allografts and heart valves. During
1999, we shipped over 90,000 processed allografts, used in an estimated 60,000
procedures. Often, more than one allograft is used in a given procedure.
We have one of the most extensive tissue recovery programs in the United
States, recovering bone or cardiovascular tissue from over 4,000 human donors
during 1999, up from over 2,300 in 1998 and 1,500 in 1997. We believe our
network of recovery groups accounted for approximately 34% of the human tissue
recovered in the United States during 1999.
The following table outlines the markets we serve and the percentage of our
revenues, net of management services fees, from core operations during 1998 and
1999 for these markets:
<TABLE>
<CAPTION>
% OF OUR NET % OF OUR NET
REVENUES FROM REVENUES FROM
CORE OPERATIONS CORE OPERATIONS
MARKET DURING 1998 DURING 1999
- ------ --------------- ---------------
<S> <C> <C>
Spinal Fusions............................ 80.4% 55.5%
Sports Medicine........................... 2.9 8.2
Oral-Maxillofacial........................ 0.0 0.6
Conventional Tissue....................... 14.3 29.3
Urological Sling.......................... 2.4 6.4
</TABLE>
In addition, we will enter the cardiovascular market through our acquisition
of the tissue processing and distribution business of Alabama Tissue Center,
which had approximately $0.5 million in revenues during 1999.
We pursue a market-by-market approach to distribution of our allografts,
including strategic distribution arrangements in order to increase our
penetration of selected markets. We have an alliance
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<PAGE>
with Medtronic Sofamor Danek in the spinal market, with Exactech, Inc. in
portions of the non-spinal molded bone paste market, and with C.R. Bard, Inc. in
the urological market.
Using our proprietary, patent pending BioCleanse system, we believe we are
the only tissue processor currently able to safely process tissue from multiple
donors simultaneously. This system, which kills or inactivates all classes of
conventional pathogens, viruses, microbes, bacteria and fungi, and which
cleanses tissue both before and after processing, allows us to safely process
tissue from up to 100 donors at the same time thereby significantly increasing
the efficiency of tissue processing. In addition, our BioCleanse system is able
to remove blood, fats, lipids and cellular debris from the tissue we process
more successfully than traditional aseptic processing. We believe the removal of
all blood, fat, lipids and cellular debris results in faster patient healing
since it eliminates the need for the patient's body to remove these substances
using natural processes following surgery. In contrast to traditional aseptic
processing, our BioCleanse system also permits us to process tissue at lower
average cost, and to safely and economically process tissue from donors and age
groups that might not have been feasible without BioCleanse.
OUR STRATEGY
Our strategy is to be the leading worldwide provider of biologics and
tissue-based innovations that repair and promote the natural healing of human
bone and other tissue. The following are the key elements of our strategy:
CONTINUE PRODUCT INNOVATION TO CREATE NEW ALLOGRAFTS AND PROCEDURES. We
pioneered the development of precision-tooled allograft bone tissue implants. We
plan to continue to use this expertise to strengthen and build upon our existing
platform of allografts and procedures within our core markets, and to enter or
create new markets for our current and future allografts. We do this by
fostering innovation in our research personnel and product development staff. We
also set corporate goals that stimulate product innovation, such as launching at
least one new allograft every quarter within each of our markets.
IDENTIFY ADDITIONAL SURGICAL APPLICATIONS FOR OUR TECHNOLOGIES AND
PRODUCTS. While we intend to continue to introduce new grafts into our
traditional core markets of orthopedics, urology and cardiovascular, we also
intend to leverage our expertise in the area of biologic tissue implants to
develop new technologies and to enter new markets, including the application of
dermal allografts for reconstructive and cosmetic procedures. We plan to make
use of our existing infrastructure, including our extensive research and
development capabilities and sales and marketing infrastructure in order to
establish our presence in these growing markets. In addition, we plan to make
selective acquisitions in order to develop or expand our presence within
particular markets, such as our recent acquisition of the tissue processing and
distribution business of the Alabama Tissue Center which allowed us to enter the
cardiovascular market.
CONTINUE PROCESS INNOVATION TO ESTABLISH PRODUCT DIFFERENTIATION. We intend
to continue to reevaluate and enhance the processes we use in our business to
increase efficiency and maintain our competitive advantage. Our proprietary
BioCleanse system allows us to safely process, sterilize and virally inactivate
tissue from up to 100 donors at the same time. In addition to the efficiencies
and other advantages our BioCleanse technology permits, it also provides us with
a number of significant research and development advantages, including the
opportunity to infuse allografts with growth factor agents. Additionally, we
intend to continue to introduce greater automation into the processing of our
allografts in order to further enhance efficiencies and reduce processing costs.
EXPAND OUR EXTENSIVE TISSUE RECOVERY PROGRAM AND EMPLOY NEW TECHNOLOGIES TO
MAKE BETTER USE OF EXISTING TISSUE SUPPLY. We intend to continue our strategy
of entering into alliances with tissue sources to ensure continued growth of our
tissue availability and to introduce these sources to successful tissue
29
<PAGE>
recovery programs within our alliance to raise the level of tissue donation. We
also intend to make selective acquisitions, such as our recent acquisition of
Georgia Tissue Bank, to further enhance our tissue recovery efforts.
Additionally, we plan to expand our tissue recovery efforts internationally to
support our projected growth in those markets. We also seek to increase the
availability of donor tissue by further improving the efficiency of our tissue
processing procedures and by continuing our efforts to increase the level of
tissue donation. We will continue to instill in our employees and alliance
partners our philosophy of honoring the gift of tissue donation and using that
gift responsibly to help as many patients as possible. Finally, we plan to
augment the supply of human tissue through the use of alternative tissues, such
as bovine and porcine tissue.
EXPAND OUR SALES AND MARKETING CAPABILITIES. We believe a significant
opportunity exists to expand distribution of our grafts and technologies. We
intend to continue to expand our presence both domestically and internationally
by increasing the level of our sales and marketing activities, in the countries
in which we presently operate, as well as in additional countries. We plan to
continue to enter into new distribution relationships, expand existing
distribution relationships, and augment our internal sales and marketing
capabilities to enhance our penetration in the markets we serve. In addition, we
intend to continue to educate and support the medical community by creating an
Internet-based ordering and information system for surgeons. Traditional order
placement will remain in place but as e-commerce becomes increasingly important
within the medical community, we believe our on-line ordering system will
provide a fast and convenient venue for surgeon orders and information. The
level and detail of information made available through our Web site will be
adjusted based upon need thereby resulting in an on-line product which is
educational and useful to the medical community.
PRODUCTS AND PRODUCTS IN DEVELOPMENT
OVERVIEW
We process human musculoskeletal and other tissue, including bone,
cartilage, tendon, ligament, pericardial and cardiovascular tissue, in producing
our line of proprietary allografts. Our current tissues range from
conventionally processed bone and soft tissue to precision tooled bone implants,
soft tissue, urological allografts and heart valves. The service fees we charge
for our allografts vary extensively, ranging from a list fee of less than $200
to in excess of $7,000. Our most commonly used precision-tooled spinal
allografts have listed services fees ranging from approximately $1,000 to
$2,000. The following table summarizes our current allograft offerings in each
of the markets we serve, current distribution of these allografts and the
products and technologies we have in development:
30
<PAGE>
<TABLE>
<CAPTION>
PRODUCTS AND
TECHNOLOGIES IN
MARKET CURRENT ALLOGRAFTS CURRENT DISTRIBUTION DEVELOPMENT
- ------ ------------------ -------------------- ----------------------------
<S> <C> <C> <C>
ORTHOPEDICS
Spinal -MD-Series Threaded Bone -Medtronic Sofamor Danek -Demineralized and partially
Dowels demineralized cortical bone
-Cornerstone SR Wedge -Bovine versions of existing
-Tangent Cortical Bone Wedge precision tooled allografts
-Precision Cortical Bone
Wedge
Sports Medicine -Interference screws -Network of independent -Soft tissue tacks
-Pre-shaped bone-tendon-bone distributors -Non-frozen, viable
ligament osteochondral plugs
-Meniscus -Suture anchors
-Pins -Preshaped achilles and
quadricep tendons
-Ligament alternatives
-Soft threaded interference
screws
-Wedge used for knee re-
alignment
Bone Paste -Osteofil Injectable Bone -Pastes for spinal market -Bone pastes for use in
Paste through Medtronic Sofamor vertebroplasty
-Opteform Moldable Bone Paste Danek -Non-frozen injectable bone
-Osteofil ICM Bone Paste with -Other bone pastes through paste
cortical cancellous chips network of independent
distributors
-Certain pre-molded bone
forms through Exactech
Conventional Tissue -Frozen femoral heads -Network of independent -Pre-ground femoral heads
-Demineralized bone matrix distributors
-Cortical cancellous chips
and cancellous chips
-Fibular wedges
-Iliac crest wedges
-Bulk allograft segments
-Non precision tooled
ligaments and tendons
Oral-Maxillofacial -Regenafil Injectable Bone -Direct distribution -Demineralized plates for
Paste facial surgery
-Regenaform Moldable Bone -Orbital floor repair system
Paste -Regenaderm dermal membrane
-Pericardium membrane
OTHER MARKETS
Urological -FasLata Fascia Lata -C.R. Bard -Dermis-based urological
slings
-Soft tissue anchors
Cardiovascular -Heart valves -Network of independent -Pulmonic patches
distributors
</TABLE>
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<PAGE>
ORTHOPEDIC ALLOGRAFTS
SPINAL. Our principal spinal allografts are our patented MD-Series Threaded
Bone Dowels, our patent-pending Cornerstone SR Wedge, Tangent Cortical Bone
Wedge and patent-pending Precision Cortical Bone Wedge. These allografts, which
are precision machined, are eventually replaced by the patient's own bone
through the remodeling process, typically over a one- to two-year period. During
1999, we shipped more than 43,000 spinal allografts, excluding bone pastes,
which accounted for approximately $14.1 million of our net revenues.
Our MD-Series Threaded Bone Dowels are used by surgeons to help restore the
anatomical relationships between the disc, facet joints, vertebral bodies and
foramina. As a result of trauma, abnormal wear and tear, or the aging process,
damage or degenerative changes to the vertebral disc and facet joints may occur
and progress over time. Among other things, this can result in pinched nerves,
disc injury and severe pain. Several important features of our MD-Series dowels
assist in reestablishing spinal stability and reducing pain. First, our dowels
are threaded, providing rigid interface above and below the vertebral body,
allowing the surgeon to restore normal alignment and provide greater stability.
This alignment and stability following surgery contributes to reducing pain,
greater functionality and reduced risk of reoccurrence. Second, the cylindrical
shape of our dowels, together with accompanying threads, provides greater
surface area contact at the junction between our graft and the patient's bone,
thereby enhancing healing. Third, the pre-cut precision size and shape of each
graft helps in reducing surgical time. Evolving from our early smooth cortical
dowel, our present line of dowel allografts is suitable for higher load bearing
situations, making them more useful for areas such as the lumbar spine.
Our Cornerstone SR Wedge, as with our MD-Series dowels, is used in similar
cases in the cervical area of the spine, but is tapped in place, not threaded.
Our Tangent Cortical Bone Wedge and Precision Cortical Bone Wedge allografts are
also tapped or "impacted" in place. Both grafts are specially designed and
contoured to promote stability and minimize disruption of the posterior elements
of the spine.
We currently have several spinal allografts in development, including
demineralized and partially demineralized cortical bone for ligaments for use in
fixating the vertebral bodies following a spinal fusion surgery, as well as
bovine versions of existing precision tooled allografts.
SPORTS MEDICINE. Our product focus in the sports medicine market addresses
the highest volume procedures in sports medicine, primarily in the shoulder and
knee. Our principal sports medicine allografts are our patented interference
screws, patent-pending pre-shaped bone-tendon-bone ligaments, patent-pending
meniscus allografts and patent-pending pins. These grafts, used for the repair
of sports-related injuries such as a torn anterior cruciate ligament are
precision tooled to fit surgeons' requirements, allowing the surgeon to perform
the procedure without having to custom shape the implant material. Many of our
sports medicine allografts are designed for specific instrumentation, making
them easier and/or faster to implant. These grafts can also be osteoinductive,
meaning they promote the growth of new bone. During 1999, we shipped
approximately 2,500 sports medicine allografts, excluding bone pastes, which
accounted for approximately $0.3 million of our net revenues.
We currently have several sports medicine allografts in development,
including soft tissue tacks used for reconstruction of soft tissue tears such as
rotator cuff injuries, non-frozen osteochondral allografts used for repair of
articulating surfaces and joints, bone suture anchors used for securing sutures
to bone, pre-shaped achilles tendons and quadriceps tendons. We also are
developing ligament alternatives made from under-used tissue with demineralized
tissue technology for use as ligament and tendon replacements, as well as soft
threaded interference screws and wedges used for knee re-alignment. At the same
time, we are developing the customized instrumentation to be used by surgeons
implanting our sports medicine allografts.
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<PAGE>
BONE PASTE. Bone paste allografts, moldable and injectable, are principally
used in fracture treatment, bone and joint reconstruction and periodontal
applications. Our principal products in this market are our patent-pending
Osteofil Injectable Bone Paste and our patent-pending Opteform Moldable Bone
Paste, both of which are composed of demineralized bone matrix and biologic gel
carrier. Our Opteform Moldable Bone Paste and new patent-pending Osteofil ICM
Bone Paste also include cortical cancellous chips. Importantly, all of our bone
pastes are osteoinductive and every batch is tested for osteoinductivity before
release. In addition, our bone pastes are uniquely "sticky" and not water
soluble and therefore will not easily disperse or migrate within a patient's
body, a potential problem with other currently available bone pastes.
In addition, our Osteofil Injectable Bone Paste is dispensable through a
syringe, an advantage not shared by all bone pastes. Our bone pastes have a
gelatinous consistency which hardens at or below body temperature. Our Opteform
Moldable Bone Paste, which is pliable before hardening, is shaped in molded
forms useful for general orthopedic applications, typically hip and knee
replacements. During 1999, we shipped more than 19,000 bone paste allografts,
which accounted for approximately $5.2 million of our net revenues.
We currently have several bone paste allografts in development, including
pastes for the potential use in vertebroplasty, which is the repair of
degenerated vertebral bodies. We also are currently in the final stages of
development of bone pastes that can be stored and distributed at room
temperature and then mixed in the surgical arena, eliminating the need to keep
the material frozen prior to use.
CONVENTIONAL ALLOGRAFTS. Our conventional allograft business includes a
wide variety of allograft categories including our osteoarticular grafts, such
as our frozen femoral heads used for oncological procedures and hip and knee
reconstruction. We also produce certain types of blended and milled bone
allografts, such as our demineralized bone matrix, cortical cancellous chips and
ground cancellous chips, used in total hip and knee replacements and for various
trauma. Additionally, we produce various types of fashioned bone, such as our
fibular wedges and iliac crest wedges, used for various orthopedic procedures,
as well as various soft tissue implants used for ligament and articulating
surface repair, such as non-precision tooled ligaments and tendons.
This growing market is important to us since it allows us to make the best
possible use of the gift of tissue donation and allows us to convert a
significant portion of the conventional allografts we distribute into precision
tooled allografts. We currently have a pre-ground femoral head allograft in
development to be used in hip revision surgery. During 1999, we shipped more
than 16,000 conventional allografts, which accounted for approximately
$9.0 million of our net revenues.
ORAL-MAXILLOFACIAL ALLOGRAFTS. Our principal oral-maxillofacial products
are our patent-pending Regenafil Injectable Bone Paste, our patent-pending
Regenaform Moldable Bone Paste and our patent-pending pericardium membranes. Our
Regenafil and Regenaform bone pastes are similar to our Osteofil and Opteform
bone pastes. Our allografts have a number of uses in oral-maxillofacial
medicine, including use in procedures to rebuild portions of the jaw to permit
the use of dental implants. Prior to the use of these allografts, many patients
receiving dental implants would instead be limited to dentures or bone would
have to be harvested from their hip to complete the reconstruction. Our
pericardium membrane is used to cover the site where bone paste, or autograft or
allograft bone chips, have been placed, preventing the growth of fibrous tissue
from filling the space and allowing the bone to remodel. During 1999, we shipped
more than 1,500 oral-maxillofacial allografts, which accounted for approximately
$0.2 million of our net revenues.
We currently have several oral-maxillofacial allografts in development,
including demineralized plates which could be used in place of metal plating in
oral and maxillofacial surgery, an orbital floor repair system for facial
reconstruction and Regenaderm, our planned dermal membrane for use in the
oral-maxillofacial market.
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UROLOGICAL ALLOGRAFTS
Our principal allograft in the urological market is our FasLata, which is
used primarily to treat urinary incontinence through re-suspension of the
bladder neck. This graft is fashioned as a "sling," processed from fascia lata,
the fibrous tissue covering the large muscles. Prior to the use of sling
procedures, there was not an effective treatment for urinary incontinence which
is caused by a specific defect to the urethra. Demand for useable tissue in this
market far exceeds the supply. Additional applications we are developing for
tissue in this market are soft tissue "anchors" which are precision tooled from
cortical bone, and slings fashioned from alternative tissue such as dermis.
During 1999, we shipped more than 12,000 urological sling allografts, which
accounted for approximately $1.9 million of our net revenues.
CARDIOVASCULAR ALLOGRAFTS
Our principal cardiovascular allograft is our heart valve allograft, which
is used to replace a patient's own heart valve during coronary surgery.
Additional applications we are developing for tissue in this market are pulmonic
patches for faulty arteries, and veins for vascular tissue replacement. During
1999, the tissue processing and distribution business of Alabama Tissue Center
we are acquiring shipped approximately 70 cardiovascular allografts, generating
approximately $0.5 million in revenues for that year.
TISSUE RECOVERY
BACKGROUND
Tissue recovery is the actual removal of tissue from a donor. Tissue
recovery personnel recover tissue within 24 hours following a donor's death
using surgical instruments and aseptic techniques similar to those used in
hospitals for routine surgery. Techniques for recovery emphasize minimizing any
physical alteration of a donor's body. Recovered tissue is placed on wet or dry
ice and then transported by the recovery personnel to the tissue bank.
Under applicable U.S. law, human tissue cannot be sold. However, the law
permits the recovery of certain costs, such as those involved in recovery,
processing and storing tissue and for the advancement of tissue processing
technologies, the types of activities in which we are involved.
Our network of donor recovery groups recovers a variety of tissue types from
donors including tissue from the fibula, femur, tibia, humerus, ilium,
pericardium, fascia lata, and hearts for valve recovery. We screen recovered
tissue in numerous ways to guard against transmittable diseases. This screening
process includes evaluation of risk on the basis of donor lifestyle, interviews
with the donor's family and physical examination of the donor. We also perform
biomedical testing at various stages during the conversion of the tissue into
implantable tissue, using FDA licensed and other tests for known viruses and
pathogens.
In addition to screening for safety of the tissue, tissue banks develop
screening criteria to help them decide what tissue grafts may be processed from
each donor. We believe our biomechanical and tissue suitability screening
standards are unique in the industry. Unlike traditional tissue bank guidelines,
which include arbitrary criteria such as a donor's age as a determinant of
suitability, our standards and criteria are based on scientifically validated
testing and studies. Tissue from each donor is first examined, including
radiographic and physical examination. In addition, for each type of precision
tooled graft to be produced, we perform a biomechanical evaluation. Depending
upon the type of graft, our statistical validations include tests such as impact
and tensile fatigue, static compression and torque, and pull-out strength. For
our bone pastes, we test each batch in animals to ensure that the paste remodels
bone, a step we believe is not taken by any other tissue bank. Our scientific
screening standards, together with our tissue processing technology, allow us to
make use of
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this recovered tissue to the fullest extent possible. They also ensure the
suitability of the tissue to be used for the graft being processed. For example,
we routinely reject some weight-bearing grafts from donors under the age of 50
since our tests indicate those grafts would not have adequate mechanical
properties, while traditional screening protocols might accept any donor under
the age of 55. Unlike traditional screening protocols, our screening standards
allow a greater range of age among donors, and our BioCleanse system permits us
to safely and economically process tissue even from lower-yielding donors. This
provides the maximum benefit for the donor family as well as the donor
recipient.
TISSUE RECOVERY EXPANSION
We have one of the most extensive tissue recovery programs in the United
States, recovering tissue from over 4,000 donors during 1999, compared to 2,300
in 1998 and 1,500 in 1997. At present, there are approximately 30 tissue banks
in the United States that process and/or distribute bone or cardiovascular
allografts, the majority of which also function as donor recovery groups. Donor
recovery groups typically promote tissue donation, educate hospitals and other
institutions regarding tissue donations, support the family of the donor, and
physically recover and transport the donated tissue. Donor services group staff
members are trained to understand and deal with the emotional elements involved
in interacting and supporting the families of donors at their time of loss.
Of the approximately 80 donor recovery groups in the United States that
recover bone tissue, we have sourcing arrangements with more than 35 including
the University of Florida Tissue Bank, Inc., Allosource, Inc., Community Tissue
Services Dayton, Allograft Resources of Wisconsin and Tissue Banks
International. Of these 35 donor recovery groups, we have exclusive agreements
with five, non-exclusive agreements with 16, and exclusive management services
agreements with four. The remaining groups work with us on a non-contract basis
or through relationships with other recovery groups in the network. This
extensive supply alliance allowed us to ship over 90,000 processed allografts
during 1999, used by surgeons in an estimated 60,000 procedures. Often, more
than one allograft is used in a given procedure.
In particular, our exclusive relationship with the University of Florida
Tissue Bank continues to provide us with a large supply of tissue for processing
and distribution. We plan to continue to enhance our recovery programs in order
to support our future growth by adding additional donor recovery groups to our
supply alliance, particularly those presently acting as exclusive suppliers to
others in the industry. Additionally, we may from time to time consider
additional acquisitions of tissue banks to further enhance supply, such as our
recent acquisition of Georgia Tissue Bank.
During 1999, of the more than 3.6 million deaths in the United States, of
which we believe 50% would have been eligible to donate, less than 0.4% actually
resulted in donated tissue. To the extent possible, we work with management of
the tissue banks with which we have relationships to assist them in increasing
the level of tissue donation. In areas where we have had active involvement with
donor recovery groups over an extended period of time, we have increased the
recovery rate to in excess of 4.0%. This involvement may include entering into a
management services agreement with these tissue banks. While the terms of these
agreements vary, often they involve assisting with the design or improvement of
the tissue bank's donor services group to increase the level of donation.
Our strategy is to further expand our tissue recovery operations in our
targeted regions, which include Florida/Georgia, Indiana/Michigan and New York,
through increased professional and public education. We also plan to continue to
establish relationships with medical examiners, hospitals and funeral homes in
these areas. We presently have agreements with 10 donor recovery groups within
these three targeted regions, two of which are management services agreements.
We have a four member team operating in each of these regions consisting of one
representative from each of sales, marketing, donor services, and our
subsidiary, Georgia Tissue Bank. These teams are responsible for providing
services to the recovery groups presently under management services agreements
and also to seek to enter into management services agreements with other donor
recovery groups in these regions.
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Internationally, we currently are involved in expanding tissue recovery
relationships in seven countries in order to support our planned international
growth. In addition we currently process tissue from Europe under our agreement
with Tutogen. We also have planned joint efforts with foreign partners for
tissue recovery in Spain, Portugal, France, Austria, Switzerland and Italy.
Tissue recovery internationally presents a number of different challenges than
in the United States, including different laws, societal pressures and local
customs.
We also plan to continue to recover tissue though affiliations with funeral
homes, which involves presenting families of the deceased with the option of
tissue donation and supplying them with the information necessary to make an
informed decision. While we reimburse funeral homes for use of their facilities
and materials, the principal incentive for funeral homes to participate in an
affiliation with us is their ability to offer families of deceased the chance to
help others through the gift of tissue donation. Since approximately two-thirds
of all deaths occur outside of a hospital, we believe our strategy of recovering
donor tissue from funeral homes to be important to increasing the overall level
of tissue donation. Tissue recovered from funeral homes is subject to the same
requirement as in a hospital setting, that it be recovered within 24 hours
following a potential donor's death.
We also are exploring the use of bovine tissue in the orthopedics markets
and have arrangements to procure bovine tissue from a "closed herd" of cattle.
This closed herd is one for which the source, age and lineage of each animal has
been documented for more than seven years, with health and pedigree records
reviewed and managed so that no animal of the herd has been suspected of a
disease threatening to humans, and in which each animal is kept separated from
animals not in the closed herd. We already use small amounts of gelatin derived
from porcine sources in the production of our bone pastes.
Donor recovery groups are part of relatively complex relationships. They
deal with donor families, are regulated by the FDA and are often affiliated with
hospitals, universities or Organ Procurement Groups. Our relationship with donor
recovery groups can be impacted by some of the factors that impact these donor
recovery groups, and that could have an effect on the supply of tissue to us.
For example, during March 2000, we became aware of letters from an anonymous
source being circulated which made allegations against Allograft Resources of
Wisconsin, or ARW, one of the donor recovery groups with which we have a tissue
recovery agreement. One of these letters was addressed to the FDA and included
specific alleged violations of federal regulations by ARW, including claims that
tissue recipient safety had been compromised. We promptly dispatched a team to
visit ARW to review its donor records and safety procedures. We also contacted
the FDA, and a team of FDA auditors conducted its own inspection of ARW. In
addition, the board of directors of ARW engaged a law firm to interview every
employee and a number of former employees of ARW about the allegations made.
The FDA's inspection resulted in the issuance of an inspection notice, and
none of the observations noted raised concerns over the safety of ARW tissue
with respect to the issues raised in the anonymous letters. Six observations
were noted, however, concerning documentation and record keeping, and corrective
actions were proposed. Neither the FDA, our own internal investigation nor the
law firm engaged by ARW found evidence to support the safety allegations made
against ARW. We plan to continue monitoring the situation with ARW, as well as
the other donor recovery groups with which we have recovery arrangements.
TISSUE PROCESSING
Following recovery of tissue using recovery techniques designed to minimize
physical alteration of the donor's body, recovered tissue is placed on wet or
dry ice and then transported by the recovery personnel to the tissue bank. After
the recovered tissue arrives at the tissue bank, we place the donor tissue in
freezer storage until we complete applicable quality assurance procedures and
protocols, including review and approval by one of our in-house medical
directors, each of whom is a medical
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doctor. We then move donor tissue into processing based upon the demand for
certain recoverable tissues.
We surgically process tissue into numerous individual types of implantable
allografts, with each graft being sized, evaluated and labeled. Some allografts
have a much higher demand than do others, and those generally are distributed as
soon as we complete processing and quality assurance. We store the remaining
implantable allografts at our facility, awaiting distribution on an as-needed
basis.
A variety of allografts can be derived from a single bone. For example, from
a femur, we are able to produce a number of allografts including bone dowels,
interference screws, wedges and bone pastes. The following illustration shows
some of the allografts that can be produced from the femur:
[Illustration of femur bone appears here, depicting the various
allografts that we process from the femur]
Other than a number of conventional grafts, bone pastes and soft tissue
which are aseptically processed through conventional means, we process donor
tissue initially through our proprietary BioCleanse system to begin the
sterilization process and to remove all blood, fat and cellular debris. We
believe the removal of all blood, fat, lipids and cellular debris results in
faster patient healing since it eliminates the need for the patient's body to
remove these substances using natural processes following surgery. Our
BioCleanse tissue processing system is a proprietary, multi-step, patent-pending
tissue cleaning process, using ultrasonic, temperature and pressure cycle
controls.
Our validation studies of the BioCleanse system show this process kills or
inactivates all classes of conventional pathogens, viruses, including HIV,
microbes, bacteria and fungi present in the tissue, while retaining the tissue's
useful properties. Specifically, the scope of the validation we performed on our
BioCleanse system included viral inactivation studies demonstrating complete
clearance of relevant enveloped and non-enveloped viruses including HIV,
hepatitis A, porcine parvovirus, bovine viral diarrhea virus and pseudorabies.
Additionally, the validation study showed that the system effectively eliminates
both endogenous and adventitious microbial contamination from within the
matrices of allograft. The validation included testing against a panel of known
microorganisms including BACILLUS STEAROTHERMOPHILUS, recognized as the most
resistant microbial species. The BioCleanse process also was shown to remove
greater than 99.99% of blood and fat from allograft material. The resulting
tissue passes the United States Pharmacopia standard test for sterility and has
been validated to attain a Sterility Assurance Level of 10(-6). Biomechanical
and biocompatability testing of the BioCleansed allografts demonstrated that the
functionality of the allograft was not impaired by the BioCleanse process. Based
on these studies, our BioCleanse technology produces sterile allografts, which
we believe
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to be the safest processed donor tissue in the industry. We believe the
effectiveness of BioCleanse in inactivating viruses such as HIV and other
harmful pathogens helps to allay the fears of disease transmission associated
with allograft procedures.
Because the BioCleanse system is completely automated, we are able to
reproduce our sterilization results in every group of tissue that we process.
Our BioCleanse technology is also cost-effective since we are able to safely
process the tissue of up to 100 donors simultaneously in our system, eliminating
the risk of cross contamination to a less than one in one million probability of
cross contamination. We believe we are the only tissue processor able to safely
process tissue from multiple donors simultaneously.
Tissue to be precision tooled for creating our line of specialized
allografts is removed from inventory after initial BioCleanse processing and
placed into production for the creation of precision machined allografts. Our
processing and manufacturing facilities include a suite of four class 10
certified clean rooms, six class 100 clean rooms and four class 1000 clean
rooms. We recently introduced the use of automated machinery in the precision
tooling of our line of proprietary allografts, a task previously performed by
our staff of tissue technicians using customized tools and equipment. This
increased use of automation allows us to produce precision tooled allografts
faster and more efficiently, while significantly reducing processing costs.
Automation also results in higher quality precision tooled allografts since our
machines are able to reduce the risk of human error by repeating accurately and
uniformly the tooling process countless times, instead of each graft being the
product of the tissue technician's skill.
Our tissue processing equipment also includes our proprietary lathes which
use hydro-infused drilling technology and custom tooling employed to thread our
cortical dowels and produce bone paste. Other custom equipment includes
clean-room milling machines, saws, grinders, dies and mills. After our operators
and technicians precision tool the donor tissue, we repeat the BioCleanse
process to complete the sterilization process. We are ISO 9001 certified, an
internationally recognized standard of quality assurance in product design,
development and production. Our biomedical laboratory is certified under the
Clinical Laboratory Improvements Act, or CLIA. CLIA is intended to ensure the
quality and reliability of clinical laboratories in the United States by
mandating specific standards in the areas of personnel qualification,
administration, participation in proficiency testing, patient test management,
quality control, quality assurance and inspections.
MARKETING AND DISTRIBUTION
In the spinal market, we plan to continue our strategic distribution
alliance with Medtronic Sofamor Danek. We have two management services
agreements with Medtronic Sofamor Danek under which they provide management
services in the distribution and marketing of our spinal allografts and Osteofil
bone paste for spinal uses. Medtronic Sofamor Danek's 350 sales representatives
interact directly with surgeons, providing the necessary instrumentation,
customer support, surgeon education and training, and marketing for our current
spinal allografts. In exchange for its management services, we pay Medtronic
Sofamor Danek services fees. Under the agreement for management services on our
bone pastes, the amount of this service fee is 60% of the amount charged to each
customer until November 1, 2000, after which time the fee increases to 65%. This
agreement expires upon the later of May 2018 or the expiration of our bone paste
patent. Under the agreement for management services on our current line of
spinal allografts, we pay Medtronic Sofamor Danek a service fee equal to 70% of
the amount charged to each customer. Under this agreement, Medtronic Sofamor
Danek has a 60-day right of first refusal to license our new allografts or
developments relating to spinal and cranial medical procedures. This agreement
expires in July 2021. Under these agreements, subject to certain exceptions,
Medtronic Sofamor Danek also has exclusive rights to provide management services
in the distribution of our spinal and cranial allografts internationally, though
it has not done so to date.
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Our allografts are distributed in all 50 states and in nine countries
internationally. In the United States, we have 23 independent distributors,
which distribute our allografts through approximately 150 sales representatives,
specializing in general orthopedics, complemented by our internal sales and
marketing staff of 26 people. Internationally, we have six distributors which
distribute our allografts through approximately 320 sales representatives. We
pursue a market-by-market approach to distribution, including strategic
relationships in selected markets, in order to increase our penetration of these
markets.
In the general orthopedics market, our pre-molded bone pastes are
distributed by Exactech in the United States through its network of 50 sales
agencies using approximately 139 sales representatives. We also distribute our
sports medicine allografts through our network of 23 independent distributors
and 150 independent sales representatives who distribute directly to hospitals
and surgeons in their exclusive territory. Under the terms of our distribution
arrangements, these distributors are entitled to receive a commission for the
revenues they generate and have the right to maintain their status as the
exclusive distributor in their territory if they reach a specified annual quota.
We distribute our bone pastes not used in the spinal and portions of the
sports medicine markets through our independent network of 23 distributors
specializing in general orthopedics. We also are considering creating a direct
sales force in key U.S. markets to augment sales of our Osteofil Injectable Bone
Paste.
For conventional tissue distribution, we use our network of 23 independent
distributors with more than 150 independent sales representatives. Distributors
and sales representatives receive a commission for the revenues they generate
and have the right to maintain their status as the exclusive distributor in
their territory if they reach a specified annual quota. Our recent acquisition
of Georgia Tissue Bank significantly increased the size of our distribution
organization for conventional allografts.
We use direct distribution for the oral-maxillofacial market, with an
emphasis on the periodontal market. We have created direct mail product
information sheets, and we attend trade shows to increase the exposure of our
allografts. Our six person marketing staff supports these marketing efforts by
speaking at various clinics and universities.
In the urological market, we have an exclusive distribution agreement with
C.R. Bard providing for the marketing and distribution of our urological
allografts. Under the terms of this agreement, we ship our urological allografts
directly to C.R. Bard's customers. In return, we receive reimbursement for
shipping charges and a transfer fee which is 40% of the amount charged to the
customer. In order to remain our exclusive distributor of these allografts, C.R.
Bard is required to achieve a specific annual distribution quota. C.R. Bard has
an exclusive 90-day right to negotiate an agreement for the distribution of any
new technology, invention, process or application we may develop in the future
for the treatment of urinary voiding dysfunction or pelvic tissue defects. This
agreement expires in June 2008, subject to a provision providing for automatic
renewal.
In the cardiovascular market, we intend to distribute our heart valve
allografts through one or more distributors, initially within the southern
United States and then expanding to other regions after securing adequate supply
of tissue.
Our current and planned international distribution strategies vary by
market, as well as within each country in which we operate. For example, we
distribute only a portion of our line of allografts within each country. We also
have recently signed distribution agreements with distributors in several key
markets internationally. These include Plus Endoprothetik, in Germany, Austria
and Switzerland, Korean Bone Bank in South Korea, Best Medical, Ltd. in Turkey,
Medical Development S.A., in Greece, ACORN Ltd. and UFTB Italia in Italy, and CH
Werfen in Spain and Portugal.
We intend to enter into additional markets around the world, including
France, the United Kingdom and Japan. During 1999, 2.6% of our net revenues were
derived from international markets.
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RESEARCH AND DEVELOPMENT
We plan to continue to develop new allografts and technologies within the
orthopedics, urological and cardiovascular markets, and to develop additional
tissue-related technologies for other markets. To accomplish this, we intend to
continue to make use of our core technologies and processes, which include:
- precision machined cortical bone;
- osteoinductive allograft bone pastes;
- our patent-pending proprietary BioCleanse system;
- segmentally demineralized bone allografts;
- viable osteoarticular grafts designed to fit specific surgical
instruments;
- growth factors to stimulate bone or tissue growth;
- cortical allografts assembled from various smaller bone pieces; and
- xenograft bone treated to reduce material that could cause immune
responses.
We believe that these core processes and technologies, including our
BioCleanse system, have far reaching uses in new markets including the use of
biologic tissue implants for growth factor delivery.
As of March 31, 2000, our research and development staff consisted of 22
professional and technical personnel, including three with PhDs or MD/PhDs and
six with masters of science degrees, in disciplines such as mechanical
engineering, materials sciences, biochemistry, biomedical sciences, biomaterials
and organic chemistry. Our research and development staff work closely with
surgeons in the development of new techniques and procedures related to tissue
healing.
PRODUCT DEVELOPMENT PROJECTS
We are involved in numerous development projects, including new machined
orthopedic allografts for the spine and sports medicine areas which allow us to
expand our existing line of allografts. Among our current product development
projects are:
- Interference Screw ST--This "soft" threaded interference screw would
represent an expansion to current offerings in the ACL reconstruction
market.
- Preshaped Tendons for Reconstruction--Achilles and quadriceps tendons with
pre-shaped bone blocks intended to allow for easier replacements and
reduced surgical time.
- Alloanchor RC--Targeted at the shoulder market, this allograft, similar to
a "suture anchor," could represent an allograft alternative to current
metal and resorbable suture anchors.
- Osteofil II--A version of our Osteofil bone paste that can be transported
and stored at room temperature by separating the elements of the paste and
then allowing for mixing in the surgical room.
- Osteochondral plugs--These non-frozen viable allografts could be available
in a range of plug sizes for knee repairs and will represent a new method
for transplanting fresh donor cartilage.
- Tibialis tendons--An increasing popular solution for ACL reconstruction,
this graft could simplify the current surgical procedures for repair of
this tendon.
- Suture anchor extensions--These grafts are further adaptions of the
initial Alloanchor RC, designed in smaller sizes for other procedures in
the shoulder and small joints.
- HTO wedges--This graft is designed for correction of lower extremity
misalignment, a cause of loading imbalances in the knee. This precision
tooled allograft would reduce the amount of "customization" normally
required in this procedure.
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- Soft tissue tacks--These bone tacks will be used to reestablish soft
tissue to bone attachments. The allograft tack achieves surgical repairs
without the need for suture.
- Complementary instrumentation--Instruments required for use with our
allografts during the surgical procedure are being designed to ease the
demands of the surgical procedure.
- Pre-ground femoral heads--This allograft, used in hip revision surgery,
should reduce the amount of time spent in surgery by freeing surgeons from
the necessity of grinding femoral head tissue in the operating room.
- Dermis-based urological sling--Processed dermis used for "sling
procedures" are essentially decellularized dermal allografts. Our
BioCleanse process is, in addition to a tissue cleaning process, a
decellularizing process. Studies are underway to determine the
effectiveness of the BioCleanse process in producing such a decellularized
allograft which could have application for urinary slings, duraplasties,
pleuralplasties, gastric patches, burn treatment, and reconstructive
facial surgery.
RESEARCH AND TECHNOLOGY PROJECTS
We also are working on a number of long-term research and technology
projects that we believe hold potential. Each of these projects, however, is at
a very early stage and we cannot be sure that we will ever develop a working
technology from this research. Among our current long-term research and
technology projects are:
- Tendon replacement--This patent-pending technology would reconfigure hard,
cortical bone tissue into a tendon-like structure with tendon-like
strength. Until now, most natural tissue tendons used in sports medicine
are transplanted tendons, either autograft or allograft. Allograft
tendons, however, continually are in short supply. The replacement under
development has a wide range of applications, and would remodel into the
patient's own tendon over time.
- Composite allograft--This technology involves the joining of two or more
separate pieces of machined bone. This allows for a wider range of design
configurations and potentially could result in higher yields per tissue
donor since the bone's anatomy would no longer be a limiting factor in the
size and shape of a given allograft.
- Demineralized strip/plate for facial applications--We are researching
methods for processing bone into plates and strips that are somewhat
flexible, yet retain a certain degree of stiffness, using demineralization
or partial demineralization. These plates and strips, especially
advantageous in pediatric surgeries, could then be used for a variety of
oral-maxillofacial applications including orbital floor and nasal
reconstruction.
- Reduced antigenicity bovine bone--We are conducting tests and validations
on the use of our BioCleanse system to reduce antigenic materials
(materials that can cause a rejection or immune response) from bovine
tissue. A variety of grafts could potentially be processed from bovine
bone. We are pursuing CE Mark and 510(k) clearance for bovine versions of
the Cornerstone SRs, Tangents, Precision ALIFs, Interference screws,
suture anchors and CT.
MEDICAL ADVISORY BOARD
Our Medical Advisory Board is made up of doctors, surgeons and medical
experts who meet periodically as a group to provide us with advice on industry
trends in product development and surgical techniques. Our Medical Advisory
Board also works with members of our research and development staff in the
development of new allografts and tissue technologies. Currently, this board has
eight members, representing a broad range of experience in fields relevant to
our technologies and technologies under development. Members of our Medical
Advisory Board receive per-diem consulting fees, including payment for
attendance at meetings and reimbursement of expenses. Members also may
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receive royalty rights on any inventions they contribute through their service
with the board. Current members are:
DENNIS ARMSTRONG, M.D. has been a private practicing orthopedic surgeon
since 1977. Prior to entering private practice, Dr. Armstrong completed an
orthopedic residency at Henry Ford Hospital from 1974 until 1977. Dr. Armstrong
received a B.S. from Michigan State University and an M.D. from Wayne State
School of Medicine.
KELVIN G.M. BROCKBANK, PH.D. has served as President of KGB
Associates, Inc., a consulting company on research and development opportunities
relating to implantable devices, tissue engineering and tissue transplantation
since 1996. From 1994 until 1995, Dr. Brockbank served as Vice President of
Research and Development for Edward's Cardio Vascular Surgery Division of Baxter
Healthcare Corporation. From 1985 until 1994, he served as Director of Research
and Development at CryoLife, Inc. Dr. Brockbank holds a B.A. and an M.A. from
Trinity College Dublin and a Ph.D. in Experimental Pathology from the Medical
University of South Carolina.
JEFFREY HOLLINGER, D.D.S., PH.D. is a professor of Surgery, Anatomy and
Developmental Biology at the Oregon Health Sciences University School of
Medicine, a position he has held since 1993. He also serves as President and
Director of Research at the Northwest Wound Healing Center. From 1980 until
1993, Dr. Hollinger was employed by the U.S. Army Institute of Dental Research
where he served as the Director of the bone program from 1982 until 1993, Chief
of Physiology from 1980 until 1993, and Acting Chief of the Departments of Oral
and Maxillofacial Surgery, Pathology and Biochemistry from 1982 until 1985.
Dr. Hollinger received a B.A. from Hofstra University and a D.D.S. and Ph.D.
from the University of Maryland.
PAUL LAROCHELLE, M.D. has been a practicing orthopedic surgeon at the
Brevard Orthopedic Clinic since 1989. From 1988 until 1995, Dr. LaRochelle was
the recipient of six fellowships. He received a B.A. in Ecology and Marine
Sciences from Cornell University in 1977. He holds a MDCM from McGill
University.
N. RAY LEE, D.D.S. has been an Assistant Clinical Professor in the Division
of Oral and Maxillofacial Surgery at the Medical College of Virginia since 1986
and an Assistant Clinical Professor at Eastern Virginia Medical School since
1985. Dr. Lee served as the Director of the Division of Oral Medicine at the
Eastern Virginia Medical School from 1985 until 1987 and an Instructor in
Advanced Trauma Life Support from 1987 until 1995. Dr. Lee holds a B.S. in
Biology from The College of William and Mary and a D.D.S. from Baylor College of
Dentistry.
JACK MCCARTHY, M.D. has been in private practice as an orthopedic surgeon
and a clinical instructor at the University of Nebraska since 1987.
Dr. McCarthy received the Hand Fellowship from Washington University for the
1986/1987 year. Dr. McCarthy holds a B.A. in Natural Science from St. John's
University and an M.D. from the University of Iowa.
HAROLD TU, D.M.D., M.D. has been a practicing Oral and Maxillofacial surgeon
since 1982. In addition, Dr. Tu has been an Associate Professor of Surgery in
the Department of Surgery at the University of Nebraska Medical Center since
1988. Dr. Tu holds a D.M.D. from the University of Oregon Dental School and an
M.D. from the University of Nebraska School of Medicine.
JEFFREY VISOTSKY, M.D. has been an Assistant Professor of Clinical
Orthopedic Surgery at Northwestern University since 1990 and a Clinical
Associate Professor of Orthopedic Surgery and Rehabilitation Medicine at the
University of Chicago since 1992. Dr. Visotsky has been an instructor in the
Physicians Assistant Department at Finch University of Health Sciences of the
Chicago Medical School since 1997 and a Special Consultant to the Division of
Specialized Care for Children at the University of Chicago since 1999.
Dr. Visotsky holds a B.S. from Tulane University and an M.D. from Northwestern
University Medical School.
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INTELLECTUAL PROPERTY
Our business depends upon the significant know-how and proprietary
technology we have developed. To protect this know-how and proprietary
technology, we rely on a combination of trade secret laws, patents, copyrights,
trademark and confidentiality agreements with our employees and others.
We presently hold three patents covering our MD-Series cortical bone dowel
and our interface screw technology and two allowed patent applications covering
our segmentally demineralized graft, stent and conduit technology in the United
States and one foreign patent covering our MD-Series cortical bone dowel
technology and our interference screws. We also have 18 patent applications
pending in the United States, 13 patent continuations pending in the United
States and 40 corresponding patents pending in various foreign countries,
including in Canada, Mexico, Japan, Australia and the European Union. Our
patents and patents pending cover 19 allografts or technologies that are
important to our business. In addition, we rely on our substantial body of
know-how, including proprietary techniques and processes in tissue recovery,
research and development, tissue processing and quality assurance. The following
table shows the allografts and technologies for which we have patents or pending
applications. A number of our technologies, such as our BioCleanse technology,
are applicable to multiple markets.
<TABLE>
<CAPTION>
COMMERCIAL APPLICATION PROPRIETARY ALLOGRAFTS PROPRIETARY TECHNOLOGIES
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
General Tissue Healing and Reduced antigenicity implants BioCleanse
Processing Assembled implants Implant perfusion
Growth factor extraction
Carriers for growth factors
Spinal MD-Series cortical dowel Processes for making MD Series
SR cervical implant dowels;
Segmental demineralized implants. Various methods of making,
processing,
using implants.
Sports Medicine Interference screw Process of ACL reconstruction
Segmental demineralized tendons Various methods of making,
Segmental demineralized ligaments processing,
Segmental demineralized cartilage using implants.
Suture anchor
Tissue tape
Cartilage derived morphogenic
protein
Bone-tendon-bone implants.
Bone Paste Bone Paste
Bone paste tape
Oral-Maxillofacial Segmental demineralized plates
Urological and Cardiovascular Demineralized vessel grafts & stents
</TABLE>
COMPETITION
Competition in the bone and tissue healing industry is intense and subject
to rapid technological change and evolving industry requirements and standards.
Generally, competitors within the industry compete on the basis of design of
related instrumentation, efficacy of products, relationships with the surgical
community, depth of range of implants and pricing. Allograft implants compete
with autograft, metals and synthetic tissues, as well as with alternative
medical procedures. For the foreseeable future, we believe a significant number
of surgeons will continue to choose to perform autograft procedures when
feasible, despite the necessity of performing a second operation. In addition,
many members of the medical community will continue to prefer to use metals and
synthetics due in part to their familiarity with the products and the procedures
required for their use. While synthetics are not osteoinductive, we believe that
researchers will eventually develop methods for permitting the combination of
synthetic tissue with recombinant growth stimulating materials in order to
create an
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osteoinductive synthetic tissue. We and a number of other companies are
conducting research intended to develop this technology.
In the spinal market, we compete against other companies that produce and
distribute allografts that promote spinal fusion. Spinal fusion products can be
metal-based fusion cages or allograft implants. Our principal metals-based
competitors include SpineTech, Surgical Dynamics, Medtronic Sofamor Danek and
Acromed, a division of Johnson & Johnson. Our principal allograft-based
competitors include Synthes, DePuy Orthopaedics, a division of Johnson &
Johnson, and Osteotech.
In the sports medicine market, we compete against companies in the anchor
and screw segment of the market and against companies in the allograft implant
segment of the market. In the anchor and screw segment, our principal
competitors include Mitek Products, a division of Johnson & Johnson, Arthrex,
Acufex, a division of Smith & Nephew Endoscopy and Linvatec, a division of
Conmed. In the allograft implant segment, our principal competitors include
CryoLife and the Musculoskeletal Tissue Foundation.
Our bone pastes compete against human tissue-derived and synthetic bone
fillers. In the human tissue-derived bone paste market, our principal
competitors include Osteotech, Gen-Sci Regeneration Sciences and Wright Medical
Technology. In the synthetic-derived bone filler market, we principally compete
against Interpore International and Wright Medical Technology.
In the oral-maxillofacial market, we compete principally against companies
that provide human-derived bone paste or synthetic bone fillers, and against
companies that make periodontal membranes. Among our competitors producing human
tissue derived oral-maxillofacial bone paste include Osteotech and Gen-Sci
Regeneration Sciences. Among our competitors producing synthetic bone pastes
include Geistlich Pharma AG and Interpore International. Competitors producing
periodontal membranes include Gore Medical Products, a division of W.L. Gore &
Associates, Geistlich Pharma AG and LifeCell.
Our principal competitors in the conventional allograft market include the
Musculoskeletal Tissue Foundation, the American Red Cross Tissue Services,
Allosource and LifeNet. Among the companies that market devices used for soft
tissue anchoring in bladder neck suspensions are Mentor, Ethicon, a division of
Johnson & Johnson, Boston Scientific, Smith & Nephew and C.R. Bard.
In the heart valve market we face competition from non-profit tissue banks
that cryopreserve and distribute human tissue, as well as from companies that
market mechanical, porcine and bovine heart valves for implantation. St. Jude
Medical is the leading supplier of mechanical heart valves and has a marketing
and distribution arrangement with a tissue bank that supplies them with
cryopreserved human heart valves. Edwards Lifesciences, until recently a
division of Baxter International, is the leading supplier of porcine heart
valves. CryoLife is the leading supplier of cryopreserved human heart valves and
at least two other tissue banks offer cryopreserved human heart valves,
including the American Red Cross Tissue Services.
GOVERNMENT REGULATION
Government regulation plays a significant role in the processing and
distribution of our current and proposed allografts. The production, testing,
labeling, storage, record keeping, approval, advertising and promotion of these
allografts are governed or influenced by the Food, Drug, and Cosmetic Act, the
Public Health Service Act, and other federal and state statutes and regulations.
Failure to comply with applicable requirements could result in fines,
injunctions, civil penalties, recall or seizure of products, suspension of
production, inability to market current products, criminal prosecution, and
refusal of the government to authorize the marketing of new products.
We currently market allografts that are subject to the FDA's "Human Tissue
Intended for Transplantation" regulation. Under the regulation, we are required
to perform donor screening and
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infectious disease testing and to document this screening and testing for each
tissue we process. The FDA has authority under the rule to inspect human tissue
processing facilities, and to detain, recall, or destroy tissues for which
appropriate documentation is not available. We are not required to obtain
premarket clearance from the FDA for products that meet the regulation's
definition of "human tissue."
Some human tissues, such as heart valve allografts, corneal lenticules, and
dura mater, are regulated by the FDA as medical devices. However, the FDA
permits entities that processed and distributed heart valve allografts before
June 26, 1991 to continue distributing heart valve allografts without obtaining
510(k) clearance or pre-market approval from the FDA. Our heart valve allografts
are covered by this "grandfather" policy. It is likely that in the future the
FDA will regulate additional allografts as medical devices. For allografts
regulated as medical devices, we will need to obtain premarket clearance or
approval through either the 510(k) premarket notification process, or the FDA's
premarket approval, or PMA, process. Under the 510(k) premarket notification
process, we would submit an application containing data which demonstrate the
"substantial equivalence" of our product to a device marketed prior to the
enactment of the Medical Device Amendments of 1976 or to a device legally
marketed after that statute's enactment. The FDA may request submission of
clinical information in support of the 510(k). The collection of data and
preparation of a 510(k) application can be costly and time consuming.
The FDA sometimes rejects 510(k) notices or sometimes the use of a 510(k)
notice may not be appropriate, requiring use of the PMA process. In addition, if
a medical device is not substantially equivalent to a pre-1976 device, use of
the PMA process is required. The PMA process is more complex, costly and time
consuming than the 501(k) clearance procedure. To obtain premarket approval, we
would be required to submit extensive preclinical and clinical data to the FDA.
Upon completion and analysis of clinical studies, we then would be required to
assemble and submit a PMA describing the preclinical, clinical, manufacturing
and other data. Typically, the FDA also inspects the manufacturing facility for
compliance with good manufacturing practice regulations. Review and approval of
a PMA can take several years and some PMAs are never approved.
If clinical trials are to be conducted, we may be required to obtain FDA
approval of an investigational device exemption application, or IDE. An IDE
typically contains data from laboratory and animal testing and a description of
the proposed study methods and clinical protocol. We must conduct our clinical
studies according to a written protocol under the oversight of an institutional
review board at each site where the study will be conducted, and our
investigators must adhere to good clinical practices.
Some human tissue-based products, such as cellular therapies, are regulated
by the FDA as biologics. While we do not at present market any allografts
regulated as biologics, we may do so in the future. Before a biologic may be
marketed, the FDA must approve a biologics license application, or BLA. An
applicant must support a BLA with extensive data, including the results of
preclinical and clinical testing which demonstrate that the product meets
prescribed safety and efficacy standards. Before conducting required clinical
testing with a biologic, we would be required to submit an investigational new
drug application to the FDA. We would be required to conduct all clinical
studies in accordance with an FDA approved protocol, subject to oversight by one
or more institutional review boards. Clinical studies such as these may take
several years and the FDA or sponsor may temporarily or permanently suspend a
clinical study at any time. Upon completion and analysis of clinical trials, we
would be required to submit a BLA containing the results of our clinical trials
and other information, including a complete description of the manufacturing and
control procedures. FDA review and approval of a BLA can take several years.
Products marketed under the approvals and clearances described above are
subject to pervasive and continuing regulation by the FDA. To the extent our
allografts are regulated by the FDA, we
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would be required to register as a manufacturer and to manufacture these
allografts in registered facilities and in accordance with good manufacturing
practices. We would also be subject to post-marketing surveillance and reporting
requirements. In addition, our manufacturing facilities and processes would be
subject to periodic FDA inspection. Our labeling and promotional activities
would be subject to scrutiny by the FDA and, in certain instances, by the
Federal Trade Commission. The export of devices and biologics is also subject to
regulation.
Our tissue processing generates by-products classified as medical hazardous
waste by the U.S. Environmental Protection Agency and the Florida Department of
Environmental Protection. We segregate the material and properly dispose of it
in compliance with applicable environmental regulations.
We also are licensed by the states of New York, Florida, California and
Maryland. These states are concerned primarily with ensuring proper donor
screening, including screening for HIV and viral hepatitis. Although the state
of New York also regulates the processing of tissue. We received a waiver from
certain New York requirements after presenting information about the use of our
BioCleanse system with pooled donor tissues.
EMPLOYEES
As of March 31, 2000, we had a total of 314 employees. The following chart
shows the number of our employees involved in the various aspects of our
business:
<TABLE>
<CAPTION>
DEPARTMENT NUMBER OF EMPLOYEES
- ---------- -------------------
<S> <C>
Tissue Processing and Manufacturing....................... 188
Tissue Recovery........................................... 11
Sales and Marketing....................................... 26
Research and Development.................................. 22
General and Administrative................................ 67
</TABLE>
FACILITIES
Our physical facilities, located in Alachua, Florida include two
company-owned buildings comprising 45,000 square feet, as well as leased space
in buildings on adjoining and nearby property. These facilities include
20 clean-rooms for tissue processing and packaging, freezers for storage of
tissue and biomedical laboratory facilities. We currently house our BioCleanse
processing and biomedical laboratory operations in approximately 18,000 square
feet of space which we currently lease for approximately $18,000 per month. This
lease expires in February 2002. We sublease 3,855 square feet of space in our
company owned buildings to the University of Florida Tissue Bank for
approximately $5,000 per month, on a month to month basis. We also lease 8,800
square feet of warehouse space at a rate of $4,500 per month under a lease
expiring in June 2002. We have the option to extend this lease for an additional
year. Our wholly-owned subsidiary, Georgia Tissue Bank, operates from a leased
building in Atlanta, Georgia comprising 9,300 square feet, with three clean-
rooms for tissue processing and packaging, and freezers for tissue storage. This
lease has a three year term, expiring in October 2002. The current base rent
under this lease is $12,365 per month.
We plan to construct and equip a new 110,000 square foot facility on
approximately 21 acres of recently acquired property adjacent to our existing
facilities. We intend for this new facility to meet the FDA's "common good
manufacturing practices" requirements. We believe the new facility will increase
our capacity for tissue processing while allowing us to process tissue more
economically. We also believe this new facility will allow us to be designated
as an FDA approved medical device manufacturer. We expect to begin construction
of this new facility during the third quarter of 2000.
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<PAGE>
LEGAL PROCEEDINGS
EXACTECH LITIGATION
On June 22, 1999, Exactech, Inc. filed a complaint against us, the
University of Florida Tissue Bank and 19 of our medical distributors and sales
agents. The complaint alleges that we have been marketing and distributing bone
paste in violation of an agreement between the University of Florida Tissue Bank
and Exactech. This agreement was assigned to us by the University of Florida
Tissue Bank as part of our separation from that entity. The court granted our
motion to enforce an arbitration provision in the agreement, and the matter is
now in arbitration. Only we, Exactech and the University of Florida Tissue Bank
remain as parties in the arbitration. None of our distributors are involved in
the arbitration. The arbitration is presently proceeding through discovery. We
believe that, even if this arbitration results in an outcome unfavorable to us,
it would not have a material adverse effect on our business, financial condition
or results of operations.
OSTEOTECH LITIGATION
On February 25, 1999, we, the University of Florida Tissue Bank and
Medtronic Sofamor Danek filed a complaint in U.S. District Court against
Osteotech, Inc. Our complaint alleges that Osteotech is infringing upon our
patents for our Diaphysical Cortical Dowel. We are seeking injunctive relief and
monetary damages. Discovery in this matter is ongoing and a trial date has not
yet been set. Our legal expenses in this action are being reimbursed to us by
Medtronic Sofamor Danek.
From time to time, we are party to various legal proceedings incident to
operating a company of our size which we do not deem to be material to our
financial conditions or the operation of our business.
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MANAGEMENT
OUR EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
Our executive officers, key employees and directors, and each of their ages
and positions as of March 31, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
James M. Grooms........................ 40 President, Chief Executive Officer and Chairman
Richard R. Allen....................... 48 Chief Financial Officer, Secretary and Treasurer
James P. Abraham....................... 40 Vice President of Sales
Thomas E. Brewer....................... 52 Vice President of Marketing
Nancy R. Holland....................... 53 Vice President of Donor Services
Frederick C. Preiss.................... 49 Vice President of Operations
Thomas W. Sander....................... 47 Director of Research and Development
C. Randall Mills, Ph.D. ............... 28 Director of Regulatory and Technical Affairs
Herman Baer, M.D. ..................... 67 In-house Medical Director
Edward S. McIntyre, M.D. .............. 52 In-house Medical Director
David J. Selman, M.D. ................. 42 In-house Medical Director
Philip R. Chapman...................... 38 Director
Peter F. Gearen, M.D. ................. 52 Director
Michael J. Odrich...................... 36 Director
Anthony C. Phillips.................... 54 Director
E. Ronald Pickard...................... 51 Director
Daniel L. Weber........................ 69 Director
</TABLE>
JAMES M. GROOMS has been our President, Chief Executive Officer and Chairman
since we began operations in February 1998. From 1995 until joining us, he
served as President and Chief Executive Officer of University of Florida Tissue
Bank, Inc. Mr. Grooms served as the director of the University of Florida Tissue
Bank from 1992 until 1995. Prior to joining the University of Florida Tissue
Bank, Mr. Grooms was employed with CryoLife, Inc. from 1989 until 1992 where he
served as Manager of the Orthopedic Laboratory from 1989 until 1992 and Manager
of the Cardiovascular Laboratory during 1991. From 1987 until 1989, Mr. Grooms
served as Manager of Operations and Manager of Technology at Osteotech Inc.
Mr. Grooms was the inventor of certain of our intellectual property rights to
key aspects of our allograft technology. Mr. Grooms holds a B.S. in Biology from
Old Dominion University.
RICHARD R. ALLEN has been our Chief Financial Officer, Secretary and
Treasurer since we began operations in February 1998. From 1997 until joining
us, Mr. Allen served as director of Finance and Business Development for the
University of Florida Tissue Bank. From 1990 until 1996, Mr. Allen served as
Chief Financial Officer of Sabine, Inc., a manufacturer of digital audio
equipment. In addition, from 1994 until 1996, Mr. Allen served as a principal of
Strategies 2000, Inc. and he was a principal of Fidelity Business
Consultants, Inc. from 1988 until 1997. Strategies 2000 and Fidelity Business
Consultants are consulting firms specializing in technology development and
licensing. Mr. Allen has been a partner in certified public accounting firms and
holds two bachelor degrees from the University of Florida, including a B.S. in
Accounting.
JAMES P. ABRAHAM has been our Vice President of Sales since June 1999. He
was our Director of Sales from December 1998 until June 1999. From 1994 until
joining us in December 1998, Mr. Abraham served as Vice President of Sales and
Marketing at Encore Orthapedics, Inc. Prior to 1994, he held a number of
positions including the National Sales Director for Intermedics, a division of
Sulzer Medica, Vice President of Marketing and then Executive Vice President of
Sales and Marketing for Implant Technology Inc., Director of Sales for
Orthomet, Inc., a manufacturer of orthopedic
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medical devices, and a Regional Sales Trainer for Stryker Corporation.
Mr. Abraham holds a B.A. degree in business administration and finance from
Creighton University.
THOMAS E. BREWER has been our Vice President of Marketing since 1999 and our
Director of Marketing from 1998 until 1999. Mr. Brewer held several positions at
Stryker Corporation including General Manager from 1996 until 1998, European
Marketing Director for Stryker Europe from 1993 until 1996 and various other
management positions from 1988 until 1993. From 1980 until 1988, he held various
marketing positions with Bard Biomedical, a division of C.R. Bard, Inc.
Mr. Brewer holds a B.A. from Hobart College, an M.B.A. from Widener University
and has completed additional graduate work at Syracuse University.
NANCY R. HOLLAND has served as our Vice President of Donor Services since we
began operations in February 1998. She is also the President, Chief Executive
Officer and member of the board of directors of UFTB, where she has been
employed since 1995. Ms. Holland was a National Accounts Manager for
Cryolife, Inc. From 1986 until 1990, she served as the Executive Director of the
American Red Cross' American Council on Transplantation and Executive Director
of the Blood Commission of the American Red Cross from 1983 to 1989.
FREDERICK C. PREISS has been our Vice President of Operations since
February 1998. From 1996 until 1998, Mr. Preiss was a private consultant in the
medical device industry and from 1994 until 1996, he served as Executive Vice
President of Operations of Wright Medical Technologies. From 1990 until 1994, he
served as Vice President of Manufacturing and Engineering at U.S. Surgical
Corporation. Mr. Preiss holds a B.S. in engineering and business administration
from the University of New Haven.
THOMAS W. SANDER has been our Director of Research and Development since we
began operations in February 1998. From 1996 until 1997, Mr. Sander was Vice
President Research and Development with Howmedica Leibinger, Inc. and from 1991
until 1995, he was Senior Director with U.S. Surgical Corporation. Mr. Sander
holds a B.S. in engineering analysis/bio-engineering from Clemson University and
a Masters in Biomedical Engineering from Tulane University.
C. RANDALL MILLS, PH.D. has served as our Director of Regulatory and
Technical Affairs since January 2000. From 1998 until 1999, he served as our
Senior Technical Affairs Manager. Dr. Mills was with the University of Florida
Tissue Bank from 1994 until 1998, most recently as a clinical laboratory
supervisor. Dr. Mills holds a B.S. in microbiology and physiology from the
University of Florida. He completed his post-graduate training in clinical
pathology at the Shands Hospital of the University of Florida, where he also
received his Ph.D.
DR. HERMAN BAER has been one of our In-house Medical Directors since we
began operations in February 1998. Dr. Baer has been a Professor of Pathology at
the University of Florida School of Medicine since 1998, where he has also
served as Director of Autopsy Services in the Department of Pathology since
1981. Dr. Baer holds an M.D. from the University of Basle in Switzerland.
DR. EDWARD S. MCINTYRE has been one of our In-house Medical Directors since
November 1999. Dr. McIntyre has been in private practice in Gainesville, Florida
for over ten years. Dr. McIntyre holds a B.A. from Temple University and an M.D.
from the Medical School of the University of Texas.
DR. DAVID J. SELMAN has been one of our In-house Medical Directors since
February 2000. Dr. Selman has been in private practice since 1986. Dr. Selman
holds an M.S. in Bioengineering from the University of Michigan, where he also
earned his M.D.
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<PAGE>
PHILIP R. CHAPMAN has served as a member of our Board of Directors since we
began operations in February 1998. He is the President of Venad Administrative
Services, Inc. and has been a General Partner of Adler & Company since 1995.
From 1991 until 1995, he served as a Principal of Adler & Company. From 1981
until 1989, Mr. Chapman served as a Senior Consultant at Booz Allen & Hamilton
International. Mr. Chapman is also a director of Shells Seafood
Restaurants, Inc. He holds a B.S. and an M.B.A. from Columbia University.
PETER F. GEAREN, M.D. has served as a member of our Board of Directors since
we began operations in February 1998. Dr. Gearen was Chief of Staff at the
Shands Hospital at the University of Florida and served as Assistant Dean of
Clinical Affairs at the University of Florida College of Medicine, from 1992
until 1999. He also has been an Associate Professor at the University of Florida
College of Medicine since 1993. Dr. Gearen is also a director of Motion
Engineering, Inc. He holds a B.A. from Spring Hill College and an M.D. from the
Stritch Loyola Medical School.
MICHAEL J. ODRICH has served as a member of our Board of Directors since we
began operations in February 1998. Mr. Odrich has served as a director of Active
Software, Inc. since 1997 and PEMSTAR, Inc. since 1998. Since 1986, he has held
various banking positions at Lehman Brothers Inc. Currently, he is a Managing
Director, head of the venture capital business and has served as the President
of Lehman Brothers Venture Associates since 1999. Mr. Odrich holds a B.A. from
Stanford University and received an M.B.A. from Columbia University.
ANTHONY C. PHILLIPS has served as a member of our Board of Directors since
1998. Mr. Phillips has served as President, Chief Executive Officer and a
director of Raymedica, Inc. since 1995. From 1991 to 1995, he was Senior Vice
President, Worldwide Marketing for CryoLife International, Inc., and from 1989
to 1991, was Vice President, Marketing and Strategic Planning for
Organogenesis, Inc. Mr. Phillips holds a B.S. from the University of Tennessee.
E. RONALD PICKARD has served as a member of our Board of Directors since
1998. Since 1999, he has served as the President of the Medtronic Spinal and
Neurological Group of Medtronic Sofamor Danek. Prior to the merger of Sofamor
Danek Group and Medtronics, Mr. Pickard served in various executive capacities
at Sofamor Danek, including as Chairman of the Board and Chief Executive Officer
from 1994 to 1999. For 22 years prior to joining Sofamor Danek, Mr. Pickard was
employed with Richards Medical Company in various capacities including Director
of Manufacturing from 1975 until 1978, Group Director of Manufacturing from 1979
until 1981, Vice President of Manufacturing from 1982 until 1985, and President
of Orthopaedics Division from 1986 until 1990.
DANIEL L. WEBER has served as a member of our Board of Directors since 1999.
He has served as President and Chief Executive Officer of Marley Manufacturing
Corporation since 1986.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
Our board of directors is comprised of seven directors. Upon the closing of
this offering, our board of directors will be divided into three classes, with
the members of the respective classes serving for staggered three-year terms.
The initial terms of our current directors in these classes will expire upon the
election and qualification of directors at our 2001, 2002 and 2003 annual
meetings of stockholders. At each annual meeting of stockholders, directors will
be re-elected or elected for full three-year terms. All executive officers are
elected by, and serve at the discretion of, the board of directors. There are no
family relationships among any of our executive officers or directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The audit committee of our board of directors is charged with the
responsibility of reviewing our audited financial statements and accounting
practices, and considering and recommending the
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<PAGE>
appointment of independent accountants for both audit functions and for advisory
and other consulting services. The audit committee is comprised of Messrs.
Chapman, Phillips and Gearen.
The compensation committee of our board of directors is charged with
reviewing and approving the compensation and benefits for our key executive
officers, administering our employee benefit plans and making recommendations to
the full board of directors regarding these matters. The compensation committee
is comprised of Messrs. Chapman and Phillips.
DIRECTOR COMPENSATION
Our directors who are also our employees or officers do not receive any
compensation specifically related to their activities as directors, other than
reimbursement for expenses incurred relating to their attendance at meetings of
the board of directors. Our directors who are not also our employees are
eligible to receive a stipend of $1,000 per meeting, as well as reimbursement
for their expenses incurred relating to their attendance at meetings of the
board of directors. Under our Omnibus Stock Option Plan, at the discretion of
our board of directors or compensation committee, our directors also are
eligible to receive awards of non-qualified stock options. Our directors who are
not also employees receive an annual grant of an option to purchase shares
of our common stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our compensation committee has been an employee of ours. None
of our executive officers serves as a member of the board of directors or
compensation committee of any other entity that has one or more executive
officers serving as a member of our board of directors or our compensation
committee.
EMPLOYMENT AGREEMENTS
We entered into an employment agreement with Mr. Grooms in February 1998.
Mr. Grooms' current annual base salary is $225,000. The agreement expires in
February 2003. The agreement provides for Mr. Grooms' reimbursement for
automobile expenses and a $1,000,000 life insurance policy for Mr. Grooms'
beneficiaries. Under the employment agreement, Mr. Grooms agreed to devote 100%
of his working time to our business and affairs. If we terminate Mr. Grooms'
employment without "cause," within the meaning of the employment agreement, he
will be entitled to severance pay in an amount equal to his then-current annual
salary and will be precluded from competing with us for a period of one year
following the termination of employment. If we terminate Mr. Grooms' employment
for "cause," he will not be entitled to any severance pay, but still will be
precluded from competing with us for the same one year period.
We entered into an employment agreement with Mr. Allen in February 1998. Mr.
Allen's current annual base salary is $150,000. The agreement expires in
February 2003. Under the employment agreement, Mr. Allen agreed to devote 100%
of his working time to our business and affairs. Under the agreement, Mr. Allen
also received shares of our common stock. If we terminate Mr. Allen's
employment without "cause," within the meaning of the employment agreement, he
will be precluded from competing with us in the southeastern United States for a
period of one year following the termination. If we terminate Mr. Allen's
employment for "cause," Mr. Allen will be precluded from competing with us for a
period of two years following the termination.
We entered into an employment agreement with Mr. Abraham in November 1998.
Mr. Abraham's current annual base salary is $150,000. Mr. Abraham is eligible to
receive an annual bonus in an amount to be determined by the board of directors
provided we achieve certain specified revenue levels. The agreement expires in
November 2003. Under the employment agreement, Mr. Abraham agreed to devote 100%
of his working time to our business and affairs. When he entered into the
employment agreement with us, Mr. Abraham received an option to purchase
shares of our
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common stock. The option is subject to a stock option restriction agreement
under which one fifth of the options vest on each anniversary of the date of the
grant. If we terminate Mr. Abraham's employment without "cause," within the
meaning of the employment agreement he will be entitled to receive severance pay
in an amount equal to one-half of his then-current annual salary and will be
precluded from competing with us for a period of one year following the
termination. In the event of termination for "cause," Mr. Abraham will not be
entitled to severance pay, but will be precluded from competing with us for
three years following the termination.
We entered into an employment agreement with Mr. Brewer in June 1998. Mr.
Brewer's current annual base salary is $155,400. The agreement expires in
June 2003. Under the employment agreement, Mr. Brewer agreed to devote 100% of
his working time to our business and affairs. Mr. Brewer received an option to
purchase shares of our common stock at the time he entered into the
employment agreement. This option is subject to a stock option agreement under
which one fifth of the options vest on each anniversary of the date of the
grant. If we terminate Mr. Brewer's employment without "cause," within the
meaning of the employment agreement, he will be entitled to severance pay in an
amount equal to one-half his then-current annual salary and he will be precluded
from competing with us for a period of two years following the termination. In
the event of termination for "cause," Mr. Brewer will not be entitled to
severance pay but will be precluded from competing with us for the two years
following the termination.
We entered into an employment agreement with Mr. Preiss in November 1998.
Mr. Preiss' current annual base salary is $150,000 for serving as our Vice
President of Operations. The agreement expires in November 2003. Under the
employment agreement, Mr. Preiss agreed to devote 100% of his working time to
our business and affairs. We awarded Mr. Preiss an option to purchase
shares of our common stock at the time he entered into his employment agreement
with us. If we terminate Mr. Preiss' employment without "cause," within the
meaning of the employment agreement, he will be entitled to severance pay in an
amount equal to one-half of his then-current annual salary, to be paid out
monthly, and he will be precluded from competing with us for a period of one
year following the termination. If we terminate Mr. Preiss' employment with us
for "cause," Mr. Preiss will not be entitled to severance pay but will be
precluded from competing with us for a period of three years following the
termination.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth for the periods indicated salary and certain
other compensation paid or accrued by us for our Chief Executive Officer and the
four other most highly compensated executive officers whose total salary and
bonus exceeded $100,000 for services rendered to us during 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------- --------------------
NUMBER OF SECURITIES
NAME AND PRINCIPAL POSITION YEAR(1) SALARY($) BONUS ($) UNDERLYING OPTIONS
- --------------------------- -------- --------- --------- --------------------
<S> <C> <C> <C> <C>
James M. Grooms.................................
President, Chief Executive Officer and 1999 $202,304
Chairman 1998 164,770
Richard R. Allen................................
Chief Financial Officer, Secretary and 1999 131,733
Treasurer 1998 113,114
James P. Abraham................................ 1999 150,000
Vice President of Sales 1998 18,697 $56,362
Thomas E. Brewer................................ 1999 155,400
Vice President of Marketing 1998 105,029
Frederick C. Preiss............................. 1999 131,733
Vice President of Operations 1998 --
</TABLE>
- ------------------------
(1) Compensation for 1998 is for the period from February 12, 1998, the date we
began operations, through December 31, 1998.
STOCK OPTION GRANTS
The following table sets forth information concerning the grant of options
to purchase shares of our common stock during 1999 to each of the persons named
in the summary compensation table above.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
NUMBER OF TOTAL OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO FOR OPTION TERM(3)
UNDERLYING EMPLOYEES EXERCISE PRICE EXPIRATION ---------------------
NAME OPTIONS(1) IN 1999 ($/SH)(2) DATE 5% 10%
- ---- ---------- ------------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
James M. Grooms................... -- -- -- -- -- --
Richard R. Allen.................. -- -- -- -- -- --
James P. Abraham.................. -- -- -- -- -- --
Thomas E. Brewer.................. -- -- -- -- -- --
Frederick C. Preiss............... 21% $ 9/09 $ $
</TABLE>
- ------------------------
(1) Options vest and become exercisable 20% per year over the five-year period
beginning on the date of grant.
(2) The exercise price per share of each option granted was equal to the fair
market value of our common stock on the date of grant.
(3) These amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price
53
<PAGE>
appreciation of 5.0% and 10.0% compounded annually from the date the
respective options were granted to their expiration dates. These assumptions
are not intended to forecast future appreciation of our stock price. The
potential realizable value computation does not take into account federal or
state income tax consequences of option exercises or sales of appreciated
stock.
The following table sets forth at December 31, 1999 the number of options
held by each of the executive officers named in the summary compensation table.
In the year ended December 31, 1999, none of the officers named in the summary
compensation table exercised any options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR END AT YEAR END($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
<S> <C> <C>
James M. Grooms.................................... --/-- --/--
Richard R. Allen................................... --/-- --/--
James P. Abraham................................... --/-- --/--
Thomas E. Brewer................................... --/-- --/--
Frederick C. Preiss................................ --/-- --/--
</TABLE>
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our Certificate of Incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages for breach of fiduciary
duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; and
- for any transaction from which the director derived an improper personal
benefit.
Our Certificate of Incorporation also provides that:
- we must indemnify our directors, officers, other employees and agents to
the fullest extent permitted by the Delaware General Corporation Law,
subject to certain very limited exceptions; and
- we must pay expenses of our directors, and may pay expenses of our
officers, other employees, agents or trustees, incurred in their capacity
as a directors, officer, employees, agent or trustee in connection with a
legal proceeding before the final disposition of such proceeding.
These provisions are permitted under the Delaware General Corporation Law.
In addition, our Bylaws provide that we must indemnify our directors and
officers to the fullest extent permitted by the Delaware General Corporation
Law.
We intend to enter into indemnification agreements with each of our
directors and executive officers in order to give them additional contractual
rights regarding the scope of our indemnification obligations and to provide
additional procedural protections. In addition, we maintain directors' and
officers' insurance providing indemnification for our directors, officers and
management employees for liabilities arising as a result of their employment
with us. We believe that these indemnification provisions and agreements are
necessary to attract and retain qualified directors and officers.
The limitation of liability and indemnification provisions in our
Certificate of Incorporation and Bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary duty. They
may also reduce the likelihood of derivative litigation against directors and
officers,
54
<PAGE>
even though such an action, if successful, might otherwise benefit us and our
stockholders. Furthermore, a stockholder's investment may be adversely affected
to the extent we pay the costs of settlement and damage awards against directors
and officers under indemnification provisions.
Except as otherwise described in this prospectus, there is at present no
pending litigation or proceeding involving any of our directors, officers, or
employees regarding which indemnification is sought, nor are we aware of any
threatened litigation that may result in claims for indemnification.
OMNIBUS STOCK OPTION PLAN
In July 1998, our board of directors and stockholders adopted the
Regeneration Technologies, Inc. Omnibus Stock Option Plan. A maximum of
shares have been authorized for issuance pursuant to the plan. Through
December 31, 1999, we issued options to purchase shares of our common
stock to our directors, officers, employees and various third parties who
provide services to us. Of these options, currently are exercisable. The
exercise prices of the options granted under the Omnibus Stock Option Plan range
from $ to $ . The exercise price for each option grant was set at the
fair market value of the shares of our common stock on the date of grant, as
determined by our board of directors. The purposes of the plan are to promote
our long-term growth and profitability by providing key personal with incentives
to improve stockholder value and to enable us to attract, retain and reward
skilled employees. There are an additional shares of common stock
available for issuance under the plan.
The plan allows for the discretionary grant of restricted stock,
non-qualified stock options, incentive stock options as defined in Section 422
of the Internal Revenue Code of 1986 and other stock-based awards. Any award of
an incentive stock option is limited to our employees and the employees of our
subsidiaries. The exercise price per share may not be less than 100% of the fair
market value of such shares on the date the option is granted.
The plan is administered by our board of directors or any committee it may
designate for this purpose. The board makes the determinations with respect to
awards under the plan, including which eligible individuals are to receive
awards under the plan and the specific terms, vesting conditions, if any, and
number of shares of stock to which each award related. Additionally, the board
may grant awards with different terms and conditions and also may accelerate the
vesting of outstanding awards and options at any time. At the time the options
are granted, the board will set the price at which options can be exercised.
Option holders do not and will not have any rights as stockholders until
they have exercised their options. The number of shares of our common stock
covered by awards will be adjusted in the event of any stock split, merger,
recapitalization or similar corporate event. This plan has a term of ten years,
expiring in July 2009.
YEAR 2000 INCENTIVE COMPENSATION PLAN
In January 2000, our board of directors and stockholders adopted the
Regeneration Technologies, Inc. Year 2000 Incentive Compensation Plan. A maximum
of shares have been authorized for issuance pursuant to the plan. The
board administers the Incentive Compensation Plan and grants discretionary
awards to eligible participants pursuant to each program's specific goals and
targets. The plan allows for the discretionary grant of restricted stock,
non-qualified stock options, incentive stock options as defined in Section 422
of the Internal Revenue Code of 1986 and other stock-based awards. The program
has a term of 10 years, expiring in January 2010.
55
<PAGE>
RELATED PARTY TRANSACTIONS
LEGAL RELATIONSHIPS WITH THE UNIVERSITY OF FLORIDA TISSUE BANK
SEPARATION FROM UFTB
We began operations on February 12, 1998 when the University of Florida
Tissue Bank or UFTB, contributed to us its allograft manufacturing and
processing operations, related equipment and technologies, distribution
arrangements, research and development activities and certain other assets. We
also assumed certain liabilities of UFTB that were related to the transferred
business. Various agreements relating to the transferred business to which UFTB
was a party also were assigned to us at that time, including one of our two
current management services agreements with Medtronic Sofamor Danek. At
approximately the same time, we sold shares of our preferred stock to a number
of unrelated investors and issued additional shares of our preferred stock to
UFTB in exchange for the assets it contributed to us. Immediately prior to this
offering, UFTB beneficially owned approximately 16% of our outstanding voting
equity securities. Dr. Peter F. Gearen, one of our directors, presently is an
Associate Professor at the University of Florida, which controls UFTB.
At approximately the same time as our separation from UFTB, James M. Grooms,
our Chief Executive Officer, President and Chairman who served as an officer of
UFTB prior to our separation, contributed his royalty rights in certain
intellectual property to us in exchange for shares of our preferred stock. We
recorded the assets acquired from UFTB and Mr. Grooms and the liabilities
assumed from UFTB at their historical cost basis since these were deemed to be
transactions between entities under common control.
UFTB is our largest tissue supply source. The tax-exempt status of UFTB
requires our relationship with UFTB to be conducted at arm's length. For this
reason, our relationship with UFTB is pursuant to a Tissue Recovery Agreement
which is designed to provide for arm's-length charges for services between the
two companies. Under the agreement, UFTB supplies certain of its tissues
exclusively to us. Additionally, we have a right of first refusal on other
tissues which UFTB is not currently providing to us. We pay UFTB recovery fees
as reimbursement for expenses it incurs in tissue recovery procedures. The
amount of the recovery fee depends upon the type and amount of tissue recovered.
We incurred charges of approximately $2.4 million during 1998 and $5.3 million
during 1999 under this agreement. This agreement expires in April 2009.
We have an employment agreement with Nancy R. Holland, our Vice President of
Donor Services under which she is required to devote 50% of her working time to
our business. Ms. Holland also serves as the Chief Executive Officer and a
director of the University of Florida Tissue Bank, Inc. Ms. Holland recuses
herself from decisions by UFTB's board of directors with respect to UFTB's
relationship with us.
ASSUMPTION OF CONVENTIONAL ALLOGRAFT DISTRIBUTION BUSINESS OF UFTB
On April 15, 1999, we entered into a Programs Transfer Agreement with UFTB
under which UFTB transferred to us its tissue recovery operations outside of
Florida and Georgia, conventional allograft distribution services, allograft
inventory, certain equipment and fixtures and its interest in various tissue
recovery agreements. UFTB transferred its unprocessed donor tissue and
conventional allograft implants with an assumed fair value of approximately
$3.0 million, and certain equipment and fixtures with an assumed fair value of
approximately $0.1 million as an offset against amounts owed to us by UFTB at
the time we assumed this business. Additionally, UFTB agreed to repay the
remaining balance of amounts it owed to us at that time by offsetting recovery
fees from April 15, 1999 through June 30, 1999 against the outstanding balance,
which fees were approximately $0.8 million, and by making monthly payments
during the remainder of 1999 totaling approximately $1.2 million. Prior to
56
<PAGE>
this transfer to us of UFTB's tissue recovery operations, we charged UFTB
approximately $3.5 million during 1998 and approximately $2.6 million during
1999 for tissue processing services.
We also share facilities, overhead and various personnel with UFTB, the
terms of which we believe are at least as favorable as those we would obtain in
an arms-length relationship.
LEGAL RELATIONSHIP WITH MEDTRONIC SOFAMOR DANEK
The two management services agreements between us and Medtronic Sofamor
Danek grant to that company exclusive worldwide rights to manage the
distribution of our bone pastes for spinal uses and our current line of spinal
allografts, including our MD-Series threaded and non-threaded dowels, tapered
dowels and other spinal allografts. We pay to Medtronic Sofamor Danek management
services fees as a percentage of the amount charged to customers for the
allografts we distribute into these markets. We incurred charges under these
agreements aggregating approximately $24.1 million during 1998 and approximately
$40.0 million during 1999. These agreements terminate in May 2018 and
July 2021. During 1999, Medtronic Sofamor Danek purchased shares of our
preferred stock for an aggregate purchase price of $5.0 million. Upon the
closing of this offering, these shares will represent approximately % of our
outstanding voting equity securities. E. Ronald Pickard, one of our directors,
is President of Medtronic Spinal and Neurological Group, a division of Medtronic
Sofamor Danek. Prior to the merger of Sofamor Danek Group and Medtronics,
Mr. Pickard served in various executive capacities at Sofamor Danek Group,
including as Chairman of the Board and Chief Executive Officer.
57
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 31, 2000, and adjusted to give to the
offering, by: (i) each person known to beneficially own more than 5% of the
outstanding shares of our common stock; (ii) each of our directors; (iii) each
executive officer named in the summary compensation table; and (iv) all
executive officers and directors as a group. Unless indicated otherwise, the
address of the beneficial owners is: c/o Regeneration Technologies, Inc., One
Innovation Drive, Alachua, Florida 32615.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AFTER OFFERING
SHARES BENEFICIALLY IF OVER-ALLOTMENT
OWNED PRIOR TO OPTION EXERCISED
OFFERING(1) NUMBER OF IN FULL
----------------------- SHARES -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------ -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
James M. Grooms............................... 13.6%
Richard R. Allen.............................. 3.3
James P. Abraham.............................. *
Thomas E. Brewer.............................. *
Frederick C. Preiss........................... *
Philip R. Chapman............................. *
Peter F. Gearen............................... *
Michael J. Odrich............................. *
Anthony C. Philips............................ *
E. Ronald Pickard............................. *
Daniel L. Weber............................... *
Nancy R. Holland.............................. 6.0
The University of Florida Tissue Bank, Inc.... 16.3
One Innovation Drive
Alachua, Florida 32615
The University of Florida Research 16.3
Foundation..................................
P.O. Box 100215
Gainesville, Florida 32610
LB I Group Inc................................ 8.3
Lehman Brothers Inc.
3 World Financial Center
New York, New York 10285
Euro-America-II, L.P.......................... 5.3
Venad Administrative Services, Inc.
342 Madison Avenue, Suite 807
New York, New York 10173
RTI Advisory Group LLC........................ 4.6
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Stephens-Regeneration LLC..................... 5.0
111 Center Street, Suite 2500
Little Rock, Arkansas 72201
Medtronic Asset Mgt., Inc..................... 5.0
7000 Central Avenue, N.E.
Minneapolis, Minnesota 55402
All executive officers and directors as a
group (11 persons)..........................
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1%.
(1) Percentage ownership is based on shares outstanding as of
March 31, 2000. Shares of common stock subject to options currently
exercisable or exercisable within 60 days of March 31, 2000 are deemed
outstanding for the purpose of computing the percentage ownership of the
person holding such options but are not deemed outstanding for the purpose
of computing the percentage ownership of any other person.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Effective as of the closing of this offering, our authorized capital stock
will consist of 50,000,000 shares of common stock, $.001 par value, and
5,000,000 shares of preferred stock, $.001 par value.
COMMON STOCK
As of December 31, 1999, shares of our common stock were outstanding
and held of record by stockholders after giving effect to the conversion
of all outstanding shares of our then-outstanding shares of preferred stock upon
the closing of this offering. Following the issuance of the shares of our
common stock offered hereby, there will be shares of common stock
outstanding and no shares of preferred stock upon the closing of this offering,
assuming no exercise of the underwriter's over-allotment option.
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the board of directors from time to time may
determine. Holders of common stock are entitled to one vote for each share held
on all matters submitted to a vote of stockholders. Cumulative voting for the
election of directors is not authorized by our certificate of incorporation,
which means that the holders of a majority of the shares voted can elect all of
the directors then standing for election. Holders of our common stock are not
entitled to preemptive rights and our common stock is not subject to conversion
or redemption. Upon our liquidation, dissolution or winding-up, the assets
legally available for distribution to stockholders shall be distributed ratably
among the holders of our common stock after payment of liquidation preferences,
if any, on any outstanding shares of preferred stock and payment of other claims
of creditors.
There is currently no active trading market for our common stock. We will
file an application to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "RTIX."
PREFERRED STOCK
Upon the closing of this offering, we will not have any shares of preferred
stock outstanding. Our 5,000,000 authorized shares of preferred stock may by
issued in one or more series without further stockholder authorization, and our
board of directors is authorized to fix and determine the terms, limitations and
relative rights and preferences of the preferred stock, to establish series of
preferred stock and to fix and determine the variations between these series. If
we issue preferred stock, it would have priority over our common stock with
respect to dividends and to other distributions, including the distribution of
assets upon liquidation, and we may be obligated to repurchase or redeem our
preferred stock. Our board of directors can issue preferred stock without the
approval of our common stockholders. Any preferred stock we issue may have
voting and conversion rights which could adversely affect the rights of holders
of our common stock. In addition to having a preference with respect to
dividends or liquidation proceeds, if preferred stock is issued, it may be
entitled to the allocation of capital gains from the sale of our assets. We do
not have any present plans to issue any shares of preferred stock.
WARRANTS
As of December 31, 1999 we had outstanding warrants to purchase an aggregate
of shares of our common stock at a weighted average exercise price of
$ .
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<PAGE>
REGISTRATION RIGHTS
Under the terms of an agreement between us and certain of our stockholders,
these stockholders are entitled to certain rights with respect to the
registration of these shares under the Securities Act of 1933 commencing
180 days after the consummation of this offering. If we receive from the
required number of holders of these shares a written request to effect a
registration with respect to all or a part of their shares, we must use our best
efforts to effect a registration, provided the offering price for these shares
in the aggregate is at least $5,000,000. We are obligated to effect only two of
these registrations.
When we are eligible to use a registration statement on Form S-3, our
stockholders may request that we file a registration statement on Form S-3
covering all or a portion of their shares, provided that the aggregate public
offering price is at least $500,000.
In addition, these and certain of our other stockholders have "piggyback"
registration rights. If we propose to register any common stock under the
Securities Act, other than pursuant to the registration rights described above,
these stockholders may require us to include all or a portion of their
securities in that registration.
We would bear all registration expenses incurred in connection with any of
the above registrations. Each of these stockholders participating in any
registration would pay their own underwriting discounts, selling commission and
stock transfer taxes applicable to the sale of their securities.
STOCKHOLDERS' AGREEMENT
We have entered into a stockholders' agreement with our current
stockholders. The stockholders have agreed to vote their shares of our voting
capital stock so as to cause the board of directors to consist of seven persons,
five of which are to be approved by holders of our preferred stock outstanding
prior to this offering. This agreement terminates upon the closing of this
offering.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Under Section 203, certain "business combinations" between a Delaware
corporation with shares that generally are publicly traded or held of record by
more than 2,000 stockholders, and an "interested stockholder" are prohibited for
a three-year period following the date that such stockholder became an
interested stockholder, unless:
- the corporation has elected in its certificate of incorporation or bylaws
not to be governed by the Delaware anti-takeover law;
- the business combination was approved by the board of directors of the
corporation before the other party to the business combination became an
interested stockholder;
- upon consummation of the transaction that made it an interested
stockholder, the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the commencement of the
transaction, excluding voting stock owned by directors who are also
officers or held in employee stock plans in which the employees do not
have a right to determine confidentially whether to tender or vote stock
held by the plan; or
- the business combination was approved by the board of directors of the
corporation and ratified by 66 2/3% of the voting stock which the
interested stockholder did not own. The three-year prohibition does not
apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain
extraordinary transactions involving the corporation and a person who had
not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority of the
corporation's directors. The term "business combination" is defined
generally to include
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<PAGE>
mergers or consolidations between a Delaware corporation and an interested
stockholder, transactions with an interested stockholder involving the
assets or stock of the corporation or its majority-owned subsidiaries and
transactions which increase an interested stockholder's percentage
ownership of stock. The term "interested stockholder" is defined generally
as a stockholder who becomes beneficial owner of 15% or more of a Delaware
corporation's voting stock. We have not elected in our certificate of
incorporation or bylaws not to be governed by the Delaware anti-takeover
law. Section 203 could have the effect of delaying, deferring or
preventing a change in control of Regeneration Technologies.
Our certificate of incorporation provides for the division of our board of
directors into three classes, as nearly equal in size as possible, with each
class beginning its three-year term in different years. Any director may be
removed only for cause by the vote of a majority of the shares entitled to vote
for the election of directors.
In addition, provisions of our certificate of incorporation and bylaws
summarized in the following paragraphs may have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by our stockholders.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS
Our bylaws provide that our stockholders may not take action by written
consent, but only at an annual or special meeting of stockholders. Our bylaws
further provide that special meetings of our stockholders may be called only by
the chairman of our board of directors or a majority of our board of directors.
SUPERMAJORITY VOTING PROVISIONS
Our certificate of incorporation provides that the affirmative vote of at
least 66 2/3% of our stockholders is required to amend the provisions of our
certificate of incorporation and bylaws relating to the election of our board of
directors, stockholder action by written consent and the calling of special
meetings.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of our common stock and preferred stock
are available for future issuance without stockholder approval. These additional
shares may be used for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued common stock and
preferred stock could render more difficult or discourage an attempt to obtain
control of our company by means of a proxy contest, tender offer, merger or
otherwise.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
We will enter into indemnification agreements with our current directors and
executive officers. These agreements may have the practical effect in some cases
of eliminating our stockholders' ability to collect monetary damages from our
directors. We believe that these contractual agreements and the provisions in
our certificate of incorporation and bylaws are necessary to attract and retain
qualified persons as directors and officers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no public market for our common stock,
and we cannot predict the effect, if any, that market sales of shares or the
availability of any shares for sale will have on the market price of the common
stock prevailing from time to time. Sales of substantial amounts of common
stock, or the perception that such sales could occur, could adversely affect the
market price of our common stock and our ability to raise capital through a sale
of our securities.
Upon completion of this offering, we will have shares of common stock
outstanding (or shares if the underwriters over-allotment option is
exercised in full) of which will be "restricted shares." This leaves
shares eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ----------------------------------------------------------------------------
<S> <C>
..................... After 90 days from the date of this prospectus
..................... After 180 days from the date of this prospectus (subject, in some cases, to
volume limitations)
..................... After various times after 180 days from the date of this prospectus
</TABLE>
The shares (or up to shares if the underwriters' over-allotment
option is exercised in full) of common stock sold in this offering will be
freely tradable without further restriction or further registration under the
Securities Act, except for shares purchased by an affiliate (as this term is
defined in the Securities Act) of ours, which will be subject to the limitations
of Rule 144 under the Securities Act. Subject to certain contractual
limitations, holders of restricted shares generally will be entitled to sell
these shares in the public securities market without registration either
pursuant to Rule 144 or any other applicable exemption under the Securities Act.
In general, under Rule 144 under the Securities Act, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
within the meaning of Rule 144 for at least one year, and including the holding
period of any prior owner except an affiliate, would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of
one percent of the then outstanding shares of our common stock or the average
weekly trading volume of our common stock on the Nasdaq National Market during
the four calendar weeks preceding such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about Regeneration Technologies. Any
person (or persons whose shares are aggregated) who is not deemed to have been
our affiliate at any time during the three months preceding a sale, and who has
beneficially owned shares for at least two years (including any period of
ownership of preceding non-affiliated holders), would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements. An
"affiliate" is a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or under common control with, an
issuer.
Within approximately 180 days after the date of this prospectus, we intend
to file one or more registration statements on Form S-8 under the Securities Act
to register shares of common stock subject to outstanding stock options or
reserved for issuance under our equity compensation plans. Upon completion of
this offering, options to purchase approximately shares will be
outstanding under our equity compensation plans.
Our directors and officers and some of our stockholders who hold
shares in the aggregate (including options and warrants to purchase common
stock) have entered into lock-up agreements pursuant to which they have agreed
that they will not sell other than in connection with this offering, directly or
indirectly, any shares of common stock without the prior written consent of Banc
of America
62
<PAGE>
Securities LLC for a period of 180 days from the date of this prospectus;
provided, however, they may gift or transfer shares so long as the donee or
transferee agrees to be bound by the terms of the lock-up agreement.
Under the terms of an agreement between us and the holders of shares of our
preferred stock, the preferred stockholders are entitled to certain rights with
respect to the registration of these Shares under the Securities Act commencing
180 days after the consummation of this offering. If we receive from the holders
of at least 40% of any class of preferred stock a written request to effect a
registration with respect to all or a part of their shares, we must use our best
efforts to effect such a registration, provided the shares owned by the
requesting stockholders cover at least 33% of the then outstanding class of
security of the offering price in the aggregate is at least $5,000,000. We are
only obligated to effect two of these registrations.
When we are eligible to utilize a registration statement on Form S-3 to
register an offering of our securities, these stockholders may request that we
file a registration statement on Form S-3 covering all or a portion of their
shares, provided that the aggregate public offering price is at least $500,000.
In addition, certain of our stockholders have certain "piggyback"
registration rights. If we propose to register any common stock under the
Securities Act, other than pursuant to the registration rights above, these
stockholders may require us to include all or a portion of their securities in
such registration. We are obligated to use our best efforts to effect this
registration.
63
<PAGE>
UNDERWRITING
Regeneration Technologies and the selling stockholder are offering the
shares of common stock described in this prospectus through a number of
underwriters. Banc of America Securities LLC, Lehman Brothers Inc., Warburg
Dillon Read LLC and Stephens Inc. are the representatives of the underwriters.
Regeneration Technologies and the selling stockholder have entered into a firm
commitment underwriting agreement with the representatives. Subject to the terms
and conditions of the underwriting agreement, Regeneration Technologies and the
selling stockholder have agreed to sell to the underwriters, and the
underwriters have each agreed to purchase the number of shares of common stock
listed next to its name in the following table:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Banc of America Securities LLC..............................
Lehman Brothers Inc.........................................
Warburg Dillon Read LLC.....................................
Stephens Inc................................................
---------
Total.....................................................
=========
</TABLE>
The underwriters initially will offer shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow to
some dealers a concession of not more than $ per share. The
underwriters also may allow, and any dealers may reallow, a concession of not
more than $ per share to some other dealers. If all the shares are not sold at
the initial public offering price, the underwriters may change the offering
price and the other selling terms. The common stock is offered subject to a
number of conditions, including:
- receipt and acceptance of our common stock by the underwriters; and
- the right to reject orders in whole or in part.
The underwriters have an option to buy up to additional shares
of common stock from Regeneration Technologies to cover sales of shares by the
underwriters which exceed the number of shares specified in the table above, and
will be sold by Regeneration Technologies in the event that the option is not
exercised in full. The underwriters have 30 days to exercise this option. If the
underwriters exercise this option, they will each purchase additional shares
approximately in proportion to the amounts specified in the table above.
Regeneration Technologies will pay the expenses associated with the exercise of
the overallotment option.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
PAID BY REGENERATION
TECHNOLOGIES
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share............................................ $ $
Total................................................ $ $
</TABLE>
<TABLE>
<CAPTION>
PAID BY SELLING STOCKHOLDER
----------------------------
NO EXERCISE FULL EXERCISE
------------ -------------
<S> <C> <C>
Per share............................................ $ $ --
Total................................................ $ $ --
</TABLE>
64
<PAGE>
Regeneration Technologies and substantially all holders of its stock prior
to this offering, as well as substantially all holders of stock options and
warrants, have entered into lock-up agreements with the underwriters. Under
those agreements, Regeneration Technologies and those holders of stock, options
and warrants may not dispose of or hedge any Regeneration Technologies common
stock or securities convertible into or exchangeable for shares of Regeneration
Technologies common stock unless permitted to do so by Banc of America
Securities LLC. These restrictions will be in effect for a period of 180 days
after the date of this prospectus. At any time and without notice, Banc of
America Securities LLC may, in its sole discretion, release all or some of the
securities from these lock-up agreements.
Regeneration Technologies and the selling stockholder will indemnify the
underwriters against liabilities, including liabilities under the Securities
Act. If Regeneration Technologies and the selling stockholder are unable to
provide this indemnification, they will contribute to payments the underwriters
may be required to make in respect of those liabilities.
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include:
- short sales;
- stabilizing transactions; and
- purchases to cover positions created by short sales.
Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while this offering
is in progress.
The underwriters may also impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.
The underwriters may engage in activities that stabilize, maintain or
otherwise affect the price of the common stock, including:
- over-allotment;
- stabilization;
- syndicate covering transactions; and
- imposition of penalty bids.
As a result of these activities, the price of the common stock may be higher
than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter-market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares of common stock offered by this prospectus.
Prior to this offering, there has been no public market for the common stock
of Regeneration Technologies. The initial public offering price will be
negotiated between Regeneration Technologies and the underwriters. Among the
factors to be considered in such negotiations are:
- the history of, and prospects for, Regeneration Technologies and the
industry in which it competes;
65
<PAGE>
- the past and present financial performance of Regeneration Technologies;
- an assessment of Regeneration Technologies' management;
- the present state of Regeneration Technologies' development;
- the prospects for future earnings of Regeneration Technologies;
- the prevailing market conditions of the applicable United States
securities market at the time of this offering;
- market valuations of publicly traded companies that Regeneration
Technologies and the representatives believe to be comparable to
Regeneration Technologies; and
- other factors deemed relevant.
An affiliate of Banc of America Securities LLC is the lender under our
$6.0 million revolving line of credit facility and our $2.8 million 20-year
mortgage, and also provides to us services related to treasury management,
derivative transactions and institutional investments. In addition, affiliates
of Lehman Brothers Inc. and Stephens Inc., representatives of the underwriters,
beneficially own approximately and shares of our common stock,
respectively.
The underwriters, at our request, have reserved for sale to our employees,
affiliates and strategic partners at the initial public offering price up to
five percent of the shares being offered by this prospectus. The sale of shares
to our employees, affiliates and strategic partners will be made by Banc of
America Securities LLC. We do not know if our employees, affiliates or strategic
partners will choose to purchase all or any portion of these reserved shares,
but any purchases they do make will reduce the number of shares available to the
general public. If all of these reserved shares are not purchased, the
underwriters will offer the remainder to the general public on the same terms as
the other shares offered by this prospectus.
LEGAL MATTERS
Fulbright & Jaworski L.L.P., New York, New York will pass on the validity of
the common stock offered by this prospectus for us. Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C., Boston, Massachusetts, will pass upon certain legal
matters in connection with this offering for the underwriters.
EXPERTS
The Consolidated Financial Statements of Regeneration Technologies, Inc. and
Subsidiary and the Statements of Revenues and Direct Costs of the Predecessor
Business of Regeneration Technologies, Inc. included in this prospectus and the
related financial statement schedule included elsewhere in the registration
statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the registration
statement, and are included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission for the common stock we are offering by this prospectus.
This prospectus does not include all of the information contained in the
registration statement. You should refer to the registration statement and its
exhibits for additional information. Whenever we make reference in this
prospectus to any of our contracts, agreements or other documents, the
references are not necessarily complete and you should refer to the exhibits
attached to the registration statement for copies of the actual contract,
agreement or other document. When we complete this offering, we will also be
required to file annual, quarterly
66
<PAGE>
and special reports, proxy statements and other information with the Securities
and Exchange Commission.
We intend to furnish our stockholders with annual reports containing
financial statements audited by an independent accounting firm, and to make
available quarterly reports containing unaudited financial information for the
first three quarters of each fiscal year.
You can read our Securities and Exchange Commission filings, including the
registration statement, over the Internet at the Securities and Exchange
Commission's web site at http://www.sec.gov. You may also read and copy any
document we file with the Securities and Exchange Commission at its public
reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549; Seven
World Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may also
obtain copies of these documents at prescribed rates by calling the Public
Reference Section of the Securities and Exchange Commission at 1-800-SEC-0330
for further information on the operation of the public reference facilities.
67
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF REGENERATION
TECHNOLOGIES, INC. AND SUBSIDIARY
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets--December 31, 1998 and 1999..... F-3
Consolidated Statements of Operations--Period from February
12, 1998 to
December 31, 1998 and Year Ended December 31, 1999........ F-4
Consolidated Statements of Stockholders' (Deficiency)
Equity--Period from
February 12, 1998 to December 31, 1998 and Year Ended
December 31, 1999....................................... F-5
Consolidated Statements of Cash Flows--Period from February
12, 1998 to
December 31, 1998 and Year Ended December 31, 1999........ F-6
Notes to Consolidated Financial Statements.................. F-7
CONSOLIDATED SUPPLEMENTAL SCHEDULE
Independent Auditors' Report................................ F-22
Supplemental Schedule....................................... F-23
STATEMENTS OF REVENUES AND DIRECT COSTS OF THE PREDECESSOR BUSINESS
OF REGENERATION TECHNOLOGIES, INC.
Independent Auditors' Report................................ F-24
Statements of Revenues and Direct Costs for the Year Ended
December 31, 1997 and the Period from January 1, 1998 to
February 11, 1998 F-25
Notes to Statements of Revenues and Direct Costs............ F-26
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Regeneration Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Regeneration
Technologies, Inc. and subsidiary (the "Company") as of December 31, 1998 and
1999, and the related consolidated statements of operations, stockholders'
(deficiency) equity and cash flows for the period from February 12, 1998 (date
operations began) to December 31, 1998 and for the year ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1998
and 1999, and the results of its operations and its cash flows for the period
from February 12, 1998 (date operations began) to December 31, 1998 and for the
year ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States of America.
/S/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Tampa, Florida
March 22, 2000
(April 27, 2000 as to Note 18)
F-2
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 3,925,880 $ 7,536,287
Accounts receivable--less allowance of $38,500 in 1998 and
$335,087 in 1999........................................ 5,901,870 15,506,750
Product inventories....................................... 4,111,432 15,639,329
Supply inventories........................................ 245,417 592,780
Prepaid and other current assets.......................... 661,237 1,174,644
Deferred tax asset........................................ 164,738 747,997
----------- -----------
Total current assets.................................. 15,010,574 41,197,787
Property, plant and equipment--net.......................... 4,125,988 5,812,783
Deferred tax asset--net of valuation allowance of $1,534,183
in
1998 and $0 in 1999....................................... 53,033 1,229,613
Other assets--net........................................... 77,935 298,131
----------- -----------
$19,267,530 $48,538,314
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
Current Liabilities:
Accounts payable.......................................... $13,290,436 $21,056,808
Accrued expenses.......................................... 1,122,997 2,178,191
Current portion of deferred revenue (Note 2).............. 225,000 225,000
Line of credit............................................ -- 2,787,475
Current portion of long term debt......................... 384,647 898,735
----------- -----------
Total current liabilities............................. 15,023,080 27,146,209
Long term debt--less current portion........................ 1,482,249 2,026,796
Deferred revenue (Note 2)................................... 4,153,000 3,928,000
Other liabilities........................................... 40,000 --
----------- -----------
Total liabilities..................................... 20,698,329 33,101,005
----------- -----------
Commitments and contingencies (Notes 13, 15 and 18)
Stockholders' (deficiency) equity:
Series A Preferred stock, $.001 par value; 1,777,348
shares
authorized, issued and outstanding...................... 1,777 1,777
Series B Preferred stock, $.001 par value; 748,152 shares
authorized, issued and outstanding; at liquidation
value................................................. 6,580,000 6,580,000
Series C Preferred stock, $.001 par value; 368,990 shares
authorized, issued and outstanding; at liquidation
value................................................. -- 10,000,000
Common stock, $.001 par value; 6,000,000 shares
authorized; 765,452 and 763,672 shares issued,
respectively;
770,702 shares outstanding.............................. 770 770
Additional paid-in capital................................ 460,117 447,153
Accumulated deficit....................................... (4,141,947) (1,182,454)
Deferred compensation..................................... (531,351) (399,907)
Note receivable from stockholder.......................... (2,136,741) --
Due from stockholder--net of due to stockholder........... (1,658,961) (4,332)
Less treasury stock--5,250 and 7,030 shares,
respectively............................................ (4,463) (5,698)
----------- -----------
Total stockholders' (deficiency) equity............... (1,430,799) 15,437,309
----------- -----------
$19,267,530 $48,538,314
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
FEBRUARY 12, 1998 DECEMBER 31,
TO DECEMBER 31, 1998 1999
-------------------- ------------
<S> <C> <C>
Revenues from core operations:
Fees from tissue distribution............................. $31,892,098 $70,783,005
Other revenues from core operations....................... 3,365,387 2,237,051
----------- -----------
Total revenues.......................................... 35,257,485 73,020,056
Management services fees.................................... 24,129,406 39,994,069
----------- -----------
Net revenues............................................ 11,128,079 33,025,987
Costs of processing and distribution........................ 9,844,771 19,172,398
----------- -----------
Gross profit............................................ 1,283,308 13,853,589
----------- -----------
Expenses:
Marketing, general and administrative..................... 3,986,946 9,739,790
Research and development.................................. 1,472,410 1,675,019
----------- -----------
Total expenses.......................................... 5,459,356 11,414,809
----------- -----------
Operating (loss) income..................................... (4,176,048) 2,438,780
----------- -----------
Interest (expense) income:
Interest expense.......................................... (152,631) (285,166)
Interest income........................................... 186,732 187,017
----------- -----------
Total interest income (expense)--net.................... 34,101 (98,149)
----------- -----------
(Loss) income before income tax benefit..................... (4,141,947) 2,340,631
Income tax benefit.......................................... -- 618,862
----------- -----------
Net (loss) income........................................... $(4,141,947) $ 2,959,493
=========== ===========
Net (loss) income per common share--basic................... $ (5.37) $ 3.84
=========== ===========
Net (loss) income per common share--diluted................. $ (5.37) $ 0.84
=========== ===========
Weighted average shares outstanding--basic.................. 770,702 770,702
Weighted average shares outstanding--diluted................ 770,702 3,503,159
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK ADDITIONAL
----------------------------------- COMMON PAID-IN ACCUMULATED DEFERRED
A B C STOCK CAPITAL DEFICIT COMPENSATION
-------- ---------- ----------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 12, 1998........ $ -- $ -- $ -- $ -- $ -- $ -- $ --
Net liabilities assumed in
separation from UFTB.......... -- -- -- -- (39,643) -- --
Issuance of Series A Preferred
stock to related parties...... 1,777 -- -- -- (1,777) -- --
Sale of Series B Preferred
stock......................... -- 6,580,000 -- -- -- -- --
Stock issuance costs............ -- -- -- -- (152,790) -- --
Issuance of common stock to
employees..................... -- -- -- 770 654,327 -- (655,097)
Forfeited treasury stock........ -- -- -- -- -- -- 4,463
Vested deferred compensation.... -- -- -- -- -- -- 119,283
Net amounts advanced to
stockholder................... -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- (4,141,947) --
------ ---------- ----------- ---- --------- ----------- ---------
Balance, December 31, 1998........ 1,777 6,580,000 -- 770 460,117 (4,141,947) (531,351)
Purchased and forfeited treasury
stock......................... -- -- -- -- (639) -- 1,620
Stock options granted in lieu of
director and consulting
fees.......................... -- -- -- -- 20,428 -- --
Settlement of amounts due from
stockholder by transfer of
assets........................ -- -- -- -- -- -- --
Cash received for amounts due
from stockholder.............. -- -- -- -- -- -- --
Sale of Series C Preferred
stock......................... -- -- 10,000,000 -- -- -- --
Stock issuance costs............ -- -- -- -- (32,753) -- --
Vested deferred compensation.... -- -- -- -- -- -- 129,824
Net income...................... -- -- -- -- -- 2,959,493 --
------ ---------- ----------- ---- --------- ----------- ---------
Balance, December 31, 1999........ $1,777 $6,580,000 $10,000,000 $770 $ 447,153 $(1,182,454) $(399,907)
====== ========== =========== ==== ========= =========== =========
<CAPTION>
NOTE
RECEIVABLE
FROM DUE FROM TREASURY
STOCKHOLDER STOCKHOLDER STOCK TOTAL
----------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Balance, February 12, 1998........ $ -- $ -- $ -- $ --
Net liabilities assumed in
separation from UFTB.......... -- -- -- (39,643)
Issuance of Series A Preferred
stock to related parties...... -- -- -- --
Sale of Series B Preferred
stock......................... -- -- -- 6,580,000
Stock issuance costs............ -- -- -- (152,790)
Issuance of common stock to
employees..................... -- -- -- --
Forfeited treasury stock........ -- -- (4,463) --
Vested deferred compensation.... -- -- -- 119,283
Net amounts advanced to
stockholder................... (2,136,741) (1,658,961) -- (3,795,702)
Net loss........................ -- -- -- (4,141,947)
----------- ----------- ------- -----------
Balance, December 31, 1998........ (2,136,741) (1,658,961) (4,463) (1,430,799)
Purchased and forfeited treasury
stock......................... -- -- (1,235) (254)
Stock options granted in lieu of
director and consulting
fees.......................... -- -- -- 20,428
Settlement of amounts due from
stockholder by transfer of
assets........................ 2,136,741 983,255 -- 3,119,996
Cash received for amounts due
from stockholder.............. -- 671,374 -- 671,374
Sale of Series C Preferred
stock......................... -- -- -- 10,000,000
Stock issuance costs............ -- -- -- (32,753)
Vested deferred compensation.... -- -- -- 129,824
Net income...................... -- -- -- 2,959,493
----------- ----------- ------- -----------
Balance, December 31, 1999........ $ -- $ (4,332) $(5,698) $15,437,309
=========== =========== ======= ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
FEBRUARY 12, 1998 DECEMBER 31,
TO DECEMBER 31, 1998 1999
-------------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income......................................... $(4,141,947) $ 2,959,493
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization expense................... 360,336 801,094
Bad debt expense........................................ 38,500 171,587
Amortization of deferred revenue........................ (122,000) (225,000)
Deferred income taxes................................... (217,771) (1,759,839)
Deferred compensation and nonqualified option........... 119,283 151,872
Loss on disposal of property, plant, and equipment...... -- 4,526
Changes in assets and liabilities--cash provided by
(used in) (excluding effects of acquisition):
Accounts receivable................................... (2,404,808) (9,417,525)
Product and supply inventories........................ (3,082,972) (6,715,835)
Prepaid and other current assets...................... (555,265) (240,032)
Other assets.......................................... (40,435) (230,196)
Accounts payable...................................... 7,760,983 7,391,042
Accrued expenses...................................... 1,122,997 673,468
Deferred revenue...................................... 4,500,000 --
Other liabilities..................................... 40,000 (40,000)
----------- -----------
Net cash provided by (used in) operating
activities........................................ 3,376,901 (6,475,345)
----------- -----------
Cash flows from investing activities:
Cash paid for purchase of assets--net of cash received.... -- (484,725)
Purchase of property, plant, and equipment................ (1,870,385) (2,380,808)
----------- -----------
Net cash used in investing activities............... (1,870,385) (2,865,533)
----------- -----------
Cash flows from financing activities:
Payments on capital lease and note obligations............ (212,144) (472,936)
Stock issuance costs...................................... (152,790) (32,753)
(Increase) decrease in due from stockholder............... (1,658,961) 671,374
Increase in note receivable from stockholder.............. (2,136,741) --
Line of credit borrowings--net............................ -- 2,787,475
Purchase of treasury stock................................ -- (1,875)
Proceeds from sales of Series B Preferred stock........... 6,580,000 --
Proceeds from sales of Series C Preferred stock........... -- 10,000,000
----------- -----------
Net cash provided by financing activities........... 2,419,364 12,951,285
----------- -----------
Net increase in cash and cash equivalents................... 3,925,880 3,610,407
Cash and cash equivalents, beginning of period.............. -- 3,925,880
----------- -----------
Cash and cash equivalents, end of period.................... $ 3,925,880 $ 7,536,287
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM FEBRUARY 12, 1998 (DATE OPERATIONS BEGAN) TO DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
1. ORGANIZATION
Regeneration Technologies, Inc. ("RTI"), was incorporated in Florida on
August 22, 1997, and began operations on February 12, 1998, following a
contribution of assets to RTI by the University of Florida Tissue Bank, Inc.
("UFTB"). At the time of the separation, UFTB contributed certain assets
(including certain intellectual property) to RTI and RTI assumed certain related
liabilities in exchange for 1,200,000 shares of Series A Preferred stock (see
Note 10). In addition, an officer of UFTB contributed his royalty rights in
certain intellectual property to RTI in exchange for 577,348 shares of Series A
Preferred stock. RTI recorded the assets acquired and the liabilities assumed
from UFTB and the assets acquired from the officer of UFTB at their historical
cost basis as these were deemed to be transactions between entities under common
control. As such, the $39,643 of net liabilities assumed is accounted for as a
dividend, resulting in a charge to additional paid-in capital. The historical
costs of the individual assets acquired and liabilities assumed by RTI at the
date of the separation from UFTB are presented below:
<TABLE>
<S> <C>
Accounts receivable......................................... $ 3,535,562
Inventories and supplies.................................... 1,273,877
Prepaid expenses............................................ 105,972
Property, plant, and equipment.............................. 1,732,777
Intangible assets........................................... 50,000
Accounts payable............................................ (5,529,455)
Capital lease obligations................................... (1,208,376)
-----------
Net liabilities assumed..................................... $ (39,643)
===========
</TABLE>
Simultaneous with the separation of RTI from UFTB, certain third parties
invested approximately $6.6 million in exchange for 748,152 shares of Series B
Preferred stock.
During 1999, RTI's wholly owned subsidiary, Georgia Tissue Bank ("GTB"),
acquired the net assets of the National Tissue Bank Network, Georgia Tissue
Bank, Inc. ("NTBN") along with certain equipment owned by a director of NTBN
(see Note 6).
RTI and GTB (collectively, the "Company") process human musculoskeletal
tissue received from various tissue recovery agencies. The processing transforms
the tissue into either conventional or precision tooled allografts, some of
which are patented. These allografts are distributed domestically and
internationally, for use in spinal vertebrae repair, musculoskeletal
reconstruction and fracture repair. The processed tissue includes cortical
dowels, cervical implants, cortical bone interference screws, and bone paste
grafts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of RTI and its wholly owned subsidiary GTB (see Note 6). All
material intercompany balance and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS--The Company considers all funds in banks and
overnight sweep accounts with an original maturity of three months or less to be
cash and cash equivalents.
F-7
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 12, 1998 (DATE OPERATIONS BEGAN) TO DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRODUCT AND SUPPLY INVENTORIES--Product and supply inventories are stated at
the lower of cost or market, with cost determined by the first-in, first-out
method.
PROPERTY, PLANT, AND EQUIPMENT--Property, plant, and equipment are stated at
cost less accumulated depreciation and amortization. The cost of equipment under
capital leases and leasehold improvements is amortized on the straight-line
method over the shorter of the lease term or the estimated useful life of the
asset. Depreciation is computed on the straight-line method over the following
estimated useful lives of the assets:
<TABLE>
<S> <C>
Production equipment 8 to 10 years
Leasehold improvements 8 to 10 years
Office equipment, furniture, and fixtures 5 to 7 years
Computer hardware and software 3 years
</TABLE>
OTHER ASSETS--Other assets consist of patents and trademarks. Patents and
trademarks are amortized on the straight-line method over the shorter of the
remaining protection period or estimated useful life.
RESEARCH AND DEVELOPMENT COSTS--Research and development costs are expensed
as incurred. Research and development costs for the periods ended December 31,
1998 and 1999 were $1,472,410 and $1,675,019, respectively.
REVENUE RECOGNITION--Revenue is recognized at the time the Company ships the
processed tissue. Revenues are reported gross of any management services fees
the Company incurs to distribute its products. Any other revenues directly
related to the Company's core operations are recognized when all significant
contractual obligations have been satisfied. A $4,500,000 nonrefundable,
up-front fee received from Sofamor Danek Group in the period ended December 31,
1998 is being deferred and recognized as revenue over the 20 year life of the
exclusive management services agreement with Sofamor Danek Group on a
straight-line basis. This revenue is shown in the consolidated statements of
operations in other revenues from core operations.
INCOME TAXES--The Company accounts for income taxes under the asset and
liability approach specified by Statement of Financial Accounting Standards
("SFAS") No. 109, ACCOUNTING FOR INCOME TAXES. SFAS No. 109 requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's consolidated
financial statements or tax returns by applying enacted statutory rates
applicable to future years to differences between financial statement carrying
amounts and the tax basis of existing assets and liabilities.
STOCK-BASED COMPENSATION PLANS--In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
which is effective for fiscal years beginning after December 15, 1995. Under
SFAS No. 123, the Company may elect to recognize stock-based compensation
expense based on the fair value of the awards or to account for stock-based
compensation under Accounting Principles Board ("APB") Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and disclose in the consolidated
financial statements the effects of SFAS No. 123 as if the recognition
provisions were adopted. The Company has adopted the recognition provisions of
APB Opinion No. 25.
F-8
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 12, 1998 (DATE OPERATIONS BEGAN) TO DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE--Basic earnings per share ("EPS") is computed by dividing
earnings available to common shareholders by the weighted average number of
common shares outstanding for the periods. Diluted EPS reflects the potential
dilution of securities that could share in the earnings. A reconciliation of the
number of common shares used in calculation of basic and diluted EPS is
presented below:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12, 1998 TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
-------------------- -----------------
<S> <C> <C>
Basic EPS.................................. 770,702 770,702
Effect of dilutive securities:
Stock options............................ -- 130,103
Conversion of preferred stock............ -- 2,602,354
------- ---------
Diluted EPS................................ 770,702 3,503,159
======= =========
</TABLE>
The conversion of preferred stock to common stock was not included in the
computation of diluted EPS for the period ended December 31, 1998 as the
inclusion would be antidilutive. Options to purchase approximately 65,000 shares
of common stock at $27.10 per share were outstanding as of December 31, 1999 but
were not included in the computation of diluted EPS for the year ended
December 31, 1999 because the options' exercise price was greater than the
average market price of the common shares.
USE OF ESTIMATES--The preparation of consolidated 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 disclosures 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.
IMPAIRMENT OF LONG-LIVED ASSETS--Periodically, the Company evaluates the
recoverability of the net carrying value of its property, plant and equipment
and its intangible assets by comparing the carrying values to the estimated
future undiscounted cash flows. A deficiency in these cash flows relative to the
carrying amounts is an indication of the need for a write-down due to
impairment. The impairment write-down would be the difference between the
carrying amounts and the fair value of these assets. A loss on impairment would
be recognized by a charge to earnings.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The estimated fair value of amounts
reported in the consolidated financial statements has been determined by using
available market information and appropriate valuation methodologies. The
carrying value of all current assets and current liabilities approximates fair
value because of their short-term nature. The fair value of capital lease
obligations approximates the carrying value, based on current market prices.
NEW ACCOUNTING STANDARDS--The Financial Accounting Standards Board recently
issued SFAS No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES--DEFERRAL OF EFFECTIVE DATE OF FASB STATEMENT NO. 133 ("SFAS
No. 137"). SFAS No. 137 defers for one year the effective date of SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS No. 133").
The rule now will apply to all fiscal quarters of all fiscal years beginning
after June 15, 2000. SFAS No. 137 permits early adoption as of the beginning of
any fiscal quarter after its issuance. SFAS No. 133 will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges
F-9
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 12, 1998 (DATE OPERATIONS BEGAN) TO DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, of firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company has not completed its evaluation of the
impact of SFAS No. 133, if any, on the financial statements.
RECLASSIFICATION--Certain 1998 amounts have been reclassified to conform to
the 1999 presentation.
3. PRODUCT INVENTORIES
Product inventories by stage of completion are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- -----------
<S> <C> <C>
Unprocessed donor tissue............................ $ 459,263 $ 2,341,998
Tissue in process................................... 2,305,805 3,453,513
Implantable donor tissue............................ 1,346,364 9,744,493
Nontissue inventory for resale...................... -- 99,325
---------- -----------
$4,111,432 $15,639,329
========== ===========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Leasehold improvements............................... $ 640,796 $1,116,467
Production equipment................................. 1,821,159 3,170,518
Office equipment, furniture, and fixtures............ 385,180 517,860
Computer hardware and software....................... 261,639 1,038,959
Equipment under capital lease........................ 1,365,050 1,107,909
---------- ----------
4,473,824 6,951,713
Less accumulated depreciation and amortization....... 347,836 1,138,930
---------- ----------
$4,125,988 $5,812,783
========== ==========
</TABLE>
5. OTHER ASSETS
Other assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Patents and trademarks................................... $50,000 $223,971
Other.................................................... 40,435 96,660
------- --------
90,435 320,631
Less accumulated amortization............................ 12,500 22,500
------- --------
$77,935 $298,131
======= ========
</TABLE>
F-10
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 12, 1998 (DATE OPERATIONS BEGAN) TO DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
6. ASSET PURCHASE
On November 1, 1999, GTB acquired the assets and existing liabilities of
NTBN and certain equipment owned by Dr. Charles Garrison, a director of NTBN.
The purpose of the transaction was to expand the Company's ability to produce
conventional tissue grafts and expand donor recovery and tissue distribution in
areas outside of the Company's existing network for donor recovery and tissue
distribution.
The acquisition was recorded under the purchase method of accounting and,
accordingly, the purchase price was allocated to the assets and liabilities on
the basis of estimated fair market value on the date of purchase. The fair value
of the assets and liabilities at the date of acquisition recorded in conjunction
with the transaction is as follows:
<TABLE>
<S> <C>
Accounts receivable......................................... $ 358,942
Inventories................................................. 2,129,429
Property, plant, and equipment.............................. 3,410
Accounts payable............................................ (375,330)
Accrued liabilities......................................... (381,726)
----------
Net assets acquired, excluding cash......................... 1,734,725
Cash........................................................ 15,275
----------
Net assets acquired......................................... $1,750,000
==========
Purchase financed by:
Cash payment................................................ $ 500,000
Notes payable--stated rate of 6.50% due November 2002
(effective rate of 9.25%)................................. 680,753
Note payable--9.25% due November 2002 convertible to common
stock (see Note 17)....................................... 500,000
Note payable--9.25% due November 2002....................... 69,247
----------
Total financing............................................. $1,750,000
==========
</TABLE>
The unaudited pro forma results assuming GTB had been acquired on
February 12, 1998 are approximately as follows:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12, 1998 TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
-------------------- -----------------
<S> <C> <C>
Total revenues............................. $39,900,000 $77,000,000
Net (loss) income.......................... (3,700,000) 3,200,000
Net (loss) income per share--basic......... $ (4.80) $ 4.15
</TABLE>
The pro forma information does not necessarily reflect the actual results
that would have occurred nor is it necessarily indicative of future results of
operations of the combined companies.
F-11
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 12, 1998 (DATE OPERATIONS BEGAN) TO DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
7. LONG-TERM DEBT
Long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Notes payable, 6.5%.................................. $ -- $ 663,577
Notes payable, 9.25%................................. -- 555,467
Capital leases....................................... 1,866,896 1,706,487
---------- ----------
Total................................................ 1,866,896 2,925,531
Less current portion................................. 384,647 898,735
---------- ----------
Long-term portion.................................... $1,482,249 $2,026,796
========== ==========
</TABLE>
Contractual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 898,735
2001........................................................ 983,733
2002........................................................ 753,013
2003........................................................ 150,467
2004........................................................ 48,054
Thereafter.................................................. 91,529
----------
$2,925,531
==========
</TABLE>
The notes payable relate to the assets purchased from NTBN and are
collateralized by the assets purchased. All notes are due in November 2002 (see
Note 6).
The capital leases have interest rates ranging from 9.05% to 10% and are
collateralized by the related equipment and are due from 2002 through 2006 (see
Note 13).
8. LINE OF CREDIT
In March 1999, the Company entered into a revolving line of credit for an
amount not to exceed $2,000,000 expiring in March 2000. This line of credit was
subsequently replaced in September 1999 with a new line not to exceed $6,000,000
expiring in September 2000. The line of credit is to be utilized for the purpose
of supporting accounts receivable, with accounts receivable also serving as the
collateral for the line of credit. The interest rate associated with this line
of credit is the 30-day LIBOR rate plus 150 basis points. At December 31, 1999,
the interest rate of the line of credit is 7.97%.
The credit line agreement contains various restrictive covenants, which
limit among other things, indebtedness, loans, acquisitions, dividends and stock
purchases. In addition, the Company must satisfy certain financial ratios
including a fixed charge ratio of 1.10 to 1.00 or greater and funded debt to
earnings before interest, taxes, depreciation and amortization of not greater
than 4.00 to 1.00. The Company was in compliance with all covenants and
financial ratios at December 31, 1999.
The total amount outstanding on the line of credit December 31, 1999 was
$2,787,475.
F-12
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 12, 1998 (DATE OPERATIONS BEGAN) TO DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
9. INCOME TAXES
The income tax expense consisted of the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
--------- -----------
<S> <C> <C>
Current:
Federal............................................ $ 179,055 $ 966,623
State.............................................. 38,716 174,354
--------- -----------
Total current........................................ 217,771 1,140,977
--------- -----------
Deferred:
Federal............................................ (179,055) (1,590,075)
State.............................................. (38,716) (169,764)
--------- -----------
Total deferred....................................... (217,771) (1,759,839)
--------- -----------
Total provision...................................... $ -- $ (618,862)
========= ===========
</TABLE>
The components of the deferred tax assets and liabilities consisted of the
following at December 31:
<TABLE>
<CAPTION>
1998 1999
DEFERRED INCOME TAX DEFERRED INCOME TAX
---------------------- ----------------------
ASSET LIABILITY ASSET LIABILITY
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Current:
Uniform capitalization of inventory cost...... $ 170,419 $ -- $ 611,576 $ --
Inventory reserve............................. 9,563 -- 74,738 --
Accrued reserves.............................. 74,160 -- 164,882 --
State taxes................................... -- (89,404) -- (103,199)
---------- --------- ---------- ---------
Total current................................... 254,142 (89,404) 851,196 (103,199)
========== ========= ========== =========
Noncurrent:
Depreciation.................................. -- (145,826) -- (412,108)
Amortization.................................. 3,731 -- 1,285 --
Unearned revenue.............................. 1,729,311 -- 1,640,436 --
Valuation allowance........................... (1,534,183) -- -- --
---------- --------- ---------- ---------
Total noncurrent................................ 198,859 (145,826) 1,641,721 (412,108)
---------- --------- ---------- ---------
Total........................................... $ 453,001 $(235,230) $2,492,917 $(515,307)
========== ========= ========== =========
</TABLE>
The valuation allowance for deferred tax assets was $1,534,183 and $0,
respectively, for the periods ended December 31, 1998 and 1999. The net change
in the total valuation allowance was a decrease of $1,534,183 for the year ended
December 31, 1999. The reduction was attributable to projections of future
taxable income whereby management believes it is more likely than not that the
Company will recognize the benefits of the net deductible temporary differences,
which generated the deferred tax asset.
F-13
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 12, 1998 (DATE OPERATIONS BEGAN) TO DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
9. INCOME TAXES (CONTINUED)
The Company established a valuation allowance in the period ended
December 31, 1998 of $1,534,183. Management determined that it was more likely
than not that the deferred tax asset in excess of the amount of current taxes
paid in that year would not be realized.
The effective tax rate differs from the statutory federal income tax rate
for the following reasons:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Statutory federal rate...................................... (34.00)% 34.00 %
State income taxes--net of federal tax benefit.............. (3.57) 4.10
Meals and entertainment..................................... 0.53 1.00
Stock compensation expense.................................. 1.13 1.89
Research and experimentation credit......................... (1.14) (2.30)
Change in valuation allowance............................... 37.05 (65.55)
Miscellaneous............................................... -- 0.42
------ ------
Effective tax rate.......................................... -- % (26.44)%
====== ======
</TABLE>
10. STOCKHOLDERS' EQUITY
PREFERRED STOCK--Series A and B Preferred stocks are on parity with each
other regarding dividends and liquidation, and are senior to the Company's
common stock. Dividends, when and if declared by the Board of Directors, are
cumulative and accrue at 6% of the preferred stock face value of $13,934,408 for
the Series A Preferred stock (1,777,348 shares at $7.84 per share) and
$6,580,000 for the Series B Preferred stock (748,152 shares at $8.80 per share).
The Series A Preferred stock has been recorded at its par value rather than its
face and liquidation value because the issuance of the Series A Preferred stock
resulted from a transaction between entities under common control (see Note 1).
The aggregate amount of cumulative Preferred dividends in arrears as of
December 31, 1998 and 1999 is $1,090,453 and $2,321,317, respectively.
Liquidation cannot occur unless approved by 75% of the Series A Preferred
stockholders and 75% of the Series B Preferred stockholders, in which event, the
Series A Preferred stockholders would receive the intellectual property rights
originally contributed to the Company in exchange for the Series A Preferred
shares, and the Series B Preferred stockholders would receive the $6,580,000
originally paid to the Company (see Note 1).
Series A and B Preferred stocks have voting rights equal to the number of
whole shares of common stock into which the preferred stocks can be converted.
Series A Preferred stock is convertible at any time into common shares at a
price of $7.84 per share and Series B Preferred stock is convertible at any time
into common shares at a price of $8.80 per share.
Series C Preferred stock is senior to the Series A and B Preferred stocks
and common stock as to dividends and upon liquidation. Dividends, when and if
declared by the Board of Directors, are cumulative and accrue at 6% of the
preferred stock value of $10,000,000 (368,990 shares at $27.101 per share). The
aggregate amount of cumulative preferred dividends in arrears as of
December 31, 1999 is $135,000. Liquidation cannot occur unless approved by 75%
of the Series C Preferred stockholders, in which event, the Series C Preferred
stockholders would receive the $10,000,000 originally paid to the Company.
Series C Preferred stock has voting rights equal to the number of whole shares
of common
F-14
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 12, 1998 (DATE OPERATIONS BEGAN) TO DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
10. STOCKHOLDERS' EQUITY (CONTINUED)
stock into which the preferred stock can be converted. Series C Preferred stock
is convertible at any time into common shares at a price of $27.101 per share.
Holders of Series C Preferred stock were issued warrants to purchase up to
46,124 shares of common stock for a period of one year from the date of issuance
at a purchase price of $27.10 per share.
COMMON STOCK--The common stock's voting, dividend, and liquidation rights
are subject to and qualified by the rights of the holders of the preferred
stocks. Common stockholders are entitled to one vote for each share held at all
stockholder meetings. Common stock is not redeemable.
STOCK OPTION PLANS--In July 1998, the Company adopted a stock option plan
(the "Plan") which provides for the grant of incentive and nonqualified stock
options to key employees, including officers and directors of the Company. The
option price per share may not be less than 100% of the fair market value of
such shares on the date such option is granted. At December 31, 1999, options to
acquire up to 918,000 shares of common stock may be granted pursuant to the
Plan.
Stock option activity is summarized as follows at December 31, 1998 and
1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding at February 1998............................. --
Granted................................................ 146,915 $ 6.25
-------
Outstanding at December 31, 1998......................... 146,915 6.25
Granted................................................ 128,910 13.70
Canceled............................................... (4,815) 6.25
-------
Outstanding at December 31, 1999......................... 271,010 $ 9.90
=======
</TABLE>
Outstanding options under the Plan vest over a three- to five-year period.
Options expire ten years from the date of grant. As of December 31, 1999, 32,133
options were exercisable with a weighted-average exercise price of $6.25.
The weighted average fair value of options granted during the periods ended
December 31, 1998 and 1999 was $6.25 and $13.77, respectively.
The following is a summary of stock options outstanding and exercisable as
of December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE OPTIONS REMAINING OPTIONS
PRICE OUTSTANDING CONTRACTUAL LIFE (YEARS) EXERCISABLE
- -------- ----------- ------------------------ -----------
<S> <C> <C> <C>
$ 6.25 172,250 3.67 32,133
9.00 12,525 4.32 --
15.00 30,750 4.46 --
18.25 55,485 4.78 --
------- ------
271,010 32,133
======= ======
</TABLE>
F-15
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 12, 1998 (DATE OPERATIONS BEGAN) TO DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
10. STOCKHOLDERS' EQUITY (CONTINUED)
Remaining non-exercisable options as of December 31, 1999 become exercisable
as follows:
<TABLE>
<CAPTION>
<S> <C>
2000....................................... 58,040
2001....................................... 58,040
2002....................................... 52,290
2003....................................... 48,206
2004....................................... 22,301
-------
238,877
=======
</TABLE>
Since the Company applies APB Opinion No. 25 in accounting for its stock
options, no compensation cost has been recognized for the options granted to
employees because the exercise price equaled the fair market value on the date
of the grant. Had compensation cost been determined on the basis of fair value
pursuant to SFAS No. 123, net income (loss) would have been affected as follows
for the periods ended December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
----------- ----------
<S> <C> <C>
Net (loss) income, as reported...................... $(4,141,947) $2,959,493
Net (loss) income, pro forma........................ (4,290,985) 2,836,759
Net (loss) income per common share--basic, as
reported.......................................... $ (5.37) $ 3.84
Net (loss) income per common share--basic, pro
forma............................................. $ (5.57) $ 3.68
Net (loss) income per common share--dilutive, as
reported.......................................... $ (5.37) $ 0.84
Net (loss) income per common share--dilutive, pro
forma............................................. $ (5.57) $ 0.81
</TABLE>
The fair value of each grant was estimated using the minimum value method
with the following weighted-average assumptions used for grants during the year
ended December 31, 1999:
<TABLE>
<S> <C>
Dividend yield.............................................. --
Risk free interest rate..................................... 4.6%-5.92%
Option term................................................. 4.77 years
</TABLE>
STOCK AWARDS--The Company awarded 770,702 shares of common stock to various
key employees at the beginning of the Company's operations. These shares of
common stock, which were valued at $0.85 per share, vest over a five-year
period. At the date of issuance, $655,097 in deferred compensation was recorded
by the Company. Compensation expense of approximately $119,000 and $131,000 was
recognized for these stock awards for the periods ended December 31, 1998 and
1999, respectively.
11. RETIREMENT BENEFITS
The Company has a qualified 401(k) plan available to all employees who meet
certain eligibility requirements. The 401(k) plan allows the employee to
contribute 20% of the employee's salary up to the maximum allowed under the
Internal Revenue Code. The Company has the discretion to make
F-16
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 12, 1998 (DATE OPERATIONS BEGAN) TO DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
11. RETIREMENT BENEFITS (CONTINUED)
matching contributions up to 6% of the employee's earnings. For the periods
ended December 31, 1998 and 1999, the Company's contributions to the plan were
$83,846 and $156,203, respectively.
12. CONCENTRATIONS OF RISK
The Company's principal concentration of risk is related to its limited
distribution channels. In 1998, nearly all of the Company's revenues are related
to the distribution efforts of four independent companies, with approximately
95% of its revenues coming from one of the distribution companies. In 1999, the
Company expanded to include more revenue from direct distribution. The amount of
revenue from direct distribution was approximately 15% with 80% of the remaining
revenue coming from one of the distribution channels.
The Company's operations are dependent on the availability of bone and
related connective tissue from human donors. The Company relies on the efforts
of independent procurement agencies to educate the public and increase the
willingness to donate bone tissue. These procurement agencies may not be able to
obtain sufficient donors to meet present or future demands.
13. COMMITMENTS AND CONTINGENCIES
MANUFACTURING RIGHTS--The Company has licensed manufacturing rights for some
of its products. Under the agreement, the Company has agreed to accept and
reimburse the processor for items that meet the Company's quality control
guidelines.
PREPAID INVENTORY--In an effort to increase the Company's supply of donor
tissue, the Company has agreed to fund several tissue recovery agencies, in
exchange for the first right of refusal for any donor tissue recovered. During
1998 and 1999, the Company had advanced $1,249,383 and $2,245,842 respectively
to the tissue recovery agencies and recouped $754,750 and $1,988,318
respectively in donor tissue. At December 31, 1998 and 1999, the Company has yet
to recover $494,633 and $733,733 respectively of its expenditures through donor
tissue recovery. Prepaid inventory is classified in prepaid and other assets in
the accompanying balance sheets. The Company has no ownership or control in
these agencies, and funding can be discontinued at any time when donor tissue is
no longer being supplied.
FOREIGN INVESTMENT--In August 1998, the Company received a 30% ownership in
UFTB-Italia for no consideration. UFTB-Italia is an entity created in late 1998,
which had no operations as of December 31, 1998. UFTB-Italia plans to recover,
process, and distribute tissue in conjunction with training and technology
supplied by the Company at UFTB-Italia's expense. Since the Company exercises no
significant control over the UFTB-Italia operation, the Company has treated this
investment on the cost basis, recognizing income only upon receipt of dividends.
As of December 31, 1998 and 1999, the Company has not recorded any income from
its interest in UFTB-Italia. As of December 31, 1999, the Company had $172,405
of outstanding accounts receivable due from UFTB-Italia. Total tissue
distributions to UFTB-Italia in 1999 were $223,704.
LEASES--The Company leases various buildings, office equipment and fixtures
under non-cancelable operating leases for various periods. The Company also
leases various equipment under capital leases that are included in property,
plant, and equipment in the accompanying balance sheets.
F-17
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 12, 1998 (DATE OPERATIONS BEGAN) TO DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease commitments under noncancelable leases as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
2000................................................. $ 660,534 $ 918,981
2001................................................. 660,534 916,464
2002................................................. 385,377 897,966
2003................................................. 172,541 762,327
2004................................................. 59,850 808,977
Thereafter........................................... 99,749 1,526,734
---------- ----------
2,038,585 $5,831,449
==========
Less amounts representing interest................... 332,098
----------
Present value of net minimum lease payments.......... $1,706,487
==========
</TABLE>
Rent expense for the periods ended December 31, 1998 and 1999 was $262,698
and $748,473, respectively.
EMPLOYMENT AGREEMENTS--As of December 31, 1999, the Company had employment
contracts with six officers of the Company, providing for total annual payments
of approximately $815,000 through fiscal year 2003.
14. RELATED PARTIES
The Company has certain related party transactions with UFTB. Through
April 15, 1999, UFTB recovered whole donor tissue and distributed conventional
tissue. The Company processed this tissue for UFTB for a fee and compensated
UFTB for the nonconventional tissue retained from the whole donor tissue. On
April 15, 1999, the Company entered into two new agreements under which UFTB
transferred to the Company all rights to conventional tissue distribution and
national recovery programs, permitting UFTB to focus primarily on tissue
recovery and UFTB settled amounts due to the Company. As of April 15, 1999, the
total due from UFTB and the note receivable from UFTB was approximately
$5,000,000. Under the terms of the agreements, UFTB transferred its unprocessed
donor tissue and conventional tissue with a fair value of approximately
$3,000,000 and equipment and fixtures with a fair value of approximately $90,000
to the Company as an offset against the existing due from stockholder and note
receivable from stockholder. Additionally, UFTB agreed to repay the remaining
balance by (a) offsetting recovery fees from April 15, 1999 through June 30,
1999 against the outstanding balance, which fees approximate $800,000, and
(b) making monthly payments through the end of 1999 to repay the remaining
balance of approximately $1,200,000.
In addition to these operating transactions, the Company shares facilities,
overhead and certain personnel with UFTB.
F-18
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 12, 1998 (DATE OPERATIONS BEGAN) TO DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
14. RELATED PARTIES (CONTINUED)
The following is a summary of transactions and balances with UFTB as of and
for the periods ended December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Due from stockholder, net of amounts due to stockholder..... $1,658,961 $ 4,332
Note receivable from stockholder............................ 2,136,741 --
Tissue recovery fees and support services charged by UFTB to
the Company............................................... 2,386,374 5,344,475
Processing fees, tissue fees, and support services charged
to UFTB by the Company.................................... 3,467,014 2,592,347
</TABLE>
In January 1999, a stockholder with a 50% ownership in the Series C
Preferred shares acquired Sofamor Danek Group. The following is a summary of
transactions and balances with Sofamor Danek Group as of and for the periods
ended December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Tissue distribution revenue under management services
Agreement (included in fees from tissue distribution)..... $30,471,573 $57,228,310
Management services fees.................................... 24,129,406 39,994,069
Deferred revenue recognized (included in other revenues from
core operations).......................................... 122,000 225,000
Administrative costs reimbursed by Sofamor Danek Group
(included in marketing, general and administrative
expense).................................................. 326,130 435,674
Management services fees payable (included in accounts
payable).................................................. 10,951,359 17,523,809
Deferred revenue............................................ 4,378,000 4,153,000
</TABLE>
In February 2000, Dr. Garrison (see Note 6) exercised his option to convert
a portion of the $500,000 9.25% note issued by the Company into common stock of
the Company (see Note 18). Dr. Garrison is providing Medical Director services
to GTB on a consulting basis under a three-year contract, which ends
November 1, 2002. Annual compensation under the contract is $100,740 in year
one, $104,340 in year two and $108,084 in year three. Dr. Garrison also owns the
building in which GTB leases space. Monthly rental in year one is $12,365,
$12,860 in year two and $13,374 in year three. The following is a summary of
transactions and balances with Dr. Garrison as of and for the year ended
December 31, 1999.
<TABLE>
<S> <C>
Payments on GTB leased premises (includes one month
deposit).................................................. $ 37,095
Payments for Medical Director fees.......................... 16,790
Principal and interest payments on notes.................... 30,957
Notes payable............................................... 1,219,043
</TABLE>
15. LEGAL ACTIONS
On June 22, 1999, Exactech, Inc. ("Exactech") filed a complaint and petition
for injunctive relief in Circuit Court against the Company, UFTB and 19 medical
distributors and sales agents of the Company. The complaint alleged the Company
was marketing and distributing bone paste allografts in
F-19
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 12, 1998 (DATE OPERATIONS BEGAN) TO DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
15. LEGAL ACTIONS (CONTINUED)
violation of an agreement between UFTB and Exactech, which agreement had been
assigned by UFTB to the Company. The Company denied the charges in the Exactech
complaint, and the court has remanded all counts listed in the lawsuit to
binding arbitration. The arbitration is ongoing; consequently, management cannot
estimate the impact on the Company's business or financial operations.
16. SUPPLEMENTAL CASH FLOW INFORMATION
Selected cash payments and noncash activities are as follows:
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
FEBRUARY 12, 1998 DECEMBER 31,
TO DECEMBER 31, 1998 1999
-------------------- ------------
<S> <C> <C>
Interest paid during the period............................. $152,631 $ 285,166
Noncash capital lease obligations........................... $870,662 $ 281,571
Net liabilities assumed upon start of operations............ $ 39,643 $ --
Issuance of founders' common shares......................... $650,634 $ --
Issuance of Preferred A stock to related parties............ $ 1,777 $ --
Noncash settlement of note receivable and amount due from
stockholder............................................... $ -- $3,119,996
Notes payable issued to acquire GTB......................... $ -- $1,250,000
</TABLE>
17. SEGMENT DATA
The Company processes human musculoskeletal tissue received from various
tissue recovery agencies and distributes the tissue through various channels.
This one line of business represents 100% of consolidated fees from tissue
distribution and is comprised of three primary product lines: spinal allografts,
other precision tooled allografts and conventional tissue. The following table
presents fees from tissue distribution by each of the Company's three primary
product lines:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12, 1998 YEAR ENDED
TO DECEMBER 31, 1998 DECEMBER 31, 1999
--------------------- ------------------
<S> <C> <C>
Fees from tissue distribution:
Spinal allografts...................................... $30,374,959 $57,073,386
Other precision tooled allografts...................... 404,963 4,683,051
Conventional tissue.................................... 1,112,176 9,026,568
----------- -----------
Total................................................ $31,892,098 $70,783,005
=========== ===========
</TABLE>
The Company distributes their products both within and outside the United
States. During the periods ended December 31, 1998 and 1999, 100% and 97.4%,
respectively, of net revenues came from the United States. Foreign net revenues
of 2.6% during the year ended December 31, 1999 came primarily from Europe.
F-20
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 12, 1998 (DATE OPERATIONS BEGAN) TO DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
18. SUBSEQUENT EVENTS
As part of the agreement to purchase the assets of NTBN, Dr. Garrison was
given the option to convert a $500,000 note due November 2002 or any portion of
the note into Common Stock of the Company at the Series C Preferred stock price
of $27.101. On February 15, 2000 Dr. Garrison exercised his option on 9,225
shares equivalent to $250,000. The value of the shares is a reduction of the
$500,000 note payable, the balance of which at December 31, 1999 was $487,896.
The $212,236 balance of the note, after exercising the stock conversion, will be
repaid by April 2001, as the monthly payments will remain at the original amount
until the note is paid off.
On March 30, 2000, the Company purchased the buildings and land (6.19 acres)
the Company occupied under lease, plus an additional 20.82 acres of land for
future expansion. The purchase price for the two buildings and 6.19 acres was
$3,600,000 with the additional 20.82 acres priced at $624,600. The Company
received a 20 year term loan in the amount of $2,800,000 to finance the purchase
of the building and the 6.19 acres of land. Interest on the loan is at 30 day
LIBOR plus 150 basis points. Simultaneous with entering into the $2,800,000 term
loan, the Company entered into a swap agreement with a commercial bank which
fixes its interest rate at 6.85%. The effective notional amount of the swap at
March 30, 2000 was $2,800,000. The term loan is collateralized by the land and
building. The term loan agreement contains various restrictive covenants, which
limit among other things, leases, indebtedness, loans, and acquisitions. In
addition the Company must satisfy certain financial ratios including fixed
charge ratio at 1.25 to 1.00 or greater and funded debt to earnings before
interest, taxes, depreciation and amortization of not greater than 4.00 to 1.00.
The $1,424,600 balance of the amounts due for the building with 6.19 acres and
additional 20.82 acres is financed from the $10,000,000 raised from the sale of
Series C Preferred stock.
On April 27, 2000, the Company entered into a definitive agreement to
acquire the net assets of a division of the University of Alabama Health
Services Foundation, which has been doing business as the Alabama Tissue Center
("ATC"), in Birmingham, Alabama. The acquisition will be financed by a cash
payment of $350,000 and the issuance of $3,500,000 in shares of the Company's
common stock, valued at the Company's initial public offering price, plus an
additional cash payment of $250,000 upon the achievement of certain milestones,
with total possible consideration valued at $4,100,000. The acquisition of ATC
will be accounted for under the purchase method of accounting.
19. COMMON STOCK SPLIT AND MERGER INTO DELAWARE CORPORATION (UNAUDITED)
The Company anticipates approving a common stock split. The conversion rate
is not currently known. The Company's historical consolidated financial
statements will be retroactively restated for this common stock split. The
Company also anticipates that it will merge into a newly formed Delaware
corporation.
******
F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Regeneration Technologies, Inc.:
We have audited the consolidated financial statements of Regeneration
Technologies, Inc. and subsidiary (the "Company") as of December 31, 1998 and
1999, and for the period from February 12, 1998 (date operations began) to
December 31, 1998 and for the year ended December 31, 1999, and have issued our
report thereon dated March 22, 2000 (April 27, 2000 as to Note 18) (included
elsewhere in this Registration Statement). Our audits also included the
accompanying consolidated financial statement schedule. The consolidated
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
CERTIFIED PUBLIC ACCOUNTANTS
Tampa, Florida
March 22, 2000
(April 27, 2000 as to Note 18)
F-22
<PAGE>
REGENERATION TECHNOLOGIES, INC. AND SUBSIDIARY
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
PERIOD FROM FEBRUARY 12, 1998 (DATE OPERATIONS BEGAN)
TO DECEMBER 31, 1998 AND THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Period Ended December 31, 1998:
Allowance for doubtful accounts...... $ -- $ 38,500 $ -- $ -- $ 38,500
Year Ended December 31, 1999:
Allowance for doubtful accounts...... 38,500 171,587 125,000(a) -- 335,087
</TABLE>
- ------------------------
(a) Represents allowance for doubtful accounts on accounts receivable acquired
from National Tissue Bank Network, Georgia Tissue Bank, Inc.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Regeneration Technologies, Inc.:
We have audited the accompanying statements of revenues and direct costs of the
predecessor business of Regeneration Technologies, Inc. (the "Company"), a part
of the University of Florida Tissue Bank, Inc., for the year ended December 31,
1997 and for the period from January 1, 1998 through February 11, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the statement of
revenues and direct costs is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of revenues and direct costs. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statements of revenues and direct cost
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the statements of revenues and direct costs present fairly, in
all material respects, the revenues and direct costs of the Company for the year
ended December 31, 1997 and for the period from January 1, 1998 through
February 11, 1998, in conformity with accounting principles generally accepted
in the United States of America.
As more fully described in Note 2 to the statements of revenues and direct
costs, the Company was operated as a part of the University of Florida Tissue
Bank, Inc. As a result, certain expense allocations have not been made in the
accompanying statements of revenues and direct costs.
/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Tampa, Florida
April 17, 2000
F-24
<PAGE>
PREDECESSOR BUSINESS OF REGENERATION TECHNOLOGIES, INC.
(PART OF THE UNIVERSITY OF FLORIDA TISSUE BANK, INC.)
STATEMENTS OF REVENUES AND DIRECT COSTS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 1, 1998
DECEMBER 31, 1997 TO FEBRUARY 11, 1998
----------------- --------------------
<S> <C> <C>
Revenues from core operations:
Fees from tissue distribution............................ $11,074,265 $2,416,260
Other revenues from core operations...................... 2,434,499 410,244
----------- ----------
Total revenues......................................... 13,508,764 2,826,504
Management services fees................................... 8,875,067 1,932,056
----------- ----------
Net revenues........................................... 4,633,697 894,448
Costs of processing and distribution....................... 3,344,136 590,742
----------- ----------
Gross profit........................................... 1,289,561 303,706
----------- ----------
Expenses:
Direct marketing, general and administrative expenses.... (1,356,949) (207,438)
Research and development expenses........................ (478,473) (68,237)
----------- ----------
Total expenses......................................... (1,835,422) (275,675)
----------- ----------
Revenues (less than) in excess of direct costs............. $ (545,861) $ 28,031
=========== ==========
</TABLE>
See notes to statements of revenues and direct costs.
F-25
<PAGE>
PREDECESSOR BUSINESS OF REGENERATION TECHNOLOGIES, INC.
(PART OF THE UNIVERSITY OF FLORIDA TISSUE BANK, INC.)
NOTES TO STATEMENTS OF REVENUES AND DIRECT COSTS
YEAR ENDED DECEMBER 31, 1997
AND PERIOD FROM JANUARY 1, 1998 TO FEBRUARY 11, 1998
1. ORGANIZATION
Regeneration Technologies, Inc., was incorporated in Florida on August 22,
1997, and began operations on February 12, 1998, following a contribution of
assets by the University of Florida Tissue Bank, Inc. ("UFTB") of the
Predecessor Business of Regeneration Technologies, Inc. (the "Company"). The
Company processed human musculoskeletal tissue received from various tissue
recovery agencies. The Company's processing transformed the tissue into either
conventional or precision tooled allografts, some of which were patented. These
allografts were distributed domestically and internationally, for use in spinal
vertebrae repair, musculoskeletal reconstruction and fracture repair. The
processed tissue included cortical dowels, cervical implants, cortical bone
interference screws, and bone paste grafts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--The accompanying statements of revenues and direct
costs reflect the operations of the Company, operating as a part of UFTB, and
may not necessarily be indicative of the financial results had the Company been
operating as a separate entity. Allocations for certain expenses, such as
interest, corporate overhead and income taxes by UFTB are not included in these
statements, as a reasonable methodology for allocation could not be made, and
any allocation may not be indicative of the actual costs incurred by the
Company.
INVENTORIES--Product and supply inventories were stated at the lower of cost
or market, with cost determined by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment were stated at
cost less accumulated depreciation and amortization. The cost of equipment under
capital leases and leasehold improvements was amortized on the straight-line
method over the shorter of the lease term or the estimated useful life of the
asset. Depreciation was computed on the straight-line method over the following
estimated useful lives of the assets:
<TABLE>
<S> <C>
Production equipment........................................ 8 to 10 years
Leasehold improvements...................................... 8 to 10 years
Office equipment, furniture, and fixtures................... 5 to 7 years
Computer hardware and software.............................. 3 years
</TABLE>
Depreciation and amortization expense was approximately $252,447 for the year
ended December 31, 1997 and $48,272 for the period from January 1, 1998 to
February 11, 1998.
RESEARCH AND DEVELOPMENT COSTS--Research and development costs were expensed
as incurred.
REVENUE RECOGNITION--Revenue was recognized at the time the Company shipped
the processed tissue. Revenues were reported gross of any management services
fees the Company incurred to distribute its products. Any other revenues
directly related to the Company's core operations were recognized when all
significant contractual obligations were satisfied.
USE OF ESTIMATES--The preparation of the accompanying statements of revenues
and direct costs in conformity with generally accepted accounting principles
required management to make estimates and
F-26
<PAGE>
PREDECESSOR BUSINESS OF REGENERATION TECHNOLOGIES, INC.
(PART OF THE UNIVERSITY OF FLORIDA TISSUE BANK, INC.)
NOTES TO STATEMENTS OF REVENUES AND DIRECT COSTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
AND PERIOD FROM JANUARY 1, 1998 TO FEBRUARY 11, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assumptions that affected the reported amounts of revenues and direct expenses
during the reporting period. Actual results could differ from those estimates.
3. CONCENTRATIONS OF RISK
The Company's principal concentration of risk was related to its limited
distribution channels. During 1997 and the period from January 1, 1998 to
February 11, 1998, approximately 90% of the Company's revenues came from one of
the distribution companies.
4. COMMITMENTS AND CONTINGENCIES
CAPITAL LEASE OBLIGATIONS--Future minimum lease payments on capital lease
obligations as of December 31, 1997 were as follows:
<TABLE>
<S> <C>
1998........................................................ $ 342,942
1999........................................................ 342,942
2000........................................................ 342,942
2001........................................................ 147,214
----------
Total....................................................... 1,176,040
Less amount representing interest........................... (272,130)
----------
$ 903,910
==========
</TABLE>
Future minimum lease payments on capital lease obligations as of February 11,
1998 approximated those represented by the schedule above.
OPERATING LEASE OBLIGATIONS--The Company leased office equipment under
various operating leases expiring through 2001. On January 1, 1998, the Company
entered into an additional operating lease for office equipment.
Future minimum operating lease payments required under noncancelable
operating lease agreements as of December 31, 1997 and February 11, 1998 were
not significant. Rent expense relating to operating leases for the year ended
December 31, 1997 and for the period from January 1, 1998 through February 11,
1998 were approximately $2,900 and $375, respectively.
MANUFACTURING RIGHTS--The Company licensed manufacturing rights for some of
its products. Under the agreement, the Company agreed to accept and reimburse
the processor for items that met the Company's quality control guidelines.
* * * * * *
F-27
<PAGE>
One Donor Can Help Many Recipients
[Graphic of human body]
Humerus:
MD-TM--Dowel
Cornerstone-TM-
- -SR Reserve
Heart Valve:
Aortic
Pulmonary
Femur:
MD-TM--Dowels
Cornerstone-TM- SR
Precision Wedge
Tangent Wedge
Osteofil-TM- Bone Paste
Suture Anchors
Interference screw
Bone pins
Conventional allografts
Tibia:
Tangent Wedge
MD-TM--Dowel
Cornerstone-TM- SR
Fibula:
Cornerstone-TM--SR
Select
[Two photographs of recipients with text naming recipient and received tissue]
<PAGE>
- ------------------------------------------------------------
- ------------------------------------------------------------
Shares
[LOGO]
------------
Prospectus
, 2000
-------------------
Banc of America Securities LLC
Lehman Brothers
Warburg Dillon Read LLC
Stephens Inc.
Until , 2000, all dealers that buy, sell or trade our common stock may
be required to deliver a prospectus, regardless of whether they are
participating in this offering. This is in addition to the obligation of dealers
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Regeneration Technologies in
connection with the sale of the common stock being registered hereby. All the
amounts shown are estimated, except the SEC registration fee, the NASD filing
fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $22,770
NASD Filing Fee............................................. $ 9,125
Nasdaq National Market Listing Fee.......................... $ *
Printing Expenses........................................... $ *
Legal Fees and Expenses..................................... $ *
Accounting Fees and Expenses................................ $ *
Blue Sky Expenses and Counsel Fees.......................... $ *
Transfer Agent and Registrar Fees........................... $ *
Miscellaneous............................................... $ *
-------
Total................................................... $ *
=======
</TABLE>
- ------------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware
("DGCL") provides that a Delaware corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
acted in any of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the court in which such
action or suit was brought shall determine that despite the adjudication of
liability, such person is fairly and reasonably entitled to be indemnified for
such expenses which the court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein:
II-1
<PAGE>
- he shall be indemnified against expenses actually and reasonably incurred
by him in connection therewith;
- that indemnification provided for by Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be
entitled;
- and that the corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him or incurred by him in any such
capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities
under such Section 145.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director provided that such provision shall not eliminate
or limit the liability of a director:
- for any breach of the director's duty of loyalty to the corporation or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the DGCL; or
- for any transaction from which the director derived an improper personal
benefit.
Article Ninth of Regeneration Technologies's Certificate of Incorporation
contains substantially the same provisions for indemnification as those
contained in Section 145 of the DGCL. Additionally, Article Ninth provides that
in any judicial proceeding in which a person seeks indemnification pursuant to
Article Ninth, the burden of proving that such person is not entitled to
indemnification shall be on Regeneration Technologies. Article Ninth further
provides that any person who successfully establishes a right to
indemnification, in whole or in part, under Article Ninth in any such proceeding
shall be indemnified by Regeneration Technologies against expenses incurred
(including attorneys' fees) in establishing such right to indemnification.
Finally, Article Ninth provides that in the event the DGCL is amended to expand
further the indemnification permitted to the persons covered by Article Ninth,
Regeneration Technologies shall indemnify such persons to the fullest extent
permitted by the DGCL, as so amended. Reference is made to the Regeneration
Technologies' Amended Certificate of Incorporation and By-Laws filed as Exhibits
3.1 and 3.2, respectively.
Article Tenth of Regeneration Technologies's Certificate of Incorporation,
states that to the fullest extent permitted by the DGCL, no director of
Regeneration Technologies shall be personally liable to Regeneration
Technologies, any of its stockholders or any other person or entity for monetary
damages for breach of fiduciary duty owed to Regeneration Technologies, its
stockholders or such other person or entity owing to such director's position as
a director of Regeneration Technologies.
Regeneration Technologies intends to enter into indemnification agreements
with its current directors and executive officers. Regeneration Technologies
intends to insure its directors and officers against losses arising from any
claim against them as such for wrongful acts or omission, subject to certain
limitations.
Under Section 8 of the Underwriting Agreement, the underwriters are
obligated, under certain circumstances, to indemnify officers, directors and
controlling persons of Regeneration Technologies against certain liabilities,
including liabilities under the Securities Act of 1933. Reference is made to the
form of Underwriting Agreement filed as Exhibit 1.1 hereto.
II-2
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception, Regeneration Technologies has sold unregistered securities
in the amounts, at the times, and for the aggregate amounts of consideration
listed as follows:
<TABLE>
<CAPTION>
DATE CLASS SHARES PURCHASER CONSIDERATION
- --------------------- -------------------- -------------------- -------------------- -------------
<S> <C> <C> <C> <C>
February 1998 Series A Preferred 600,000 UFTB $ (39,643)
Stock 600,000 UFRF
--------------------
577,348 James M. Grooms
February 1998 Series B Preferred 748,152 16 individuals and $ 6,580,000
Stock entities
February 1998 Common stock 770,752 124 individuals 0
October 1999 Series C Preferred 368,990 and warrants Stephens- $10,000,000
Stock Warrants to purchase 46,124 Regeneration LLC
shares of common Medtronic Asset
stock Management, Inc.
February 2000 Common stock 9,225 Charles $ 250,000
Garrison, M.D.
Inception through Common stock 271,010 347 individuals 0
12/31/99 underlying options
</TABLE>
No underwriters were engaged in connection with the foregoing offers and
sales of securities. Such offers and sales of common stock and preferred stock
were made in reliance upon the exemption from registration set forth in
Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of
Regulation D promulgated thereunder for transactions not involving a public
offering, and all purchasers were accredited investors as such term is defined
in Rule 501(a) of Regulation D. Issuances of options to Regeneration
Technologies's employees, directors and consultants were made pursuant to
Rule 701 promulgated under the Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------------------- -----------
<C> <S>
1.1 Underwriting Agreement*
3.1 Certificate of Incorporation of Regeneration Technologies,
Inc.*
3.2 Bylaws*
4.1 Amended and Restated Registration Rights Agreement dated as
of October 11, 1999, by and among Regeneration Technologies,
Inc. and the Stockholders listed on Exhibits A, B and C
thereto.
4.2 Stockholder's Agreement dated as of October 11, 1999, by and
among Regeneration Technologies and the Stockholders listed
on exhibits A, B and C thereto.
5.1 Opinion of Fulbright & Jaworski L.L.P. regarding the
legality of the shares*
10.1 Program Transfer Agreement between Regeneration
Technologies, Inc. and the University of Florida Tissue
Bank, Inc. dated April 15, 1999.*
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.2 Tissue Recovery Agreement between Regeneration Technologies,
Inc. and the University of Florida Tissue Bank, Inc. dated
April 15, 1999.*
10.3 Exclusive Distributorship Agreement between Regeneration
Technologies, Inc. and C.R. Bard, Inc., dated June 6, 1998.*
10.4 Exclusive License Agreement between Regeneration
Technologies, Inc., as successor in interest to the
University of Florida Tissue Bank, Inc. and Exactech, Inc.,
dated April 22, 1997, as amended.*
10.5 Management Services Agreement between Regeneration
Technologies, Inc., as successor in interest to the
University of Florida Tissue Bank, Inc. and Sofamor Danek
Group, dated July 23, 1996.*
10.6 Management Services Agreement between Regeneration
Technologies, Inc., as successor in interest to the
University of Florida Tissue Bank, Inc., and Sofamor Danek
Group, dated May 11, 1998.*
10.7 Master Lease Agreement between Regeneration Technologies,
Inc., as successor in interest to the University of Florida
Tissue Bank, Inc., and American Equipment Leasing, dated
January 23, 1998.*
10.8 Purchase Contract between Regeneration Technologies, Inc.
and Echelon International Corp., dated January 31, 2000, as
amended.
10.9 Lease between Echelon International Corp. and Regeneration
Technologies, Inc., dated February 4, 2000.
10.10 Sublease between Regeneration Technologies, Inc. and the
University of Florida Tissue Bank, Inc., dated February 12,
1998.*
10.11 Lease between Regeneration Technologies, Inc. and First
Street Group L.C., dated June 14, 1999.
10.12 Lease agreement between Georgia Tissue Bank Inc. and Charles
P. Garrison, dated November 1, 1999.
10.13 Employment Agreements between Regeneration Technologies,
Inc. and James M. Grooms, dated February 9, 1998.
10.14 Employment Agreements between Regeneration Technologies,
Inc. and Richard R. Allen, dated February 13, 1998.
10.15 Employment Agreements between Regeneration Technologies,
Inc. and Frederick C. Preiss, dated November 25, 1998.
10.16 Employment Agreements between Regeneration Technologies,
Inc. and Thomas Brewer, dated June 15, 1998.
10.17 Employment Agreements between Regeneration Technologies,
Inc. and James P. Abraham, dated November 28, 1998.
10.18 Employment Agreements between Regeneration Technologies,
Inc. and Nancy R. Holland, dated February 13, 1998.
10.19 Omnibus Stock Option Plan.
10.20 Year 2000 Compensation Plan.
10.21 Form of indemnification agreement between Regeneration
Technologies, Inc. and its directors and executive
officers.*
10.22 Line of Credit Agreement, dated September 1999.*
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.23 Mortgage between Regeneration Technologies, Inc. and Bank of
America, N.A., dated March 30, 2000.*
10.24 Promissory Note between Regeneration Technologies, Inc. and
Bank of America, N.A., dated March 30, 2000.*
23.1 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit
5.1)*
23.2 Consent of Deloitte & Touche LLP to the consolidated
financial statements and supplemental schedule of
Regeneration Technologies, Inc. and subsidiary.
23.3 Consent of Deloitte & Touche LLP to the Statements of
Revenues and Direct Costs of the predecessor business of
Regeneration Technologies, Inc.
24.1 Power of attorney (on signature page)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment
(b) Consolidated Financial Statement Schedule. The following consolidated
financial statement schedule is filed herewith:
SCHEDULE II--VALUATIONS AND QUALIFYING ACCOUNTS
All other schedules are omitted because they are not required or are not
applicable or the information is included in the consolidated financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Alachua,
State of Florida, on April 27, 2000.
<TABLE>
<S> <C> <C>
REGENERATION TECHNOLOGIES, INC.
By: /s/ JAMES M. GROOMS
-----------------------------------------
James M. Grooms
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below and on the following page constitutes and appoints each of James M. Grooms
and Richard R. Allen as his true and lawful attorney-in-fact and agent, each
acting alone, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments including post-effective amendments, to this Registration Statement,
(or any other Registration Statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933),
and to file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, and hereby ratifies and confirms all that any said attorney-in-fact and
agent, each acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board
/s/ JAMES M. GROOMS (principal executive
------------------------------------------- officer) and Chief April 27, 2000
James M. Grooms Executive Officer
/s/ RICHARD R. ALLEN Chief Financial Officer
------------------------------------------- (principal financial and April 27, 2000
Richard R. Allen accounting officer)
/s/ PHILIP R. CHAPMAN Director
------------------------------------------- April 27, 2000
Philip R. Chapman
/s/ PETER F. GEAREN Director
------------------------------------------- April 27, 2000
Peter F. Gearen
/s/ MICHAEL J. ODRICH Director
------------------------------------------- April 27, 2000
Michael J. Odrich
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ANTHONY C. PHILLIPS Director
------------------------------------------- April 27, 2000
Anthony C. Phillips
/s/ E. RONALD PICKARD Director
------------------------------------------- April 27, 2000
E. Ronald Pickard
/s/ DANIEL L. WEBER Director
------------------------------------------- April 27, 2000
Daniel L. Weber
</TABLE>
II-7
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Regeneration
Technologies, Inc. and subsidiary on Form S-1 of our report dated March 22, 2000
(April 27, 2000 as to Note 18) appearing in the Prospectus, which is part of
this Registration Statement, and of our report relating to the consolidated
financial statement schedule dated March 22, 2000 (April 27, 2000 as to
Note 18), appearing elsewhere in this Registration Statement. We also consent to
the reference to us under the headings "Selected Financial Data" and "Experts"
in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Tampa, Florida
April 27, 2000
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Regeneration
Technologies, Inc. and subsidiary on Form S-1 of our report relating to the
statements of revenues and direct costs of the predecessor business of
Regeneration Technologies, Inc. dated April 17, 2000, appearing in the
Prospectus, which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Tampa, Florida
April 27, 2000
<PAGE>
Exhibit 4.1
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of October
11, 1999, by and among Regeneration Technologies, Inc., a Florida corporation
(the "Company"), the investors set forth on Exhibit A to the Purchase Agreement
(as defined below) (the "Class C Investors"), the investors listed on Exhibit A
hereto (the "Class B Investors"), and the investors listed on Exhibit B hereto
(the "Class A Investors"). All parties to this Agreement shall be referred to
herein collectively as the "Parties." The Class A Investors, the Class B
Investors and the Class C Investors shall be referred to herein individually as
an "Investor" and collectively as the "Investors."
WHEREAS, the Class A Investors own in the aggregate 1,777,348 outstanding
shares of the Class A Convertible Preferred Stock of the Company, par value
$0.001 per share (the "Class A Preferred");
WHEREAS, the Class B Investors own in the aggregate 748,152 outstanding
shares of the Class B Convertible Preferred Stock of the Company, par value
$0.001 per share (the "Class B Preferred");
WHEREAS, the Company and the Class C Investors are parties to that certain
convertible Class C Preferred Stock and Warrant Purchase Agreement of even date
herewith (the "Purchase Agreement"), pursuant to which the Class C Investors are
purchasing an aggregate of 368,990 shares of Class C Convertible Preferred Stock
of the Company, $0.001 par value per share (the "Class C Preferred"); and
WHEREAS, as a condition to and to effect the transfer of assets to the
Company and the sale of the Class C Preferred, it is in the best interests of
the Company to grant to the Investors certain registration rights.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I
REGISTRATION RIGHTS
1.1 Certain Definitions. As used in this Article 1 and elsewhere in
this Agreement, the following terms shall have the following respective
meanings:
"Class A Registrable Shares" means (i) the shares of Common
Stock issued or issuable upon conversion of the Class A Preferred; (ii) any
shares of Common Stock of
<PAGE>
the Company acquired by the Class A Investors pursuant to Section 2 of that
certain Stockholders' Agreement by and among the Parties and of even date
herewith (the "Stockholders' Agreement"); and (iii) any other shares of Common
Stock of the Company issued in respect of such shares described in clauses (i)
and (ii) above (because of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events); provided, however, that shares of Common
Stock which are Class A Registrable Shares shall cease to be Class A Registrable
Shares upon any sale pursuant to a Registration Statement, Section 4(1) of the
Securities Act or Rule 144 under the Securities Act. Wherever reference is made
in this Agreement to a request or consent of holders of a certain percentage of
Class A Registrable Shares, the determination of such percentage shall include
shares of Common Stock issuable upon conversion of the Class A Preferred even if
such conversion has not yet been effected.
"Class B Registrable Shares" means (i) the shares of Common
Stock issued or issuable upon conversion of the Class B Preferred; (ii) any
shares of Common Stock of the Company acquired by the Class B Investors pursuant
to Section 2 of that certain Stockholders' Agreement by and among the Parties
and of even date herewith (the "Stockholders' Agreement"); and (iii) any other
shares of Common Stock of the Company issued in respect of such shares described
in clauses (i) and (ii) above (because of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); provided, however,
that shares of Common Stock which are Class B Registrable Shares shall cease to
be Class B Registrable Shares upon any sale pursuant to a Registration
Statement, Section 4(1) of the Securities Act or Rule 144 under the Securities
Act. Wherever reference is made in this Agreement to a request or consent of
holders of a certain percentage of Class B Registrable Shares, the determination
of such percentage shall include shares of Common Stock issuable upon conversion
of the Class B Preferred even if such conversion has not yet been effected.
"Class C Registrable Shares" means (i) the shares of Common
Stock issued or issuable upon conversion of the Class C Preferred; (ii) any
shares of Common Stock of the Company acquired by the Class C Investors pursuant
to Section 2 of that certain Stockholders' Agreement by and among the Parties
and of even date herewith (the "Stockholders' Agreement"); (iii) any shares of
Common Stock of the Company issuable upon exercise of the Warrants (as defined
in that certain Convertible Class C Stock and Warrant Purchase Agreement of even
date herewith); and (iv) any other shares of Common Stock of the Company issued
in respect of such shares described in clauses (i) and (ii) above (because of
stock splits, stock dividends, reclassifications, recapitalizations, or similar
events); provided, however, that shares of Common Stock which are Class C
Registrable Shares shall cease to be Class C Registrable Shares upon any sale
pursuant to a Registration Statement, Section 4(1) of the Securities Act or Rule
144 under the Securities Act. Wherever reference is made in this Agreement to a
request or consent of holders of a certain percentage of Class C Registrable
Shares, the determination of such percentage shall include shares of Common
Stock issuable upon conversion of the Class C Preferred even if such conversion
has not yet been effected.
- 2 -
<PAGE>
"Commission" means the Securities and Exchange Commission, or
any other Federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Registrable Shares" means the Class A Registrable Shares, the
Class B Registrable Shares and the Class C Registrable Shares, either
individually or collectively, depending upon the context.
"Registration Statement" means a registration statement filed
by the Company with the Commission for a public offering and sale of securities
of the Company (other than a registration statement on Form S-8 or Form S-4, or
their successors, or any other form for a limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Securities Act" means the Securities Act of 1933, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Shares" means the Class A Preferred, the Class B Preferred
and the Class C Preferred, either individually or collectively, depending upon
the context.
"Stockholders" means the Investors and any persons or entities
to whom the rights granted under this Article 1 are transferred by the
Investors, their successors or assigns pursuant to Section 3 of the
Stockholders' Agreement or Article II hereof.
1.2 Sale or Transfer of Shares; Legend.
(a) The Shares and the Registrable Shares and shares issued in
respect of the Shares or the Registrable Shares shall not be sold or transferred
unless either (i) they first shall have been registered under the Securities
Act, or (ii) the Company first shall have been furnished with an opinion of
legal counsel, reasonably satisfactory to the Company, to the effect that such
sale or transfer is exempt from the registration requirements of the Securities
Act.
(b) Notwithstanding the foregoing, no registration or opinion
of counsel shall be required for a transfer made in accordance with Rule 144
under the Securities Act or with the terms of Section 3 of the Stockholders'
Agreement.
(c) Each certificate representing the Shares and the
Registrable Shares and shares issued in respect of the Shares or the Registrable
Shares shall bear legends substantially in the following forms:
- 3 -
<PAGE>
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be
offered, sold or otherwise transferred, pledged or hypothecated
unless and until such shares are registered under such Act or an
opinion of counsel satisfactory to the Company is obtained to the
effect that such registration is not required.
The shares of stock represented by this certificate are subject to
the terms of a Stockholders' Agreement between the Company and the
registered owner of this certificate (or the registered owner's
predecessor in interest). Such Agreement is available for inspection
without charge at the office of the Treasurer of the Company.
The foregoing legends shall be removed from the certificates
representing any Registrable Shares, at the request of the holder thereof, at
such time as they become eligible for resale pursuant to Rule 144(k) under the
Securities Act.
(d) The Company agrees, upon the request of an Investor, to
make available to an Investor and to any prospective transferee of any Shares or
Registrable Shares of an Investor the information concerning the Company
described in Rule 144A(d)(4) under the Securities Act.
1.3 Required Registrations.
(a) Class A Preferred.
(i) At any time after the earlier of four years from the date
of the Closing or the closing of the Company's first underwritten public
offering of shares of Common Stock pursuant to a Registration Statement, a
Stockholder or Stockholders holding in the aggregate at least 40% of the Class A
Registrable Shares may request, in writing, that the Company effect the
registration on Form S-1 or Form S-2 (or any successor form) of Class A
Registrable Shares owned by such Stockholder or Stockholders covering at least
33% of the then outstanding Class A Registrable Shares or any lesser percentage
provided that the anticipated aggregate offering price is at least $5,000,000
(based on the then current market price or fair value), provided, however, that
a Stockholder may not make such a request after such Stockholder has become
eligible to sell, transfer or otherwise convey all of such Stockholder's Class A
Registrable Shares pursuant to Rule 144 under the Securities Act in any
three-month period. If the holders initiating the registration intend to
distribute the Class A Registrable Shares by means of an underwriting, they
shall so advise the Company in their request. In the event such registration
involves an underwriting, the right of other Class A Stockholders to participate
shall be conditioned on such Stockholders' participation in such underwriting.
Upon
- 4 -
<PAGE>
receipt of any such request, the Company shall promptly give written notice of
such proposed registration to all Class A Stockholders. Such Stockholders shall
have the right, by giving written notice to the Company within thirty (30) days
after the Company provides its notice, to elect to have included in such
registration such of their Class A Registrable Shares as such Stockholders may
request in such notice of election, subject to the approval of the underwriter
managing the offering. The Company shall, as expeditiously as possible, use its
best efforts to effect the registration, on Form S-1 or Form S-2 (or any
successor form), of all Class A Registrable Shares which the Company has been
requested to so register.
(ii) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), holders of Common Stock issued or issuable upon conversion of the
Class A Preferred Stock will have the right to require the Company to effect an
unlimited number of Registration Statements on Form S-3 (or such successor form)
of Class A Registrable Shares having an aggregate offering price in each
registration on Form S-3 in excess of $500,000 (based on the then current public
market price). Such Stockholders shall have the right, by giving written notice
to the Company within thirty (30) days after the Company provides its notice, to
elect to have included in such registration such of their Class A Registrable
Shares as such Stockholders may request in such notice of election. The Company
shall, as expeditiously as possible, use its best efforts to effect the
registration on Form S-3, or such successor form, of all Class A Registrable
Shares which the Company has been requested to register.
(iii) Subject to the terms of Section 1.4(b) hereof, the
Company shall be required to effect two registrations pursuant to paragraph (a)
above and an unlimited number of registrations pursuant to paragraph (b) above;
provided, however, that the Company shall not be required to effect any
registration (other than on Form S-3 or any successor form relating to secondary
offerings) within six (6) months after the effective date of any other
Registration Statement of the Company, provided that the Class A Stockholders
were provided an opportunity to effect the sale of Class A Registrable Shares
pursuant to such Registration Statement; and provided further that the Company
shall not be required to effect more than two registrations pursuant to
paragraph (b) above in any 12-month period.
(iv) If a the time of any request to register Class A
Registrable Shares pursuant to this subsection 1.3(a), the Company is engaged or
has fixed plans to engage within thirty (30) days of the time of the request in
a registered public offering as to which the Stockholders may include Class A
Registrable Shares pursuant to subsection 1.4 or is engaged in any other
activity which, in the good faith determination of the Company's Board of
Directors, would be adversely affected by the requested registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a period not in excess of 180 days from the
effective date of such offering or the date of commencement of such other
material activity, as the case may be, such right to delay a request to be
exercised by the Company not more than once in any two year period.
- 5 -
<PAGE>
(b) Class B Preferred.
(i) At any time after the earlier of four years from the date
of the Closing or the closing of the Company's first underwritten public
offering of shares of Common Stock pursuant to a Registration Statement, a
Stockholder or Stockholders holding in the aggregate at least 40% of the Class B
Registrable Shares may request, in writing, that the Company effect the
registration on Form S-1 or Form S-2 (or any successor form) of Class B
Registrable Shares owned by such Stockholder or Stockholders covering at least
33% of the then outstanding Class B Registrable Shares or any lesser percentage
provided that the anticipated aggregate offering price is at least $5,000,000
(based on the then current market price or fair value), provided, however, that
a Stockholder may not make such a request after such Stockholder has become
eligible to sell, transfer or otherwise convey all of such Stockholder's Class B
Registrable Shares pursuant to Rule 144 under the Securities Act in any
three-month period. If the holders initiating the registration intend to
distribute the Class B Registrable Shares by means of an underwriting, they
shall so advise the Company in their request. In the event such registration
involves an underwriting, the right of other Class B Stockholders to participate
shall be conditioned on such Stockholders' participation in such underwriting.
Upon receipt of any such request, the Company shall promptly give written notice
of such proposed registration to all Class B Stockholders. Such Stockholders
shall have the right, by giving written notice to the Company within thirty (30)
days after the Company provides its notice, to elect to have included in such
registration such of their Class B Registrable Shares as such Stockholders may
request in such notice of election, subject to the approval of the underwriter
managing the offering. The Company shall, as expeditiously as possible, use its
best efforts to effect the registration, on Form S-1 or Form S-2 (or any
successor form), of all Class B Registrable Shares which the Company has been
requested to so register.
(ii) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), holders of Common Stock issued or issuable upon conversion of the
Class B Preferred Stock will have the right to require the Company to effect an
unlimited number of Registration Statements on Form S-3 (or such successor form)
of Class B Registrable Shares having an aggregate offering price in each
registration on Form S-3 in excess of $500,000 (based on the then current public
market price). Such Stockholders shall have the right, by giving written notice
to the Company within thirty (30) days after the Company provides its notice, to
elect to have included in such registration such of their Class B Registrable
Shares as such Stockholders may request in such notice of election. The Company
shall, as expeditiously as possible, use its best efforts to effect the
registration on Form S-3, or such successor form, of all Class B Registrable
Shares which the Company has been requested to register.
(iii) Subject to the terms of Section 1.4(b) hereof, the
Company shall be required to effect two registrations pursuant to paragraph (a)
above and an unlimited number of registrations pursuant to paragraph (b) above;
provided, however, that the Company shall not be required to effect any
registration (other than on Form S-3 or any
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successor form relating to secondary offerings) within six (6) months after the
effective date of any other Registration Statement of the Company, provided that
the Class B Stockholders were provided an opportunity to effect the sale of
Class B Registrable Shares pursuant to such Registration Statement; and provided
further that the Company shall not be required to effect more than two
registrations pursuant to paragraph (b) above in any 12-month period.
(iv) If a the time of any request to register Class B
Registrable Shares pursuant to this subsection 1.3(b), the Company is engaged or
has fixed plans to engage within thirty (30) days of the time of the request in
a registered public offering as to which the Stockholders may include Class B
Registrable Shares pursuant to subsection 1.4 or is engaged in any other
activity which, in the good faith determination of the Company's Board of
Directors, would be adversely affected by the requested registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a period not in excess of 180 days from the
effective date of such offering or the date of commencement of such other
material activity, as the case may be, such right to delay a request to be
exercised by the Company not more than once in any two year period.
(c) Class C Preferred.
(i) At any time after the earlier of four years from the date
of the Closing or the closing of the Company's first underwritten public
offering of shares of Common Stock pursuant to a Registration Statement, a
Stockholder or Stockholders holding in the aggregate at least 40% of the Class C
Registrable Shares may request, in writing, that the Company effect the
registration on Form S-1 or Form S-2 (or any successor form) of Class C
Registrable Shares owned by such Stockholder or Stockholders covering at least
33% of the then outstanding Class C Registrable Shares or any lesser percentage
provided that the anticipated aggregate offering price is at least $5,000,000
(based on the then current market price or fair value), provided, however, that
a Stockholder may not make such a request after such Stockholder has become
eligible to sell, transfer or otherwise convey all of such Stockholder's Class C
Registrable Shares pursuant to Rule 144 under the Securities Act in any
three-month period. If the holders initiating the registration intend to
distribute the Class C Registrable Shares by means of an underwriting, they
shall so advise the Company in their request. In the event such registration
involves an underwriting, the right of other Class C Stockholders to participate
shall be conditioned on such Stockholders' participation in such underwriting.
Upon receipt of any such request, the Company shall promptly give written notice
of such proposed registration to all Class C Stockholders. Such Stockholders
shall have the right, by giving written notice to the Company within thirty (30)
days after the Company provides its notice, to elect to have included in such
registration such of their Class C Registrable Shares as such Stockholders may
request in such notice of election, subject to the approval of the underwriter
managing the offering. The Company shall, as expeditiously as possible, use its
best efforts to effect the registration, on Form S-1 or Form S-2 (or any
successor form), of all Class C Registrable Shares which the Company has been
requested to so register.
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(ii) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), holders of Common Stock issued or issuable upon conversion of the
Class C Preferred Stock will have the right to require the Company to effect an
unlimited number of Registration Statements on Form S-3 (or such successor form)
of Class C Registrable Shares having an aggregate offering price in each
registration on Form S-3 in excess of $500,000 (based on the then current public
market price). Such Stockholders shall have the right, by giving written notice
to the Company within thirty (30) days after the Company provides its notice, to
elect to have included in such registration such of their Class C Registrable
Shares as such Stockholders may request in such notice of election. The Company
shall, as expeditiously as possible, use its best efforts to effect the
registration on Form S-3, or such successor form, of all Class C Registrable
Shares which the Company has been requested to register.
(iii) Subject to the terms of Section 1.4(b) hereof, the
Company shall be required to effect two registrations pursuant to paragraph (a)
above and an unlimited number of registrations pursuant to paragraph (b) above;
provided, however, that the Company shall not be required to effect any
registration (other than on Form S-3 or any successor form relating to secondary
offerings) within six (6) months after the effective date of any other
Registration Statement of the Company, provided that the Class C Stockholders
were provided an opportunity to effect the sale of Class C Registrable Shares
pursuant to such Registration Statement; and provided further that the Company
shall not be required to effect more than two registrations pursuant to
paragraph (b) above in any 12-month period.
(iv) If a the time of any request to register Class C
Registrable Shares pursuant to this subsection 1.3(c), the Company is engaged or
has fixed plans to engage within thirty (30) days of the time of the request in
a registered public offering as to which the Stockholders may include Class C
Registrable Shares pursuant to subsection 1.4 or is engaged in any other
activity which, in the good faith determination of the Company's Board of
Directors, would be adversely affected by the requested registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a period not in excess of 180 days from the
effective date of such offering or the date of commencement of such other
material activity, as the case may be, such right to delay a request to be
exercised by the Company not more than once in any two year period.
1.4 Incidental Registration.
(a) Whenever the Company proposes to file a Registration
Statement (including pursuant to subsection 1.3) at any time and from time to
time, it will, prior to such filing, give written notice to all Stockholders of
its intention to do so and, upon the written request of a Stockholder or
Stockholders given within twenty (20) days after the Company provides such
notice (which request shall state the intended method of disposition of such
Registrable Shares), the Company shall use its best efforts to cause all
Registrable Shares which the Company has been requested by such Stockholder or
Stockholders to register to be registered
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under the Securities Act to the extent necessary to permit their sale or other
disposition in accordance with the intended methods of distribution specified in
the request of such Stockholder or Stockholders; provided that the Company shall
have the right to postpone or withdraw any registration effected pursuant to
this subsection 1.4 without obligation to any Stockholder.
(b) In connection with any offering under this subsection 1.4
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such underwriting unless the holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it, and then only in such quantity as will not, in the
opinion of the underwriters, have a material adverse effect on the success of
the offering by the Company. If in the opinion of the managing underwriter the
registration of all, or part of, the Registrable Shares which the holders have
requested to be included would materially and adversely affect such public
offering, then the Company shall be required to include in the underwriting only
that number of Registrable Shares, if any, which the managing underwriter
believes may be sold without causing such adverse effect; provided that no
persons or entities other than the Company, the Stockholders and persons or
entities holding registration rights granted in accordance with subsection 1.11
hereof shall be permitted to include securities in the offering. If the number
of Registrable Shares to be included in the underwriting in accordance with the
foregoing is less than the total number of shares which the holders of
Registrable Shares have requested to be included, then the number of shares to
be offered shall be reduced or limited in the following order of priority: (x)
first, the securities proposed by the Company to be sold for its own account
(except where the Company is the party that initiated such registration); (y)
second, the number of shares to be offered by all other holders of securities of
the Company other than the holder of Registrable Shares or other holders who
have registration rights to the extent necessary to reduce the total number of
shares as recommended by such managing underwriters; and (z) third, if further
reduction or limitation is required, the number of shares to be offered for the
account of the Stockholders shall be reduced or limited on a pro rata basis in
proportion to the relative number of Registrable Shares of the Stockholders
participating in such registration. Notwithstanding the foregoing sentence, in
the case of the first registration affected pursuant to Section 1.3(a), 1.3(b)
or 1.3(c) hereof, if the number of Registrable Shares to be included in such
underwriting is less than the total number of shares which the holders of
Registrable Shares have requested to be included, then the number of shares to
be offered shall be reduced or limited on a pro rata basis in proportion to the
relative number of Registrable Shares of the Stockholders participating in such
registration (regardless of whether pursuant to Section 1.3 or this Section
1.4), provided, however, that if there is a such a reduction or limitation, then
the Stockholder that has not requested such a registration shall be deemed to
have expended one of their two registrations pursuant to Section 1.3(a)(i),
1.3(b)(i) or 1.3(c)(i), as the case may be, as long as such Stockholder has been
able to include in such registration at least 66 2/3% of the Registrable Shares
that such stockholder desired to include in such registration.
(c) Withdrawal Election. If, as a result of the proration
provisions of the Section 1.4, any Stockholder shall not be entitled to include
at least 50% of the Registrable
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Shares in such Incidental Registration pursuant to Section 1.4(a) that such
Stockholder has requested to be included, such Stockholder may elect to withdraw
his, her or its request to include Registrable Shares in such registration (a
"Withdrawal Election") without incurring any liability for his, her or its fees
and expenses; provided, however, that a Withdrawal Election shall be irrevocable
and, after making a Withdrawal Election, a Stockholder shall no longer have any
right to include Registrable Shares in the Registration as to which such
Withdrawal Election is made.
1.5 Registration Procedures. If and whenever the Company is required
by the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
(a) Prepare and file with the Commission a Registration Statement
with respect to such Registrable Shares and use its best efforts to cause
such Registration Statement to become effective; provided that before
filing a Registration Statement or prospectus or any amendment or
supplement thereto, including documents incorporated by reference after
the initial filing of any Registration Statement, the Company shall
furnish to the Stockholders of the Registrable Shares covered by such
Registration Statement (such shares, "Registered Shares") and the
underwriters, if any, copies of all such documents proposed to be filed,
which documents will be subject to the review of such Stockholders and
underwriters.
(b) Prepare and file with the Commission such amendments and
post-effective amendments to a Registration Statement as may be necessary
to keep such registration effective for a period of six (6) months or
until the Stockholder or Stockholders have completed the distribution
described in the Registration Statement relating thereto, whichever first
occurs; provided, however, that the Company, in good faith, may delay the
filing of any amendment or supplement to the Registration Statement for a
reasonable period of time, not to exceed 120 days, in order to permit the
Company (A) to effect disclosure or disposition or consummation of any
transaction requiring confidential treatment which is being actively
pursued at such time and which would require disclosure in the
Registration Statement or (B) to negotiate, effect or complete any
transaction which the Company reasonably believes might be jeopardized,
delayed or made more costly to the Company by disclosure in the
Registration Statement; and provided further, however, that (i) such 6
month period shall be extended for a period of time equal to the period
the Stockholder refrains from selling any securities included in such
registration in accordance with the provisions of Section 1.10 hereof;
(ii) such 6 month period shall be extended by the number of days during
the period from and including the date of the giving of notice pursuant to
Section 1.5(e) hereof to and including the date when each Stockholder of
Registrable Shares covered by such Registration Statement shall have
received the copies of the supplemented or amended prospectus contemplated
by Section 1.5(e) hereof; and (iii) in the case of any registration of
Registrable Shares on Form S-3 which are intended to be offered on a
continuous or
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<PAGE>
delayed basis, such 6 month period shall be extended, if necessary, to
keep the Registration Statement effective until all such Registrable
Shares are sold, provided that Rule 415, or any successor rule under the
Securities Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Securities Act governing
the obligation to file a post-effective amendment permit, in lieu of
filing a post-effective amendment which (y) includes any prospectus
required by Section l0(a)(3) of the Securities Act or (z) reflects facts
or events representing a material or fundamental change in the information
set forth in the Registration Statement, the incorporation by reference in
the Registration Statement of periodic reports filed pursuant to Section
13 or 15(d) of the Exchange Act that contain the information required to
be included in (y) and (z) above;
(c) Cause the related prospectus to be supplemented by any required
prospectus supplement, and as so supplemented, to be filed pursuant to
Rule 424 under the Securities Act; and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered
by such Registration Statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
Registration Statement or supplement to such prospects;
(d) Furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus as a
Stockholder from time to time may reasonably request;
(e) Notify each seller of Registered Shares covered by such
Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and at the
request of any such seller, prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include 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 the
light of the circumstances under which they were made, not misleading;
(f) Cause all such Registered Shares to be listed on each securities
exchange on which similar securities issued by the Company are then listed
or, if not then listed, cause such Registered Shares to be included in
whatever exchange or national automated quotation system the Board of
Directors determines is appropriate;
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<PAGE>
(g) Provide a transfer agent and registrar for all Registered Shares
and a CUSIP number for all such Registered Shares, in each case not later
than the effective date of such registration;
(h) Make available for inspection during regular business hours by
any seller of Registrable Shares, any underwriter participating in any
disposition pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by any such seller or underwriter
(collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company (collectively
the "Records") as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the Company's officers,
directors, employees and independent accountants to supply all information
reasonably requested by such seller, underwriter, attorney or accountant
in connection with such Registration Statement. Records which the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors
unless (A) the disclosure of such Records is, in the opinion of counsel
for the selling Stockholders, reasonably necessary to avoid or correct any
misstatement or omission in the Registration Statement, (B) the release of
such Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction, or (C) the disclosure of such Records is
required by any governmental regulatory body with jurisdiction over any
seller of Registrable Shares. Such seller, upon learning, that disclosure
of such Records is sought in a court of competent jurisdiction, shall
notify the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of the Records deemed
confidential;
(i) Cooperate with the sellers of Registered Shares and the managing
underwriter(s), if any, to facilitate the timely preparation and delivery
of certificates representing the Registered Shares to be sold, without any
restrictive legends, in such denominations and registered in such names as
the managing underwriter(s) may request at least two business days prior
to any sale thereof to the underwriters, if applicable;
(j) Participate, to the extent reasonably requested by the managing
underwriter for the offering or the selling Stockholders, in efforts to
sell the Registrable Shares under the offering (including, without
limitation, participating in "roadshow" meetings with prospective
investors) that would be customary for underwritten primary offerings of a
comparable percent of equity securities by the Company;
(k) Obtain from its accountants "cold-comfort" letters, dated the
effective date of the Registration Statement and the date of the closing
of the sale of the Registered Shares, and addressed to the Company and the
selling Stockholders, in form and substance as are customarily issued in
connection with underwritten public offerings;
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<PAGE>
(l) Obtain from its counsel an opinion, addressed to the selling
Stockholders, with respect to the offering in form and substance
reasonably satisfactory to a majority-in-interest of such Stockholders;
(m) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security Stockholders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more than
eighteen months, beginning with the first month after the effective date
of the Registration Statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act;
(n) In connection with any underwritten offering pursuant to a
Registration Statement filed pursuant to Section 1 hereof, the Company
will enter into any underwriting agreement reasonably necessary to effect
the offer and sale of Common stock, provided such underwriting agreement
contains customary underwriting, indemnification and contribution
provisions; provided, however, that no Stockholder will be liable for
indemnification or contribution in excess of the net proceeds such
Stockholder received in the offering;
(o) Use its best efforts to register or qualify such Registrable
Shares under such other securities or blue sky laws of such jurisdictions
as any seller reasonably requests and do any and all other acts and things
which may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the Registrable Shares
owned by such seller provided that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject
itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction);
(p) Use its best efforts to cause such Registrable Shares covered by
such Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the sellers thereof to consummate the disposition of such Registrable
Shares; and
(q) Take all such other actions as the underwriters, if any, and a
majority-in-interest of the selling Stockholders reasonably request in
order to expedite or facilitate the disposition of such Registrable Shares
(including, without limitation, effecting a stock split or combination of
shares).
1.6 Allocation of Expenses. The Company will pay all Registration
Expenses of all registrations under this Agreement; provided, however, that if a
registration under subsection 1.3 is withdrawn at the request of the Class B or
Class C Stockholders, as applicable, requesting such registration (other than as
a result of information concerning the business or financial condition of the
Company which is made known to the Stockholders after
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the date on which such registration was requested) and if the requesting
Stockholders, elect not to have such registration counted as a registration
requested under subsection 1.3, the requesting Stockholders shall pay the
Registration Expenses of such registration pro rata in accordance with the
number of their Registrable Shares included in such registration. For purposes
of this Section, the term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with this Article 1, including, without
limitation, all registration and filing fees, exchange listing fees, printing
expenses, fees and disbursements of counsel for the Company and the fees and
expenses of one counsel selected by the selling Stockholders, as applicable, to
represent the selling Stockholders, as applicable, state Blue Sky fees and
expenses, and the expense of any special audits incident to or required by any
such registration, but excluding underwriting discounts, selling commissions and
the fees and expenses of the selling Stockholders' own counsel (other than the
counsel selected to represent all selling Stockholders).
1.7 Indemnification and Contribution. In the event of any
registration of any of the Registrable Shares under the Securities Act pursuant
to this Agreement, the Company will indemnify and hold harmless the seller of
such Registrable Shares, each underwriter of such Registrable Shares, and each
other person, if any, who controls such seller or underwriter within the meaning
of the Securities Act or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such seller, underwriter or controlling
person may become subject under the Securities Act, the Exchange Act, state
securities or Blue Sky laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to such Registration Statement, or arise out of or are based upon the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Company will promptly reimburse such seller, underwriter and each such
controlling person upon demand for any legal or any other expenses reasonably
incurred by such seller, underwriter or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or omission made in such Registration Statement,
preliminary prospectus or prospectus, or any such amendment or supplement, in
reliance upon and in conformity with information furnished to the Company, in
writing, by or on behalf of such seller, underwriter or controlling person
specifically for use in the preparation thereof.
In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, will indemnify and hold harmless the Company,
each of its directors and officers and each underwriter (if any) and each
person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which the Company, such directors
and
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officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if but only if, the statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of such seller, specifically for use in connection with
the preparation of such Registration Statement, prospectus, amendment or
supplement; provided, however, that the obligations of such Stockholders
hereunder shall be limited to an amount equal to the proceeds to each
Stockholder of Registrable Shares sold as contemplated herein.
Each party entitled to indemnification under this subsection 1.7
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Article 1. The Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnifying Party
shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding. No Indemnifying Party in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified Party shall
consent to entry of any judgment or settle such claim or litigation without the
prior written consent of the Indemnifying Party.
In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Shares exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
subsection 1.7 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this subsection 1.7
provides for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any such selling
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Stockholder, as applicable, or any such controlling person in circumstances for
which indemnification is provided under this subsection 1.7; then, in each such
case, the Company and such Stockholder will contribute to the aggregate losses,
claims, damages, or liabilities to which they may be subject (after contribution
from others) in such proportion as is appropriate to reflect the relative fault
of the Stockholder on the one hand and the Company on the other in connection
with the action that resulted in such loss, claim, damage or liability, as well
as any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by a court
of law by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission; provided, that in no event shall
any contribution by a holder exceed the proceeds to it of all Registrable Shares
sold by it pursuant to such Registration Statement, and (B) no person or entity
guilty of fraudulent misrepresentation, within the meaning of Section 11(f) of
the Securities Act, shall be entitled to contribution from any person or entity
who is not guilty of such fraudulent misrepresentation.
1.8 Indemnification with Respect to Underwritten Offering. In the
event that Registrable Shares are sold pursuant to a Registration Statement in
an underwritten offering pursuant to subsection 1.3(a), 1.3(b) or 1.3(c), the
Company agrees to enter into an underwriting agreement containing customary
representations and warranties of an issuer of the securities being registered
and customary covenants and agreements to be performed by such issuer, including
without limitation customary provisions with respect to indemnification by the
Company of the underwriters of such offering, provided that such agreement shall
not provide that the Stockholders are subject to indemnification obligations
greater than as set forth herein.
1.9 Information by Holder. Each holder of Registrable Shares
included in any registration shall furnish to the Company such information
regarding such holder and the distribution proposed by such holder as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Article 1.
1.10 "Market Stand-Off Agreement.
(a) Each Stockholder, if requested by the Company and an
underwriter of Common Stock or other securities of the Company, shall agree not
to sell or otherwise transfer or dispose of any Registrable Shares or other
securities of the Company held by such Stockholder for a specified period of
time (not to exceed 180 days) following the effective date of a Registration
Statement; provided, that:
(i) such agreement shall only apply to the first such
Registration Statement covering Common Stock of the Company to be
sold on its behalf to the public in an underwritten offering; and
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(ii) all Stockholders holding not less than the number of
shares of Common Stock held by such Stockholder (including shares of
Common Stock issuable upon the conversion of Shares, or other
convertible securities, or upon the exercise of options, warrants or
rights) and all officers and directors of the Company enter into
similar agreements.
(c) The agreements described in subsection (a) above shall be
in writing in a form satisfactory to the Company and such underwriter. The
Company may impose stop-transfer instructions with respect to the Registrable
Shares or other securities subject to the foregoing restriction until the end of
the stand-off period.
1.11 Limitations on Subsequent Registration Rights. The Company
shall not, without the prior written consent of Stockholders holding at least 66
2/3% of the Registrable Shares, enter into any agreement (other than this
Agreement) with any holder or prospective holder of any securities of the
Company which would allow such holder or prospective holder (a) to include
securities of the Company in any registration filed under subsection 1.3 or 1.4,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only on terms substantially
similar to the terms on which holders of Registrable Shares may include shares
in such registration, including the terms of Section 1.4(b) hereof; provided,
however, that under the terms of such agreement the number of Registrable Shares
to be included by the initiator of a demand registration pursuant to Section 1.3
hereof shall not be reduced to allow such holder or prospective holder to
include securities in such registration or (b) to make a demand registration
which could result in such registration statement being declared effective prior
to the initial public offering.
1.12 Rule 144 Requirements. After the earliest of (i) the closing of
the sale of securities of the Company pursuant to a Registration Statement, (ii)
the registration by the Company of a class of securities under Section 12 of the
Exchange Act, or (iii) the issuance by the Company of an offering circular
pursuant to Regulation A under the Securities Act, the Company agrees to:
(a) Comply with the requirements of Rule 144(c) under the
Securities Act with respect to current public information about the Company;
(b) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) furnish to any holder of Registrable Shares upon request
(i) a written statement by the Company as to its compliance with the
requirements of said Rule 144(c), and the reporting requirements of the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), (ii) a copy of the most recent annual
- 17 -
<PAGE>
or quarterly report of the Company, and (iii) such other reports and documents
of the Company as such holder may reasonably request to avail itself of any
similar rule or regulation of the Commission allowing it to sell any such
securities without registration.
1.13 Selection of Underwriter. In the case of any registration
effected pursuant to this Article I, the Company shall have the right to
designate the managing underwriter in any underwritten offering, subject to the
approval of the holders of a majority of the Registrable Shares requested to be
included in such offering, which approval shall not be unreasonably withheld.
1.14 Mergers, Etc. The Company shall not, directly or indirectly,
enter into any merger, consolidation, or reorganization in which the Company
shall not be the surviving corporation unless the proposed surviving corporation
shall, prior to such merger, consolidation, or reorganization, agree in writing
to assume the obligations of the Company under this Article 1, and for that
purpose references hereunder to "Registrable Shares" shall be deemed to be
references to the securities that each Stockholder would be entitled to receive
in exchange for Registrable Shares under any such merger, consolidation, or
reorganization; provided, however, that the provisions of this Article I shall
not apply in the event of any merger, consolidation, or reorganization in which
the Company is not the surviving corporation if all Stockholders are entitled to
receive in exchange for their Registrable Shares consideration consisting solely
of (i) cash, (ii) securities of the acquiring corporation that may be
immediately sold to the public without registration under the Securities Act, or
(iii) securities of the acquiring corporation that the acquiring corporation has
agreed to register within ninety (90) days of completion of the transaction for
resale to the public pursuant to the Securities Act.
ARTICLE II
TRANSFERS OF CERTAIN RIGHTS
2.1 The rights granted to the Investors under this Agreement may be
transferred by such Investor to an affiliate, partner, shareholder or immediate
family member of such Investor or any transferee who after such transfer holds
at least 20% of the Investor's Registrable Shares; provided, however, that the
Company is given written notice by the transferee at the time of such transfer
stating the name and address of the transferee and identifying the securities
with respect to which such rights are being transferred, and that the Company
gives its consent to the transfer of rights to any transferee which is not an
affiliate, partner, shareholder, or immediate family member of the Investor,
which consent shall not be unreasonably withheld.
2.2 Transferees. Any transferee to whom rights under this Agreement
are transferred shall, as a condition to such transfer, deliver to the Company a
written instrument by which such transferee agrees to be bound by the
obligations imposed upon the Investor under this Agreement to the same extent as
if such transferee were the Investor.
- 18 -
<PAGE>
2.3 Subsequent Transferees. A transferee to whom rights are
transferred pursuant to this Section 2 may not again transfer such rights to any
other person or entity, other than as provided in Subsection 2.1 or Subsection
2.2 above
ARTICLE III
MISCELLANEOUS
3.1 No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Shares in this
Agreement.
3.2 Adjustments Affecting Registrable Shares. The Company will not
take any action, or permit any change to occur, with respect to its securities
that would adversely affect the ability of the holders of Registrable Shares to
include such Registrable Shares in a registration undertaken pursuant to this
Agreement or that would adversely affect the marketability of such Registrable
Shares in any such registration (including, without limitation, effecting a
stock split or a combination of shares).
3.3 Remedies. Any person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically (without posting
any bond or other security), to recover damages caused by reason of any breach
of any provision of this Agreement and to exercise all other rights granted by
law.
3.4 Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended and the Company may take action
herein prohibited, or omit to perform any act herein required to be performed by
it, if, but only if, the Company has obtained the written consent of holders of
at least 2/3 of each of the Class A, the Class B and the Class C Registrable
Shares then in existence.
3.5 Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, irrespective of whether any express
assignment has been made, the provisions of this Agreement that are for the
benefit of purchasers or holders of Registrable Shares are also for the benefit
of; and enforceable by, any subsequent holder permitted by Section 2.1.
3.6 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Florida.
Each of the Company and each Investor hereby irrevocably and unconditionally
submit to the jurisdiction of the courts of the State of Florida and the United
States of America located in the State of Florida (the "Florida Courts") for
any litigation arising out of or relating to this Agreement and the transactions
contemplated hereby (and agree not to commence any litigation relating thereto
except in such courts), consent to service of process in such Florida Courts,
waive any objection to the laying of
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<PAGE>
venue of any such litigation in Alachua County, Florida, and agree not to plead
or claim in any Florida Court that such litigation brought therein has been
brought in any inconvenient forum.
3.7 Term of Registration Rights. Notwithstanding anything to the
contrary contained herein, the registration rights of each holder of Registrable
Shares set forth in Section 1 shall terminate in their entirety on the fifth
anniversary of a Qualified Class A, Qualified Class B or Qualified Class C
Offering (each as defined in Article Fourth, Section B.5(a) of the Company's
Articles of Incorporation), as the case may be.
3.8 Entire Agreement. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
3.9 Notices. Any and all notices or elections permitted or required
to be made under this Agreement shall be in writing, signed by the party giving
such notice or election and shall be delivered personally, by courier or sent by
registered or certified mail, return receipt requested, to the Company and the
Stockholders at their respective addresses below:
If to the Company to:
Regeneration Technologies, Inc.
One Innovation Drive
Alachua, Florida 32615
Attn: Richard R. Allen
with copy (which shall not constitute notice) to:
Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, DC 20036
Attn: Theodore D. Segal, Esquire
If to the Class C Investors to:
Medtronic Asset Management, Inc.
7000 Central Avenue, N.E.
Minneapolis, MN 55402
Attn: Vice President & Chief Development Officer
with copy to:
- 20 -
<PAGE>
Medtronic Asset Management, Inc.
7000 Central Avenue, N.E.
Minneapolis, MN 55402
Attn: General Counsel
and
Stephens-Regeneration LLC
111 Center Street, Suite 2500
Little Rock, AR 72201
Attn: President
with copy to:
Stephens-Regeneration LLC
111 Center Street, Suite 2500
Little Rock, AR 72201
Attn: Jackson Farrow, Esquire
If to the Class A or Class B Investors, to the addresses set forth below
their respective names in Exhibit A and Exhibit B hereto.
3.10 Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement or any provision of the other
Agreements shall not in any way be affected or impaired thereby.
3.11 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
3.12 No Registration of Preferred Stock. The registration rights
contained herein apply only to the Company's Common Stock, and the Company shall
never be obligated to register any of the Class A Preferred, Class B Preferred
or the Class C Preferred.
3.13 Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so executed shall be deemed an original, and
all such counterparts taken together shall constitute one and the same
instrument.
[signatures begin on next page]
- 21 -
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first written above.
REGENERATION TECHNOLOGIES, INC.
By: /s/ James M. Grooms
--------------------------------
Name: James M. Grooms
Its: President
CLASS A STOCKHOLDERS
JAMES M. GROOMS
/s/ James M. Grooms
------------------------------
UNIVERSITY OF FLORIDA TISSUE BANK
By:
--------------------------------
Name: Nancy R. Holland
Its: President
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC.
By:
--------------------------------
Name:
Its:
LB I GROUP, INC.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
- 21 -
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first written above.
REGENERATION TECHNOLOGIES, INC.
By: /s/ James M. Grooms
--------------------------------
Name: James M. Grooms
Its: President
CLASS A STOCKHOLDERS
JAMES M. GROOMS
/s/ James M. Grooms
-----------------------------
UNIVERSITY OF FLORIDA TISSUE BANK
By:
--------------------------------
Name: Nancy R. Holland
Its: President
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC.
By: /s/ Thomas E. Walsh
--------------------------------
Name: Thomas E. Walsh
Its: Secretary 10-8-99
LB I GROUP, INC.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
- 21 -
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first written above.
REGENERATION TECHNOLOGIES, INC.
By: /s/ James M. Grooms
--------------------------------
Name: James M. Grooms
Its: President
CLASS A STOCKHOLDERS
JAMES M. GROOMS
/s/ James M. Grooms
-----------------------------
UNIVERSITY OF FLORIDA TISSUE BANK, INC. [ILLEGIBLE] 10/6/99
By: /s/ Nancy R. Holland
--------------------------------
Name: Nancy R. Holland
Its: President
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC.
By:
--------------------------------
Name:
Its:
LB I GROUP, INC.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
- 21 -
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first written above
REGENERATION TECHNOLOGIES, INC.
By:
--------------------------------
Name: James M. Grooms
Its: President
CLASS A STOCKHOLDERS
JAMES M. GROOMS
------------------------------
UNIVERSITY OF FLORIDA TISSUE BANK
By:
--------------------------------
Name: Nancy R. Holland
Its: President
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC.
By:
--------------------------------
Name:
Its:
LB I GROUP, INC.
By: /s/ Fred Steinberg
--------------------------------
Name: Fred Steinberg
------------------------------
Its: Vice President
-------------------------------
- 21 -
<PAGE>
By: /s/ [ILLEGIBLE] DESIGNATED SIGNATORY
--------------------------------- Pursuant to
Name: Power of Attorney
------------------------------
Its:
-------------------------------
FREDERICK R. ADLER
/s/ [ILLEGIBLE] DESIGNATED SIGNATORY
----------------------------- Pursuant to
Power of Attorney
2001 PARTNERS, L.P.
By: /s/ [ILLEGIBLE] DESIGNATED SIGNATORY
--------------------------------- Pursuant to
Name: Power of Attorney
------------------------------
Its:
-------------------------------
SIPAREX PME
By:
---------------------------------
Name:
------------------------------
Its:
-------------------------------
MICHEAL LEWIS, M.D.
------------------------------
SIPAREX DEVELOPMENT
By:
---------------------------------
Name:
------------------------------
Its:
-------------------------------
PHILIP R. CHAPMAN
- 22 -
<PAGE>
EURO-AMERICA II, L.P.
By:
---------------------------------
Name:
------------------------------
Its:
-------------------------------
FREDERICK R. ADLER
-----------------------------
2001 PARTNERS, L.P.
By:
---------------------------------
Name:
------------------------------
Its:
-------------------------------
SIPAREX PME
By:
---------------------------------
Name:
------------------------------
Its:
-------------------------------
MICHEAL LEWIS, M.D.
------------------------------
SIPAREX DEVELOPMENT
By:
---------------------------------
Name:
------------------------------
Its:
-------------------------------
- 22 -
<PAGE>
PHILIP R. CHAPMAN
-----------------------------
JACQUES VALLEE
/s/ Jacques Vallee
-----------------------------
RTI ADVISORY GROUP, L.L.C.
By:
---------------------------------
Name:
------------------------------
Its:
-------------------------------
- 23 -
<PAGE>
PHILIP R. CHAPMAN
-----------------------------
JACQUES VALLEE
-----------------------------
RTI ADVISORY GROUP, L.L.C.
By: /s/ Kevin T. Foley, M.D.
---------------------------------
Name: Kevin T. Foley, M.D.
------------------------------
Its:
-------------------------------
- 23 -
<PAGE>
/s/ [ILLEGIBLE] DESIGNATED SIGNATORY
----------------------------- Pursuant to
Power of Attorney
JACQUES VALLEE
------------------------------
RTI ADVISORY GROUP, L.L.C.
By:
---------------------------------
Name:
------------------------------
Its:
-------------------------------
- 23 -
<PAGE>
PHILIP R. CHAPMAN
/s/ Philip R. Chapman
-----------------------------
JACQUES VALLEE
------------------------------
RTI ADVISORY GROUP, L.L.C.
By:
---------------------------------
Name:
------------------------------
Its:
-------------------------------
- 23 -
<PAGE>
CLASS B STOCKHOLDERS
FREDERICK R. ADLER
-----------------------------
PHILIP R. CHAPMAN
-----------------------------
ADLER CHILDREN TRUST
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
EURO-AMERICA-II, L.P.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
LB I GROUP INC.
By: /s/ Fred Steinberg
--------------------------------
Name: Fred Steinberg
------------------------------
Its: Vice President
-------------------------------
LB MBG VC PARTNERS 1998 (A) L.P.
By: /s/ Fred Steinberg
--------------------------------
Name: Fred Steinberg
------------------------------
Its: Vice President of LBI Group Inc.
---------------------------------
Its General Partner
- 24 -
<PAGE>
CLASS B STOCKHOLDERS
FREDERICK R. ADLER
/s/ [ILLEGIBLE] DESIGNATED SIGNATORY
------------------------------ Pursuant To
Power of Attorney
PHILIP R. CHAPMAN
/s/ [ILLEGIBLE] DESIGNATED SIGNATORY
------------------------------ Pursuant To
Power of Attorney
ADLER CHILDREN TRUST
By: /s/ [ILLEGIBLE] DESIGNATED SIGNATORY
-------------------------------- Pursuant To
Name: Power of Attorney
------------------------------
Its:
-------------------------------
EURO-AMERICA-II, L.P.
By: /s/ [ILLEGIBLE] DESIGNATED SIGNATORY
-------------------------------- Pursuant To
Name: Power of Attorney
------------------------------
Its:
-------------------------------
LB I GROUP INC.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
LB MBG VC PARTNERS (A) L.P.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
LB MBG VC PARTNERS (B) L.P.
- 24 -
<PAGE>
CLASS B STOCKHOLDERS
FREDERICK R. ADLER
-----------------------------
PHILIP R. CHAPMAN
/s/ Philip R. Chapman
-----------------------------
ADLER CHILDREN TRUST
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
EURO-AMERICA-II, L.P.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
LB I GROUP INC.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
LB MBG VC PARTNERS 1998 (A) L.P.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
- 24 -
<PAGE>
LB MBG VC PARTNERS 1998 (B) L.P.
By: /s/ Fred Steinberg
--------------------------------
Name: Fred Steinberg
------------------------------
Its: Vice President of LB I Group Inc.
---------------------------------
Its General Partner
LB MGB VC PARTNERS 1998 (C) L.P.
By: /s/ Fred Steinberg
--------------------------------
Name: Fred Steinberg
------------------------------
Its: Vice President of LB I Group Inc.
---------------------------------
Its General Partner
LB MGB VC PARTNERS 1998 (D) L.P.
By: /s/ Fred Steinberg
--------------------------------
Name: Fred Steinberg
------------------------------
Its: Vice President of LB I Group Inc.
---------------------------------
Its General Partner
MICHAEL LEWIS, M.D.
-----------------------------
2001 PARTNERS, L.P.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
- 25 -
<PAGE>
LB MBG VC PARTNERS (B) L.P.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
LB MGB VC PARTNERS (C) L.P.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
LB MGB VC PARTNERS (D) L.P.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
MICHAEL LEWIS, M.D.
-----------------------------
2001 PARTNERS, L.P.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
- 25 -
<PAGE>
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
LB MGB VC PARTNERS (C) L.P.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
LB MGB VC PARTNERS (D) L.P.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
MICHAEL LEWIS, M.D.
-----------------------------
2001 PARTNERS, L.P.
By: /s/ [ILLEGIBLE] DESIGNATED SIGNATORY
-------------------------------- Pursuant To
Name: Power of Attorney
------------------------------
Its:
-------------------------------
- 25 -
<PAGE>
SIPAREX PME
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
SIPAREX DEVELOPMENT
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
JACQUES VALLEE
/s/ Jacques Vallee
-----------------------------
RTI ADVISORY GROUP, L.L.C.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
CLASS C STOCKHOLDERS
MEDTRONIC ASSET MANAGEMENT, INC.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
------------------------------
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
- 26 -
<PAGE>
SIPAREX PME
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
SIPAREX DEVELOPMENT
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
JACQUES VALLEE
-----------------------------
RTI ADVISORY GROUP, L.L.C.
By: /s/ Kevin T. Foley, M.D.
--------------------------------
Name: Kevin T. Foley, M.D.
------------------------------
Its:
-------------------------------
CLASS C STOCKHOLDERS
MEDTRONIC ASSET MANAGEMENT, INC.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
------------------------------
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
- 26 -
<PAGE>
SIPAREX PME
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
SIPAREX DEVELOPMENT
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
JACQUES VALLEE
-----------------------------
RTI ADVISORY GROUP, L.L.C.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
CLASS C STOCKHOLDERS
MEDTRONIC ASSET MANAGEMENT, INC.
By: /s/ Michael D. Ellwein
--------------------------------
Name: Michael D. Ellwein
------------------------------
Its: Vice President and Chief Development Officer
-------------------------------
STEPHENS-REGENERATION LLC
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
- 27 -
<PAGE>
SIPAREX PME
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
SIPAREX DEVELOPMENT
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
JACQUES VALLEE
-----------------------------
RTI ADVISORY GROUP, L.L.C.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
CLASS C STOCKHOLDERS
MEDTRONIC ASSET MANAGEMENT, INC.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
STEPHENS-REGENERATION LLC
By: /s/ Jackson Farrow, Jr.
--------------------------------
Name: Jackson Farrow Jr.
Its: Vice-President of Stephens Group, Inc., its manager
- 27 -
<PAGE>
EXHIBIT A
Class B Investors:
Frederick R. Adler
C/O Jay Nickse
Venad Administrative Services, Inc.
Suite 807, 342 Madison Avenue
New York, NY 10173
Philip R. Chapman
Suite 807, 342 Madison Avenue
New York, NY 10173
Adler Children Trust
C/O Jay Nickse
Venad Administrative Services, Inc.
Suite 807, 342 Madison Avenue
New York, NY 10173
Euro-America-LI, L.P.
C/O Jay Nickse
Venad Administrative Services, Inc.
Suite 807, 342 Madison Avenue
New York, NY 10173
LB I Group Inc.
Attn: Fred E. Steinberg, Vice President
Lehman Brothers, Inc.
3 World Financial Center--8th Floor
New York, NY 10285-0800
LB MBG VC Partners (A) L.P.
Attn: Fred E. Steinberg, Vice President
Lehman Brothers, Inc.
3 World Financial Center--8th Floor
New York, NY 10285-0800
<PAGE>
LB MBG VC Partners (B) L.P.
Attn: Fred E. Steinberg, Vice President
Lehman Brothers, Inc.
3 World Financial Center--8th Floor
New York, NY 10285-0800
LB MBG VC Partners (C) L.P.
Attn: Fred E. Steinberg, Vice President
Lehman Brothers, Inc.
3 World Financial Center--8th Floor
New York, NY 10285-0800
LB MBG VC Partners (D) L.P.
Attn: Fred E. Steinberg, Vice President
Lehman Brothers, Inc.
3 World Financial Center--8th Floor
New York, NY 10285-0800
Michael Lewis, M.D.
Goldman, Sachs & Co.
Attn: IRA Department
10 Hanover Square
11th Floor
New York, NY 10005
2001 Partners, L.P.
C/O Jay Nickse
Venad Administrative Services, Inc.
Suite 807, 342 Madison Avenue
New York, NY 10173
Siparex PME
Attention: J. F. Puech
139, Rue Vendome
69477 Lyon - Cedex 06
FRANCE
- 2 -
<PAGE>
Siparex Development
Attention: J. F. Puech
139, Rue Vendome
69477 Lyon - Cedex 06
FRANCE
Jacques Vallee
1835 Franklin Street
#1501
San Francisco, CA 94109
RTI Advisory Group L.L.C.
C/O Robert Hyde
530 Oak Court Drive, Suite 345
Memphis, TN 38117
- 3 -
<PAGE>
EXHIBIT B
Class A Investors:
James M. Grooms
One Innovation Drive
Alachua, FL 32615
University of Florida Tissue Bank
One Innovation Drive
Alachua, FL 32615
University of Florida Research Foundation, Inc.
Attn: General Counsel
P.O. Box 100215
Gainesville, FL 32610
LB I Group, Inc.
Attn: Fred E. Steinberg, Vice President
Lehman Brothers, Inc.
3 World Financial Center --8th Floor
New York, NY 10285-0800
Euro-America II, L.P.
C/O Jay Nickse
Venad Administrative Services, Inc.
Suite 807, 342 Madison Avenue
New York, NY 10173
Frederick R. Adler
C/O Jay Nickse
Venad Administrative Services, Inc.
Suite 807, 342 Madison Avenue
New York, NY 10173
2001 Partners, L.P.
C/O Jay Nickse
Venad Administrative Services, Inc.
Suite 807, 342 Madison Avenue
New York, NY 10173
<PAGE>
Siparex PME
Attention: J. F. Puech
139, Rue Vendome
69477 Lyon - Cedex 06
FRANCE
Michael Lewis, M.D.
Goldman, Sachs & Co.
Attn: IRA Department
10 Hanover Square
11th Floor
New York, NY 10005
Siparex Development
Attention: J. F. Puech
139, Rue Vendome
69477 Lyon - Cedex 06
FRANCE
Philip R. Chapman
Suite 807, 342 Madison Avenue
New York, NY 10173
Jacques Vallee
1835 Franklin Street
#1501
San Francisco, CA 94109
RTI Advisory Group, L.L.C.
C/O Robert Hyde
530 Oak Court Drive, Suite 345
Memphis, TN 38117
- 2 -
<PAGE>
Exhibit 4.2
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement (the "Agreement") is made as of the 11th day
of October 1999 by and among Regeneration Technologies, Inc., a Florida
corporation (the "Company"), the investors set forth on Exhibit A to the
Purchase Agreement (as defined below) (the "Class C Investors"), the
stockholders listed on Exhibit A hereto (the "Class B Investors"), the
stockholders listed on Exhibit B hereto (the "Class A Investors"), and the
stockholders listed on Exhibit C hereto (the "Listed Stockholders"), with the
Class C Investors, the Class B Investors, the Class A Investors and the Listed
Stockholders sometimes being referred to herein as the "Stockholders," and the
Class C, Class B and Class A Investors sometimes being referred to herein as the
"Preferred Stockholders."
WHEREAS, the Class A Investors own in the aggregate 1,777,348 shares of
the Class A convertible Preferred Stock of the Company, par value $0.001 per
share (the "Class A Preferred Stock");
WHEREAS the Class B Investors own in the aggregate 748,152 shares of Class
B Convertible Preferred Stock of the Company, par value $0.001 per share (the
"Class B Preferred Stock");
WHEREAS, the Listed Stockholders own the number of shares of the Common
Stock of the Company, par value $0.001 per share (the "Common Stock") set forth
on Exhibit C hereto;
WHEREAS, concurrently with the execution of this Agreement, the Class C
Investors are purchasing shares of the Class C Convertible Preferred Stock of
the Company, par value $0.001 per share (the "Class C Preferred Stock"),
pursuant to that certain Class C Preferred Stock and Warrant Purchase Agreement
of even date herewith (the "Purchase Agreement");
WHEREAS, the Stockholders desire to provide for representation on the
Board of Directors of the Company in the manner set forth below; and
WHEREAS, the Preferred Stockholders desire to provide for certain
preemptive, co-sale and first offer rights.
In consideration of the premises and mutual covenants contained herein and
the consummation of the sale and purchase of shares of Class C Preferred Stock
of the Company pursuant to the Purchase Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Voting.
(a) Election of Directors. Subject to the special provisions of Sections
1(b) and 2 below, at any time at which the stockholders of the Company will have
the right to vote for, or will vote for, or consent in writing to, the election
of directors of the Company, each Stockholder
<PAGE>
hereby agrees to vote or cause to be voted all Shares (as defined herein below)
owned or hereafter acquired by him, her or it, or over which he, she or it has
voting control, so as to fix the number Of directors of the Company at seven (7)
and in favor of the following actions:
(i) to cause and maintain the election to the Board of Directors of two
(2) designated representatives of the holders of shares of Class A
Preferred Stock, by action of a majority of the Shares of Class A
Preferred Stock held by such stockholders voting as a separate class
(individually, a "Class A Preferred Director" and collectively, the
"Class A Preferred Directors");
(ii) to cause and maintain the election to the Board of Directors of two
(2) designated representatives of the holders of shares of Class B
Preferred Stock, by action of a majority of the Shares of Class B
Preferred Stock held by such stockholders voting as a separate class
(individually, a "Class B Preferred Director" and collectively, the
"Class B Preferred Directors");
(iii) to cause and maintain the election to the Board of Directors of one
(1) designated representative of the holders of shares of Common
Stock or their designees, by action of a majority of the shares of
Common Stock voting as a separate class (the "Common Stock
Director");
(iv) to cause and maintain the election to the Board of Directors of one
(1) designated representative of the holders of shares of Common
Stock, Class A Preferred Stock, Class B Preferred Stock, and Class C
Preferred Stock, by action of a majority of the shares of Common
Stock, Class A Preferred Stock, Class B Preferred Stock, and Class C
Preferred Stock, voting together as a class (the "Stockholder
Director"); and
(v) to cause and maintain the election to the Board of Directors of the
Chief Executive Officer of the Company (the "CEO Director").
The current Class A Preferred Directors shall be Peter F. Gearen and
Daniel Weber. The current Class B Preferred Directors shall be Michael J. Odrich
and Philip R. Chapman. The current Common Stock Director shall be Anthony C.
Phillips. The current Stockholder Director shall be E.R. Pickard ("Pickard").
The current CEO Director shall be James M. Grooms.
Until such time as Medtronic shall elect otherwise by giving written
notice of such election to the Company (the "Medtronic Election"), the holders
of shares of Common Stock, Class A Preferred Stock, Class B Preferred Stock and
Class C Preferred Stock hereby agree that they shall vote, or cause to be
voted, their respective shares so as to designate Pickard as the Stockholder
Director.
The "Shares" shall mean and include any and all shares of Common Stock and
shares of capital stock of the Company by whatever name called, the shares of
Class A Preferred Stock, the shares of Class B Preferred Stock, and the shares
of Class C Preferred Stock, which carry voting rights (including voting rights
which arise by reason of default) and shall include any
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<PAGE>
shares now owned or subsequently acquired by a Stockholder, however acquired,
including, without limitation, stock splits and stock dividends. For purposes of
this Section 1, the Class A Preferred Stock, the Class B Preferred Stock, and
the Class C Preferred Stock shall include any shares of Common Stock into which
such Preferred Stock is converted.
The company shall cause the nomination for election to the Board of
Directors of the designated representatives and shall call such stockholders'
meetings as may be necessary to elect any such election. The Stockholders shall
not vote their Shares in favor of the election of directors except as specified
in this Section 1.
(b) Vacancies and Removal. Each of the directors designated pursuant to
Section[ILLEGIBLE] shall be elected at any annual or special meeting of
stockholders (or by written consent in lieu of a meeting of stockholders) and
shall serve until his successor is elected and qualified or until the earlier of
his death, resignation or removal.
(i) The Stockholders shall vote all their Shares to cause a Class A
Preferred Director removed during his term of office, when, and only when, they
are so directed in writing by the holders of a majority of the shares of Class A
Preferred Stock.
(ii) The Stockholders shall vote all their Shares to cause a Class B
Preferred Director to be removed during his term of office, when, and only when,
they are so directed in writing by the holders of a majority of the shares of
Class B Preferred Stock.
(iii) The Stockholders shall vote all their Shares to cause the
Common Stock Director to be removed during his term of office, when, and only
when, they are so directed in writing by the holders of a majority of the shares
of Common Stock.
(iv) The Stockholders shall vote all their Shares to cause the
Stockholder Director to be removed during his term of office, when, and only
when, they are so directed in writing by the holders of a majority of the shares
of Common Stock, Class A Preferred Stock, Class B Preferred Stock, and Class C
Preferred Stock, voting together as a class.
(v) The Stockholders shall vote all their Shares to cause the CEO
Director to be removed during his term of office, when, and only when, such
individual no longer serves as Chief Executive Officer of the Company.
In the event of any vacancy in the position of any of the directors
elected pursuant to Section 1(a), the Company agrees to promptly nominate, and
the Stockholders agree to promptly vote their Shares, to elect such person as
has been nominated to fill such position by the respective groups set forth in
Section 1(a) or in the case of the CEO Director, the person then serving as
Chief Executive Officer of the Company.
(c) Observation Rights.
(i) Observation Rights of Stephens. The Company agrees that Stephens
Regeneration LLC ("Stephens") may, for so long as it is a holder of at least 25%
of the
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<PAGE>
shares of Class C Preferred Stock originally issued to Stephens by the Company,
from time to time, appoint a representative to attend meetings of the Board of
Directors of the Company or any committees thereof as an observer (the
"Observer"). The Observer is not entitled to vote on any matters before the
Board of Directors or any committees thereof. Subject to the confidentiality
provisions set forth below, neither Stephens nor the Observer shall have any
duties, responsibilities or liability by virtue of attendance at such meetings
or the failure to attend the samee. The Company shall notify the Observer of all
Board of Directors meetings at the same time as the Company notifies Directors
of such meetings and the Observer shall be entitled to all written materials
Directors are entitled to receive. Except as required by law, the Observer shall
not disclose or use any Confidential Information (as defined below) furnished to
the Observer to any person other than Stephens or its advisors. For purposes of
this Section 1(c), "Confidential Information" means any information, whether or
not in writing, regarding the parties to this agreement or their affiliates or
any transactions or matters before the Board of Directors or any committees
thereof. Confidential Information does not include information that the Observer
can demonstrate (i) is generally available to or known by the public other than
as a result of an improper disclosure; or (ii) is obtained by the Observer from
a source other than the Company or the Board of Directors or any committees
thereof.
(ii) Observation Rights of Medtronic. The Company agrees that
Medtronic Asset Management, Inc. ("Medtronic") or any of its affiliates may, for
so long as Medtronic or such affiliate, as the case may be, is a holder of at
least 25% of the shares of Class C Preferred Stock originally issued to
Medtronic by the Company, from time to time, appoint an Observer, who shall be
bound by the confidentiality provisions of Section 1(c)(i) above. The Observer
is not entitled to vote on any matters before the Board of Directors or any
committees thereof. Subject to the confidentiality provisions set forth above,
neither Medtronic nor the Observer shall have any duties, responsibilities or
liability by virtue of attendance at such meetings or the failure to attend the
same. The Company shall notify the Observer of all Board of Directors meetings
at the same time as the Company notifies Directors of such meetings and the
Observer shall be entitled to all written materials Directors are entitled to
receive. Notwithstanding the foregoing, until such time as Medtronic shall
exercise the Medtronic Election 1(c)(ii). Medtronic shall not have the right to
appoint an Observer pursuant to this Section
(d) Notice. The Company shall provide the Stockholders with prior written
notice of any intended mailing of notice to stockholders for a meeting at which
directors are to be elected, and each of the groups set forth in Section 1(a)
shall notify the Company in writing, prior to such mailing, of the persons
designated by such group as nominees for election as directors. If a group shall
fail to give notice to the Company as provided above, it shall be deemed that
the designees of such group, as the case may be, then serving as directors shall
be their designees for reelection.
2. Preemptive Rights.
(a) The Company hereby grants to each of the Preferred Stockholders a
preemptive right to purchase, on a pro rata basis, all or any part of New
Securities (as defined below) that the
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<PAGE>
Company may, from time to time, propose to sell and issue, subject to the terms
and conditions set forth below. Each Preferred Stockholders' pro rata share, for
purposes of this subsection 2(a), equal a fraction, the numerator of which is
the aggregate number of shares of Common Stock then held by the Preferred
Stockholders or issuable upon conversion or exercise of any shares, convertible
securities, options, rights or warrants then held by the Preferred Stockholders,
and the denominator of which is the total number of shares of Common Stock then
held by the Preferred Stockholders plus the number of shares of Common Stock
issuable upon conversion or exercise of then outstanding Shares, convertible
securities, options, rights or warrants, then held by the Preferred
Stockholders.
(b) "New Securities" shall mean any capital stock of the Company
regardless of either now authorized, and rights, options or warrants to purchase
capital stock, and securities of any type whatsoever which are, or may become,
convertible into capital stock; provided, however, that the term "New
Securities" does not include (i) the shares issuable under the Purchase
Agreement, (ii) shares of Common Stock issuable upon conversion of the Class A
Preferred Stock, the Class B Preferred Stock, or the Class C Preferred Stock;
(iii) securities offered to the public pursuant to a Registration Statement;
(iv) securities issued for the acquisition of another corporation by the Company
by merger, purchase of substantially all the assets of such corporation or other
reorganization resulting in the ownership by the Company of not less than 51% of
the voting power of such corporation; (v) up to 400,000 shares of Common C)
Stock issued to employees or consultants of the Company or UFTB pursuant to a
Board-approved stock option plan, employee stock purchase plan, restricted stock
plan or other employee stock plan or option agreement; (vi) securities issued as
a result of any stock split, stock dividend or reclassification of Common Stock,
distributable on a pro rata basis to all holders of Common Stock; (vii) shares
of Common Stock issuable upon the exercise of any warrant issued by the Company
prior to or as of the date hereof, including Common Stock Warrants issued to
each of Stephens and Medtronic in connection that certain Convertible Class C
Preferred Stock and Warrant Purchase Agreement of even date herewith; or (viii)
any shares of stock of the Company to be issued in connection with the
acquisition by the Company of Georgia Tissue Bank, Inc.
(c) In the event the Company intends to issue New Securities, it
shall give the Preferred Stockholders written notice of such intention,
describing the type of New Securities to be issued, the price thereof and the
general terms upon which the Company proposes to effect such issuance. Each of
the Preferred Stockholders shall have 30 days from the date of any such notice
to agree to purchase all or part of its pro rata share of such New Securities
for the price and upon the general terms and conditions specified in the
Company's notice by giving written notice to the Company stating the quantity of
New Securities to be so purchased. The Preferred Stockholders shall have a right
of oversubscription such that if any Preferred Stockholder fails to purchase all
of its pro rata share of the New Securities, the other Preferred Stockholders,
among them, shall have the right to purchase up to the balance of such New
Securities not so purchased.
(d) To the extent that the Preferred Stockholders fail to exercise
the foregoing preemptive right with respect to any New Securities within such
30-day period, the Company may Within 90 days thereafter sell any or all of such
New Securities not agreed to be purchased
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<PAGE>
by the preferred Stockholders, at a price and upon general terms no more
favorable to the purchaser thereof than specified in the notice given to the
Preferred Stockholders pursuant to paragraph (c) above. In the event the Company
has not sold such New Securities within such 90-day period, the Company shall
not thereafter issue or sell any New Securities without first offering such New
Securities to the Preferred Stockholders in the mariner provided above.
3. Right of First Offer.
(a) Restrictions on Transfers.
(i) Except as otherwise provided in subsection 3(b) below, a
Preferred Stockholder or a Specified Common Stockholder (as defined below) shall
sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by
operation of law or otherwise (collectively transfer), any of the Shares, or any
interest therein, only in accordance with the terms of this Section 3. A
"Specified Common Stockholder" shall mean James Grooms, Richard Allen, Frank &
Glowczewskie Jr. and Nancy Holland.
(ii) Notwithstanding the foregoing, a Preferred Stockholder or a
Specified Common Stockholder may transfer Shares or Common Stock, as the case
may be, to (i) any "affiliate" of such Stockholder (as such term are defined in
the rules and regulations promulgated under the Securities Act), (ii) an
immediate family member of such Stockholder, (iii) in the case of any Preferred
Stockholder that is a partnership, a partner of such partnership or (iv) in the
case :of any Preferred Stockholder that is a corporation, a stockholder of such
corporation, provided that such Shares or Common Stock, as the case may be,
shall remain subject to this Agreement (including without limitation the
restrictions on transfer set forth in this Section 3) and such permitted
transferee shall, as a condition to such transfer, deliver to the Company a
written instrument confirming that such transferee shall be bound by all of the
terms and conditions of this Agreement.
(b) Receipt and Communication of Offer. Subject to the terms of Section
3(a) hereof if at any time a Preferred Stockholder or Specified Common
Stockholder (the "Selling Stockholder") desires to transfer for cash, cash
equivalents or any other form of consideration (including a promissory note) all
or any part of the Shares or the Common Stock, as the case may be, or any shares
of Common Stock or other capital stock of the Company acquired by such Selling
Stockholder subsequent to the date hereof (such shares of Common Stock and the
Shares are collectively referred to as the "Selling Stockholder Shares"), the
Selling Stockholder shall submit a written offer (the "Offer") to sell the
Selling Stockholder Shares (the "Offered Shares") to the Company and the other
Preferred Stockholders specifying the terms and conditions, including price
pursuant to which the Selling Stockholder proposes to sell such Offered Shares.
The Offer shall disclose the number of Offered Shares proposed to be sold, the
total number of shares of all classes of the Company's capital stock owned by
the Selling Stockholder, the terms and conditions, including price, of the
proposed sale, and any other material facts relating to the proposed sale. The
Offer shall further state that the Company may acquire, in accordance with the
provisions of this Agreement or a Stock Restriction Agreement (as defined
below), as the case may be, all or any portion of the Offered Shares for the
price and upon the other terms and
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<PAGE>
conditions including deferred payment (if applicable), set forth therein,
provided, however, that if the purchase price for the Offer is proposed to be
paid, in whole or in part, in securities of a third party, the Company may
instead pay cash based on the fair market value of such securities.
(c) Company's Right. The Company shall have the absolute right, by
delivery of written notice to the Selling Stockholder (as hereinafter provided),
to repurchase all or a portion of the Offered Shares offered by a Preferred
Stockholder in accordance with the terms of subsection d hereof and of a
Specified Common Stockholder in accordance with the terms of the stock
restriction agreement executed by such Specified Common Stockholder upon
issuance of the shares of Common Stock (the "Stock Restriction Agreement").
(d) Company Notice of Intent to Repurchase. If the Company desires to
repurchase all or any part of the Offered Shares, it shall communicate in
writing (the "Notification") its election to repurchase to the Selling
Stockholder, which communication shall state the number of Offered Shares the
Company desires to repurchase and shall be delivered in person or by facsimile
to the Selling Stockholder within 25 days of the Offer Date. The Notification
shall, when taken in conjunction with the Offer, be deemed to constitute a
valid, legally binding and enforceable agreement for the sale and repurchase of
such Offered Shares. Sales of the Offered Shares to be sold to the Company
pursuant to this Section shall be made at the offices of the Company no later
than the 60th day following the Offer Date (or if such 60th day is not a
business day, then on the next succeeding business day). Such sales shall be
effected by Selling Stockholder's delivery to the Company of a certificate or
certificates evidencing ownership of the Offered Shares to be repurchased by it,
duly endorsed for transfer to the Company, against payment to the Selling
Stockholder of the repurchase price therefor by the Company.
(e) Preferred Stockholders' Right. If the Company elects not to exercise
its right to repurchase all the Offered Shares under this Section 3 or under the
terms of the applicable Stock Restriction Agreement, each Preferred Stockholder
shall have the option, but not the obligation, to purchase its pro rata share of
the remaining Offered Shares on the same terms as specified in the Offer. A
Preferred Stockholder's pro rata share, for purposes of this subsection 3(e),
shall equal a fraction, the numerator of which is the number of shares of Common
Stock or Common Stock issuable upon conversion of the Preferred Stock which such
Preferred Stockholder then holds (the "Preferred Stockholder's Stock"), and the
denominator of which is the aggregate number of shares of Preferred
Stockholder's Stock held by all Preferred Stockholders exercising their purchase
rights under this Section 3(e). After the expiration of the 25-day period in
Section 3(d) but within 40 days after the Offer Date, any electing Preferred
Stockholders shall give notice to the Selling Stockholder and the Company
stating whether or not it elects to exercise its option, the number of Offered
Shares, if any, it elects to purchase, and a date and time for consummation of
the purchase not more than 60 days after the Offer Date. Failure by a Preferred
Stockholder to give such notice within such time period shall be deemed an
election by it not to exercise its option. If more than one Preferred
Stockholder exercises its purchase option and the aggregate number of remaining
Offered Shares sought to be purchased by such Preferred Stockholders exceeds the
aggregate number of remaining Offered Shares, the number of remaining Offered
Shares to be purchased by each such Preferred Stockholder shall be pro rated
based on its respective equity interest in the Company on a fully diluted basis.
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<PAGE>
(f) If the aggregate number of Offered Shares that the Company and the
Preferred stockholders elect to purchase is less than all of the Offered Shares,
then the Company and the preferred Stockholder shall not be entitled to purchase
any of the Shares. The Selling older shall thereafter be free to offer all of
the Offered Shares described in the Offer to a party, at a price and on terms no
less favorable to such Selling Stockholder than the price the terms set forth in
the Offer. No less than 15 days prior to consummating a sale to a third (the
"proposed Transferee"), the Selling Stockholder shall give the Company notice of
the identity of the Proposed Transferee. If the Proposed Transferee is a
Competitor of the Company defined below), then the Selling Stockholder may not
consummate the proposed transfer without the approval of the Company. A
"Competitor" shall mean an entity engaged in engineering, processing,
distributing or developing tissue-regeneration products. The Company's approval
shall be deemed to given if the Company has not objected to the transfer within
10 days of its receipt of notification of the identity of the Proposed
Transferee. If the Company has not objected to the sale within such 10-day
period, then the Selling Stockholder shall be free to consummate the sale to the
Proposed Transferee for a period of ninety days commencing on the otermination
of the Company's and the Preferred Stockholders' 40-day period to exercise their
night of First Refusal pursuant to Section 3(d) above.
(g) Effect of Prohibited Transfer. The Company shall not be required (a)
to transfer on its books any of the Shares or Common Stock, as the case may be,
which shall have been sold or transferred in violation of any of the provisions
set forth in this Agreement, or (b) to neat as owner of such Shares or Common
Stock, as applicable, or to pay dividends to any transferee to whom any such
Shares or Common Stock, as applicable, shall have been so sold or transferred.
(h) The restrictions of this Section 3 shall not apply to shares of Common
Stock sold in connection with a public offering of shares of the Company's
Common Stock pursuant to an effective registration statement under the
Securities Act (a "Public Offering") and shall terminate in their entirety on
the earliest of (i) the closing of the Company's initial Public Offering or (ii)
the agreement of the Company and all of the Preferred Stockholders.
4. Co-Sale Rights.
(a) No Specified Common Stockholder or Preferred Stockholder (the "Co-Sale
Stockholder") shall transfer, in any one or more transactions, any shares of
stock now or hereafter held by him, other than as provided in this Section 4,
until (a) he first complies with Section 3, relating to a right of first refusal
inuring to the benefit of the Company and the other Preferred Stockholders, and
(b) thereafter, he notifies each Preferred Stockholder of the proposed
transaction and gives such Preferred Stockholders the opportunity to include in
the sale to the proposed transferee, shares of stock. The aggregate number of
shares of stock that a Preferred Stockholder shall be entitled to have included
in such sale will be that number that upon conversion into Common Stock at the
applicable conversion rate would bear the same proportion oto the total number
of shares of stock proposed to be sold by the Co-Sale Stockholder as the total
Dumber of shares of stock held by the Preferred Stockholder bears to the
aggregate number of `Shares of the Company's Common Stock (calculated on a fully
diluted basis), and each Preferred K
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<PAGE>
Stockholder shall be entitled to participate in such number pro rata on the
basis of the number of shares of stock then held by him or it. Each Preferred
Stockholder shall have a period of fifteen (15) days (the "Offer Period"), from
the date notice of such opportunity is received to give the Co-Sale Stockholder
written notice of his or its desire to participate in such sale, stating in such
notice the number of shares desired to be sold; and if no such notice is given
within the Offer Period, such Preferred Stockholder shall be deemed to have
chosen not to participate.
(b) Notwithstanding the foregoing, the provisions of Section 4(a) shall be
inapplicable to the following transactions:
(i) A transfer of any or all of a Preferred Stockholder's stock to
an affiliate;
(ii) A transfer of any or all of a Preferred Stockholder's stock to
its immediate family or to a trust, the beneficiaries of which are exclusively
one or more of the group of persons consisting of the Preferred Stockholder and
members of the Preferred Stockholder's immediate family. "Immediate family" as
used herein shall mean spouse, lineal descendant, father, mother, brother or
sister of the Preferred Stockholder making such transfer;
(iii) In the case of a Preferred Stockholder that is in the form of
a corporation, limited liability company, or partnership, a transfer of any or
all of a Preferred Stockholder's interest to its stockholders, members or
partners, as the case may be;
(iv) The sale, assignment or transfer by way of bequest or
inheritance upon death of a Preferred Stockholder;
(v) The sale, assignment or transfer to the Company pursuant to the
right of first refusal provisions set forth in this Agreement, as they may from
time to time be amended; or
(vi) Following the consummation of an underwritten public offering
pursuant to the Securities Act, sales pursuant to Rule 144 under the Securities
Act;
provided, that, in the case of a transaction described in clauses (i), (ii) and
(iii) above, any transferee of a Preferred Stockholder shall agree to be bound
by this Agreement and shall so signify in writing.
5. Miscellaneous.
(a) Termination. This Agreement shall terminate in its entirety on the
earliest to occur of (a) the closing of the Company's first underwritten public
offering of Common Stock in which the per share is at least $54.202 to price
(subject to Adjustment) that results in aggregate net proceeds to the Company
(after deducting underwriting commissions and offering expenses) of not less
than $20,000,000; or (b) mutual agreement is reached by all the parties hereto.
(b) No Revocation. The voting agreements contained herein are
coupled with an interest and may not be revoked, except by written consent of
all of the Stockholders.
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<PAGE>
(c) Indemnification. Each of the Stockholders agrees not to take any
action to amend either the Company's Articles of Incorporation or its By-Laws,
each only with respect to indemnification of directors, as presently in effect,
without the prior written consent of all of the Stockholders.
(d) Action as Director. No party hereto who is or may become a director of
the company either agrees or implies that he will exercise his actions as a
director in any manner other than in accordance with his considered judgment at
such time with respect to the best interests of the Company and all of its
stockholders.
(e) Stock Transfer Record. The Company shall maintain a stock transfer
book in which shall be recorded the name and address of each Stockholder. No
transfer of Shares shall be effective or valid unless and until recorded in such
stock transfer book. The Company agrees that it will record any transfer of
Shares in its stock transfer book unless (i) the transfer does not materially
comply with all of the provisions of this Agreement or (ii) the transferee shall
not have agreed in writing to be bound by all of the provisions of this
Agreement applicable to the transferring Stockholders and become a party hereto.
(f) Severability; Survivability. The provisions of this Agreement are
severable, so that the invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other term or
provision of this Agreement, which shall remain in full force and effect. In the
event that the term of this Agreement is restricted under applicable law, the
parties agree to, prior to termination of this Agreement, execute an agreement
on substantially similar terms.
(g) Specific Performance. In addition to any and all other remedies that
may be available at law in the event of any breach of this Agreement, each
Stockholder shall be entitled to specific performance of the agreements and
obligations of the other parties hereunder and to such other injunctive or other
equitable relief as may be granted by a court of competent jurisdiction.
(h) Subsequent Stockholders. It is understood and agreed that the terms
and conditions of this Agreement shall apply to whomsoever shall receive the
capital stock of the Company, including, by way of illustration and not of
limitation, bona fide purchasers for value. It shall be a condition precedent to
the issuance of the capital stock of the Company to any person by the Company
that said person shall agree to be bound by the terms and conditions of this
Agreement.
(i) Alteration or Amendment. No change, modification or amendment of this
Agreement shall be valid unless the same is in writing and signed by the
Company, and the holders of a majority of each class of the Company's capital
stock or by all of the Stockholders if required by Section (a) or (b) above. No
waiver of any provision of this Agreement shall be valid unless in writing and
signed by the person against whom it is sought to be enforced. The failure of
any party at any time to insist upon strict performance of any condition,
promise, agreement or understanding set forth herein shall not be construed as a
waiver or relinquishment of the right to insist upon strict performance of the
same condition, promise, agreement or understanding at a future time. The
invalidity or unenforceability of any particular provision
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hereof, this Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted.
(j) Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Florida. Each of the
Parties hereby irrevocably and unconditionally submits to the jurisdiction of
the courts of the State of Florida and the United States of America located in
the State of Florida (the "Florida Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agree
not to commence any litigation relating thereto except in such courts), consent
to service of process in such Florida Courts, waive any objection to the laying
of venue of any such litigation in Alachua County, Florida, and agree not to
plead or claim in any Florida Court that such litigation brought therein has
been brought in any inconvenient forum.
(k) Notices. Any and all notices or elections permitted or required to be
made under this Agreement shall be in writing, signed by the party giving such
notice or election and shall be delivered personally, by courier or sent by
registered or certified mail, return receipt requested, to the Company and the
Stockholders at their respective addresses below:
If to the Company to:
Regeneration Technologies, Inc.
One Innovation Drive
Alachua, Florida 32615
Attn: Richard R. Allen
with copy (which shall not constitute notice) to:
Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, DC 20036
Attn: Theodore D. Segal, Esquire
If to the Class C Investors to:
Medtronic Asset Management, Inc.
7000 Central Avenue, N.E.
Minneapolis, MN 55402
Attn: Vice President & Chief Development Officer
with copy to:
Medtronic Asset Management, Inc.
7000 Central Avenue, N.E.
Minneapolis, MN 55402
Attn: General Counsel
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and
Stephens-Regeneration LLC
111 Center Street, Suite 2500
Little Rock, AR 72201
Attn: President
with copy to:
Stephens-Regeneration LLC
111 Center Street, Suite 2500
Little Rock, AR 72201
Attn: Jackson Farrow, Esquire
If to the Class A or Class B Investors, to the addresses set forth below
their respective names in Exhibit A and Exhibit B hereto.
(l) Complete Agreement. This Agreement constitutes the full and complete
agreement of the parties hereto with respect to the subject matter hereof.
(m) Pronouns. Whenever the content may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall include the plural, and vice
versa.
(n) Counterparts. This Agreement may be executed in two counterparts, each
of which shall be deemed an original and both of which, when taken together,
shall constitute one and the same Agreement binding on all the parties hereto.
(o) Captions. Captions of sections have been added only for convenience
and shall not be deemed to be a part of this Agreement.
[signatures on following page]
-12-
<PAGE>
IN WITNESS WHEREOF. this Agreement has been executed by the parties hereto
as of the and year first written above.
REGENERATION TECHNOLOGIES, INC.
By: /s/ JAMES M. GROOMS
---------------------------------------------
Name: James M. Grooms
President
CLASS C INVESTORS
MEDTRONIC ASSET MANAGEMENT, INC.
By: ____________________________________________
Michael D. Ellwein
Vice President and Chief Development Officer
________________________________________________
By:_____________________________________________
Name: __________________________________________
Its:____________________________________________
CLASS B INVESTORS
FREDERICK R. ADLER
________________________________________________
PHILIP R. CHAPMAN
________________________________________________
ADLER CHILDREN TRUST
By:_____________________________________________
Name: __________________________________________
Its:____________________________________________
-13-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first written above.
REGENERATION TECHNOLOGIES, INC.
By:
---------------------------------------------
Name: James M. Grooms
President
CLASS C INVESTORS
MEDTRONIC ASSET MANAGEMENT, INC.
By: /s/ Michael D. Ellwein
---------------------------------------------
Michael D. Ellwein
Vice President and Chief Development Officer
STEPHENS-REGENERATION LLC
________________________________________________
By:_____________________________________________
Name: __________________________________________
Its:____________________________________________
CLASS B INVESTORS
FREDERICK R. ADLER
________________________________________________
PHILIP R. CHAPMAN
________________________________________________
ADLER CHILDREN TRUST
By:_____________________________________________
Name: __________________________________________
Its:____________________________________________
-14-
<PAGE>
EXHIBIT 10.8
CONTRACT OF PURCHASE AND SALE
THIS CONTRACT OF PURCHASE AND SALE (this "Contract") is made and entered
into as of the "Effective Date" (as hereinafter defined) by and between ECHELON
INTERNATIONAL CORPORATION, a Florida corporation, its successors,
successors-in-title and assigns (hereinafter referred to as "Seller"), and
REGENERATION TECHNOLOGIES, INC., a Florida corporation, its successors and
assigns (hereinafter referred to as "Buyer").
WITNESSETH:
That for and in consideration of the mutual promises and covenants herein
contained and the mutual advantages accruing to Seller and Buyer, it is
covenanted and agreed by Seller and Buyer as follows:
1. Property. Seller hereby agrees to sell to Buyer, and Buyer hereby
agrees to purchase from Seller, for the price and upon the terms and conditions
hereinafter set forth, that certain real property located within the Replat of
Progress Center, Plat Book P, Page 48, as recorded in Alachua County, Florida,
the general descriptions of which are more particularly described on Exhibit "A"
(consisting of approximately 6.19 acres, more or less) ("Land"), together with
the following:
(a) All building and other improvements located on the Land ("Buildings");
(b) All of Seller's right, title and interest in and to all appliance,
fixtures, equipment, machinery, furniture, carpet, drapes and other
personal property, if any, located on or about the Land and the Building,
or used exclusively in the operation and maintenance thereof ("Tangible
Personal Property");
(c) All of Seller's right, title and interest in and to all of the service
or maintenance contracts as set forth in Exhibit "B" attached hereto and
made a part hereof ("Service Contracts");
As used in this Contract, the Land and the Buildings are collectively referred
to herein as the "Real Property" and the Real Property, Leases, Tangible
Personal Property, and Service Contracts. is collectively referred to herein as
the "Property."
2. Deposit. Not later than 5:00 P.M. on January 31st, 2000, Buyer shall
deliver to Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis, P.A., as
escrow agent (hereinafter called "Escrow Agent"), the sum of ONE HUNDRED
THOUSAND AND NO/100 DOLLARS ($100,000.00), which sum, together with all interest
earned thereon, is hereinafter collectively referred to as the "Deposit" and
shall be held in escrow by Escrow Agent in an interest-bearing account and in
accordance with the terms of this Contract. Escrow Agent shall notify Seller
upon its receipt of the Deposit. In the event that the Deposit has not been so
paid in the manner and by
<PAGE>
the time aforesaid (time being of the essence), this Contract, at the option of
Seller, shall immediately become null and void, and of no further force or
effect.
3. Price and Terms. The purchase price ("Purchase Price") to be paid for
the Property shall be the sum of THREE MILLION SIX HUNDRED THOUSAND AND NO/100
DOLLARS ($3,600,000.00). The Purchase Price shall be payable to Seller at
Closing as follows:
(A) The Deposit shall be paid to Seller and credited to Buyer
against the Purchase Price;
(B) At time of closing, Buyer shall pay to the Seller the remaining
Purchase Price (or such greater or lesser amount as may be required by the
credits, prorations and adjustments provided in this Contract) by wire
transfer of immediately available funds.
4. As Is.
(a) EXCEPT AS EXPRESSLY PROVIDED HEREIN BUYER ACKNOWLEDGES AND
AGREES THAT THE PURCHASE AND SALE OF THE PROPERTY CONTEMPLATED BY THIS CONTRACT
IS AND WILL BE MADE ON AN "AS-IS" BASIS, WITH ALL FAULTS, PATENT AND LATENT, AND
WITHOUT RELIANCE UPON ANY REPRESENTATION OR WARRANTY OF ANY KIND OR NATURE,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF
MERCHANTABILITY, HABITABILITY OR FITNESS FOR A PARTICULAR PURPOSE, GOOD, FAIR OR
ADEQUATE CONDITION OR REPAIR OR GOOD, WORKMANLIKE CONSTRUCTION, OR WARRANTIES OR
REPRESENTATIONS AS TO MATTERS OF TITLE (EXCEPT FOR WARRANTIES CONTAINED IN THE
SPECIAL WARRANTY DEED), ZONING, TAX CONSEQUENCES, PHYSICAL OR ENVIRONMENTAL
CONDITIONS, PROPERTY VALUE, OPERATING HISTORY, INCOME, EXPENSES, CHARGES, LIENS,
ENCUMBRANCES, RIGHTS OR CLAIMS, OR ANY OTHER MATTER OR THING RELATING TO OR
AFFECTING THE PROPERTY. IN ADDITION TO AND WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING SENTENCE, EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS
CONTRACT, SELLER MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND WHATSOEVER AS
TO (I) THE NATURE OR CONDITION OF THE SOILS, GEOLOGY OR ANY GROUNDWATER ON THE
REAL PROPERTY; (II) THE DRAINAGE OF OR RELATING TO THE REAL PROPERTY; (III) THE
CONDITION OR REPAIR OF THE REAL PROPERTY INCLUDING ANY IMPROVEMENTS THEREON;
(IV) THE NATURE OR SUITABILITY OF ANY ZONING, LAND USE PLAN CLASSIFICATION, OR
EXISTING GOVERNMENTAL PERMITS, LICENSES OR APPROVALS; (V) THE FINANCIAL POSITION
OR NET OPERATING INCOME OF THE REAL PROPERTY, INCLUDING THE REVENUES AND
EXPENSES THEREOF; OR, (VI) THE PRESENCE OR ABSENCE OF ANY HAZARDOUS OR TOXIC
SUBSTANCES OR MATERIALS, WASTES, POLLUTANTS, CONTAMINANTS, OIL OR PETROLEUM
PRODUCTS ON, UNDER OR WITHIN THE REAL PROPERTY OR ON, UNDER OR WITHIN ANY LAND,
2.
<PAGE>
IMPROVEMENTS, WATERCOURSE OR BODY OF WATER NEAR THE REAL PROPERTY. Buyer
REPRESENTS THAT IT IS A KNOWLEDGEABLE Buyer OF REAL ESTATE AND THAT IT IS
RELYING SOLELY ON ITS OWN EXPERTISE AND THAT OF Buyer'S CONSULTANTS, AND THAT
PRIOR TO CLOSING, BUYER WILL HAVE HAD A FULL AND FAIR OPPORTUNITY TO COMPLETE
ALL INSPECTIONS AND INVESTIGATIONS OF THE PROPERTY, INCLUDING BUT NOT LIMITED
TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF AS IT DEEMS NECESSARY, AND
SHALL RELY UPON SAME, AND UPON CLOSING, SHALL ASSUME THE RISK OF ALL ADVERSE
MATTERS, INCLUDING, BUT NOT LIMITED TO, ADVERSE PHYSICAL AND ENVIRONMENTAL
CONDITIONS.
(b) By its acceptance of the Deed to the Real Property at the
Closing, Buyer shall be conclusively deemed to have acknowledged and agreed that
(i) any information or materials furnished to Buyer by Seller are provided as an
accommodation and Buyer acknowledges and agrees that Seller does not warrant,
represent or guarantee the accuracy or completeness of any documents,
information or item (other than copies of the Service Contracts) provided by
Seller or Seller's agent to Buyer, and that Seller will not be liable or
responsible for any errors, omissions or inaccuracies contained in any document,
information or item prepared by any party or entity, other than copies of the
Service Contracts and documents executed and delivered by Seller to Buyer at
Closing, and then only strictly in accordance with the terms of such closing
documents; and (ii) Buyer has relied solely on its independent investigations
and inspections and the documents to be delivered by Seller at closing in making
the decision to purchase the Property. The provisions of this Paragraph 4 shall
survive the Closing.
5. New Lease. Buyer and Seller each agree, prior to Closing, to enter into
an amended and restated lease pertaining to space leased and to be leased to
Buyer at 13709 Progress Boulevard ("Progress Building"). The amended and
restated lease shall be in substitution of any and all existing lease agreements
between Buyer, as tenant, and Seller, as landlord, pertaining to Suites 130,
135, 1-7, 113 and 144 in the Progress Building, and shall provide the following
terms and conditions. Suites 130, 135, 1-7. 113 and 144, comprising of
approximately 7,492 rentable square feet, together with an additional 4,242
rentable square feet located on or within the areas known as Suites No. 102 and
118, (and, at tenant's option, up to an additional 4,260 rentable square feet of
space in the Progress Building, to the extent available) shall be leased to
tenant for a term that shall expire two (2) years from the date of the amended
and restated lease, at the rental rate of $15.00 per rentable square foot
(gross), all in its "as-is" condition, for office use and such other use
approved by landlord that will not require additional leasehold modifications
and building penetrations to the existing space. Tenant shall not have the right
to make any modifications or alterations to the premises. without the consent of
the landlord. Tenant shall also furnish the landlord with a security deposit
equal to one month's rent of the existing and additional space (or $14,667.50).
All other terms and conditions shall be substantially similar to the terms and
conditions of the lease governing Buyer's leased space at Innovation Drive.
3.
<PAGE>
6. Title Insurance. Within ten (10) days after the Effective Date, Seller
shall, at Seller's sole expense, furnish Buyer with a written commitment for the
issuance of an owner's policy of title insurance (ALTA Form B policy) on the
Real Property (the "Commitment") in the full amount of the Purchase Price,
issued by Lawyers Title Insurance Corporation ("Title Company"). If the
Commitment contains any exceptions that are not acceptable to Buyer in the
exercise of Buyer's sole discretion (other than the matters set forth in Exhibit
"C" attached hereto and incorporated by reference herein ("Existing
Exceptions")), then Buyer shall notify Seller in writing of such exceptions
within ten (10) days of its receipt of the Commitment (any such exceptions of
which Buyer gives Seller written notice within such ten (10) day period as
aforesaid being hereinafter defined as "Unauthorized Exceptions"); provided,
however, in no event (i) shall Seller have any obligation to undertake to cure,
remove or modify any of such Unauthorized Exceptions. The Existing Exceptions,
together with any other exceptions to which Buyer does not object within such
ten (10) day period as aforesaid, shall constitute "Permitted Exceptions"
hereunder, and Buyer shall be conclusively deemed to have waived its right to
object thereto. Seller shall have until the date of the Closing in which to
cause Title Company to remove any Unauthorized Exceptions.
If Seller shall fail to cause any Unauthorized Exceptions to be removed
within the time period aforesaid, then: (a) Buyer may, at its option, elect to
terminate this Contract and to secure the return of the Deposit, whereupon this
Contract shall be null and void and, except as otherwise provided by Paragraph 5
hereof, Seller shall have no further obligations or liabilities hereunder; or
(b) Buyer may elect to close the purchase and sale of the Property in the same
manner as if no such Unauthorized Exceptions had arisen, without diminution in
the Purchase Price, in which case such Unauthorized Exceptions shall be deemed
to be a Permitted Exception. The immediately preceding sentence sets forth the
sole remedies of Buyer in the case of Seller's failure to cure any Unauthorized
Exceptions. Within a reasonable period of time following closing the title
insurance policy insuring Buyer's title to the Property. in the form prescribed
by the Commitment, shall be delivered to Buyer.
7. Survey. Seller has previously delivered to Buyer a survey of the Real
Property and other adjacent lands dated as of September 9, 1999, prepared by
Eng, Denman & Associates, Inc., bearing Project Number 99-299 ("Existing
Survey"). Buyer, at Buyer's expense, shall have ten (10) days from and after the
Effective Date to have the Existing Survey modified, updated and recertified to
Buyer, Seller, and the Title Company ("Updated Survey"), which Updated Survey
shall show the boundaries and legal description of the land depicted on the
attached Exhibit "A", certify as to the actual number of acres contained within
the perimeters of the Land, and meet the minimum technical standards set forth
by Chapter 61G17-6, Florida Administrative Code, and the requirements of Section
627.7842, Florida Statutes ("Standards"), to enable the Title Company to delete
or modify the standard survey exception set forth in the Title Commitment. The
Surveyor shall (a) show all encroachments, ground improvements, easements
reflected on Exhibit "C" or otherwise shown on the Commitment or otherwise
visible to Surveyor, the flood zone designation of the Real Property and all
ground improvements affecting the Real Property necessary to comply with the
Standards. In the event that either the Survey shows any encroachments of and
improvements upon, from, or onto the Real Property, or an easement not disclosed
by the Permitted Exceptions, or shows any evidence of use which indicates that
an unrecorded easement may exist
4.
<PAGE>
except as may be disclosed by the Permitted Exceptions or otherwise acceptable
to Buyer, in Buyer's sole discretion, Buyer shall deliver written notice to that
effect to Seller upon the later of (i) the expiration of the Inspection Period,
or (ii) five (5) days following delivery of the Updated Survey. Seller shall
have the same option to cure and curative period with respect to objections to
the Updated Survey as is described in Paragraph 6, above. If Buyer fails to
deliver written notice to Seller of any survey defects within such survey review
period, Buyer shall be deemed to have waived any Survey defects.
8. Property Sold "As-Is"; Disclaimer of Warranties. Except as expressly
provided in this Contract, Seller makes no representations or warranties of any
kind whatsoever to Buyer. Buyer acknowledges and agrees as follows:
(a) Reliance on Own Investigations. Buyer hereby acknowledges and agrees
that has been given the opportunity to inspect the Property as Buyer sees
fit, and Buyer shall rely solely on such investigations and not on any
information furnished by Seller in making Buyer's decision to purchase or
not purchase the Property. Buyer further acknowledges and agrees that any
information concerning the Property furnished by Seller was obtained from
a variety of sources and that Seller did not and is not required to make
any independent investigation or verification of any such information with
respect to accuracy, completeness or any other matter.
(b) Assumption of Risk. From and after the Closing, Buyer hereby assumes
all risks associated with ownership of the Property and any defects that
may be located thereon or associated therewith of any the or nature
whatsoever, and Buyer shall be solely responsible for and shall indemnify,
protect, defend and hold Seller harmless from, all costs (including
attorneys fees and court costs), expenses and all other claims incurred in
or associated with such ownership and with the presence, removal or repair
of any such defect. The foregoing indemnity shall not apply to any claims
against Seller by third parties which accrue prior to the Closing.
(c) General Release and Waiver. Buyer acknowledges and agrees that the
unconditional "as is" nature of this transaction is a material inducement
to Seller to enter into this Contract and to sell the Property to Buyer
at the Purchase Price and upon the other terms and conditions set forth
herein. As further consideration and material inducement to Seller, Buyer,
on behalf of its principals, agents, successors and assigns, forever
releases and discharges Seller, and Seller's officers, directors,
shareholders, principals, agents, successors and assigns, from and against
all claims, causes of action, losses, costs, damages, liabilities, and
expenses of any kind which Buyer or any such other persons may now or at
any time hereafter incur or realize in any manner from the Property, this
Contract, and/or any matter arising herefrom or from the transactions
contemplated hereby. Buyer has consulted with independent counsel of its
choice regarding this Contract and the foregoing release and is knowingly
and voluntarily entering into this Contract and agreeing to each provision
hereof.
5.
<PAGE>
The provisions of this Paragraph 8 shall survive the Closing.
9. Closing Date. The Closing shall take place at the offices of Darryl A.
Tompkins, P.A. in Alachua County, Florida, on March 30, 2000, time being of the
essence.
10. Closing Costs. Seller shall pay the premium for the owner's title
insurance policy and all search costs incidental to issuance of the Commitment,
and for documentary stamps on the deed. Buyer shall pay for the Updated Survey,
and any required updates thereto, for recording the deed, and any additional
title insurance endorsements requested by Buyer. Seller and Buyer shall each pay
their own attorneys' fees and legal assistants' fees in connection with
negotiating and closing this transaction.
11. Seller's Closing Documents and Deliveries.
(a) The Special Warranty Deed from Seller conveying the Property to
Buyer, subject to the lien for real property taxes and assessments for the
year of closing and subsequent years, the rights of parties in possession
under unrecorded leases, and the Permitted Title Exceptions, together with
the Florida Department of Revenue Form D-219;
(b) An affidavit of an appropriate officer of Seller to permit the
deletion of the construction lien exception and the "gap" exception from
the Title Commitment and final title insurance policy, and to replace the
parties in possession exception with the rights of tenants in possession
under the Leases in effect as of Closing.
(c) Closing statements;
(d) A non-foreign affidavit as contemplated by 26 USCS Section 1445,
as amended (the "FIRPTA Affidavit");
(e) a Termination of the existing Lease between Seller and Buyer,
together with the security deposits in Seller's possession, in form
reasonably acceptable to Seller ("Lease Termination");
(f) Originals of the Service Contracts, which Service Contracts
shall be all of the Service Contracts set forth in Exhibit "B" attached hereto,
together with letters to each service contractor from Seller advising each of
them of the sale of the Property and, the transfer of its contract;
(g) A Bill of Sale conveying all of Seller's right, title and
interest in and to the Tangible Personal Property, in its "AS-IS, WHERE-IS"
condition, without representation or warranty of fitness or condition;
(h) Possession of the Property.
6.
<PAGE>
12. Buyer's Closing Documents and Deliveries. At Closing, Buyer shall
deliver to Seller the following:
(a) The balance of the Purchase Price as provided in Section 3 of
this Contract, subject to prorations provided for in this Contract;
(b) Closing statements;
(c) A Lease Termination Agreement.
13. Representations and Warranties of Buyer.
In the event Buyer assigns its rights under this Contract to a
corporation or a limited liability company, Buyer shall then represent and
warrant to Seller, at the time of such assignment, that it is a duly organized
Florida limited liability company or corporation, validly existing and in good
standing, and is duly authorized and has all requisite power and authority to
execute this Contact and to consummate the transactions contemplated herein.
14. Representations and Warranties of Seller. Seller hereby represents and
warrants to Buyer that:
(a) Seller is a duly organized Florida corporation, validly existing
and in good standing, and is duly authorized and has all requisite power and
authority to execute this Contract and to consummate the transactions
contemplated herein. Seller further represents and warrants that the officer of
Seller who is executing this Contract and the documents to be delivered by
Seller at Closing has been duly authorized to do so by all necessary corporate
action of Seller. Seller's execution of this Contract and the performance by
Seller of its obligations hereunder do not and will not violate or breach any
document, instrument, agreement, order, rule, or regulation by which Seller or
the Property is bound or subject. If and to the extent, Seller transfers the
Property and assigns this Contract to a third party ("Assignee") prior to the
closing, Seller shall cause this representation and warranty to be restated, as
appropriate, for the status of the Assignee.
(b) There are no suits, actions or proceedings pending against or
affecting Seller which may in any way adversely affect the Property or the
transaction provided herein; before or by any court or administrative agency or
officer, or, to Seller's knowledge, threatened, and, to Seller's knowledge,
Seller is not in default with respect to any judgment, order, writ, injunction,
rule or regulation of any court, or governmental agency to which it may be
subject, in any way that may adversely affect the Property or the transaction
provided herein.
(c) Seller represents and warrants that it has complete and fall
authority to convey to Buyer the Property unencumbered by any right of first
offer or right of first refusal.
7.
<PAGE>
(d) There are no pending or, to Seller's knowledge, threatened
actions or proceedings to condemn all or any portion of the Property.
(e) To Seller's knowledge, except as disclosed on the attached
Exhibit "D" and except as may be disclosed in that certain report prepared by
Matrix Compliance Services, Inc., dated as of August 19, 1999, no Hazardous
Materials (as hereinafter defined) have ever been dumped, discharged or
otherwise disposed of nor are any of the same located on the Property. The term
"Hazardous Materials" as used herein includes hazardous materials, hazardous
wastes, hazardous or toxic substances, polychlorinated biphenyls or related or
similar materials, or any other substance or material in such quantities as may
be defined as a hazardous or toxic substance by any federal, state or local
environmental law, ordinance, rule, or regulation including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), the Resource
Conservation and Recovery Act, as amended (42 U.S.C. Sections 1251 et seq.), the
Clean Air Act (42 U.S.C. Sections 7401 et seq.), Chapter 376, Florida Statutes,
and in the regulations adopted and publications promulgated pursuant thereto.
(f) The Property is part of a development of regional impact
development order, entitled "Progress Center Development of Regional Impact". To
Seller's knowledge, except as may be disclosed in that certain Memorandum dated
August 17, 1999, prepared by Nancy G. Linnan of Carlton Fields ("DRI Memo"), the
Property is in material compliance with all Progress Center DRI, as amended. To
Seller's knowledge, the Property is not vested against concurrency on certain
regional facilities, and that such concurrency is determined as such time an
owner of the Property or any portion thereof, seeks a building permit, as more
particularly set forth in the DRI Memo. The current zoning classification of the
Property will permit all of the uses granted to the Property under the Progress
Center DRI, as amended, including PUD zoning classification.
(g) As of the Effective Date, there are no leases or service
contracts affecting the Real Property or any portion thereof which will survive
the Closing, other than the Service Contacts. There are no management contracts
that affect the Property that will survive the Closing.
As utilized in this Paragraph 11, the term "Seller's knowledge" shall mean the
actual present knowledge of Darryl A. LeClair, Sandy Burgess, and Mark Stroud,
without having conducted any independent investigation, inquiry or review.
It shall be a condition to Buyer's obligations hereunder that the foregoing
covenants and representations of Seller shall be true as of the date of Closing.
The foregoing representations of Seller shall survive the Closing, provided that
any action or claim based upon the failure of the representations or warranties
set forth hereinabove must be commenced within six months following the Closing.
In the event that Seller has made a representation herein which, at the time and
in the light of circumstances under which it is made, is false or misleading
with respect to any material fact,
8.
<PAGE>
or omits to state any material fact necessary in order to make any statement
contained therein not false or misleading in any material respect, and Buyer has
knowledge of such misrepresentation prior to Closing, then Buyer, as Buyer's
sole remedy, may elect to terminate this Contract whereupon the Deposit shall be
returned to Buyer. In the event any of Seller's representations or warranties
shall prove to be false or incorrect and Buyer becomes aware of such false or
incorrect representations after Closing and within the time period provided in
this Section 14, Buyer shall have the right to collect from Seller its actual
damages on account thereof up to a maximum of Fifty Thousand and 00/100 Dollars
($50,000.00).
15. Affirmative Covenants of Seller.
(a) From and after the expiration of the Inspection Period until
Closing, Seller shall not execute or record any leases or modifications thereto,
or any mortgages or liens encumbering the Real Property, without the prior
written consent of Buyer, which consent shall not be unreasonably withheld or
delayed. Seller reserves the right, in its usual and customary course of
business, to amend, modify or terminate any of the Leases or to enter into new
Leases during the Inspection Period, and Seller agrees to deliver to Buyer
copies of any such instruments within two (2) business days following the full
execution of such instruments, but in all cases prior to the expiration of the
Inspection Period.
(b) Seller agrees to continue to maintain the Property and all of
its improvements, parking areas and landscaping in the same fashion and
condition as in existence as of the Effective Date.
(c) Seller agrees to immediately notify Buyer in the event Seller
receives any written notice of the commencement of any legal action or
proceeding that affects the Property or the transaction contemplated by this
Agreement, or in the event that Buyer receives written notification that the
Property is not in compliance with any applicable governmental rule or
regulation.
(d) Seller shall maintain the Property in material compliance with
the Declaration.
16. Affirmative Covenants of Buyer.
(a) Buyer acknowledges and understands that the chiller system
located within the Building located on the Real Property also serves to furnish
the chilled water to building located in the commercial park and owned by
Seller. In addition, the pump and irrigation wells to furnish irrigation to
portions of landscaping to portions of the commercial park are also located on
the Real Property. Buyer also acknowledges that Seller has entered into a
contract to sell the remainder of the commercial park to Phil Hawley or its
assigns. Buyer acknowledges and agrees that it shall negotiate, in good faith,
with either Seller or Seller's successors-in-title, an agreement to permit and
maintain the continuing chilled water service to the adjacent other building(s)
in the park in
9.
<PAGE>
exchange for a commercially reasonable fee, and to grant an easement to Seller
or its successor-in-title or assign for the maintenance, replacement, repair and
operation of the irrigation system so located on the Real Property.
17. Conditions to Closing. The respective obligations of the parties to
consummate the Closing is subject to the satisfaction of each of the following
conditions prior to Closing:
(a) Seller shall have obtained and delivered to Buyer a letter or
certificate from the City of Alachua or other governmental agency having
jurisdiction over the Property that the Property is in material compliance with
the Progress Center DRI. In addition, if so required by the terms of the
Progress Center DRI, Buyer shall be approved as an acceptable developer by such
agency having jurisdiction thereover.
(b) Seller shall not have received any written notice from any
governmental agency of any pending or threatened condemnation or taking, or that
the Property is in violation of any applicable code, rule or ordinance.
(c) Seller and Phil Hawley shall have entered into an amendment to the
Hawley Contract to release the Property subject to the terms of this Contract
from the terms and conditions of the Hawley Contract.
In the event that any of the above-stated conditions have not been or are not
fulfilled at or prior to Closing, then either party may terminate this
Agreement, whereupon the Deposit shall be refunded to Buyer and all rights and
obligations arising hereunder shall cease.
18. Buyer's Default. If Buyer fails to consummate the purchase and sale of
the Property in accordance with the terms and conditions of this Contract, then
the Deposit shall be delivered by Escrow Agent to and retained by Seller as
agreed to and liquidated damages, and in full settlement of all claims by Seller
for such failure. This shall be Seller's sole remedy in the event of Buyer's
breach or default hereunder.
19. Seller's Default. If Seller defaults in the performance of its
obligations under this Contract, then, at the option of Buyer, (a) Buyer may
terminate this Contract and, upon such termination, Buyer shall be entitled, on
demand, to the return of the Deposit paid by Buyer, or (b) Buyer shall have only
the right of specific performance without diminution in the Purchase Price.
These shall be the sole remedies of Buyer in the event of Seller's breach or
default hereunder.
20. Damage or Destruction. Seller agrees to provide Buyer with prompt
written notice of any damage to or destruction of the Property of which Seller
has knowledge. In such event the parties' rights and obligations shall be as
follows:
(a) If the "Repair Cost" is ten percent (10%) of the Purchase Price
or less, then (i) at Closing, Buyer shall accept the Property subject to
such damage or destruction, (ii) the
10.
<PAGE>
Purchase Price shall be reduced by the amount of the Repair Cost, and
(iii) Seller shall retain the right to all proceeds of insurance. As used
herein, the term "Repair Cost" means an estimate of the actual cost to
repair the damage attributable to such damage or destruction and obtained
by Seller within thirty (30) days following the event of damage or
destruction from a reputable, licensed independent contractor selected by
Seller and licensed to do business in the jurisdiction in which the
Property is located.
(b) If the Repair Cost exceeds ten percent (10%) of the Purchase
Price, then either Buyer or Seller shall have the right to terminate this
Contract, exercisable by giving written notice to the other party of such
election within thirty (30) days after the determination of the Repair
Cost, whereupon the Deposit shall be returned to Buyer with all interest
accrued thereon. If neither party exercises such termination right, then
(i) Buyer shall accept the Property at Closing subject to such damage or
destruction, (ii) the Purchase Price shall be reduced by the amount of the
Repair Cost, and (iii) Seller shall retain the right to all insurance
proceeds.
21. Attorneys' Fees. In the event either party is required to interpret or
enforce this Contract against the other, the prevailing party in any litigation
or other proceeding shall be entitled to recover, in addition to any other
remedy, its reasonable attorneys' fees, legal assistants' fees and costs: and
court costs, including those incurred on appeal and in bankruptcy or creditor's
reorganization proceedings.
22. Prorations. The following items shall be paid. apportioned, and
prorated (based on the actual number of days in the month in which the Closing
Date occurs, assuming the Closing occurs at 12:01 a.m. on the Closing Date)
between Seller and Buyer:
(a) Real property taxes for the then-current tax fiscal year shall
be prorated based on the current year's tax, with full discount as
permitted by law. If the current year's tax is not then available and the
Closing occurs at a date when the current year's millage is not fixed and
current year's assessment is available, taxes will be prorated based on
such assessment and the prior year's millage. If the current year's
assessment is not then available, taxes will be prorated on the prior
year's tax, with full discount. Any tax proration based on an estimate, at
request of either Buyer or Seller, may be readjusted after receipt of the
tax bill. This provision shall survive the Closing.
(b) All current installments for certified, confirmed, and ratified
special assessment liens as of the Closing Date shall be paid by Seller,
and the balance shall be assumed by Buyer. All liens for public
improvements pending as of the Closing Date shall be assumed by Buyer.
(c) Sums paid by Seller for fuel, water, and sewer service, and
waste collection charges, and charges for electricity, telephone, and all
other public utilities shall be prorated at Closing. Seller shall pay all
utility bills in Seller's name that are due as of the Closing
11.
<PAGE>
Date. Buyer shall arrange for utility service in Buyer's name to commence
on the Closing Date. Utility deposits previously paid b Seller shall be
returned to Seller.
(d) Rents and refundable security deposit (which will be assigned to
and assumed by Buyer and credited to Buyer at Closing). This subparagraph
of this Contract shall survive the Closing and the delivery and recording
of the Deed.
(e) All other usual and customary expenses, revenues, assessments,
and other proratable items associated with the ownership, maintenance and
operation of the Property shall be prorated as of the Closing Date.
23. Brokers. Seller hereby (i) warrants and represents to Buyer that it
has had no dealings with any person or entity from which a valid claim for any
brokerage commission or similar fee could arise in connection with this Contract
or the transactions contemplated hereby; and (ii) agrees to defend. indemnify
and hold Buyer harmless from and against any claim by any third parties for
brokerage, commission, finders' or other fees relative to this Contract or the
sale of the Property and alleged to be due by authorization of, or as a result
of any actions taken by, Seller or its agents. together with any court costs,
attorneys' fees or other costs or expenses arising therefrom. Buyer hereby (i)
warrants and represents to Seller that it has had no dealings with any person or
entity from which a valid claim for any brokerage commission or similar fee
could arise in connection with this Contract or the transactions contemplated
hereby; and (ii) agrees to defend, indemnify and hold Seller harmless from and
against any claim by any third parties for brokerage, commission, finders' or
other fees relative to this Contract or the sale of the Property and alleged to
be due by authorization of, or as a result of any actions taken by, Buyer or its
agents, together with any court costs, attorneys' fees or other costs or
expenses arising therefrom. The representations, warranties and indemnification
obligations set forth in this Paragraph shall survive the Closing.
24. Condemnation. If at any time prior to the delivery of the executed
Deed of conveyance to Buyer as herein provided, the Real Property or any portion
thereof is taken by eminent domain, or if any preliminary steps in any taking by
eminent domain of the Real Property any part thereof occurs prior to such
deliver or recording, Buyer may, at its option, within ten (10) days after
receipt of written notice of such fact from Seller, rescind this Contract, and
upon such rescission all monies deposited by Buyer under the terms hereof,
together with all interest earned thereon, shall be returned to Buyer upon
demand and thereupon all rights and liabilities arising hereunder shall
terminate. Seller shall notify Buyer in writing of any such taking by eminent
domain and all steps preliminary thereto as soon as the Seller has knowledge
thereof. In the event Buyer does not elect to rescind this Contract under such
circumstances, Buyer shall be entitled to all proceeds received or to be
received from any condemning authority, and Seller shall (i) pay to Buyer at
closing all such proceeds received by Seller, and (ii) assign to Buyer at
closing all such proceeds to be thereafter received from any condemning
authority by instrument of assignment in form reasonably acceptable to Buyer.
12.
<PAGE>
25. Entire Agreement. No agreements, representations or warranties, unless
expressly incorporated or set forth in this Contract, shall be binding upon any
of the parties. Neither the Closing hereunder nor any termination of this
Contract shall extinguish or otherwise impair any indemnification obligations
for which provision is made herein, regardless of whether or not the provision
imposing any such obligation expressly so states. All of the covenants,
warranties and representations set forth in this Contract shall be merged with
the Deed and shall not survive Closing (or any termination of this Contract),
unless and to the extent such covenant, warrant, and representation is expressly
provided to survive such Closing or termination of this Contract.
26. Successors and Assigns; Singular and Plural Usages. The covenants
contained herein shall bind, and the benefits and advantages shall inure to, the
respective successors and assigns of the parties hereto. Seller reserves the
right to transfer the Property to a third party prior to closing, together with
an assignment to and assumption by such third party, of all of the benefit and
obligations of Seller under this Contract, whereupon Seller and Buyer each
acknowledge and agree that Buyer shall look to both Seller and to such third
party transferee for the performance and fulfillment of the obligations of the
seller under this Contract. Whenever used herein, the singular number shall
include the plural, the plural the singular, and the use of any gender shall
include all genders.
27. Notification. Any notice, demand, consent, approval or other
communication to be given to or served upon any party hereto, in connection
herewith, must be in writing, and may be given by facsimile transmission,
certified mail return receipt requested or guaranteed overnight delivery
service. If a notice is delivered by United States Mail, it shall be deemed to
have been given and received two (2) days following the deposit of a certified
letter containing such notice, properly addressed, with postage prepaid, with
the United States Mail. If delivered by facsimile transmission or by guaranteed
overnight delivery service, it shall be deemed to have been given and received
the same day that the notice is faxed or delivered into the custody of the
overnight delivery service. If the notice is given otherwise than by certified
mail, facsimile transmission or guaranteed overnight delivery service, it shall
be deemed to have been given when delivered to and received by the party to whom
it is addressed. Notices shall be given to the parties hereto at the following
addresses:
IF TO BUYER: Regeneration Technologies, Inc.
WITH A COPY TO: Marvin W. Bingham, Jr., P.A.
14811 NW 140th St.
P.O. Box 1930
Alachua, FL 32616-1930
Attn: Marvin W. Bingham, Jr., Esquire
Telephone: (904) 462-5120
Telecopy: (904) 462-1996
13.
<PAGE>
IF TO SELLER: Echelon International Corporation
450 Carillon Parkway Suite 200
St. Petersburg, Florida 33716
Attn: Mark Stroud
Telecopy: (727) 803-8202
WITH A COPY TO: Trenam, Kemker, Scharf, Barkin, Frye, O'Neill, & Mullis,
Professional Association
101 East Kennedy Boulevard
2700 Barnett Plaza
Tampa, Florida 33602
Attn: Mary H. Quinlan, Esquire
Telephone: (813) 223-7474
Telecopy: (813) 229-6553
Failure or refusal of Seller or Buyer to accept delivery of or to claim a
notice that is required by the terms of this Contract to be received by the
party for which intended will not invalidate such notice, and such notice will
be effective and will be deemed received an the date of the refusal or failure
to claim the notice by the party for which intended. Any party hereto may change
its address for the service of notice hereunder by delivering written notice of
said change to the other parties hereunder. Any notice required or permitted
hereunder may be given by the attorney for a party to this Contract.
28. Escrow Instructions. Escrow Agent shall incur no liability whatsoever
in connection with its good faith performance as Escrow Agent hereunder. The
parties hereby jointly and severally release and waive any claims they may have
against Escrow Agent which may result from its performance in good faith of such
function hereunder, specifically including, but not limited to, any delay in the
electronic wire transfer of funds. In its capacity as Escrow Agent hereunder,
Escrow Agent shall be liable only for loss or damage caused directly by its acts
of gross negligence or intentional misconduct while performing the duties
attendant thereto.
In the event of any disagreement between the parties resulting in
conflicting instructions to, or adverse claims or demands upon, Escrow Agent
with respect to the release of any escrowed funds or documents, Escrow Agent may
refuse to comply with any such instruction, claim or demand so long as such
disagreement shall continue, and in so refusing Escrow Agent shall not be
obligated to release such funds or documents. Escrow Agent shall not be or
become liable in any way for its failure or refusal to comply with any such
conflicting instructions, or adverse claims or demands, and it shall be entitled
to continue to refrain from acting until such conflicting instructions, or
adverse claims or demands (i) have been adjusted by agreement and Escrow Agent
has been notified in writing thereof by the parties, or (ii) have finally been
determined in a court of competent jurisdiction. In the alternative, Escrow
Agent shall have the right to interplead the Deposit with the Clerk of the
Circuit Court of Alachua County. Florida, and upon notifying both Seller and
Buyer of
14.
<PAGE>
such action, all liability of Escrow Agent hereunder shall terminate, except to
the extent of accounting for the Deposit.
In the event of any suit between Seller and Buyer wherein Escrow Agent is
made a party by virtue of acting as escrow agent hereunder, or in the event of
any suit wherein Escrow Agent interpleads the Deposit, Escrow Agent shall be
entitled to recover reasonable fees (including but not necessarily limited to
fees for the services of attorneys and legal assistants) and costs incurred,
with such fees and costs to be charged and assessed as court costs in favor of
the prevailing party.
Bu7yer acknowledges that Escrow Agent has acted as Seller's legal counsel
in connection with the negotiation and preparation of this Contract, and agrees
that Escrow Agent's capacity as escrow agent hereunder shall not disqualify
Escrow Agent from representing Seller in connection with any matters evidenced
or contemplated hereby or related hereto, including any litigation arising
hereunder.
29. Time. Time is of the essence of this Contract and of each of its
provisions. Unless otherwise expressly provided in this Contract, any reference
herein to time periods of fewer than seven (7) days will in the computation
thereof exclude Saturdays, Sundays and all legal holidays. Notwithstanding any
provision of this Contract to the contrary, any time period which ends on a
Saturday, Sunday or legal holiday will automatically extend to 5:00 p.m. of the
next full day which is not a Saturday, Sunday or legal holiday. Wherever used in
this Contract, the term "Business Days" will mean Monday through Friday.
excluding legal holidays as expressly so defined in Florida Statutes Chapter 683
(1997).
30. Effective Date. The "Effective Date" shall be the date of the later of
the execution date of this Contract by Seller and Buyer.
31. Multiple Originals. This Contract may be executed in multiple
counterparts, each of which shall be deemed for all purposes to be an original,
but all of which shall constitute one and the same contract. At least one full
executed original of this Contract shall be delivered to each of Seller, Buyer
and Escrow Agent.
32. Radon Gas. As required by applicable Florida statute, Seller hereby
discloses to Buyer the following:
Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present
health risks to persons who are exposed to it over time. Levels of
radon that exceed federal and state guidelines have been found in
buildings in Florida. Additional information regarding radon and
radon testing may be obtained from your county public health unit.
15.
<PAGE>
33. Controlling Law. This Contract shall be construed, governed,
interpreted and enforced in accordance with the laws of the State of Florida.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
effective as of the later of the dates of execution hereof by Seller and Buyer.
Signed, sealed and delivered SELLER:
in the presence of:
ECHELON INTERNATIONAL
CORPORATION, a Florida corporation
/s/ Sharon McBride By: /s/ Julio A. Maggi
- -------------------------------- -----------------------------------------
JULIO A MAGGI, Vice President
/s/ [ILLEGIBLE] Date: 31 JAN , 2000
- -------------------------------- -----------------
As to Seller
BUYER
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
- -------------------------------- -----------------------------------------
/s/ [ILLEGIBLE] Date: 1/31/00 , 2000
- -------------------------------- -----------------
As to Buyer
JOINDER
The undersigned Escrow Agent joins in the execution of this Contract to
agree to comply with the obligations of Escrow Agent hereunder.
TRENAM KEMKER SCHARF BARKIN FRYE
O'NEILL & MULLIS, P.A.
By: Mary H. Quinlan
-----------------------------------------
16.
<PAGE>
EXHIBIT "A"
[SKETCH OR LEGAL DESCRIPTION OF PROPERTY]
LEGAL DESCRIPTION - EB&TP
Parcel "C" of 'REPLAT OF PROGRESS CENTER' as per plat thereof recorded in Plat
Book P, pages 48 and 49 of the Public Records of Alachua County, Florida.
<PAGE>
Exhibit B
Service and Maintenance Agreements
Echelon Business and Technology Park
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
30 Day Termination
Vendor Description Amount Clause Date
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
W W Gay Mechanical Preventive Maint on
Mechanical Equipment $7,492.00 per year Yes Oct-00
(Applies to both - can easily be split)
- --------------------------------------------------------------------------------------------------------------------
York International Preventive Maint on
Bldg 2 Chillers $4,860.00 per year No Feb-00
Building 2 Only
- --------------------------------------------------------------------------------------------------------------------
Premier Water Chemical for Cooling
Towers $17,184.00 per year Yes 9/15/00
Applies to both - can be split
- --------------------------------------------------------------------------------------------------------------------
Boone Waste Solid Waste disposal $565.00 per month No Feb-00
Building 1 Only
- --------------------------------------------------------------------------------------------------------------------
Quality Carpet/Janitorial Cleaning Service $3,620.00 per month Yes Dec-99 (has been re bid but no
contract has been signed
Building 1 Only for 2000)
- --------------------------------------------------------------------------------------------------------------------
Earthgroomers Landscaping $6,400.00 per month Yes Dec-99 (has been re bid but no
contract has been signed
All properties - can be split for 2000)
- --------------------------------------------------------------------------------------------------------------------
Jacksonville Sound Alarm Monitoring $75.00 per month Yes Until notice is given
Can be split
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT "C"
[EXISTING PERMITTED EXCEPTIONS]
1. General or special taxes and assessments for the year of closing and all
subsequent years.
2. "Progress Center Unit I Declaration of Covenants and Restrictions" dated
March 19, 1985, and recorded in the Public Records of Alachua County,
Florida, in Official Records Book 1588. Page 2207, as modified and amended
by that certain First Amendment to Progress Center Unit 1 Declaration of
Covenants and Restrictions dated February 12, 1990, and as further amended
and modified pursuant to the terms of the "Second Amendment" recorded in
O.R. Book 2161, Page 1701, all as recorded in the Public Records of
Alachua County, Florida, in Official Records Book 1762, Page 1883, as
joined in by Eye Research Laboratory, Inc., in that certain Joinder in
Declaration and Restrictions dated March 18, 1985, and recorded in the
Public Records of Alachua County, Florida, in Official Records Book 1588,
Page 2205, (collectively, the "Declaration").
3. Any easements, restrictions or other matters as shown on the Replat of
Progress Center, Plat Book P, Page 49, as recorded in Alachua County,
Florida.
4. Easement from Context Development Company to City of Alachua, recorded in
O.R. Book 1241, Page 113;
5. Terms and conditions of Agreement executed by and between Apalachee
Development and the State of Florida D.C.A, recorded in O.R. Book 1605,
Page 1374; amendment thereto recorded in O.R. Book 1617, Page 613;
6. Terms and conditions set forth in Notice of Development Order approving
the Development of Regional Impact known as Progress Center recorded in
O.R. Book 1692, Page 1378, as amended ("Progress Center DRI"):
7. Easement from Talquin Development Company, successor of Apalachee
Development Company, to City of Alachua, Florida, recorded in O.R. Book
1668, Page 982;
8. Distribution Right of Way easement from Talquin Development Company to
Clay Electric Cooperative, Inc. recorded in O.R. Book 1751, Page 1007;
9. Easement from Talquin Development Company to City of Alachua, recorded in
O.R. Book 1822, Page 727;
10. Terms and conditions set forth in Drainage Easement Agreement recorded in
O.R. Book 1830, Page 345;
11. Easement from Talquin Development Company to City of Gainesville recorded
in O.R. Book 1870 Page 2987;
<PAGE>
12. Easement from Talquin Development Company to the Board of Trustees of the
Internal Improvement Trust Fund of the State of Florida recorded in O.R.
Book 1993, Page 358;
13. Public Utilities and Drainage Easement shown on the Progress Center Plat
recorded in Plat Book M, Page 82;
14. Twenty (20) foot drainage easement set forth in Warranty Deed recorded in
O.R. Book 1959;
15. Rights of tenants under unrecorded Leases.
All recording in the public records of Alachua County, Florida
<PAGE>
EXHIBIT "D"
Seller advises Buyer that on or around 1990, some anti-freeze material was
released from a chiller line. Seller voluntarily caused the removal of all of
the contaminated soils to the county landfill. Seller advised the local office
of environmental protection for Alachua County of the incident. A representative
of the agency visited the site of the spill and verbally advised Seller of Its
acceptance of the condition and clean-up.
<PAGE>
ENG
DENMAN &
ASSOCIATES, INC.
- --------------------------------------------------------------------------------
ENGINEERS o SURVEYORS o PLANNERS
February 17, 2000
Legal Description
For: Regeneration Technologies, Inc.
A portion of Government Lots 1 and 2 in Section 24, Township 8 South, Range 18
East, and being a portion of Replat of Progress Center as per plat thereof
recorded in Plat Book "P", pages 48 and 49 of the Public Records of Alachua
County, Florida; all lying and being in the City of Alachua, Alachua County,
Florida and being more particularly described as follows:
Parcel C of Replat of Progress Center as per plat thereof recorded in Plat Book
P, pages 48 and 49 of the Public Records of Alachua County, Florida.
Containing 6.20 acres (269,847 square feet), more or less.
2404 NW 43RD STREET o GAINESVILLE, FLORIDA 32606-6602 o
TEL. (352) 373-3541 o FAX (352) 373-7249
<PAGE>
ENG
DENMAN &
ASSOCIATES, INC.
- --------------------------------------------------------------------------------
ENGINEERS o SURVEYORS o PLANNERS
February 17, 2000
Legal Description
For: Regeneration Technologies, Inc.
A portion of Government Lots 1 and 2 in Section 24, Township 8 South, Range 18
East, and being a portion of Replat of Progress Center as per plat thereof
recorded in Plat Book "P", pages 48 and 49 of the Public Records of Alachua
County, Florida; all lying and being in the City of Alachua, Alachua County,
Florida and being more particularly described as follows:
PARCEL 1:
Commence at the northwest corner of Parcel C of Replat of Progress Center as per
Plat thereof recorded in Plat Book "P", pages 48 and 49 of the Public Records of
Alachua County, Florida and run thence North 87(degree)15'29" East along the
northerly boundary of said Parcel C, a distance of 135.00 feet; thence South
49(degree)23'12" East along said northerly boundary, a distance of 100.76 feet
to the POINT OF BEGINNING (#1); thence continue South 49(degree)23'12" East
along said northerly boundary, a distance of 279.24 feet; thence North
70(degree)36'48" East along said northerly boundary, a distance of 23.73 feet to
a point on the northwesterly right-of-way line of Innovation Drive (100' R/W),
said point being hereinafter referred to as Point A and being on the arc of a
curve concave northwesterly and having a radius of 200.00 feet; thence
northeasterly along the arc of said curve and along said northwesterly
right-of-way line through a central angle of 27(degree)56'18", an arc distance
of 97.52 feet to the end of said curve, said arc being subtended by a chord
having a bearing and distance of North 56(degree)38'39" East, 96.56 feet; thence
North 42(degree)40'31" East, along said northwesterly right-of-way line, a
distance of 377.75 feet to a point at the intersection of said northwesterly
right-of-way line with the southerly right-of-way line of Research Circle (80'
R/W), said point being on the arc of a curve concave southwesterly and having a
radius of 560.00 feet; thence northwesterly along the arc of said curve, and
along said southerly right-of-way line, through a central angle of
32(degree)05'54", an arc distance of 313.73 feet to the end of said curve, said
arc being subtended by a chord having a bearing and distance of North
68(degree)29'48" West, 309.64 feet; thence North 84(degree)32'45" West along
said southerly right-of-way line, a distance of 256.00 feet to a point at the
northeasterly corner of that certain parcel of land as described in Official
Records Book 2264, pages 2522 et seq. of said Public Records; thence South
05(degree)27'15" West along the easterly boundary of said parcel (OR 2264, pgs
2522 et seq.), a distance of 296.09 feet to the POINT OF BEGINNING.
TOGETHER WITH:
Commence at Point A as described above and run thence South 19(degree)23'12"
East, along the easterly boundary of said Parcel C of Replat of Progress Center,
and along the southwesterly end of the
2404 NW 43RD STREET o GAINESVILLE, FLORIDA 32606-6602 o
TEL. (352) 373-3541 o FAX (352) 373-7249
<PAGE>
right-of-way of Innovation Drive (100' R/W), a distance of 100.00 feet to a
point on the southeasterly right-of-way line of said Innovation Drive and the
POINT OF BEGINNING (#2); thence South 70(degree)36'48" West along the easterly
boundary of said Parcel C, a distance of 23.73 feet; thence South
10(degree)36'48" West along said easterly boundary, a distance of 478.17 feet to
a point on the southerly boundary of said Parcel C; thence North
79(degree)23'12" West along said southerly boundary, a distance of 64.00 feet;
thence North 13(degree)16'55" West along said southerly boundary, a distance of
86.41 feet; thence North 79(degree)23'12" West, a distance of 290.65 feet to the
southwesterly corner of said Parcel C; thence South 02(degree)55'52" West, a
distance of 624.31 feet to a point on the northerly right-of-way line of
Research Circle (80' R/W), as per deed recorded in Official Records Book 2213,
pages 2412 et seq. of said public records; thence South 87(degree)04'08" East
along said northerly right-of-way line, a distance of 155.06 feet to the
beginning of a curve concave northwesterly and having a radius of 810.00 feet;
thence northeasterly along the arc of said curve and along the northerly and
westerly right-of-way line of said Research Circle through a central angle of
94(degree)23'11", an arc distance of 1334.36 feet to the end of said curve, said
arc being subtended by a chord having a bearing and distance of North
45(degree)44'17" East, a distance of 1188.51 feet; thence North 01(degree)27'18"
West along said westerly right-of-way line, a distance of 217.62 feet to the
beginning of a curve concave southwesterly and having a radius of 410.00 feet;
thence northwesterly along the arc of said curve and along said westerly
right-of-way line through a central angle of 41(degree)54'28", an arc distance
of 299.89 feet to a point at the intersection of said westerly right-of-way line
with the southeasterly right-of-way line of said Innovation Drive, said arc
being subtended by a chord having a bearing and distance of North
22(degree)24'33" West, a distance of 293.25 feet; thence South 42(degree)40'31"
West along said southeasterly right-of-way line, a distance of 379.00 feet to
the beginning of a curve concave northwesterly and having a radius of 300.00
feet; thence southwesterly along the arc of said curve and along said
southeasterly right-of-way line through a central angle of 27(degree)56'18", an
arc distance of 146.28 feet to the POINT OF BEGINNING, said arc being subtended
by a chord having a bearing and distance of South 56(degree)38'39" West, a
distance of 144.84 feet.
Containing in aggregate 20.82 acres (907,292 square feet), more or less.
<PAGE>
FIRST AMENDMENT TO CONTRACT OF
PURCHASE AND SALE
THIS FIRST AMENDMENT is entered into as of this ____ day of ________,
2000, by and between Echelon International Corporation, a Florida corporation,
its successors, successors-in-title, and/or assigns, as "Seller", and
Regeneration Technologies, Inc., a Florida corporation, its successors and/or
assigns, as "Buyer."
WHEREAS, the parties have entered into that certain Contract of Purchase
and Sale dated the 31st day of January, 2000, for the property located in
Alachua County, Florida, more particularly described therein; and
WHEREAS, Buyer and Seller have requested an amendment to the Contract of
Purchase and Sale.
NOW, THEREFORE, the Buyer and Seller agree as follows:
1. Exhibit "A", the Legal Description, is hereby amended to increase by
20.82 acres of land as described on the exhibit attached hereto to
and made a part hereof.
2. Paragraph III, Section 3, is hereby amended to increase the purchase
price by $624,600.00 ($30,000.00 x 20.82 acres).
All provisions of the original Agreement not amended herein shall remain
unchanged and in full force and effect. This Amendment may be executed in
counterparts, via facsimile, and signed counterparts, when combined, shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have set their hands and seals this
________ day of _____________, 2000.
In the presence of: "BUYER"
REGENERATION TECHNOLOGIES, INC.,
a Florida corporation
/s/ Robert W. Clark By: /s/ Richard R. Allen
- ----------------------------- -------------------------------------
Printed Name: Richard R. Allen
---------------------------
Its: CFO/Sec/Treas
------------------------------------
/s/ [ILLEGIBLE]
- -----------------------------
As to Buyer
"SELLER"
ECHELON INTERNATIONAL
CORPORATION, a Florida Corporation
By:
- ----------------------------- -------------------------------------
Printed Name:
---------------------------
Its:
------------------------------------
- -----------------------------
As to Seller
<PAGE>
ENG
DENMAN &
ASSOCIATES, INC.
- --------------------------------------------------------------------------------
ENGINEERS o SURVEYORS o PLANNERS
February 17, 2000
Legal Description
For: Regeneration Technologies, Inc.
A portion of Government Lots 1 and 2 in Section 24, Township 8 South, Range 18
East, and being a portion of Replat of Progress Center as per plat thereof
recorded in Plat Book "P". pages 48 and 49 of the Public Records of Alachua
County, Florida; all lying and being in the City of Alachua, Alachua County,
Florida and being more particularly described as follows:
PARCEL 1:
Commence at the northwest corner of Parcel C of Replat of Progress Center as per
Plat thereof recorded in Plat Book "P", pages 48 and 49 of the Public Records of
Alachua County, Florida and run thence North 87(degree)15'29" East along the
northerly boundary of said Parcel C, a distance of 135.00 feet; thence South
49(degree)23'12" East along said northerly boundary, a distance of 100.76 feet
to the POINT OF BEGINNING (#1); thence continue South 49(degree)23'12" East
along said northerly boundary, a distance of 279.24 feet; thence North
70(degree)36'48" East along said northerly boundary, a distance of 23.73 feet to
a point on the northwesterly right-of-way line of Innovation Drive (100' R/W),
said point being hereinafter referred to as Point A and being on the arc of a
curve concave northwesterly and having a radius of 200.00 feet; thence
northeasterly along the arc of said curve and along said northwesterly
right-of-way line through a central angle of 27(degree)56'18", an arc distance
of 97.52 feet to the end of said curve, said arc being subtended by a chord
having a bearing and distance of North 56(degree)38'39" East, 96.56 feet; thence
North 42(degree)40'31" East, along said northwesterly right-of-way line, a
distance of 377.75 feet to a point at the intersection of said northwesterly
right-of-way line with the southerly right-of-way line of Research Circle (80'
R/W), said point being on the arc of a curve concave southwesterly and having a
radius of 560.00 feet; thence northwesterly along the arc of said curve, and
along said southerly right-of-way line, through a central angle of
32(degree)05'54", an arc distance of 313.73 feet to the end of said curve, said
arc being subtended by a chord having a bearing and distance of North
68(degree)29'48" West, 309.64 feet; thence North 84(degree)32'45" West along
said southerly right-of-way line, a distance of 256.00 feet to a point at the
northeasterly corner of that certain parcel of land as described in Official
Records Book 2264, pages 2522 et seq. of said Public Records; thence South
05(degree)27'15" West along the easterly boundary of said parcel (OR 2264, pgs
2522 et seq.), a distance of 296.09 feet to the POINT OF BEGINNING.
TOGETHER WITH:
Commence at Point A as described above and run thence South 19(degree)23'12"
East, along the easterly boundary of said Parcel C of Replat of Progress Center,
and along the southwesterly end of the
2404 NW 43RD STREET o GAINESVILLE, FLORIDA 32606-6602 o
TEL. (352) 373-3541 o FAX (352) 373-7249
<PAGE>
right-of-way of Innovation Drive (100' R/W), a distance of 100.00 feet to a
point on the southeasterly right-of-way line of said Innovation Drive and the
POINT OF BEGINNING (#2); thence South 70(degree)36'48" West along the easterly
boundary of said Parcel C, a distance of 23.73 feet; thence South
10(degree)36'48" West along said easterly boundary, a distance of 478.17 feet to
a point on the southerly boundary of said Parcel C; thence North
79(degree)23'12" West along said southerly boundary, a distance of 64.00 feet;
thence North 13(degree)16'55" West along said southerly boundary, a distance of
86.41 feet; thence North 79(degree)23'12" West, a distance of 290.65 feet to the
southwesterly corner of said Parcel C; thence South 02(degree)55'52" West, a
distance of 624.31 feet to a point on the northerly right-of-way line of
Research Circle (80' R/W), as per deed recorded in Official Records Book 2213,
pages 2412 et seq. of said public records; thence South 87(degree)04'08" East
along said northerly right-of-way line, a distance of 155.06 feet to the
beginning of a curve concave northwesterly and having a radius of 810.00 feet;
thence northeasterly along the arc of said curve and along the northerly and
westerly right-of-way line of said Research Circle through a central angle of
94(degree)23'11", an arc distance of 1334.36 feet to the end of said curve, said
arc being subtended by a chord having a bearing and distance of North
45(degree)44'17" East, a distance of 1188.51 feet; thence North 01(degree)27'18"
West along said westerly right-of-way line, a distance of 217.62 feet to the
beginning of a curve concave southwesterly and having a radius of 410.00 feet;
thence northwesterly along the arc of said curve and along said westerly
right-of-way line through a central angle of 41(degree)54'28", an arc distance
of 299.89 feet to a point at the intersection of said westerly right-of-way line
with the southeasterly right-of-way line of said Innovation Drive, said arc
being subtended by a chord having a bearing and distance of North
22(degree)24'33" West, a distance of 293.25 feet; thence South 42(degree)40'31"
West along said southeasterly right-of-way line, a distance of 379.00 feet to
the beginning of a curve concave northwesterly and having a radius of 300.00
feet; thence southwesterly along the arc of said curve and along said
southeasterly right-of-way line through a central angle of 27(degree)56'18", an
arc distance of 146.28 feet to the POINT OF BEGINNING, said arc being subtended
by a chord having a bearing and distance of South 56(degree)38'39" West, a
distance of 144.84 feet.
Containing in aggregate 20.82 acres (907,292 square feet), more or less.
<PAGE>
Exhibit 10.9
LEASE
THIS LEASE ("Lease") is entered into and effective as of February 4, 2000
("Effective Date") by and between ECHELON INTERNATIONAL CORPORATION, a Florida
corporation, its successors and assigns ("Landlord"), and REGENERATION
TECHNOLOGIES, INC. ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into that certain "Progress Center
Lease" dated as of June 30, 1998, which lease was amended to permit Tenant to
occupy and lease portions of additional space in the building located at 13709
Progress Boulevard, Alachua, Florida ("Building"), and
WHEREAS, the parties desire to lease additional space in the Building and
to supercede and replace, in part, the existing Progress Center Lease as so
amended, to the extent the same governed by the terms of leasing space in the
Building, with a separate lease agreement;
NOW, THEREFORE, for and in consideration of the sum of Ten and no/100
Dollars ($10.00) paid by Landlord to Tenant, and the mutual covenants and
conditions set forth herein, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree that commencing as of the "Effective
Date". Landlord agrees to lease to Tenant, and Tenant agrees to lease from
Landlord, the "Leased Premises" (as defined in Section 1.1g), subject to the
following terms and conditions:
ARTICLE 1. SUMMARY OF LEASE PROVISIONS
1.1. BASIC DATA. Certain fundamental provisions of this Lease are
presented in this summary format in this Article to facilitate convenient
reference by the parties hereto. All references in this Lease to the following
terms shall be accorded the meanings or definitions given in this Article, as
though such meaning or definition were fully set forth throughout the text
hereof, unless such meanings are expressly modified, limited or expanded
elsewhere in this Lease. This Article, together with the terms herein
referenced, shall constitute an integral part of this Lease.
(a) "Annual Gross Rent" shall be Fifteen Dollars ($15.00) per rentable
square foot, per Lease Year. as scheduled below:
ANNUAL ANNUAL MONTHLY
LEASE GROSS GROSS PAYMENT
YEAR RENT/RSF: RENT: RENT:
1 $15.00 $176,010.00 $14,667.50
2 $15.23 $178,708.80 $14,892.40
(note: The above schedule does not include any sales or use tax assessed
on rental)
(b) "Building" shall mean the building located on certain real property
located in the City of Alachua, Alachua County, Florida having a current
address of 13709 Progress Boulevard, Alachua, Florida.
(c) "Business Days" shall mean all days, except Saturdays, Sundays, New
Year's Day, President's Day, Memorial Day, Independence Day, Christmas
Day, Labor Day, Thanksgiving, and other recognized holidays.
(d) "Commencement Date" shall mean the Effective Date of this Lease.
(e) "Default Rate" means interest at the highest rate permitted by Chapter
689, Florida Statutes, or its successor legislation.
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(f) "Lease Year" shall mean each twelve (12)-month period beginning on the
Commencement Date and each anniversary thereof, provided the Commencement
Date is on the first day of a month. If the Commencement Date falls on a
day other than the first day of a month, then the first Lease Year shall
begin on the first day of the calendar month next following the
Commencement Date. If the Commencement Date falls on a day other than the
first day of a month, then the Term shall be extended by the period of
time ("Partial Lease Year") from such Commencement Date through the end of
the calendar month in which the Commencement Date falls.
(g) "Leased Premises" shall be deemed to mean approximately 11,734 square
feet of rentable area, which area shall be located in Suites 130, 135,
1-7, 102 113 and 144 in the Building, which Building is located in
Progress Center and depicted on the site plan attached hereto and made a
part hereof as Exhibit "A".
(h) "Normal Business Hours" shall mean from 8:00 am, to 500 p.m. during
all Business Days.
(i) "Rentable Area" or "Rentable Square Footage" shall mean the total area
(as it exists from time to time). Rentable Area of the Leased Premises is
hereby deemed to mean 11,734 square feet.
(j) "Term" shall mean two (2) Lease Years (plus a Partial Lease Year, if
applicable) commencing on the Commencement Date and ending at 11:59 p.m.
on the last day of the twenty-fourth (24th) full calendar month following
the Commencement Date ("Expiration Date") or on such earlier date in which
the Term of this Lease shall expire or be canceled or terminated pursuant
to any of the conditions or covenants of this Lease or pursuant to law,
and furthermore, shall include any renewal term, if such renewal term come
into existence.
(k) "Use" shall mean general office use, activities relating to the
procurement, processing, packaging, storage, and shipment of human tissue,
and laboratory use, biomedical and medical device research, manufacturing
and distribution, and for no other purpose whatsoever.
ARTICLE 2. LEASED PREMISES AND TERM
2.1. Leased Premises. Subject to the rent, terms and conditions herein set
forth, Landlord hereby leases to Tenant and Tenant hereby rents from Landlord
the Leased Premises, subject to the terms and provisions of this Lease to have
and to hold for the Term, unless the Term shall be sooner terminated as
hereinafter provided. In addition, if and to the extent there are other third
party tenants occupying a portion of the Building, then Tenant shall have the
general and non-exclusive right to use the Common Area subject to the terms and
conditions of this Lease. For purposes of this Lease, Common Area shall include
all areas, improvements, facilities and equipment from time to time designated
by Landlord for the general and nonexclusive common use or benefit of Tenant,
other tenants of the Building, Landlord, and their respective officers,
partners, directors, employees, agents, licensees, contractors, customer and
invitees, to the extent customers and invitees are under the principals control
or direction, including the following: (1) any areas in the Building devoted to
lobbies, hallways, rest rooms, janitorial closets, mailrooms, and other similar
facilities provided for the common use or benefit of tenants generally and/or
for the public located in the Building (but shall not include any such areas
designated for the exclusive use or benefit of a particular tenant); (ii)
portions of the Building used for mechanical rooms, electrical facilities,
telephone closets, fire towers and building stairs (but shall not include any
such areas designated for the exclusive use or benefit of a particular tenant);
(iii) vents, stacks, pipe shafts and vertical ducts; and (iv) those portions of
the Building which are provided and maintained for the common use and benefit of
Landlord and tenants of the Building only and employees and invitees and
licensees of Landlord and such tenants; including, without limitation, all
atriums, walkways, parking areas, and all streets, sidewalks and landscaped
areas appurtenant to the Building.
2.2. Landlord's Reservation Landlord shall retain absolute dominion and
control over the Common Area and shall operate and maintain the Common Area in
such manner as Landlord in its sole discretion, shall determine; provided,
however, such exclusive right shall not operate to prohibit Tenant from its
material benefit and enjoyment of the Lease Premises for the permitted Use as
defined in Section 1(o). Tenant acknowledges
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that without advance notice to Tenant and without any liability to Tenant in any
respect, Landlord shall have the right to:
(a) Close off any of the Common Area to whatever extent required in the
opinion of Landlord to prevent a dedication of any of the Common Area or
the accrual of any rights by any person or the public to the Common Area,
provided such closure does not materially deprive Tenant of the benefit
and enjoyment of the Leased Premises for its permitted use;
(b) Temporarily close any of the Common Area for maintenance, alteration
or improvement purposes;
(c) Select, appoint or contract with any person for the purpose of
operating and maintaining the Common Area, on such terms and conditions as
Landlord deems reasonable;
(d) Change the size, use, shape or nature of any such Common Area,
provided such change does not materially deprive Tenant of the benefit and
enjoyment of the Leased Premises. So long as Tenant is not thus deprived
of the use and benefit of the Leased Premises, Landlord will also have the
right at any time to change the arrangement or location of, or both, or to
regulate or eliminate the use of any concourse or any stairs, toilet or
other public conveniences in the Building, without incurring any liability
to Tenant or entitling Tenant to any abatement of rent;
(e) Expand the existing Building to cover a portion of the Common Area,
convert the Common Area to a potion of the Building or convert any potion
of the Building (excluding the Leased Premises). Upon erection of any
buildings or expansion of the Building, or change in Common Area, the
potion of the Building upon which such structures have been erected will
no longer be deemed to be a part of be Common Area. In the event of any
such changes in the size or use of a building or Common Area. Landlord may
make an appropriate adjustment in the rentable square feet of the
Building.
(f) In addition to the other rights of Landlord under this Lease, Landlord
reserves to itself and its respective successors and assigns the right to:
(i) change the street address and/or name of the Building; (ii) erect, use
and maintain pipes and conduits in and through the Leased Premises; (iii)
control the use of the roof and exterior walls of the Building; and (iv)
use Tenant's name in promotional materials (featuring Tenant only) and
relating to the Building or Progress Center, with written permission from
Tenant, which permission shall not be unreasonably withheld (it being
understood that Landlord shall have the right, without obtaining the
consent of Tenant, to use Tenant's name in promotional materials that
feature a list of all or major tenants of the Building and/or Progress
Center). Landlord may exercise any or all of the foregoing rights without
being deemed to be guilty of an eviction or disturbance or interruption of
the business of Tenant or Tenant's use or occupancy of the Leased
Premises.
2.3. Term. The Term of this Lease shall commence on the Commencement Date
as defined in Section 1, above, and shall extend to the last day of the second
(2nd) Lease Year at 11:59 p.m. or on such earlier date on which the term of this
Lease may expire or be terminated pursuant to the provisions of this Lease or
pursuant to law.
ARTICLE 3. RENT AND SECURITY DEPOSIT
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3.1. Rent. Tenant agrees to pay to the order of Landlord, without demand,
set-off or deduction during the Term, the Annual Gross Rent, in an amount equal
to the sums specified in Section 1.1(a). The Annual Gross Rent shall be due and
payable in twelve (12) equal monthly installments, in advance, commencing on the
Commencement Date and continuing on the first day of each and every subsequent
calendar month during the Term, in the amount as scheduled in Section 1.1(a);
provided, however, that the installment of the Annual Gross Rent payable for the
first full calendar month following the Commencement Date (and if the
Commencement Date occurs on a date other than on the first day of a calendar
month, the installment of Annual Gross Rent prorated from such date until the
first day of the following month) shall be due and payable at the time of
execution and delivery of this Lease. Tenant shall pay the Annual Gross Rent by
good check or in lawful currency of the United States of America. All forms of
Rent due under this Lease shall be paid to Landlord at c/o Echelon Real Estate
Services, Inc., 13709 Progress Boulevard, Alachua, Florida or such other
location as Landlord may designate in writing from time to time.
3.2. Late Payment Charge. Tenant hereby acknowledges that late payment by
Tenant to Landlord of Rent and other sums due hereunder after the expiration of
any applicable grace period will cause Landlord to incur costs not contemplated
by this Lease, the exact amount of which will be extremely difficult to
ascertain. Accordingly, other remedies for nonpayment of Rent notwithstanding,
and except as expressly provided herein, in the event any installment payment of
Annual Gross Rent due Landlord hereunder shall not be paid within ten (10) days
after the due date, Tenant shall pay Landlord a late payment fee of five percent
(5%) of the unpaid past due amount, in addition to such other amounts owed under
this Lease. In addition, Tenant shall pay Landlord interest on any delinquent
payment due Landlord hereunder at the Default Rate: provided that interest shall
not be payable on late charges incurred by Tenant or on any amounts upon which
late charges are paid by Tenant to the extent such interest would cause the
total interest to be in excess of that legally permitted.
3.3. Increase in Insurance Premiums. If an increase in any insurance
premiums paid by Landlord for the Building is caused by Tenant's use of the
Leased Premises, or if Tenant vacates the Leased Premises and causes an increase
in such premiums, then Tenant shall pay as Additional Rent the amount of such
increase to Landlord.
3.4. Holding Over. In the event that Tenant does not vacate the Leased
Premises upon the expiration or termination of this Lease and continues to hold
over in possession of the Leased Premises without the written consent of
Landlord, Tenant shall be a tenant at will for the holdover period and all of
the terms and provisions of this Lease shall be applicable during that period,
including the obligation to pay Rent, except that Tenant shall pay Landlord as
an installment of the Annual Gross Rent for the period of such holdover an
amount equal to two times (200%) The Annual Gross Rent which would have been
payable by Tenant had the holdover period been a part of the original term of
this Lease. The rental payable during the holdover period shall be payable to
Landlord on demand.
3.5. Sales Tax. In addition to the Annual Gross Rent, and all other
Additional Rent to be paid by Tenant hereunder, Tenant shall be liable and pay
to Landlord all rental, sales and use taxes, if any, levied or imposed by any
city, state, county or other governmental body having authority, such payments
to be in addition to all other payments required to be paid to Landlord by
Tenant under the terms of this Lease. Any such payment shall be paid
concurrently with the payment of the Rent or other charge upon which the tax is
based as set forth above.
3.6. Rights to Additional Rent. Any and all sums of money or charges,
other than Annual Gross Rent, required to be paid by Tenant under this Lease,
whether or not the same be so designated, shall be considered "Additional Rent."
Landlord shall have the same rights and remedies with respect to Additional Rent
as with respect to Annual Gross Rent. The term "Rent" is hereby defined to mean
the Annual Gross Rent, and any additional charge, fee or rent payable by Tenant
to Landlord under this Lease.
3.7. Security Deposit. Tenant has deposited with the Landlord the sum of
$14,667.50 ("Security Deposit"). The Security Deposit constitutes security for
Tenant's satisfactory performance of the terms. covenants and conditions of this
Lease including the payment of Annual Gross Rent and Additional Rent.
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(a) Landlord may use, apply or retain the whole or any part of the
security so deposited to the extent required for the payment of any Annual
Gross Rent, Additional Rent or any other sum as to which Tenant is in
default or for any sum which Landlord may expend or may be required to
expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this Lease, including any damages or
deficiency in the re-letting of the Leased Premises or other reentry by
Landlord.
(b) If Landlord uses, applies or retains the whole or any part of the
Security Deposit, Tenant shall replenish it to the sum provided in Section
1.7 within five (5) Business Days after being notified by the Landlord of
the amount due. Tenant shall be in default of this Lease if the amount due
is not paid within the required time period.
(c) In the event of a sale or master leasing of the Building, or any part
thereof, of which the Leased Premises form a part, Landlord shall have the
right to transfer the security to the new landlord, and Landlord shall
ipso facto be released by Tenant from all liability for the return of the
Security Deposit. In such event, Tenant agrees to look solely to the new
landlord for the return of the Security Deposit and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
Security Deposit to a new landlord.
(d) Tenant covenants that it shall not assign or encumber the Security
Deposit given to Landlord pursuant to this Lease. Neither Landlord, its
successors or assigns shall be bound by any such assignment or encumbrance
or any attempted assignment or encumbrance. The Security Deposit shall not
be used as any part of the Annual Gross Rent or Additional Rent by Tenant.
Landlord will not be obligated to pay Tenant interest on the Security
Deposit, nor to segregate the Security Deposit from Landlords other funds.
(e) In the event that Tenant shall fully and faithfully comply with all
the terms, covenants and conditions of this Lease, any part of the
Security Deposit not used or retained by Landlord shall be returned to
Tenant after the expiration of the Lease and after delivery of exclusive
possession of the Leased Premises to Landlord.
ARTICLE 4. OCCUPANCY AND USE
4.1. Use. Tenant warrants and represents to Landlord that the Leased
Premises shall be used and occupied solely for the purposes set forth in Article
1 and for no other purposes whatsoever. Tenant shall occupy the Leased Premises,
conduct its business and control its agents, employees, invitees and visitors
(to the extent such invitees and visitors are within the Leased Premises) in
such a manner as is lawful, reputable and will not create a nuisance. Tenant
shall not permit any operation which emits any excessive or offensive odor or
matter which intrudes into other portions of the Building, use any apparatus or
machine which makes undue noise or causes undue vibration in any portion of the
Building or otherwise materially interfere with, annoy or disturb any other
lessee in its normal business operations or Landlord in its management of the
Building. Tenant shall neither permit any waste on the Leased Premises nor allow
the Leased Premises to be used in any way which would, in the reasonable opinion
of Landlord, be extra hazardous on account of fire or which would in any way
increase or render void the fire insurance on the Building. If any governmental
license or permit shall be required for the proper and lawful conduct of
Tenant's business in the Leased Premises, Tenant shall, at its expense, duly
procure and thereafter maintain such license or permit and shall at all times
comply with the terms and conditions of same. Tenant shall not at any time
knowingly suffer the Leased Premises to be used or occupied in violation of (i)
the Certificate of Occupancy for the Leased Premises or for the Building, (ii)
any of the provisions of this Lease, or (iii) zoning ordinances, and rules and
regulations of governmental and quasi governmental authorities having
jurisdiction over the Building.
4.2. Signs. Except as expressly permitted hereinafter, Tenant shall not
place any signs or other advertising matter or material on the exterior of the
Building, anywhere upon the Common Areas, or in any portion of the interior of
the Leased Premises which is visible beyond the Leased Premises, except those
signs submitted to Landlord in writing and approved by Landlord in writing,
which approval shall not be unreasonably withheld, If any prohibited sign,
advertisement or notice is exhibited by Tenant, Landlord shall have the right
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to remove the same, and Tenant shall pay upon demand any and all expenses
incurred by Landlord in such removal, together with interest thereon at the
Default Rate.
4.3. Compliance with Laws, Rules and Regulations. Tenant, at Tenant's sole
cost and expense, shall comply with all present and future laws, ordinances,
orders, and rules and regulations of all state, federal, municipal, and local
governments, departments, commissions, and boards having jurisdiction over the
Leased Premises, Tenant's business, or any activity or condition on or about the
Leased Premises, including, without limitation, all environmental laws and any
other laws relating to the improvements on the Leased Premises or the air in and
around the Leased Premises (collectively, the "Laws"). Tenant warrants that its
business and all activities to be conducted or performed in, on, or about the
Leased Premises shall comply with all of the Laws. Tenant agrees to change,
reduce, or stop any such activity, or install necessary equipment, safety
devices, pollution control systems, or other installations at any time during
the Term hereof to so comply. Without limitation to the foregoing, Tenant
agrees:
(a) If, during the Term hereof, Landlord or Tenant is required to alter,
convert, or replace the HVAC system serving the Leased Premises in order
to comply with any of the Laws concerning indoor air pollution or quality,
or in order to meet any applicable limitation on, standard for, or
guideline relating to indoor air quality or the emission of any indoor air
pollutant, including, without limitation, those adopted by the
Occupational Safety and Health Administration, the American Society of
Heating, Refrigeration, and Air Conditioning Engineers, or the
Environmental Protection Agency, Tenant acknowledges and agrees that such
costs of any such conversion or replacement, including without limitation,
the purchase and installation of new equipment, and the alteration of
existing HVAC equipment in the Leased Premises to accommodate any new
equipment, shall either be paid by Tenant or shall be includable in the
Operating Costs.
(b) Tenant will comply with the reasonable rules and regulations of the
Building adopted from time to time by Landlord, a current copy of which
are set forth on Exhibit "B" attached to this Lease. Landlord shall have
the right at all times to change and amend the rules and regulations in
any reasonable manner as may be deemed advisable for the safety, care,
cleanliness, preservation of good order and operation or use of the
Building or the Leased Premises. The Rules and Regulations, as changed in
accordance with this section from time to time, are hereinafter called the
"Rules and Regulations."
4.4. Warranty of Possession. Landlord warrants that it has the right and
authority to execute this Lease. Landlord covenants and agrees that, upon
Tenant's paying on a monthly installment basis the Annual Gross Rent and any
Additional Rent required hereunder and performing all of the other covenants
herein on its part to be performed, Tenant shall and may peaceably and quietly
hold and enjoy the Leased Premises without hindrance by Landlord or persons
claiming through or under Landlord (including, without limitation, any mortgagee
of Landlord), subject to the terms, covenants and conditions of this Lease.
Landlord shall not be responsible for the acts or omissions of any other lessee
or third party not claiming through or under Landlord that may interfere with
Tenant's use and enjoyment of the Leased Premises.
4.5. Inspection. Landlord and Landlord's agents shall have the right
during Normal Business Hours to enter the Leased Premises, to examine the areas
of same designated by Tenant as "public," and to show such designated public
areas to prospective purchasers or lenders of the Building. Tenant shall allow
Landlord entry into the non-public portions of the Leased Premises upon 24 hours
notice by Landlord to Tenant and upon execution of Tenant's standard
Non-Disclosure Agreement by each person desiring such entry. Normal Business
Hours for the Building are 8:00 a.m. to 5:00 p.m. each Business Day. Upon
reasonable prior notice and upon execution of Tenant's standard Non-Disclosure
Agreement by each person desiring such entry (except in the case of an
emergency), Landlord and Landlord's agents shall have the right outside of
Normal Business Hours to enter the Leased Premises to make such repairs or
alterations as required under this Lease or as Landlord may reasonably deem
necessary or desirable, and Landlord shall be allowed to take all material into
and upon the Leased Premises that may be required therefore without the same
constituting an eviction of Tenant in whole or in part, and the Rent reserved
herein shall in no way abate while said repairs or alterations are being made;
provided, however, if the necessity of such repairs do not arise due to the
fault of Tenant and Tenant is prevented from operating in the Leased Premises in
whole or in part, then in such event the Annual Gross Rent shall be
proportionately abated during said period. During the twelve (12) months prior
to the expiration of the Term hereof, Landlord may during Normal Business Hours
exhibit the Tenant-designated
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public portions of the Leased Premises to prospective tenants. Nothing herein
contained, however, shall be deemed or construed to impose upon Landlord any
obligation, responsibility or liability whatsoever, for the care, maintenance or
repair of the Leased Premises or the Building or any part thereof, except as
otherwise herein specifically provided. Landlord shall at all times have and
retain a key with which to unlock all of the doors in, upon and about the
Tenant-designated public areas of the Leased Premises. Tenant shall not change
Landlord's lock system unless Tenant provides Landlord with a pass key, or in
any other manner prohibit Landlord from entering the Tenant-designated public
areas of the Leased Premises. Landlord shall have the right to use any and all
means which Landlord may deem proper to open any door in an emergency without
liability therefor.
ARTICLE 5. UTILITIES AND SERVICE
5.1. Building Services. Landlord shall provide routine maintenance and
painting to the exterior of the Building and to the heating, ventilating and air
conditioning equipment, lighting, electrical, plumbing and other mechanical
systems, in the manner and to the extent deemed by Landlord to be standard and
in accordance with the standards of first class office buildings in the
Gainesville/Ocala area. Landlord will not be liable to Tenant or any other
person, for direct or consequential damage, or otherwise, for any failure of
Tenant to obtain any heat, air conditioning, lighting, or other service Landlord
has agreed to supply during any period when Landlord uses reasonable diligence
to supply such services. Landlord reserves the right temporarily to discontinue
such services, or any of them, at such times as may be necessary by reason of
accident, repairs, alterations or improvements, strikes, lockouts, riots, acts
of God, governmental preemption in connection with a national or local
emergency, any rule, order or regulation, conditions of supply and demand which
make any product unavailable, Landlord's compliance with any mandatory or
voluntary governmental energy conservation or environmental protection program,
or any other happening beyond the control of Landlord. Except as expressly
provided hereinafter, Landlord will not be liable for damages to persons or
property or for injury to, or interruption of, business for any discontinuance
permitted under this Section, nor will such discontinuance in any way be
construed as an eviction of Tenant or cause an abatement of rent or operate to
release Tenant from any of Tenant's obligations under this Lease. Landlord
reserves the right from time to time to make changes in the services provided by
Landlord to the Building provided such changes do not detract from the level of
the existing services. Landlord shall not be liable for any damages to persons
or property or for injury to, or interruption of, business arising from the
interruption of any utility service to the Building. If there is a failure by
Landlord to furnish the services specified in this Section, and further provided
such interruption is not due to Tenant's negligence or willful misconduct, and
further provided, should the unavailability of such service render all or any
portion of the Leased Premises unusable by Tenant for Tenant's permitted use,
Tenant may, after and upon the giving of five (5) days written notice to
Landlord, deduct the rent for that portion of the Leased Premises which is so
unusable provided same is not due to Excusable Delays. Landlord reserves the
right from time to time to make changes in the services provided by Landlord to
the Building provided such changes do not detract from the level of the existing
services.
5.2. Security and Theft or Burglary. Landlord shall not be liable to
Tenant for losses to Tenant's property or personal injury caused by criminal
acts or entry by unauthorized persons (other than the gross negligence or
willful misconduct of Landlord, or Landlord's agents or contractors) into the
Leased Premises or the Building.
5.3. Janitorial Service. Tenant shall keep the interior of the Building
cleaned and well maintained. Landlord shall provide daily (Business Days)
janitorial services and office cleaning of a nature and of a quality equal to
that of other first class office buildings in the Gainesville/Ocala area, and
shall replace building standard light bulbs and ballasts.
5.4. Utilities. Tenant shall pay all electrical and gas, and telephone
utility charges for service to the Leased Premises. Tenant shall pay all
additional improvement costs occasioned by high electrical consumption
electrodata processing machines, advanced telecommunications equipment,
computers and other equipment of high electrical consumption, including without
limitation, the cost of installing, servicing and maintaining any special or
additional inside or outside riders, wiring or lines, meters or submeters,
transformers, poles, or air conditioning costs. Landlord shall furnish all water
and sewer services to the Leased Premises and all electrical and gas services to
the common areas, at Landlord's expense.
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ARTICLE 6. REPAIRS AND MAINTENANCE
6.1. Landlord Repairs. Landlord shall not be required to make any
improvements, replacements or repairs of any kind or character to the Leased
Premises or the Building during the term of this Lease except as are set forth
in this Lease. Landlord shall maintain only (a) the roof, structure, columns
exterior walls, foundation, in sound, watertight condition and good state of
repair; and (b) all Building electrical systems, including, but not limited to,
the base building electrical, mechanical and HVAC supplied to the Leased
Premises in good operating condition, maintenance and repair; and (c) the
sidewalks, curbs, driveways, parking areas (if any) and landscaping in good
condition and repair, open and free of debris or other obstruction. Landlord
shall not be liable to Tenant, except as expressly provided in this Lease, for
any damage or inconvenience, and Tenant shall not be entitled to any abatement
or reduction of rent by reason of any repairs, alterations or additions made by
Landlord under this Lease. Tenant understands and agrees that Landlord may, at
any time or from time to time during the term of this Lease, perform substantial
renovation work in and to the Building or the mechanical systems serving the
Building (which work may include, but need not be limited to, the repair or
replacement of the Building's exterior facade, electrical systems, air
conditioning and ventilating and other systems), any of which work may require
access to the same from within the Leased Premises Tenant agrees that:
(a) Landlord shall have access to the Leased Premises at all reasonable
times, subject to the restrictions set forth in Section 4.5, upon
reasonable notice, for the purpose of performing such work; and
(b) Landlord shall incur no liability to Tenant, nor shall Tenant be
entitled to any abatement of rent on account of any noise, vibration, or
other disturbance to Tenant's business at the Leased Premises (provided
that Tenant is not denied access to said Leased Premises) which shall
arise out of said access by Landlord or by the performance by Landlord of
the aforesaid renovations at the Building.
Landlord shall use reasonable efforts (which shall not include any obligation to
employ labor at overtime rates) to avoid disruption of Tenant's business during
any such entry upon the Leased Premises by Landlord. Landlord shall not be
liable to Tenant, except as expressly provided in this Lease, for any damage or
inconvenience, and Tenant shall not be entitled to any abatement or reduction of
rent by reason of any repairs alterations or additions made by Landlord under
this Lease.
6.2. Tenant Repairs. Tenant, at Tenant's expense, shall provide for
storage disposal of all biomedical and hazardous materials and waste delivered,
generated from or stored within the Leased Premises, all in strict compliance
with all Federal, State and local rules, regulations, laws, ordinances and
guidelines. Tenant shall not suffer any damage, waste or deterioration to occur
to the Leased Premises and shall maintain the interior non-structural portions
of the Leased Premises and the fixtures and appurtenances therein in good repair
and clean and sightly condition, and shall make all repairs necessary to keep
them in good working order and condition (including structural repairs when
those are necessitated by the negligence or willful misconduct of Tenant or its
agents, employees, invitees, licensees or visitors) ordinary wear and tear and
Acts of God excepted, and subject to the provisions of Articles 8 and 11 hereof.
All repairs, replacements and restorations made by Tenant shall be equal in
quality and class to the originals thereof and shall be completed in compliance
with applicable law. Tenant covenants that any repairs or replacements (as the
case may be) required by the terms of this Lease to be made by Tenant shall be
commenced and completed expeditiously; provided, however, if Tenant fails to
make the repairs or replacements, in an emergency promptly after notice, or
otherwise fails to make the repairs or replacements within thirty (30) days
after notice or in the event that such repair or replacement is of such a nature
as cannot with diligent effort be cured within said thirty (30) day period,
Tenant shall have failed to commence to cure within said period or failed to
diligently prosecute remedial efforts to completion within a reasonable time
thereafter, then Landlord may, at its option, make the repairs or replacements,
and the cost of such repairs or replacements shall be charged to Tenant as
Additional Rent and shall become payable by Tenant with the payment of the rent
next due hereunder.
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6.3. Request for Repairs. Tenant must notify Landlord of its request for
repairs or maintenance to the Leased Premises that are the responsibility of
Landlord pursuant to any provision of this Lease and such request must be made
to Landlord at the address provided for in the notice section.
6.4. Tenant Damages. At the termination of this Lease, by lapse of time or
otherwise, Tenant shall deliver the Leased Premises to Landlord in as good
condition as existed at the Commencement Date of this Lease, ordinary wear and
tear excepted. The reasonable cost and expense of any repairs necessary to
restore the condition of the Leased Premises, as documented by Landlord with
reasonable documentation of such costs, shall be borne by Tenant.
ARTICLE 7. ALTERATIONS AND IMPROVEMENTS
7.1. Leasehold Improvements. If construction to the Leased Premises is to
be performed by Landlord prior to or during Tenant's occupancy, Landlord will
complete the construction of the improvements to the Leased Premises in
accordance with plans and specifications agreed to by Landlord and Tenant.
Notwithstanding the foregoing, Tenant shall not undertake any alterations or
improvements to any portion of the Leased Premises or the Building which may
cause or create penetrations to the roof, ceiling or floors thereof. Within
seven days of receipt of plans and specifications, Tenant shall execute a copy
of the plans and specifications and, if applicable, change orders setting forth
the amount of any costs to be borne by Tenant. In the event Tenant fails to
execute the plans and specifications and change order within the seven day
period, Landlord may, at its sole option, declare this Lease canceled or notify
Tenant that the Annual Gross Rent shall commence on the completion date even
though the improvements to be constructed by Landlord may not be complete. Any
changes or modifications to the approved plans and specifications shall be made
and accepted by written change order or agreement signed by Landlord and Tenant
and shall constitute an amendment to this Lease.
7.2. Tenant Improvements. Tenant acknowledges that in the event Tenant
intends to undertake improvements or alterations to the Leased Premises
following the Effective Date, Tenant must obtain the prior written consent and
approval of Landlord to such improvements or alterations ("Alterations"), which
consent may in the sole and absolute discretion of Landlord be denied.
Landlord's approval of any such Alterations may also be conditioned upon
Landlord's approval of plans, contractors, contractor lien indemnification, and
terms of access for construction. Any Alterations to the Leased Premises made by
Tenant shall at once become the property of Landlord and shall be surrendered to
Landlord upon the termination of this Lease provided, however, Landlord, at its
option, may require Tenant to remove and/or repair any Alterations in order to
restore the Leased Premises to the condition existing at the time Tenant took
possession, all costs of removal and/or repair and restoration to be borne by
Tenant. This clause shall not apply to moveable equipment of furniture owned by
Tenant which may be removed by Tenant at the end of the term of this Lease if
Tenant is not then in default and if such equipment and furniture are not then
subject to any other rights, liens and interests of Landlord. Following the
completion of the initial leasehold improvements, all Alterations must be in
accordance with the requirements of this Lease. Tenant, at its expense, shall
obtain all necessary governmental permits and certificates for the commencement
and prosecution of the Alterations and for final approval thereof upon
completion and shall cause the Alterations to be performed in a good and
workmanlike manner in accordance with the requirements of all applicable
governmental authorities. All Alterations shall be diligently performed in a
good and workmanlike manner, using materials and equipment at least equal in
quality and class to the original installations of the Leased Premises.
7.3. Liens. Nothing contained in this Lease shall be construed as a
consent on the part of the Landlord to subject the estate of Landlord to
liability under the Construction Lien Law of the State of Florida, it being
expressly understood that the Landlord's estate shall not be subject to such
liability. Tenant shall strictly comply with the Construction Lien law of the
State of Florida, as set forth in Chapter 713, Florida Statutes. Notwithstanding
the foregoing, Tenant, at its expense, shall cause any lien filed against the
Tenant's interest under this Lease, the Leased Premises, the Building or the
Parking Area for work, services or materials claimed to have been furnished to
or for the benefit of Tenant (other than on account of the Leasehold Work) to be
satisfied or transferred to bond within twenty (20) days after Tenant's having
received notice thereof. In the event that Tenant fails to satisfy or transfer
to bond such claim of lien within said twenty (20) day period the Landlord may
do so and thereafter charge the Tenant as additional rent, all costs incurred by
the Landlord in
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connection with the satisfaction or transfer of such claim, including attorneys'
fees plus interest thereon at the Default Rate. Further, the Tenant agrees to
indemnify, defend, and save the Landlord harmless from and against any damage or
loss incurred by the Landlord as a result of any such mechanic's Claim of Lien.
This Section shall survive the termination of this Lease.
ARTICLE 8. CASUALTY
8.1. Substantial Destruction. If the Leased Premises shall be
substantially damaged by fire, windstorm, or otherwise during the Lease Term,
Landlord shall have the right to either terminate this Lease, provided that
notice thereof is given to Tenant not later than one hundred twenty (120) days
after such damage or destruction, or to proceed to repair such damage and
restore the Leased Premises to substantially their condition at the time of such
damage (but only to the extent of Landlord's original obligation to construct
pursuant hereto and to the extent only of proceeds received by Landlord from its
insurers. Tenant, at its sole cost and expense, shall repair and restore
whatever trade fixtures, equipment and improvements it had installed prior to
the damage or destruction. The terms "substantially damaged" and "substantial
damage," as used in this Article, shall have reference to damage of such a
character as cannot reasonably be expected to be repaired or such that the
Leased Premises cannot be restored within ninety (90) days after the
commencement of construction.
8.2. Partial Destruction. If during the Term hereof the Leased Premises
shall be partially damaged (as distinguished from "substantially damaged") by
fire or other casualty, Landlord shall forthwith proceed to repair such damage
and restore the Leased Premises to substantially their condition at the time of
such damage (but only to the extent of Landlord's original obligation to
construct pursuant hereto and to the extent only of proceeds received by
Landlord from its insurerers), except Tenant, at its sole cost and expense,
shall repair and restore whatever trade fixtures, equipment and other
improvements it had installed prior to the damage or destruction.
8.3. Abatement of Rent. If the provisions of Subsection 8.1 or 8,2 of this
Article 8 shall become applicable, the Annual Gross Rent and all other charges
specified in this Lease shall be abated or equitably reduced proportionately
during any period in which, by reason of such damage or destruction, there is
substantial interference with the operation of the business of Tenant in the
Leased Premises, and such abatement or equitable reduction shall continue for
the period commencing with such destruction or damage and ending with the
completion by Landlord of such work of repair and/or restoration as Landlord is
obligated to do. In the event of the termination of this Lease pursuant to this
Section 8, this Lease, and the Term hereof, shall cease and come to an end as of
the date of such damage or destruction. Any Annual Gross Rent or other charges
paid in advance by Tenant shall be promptly refunded by Landlord.
8.4. Landlord's Limitation of Obligation. Despite anything contained in
this Lease to the contrary, and without limiting Landlord's right or remedies
hereunder:
(a) If damage or destruction occurs to the Leased Premises or any part
thereof by reason of any cause in respect of which there are no proceeds
of insurance available to Landlord, or
(b) If the proceeds of insurance are insufficient to pay Landlord for the
costs of rebuilding or making fit the Leased Premises), or
(c) If any mortgagee or other person entitled to the proceeds of insurance
does not consent to the payment to Landlord of such proceeds for such
purpose, or
(d) If in Landlord's reasonable opinion any such damage or destruction is
caused by any fault, neglect, default negligence, act, or omission of
Tenant or those for whom Tenant is in law responsible, or any other person
entering upon the Leased Premises under express or implied invitation of
Tenant,
then Landlord may, without obligation or liability to Tenant, terminate this
Lease on 30 days' written notice to Tenant and all Rent shall be adjusted as of,
and Tenant shall vacate and surrender the Leased Premises on, such termination
date.
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8.5. Landlord's Right to Terminate. In the event that the Building has
been damaged or destroyed by fire or other casualty to the extent that the cost
of restoration of the Building will exceed a sum constituting sixty percent
(60%) of the total replacement cost thereof, Landlord shall have the right to
terminate this Lease provided that notice thereof is given to Tenant not later
than sixty (60) days after such damage or destruction and Landlord elects not to
restore the Building and terminates all other leases for space in the Building.
ARTICLE 9. INSURANCE
9.1. Tenant's Insurance. Tenant shall, at its sole expense, maintain in
effect at all times during the Term insurance coverage with limits not less than
those set forth below with insurers licensed to do business in the state of
Florida: a) Workers Compensation Insurance - statutory limits as required by
State law, and as same may be amended from time to time; b) Employer's Liability
Insurance - minimum limit $500,000.00; and c) Commercial General Liability
Insurance, with a combined single limit of $1,000,000 per occurrence and general
aggregate limits of $3,000,000.00. These policies shall be endorsed to include
Landlord and Landlord's mortgagee, if any, as an additional insured, state that
the insurance is primary over any insurance carried by Landlord, and the
commercial general liability policy shall be written on a standard Insurance
Services Office, Inc. (ISO) policy form with a 1988 or later edition date or its
equivalent. The policy must be written on an occurrence basis and include
Coverage A (Bodily Injury and Property Damage Liability), Coverage B (Personal
and Advertising Injury Liability) and Coverage C (Medical Payments). Upon
Tenant's default in obtaining or delivering the policy or certificate for any
such insurance or Tenant's failure to pay the charges therefor, Landlord may,
upon ten (10) days notice to Tenant, procure or pay the reasonable charges for
any such policy or policies (for not more than a 12 month period) and charge the
Tenant therefor plus interest thereon at the Default Rate as additional rent.
9.2. Tenant's Personal Property Insurance. Tenant shall at all times
during the term hereof and at its cost and expense, maintain in effect policies
of insurance covering all of Tenant's personal property, trade fixtures and
equipment located in the Leased Premises, in an amount equal to their full
replacement value, providing protection against any peril included within the
standard classification of "Fire and Extended Coverage", together with insurance
against sprinkler damage, vandalism, theft and malicious mischief. The proceeds
of such insurance, so long as this Lease remains in effect, shall be used to
repair or replace the personal property, trade fixtures and equipment so
insured.
9.3. Landlord's Insurance. Landlord shall maintain at all times during the
term of this Lease standard all-risk fire and casualty insurance, covering the
Building in amounts at least equal to the full replacement cost of the Building
at the time in question, but in no event less than such coverage as is required
to avoid coinsurance provisions; and b) comprehensive public liability insurance
and such other insurance coverage as is customarily carried in respect of
comparable buildings
9.4. General Requirements. All policies of insurance required under this
article shall provide that they will not be cancelled upon less than thirty (30)
days prior written notice to Landlord and Tenant. Tenant shall furnish to
Landlord a certificate or certificates of insurance certifying that the
insurance coverage required is in force, upon request. The coverage shall be
issued by companies licensed to do business in the State of Florida and rated
A:VIII or better in Best's Insurance Guide (or similar rating in an equivalent
publication if no longer published) and shall otherwise be reasonably
satisfactory to the parties. Not less than thirty (30) days prior to expiration
of the coverage, renewal policies or certificates of insurance evidencing
renewal shall be provided. Any insurance required by the terms of this Lease may
be under a blanket policy (or policies) covering other properties of Tenant
and/or its related or affiliated corporations. If such insurance is maintained
under a blanket policy, the respective party shall procure and deliver to the
other party a statement from the insurer or general agent of the insurer setting
forth the coverage maintained and the amount thereof allocated to the risk
intended to be insured hereunder.
ARTICLE 10. INDEMNIFICATION
10.1. Tenant's Indemnification. Tenant shall indemnify, defend and save
Landlord harmless from and against any and all claims, actions, damages,
liability and expense in connection with loss of life, personal injury and/or
damage to or destruction of property arising from or out of any occurrence in,
upon or at the Leased
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Premises, or the occupancy or use by Tenant of the Leased Premises or any part
thereof, or occasioned wholly or in part by any act or omission of Tenant, its
agents, contractors, employees, servants, subtenants or concessionaires. In case
Landlord shall be made a party to any such litigation commenced by or against
Tenant, then Tenant shall protect and hold Landlord harmless and pay all costs
and attorney's fees incurred by Landlord in connection with such litigation, and
any appeals thereof.
10.2. Landlord Not Liable. Except for the gross negligence or intentional
misconduct of Landlord or its agents, employees or contractors, Tenant agrees
Landlord shall not be liable to Tenant, Tenants employees, agents, invitees,
licensees or visitors, or to any other person, for an injury to person or damage
to property on or about the Leased Premises caused by any act or omission of
Tenant, its agents, servants or employees, or of any other person entering upon
the Leased Premises under express or implied invitation by Tenant, or caused by
the improvements located on the Leased Premises becoming out of repair, the
failure or cessation of any service provided by Landlord (including security
service and devices), or caused by leakage of gas, oil, water or steam or by
electricity emanating from the Leased Premises.
ARTICLE 11. CONDEMNATION
11.1. Substantial Taking. If, after the Commencement Date and before the
termination of this Lease: (i) any portion of the Leased Premises is taken by
eminent domain or conveyed in lieu thereof; or (ii) as a result of a taking by
eminent domain or the action of any public or quasi-public authority or a
conveyance in lieu thereof, the means of ingress or egress to and from the
Building is so permanently altered as to materially and adversely affect the
flow of traffic in, to, from or about the Building; then, in any of the
foregoing events, the Lease Term shall, at the option of Tenant, cease and
terminate as of the day possession shall be taken by the acting governmental or
quasi-governmental authority (the "Date of Taking"). Such option to terminate
shall be exercisable by Tenant giving written notice to Landlord on or before
thirty (30) days after the Date of Taking, which notice shall provide for a
termination date (the "Termination Date") not later than ninety (90) days after
the Date of Taking and Tenant shall pay Rent up to the Termination Date, and
Landlord shall refund such Annual Gross Rent and other payments as shall have
been paid in advance and which cover a period subsequent to the Termination
Date. In the event Tenant does not terminate this Lease, Landlord shall promptly
and diligently restore the Building and the Leased Premises and the Building and
Common Areas to as near to their condition prior to such taking or conveyance as
is reasonably possible, and, during the course of such restoration, there shall
be a fair and equitable abatement of all Annual Gross Rent, taking into account
the extent to which Tenant shall be required to close down all or a portion of
its operations until restoration has been completed; and, after such
restoration, there shall be fair and equitable abatement of Annual Gross Rent on
a permanent basis, taking into account the reduction in the size of the Leased
Premises, reduction in Common Areas, and the like. If fifty percent (50%) or
more of the rentable area in the Building is taken by eminent domain or conveyed
in lieu thereof, then Landlord shall have the right to terminate this Lease by
giving written notice to Tenant on or before thirty (30) days after the Date of
Taking; provided that Landlord also terminates all leases for premises within
the Building.
11.2. Restoration. If any portion of the Leased Premises shall be so taken
or conveyed and this Lease is not terminated, then the Lease Term shall cease
only with respect to that portion of the Leased Premises so taken or conveyed,
as of the day possession shall be taken, and Tenant shall pay Annual Gross Rent
and all other payments up to that day, with an appropriate refund by Landlord of
such Rent as may have been paid in advance for a period subsequent to the date
of the taking of possession and, Thereafter, the Annual Gross Rent and all other
payments shall be equitably adjusted. Landlord shall, at its expense, make all
necessary repairs or alterations so as to constitute the remaining portion of
the Leased Premises a complete architectural unit. It is understood and agreed
that Tenant shall not have the right to claim damages for the value of its
leasehold estate, nor shall Tenant have the right to share in any award granted
to Tenant, nor shall Tenant have the right to claim damages that in any way may
be in derogation of Landlord's award.
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ARTICLE 12. ASSIGNMENT OR SUBLEASE
12.1. Landlord Assignment. Landlord shall have the right to sell, transfer
or assign, in whole or in part, its rights and obligations under this Lease and
in the Building. Any such sale transfer or assignment shall operate to release
Landlord from any and all liabilities under this Lease arising after the date of
such sale, assignment or transfer, provided such transferee or assignee assumes
such liabilities in writing. The acceptance of rent by any such transferee or
assignee shall constitute assumption of such liabilities.
12.2. Tenant Assignment.
(a) Tenant shall not assign, in whole or in part, this Lease, or allow it
to be assigned, in whole or in part, by operation of law or otherwise or
mortgage or pledge the same, or sublet the Leased Premises, in whole or in
part, without the prior written consent of Landlord, which consent shall
not be unreasonably withheld. In no event shall any such assignment or
sublease ever release Tenant or any guarantor from any obligation or
liability hereunder.
(b) If Tenant desires to assign or sublet all or any part of the Leased
Premises to any party, it shall so notify Landlord at least thirty days in
advance of the date on which Tenant desires to make such assignment or
sublease. Tenant will simultaneously with such request give Landlord (i)
the name and address of the proposed assignee or subtenant (ii) the terms
of the proposed assignment or sublease, (iii) reasonably satisfactory and
complete information about the nature, financial condition, business and
business history of the proposed assignee or subtenant, and its proposed
initial use of the Leased Premises, and (iv) a fee in the amount of
$1,000.00 to reimburse Landlord for all its expenses including, without
limitation, reasonable attorneys fees associated with Tenant's request to
assign, sublet or otherwise encumber the Leased Premises under the terms
of the Lease. The consent by Landlord to any assignment or subletting
shall not constitute a waiver of the necessity for such consent to any
subsequent assignment or subletting. Within fifteen days after Landlord's
receipt of Tenants proposed assignment or sublease and all required
information concerning the proposed sublessee or assignee, Landlord shall
have the following options: (1) as to a requested sublease with a sublease
term that coincides with ninety-five percent or more of the remaining term
of this Lease, cancel this Lease as to the Leased Premises or portion
Thereof proposed to be sublet (provided, however, that Tenant shall have
ten (10) days to nullify Landlord's cancellation of this Lease by written
notice to Landlord that it is withdrawing the sublease request); (2)
consent to the proposed assignment or sublease, and, if the rent due and
payable by any assignee or sublessee under any such permitted assignment
or sublease (or a combination of the rent payable under such assignment or
sublease plus any bonus or any other consideration or any payment incident
thereto) exceeds the rent payable under this Lease for such space, Tenant
shall pay to Landlord all such excess rent and other excess consideration,
less Tenant's reasonable expenses incurred in connection with such
subletting, including without limitation, reasonable brokerage
commissions, improvements allowances, and alteration costs, within ten
days following receipt thereof by Tenant or (3) refuse, in Landlord's
reasonable judgment, to consent to the proposed assignment or sublease,
which refusal shall be deemed to have been exercised unless Landlord gives
Tenant written notice providing otherwise. Upon the occurrence of an event
of default, if all or any part of the Leased Premises are then assigned or
sublet, Landlord, in addition to any other remedies provided by this Lease
or provided by law may, at its option, collect directly from the assignee
or sublessee all rents becoming due to Tenant by reason of the assignment
or sublease. Any collection directly by Landlord from the assignee or
sublessee shall not be construed to constitute a novation or a release of
Tenant or any guarantor from the further performance of its obligations
under this Lease. Tenant shall deliver to Landlord within twenty (20) days
after any assignment or subletting a copy of the executed assignment or
sublease agreement. Any assignment or sublease shall provide that the
assignee or subtenant shall comply with all applicable terms and
conditions of this Lease to be performed by Tenant hereunder. The
permitted use of the Leased Premises shall not change in connection with
any assignment or sublease.
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ARTICLE 13. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT
13.1. Rights of Mortgagee. Tenant acknowledges and agrees that this Lease
shall be subject and subordinate to the lien of all existing and future
mortgages on the Leased Premises and shall, within 15 days of Landlord's
request, execute such subordination agreements as my be submitted by the holders
of such mortgages. Tenant will, upon request of the lienholder, will agree that,
if such lienholder succeeds to the interest of Landlord, Tenant will recognize
said lienholder (or successor in interest of the lienholder) as its landlord
under the terms of this Lease. Tenant hereby constitutes and appoints Landlord
as Tenant's attorney-in-fact to execute any such instrument on behalf of Tenant.
ARTICLE 14. LANDLORD'S LIEN
14.1. Uniform Commercial Code. This Lease is intended as and constitutes a
security agreement within the meaning of the Uniform Commercial Code of the
state in which the Leased Premises are situated. Landlord, in addition to the
rights prescribed in this Lease and by law, shall have all of the rights,
titles, liens and interests in and to Tenant's property (but expressly excluding
any of Tenant's interests in intellectual property and human tissue in any
form), now or hereafter located upon the Leased Premises, which may be granted a
secured party, as that term is defined, under the Uniform Commercial Code to
secure to Landlord payment of all sums due and the full performance of all
Tenant's covenants under this Lease. Tenant will on request execute and deliver
to Landlord a financing statement for the purpose of perfecting Landlords
security interest under this Lease or Landlord may file this Lease or a copy
thereof as a financing statement. Unless otherwise provided by law and for the
purpose of exercising any right pursuant to this section, Landlord and Tenant
agree that reasonable notice shall be met if such notice is given by ten days
written notice, certified mail, return receipt requested, to Landlord or Tenant
at the addresses specified herein.
ARTICLE 15. DEFAULT AND REMEDIES
15.1. Default by Tenant. The following shall be deemed to be events of
default by Tenant under this Lease: (i) Tenant shall fail to pay any installment
of Annual Gross Rent or any other Additional Rent, or any other charge or
assessment against Tenant pursuant to the terms hereof and such failure to pay
shall continue for more than ten (10) days after the same is due; (ii) Tenant
shall fail to comply with any term, provision, covenant, agreement or warranty
made under this Lease by Tenant, other than the payment of any installment of
Annual Gross Rent or any other Additional Rent or other charge or assessment
payable by Tenant, and shall not cure such failure within thirty (30) days after
written notice thereof to Tenant; (iii) a petition in bankruptcy or insolvency
or for reorganization or for the appointment of a receiver or trustee of all or
substantially all of Tenant's assets is filed against Tenant in any court
pursuant to any statute either of the United States or of any state and Tenant
fails to secure or diligently proceed to secure a discharge thereof within sixty
(60) days, or if Tenant voluntarily files a petition in bankruptcy or makes an
assignment for the benefit of creditors or petitions for or enters into an
arrangement with creditors; or (iv) Tenant shall do or permit to be done
anything which creates a lien upon the Leased Premises for work performed by,
through or under Tenant which Tenant fails to remove or bond off within thirty
(30) days after written notice thereof.
15.2. Remedies for Tenant's Default.
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(a) Upon the occurrence of any event of default set forth in this Lease,
Landlord, besides other rights or remedies that it may have and without
prior notice (except as specified in Subsection 15.1 above), shall have
the right to (i) terminate Tenant's right of continued possession of the
Leased Premises and declare the entire remaining unpaid Rent for the
balance of the then existing Term of this Lease to be immediately due and
payable forthwith and take action to recover and collect the same either
by distress or otherwise, but in the event Landlord is able to relet the
Leased Premises during such periods from time to time, Tenant shall
consent to such reletting and Tenant shall be entitled to a credit against
such damages in the amount of the rents and other sums received by
Landlord from any such reletting of the Leased Premises, less any
reasonable costs incurred by Landlord in connection with the repossessing
of the Leased Premises, including, without limitation, reasonable
attorneys' fees, brokerage commissions and any costs of allowance, repairs
or alterations, or (ii) terminate this Lease, in which event Tenant shall
immediately surrender the Leased Premises to Landlord, or (iii) terminate
Tenant's right of continued possession of the Leased Premises and from
time to time, without terminating this Lease, relet the Leased Premises or
any part thereof for the account and in the name of Tenant, for any such
lease term or terms and conditions as Landlord, in its reasonable
discretion, may deem advisable, and with the right to make alterations,
additions and repairs to the Leased Premises deemed by Landlord to be
necessary in conjunction with such reletting Notwithstanding any other
remedy set forth in this Lease, in the event Landlord has made rent
concessions of any type or character, or waived any base rent, and Tenant
fails to take possession of the Leased Premises on the commencement or
completion date or otherwise defaults at any time during the term of this
Lease, the rent concessions, including any waived base rent, shall be
cancelled and the amount of the base rent or other rent concessions shall
be due and payable immediately as if no rent concessions or waiver of any
base rent had ever been granted. A rent concession or waiver of the base
rent shall not relieve Tenant of any obligation to pay any other charge
due and payable under this Lease including without limitation any sum due
under Section 2. Notwithstanding anything contained in this Lease to the
contrary, this Lease may be terminated by Landlord only by mailing or
delivering written notice of such termination to Tenant, and no other act
or omission of Landlord shall be construed as a termination of this Lease.
(b) Should Landlord terminate Tenant's right of possession of the Leased
Premises pursuant to Subsection (a) (iii) above, then Tenant shall pay to
Landlord, within ten (10) days of Landlord's demand, all of the following:
(i) any unpaid Rent and other charges to be paid by Tenant hereunder up to
the date when Landlord shall have so terminated Tenants right of
possession, plus interest thereon at the Default Rate from the due date
together with the total cost of brokerage commissions and initial
leasehold or tenant improvements or allowances incurred by Landlord in
connection with the execution of this Lease (prorated for the unexpired
portion of the Term); (ii) the reasonable costs of recovering possession
of the Leased Premises and any reasonable legal fees and expenses directly
related to the breach, the recovery of possession, and the collection of
unpaid Rent and other charges; (iii) the reasonable costs incurred by
Landlord in repairing and restoring the Leased Premises to the condition
which same were to have been surrendered to Landlord at the expiration of
the Lease term or to a condition required to lease premises to a new
tenant; (iv) the reasonable costs of removing any of Tenant's property
from the Leased Premises and, if same be stored, the reasonable cost of
transporting and storing same (if Landlord shall store such property in a
Building then Landlord shall be entitled to a reasonable storage fee
hereunder); and (v) all reasonable brokerage fees and commissions and
allowances (prorated for the unexpired portion of the Term) incurred by
Landlord in reletting the Leased Premises.
(c) Rents received by Landlord from any reletting pursuant to Subsection
(a)(iii) above, shall be applied first to the payment of any of the items
enumerated in Subsection (b) above, in such order as Landlord shall deem
appropriate, and second to the payment of rent and other sums due and
unpaid by Tenant hereunder as of the date of Landlord's receipt of said
rents. The residue, if any, shall be held by Landlord and applied in
payment of future rent or damages in the event of termination as the same
may become due and payable hereunder.
(d) No such reletting of the Leased Premises by Landlord pursuant to
Subsection (a)(iii) above shall be construed as an election on its part to
terminate this Lease unless a notice of such intention be given by
Landlord to Tenant or unless the termination thereof be decreed by a court
of competent jurisdiction; and
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notwithstanding any such reletting without termination, Landlord may at
any time thereafter elect to terminate this Lease for such previous breach
provided it has not been cured.
(e) Should Landlord at any time terminate this Lease for any breach
pursuant to Subsection (a)(ii) above, then in addition to any other remedy
Landlord may have by reason of such breach, Landlord shall have the right
to recover from Tenant all or any of the following: (i) any unpaid rent
and other charges to be paid by Tenant hereunder up to the date of
termination, plus interest thereon at the Default Rate from the due date;
(ii) the reasonable costs of recovering possession of the Leased Premises
and collecting said arrearages in rent and other charges, including any
reasonable legal fees and expenses directly related to the breach, the
recovery of possession, and the collection of unpaid Rent and other
charges to be paid by Tenant and the total cost of brokerage commissions
and initial leasehold or tenant improvements or allowances incurred by
Landlord in connection with the execution or renewal of this Lease
(prorated for the unexpired portion of the Term); (iii) costs, as
reasonably estimated by Landlord which would be incurred in repairing or
restoring the Leased Premises to the condition in which the same were to
have been surrendered to Landlord at the expiration of the Lease term:
(iv) the reasonable costs of removing any of Tenant's property from the
Leased Premises, and, if same be stored, the reasonable cost of
transporting and storing same (if Landlord shall store such property in a
Building then Landlord shall be entitled to a reasonable storage fee
hereunder); (v) all brokerage fees and commissions (prorated for the
unexpired portion of the Term)incurred by Landlord in reletting the Leased
Premises; and (vi) compensation for the loss of profits occasioned by the
breach and resultant termination of this Lease, which loss the parties
agree shall be determined by calculating the total amount of Rent to be
paid by Tenant, and any other charges to be paid by Tenant, as if this
Lease had not been terminated, from the date of termination to the
expiration date and deducting therefrom The fair market rent value of the
Leased Premises for a like period expected to be collected by Landlord
during such period.
(f) Landlord shall have the right to recover, in execution of judgment(s)
rendered in legal proceedings or otherwise, either jointly or from time to
time severally, the applicable sums specified in clauses (i)through (v) of
Subsection (b) and clauses (i) through (vi) of Subsection (e), and
Landlord's recovery of one or more of such sums shall not constitute a
waiver of Landlord's right to recover from Tenant the remaining sum(s).
(g) Tenant hereby waives all rights of redemption, now or hereafter
granted, to the extent such rights may be lawfully waived.
(h) Pursuit of any of the foregoing remedies shall not preclude pursuit of
any other remedy herein provided or any other remedy provided by law or at
equity, nor shall pursuit of any remedy herein provided constitute an
election of remedies thereby excluding the later election of an alternate
remedy, or a forfeiture or waiver of any Annual Gross Rent, or other
Additional Rent or other charges and assessments payable by Tenant and due
to Landlord hereunder or of any damages accruing to Landlord by reason of
violation of any of the terms, covenants, warranties and provisions herein
contained. All of Tenant's and Landlord's obligations under this Section
shall survive the termination of this Lease.
(i) Notwithstanding anything herein to the contrary, in the event that
Tenant abandons the Leased Premises for a continuous period of three weeks
or more for any reason other than casualty or condemnation or force
majeure not relating to Tenant's business operations, Landlord shall have
the sole and exclusive remedy to terminate this Lease without prior
notice. "Abandon" means the vacating of all or substantially all of the
Leased Premises by Tenant, whether or not Tenant is in default of the
rental payments due under this Lease or any other provision of this Lease.
15.3. Tenant's Bankruptcy. In addition to Landlord's remedies under this
Article 15, Landlord may, at its sole discretion and without notice, invoke the
following provisions:
(a) Upon a Tenant's bankruptcy, this Lease and all rights of Tenant
hereunder shall automatically terminate with the same force and effect as
if the date of any such event were the date stated herein for the
expiration of the Term, and Tenant shall vacate and surrender the Leased
Premises, but shall remain liable as herein provided. Landlord reserves
any and all remedies provided herein or at law or in equity
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(b) If this Lease is not terminated in accordance with subsection (a)
above because such termination is not allowed under the Bankruptcy Code
(hereinafter defined), upon the filing of a petition by or against Tenant
under the Bankruptcy Code, Tenant, as debtor and as debtor in possession,
and any trustee who may be appointed, agree:
(1) to perform promptly each and every obligation of Tenant under
this Lease until such time as this Lease is either rejected or assumed by
order of a United States Bankruptcy Court or other United States Court of
competent jurisdiction; or deemed rejected by operation of law, pursuant
to 11 U.S.C. ss. 365(c)(4);
(2) to pay monthly in advance on the first day of each month as
reasonable compensation for use and occupancy of the Leased Premises an
amount equal to all Annual Gross Rent and all other Additional Rent;
(3) to reject or assume this Lease within sixty (60) days of the
filing of such petition under Chapter 7 of the Bankruptcy Code or within
thirty (30) days of the filing of a petition under any other Chapter;
(4) to give Landlord at least forty-five (45) days prior written
notice of any proceeding relating to any assumption of this Lease;
(5) to give Landlord at least thirty (30) days prior written notice
of any abandonment of the Leased Premises;
(6) to be deemed conclusively to have rejected this Lease in the
event of the failure to comply with any of the above;
(7) to have consented to the entry of an order by an appropriate
United States Bankruptcy Court providing all of the above, waiving notice
and hearing of the entry of same; and
(8) that this is a "lease of real property" as such term is used in
the Bankruptcy Code.
(c) Notwithstanding anything in this Lease to the contrary, all amounts
payable by Tenant to or on behalf of Landlord hereunder, whether or not
expressly denominated as Rent, shall constitute "rent" for the purposes of
Section 502(b)(7) of the Bankruptcy Code, including, without limitation,
reasonable attorneys' fees incurred by Landlord by reason of Tenant's
bankruptcy.
(d) Nothing contained in this Section 15.3 shall be deemed in any manner
to limit Landlord's rights and remedies under the Bankruptcy Code, as
presently existing or as may hereafter be amended. In the event that the
Bankruptcy Code is interpreted or amended during the term of this Lease to
so permit, or is superseded by an act so permitting, the following
additional acts shall be deemed an event of default under this Lease: (i)
if Tenant is adjudicated insolvent by the United States Bankruptcy Code or
(ii) if a petition is filed by or against Tenant under the Bankruptcy Code
and such petition is not vacated within one hundred twenty (120) days. In
either of such events, this Lease and all rights of Tenant hereunder shall
automatically terminate with the same force and effect as if the date of
either such event were the date stated herein for the expiration of the
Term, and Tenant shall vacate and surrender the Leased Premises, but shall
remain liable as herein provided. Landlord reserves any and all rights and
remedies provided herein or at law.
ARTICLE 16. TENANT'S REPRESENTATIONS
16.1. Tenant's Representations. Tenant, in order to induce Landlord to
enter into this Lease, hereby represents that: Tenant has full power and
authority to conduct its business as presently conducted and to enter into this
Lease; that this Lease has been duly authorized, executed and delivered by
Tenant and constitutes and legal and binding obligation of Tenant; and that no
litigation or proceedings (or threatened litigation or proceeding or basis
therefor) exists which could materially and adversely affect the ability of
Tenant to perform its obligations under this Lease or which would constitute a
default on the part of Tenant under this Lease, or which would constitute such a
default with the giving of notice or lapse of time, or both.
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ARTICLE 17. DELETED
ARTICLE 18. DELETED
ARTICLE 19. MISCELLANEOUS
19.1. Waiver. Failure of Landlord or Tenant to declare an event of default
immediately upon its occurrence, or delay in taking any action in connection
with an event of default, shall not constitute a waiver of the default, but
Landlord or Tenant shall have the right to declare the default at any time and
take such action as is lawful or authorized under this Lease. Pursuit of any one
or more of the remedies set forth in Article 15 above shall not preclude pursuit
of any one or more of the other remedies provided elsewhere in this Lease or
provided by law, nor shall pursuit of any remedy constitute forfeiture or waiver
of any rent or damages accruing to Landlord or Tenant by reason of the violation
of any of the terms, provisions or covenants of this Lease. Failure by Landlord
or Tenant to enforce one or more of the remedies provided upon an event of
default shall not be deemed or construed to constitute a waiver of the default
or of any other violation or breach of any of the terms, provisions and
covenants contained in this Lease. Without limiting the generality of the
foregoing, no action taken or not taken by Landlord or Tenant under the
provisions of this Section or any other provision of this Lease (including, by
way of example rather than of limitation, the Landlord's acceptance of the
payment of rent after the occurrence of any event of default) shall operate as a
waver of any right to be paid a late charge or of any other right or remedy
which the either party hereto would otherwise have against the other party on
account of such event of default under the provisions of this Lease or
applicable law (each party hereto hereby acknowledging that, in the interest of
maintenance of good relations between Landlord and Tenant, there may be
instances in which the other party chooses not immediately to exercise some or
all of its rights on the occurrence of an event of default).
19.2. Attorney's Fees. In The event that it shall become necessary for
either Landlord or Tenant to employ the services of attorneys to enforce any of
their respective rights under this Lease or to collect any sums due to them
under this Lease or to remedy the breach of any covenant of this Lease on the
part of the other to be kept or performed, the nonprevailing party (Tenant or
Landlord as the case may be) shall pay to the prevailng party such reasonable
fees as shall be charged by the prevailing party's attorneys for such services,
including services at all trial and appellate levels and post judgment
proceedings and such prevailing party shall also have and recover from the
nonprevailing party (Landlord or Tenant as the case may be) all other costs and
expenses of such suit and any appeal thereof or with respect to any postjudgment
proceedings.
19.3. Successors. Except as provided in Section 19.11, this Lease shall be
binding upon and inure to the benefit of Landlord and Tenant and their
respective heirs, personal representatives, successors and assigns.
19.4. Cautions. The captions appearing in this Lease are inserted only as
a matter of convenience and in no way define, limit, construe or describe the
scope or intent of any section.
19.5. Notice. Any notice, demand, consent, approval or other communication
to the given to or served upon any party hereto, in connection herewith, must be
in writing, and may be given by facsimile transmission, certified mail or
guaranteed overnight delivery service, return receipt requested. If a notice is
delivered by United States Mail, it shall be deemed to have been given and
received two (2) days following the deposit of a certified letter containing
such notice, properly addressed, with postage prepaid, with the United States
Mail. If delivered by facsimile transmission or by guaranteed overnight delivery
service, it shall be deemed to have been given and received the same day that
the notice is faxed or delivered into the custody of the overnight delivery
service. If the notice is given otherwise than by certified mail, facsimile
transmission or guaranteed overnight delivery service, it shall be deemed to
have been given when delivered to and received by the party to whom it is
addressed. Notices shall be given to the parties hereto at the following
addresses:
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To Landlord: Echelon International Corporation
450 Carillon Parkway
Suite 200
St. Petersburg, Florida 33716
Attention: Mr. Mark Stroud
Facsimile Number: (727) 603-8201
Copy To: Echelon Real Estate Services, Inc.
One Progress Boulevard, Box 10
Alachua, Florida 32615
Attn: Ms. Sandy Burgess
Facsimile Number: (904) 462-3932
To Tenant: Regeneration Technologies, Inc.
One Innovation Drive
Alachua, FL 32615
Attn: Richard Allen
Facsimile Number: (904) 462-5131
Either party hereto may, at any time by giving five (5) business days' written
notice to the other party hereto, designate any other address in substitution of
the foregoing address to which notice shall be given and other parties to whom
copies of all notices hereunder shall be sent.
19.6. Severability. If any provision of this Lease or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Lease and the application for such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
19.7. Landlord's Liability. Tenant shall look solely to the estate and
property of the Landlord in the Building for the collection of any judgment, or
in connection with any other judicial process, requiring the payment of money by
Landlord in the event of any default by Landlord with respect to any of the
terms, covenants and conditions of this Lease to be observed and performed by
Landlord, and no other property or estates of Landlord shall be subject to levy,
execution or other enforcement procedures for the satisfaction of Tenant's
remedies and rights under this Lease. The provisions of this Section are not
designed to relieve Landlord from the performance of any of its obligations
hereunder, but rather to limit Landlord's liability in the case of a recovery of
a money judgment against Landlord. The foregoing limitation shall not apply to
or limit any injunctive or other equitable declaratory or other forms of relief
which Tenant may be entitled to. The word "Landlord" as used in this Lease shall
mean only the owner from time to time of Landlord's interest in this Lease. In
the event of any assignment of Landlord's interest in this Lease, the assignor
shall no longer be liable for the performance or observation of any agreements
or conditions on the part of Landlord to be performed or observed subsequent to
the effective date of such assignment provided the assignee specifically assumes
all such obligations.
19.8. Estoppel Certificates. Tenant agrees at any time and from time to
time, upon not less than fifteen (15) days prior written request of Landlord, to
execute, acknowledge and deliver to Landlord a statement in writing certifying
that this Lease is unmodified and in full force and effect (or, if there have
been modifications, that the same is in full force and effect as modified, and
stating the modifications), the date to which the rental and other charges have
been paid in advance, if any, and whether or not any violations are in existence
as of the date of said statement, that Tenant has accepted possession of the
Leased Premises, the date on which the term commenced; and, as to whether, to
the best knowledge, information and belief of the signer of such certificate,
the other party is then in default in performing any of its obligations
hereunder (and, if so, specifying the nature of each such default); and as to
any other fact or condition with respect to this Lease reasonably requested by
the other party hereto or such other addressee, it being intended that any such
statement delivered pursuant to this Section may be relied upon by any
prospective purchaser of the fee or mortgagee or assignee of any mortgage upon
the fee.
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19.9. No Recording. Tenant shall not record this Lease or any memorandum
or short form hereof without the written consent and joinder of Landlord.
19.10. Waiver of Jury Trial. The parties hereto waive trial by jury in
connection with any proceedings or counterclaims brought by either of the
parties hereto against the other.
19.11. [Intentionally Deleted]
19.12. Corporate Authority. If Tenant executes this Lease as a
corporation, each of the persons executing this Lease on behalf of Tenant does
hereby personally represent and warrant that Tenant is a duly authorized and
existing corporation, that Tenant is qualified to do business in the state in
which the Leased Premises are located, that the corporation has full right and
authority to enter into this Lease, and that each person signing on behalf of
the corporation is authorized to do so. In the event any representation or
warranty is false, all persons who execute this Lease shall be liable,
individually, as Tenant.
ARTICLE 20. OTHER PROVISIONS
20.1. Hazardous and Biomedical Substances.
(a) Hazardous Substances. The term "Hazardous Substances," as used in this
Lease, shall include, without limitation, flammables, explosives,
radioactive materials, asbestos, polychlorinated biphenyls (PCBs),
chemicals known to cause cancer or reproductive toxicity, pollutants,
contaminants, hazardous wastes, toxic substances or related materials,
petroleum and petroleum products, and substances declared to be hazardous
or toxic under any law or regulation now or hereafter enacted or
promulgated by any governmental authority.
(b) Tenant Restrictions. Tenant shall not cause or permit to occur:
(i) Any violation of any federal, state, or local law, ordinance, or
regulation now or hereafter enacted, related to environmental
conditions on, under, or about the Leased Premises, or arising from
Tenant's use or occupancy of the Leased Premises, including, but not
limited to, soil and ground water conditions; or
(ii) The use, generation, release, manufacture, refining,
production, processing, storage, or disposal of any Hazardous
Substance or biomedical materials or waste on, under, or about the
Leased Premises, or the transportation to or from the Leased
Premises of any Hazardous Substance or biomedical materials or
waste. Notwithstanding the foregoing, Landlord acknowledges that
Tenant intends to use, store, process, and dispose of biomedical
materials, wastes and human tissue in conjunction with its use of
the Leased Premises and agrees that such activities shall not be
deemed a default under this Lease provided Tenant complies with all
applicable rules and regulations governing such activities. In
addition, Tenant and its agents and employees shall properly and
securely enclose and contain any such Hazardous Substances or
biomedical materials or waste when transporting the same on, across
or through any location in or about the Building.
(c) Environmental Clean-up.
(i) Tenant shall, at Tenant's own expense, comply with all Laws
regulating the use, generation storage, transportation, or disposal
of Hazardous Substances and biomedical wastes and materials.
(ii) Tenant shall, at Tenant's own expense, make all submissions to,
provide all information required by, and comply with all
requirements of all governmental authorities (the "Authorities")
under the Laws.
(iii) Should any Authority or any third party demand that a cleanup
plan be prepared and that a cleanup be undertaken because of any
deposit, spill, discharge, or other release of Hazardous Substances
that occurs during the term of this Lease, at or from the Leased
Premises, or which arises at any time
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from Tenant's use or occupancy of the Leased Premises, then Tenant
shall, at Tenant's own expense, prepare and submit the required
plans and all related bonds and other financial assurances and
Tenant shall carry out all such cleanup plans.
(iv) Tenant shall promptly provide all information regarding the
use, generation, storage transportation, or disposal of Hazardous
Substances that is requested by Landlord. If Tenant fails to fulfill
any duty imposed under this Section (c) within a reasonable time,
Landlord may do so: and in such case, Tenant shall cooperate with
Landlord in order to prepare all documents Landlord deems necessary
or appropriate to determine the applicability of the Laws to the
Leased Premises and Tenant's use thereof, and for compliance
therewith, and Tenant shall execute all documents promptly upon
Landlord's request. No such action by Landlord and no attempt made
by Landlord to mitigate damages under any Law shall constitute a
waiver of any of Tenant's obligations under this Section (c).
(v) Tenant's obligations and liabilities under this Section (c)
shall survive the expiration of this Lease.
(d) Tenant's Indemnity.
(i) Tenant shall indemnify, defend, and hold harmless Landlord, the
manager of The property, and their respective officers, directors,
beneficiaries, shareholders, partners, agents, and employees from
all liabilities, obligations, penalties, fines, claims, litigation,
demands, defenses, judgments, suits, proceedings, actions, costs,
disbursements or expenses of any kind or of any nature whatsoever
(including without limitation, attorneys' and experts' fees and
disbursements) arising out of or in any way connected with any
deposit, spill, discharge, or other release of Hazardous Substances
that occurs during the term of this Lease, at or from the Leased
Premises, or which arises at any time from Tenant's use or occupancy
of the Leased Premises, or from Tenant's failure to provide all
information, make all submissions, and take all steps required by
all Authorities under the Laws and all other environmental laws.
(ii) Tenant's obligations and liabilities under this Section (d)
shall survive the expiration of this Lease.
20.2. Radon Gas. Radon is a naturally occurring radioactive gas that, when
it has accumulated in a building in sufficient quantities, may present health
risks to persons who are exposed to it overtime. Levels of radon that exceed
federal and state guidelines have been found in buildings in Florida. Additional
information regarding radon and radon testing may be obtained from the county
health public health unit.
20.3. Americans with Disabilities Act. Tenant covenants and agrees, at its
expense without reimbursement or contribution by Landlord, to keep, maintain,
alter and replace, if necessary, the interior non-structural portions of the
Leased Premises so as to maintain compliance of same with the Americans with
Disabilities Act of 1990, 42 U.S.C. 12101 et seq. (the "Act"), as amended from
time to time, and all rules and regulations promulgated to further the purpose
of and to enforce the Act (the "ADA").
20.4. Time of Essence. Time is of the essence of each and every provision
and term of this Lease.
20.5. Exhibits and Riders. Exhibit A - Leased Premises Site Plan; Exhibit
B - Work Agreement; Exhibit C - Rules and Regulations.
20.6. Complete Understanding, This Lease represents the complete
understanding between the parties hereto as the subject matter hereof, and
supersedes all prior written or oral negotiations, representations, warranties,
statements or agreements between the parties hereto as the same. No inducements,
representations, understandings or agreements have been made or relied upon in
the making of this Lease, except those specifically set forth in the provisions
of this Lease. Neither party hereto has any right to rely on any other prior or
contemporaneous representation made by anyone concerning this Lease which is not
set forth herein. This Lease may not be altered, waived, amended or extended
except by an instrument in writing signed by Landlord and Tenant Landlord and
Tenant acknowledge that each of them and their counsel have had an opportunity
to review this lease and that this lease will not be construed against Landlord
merely
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because Landlord has prepared it. If there are more than one persons or entities
named as "Tenant," each named person or entity shall be jointly and severally
liable for all obligations of Tenant under this Lease.
20.7. Governing Law. This Lease shall be governed in all respects by the
laws of the State of Florida
20.8. Counterparts, This Lease may be signed in any number of
counterparts. Each counterpart shall be an original, but all such counterparts
shall constitute one Lease.
ARTICLE 21. SIGNATURES
In Witness Whereof, this Lease was executed as of "Effective Date" as
specified hereinabove.
WITNESSES: REGENERATION TECHNOLOGIES, INC.
/s/ Anna Marie Martin By: /s/ [ILLEGIBLE]
---------------------------------
Its: CFO/Sec/Treas.
(Corporate Seal)
"TENANT"
WITNESSES: ECHELON INTERNATIONAL CORPORATION, a Florida
corporation
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
/s/ [ILLEGIBLE] ---------------------------------
Vice President
"LANDLORD"
22
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EXHIBIT "A"
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT "B"
RULES AND REGULATIONS
1. Landlord agrees to furnish Tenant ten (10) keys without charge Additional
keys will be furnished at a nominal charge. Tenant shall not change locks
or install additional locks on doors without prior written consent of
Landlord. Tenant shall not make or cause to be made duplicates of keys
procured form Landlord without prior approval of Landlord. All keys to
Leased Premises shall be surrendered to Landlord upon termination of this
Lease.
2. Tenant will refer all contractors, contractor's representatives and
installation technicians rendering any service on or to the Leased
Premises for Tenant to Landlord for Landlord's approval before performance
of any contractual service. Tenant's contractors and installation
technicians shall comply with Landlord's rules and regulations pertaining
to construction and installation. This provision shall apply to all work
performed on or about the Leased Premises, including installation of
telephone, telegraph equipment or any other physical portion of the Leased
Premises or Building.
3. Tenant shall not at any time occupy any part of the Leased Premises or
Building as sleeping or lodging quarters.
4. Tenant shall not place, install or operate on the Leased Premises or in
any part of the Building any engine or stove or cook thereon or therein,
or place or use in or about the Leased Premises or Building any
explosives, gasoline, kerosene, oil, acids, caustics, or any flammable,
explosive or hazardous material without written consent of Landlord.
5. Landlord will not be responsible for lost or stolen personal property,
equipment, money or jewelry from the Leased Premises or the Building
regardless of whether such loss occurs when the area is locked against
entry or not.
6. No dogs, cats, fowl, or other animals shall be brought into or kept in or
about the Leased Premises or Building.
7. Employees of Landlord shall not receive or carry messages for or to any
Tenant or other person or contract with or render free or paid services to
any Tenant or to any of Tenant's agents, employees or invitees.
8. None of the parking, plaza, recreation or lawn areas, entries, passages,
doors, hallways or stairways shall be blocked or obstructed or any
rubbish, litter, trash, or material of any nature placed, emptied or
thrown into these areas or such area used by Tenant's agents, employees or
invitees at any time for purposes inconsistent with their designation by
Landlord.
9. The water closets and other water fixtures shall not be used for any
purpose other than those for which they were constructed, and any damage
resulting to them from misuse or by the defacing or injury of any part of
the Building shall be borne by the person who shall occasion it. No person
shall waste water by interfering with the faucets or otherwise.
10. No person shall disturb occupants of the Building by the use of any
radios, record players, tape recorders, musical instruments, the making of
unseemly noises or any unreasonable use.
11. Nothing shall be thrown out of the windows of the Building or down the
stairways or other passages.
12. Movement in or out of the Building of furniture or office supplies and
equipment, or dispatch or receipt by Tenant of any merchandise or
materials which requires use of stairways, or movement through the
Building entrances or lobby, shall be restricted to hours designated by
Landlord. All such movement shall be under supervision of Landlord and
carried out in the manner agreed between Tenant and Landlord by
prearrangement before performance. Such prearrangement will include
determination by Landlord of
24
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time, method, and routing of movement and limitations imposed by safety or
other concerns which may prohibit any article, equipment or any other item
from being brought into the Building. Tenant assumes and shall indemnify
Landlord against, all risks and claims of damage to persons and properties
arising in connection with any said movement.
13. Tenant shall not lay floor covering within the Leased Premises without
written approval of the Landlord. The use of cement or other similar
adhesive materials not easily removed with water is expressly prohibited.
14. There shall be no smoking in any area inside the Building.
15. Landlord reserves the right to exclude from the Buildings, between the
hours of 5:00 p.m. and 8.00 a.m. on weekdays and at all hours on Saturday
and on Sunday and legal holidays, all persons who are not known to the
Buildings security personnel and who do not present a pass to the
Buildings signed by the Tenant. Each Tenant shall be responsible for all
persons for whom it supplies a pass. To preserve the safety and security
of the persons and property of all tenants in the Building, Tenant shall
not unlock or "prop open" any of the Building exit and entrance doors or
doorways during non Business Hours.
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Exhibit C
Work Agreement
The following Tenant Improvements will be furnished in suite 102:
Area 2 Remove 2 fume hoods
Area 5 Install seamless flooring
Install non particulate ceiling tiles
Install door opening
Block off existing exhaust and make up duct
Area 4 Remove designated cabinets
Relocate designated cabinets
Isolate electric circuits and provide GFI
Install compressed air lines from building system
Area 6 Remove designated cabinets
Build support for counter tops where cabinets are removed
Area 2 Remove fume hoods
All areas Tile floors will be cleaned or replaced as needed.
Cabinets will be repainted
Walls will be patched and repainted
Cost to tenant $7,680.
Payable within 10 days of completion
Estimated time of completion of all work- February 25, 2000
The six offices will be available for occupancy upon execution of
this document.
Area I (room 128) will be available for occupancy by Wednesday 2/9.
All other areas will be turned over to tenant as work is completed.
<PAGE>
EXHIBIT 10.11
LEASE
THIS LEASE made at Alachua, Florida on the 14 day of JUNE, 1999, between
FIRST STREET GROUP, L.C., a Florida limited liability company, whose address is
3728 North Main Street, Gainesville, Florida 32609, hereinafter called the
"Landlord", and REGENERATION TECHNOLOGIES, INC., a Florida corporation, whose
address is One Innovation Drive, Alachua, Florida 32615, hereinafter called the
"Tenant."
WITNESSETH:
ARTICLE I
PREMISES
Landlord, in consideration of the rents to be paid and the covenants and
agreements to be performed and observed by Tenant, does hereby lease unto
Tenant, and Tenant does hereby lease and take from Landlord, for Tenant's
exclusive use, certain real property located at 15301 Martin Luther King
Boulevard, Alachua, Florida 32615, (referred to as the "Premises"), as further
described on Exhibit "A" attached hereto.
ARTICLE II
TERM
The term of this lease shall begin on five (5) days from completion of the
leasehold improvements, (the "Commencement Date"), and shall continue for three
years thereafter, subject to one (1) one-year option.
Provided Tenant is not in default hereunder, Tenant shall have one (1)
one-year option beginning on the last day of the lease, subject to the terms and
conditions contained herein. Said option shall be exercised by delivery of
written notice to the Landlord prior to ninety (90) days before the expiration
of the then current lease period. If Tenant fails to deliver its written notice
of intent to exercise said option prior to ninety (90) days before the
expiration of the then current Lease period, Tenant shall have waived its right
to said option. Base Rent during the option term shall be increased to $5,200.00
ARTICLE III
RENT
Tenant agrees to pay Landlord, at such place as Landlord shall from time
to time direct by written notice to Tenant, without demand or set off, base
Rent, hereinafter "Rent" during the term in an annual amount of FIFTY-FOUR
THOUSAND AND 00/100 DOLLARS ($54,000.00), payable in equal monthly installments
of FOUR THOUSAND FIVE HUNDRED AND 00/100 ($4,500.00) each. Rent shall be payable
during each year in advance in equal monthly installments as set forth above on
the 1st day of each and every calendar month during the term of this Lease,
commencing on the Commencement Date.
The rental and other charges provided for in this Lease do not include
Florida State Tax on commercial tenancies, the payment of which is the
responsibility of the Tenant and will be paid to the Landlord, together with the
rental installments and other charges, on the same dates such rental payments
and other charges are required to be paid in this Lease. Acceptance by Landlord
of rental payments from any entity other than Tenant herein shall not constitute
a waiver of any rights of Landlord and shall not constitute an acknowledgment of
any rights of said entity. (See Addendum attached hereto as Exhibit "B".)
ARTICLE IV
4.1 Personal Property Taxes. Tenant shall be liable for all taxes levied
against personal property and trade fixtures placed by Tenant in the Premises.
<PAGE>
4.2 Real Estate Taxes.
(a) Tenant shall pay, as additional rent, any Taxes (defined below)
imposed upon the Premises during the term hereof, promptly upon
receipt from Landlord of all tax bills for the Premises. For the
calendar years in which this Lease commences and terminates, such
Taxes shall be subject to a pro rata adjustment based on the number
of days of said calendar years during which the term of this Lease
is in effect
(b) For purposes of this Lease, the term "Taxes" shall include all
real property taxes and any general or special assessments, water
and sewer rents and other governmental impositions imposed upon or
against the Premises of every kind and nature whatsoever,
extraordinary as well as ordinary, foreseen and unforeseen, and each
and every installment thereof, which shall or may during the lease
term be levied, assessed or imposed upon or against the Premises.
ARTICLE V
5.1 Landlord's Repairs. Landlord, at Landlord's expense, shall deliver the
Premises to the Tenant in good, sound, and watertight condition. Upon Lessee
taking possession of the Leased Premises, Tenant hereby acknowledged that it has
accepted the Premises "As Is" and thereafter shall be responsible for all
maintenance and/or repairs of the premises. Landlord, however, shall be
responsible for the maintenance and repair of the building structure, plumbing,
sewer, and electrical.
5.2 Tenant's Repairs. Tenant, at Tenant's expense, shall make all ordinary
wear and tear repairs and replacements to keep and maintain the Premises in good
condition, including, but not limited to, the heating, hot water, air
conditioning and other mechanical installations serving the Premises, all doors,
all windows including hardware and other appurtenances, and the parking areas,
landscaped areas, sidewalks, access routes, light facilities, and all other
portions of the Premises, including but not limited to, stripe painting,
repaving, patching, mowing, and the removal of standing water, snow and ice
therefore, and the removal of rubbish and other refuse and debris. Any and all
items that Tenant shall replace during the term of this Lease shall be of equal
type and style than the item being replaced. Tenant shall not permit any waster,
damage or injury to the Premises. Tenant shall keep in full force and effect a
contract with a reputable heating contractor for not less than the quarterly
inspection, maintenance and repair of the air-conditioning and heating systems
servicing the Premises, including oiling, filter changes, belt repair and/or
replacements, refills of freezing compound to the air conditioning and similar
maintenance and minor repair procedures. Landlord, however, shall be responsible
for any major air conditioning or heating system repairs, which exceed
$1,000.00. Tenant shall furnish a copy of said contract to Landlord upon
request. Tenant shall further keep the Premises clean, attractive and free of
rubbish, rubble, debris, insects, rodents and other pests. Tenant shall not do,
order of cause any work to be done or installations to be made in, on or to the
roof of the Premises without first obtaining Landlord's prior written consent.
Tenant shall be responsible for any damage as a result of misuse or neglect of
the sewer system.
5.3 Tenant's Alterations. Tenant shall have the right, at its sole
expense, from time to time, to redecorate the Premises and to make such
alterations, additions, improvement and changes in such parts thereof as Tenant
shall deem expedient or necessary for its purposes; provided, however, that such
alterations, additions, improvements and changes when completed shall neither
impair the structural soundness nor diminish the value of the Premises. Upon the
expiration of this Lease, Tenant may, at its option, remove all such
redecorations, alterations, additions, improvements and changes. Tenant shall
repair all damage caused by such removal. Notwithstanding the foregoing, all
floor and wall coverings, sinks, vanities, light fixtures (other than special
decorative lighting fixtures), and the complete electrical, plumbing, air
conditioning and heating systems, including ducts, diffusers, grills, controls
and all other equipment and parts related to such systems, shall be and remain
in the Premises at all times for the benefit of Landlord. All such alterations,
additions, or improvements shall be done in accordance with all applicable laws,
rules regulations, and orders, including applicable building codes. Landlord
shall execute and deliver upon request of Tenant such instrument or instruments
embodying the approval of Landlord which may be required by an public or quasi
public authority for the purpose of obtaining any licenses or permits for the
making of such alterations, additions, improvements, changes and/or
installations in, to or upon said Premises and Tenant agrees to pay for such
licenses or permits. Tenant will indemnify and hold Landlord
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<PAGE>
harmless from and against all claims by reason of such alterations, additions,
or improvements which may be made by Tenant on the Premises, and Tenant shall
promptly repair any damage to the Premises caused by any such alterations,
additions, improvements, or changes. Anything contained in this Section 5.3 to
the contrary notwithstanding, Tenant shall not make changes to the exterior or
structural portions for the Premises without Landlord's prior approval, which
approval shall not be withheld or delayed unreasonably.
5.4 Mechanics' Liens. Tenant shall not suffer any mechanics' lien to be
filed against the Premises by reason of work, labor, services or materials
performed or furnished to Tenant in connection with any alterations, additions,
or improvements to the Premises by Tenant hereunder. If any such mechanics' lien
shall at any time be filed against the Premises, Tenant shall have the right to
contest and any and all such liens; provided, however, that Tenant shall cause
the same to be discharged of record by payment, bond, order of a court of
competent jurisdiction or otherwise within thirty (30) days written notice by
Landlord. If Tenant shall fail to cause such lien to be discharged within such
thirty (30) day period, then, in addition to any other right or remedy, Landlord
may, but shall not be obligated to discharge the same by paying the amount
claimed to be due or by bonding or other proceeding deemed appropriate by
Landlord, and the amount so paid by Landlord and/or all reasonable costs and
expense, including reasonable attorneys' fees, incurred by Landlord in procuring
the discharge of such lien, together with interest thereon at the Default Rate
of 18% from the date paid until repaid by Tenant to Landlord, shall be deemed to
be additional rent for the Premises and shall be due and payable by Tenant to
Landlord on the first day of the next following month.
Pursuant to the provisions of Florida Statutes (1977) 713.10, all parties
hereto acknowledge that the interest of the Landlord herein, as owner of the
underlying real property, shall not be subject to liens for improvements made by
the Tenant and the imposition of such a lien is expressly prohibited. The Tenant
shall notify the contractor making any such improvements of this provision and
the knowing or willful failure of Tenant to provide such notice to the
contractor shall render the contract between the Tenant and the contractor
voidable at the option of the contractor. The interest of the Landlord shall not
be subject to liens for improvements made by Tenant and the parties acknowledge
that a short form of the Lease Agreement may be recorded in the public records
expressly referencing this paragraph.
ARTICLE VI
UTILITIES
Tenant shall pay all charges for water, gas, heat, electricity, sewer and
any other utility used upon for furnished to the Premises. Tenant shall keep the
Premises sufficient heated to avoid the freezing or bursting of all pipes
therein. The obligation of Tenant to pay for such utilities shall commence as of
the Commencement Date.
ARTICLE VII
7.1 Use of Premises. Tenant shall use and occupy the Premises for purposes
of an office and biomedical use.
7.2 Tenant's Covenants. Tenant covenants and agrees as follows:
(a) Tenant shall procure any and all licenses and permits required
for Tenant's use of the Premises, and upon the expiration or
termination of this Lease, Tenant shall remove its goods and effects
and those of all persons claiming under it and shall yield up the
same peaceably to Landlord in good order, repair and condition in
all respects, except for damage by fire and casualty, which is
either insured against or required to be insured against hereunder,
structural defects (not caused by Tenant's use of the Premises),
required repairs by landlord, and reasonable wear and tear.
(b) Tenant shall permit Landlord and its agents on reasonable notice
and at reasonable times to examine the Premises and to show the
Premises to prospective purchasers and/or mortgagees. Landlord may
show the Premises to prospective tenants during the last three
months of the lease term provided that Landlord shall not
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<PAGE>
thereby unreasonably interfere with the conduct of Tenant's
business. During the last three (3) months of the Term of this
Lease, Landlord shall have the right to display on the Premises a
"for rent" and/or "for sale" sign, which notice shall not be
removed, obliterated, or hidden by Tenant.
(c) Tenant shall use and occupy the Premises in a careful, safe and
proper manner and shall keep the Premises in a clean, safe and
health condition in accordance with local ordinances and lawful
directions of proper public officers. Tenant shall not permit the
Premises to be used for any unlawful purpose, commit any waste
thereof, or commit any nuisance. Notwithstanding the foregoing,
Tenant shall have the right to contest the legality of any law,
order, rule, regulations or requirement applicable to Tenant's use
of the Premises, and Tenant shall indemnify and hold Landlord
harmless from any liabilities, suits or penalties that may result
from any such contest. Upon the final determination of any such
contest, Tenant shall comply with any such law, order, ordinance,
rule, regulation or requirements to the extent held to be valid or
legal.
7.3 Tenant's Use of Hazardous Substances.
(a) The term "Hazardous Substance, would be substances used and
brought onto the Leased Premises and shall include, but not be
limited to, flammables, explosives, radioactive materials, asbestos,
polychlorinated biphenyls, chemicals known to cause cancer or
reproductive toxicity, pollutants, contaminates, hazardous waste,
toxic substances or related materials, petroleum and petroleum
products, and substances declared to be hazardous or toxic under any
law or regulation now or hereafter enacted or promulgated by any
governmental authority.
(b) Landlord acknowledges that Tenant intends to use, store, process
and/or dispose of biomedical materials, wastes, and human tissue in
conjunction with its use of the Leased Premises and agrees that such
activities shall not be deemed a default under this Lease provided
that Tenant complies with all applicable rules and regulations
governing such activities.
(c) Tenant shall not cause or permit any violation of any federal,
state or local law, ordinance or regulation now or hereafter enacted
related to environmental conditions on, under, or about the Leased
Premises, or arising from Tenant's use or occupancy of the Leased
Premises, including, but not limited to, soil and ground water
conditions.
(d) Tenant shall, at Tenant's own expense, comply with all Laws
regulating the use, generation, storage, transportation, or disposal
of Hazardous Substances. Tenant's obligations and liabilities under
this Section 7.3 shall survive the term of this Lease.
(e) Tenant shall indemnify, defend, and hold harmless Landlord, its
agents or representatives from all liabilities, obligations,
penalties, fines, claims, litigation, demands, damages, expenses
(including attorney fees) arising out of or in any way connected
with Hazardous Substances brought to the Leased Premises by the
Tenant for use or storage during the term of this Lease, or from any
act or omission of Tenant to comply with all Laws regulating the
use, storage, transportation or disposal of Hazardous Substances.
(f) Upon expiration of the Lease, Tenant agrees to remove all
Hazardous Substances it may have brought to the Premises.
ARTICLE VIII
8.1 Assignment and Subletting. Tenant shall not assign, transfer, mortgage
or encumber this Lease in whole or in part, nor sublet all or any part of the
Premises, nor suffer or permit the occupation of all or any part thereof by any
other party, without the prior written consent of the Landlord, which consent
shall not be unreasonably withheld or delayed. The consent by Landlord
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<PAGE>
to any assignment or subletting shall not constitute a waiver of the necessity
for such consent to any subsequent assignment or subletting.
8.2 Tenant to Remain Liable. If, at any time during the term of this
Lease, Tenant sublets all or any part of the Premises or assigns this Lease as
provided herein, Tenant shall nevertheless remain fully liable under all the
terms and conditions of this Lease.
ARTICLE IX
FIXTURES
All equipment and all other trade and light fixtures installed by or at
the expense of Tenant in or on the Premises shall remain the property of Tenant
and Tenant may, but shall not be obligated to, remove the same or any part
thereof within thirty (30) days after the end of the term hereof, and provided
that Tenant, at its sole cost and expense, shall make any repairs occasioned by
such removal.
ARTICLE X
10.1 Indemnity. Tenant shall indemnify and hold Landlord harmless from any
claims, damages, liabilities and expenses (including attorneys' fees and costs)
for damage or injury to any person or any property occurring on the Premises, or
any part thereof, arising as a result of the tortious or negligent acts or
commissions of Tenant, its agents, employees, independent contractors and
invitees.
10.2 Liability Insurance. During the Term of this Lease, Tenant shall
maintain comprehensive public liability insurance, including insurance against
the assumed or contractual liability of Tenant hereunder, to afford protection
to the limit for each occurrence of not less than $1,000,000.00 combined single
limit for bodily injury, death and $300,000.00 for damage to the property. The
policy carried by Tenant hereunder shall name Landlord (and Landlord's
mortgagee) as an additional insured, and such policy shall provide that no
cancellation, reduction or other material changes therein shall be effective
until at least thirty (30) days after mailing of written notice thereof to
Landlord (and Landlord's mortgagee). Certificates evidencing all such insurance
shall be delivered to Landlord prior to the Commencement Date, and prior to the
expiration of any such policies.
10.3 Property Insurance. Landlord shall, at the expense of the Tenant and
for the duration of this Lease, maintain all risk, fire, and casualty insurance
covering the Premises in an amount not less than the replacement costs of the
building and shall include coverage against vandalism and malicious mischief.
Lessor shall not be liable for any damage to property of Lessee or of others
located on the Leased Premises, nor for any loss or damage caused by theft or
criminal activity committed on the Leased Premises.
Lessor shall not be liable to Lessee for any claims arising from injury or
death of persons or damage to property resulting from fire, explosion, falling
plaster, steam, gas, electricity, water, flood, air pollution, rain, or leaks
from any part of the Leased Premises or from the pipes, appliances, or plumbing
works, or by dampness, unless caused by the negligent act or omission of Lessor,
its agents or representatives.
Lessor's liability for any damage, injury, or loss of any kind whatsoever
whether a willful act or negligence shall be limited to its rights in the
property.
Tenant shall be responsible for carrying full coverage of its personal
property in or on the Leased Premises, including but not limited to, inventory,
trade fixtures, furniture, and all leasehold improvements.
10.4 Indemnity. Landlord shall indemnify, defend and save Tenant, its
agents, contractors or employees harmless from and against all claims, actions,
damages, liability and expense (including attorney fees) arising out of the
gross negligence or intentional misconduct of Landlord, its agents or
representatives.
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<PAGE>
ARTICLE XI
11.1 Damage or Destruction. If the Leased Premises shall be damaged by
fire or casualty during the term of this Lease, Landlord or Tenant may (1) have
the right to terminate this Lease by giving written notice within 30 days after
such damage has occurred, or (2) Landlord, within 30 days of damage occurrence,
shall proceed to repair such damage and restore the Leased Premises to the
condition existing prior to the time of damage.
Any damage to Tenant's personal property, inventory, or trade fixtures
shall be covered solely by Tenant's insurance. In the event Landlord and Tenant
agree to terminate this Lease, all advanced rents shall be prorated to the date
of the damage, and the balance refunded to the Tenant.
11.2 Reconstruction of Premises. If the Leased Premises is damaged by fire
or other insured casualty to an extent which may be repaired within one hundred
twenty (120) days of damage. Lessor will promptly begin and diligently pursue
repairing the damages. In that event, this Lease shall continue in full force
and effect. Rents shall be abated according to the unusable portion of the
Leased Premises and the period of time between the date damage occurred to the
date repairs are completed. If repairs should require more than one hundred
twenty (120) days, Lessee shall have the option to terminate the Lease and any
unearned rents shall be refunded.
ARTICLE XII
12.1 Total Taking. If the whole of the Premises shall be taken under power
of eminent domain by any public or private authority, or conveyed by Landlord to
said authority in lieu of such taking, then this Lease shall terminate as of the
date of such taking.
12.2 Partial Taking. Landlord or Tenant may, at their election, terminate
this Lease upon the occurrence of any condemnation or conveyance in lieu of
condemnation, which affects twenty-five percent (25%) or more of the floor area
of the Premises. Upon the occurrence of such event, either party shall give the
other party notice of such election within thirty (30) days after receipt of
notice of such pending condemnation. If either party fails to give the other
party such written notice within such thirty (30) day period, such party shall
be conclusively deemed to have elected not to terminate this Lease.
Notwithstanding any termination of this Lease hereunder, Tenant, at its
election, may continue to occupy the Premises, subject to the terms and
provisions of this Lease, for the period between the date of such taking and the
date when possession of the Premises shall be taken by the appropriate
authority.
12.3 Restoration. If this Lease is not terminated under Section 12.2
above, Landlord, at Landlord's sole cost and expense, shall promptly negotiate
and settle its claim for compensation with the condemning authority and upon
receipt of the condemnation award shall promptly restore the remaining portions
of the Premises, including any and all improvements made theretofore, to an
architectural whole in substantially the same condition that the same were in
prior to such taking. Upon any condemnation of a portion of the Premises, the
Rent and any other charges payable by Tenant hereunder shall be proportionately
reduced based upon the floor area of the Premises remaining after said taking,
12.4 The Award. All compensation awarded for any taking, whether for the
whole or a portion of the Premises, shall be the sole property of Landlord
whether such compensation shall be awarded for diminution in the value of, or
loss of, the leasehold or for diminution in the value of, or loss of the fee, or
otherwise, and Tenant hereby assigns to Landlord all of Tenant's right and title
to and interest in any and all such compensation; provided, however, Landlord
shall not be entitled to and Tenant shall have the sole right to retain any
separate award made by the appropriating authority to Tenant for the cost of
removal of leasehold improvements, fixtures, and personalty improvements
installed in the Premises by, or at the expense of; Tenant and for relocation
expenses, and any separate award made by the appropriating authority directly to
Tenant.
12.5 Release. In the event of any termination of this Lease as the result
of the provisions of this ARTICLE XII, Rent and any other charges, if any, paid
in advance by Tenant shall be refunded to Tenant, and the Parties, effective as
of such termination, shall be released from all liability and obligations
thereafter arising under this Lease.
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<PAGE>
ARTICLE XIII
13.1 Events of Default: Remedies. If Tenant shall at any time be in
default in the payment of rental or any other charges hereunder or in the
performance of any of the covenants of this Lease, and Tenant shall fail to
remedy such default within (a) ten (10) days after receipt of written notice
thereof from Landlord if such default is as to payment of Rent, or any other
charges payable by Tenant hereunder, or (b) within fifteen (15) days after
receipt of written notice thereof if such default is non-monetary (but Tenant
shall not be deemed in default is such default cannot be cured in fifteen (15)
days and Tenant commences to remedy such default within said fifteen (15) day
period and proceeds therewith with due diligence until completion), or if Tenant
shall be adjudged a bankrupt or shall make an assignment for the benefit of
creditors, or if a receiver of any property of Tenant in or upon the Premises be
appointed in any action, suit or proceeding by or against Tenant and not removed
within sixty (6) days after appointment, or if the interest of Tenant in the
Premises shall be sold under execution or other legal process, or if the
Premises are sublet or this Lease is assigned without Landlord's consent, or if
Tenant shall commit waste, Landlord may terminate this Lease, or without
terminating this Lease, re-enter the Premises by summary proceedings,
proceedings in forcible entry and detainer, eviction, or otherwise, and may
dispossess Tenant.
13.2 Landlord's Right to Relet. If Tenant abandons the Premises and/or if
Landlord elects to terminate Tenant's right to possession only without
terminating this Lease as above provided, Landlord may remove from the Premises
any and all property found therein and such repossession shall not release
Tenant from Tenant's obligation to pay the rental herein. After any such
repossession by Landlord without termination of the Lease, Landlord may relet
the Premises or any part thereof to any person, firm or corporation and for such
time and upon such terms as Landlord in Landlord's sole discretion may
determine. Landlord may make repairs, alterations and additions in and to the
Premises and redecorate the same to the extent deemed by Landlord necessary or
desirable and Tenant, upon demand in writing, shall pay the reasonable cost
thereof, (excluding tenant improvements for the replacement tenant) together
with Landlord's reasonable expenses of reletting, including any commissions and
attorneys' fees relative thereto. If the rents collected by Landlord upon any
such reletting are not sufficient to pay monthly the full amount of the monthly
rent and other charges reserved herein, together with the reasonable costs of
such repairs, alterations (excluding tenant improvements for any replacement
tenant), additions, redecorating, and expenses, Tenant shall pay to Landlord the
amount of each monthly deficiency upon demand in writing.
13.3 Damages. Tenant agrees to be liable for and to pay to Landlord (i)
all rent and other charges and sums due under this Lease at the time of
termination of this Lease or upon the termination of Tenant's right of
possession, as the case maybe, and (ii) damages equal to the present value
(discounted at the annual rate of interest then being paid on U.S. Treasury
Bonds which mature upon the expiration of this Lease) of the excess amount, if
any, of the rent and all other charges and sums due under this Lease for the
entire term over the rental received by Landlord for the Premises for such term,
which damages shall be payable at such time as said damages as discounted by
agreement of Landlord and Tenant, or by judicial decision, or at such time that
said rent and other charges are payable under this Lease, which liability shall
survive the termination of this Lease, the re-entry into the Premises by
Landlord, and the commencement of the action to secure possession of the
Premises.
13.4 Landlord's Right to Remove Chattels. Any and all property which may
be removed from the Premises by Landlord in accordance with the terms of this
Lease may be handled, removed, stored or otherwise disposed of by Landlord at
the risk and expense of Tenant, and Landlord in no event shall be responsible
for the preservation of safekeeping thereof. Tenant shall pay to Landlord upon
demand in writing, any and all reasonable expenses incurred in connection with
such removal and all storage charges against such property so long as the same
shall be in Landlord's possession or under Landlord's control. If any property
shall remain in the Premises or in the possession of Landlord and shall not be
retaken by Tenant within a period of (10) days from and after the time when the
Premises are either abandoned by Tenant or repossessed by Landlord under the
terms of this Lease, said property shall conclusively be deemed to have been
forever abandoned by Tenant.
13.5 Condition of Premises. If this Lease be terminated for any reason
whatsoever of if Landlord should re-enter the Premises as a result of any breach
of Tenant hereunder without terminating the Lease, Tenant covenants, any other
covenant herein to the contrary notwithstanding
Page 7 of 11
<PAGE>
(except where this Lease is terminated following eminent domain proceedings),
that (a) the Premises shall then be in the condition required by all applicable
provisions of this Lease, and (b) Tenant shall perform any covenant contained in
this Lease for the making of any repair, improvement, alteration or betterment
to the premises or for restoring or rebuilding any part thereof. For the breach
of either of the foregoing obligations Landlord shall be entitled to recover and
Tenant shall pay forthwith, without notice or other action by Landlord, the then
cost of performing such obligation(s), together with interest at the Default
Rate.
13.6 Landlord's Nonwaiver. No failure by Landlord to insist upon the
strict performance of any agreement, term, covenant or condition hereof or to
exercise any right or remedy consequent upon a breach thereof, and no acceptance
of full or partial rent during the continuance of any such breach, shall
constitute a waiver of any such breach or of such agreement, term, covenant, or
condition. No agreement, term, covenant, or condition hereof to be performed or
complied with by Tenant, and no breach thereof, shall be waiver, altered or
modified except by a written instrument executed by Landlord. No waiver of any
breach shall affect or alter this Lease, but each and every agreement, term,
covenant and condition hereof shall continue in full force and effect with
respect to any other then existing or subsequent breach thereof. No surrender of
the Premises shall be effected by Landlord's acceptance of rent, or by
Landlord's acceptance of the keys of the Premises, or by any other means
whatsoever, unless the same is evidenced by Landlord's written agreement to
accept surrender of the Premises; and if Landlord does accept surrender of the
Premises, Tenant's obligations to pay rents and to perform the duties and
provisions of this Lease required of Tenant hereunder shall not be released or
terminated but shall continue for the remainder of the term of this Lease.
13.7 Remedies Cumulative. Each right and remedy provided for in this Lease
shall be cumulative and shall be in addition to every other right or remedy
provided for in this Lease or now or hereafter existing at law or in equity or
by statue or otherwise, and the exercise or beginning of the exercise by
Landlord of any one or more of the rights or remedies provided for in this Lease
or now or hereafter existing at law or in equity or by statute or otherwise
shall not preclude the simultaneous or later exercise by Landlord of any or all
other rights or remedies provided for in this Lease or now or hereafter existing
at law or in equity or by statute or otherwise. In the event of a default or
threatened default by Tenant of any of the terms, provisions, covenants,
conditions, rules and regulations of this Lease, Landlord shall have the right
to injunction and the right to invoke any remedy permitted to Landlord in law or
in equity.
ARTICLE XIV
SELF-HELP
If Tenant shall default in the performance or observance of any agreement
or condition in this Lease contained on its part to be performed or observed and
shall not cure such default within any applicable cure period set forth herein,
Landlord may, at its option, without waiving any claim for damages for reach of
agreement, at any time thereafter cure such default for the account of Tenant,
and any amount paid or any contractual liability incurred by Landlord in so
doing shall be deemed paid or incurred for the account of Tenant and Tenant
agrees to immediately reimburse Landlord therefor and save Landlord harmless
therefrom; provided that Landlord may cure any such default as aforesaid prior
to the expiration of said waiting period, without notice to Tenant, if any
emergency situation exists, or after notice to Tenant, if the cure of such
default prior to the expiration of said waiting period if reasonably necessary
to protect the Premises or Landlord's interest therein, or to prevent injury to
damage to persons or property. If Tenant fails to reimburse Landlord upon demand
for any amount paid for the account of Tenant hereunder, said amount (and all
accrued interest thereon) shall be added to and become due as a part of the next
payment of rent due hereunder.
ARTICLE XV
15.1 Subordination. Tenant hereby subordinates this Lease to the lien of
any deed of trust, mortgage or mortgages now or hereafter placed upon Landlord's
interest in the Premises; provided, however, that Landlord shall procure from
any such mortgagee an agreement, in writing, in form and substance reasonably
acceptable to Tenant, which acceptance shall be deemed given if such agreement
provides in substance that so long as Tenant substantially performs the
obligations imposed upon Tenant hereunder within the applicable grace or cure
period, its tenancy will not be
Page 8 of 11
<PAGE>
disturbed, nor its rights under this Lease affected by, any default under such
mortgage nor shall Tenant be named as a defendant in any foreclosure proceeding,
and such agreement is otherwise customary in form and substance.
15.2 Quiet Enjoyment. Landlord covenants and agrees with Tenant that upon
Tenant paying the Rent and observing and performing all of the terms, covenants
and conditions on Tenant's part to be observed and performed hereunder, Tenant
may peaceably and quietly have, hold, occupy and enjoy the Premises without
hindrance or molestation from Landlord or any persons lawfully claiming through
Landlord.
ARTICLE XVI
SECURITY DEPOSIT
Tenant herewith deposits with Landlord the sum of FOUR THOUSAND FIVE
HUNDRED AND 00/100 DOLLARS ($4,500.00) as a guarantee of the fulfillment of the
terms and conditions of this Lease. Said deposit shall remain with the Landlord
upon the same terms if Tenant exercises its option to renew this Lease. Upon all
rents and other charges due to Landlord as herein agreed. Tenant's deposit shall
be refunded in full to Tenant within (10) days of the expiration of this Lease.
ARTICLE XVII
17.1 Holding Over. In the event that Tenant or anyone claiming under
Tenant shall continue occupancy of the Premises after the expiration of the
original or renewal term of this Lease without any agreement in writing between
Landlord and Tenant with respect thereto, such occupancy shall not be deemed to
extend or renew the term of this Lease, but such occupancy shall continue as a
tenancy from month to month upon the covenants, provisions and conditions herein
contained and at two hundred percent (200%) of the Rental in effect upon the
expiration of the term, prorated and payable for the period of such occupancy,
and Landlord shall have the right to terminate such tenancy upon five (5) days'
written notice to Tenant.
17.2 Waivers. Failure of either party to complain of any act or omission
on the part of the other party, no matter how long the same may continue, shall
not be deemed to be a waiver by said party of any of its rights hereunder. No
waiver by either party at anytime, express or implied, of any breach of any
provision of this Lease shall be deemed a waiver of a breach of any other
provisions of this Lease or a consent to any subsequent breach of the same or
any other provisions. If any action by either party shall require the consent or
approval of the other party, the other party's consent to or approval of such
action on any one occasion shall not be deemed a consent to or approval of said
action on any subsequent occasion or a consent to or approval of any other
action on the same or any subsequent occasion.
17.3 Notices. All notices and other communications authorize or required
hereunder shall be in writing and shall be given by mailing the same by
certified mail or registered mail, return receipt requested, postage prepaid,
and any such notice or other communication shall be deemed to have been given
when received by the party to whom such notice or other communication shall be
addressed, or on the date noted that the addressee has refused delivery or on
the date that the notice is returned to sender due to the inability of the
postal authorities to deliver. Notices shall be mailed to the address
hereinabove set forth or such other address as either party may hereafter
designate by notice to the other.
17.4 Attorney's Fees. If either party hereto be made or becomes a party to
any litigation commenced by or against the other party involving the enforcement
of any of the rights and remedies of such party, or arising on of the default of
the other party in the performance of such party's obligations hereunder, then
the prevailing party in any such litigation, or the party becoming involved in
such litigation because of a claims against such and reasonable attorneys' fees
incurred by such party in such litigation.
17.5 Force Majeure. In the event that Landlord or Tenant shall be delayed
or hindered in or prevented from the performance of any act (other than Tenant's
obligation to make payments of Rent and other charges required hereunder), by
reason of strikes, lockouts, unavailability of materials, failure of power,
restrictive governmental laws or regulations, riots, insurrections, the act,
Page 9 of 11
<PAGE>
failure to act, or default of the other party, war or other reason beyond its
control, then performance of such act shall be excused for the period for the
delay and the period of the performance of such act shall be extended for a
period equivalent to the period of such delay. Notwithstanding the foregoing,
lack of funds shall not be deemed to be a cause beyond control of either party.
17.6 Estoppel Certificates. At any time and from time to time, Landlord
and Tenant each agree, within five (5) days after request in writing from the
other, to execute, acknowledge and deliver to the other or to any person
designated by the other a statement in writing certifying that this Lease is
unmodified and is in full force and effect, or if there have been modifications,
that the same is in full force and effect as modified (stating the
modifications), that the other party is not in default in the performance of its
covenants hereunder, or if there have been such defaults, specifying the same
and the dates to which the rent and other charges have been paid, and such other
matters as the requesting party may reasonably request.
17.7 Invalidity of Particular Provision. If any term or provision of this
Lease or the application hereto to any person or circumstance shall, to the any
extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
17.8 Captions and Definitions. The captions of the Sections of this Lease
are for convenience only and are not a part of this Lease and do not in any way
limit or amplify the terms and provisions of this Lease. The word "Landlord" and
the pronouns referring thereto, shall mean, where the context so admits or
requires, the persons, firm or corporation made herein as landlord or the
mortgagee in possession for the time being of the land and building comprising
of the Premises. Any pronoun shall be read in the singular or plural number and
in such gender as the context may require. Except as in this Lease otherwise
provided, the terms and provisions of this Lease shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
17.9 Entire Agreement. This instrument contains the entire and only
agreement between the parties and no oral statement or representations or prior
written matter not contained in this instrument shall have any force and effect.
This Lease shall not be modified in any way except by a writing executed by both
parties.
17.10 No Partnership. Landlord is not and shall not become by this Lease
or by any rights granted or reserved herein a partner or joint venturer of or
with Tenant in the conduct of Tenant's business or otherwise.
17.11 Liability of Landlord.
(a) If Landlord should sell or otherwise transfer Landlord's
interest in the Premises, Tenant agrees that Landlord shall
thereafter have no liability to Tenant under this Lease or any
modification or amendment thereof or extensions or renewals thereof,
except for such liabilities which might have accrued prior to the
date of such sale or transfer of Landlord's interest. Landlord shall
be liable under this Lease only while owner of the Premises provided
that any successor in interest to Landlord hereunder shall assume
such obligations and liabilities as of the date Landlord's interest
in the Premises is sold, assigned, or otherwise transferred
hereunder.
(b) If Landlord shall fail to perform any covenant, term or
condition of this Lease upon Landlord's part to be performed or if
Landlord shall be liable to Tenant in any way arising out of this
Lease, or pursuant to statute, law, ordinance or regulation, or
under the common law, and, as a consequence, if Tenant shall recover
a money judgment against Landlord, such judgment shall be satisfied
only out of the proceeds received at a judicial sale upon execution
and levy against the right, title and interest of Landlord in the
Premises. If Landlord is an individual, a trustee of a trust or a
partnership, Landlord's obligations hereunder shall not be binding
upon, nor shall there be any personal liability by, Landlord
individually, the trustees of said trust, the beneficiaries of said
trust, the partnership, or the partners of the partnership.
Page 10 of 11
<PAGE>
ARTICLE XVIII
This Lease shall be governed by and construed in accordance with the laws
of the State of Florida.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day
and year first above written.
Signed in the presence of: "LANDLORD"
/s/ Stacey L. Bachmann FIRST STREET GROUP, L.C., a Florida
- --------------------------------- limited liability company
Printed Name: Stacey L. Bachmann
/s/ Shannon L. Price By: /s/ Phillip L. Hawley
- --------------------------------- ----------------------------------
Printed Name: Shannon L. Price PHILLIP L. HAWLEY, President
STATE OF FLORIDA
COUNTY OF ALACHUA
The foregoing instrument was acknowledged before me this 17 day of June,
1999, by PHILLIP L. HAWLEY as PRESIDENT of FIRST STREET GROUP, L.C., a Florida
limited liability company, on behalf of the company. The above named officer is
personally known to me or has produced ______________________________ as
identification, and who did take an oath.
- ----------------------------------------
NOTARY PUBLIC OFFICIAL NOTARY SEAL /s/ Stacey L. Bachmann
[SEAL] STACEY L. BACHMANN -------------------------------------
STATE OF FLORIDA COMMISSION NUMBER NOTARY PUBLIC STATE OF FLORIDA
CC737952 Printed Name: Stacey L. Bachmann
MY COMMISSION EXPIRES ------------------
APR. 28, 2002 My Commission Expires: 4-28-02
- ----------------------------------------
Signed in the presence of: "TENANT"
/s/ [ILLEGIBLE] REGENERATION TECHNOLOGIES, INC.,
- ---------------------------- a Florida corporation
Printed Name: [ILLEGIBLE]
---------------
/s/ [ILLEGIBLE] By: /s/ Jamie M. Grooms
- ---------------------------- ----------------------------------
Printed Name: [ILLEGIBLE] Jamie M. Grooms
--------------- Its: President and CEO
---------------------------------
STATE OF FLORIDA
COUNTY OF ALACHUA
The foregoing instrument was acknowledged before me this 15 day of JUNE
1999, by Jamie M. Grooms as President and CEO of REGENERATION TECHNOLOGIES,
INC., a Florida corporation, on behalf of the corporation. The above named
officer is personally known to me or has produced ______________________________
as identification, and who did take an oath.
/s/ Kathleen M. Davis
-------------------------------------
NOTARY PUBLIC STATE OF FLORIDA
Printed Name:
------------------
My Commission Expires:
-------------------------------------------------------------------
NOTARY PUBLIC Kathleen M. Davis
[SEAL] Notary Public, State of Florida
STATE OF FLORIDA Commission Number CC612535
My Commission Exp. 1/8/2001
Bonded Through Fla. Notary Service & Bonding Co.
-------------------------------------------------------------------
Page 11 of 11
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
A TRACT OF LAND SITUATED IN SECTION 10, TOWNSHIP 8 SOUTH, RANGE 18 EAST, ALACHUA
COUNTY, FLORIDA, MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCE AT THE S.W. CORNER OF THE AFOREMENTIONED SECTION 10 AND RUN
N.88(degree)24'02"E., ALONG THE SOUTH LINE OF SAID SECTION 10, A DISTANCE OF
792.27 FEET TO A POINT ON THE NEXT DESCRIBED LINE; THENCE RUN
N.00(degree)39'21"W., ALONG THE EAST LINE OF THE WEST 792.16 FEET OF THE S.W.
1/4 OF THE S.W. 1/4 OF SAID SECTION 10, A DISTANCE OF 137.65 FEET TO THE
NORTHERLY RIGHT-OF-WAY LINE OF "OLD STATE ROAD NO. 2" (60 FOOT RIGHT-OF-WAY) AND
THE TRUE POINT OF BEGINNING; THENCE CONTINUE ALONG THE LAST DESCRIBED COURSE, A
DISTANCE OF 165.83 FEET TO A POINT ON THE NEXT DESCRIBED LINE; THENCE RUN
S.77(degree)38'36"E., ALONG THE SOUTHERLY RIGHT-OF-WAY LINE OF STATE ROAD NO.
20-25 (US HIGHWAY 441), A DISTANCE OF 257.24 FEET; THENCE RUN
S.12(degree)17'20"W., A DISTANCE OF 127.94 FEET TO A POINT ON THE NEXT DESCRIBED
LINE; THENCE RUN N.86(degree)19'55"W., ALONG THE AFOREMENTIONED NORTHERLY
RIGHT-OF-WAY LINE OF "OLD STATE ROAD NO. 2", A DISTANCE OF 222.61 FEET TO THE
TRUE POINT OF BEGINNING, CONTAINING 0.800 ACRES, MORE OR LESS.
<PAGE>
EXHIBIT "B"
ADDENDUM
1. Leasehold Improvements/Additional Rent:
Notwithstanding the provisions contained in the Lease to the contrary, the
Landlord agrees to install, at its cost and expense, the following leasehold
improvements:
a.) 800 Amp 120/208V, 3 Phase Electrical Service (Burgess & Dudley)
o 800A Manual Transfer Switch
o (4) 200A panelboards 42 Ckt.
o Main Distribution Panel
b.) City of Alachua Utilities (Transformers to Meter)
c.) Build-out (Phil Hawley)
o Approx. 190 linear feet of walls
o Approx. 2600 sq. ft. lay-in ceiling
o Insulated walls and ceiling
o HVAC System
o Double door
o Light Fixtures
o Freezer branch circuiting
o 10 power poles
The total cost for said leasehold improvements shall not exceed
$80,700.00. Any expenses required by Tenant beyond $80,700.00 shall be paid
by the Tenant. The leasehold improvements shall be repaid to the Landlord
over the three (3) year term of the Lease in the form of additional rent, at
a rate of $2,547.50 per month. Said additional rent shall be subject to sales
tax and shall be due on the first day of each month, together with Rent.
1. Leasehold Improvements/Subletting:
a.) Should Tenant desire to relocate during the term of the Lease,
Landlord shall consent to a sublease subject to approving
subtenant's credit worthiness and Tenant's repayment of the balance
due Landlord for leasehold improvements. Tenant, however, shall
continue to remain liable under the Lease for the payment of Rent.
b.) Should Tenant relocate onto Landlord's additional property, Landlord
agrees to release Tenant from its obligations under this lease upon
the final payment of the balance due and owing Landlord for all
leasehold improvements. The date for said release shall be upon the
closing or relocation of Tenant onto Landlord's additional property.
<PAGE>
Exhibit 10.12
COMMERCIAL LEASE AGREEMENT
STATE OF GEORGIA
COUNTY OF FULTON
THIS LEASE AGREEMENT, is, made and entered into this 1st day of Nov, 1999
by and between Charles P. Garrison (hereinafter referred to as "Lessor") and
Georgia Tissue Bank (hereinafter referred to as "Lessee");
W I T N E S S E T H:
1. Premises. Lessor, for and in consideration of the rents, covenants,
agreements and stipulations hereinafter mentioned, reserved and contained to be
paid, kept and performed by Lessor, has leased and rented and by these presents
does lease and rent unto Lessee, and Lessee hereby agrees to lease and take upon
the terms and conditions which hereinafter appear, the following described
property (hereinafter called "premises"), to-wit;
The entire building which is represented by the attached floor plan
at Exhibit A representing a 9.275 square building known as 120-138
Hammond Drive, and the parking spaces and common areas appurtenant
thereto.
2. Term. To have and to hold the same for a term beginning on the 1st day
of November, 1999 and terminating at 12:00 Midnight on October 31, 2002, unless
sooner terminated as hereinafter provided.
3. Rental. Lessee agrees to pay to Lessor promptly on the 1st day of each
month in advance during the term of this lease a monthly rental of $12,365. Said
monthly rental payments shall be payable to Lessor at such location as Lessor
shall from time to time specify. If the rental is not received by the 10th day
of the month, a 5% delinquency penalty is due.
Schedule 3.11(b)(i)
-1-
<PAGE>
The monthly rental payment for any partial month shall be prorated based
upon the number of days.
The monthly lease payments shall be increased as follows:
November, 2000 through October, 2001 - $12,860
November, 2001 through October, 2002 - $13,374
4. Utility Bills. Lessee shall be responsible for and pay all utilities,
including but not limited to water, sewer, gas, electricity, fuel, telephone,
light and heat bills for the leased premises; and Lessee shall pay all charges
for janitorial, garbage collection services or other sanitary services rendered
to the leased premises or used by Lessee in connection therewith. If Lessee
fails to pay any of said utility bills or charges for garbage collection or
other sanitary services, Lessor may pay the same; and such payment may be added
to the rental of the premises next due as additional rent.
5. Use of the Premises. Premises shall be used for General office space
and/or Laboratory/Medical Facility purposes and no other. Premises shall not be
used for any illegal purposes nor in any manner to create any nuisance or
trespass nor in any manner to vitiate the insurance or increase the rate of
insurance on premiums.
6. Abandonment of Leased Premises. Lessee agrees not to abandon or vacate
the leased premises during the period of this lease and agrees to use said
premises for the purposes herein leased until the expiration hereof.
7. Repairs by Lessor. Lessor agrees to keep in good repair the roof,
foundations and exterior walls of the premises (exclusive of all glass and
exclusive of all exterior doors) and underground utility and sewer pipes outside
the exterior walls of the building, except repairs rendered necessary by the
negligence of Lessee or Lessee's agents, employees or invitees. Lessor gives
Lessee exclusive control over the premises and shall be under no obligation to
inspect said premises. Lessee shall promptly report in writing to Lessor any
defective condition known to Lessee which Lessor is required to repair; and
failure to so
-2-
<PAGE>
report such defects shall make Lessee responsible to Lessor for any liability
incurred by Lessor by reason of such defects.
If Lessor does not within 45 days of written request by Lessee, make
required repairs, Lessee may contract to have such repairs made, provided any
repairs exceeding $7,500 may not be made without Lessor's express written
consent. If Lessor does not pay for such repairs upon presentment of an invoice
after completion of the repairs, Lessee may set-off such amounts against
Lessee's rent obligations.
8. Repairs by Lessee. Lessee accepts the leased premises in their present
condition and as suited for the uses intended by Lessee. Lessee shall,
throughout the initial term of this lease and all renewals hereof, at Lessee's
expense, maintain in good order and repair the leased premises, including the
building and other improvements located thereon except those repairs expressly
required to be made by Lessor. Lessee further agrees to care for the grounds
around the building, including the mowing of grass, paving, care of shrubs and
general landscaping. Lessee agrees to return said premises to Lessor at the
expiration of prior to termination of this lease in as good condition and repair
as when first received, natural wear and tear, damage by storm, fire, lighting,
earthquake or other casualty alone excepted. Elevators, if any, are accepted by
Lessee as in satisfactory operating condition on this date; and Lessee shall, as
Lessee's own expense, maintain said elevators in good operating condition during
the term of this lease and any extensions hereof.
9.1 Taxes and Association Fee. Lessee shall pay as additional rental
during the term of this lease and any extension or renewal thereof, the
association fees and the taxes (including but not limited to ad valorem taxes,
special assessments and any other governmental charges) attributable to the
premises for each tax year. In the event the premises are less than the entire
property, the association fee and taxes for any such year applicable to the
premises shall be determined by proration on the basis that the rental floor
area of the premises bears to the total rentable floor area of the entire
property. Lessee's pro rata portion of the association fee and taxes, as
provided herein, shall be payable on a monthly basis based upon the prior year's
actual association fees or taxes. Such estimated amounts shall be adjusted
annually.
-3-
<PAGE>
9.2 Insurance. Lessee shall, upon demand, pay as additional rental during
the term of this lease and any extension or renewal thereof the property and
casualty insurance on the premises for each tax year.
9.3 Mutual Waiver of Subrogation. The Landlord agrees that he will have
inserted in each property and casualty policy or policies of insurance, which he
may be required to carry (if any), a provision substantially as follows: "It is
hereby stipulated that this insurance shall not be invalidated should the
insured waive in writing prior to a loss any or all right of recovery against
any party for loss occurring to the property described herein" and Landlord
hereby waives, during the term of this lease, any or all rights of recovery
against the Tenant, its officers, employees, and agents for loss occurring to
the premises to the extent that indemnification would be due under such
insurance protection.
Likewise, the Tenant agrees that he will have inserted in each property
and casualty policy or policies of insurance, which it may be required to carry,
(if any), a provision substantially as follows: "It is hereby stipulated that
this insurance shall not be invalidated should the insured waive in writing
prior to a loss any or all right of recovery against any party for loss
occurring to the property described herein" and Tenant does hereby waive, during
the term of this Lease, any and all rights of recovery against the Landlord, its
officers, employees, and agents to the extent that indemnification would be due
under such insurance protection.
10. Destruction of or Damages to Premises. If premises are totally
destroyed by storm, fire, lightning, earthquake or other casualty, this lease
shall terminate as of the date of such destruction; and rental shall be
accounted for as between Lessor and Lessee as of that date. If premises are
damaged but not wholly destroyed by any such casualties, rental shall abate in
such proportion as use of the premises has been destroyed; and Lessor shall
restore premises to substantially the same condition as before damage as
speedily as practicable, whereupon full rental shall recommence.
Notwithstanding the foregoing, if Lessor has not within 6 months restored
the premises to substantially the same condition as before damage, the Lessee
may terminate this lease without being treated as in default.
-4-
<PAGE>
11.1 Indemnity. Lessee agrees to indemnify and save harmless Lessor
against all claims for damages to persons or property by reason of the use or
occupancy of the leased premises and all expenses incurred by Lessor because
thereof, including reasonable attorney's fees and court costs.
11.2 Indemnity. Lessor agrees to indemnify and save harmless Lessee
against all claims for damages to persons or property by reason of the use or
occupancy by Lessor or Lessor's agents of the leased premises and all expenses
incurred by Lessee because thereof, including reasonable attorney's fees and
court costs.
12. Governmental Orders. Lessee agrees, at Lessee's own expense, to
promptly comply with all requirements of any legally constituted public
authority made necessary by reason of Lessee's occupancy of said premises.
Lessor agrees to promptly comply with any such requirements if not made
necessary by reason of Lessee's occupancy. However, it is mutually agreed
between Lessor and Lessee that, if in order to comply with such requirements,
the cost to Lessor or Lessee, as the case may be, shall exceed a sum equal to
one year's rent, then Lessor or Lessee who is obligated to comply with such
requirements is privileged to terminate this lease by giving written notice of
termination to the other party via Certified Mail, Return Receipt Requested,
which termination shall become effective sixty (60) days after receipt of such
notice and which notice shall eliminate the necessity of compliance with such
requirement by party giving such notice unless the party receiving such notice
of termination shall, before such termination becomes effective, pays to the
party giving notice all costs of compliance in excess of one year's rent or
secures the payment of said sum in a manner satisfactory to the party giving
notice.
13. Condemnation. If the whole of the leased premises or such portion
thereof as will make the premises unusable for the purposes herein leased shall
be condemned by any legally constituted authority for any public use or purpose,
then in either of said events the term hereby granted shall cease from the date
when possession thereof is taken by public authorities; and rental shall be
accounted for as between Lessor and Lessee as of said date. Such termination,
however, shall be without prejudice to the rights of either Lessor or Lessee to
recover compensation and damage caused by condemnation from the condemnor. It is
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<PAGE>
further understood and agreed that neither Lessee nor Lessor shall have any
rights in any award made to the other by any condemnation authority
notwithstanding the termination of the lease as herein provided.
14. Assignment and Subletting. Lessee may sublease portions of the leased
premises to others provided such sublessee's operation is a part of the general
operation of Lessee and under the supervision and control of Lessee and provided
such operation is within the purposes for such said premises shall be used.
Except as provided in the preceding sentence, Lessee shall not assign this lease
or any interest hereunder or sublet premises or any part thereof or permit the
use of premises by any party other than Lessee without the prior written consent
of Lessor (not to be unreasonably withheld) endorsed hereon. At the option of
Lessor, Assignee or Lessee shall become directly liable to Lessee for all
obligations of Lessee hereunder; but no sublease or assignment by Lessee shall
relieve Lessee of any liability hereunder.
15. Removal of Fixtures. If Lessee is not in default under this lease,
Lessee may remove all fixtures and equipment which Lessee owns, provided Lessee
repair all damage to premises caused by such removal and provided that Lessee,
at Lessee's expense, return the space to standard office space comparable to
other office space within the leased premises.
16. Cancellation of Lease by Lessor. It is mutually agreed that, in the
event Lessee shall default in the payment of rent, including additional rent
herein reserved, when due and fails to cure said default within five (5) days
after written notice thereof from Lessor; or if Lessee shall be in default in
performing any of the terms or provisions of this lease other than the provision
requiring the payment of rent and fails to cure such default within thirty (30)
days after the date of receipt of written notice of default from Lessor; or if
Lessee is adjudicated bankrupt; or if a permanent receiver is appointed for
Lessee's property and such receiver is not removed within sixty (60) days after
written notice form Lessor to Lessee to obtain such removal; or if, whether
voluntarily or involuntarily, Lessee takes advantage of any debtor relief
proceedings under any present or future law, whereby the rent or any part
thereof is or is proposed to be reduced or payment thereof deferred; or if
Lessee makes an assignment for the benefit of creditors; or if Lessee's effects
should be levied upon or
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<PAGE>
attached under process against Lessee and not satisfied or dissolved within
thirty (30) days after written notice from Lessor to Lessee to obtain
satisfaction thereof; then and in any of said events, Lessor (at Lessor's
option) may at once or within six (6) months thereafter (but only during
continuance of such default or condition), terminate this lease by written
notice to Lessee, whereupon this lease shall end. After an authorized assignment
or subletting of the entire premises covered by this lease, the occurring of any
of the foregoing defaults or events shall affect the lease only if caused by or
happening to the assignee or sublessee. Any notice provided in this Paragraph
may be given by Lessor or Lessor's Attorney. Upon such termination by Lessor,
Lessee will at once surrender possession of the premises to Lessor and remove
all of Lessee's effects therefrom; and Lessor may forthwith re-enter the
premises, repossess same and remove all persons and effect therefrom using such
force as may be necessary without being guilty of trespass, forcible entry,
detainer or other tort.
17. Re-entry by Lessor. Lessor, as Lessee's agent, may (at Lessor's
option), without terminating this lease upon Lessee's breaching this lease,
enter upon and rent the premises at the best price obtainable by reasonable
effort without advertisement and by private negotiations and for any term Lessor
deems proper. Lessee shall be liable to Lessor for the deficiency, if any,
between Lessee's rent hereunder and the price obtained by Lessor on reletting.
18. Exterior Signs. Lessee shall place no signs upon the outside walls or
roof of the leased premises except with the written consent of Lessor. Any and
all signs placed on the premises by Lessee shall be maintained in compliance
with rules and regulations governing such signs; and Lessee shall be responsible
to Lessor for any damages caused by installation, use or maintenance of said
signs. Lessee agrees to repair all damage incident to the removal of said signs
upon removal of same.
19. Entry for Carding. Etc.. Lessor may card premises "For Rent" or "For
Sale" ninety (90) days before the termination of this lease. Lessor or his
agents may enter the premises at reasonable hours to exhibit same to prospective
purchasers or tenants and to make repairs required of Lessor under the terms
hereof.
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<PAGE>
20. Effect of Termination of Lease. No termination of this lease prior to
the normal ending thereof by lapse of time or otherwise shall affect Lessor's
right to collect rent for the period prior to termination thereof.
21. Mortgagee's Rights. Lessee's rights shall be subject to any bona fide
mortgage or deed to secure debt which is now or may hereafter be placed upon the
premises by Lessor.
22. No Estate in Land. This lease shall create the relationship of
landlord and tenant between the parties hereto; and no estate shall pass out of
Lessor. Lessee has only a usufruct not subject to levy and sale and not
assignable by Lessee except by Lessor's consent (not to be unreasonably
withheld).
23. Holding Over. If Lessee remains in possession of premises after the
expiration of the term hereof with Lessor's acquiescence an without any express
agreement of the parties, Lessee shall be a tenant at will at the rental rate in
effect at the end of this lease; and there shall be no renewal of this lease by
operation of law.
24. Attorney's Fees and Homestead. If any rent owing under this lease is
collected by or through an attorney at law, Lessee agrees to pay reasonable
attorney's fees incurred by Lessor. Lessee waives all homestead rights and
exemptions which Lessee may have under the law as against any obligation owing
under this lease. Lessee hereby assigns to Lessor all Lessee's homestead and
exemption.
25. Rights Cumulative. All rights, powers and privileges conferred
hereunder upon parties hereto shall be cumulative but not restrictive to those
given by law.
26. Service of Notice. Lessee hereby appoints as Lessee's agent to receive
service of all dispossessory or distraint proceedings and notices hereunder and
all notices required under this lease, the person in charge of the leased
premises at the time or the person occupying said premises, and if no person is
in charge of or occupying said premises, then such service or notice may be made
by attaching the same on the main entrance to said
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<PAGE>
premises. A copy of all notices under this lease shall also be sent to Lessee's
last-known address if different from said premises.
27. Waiver of Rights. No failure of Lessor to exercise any power given
Lessor hereunder or to insist upon strict compliance by Lessee with Lessee's
obligations hereunder and no custom or practice of the parties at variance with
the terms hereof shall constitute a waiver of Lessor's right to demand exact
compliance with the terms hereof.
28. Time of Essence. Time is of the essence of this lease agreement.
29. Definitions. "Lessor" as used herein shall include first party and
first party's heirs, representatives, assigns, and successors in title to the
premises. "Lessee" shall include second party and second party's heirs and
representatives and, if this lease shall be validly assigned or sublet, shall
include also Lessee assignees or sublessees as to the premises covered by such
assignment or sublease. "Lessor" and "Lessee" shall include male and female,
singular and plural, corporation, partnership or individual as may fit the
particular parties.
30. Security Deposit. Upon execution of this lease, Lessee shall pay a
security deposit in the amount of Twelve Thousand Three Hundred Sixty-Five
Dollars ($12,365.00) to Lessor. Upon termination of this lease and surrender of
the premises by Lessee to Lessor, the security deposit shall be returned to
Lessee, provided that Lessor may hold the security deposit for a period of
thirty (30) days following surrender of possession and may deduct from the
amount refunded any rental due and payable, the costs of repairing any damage or
replacing any damaged portion of the premises and costs of cleaning the premises
if Lessee fails to do so prior to surrender of possession.
31. Special Stipulations. In so far as the following stipulations conflict
with any of the foregoing provisions, the following shall control:
N/A
- --------------------------------------------------------------------------------
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<PAGE>
32. Entire Agreement. This lease contains the entire agreement between the
parties hereto; and no representations, inducements, promises or agreements,
oral or otherwise between the parties and not embodied herein shall be of any
force or effect.
33. Lease Contingent Upon Simultaneous Closing. This lease is void unless
simultaneous with the execution of this lease, the contracts dated November __,
1999 between NTBN-GTB, Inc., Georgia Tissue Bank, Inc. and Dr. Charles P.
Garrison are also consummated.
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<PAGE>
IN WITNESS WHEREOF, the parties have hereunto executed this lease
agreement as of the day and year first above written.
AS TO LESSOR:
SIGNED, SEALED AND DELIVERED /s/ Charles P. Garrison, M.D.
IN THE PRESENCE OF: --------------------------------------
CHARLES P. GARRISON, M.D.
- -----------------------------------
WITNESS
/s/ W. Courtney Lafon [SEAL]
- ----------------------------------- W. Courtney Lafon
NOTARY PUBLIC NOTARY
EXPIRES
GEORGIA
AUG. 27, 2002
PUBLIC
FULTON COUNTY
AS TO LESSEE: GEORGIA TISSUE BANK, INC.
SIGNED, SEALED AND DELIVERED /s/ Jamie M. Groom
IN THE PRESENCE OF: --------------------------------------
By: Jamie M. Groom, PRESIDENT
/s/ [ILLEGIBLE]
- -----------------------------------
WITNESS
/s/ Marsha D. Foreman [SEAL] Marsha D. Foreman
- ----------------------------------- NOTARY PUBLIC Commission # CC747340
NOTARY PUBLIC STATE OF FLORIDA Expires July 12, 2002
BONDED THRU
ATLANTIC BONDING CO., INC.
Guaranty of Lease
All provisions of the above lease and any extension thereto, are fully
guaranteed by Regeneration Technologies, Inc.
REGENERATION TECHNOLOGIES, INC.
SIGNED, SEALED AND DELIVERED /s/ Jamie M. Groom
IN THE PRESENCE OF: --------------------------------------
By: Jamie M. Groom, PRESIDENT
/s/ [ILLEGIBLE]
- -----------------------------------
WITNESS
/s/ Marsha D. Foreman [SEAL] Marsha D. Foreman
- ----------------------------------- NOTARY PUBLIC Commission # CC747340
NOTARY PUBLIC STATE OF FLORIDA Expires July 12, 2002
BONDED THRU
ATLANTIC BONDING CO., INC.
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<PAGE>
Exhibit 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
by and between REGENERATION TECHNOLOGIES, INC., a Florida corporation (the
"Corporation") and JAMES M. GROOMS ("Employee").
WHEREAS, the Corporation is engaged in the business of manufacturing
products from human and animal tissue in Alachua, Florida; and
WHEREAS, the Corporation desires to employ Employee and Employee
desires to accept such employment during the term of this Agreement and upon the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and the
benefits accruing to the parties hereto, the parties agree as follows:
1. Employment. The Corporation hereby agrees to employ Employee, and
Employee hereby agrees to accept such employment, to render services on behalf
of the Corporation as Chief Executive Officer and President. The duties of
Employee shall be those established by the Corporation's Board of Directors from
time to time.
2. Devotion to Employment. During the term of this Agreement,
Employee shall devote his full time on behalf of the Corporation, and he shall
not engage in any other gainful employment without the written consent of the
Corporation; provided, however, that nothing contained herein shall prohibit
Employee from investing or trading in stocks, bonds, commodities or other forms
of investment, including real property.
<PAGE>
3. Term of Agreement. This Agreement shall be effective as of
February 9, 1998, and it shall continue in full force and effect for a period of
five (5) years unless sooner terminated as hereinafter provided.
4. Compensation.
(a) Annual Salary. The Corporation shall pay to Employee as
compensation for his services a salary of One Hundred Ninety-Two Thousand Three
Hundred Ninety-Five Dollars ($192,395.00) per year, payable in equal monthly
installments. Employee's salary shall be reviewed annually by the Corporation's
Board of Directors, at which time Employee's salary may be adjusted as agreed
upon by Corporation's Board of Directors.
(b) Performance Bonus. To provide greater incentive for
Employee by rewarding him with additional compensation, a cash bonus may be paid
to Employee at any time during the year, or after the close of the year, based
upon the performance of the Corporation and the performance of Employee during
such year; provided, however, that the payment of any such bonus and the amount
thereof shall be within the sole discretion of the Corporation's Board of
Directors. In making such determination, the Directors will consider the
following:
(i) The net profits of the Corporation for the year;
(ii) The base salary of Employee;
(iii) Employee's overall performance as an employee of
the Corporation;
(iv) A comparison of Employee's performance with the
performance of the other employees of the Corporation; and
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<PAGE>
(v) Such other matters as may be considered appropriate
by the Directors.
(c) Withholding, FICA, FUTA. Employee's compensation hereunder
shall be subject to, and reduced by, applicable federal income tax withholding
and FICA tax, and any other taxes imposed by law.
5. Fringe Benefits. During the term of this Agreement, Employee
shall be entitled to all fringe benefits offered generally to the Corporation's
managerial employees as established or modified from time to time by the
Corporation, subject always to the rules in effect regarding participation in
such plans. In addition, the Corporation shall obtain and maintain in force
during the term of this Agreement a life insurance policy covering Employee's
life in a face value of not less than one million dollars ($1,000,000.00). The
death benefit of such policy shall be made payable to the beneficiary or
beneficiaries Employee may from time to time designate in writing.
6. Business Expenses. Except as otherwise provided herein, the
Corporation shall pay, either directly or by reimbursement to Employee, such
reasonable and necessary business expenses incurred by him, in the course of his
employment by the Corporation as are consistent with the Corporation's policies
in existence from time to time, subject to such dollar limitations and
verification and record keeping requirements as may be established from time to
time by the Corporation.
7. Vacation Time. Employee shall be entitled to four (4) weeks paid
vacation time each calendar year, prorated in accordance with Corporation
policy. All vacations shall be taken by Employee at such time or times as may be
approved by the Corporation. There
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<PAGE>
will be no carryover of unused vacation time from one year to another, and no
compensation for such unused vacation or sick leave, if any.
8. Time Off. Employee shall be entitled to such time off with pay
for attendance at seminars, courses, meetings and conventions as is authorized
by the Corporation from time to time. The specific seminars, courses, meetings
and conventions to be attended by Employee shall be subject to the Corporation's
prior approval.
9. Automobile. Employee shall provide an automobile for his use in
the conduct of the Corporation's business as a condition of his employment.
During the term of this Agreement, the Corporation shall reimburse Employee for
Employee's use of his automobile and all incidental costs associated therewith
(including, but not limited to, gas, oil, repairs, maintenance, insurance and
car telephone) in the conduct of the Corporation's business based upon the
standard mileage rate as announced from time to time by the Internal Revenue
Service for use in computing deductible costs for operating a passenger
automobile; provided, however, Employee shall be required to submit written
verification to the Corporation of the mileage, destination and purpose of each
trip for which reimbursement is requested pursuant to this Paragraph
10. Termination of Employment.
(a) Voluntary Termination. Employee or the Corporation may
voluntarily terminate Employee's employment with the Corporation (and, except as
otherwise specifically provided hereunder, this Agreement) at any time, by
delivering to the other party written notice of such intention not less than
thirty (30) days prior to the effective date of termination. Notwithstanding the
foregoing, if notice of termination is given by Employee to the Corporation,
then the Corporation shall have the option of advancing the effective date of
such
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<PAGE>
termination to any date after receipt of such notice from Employee, which option
shall be exercised by the Corporation within three (3) business days of receipt
of such notice.
(b) Termination for Cause. The Corporation may immediately
terminate Employee's employment with the Corporation (and, except as otherwise
specifically provided hereunder, this Agreement) for "cause" by giving written
notice (without regard to the thirty (30) day period provided above) of such
termination to Employee specifying the grounds therefor. A termination for
"cause" shall only be for any one or more of the following reasons:
(i) Willfully or negligently damaging the Corporation's
property, business, reputation or goodwill.
(ii) Willfully injuring any employee of the Corporation.
(iii) Willfully injuring any person in the course of the
performance of services for the Corporation.
(iv) Lawfully charged with commission of a felony.
(v) Stealing, dishonesty, fraud or embezzlement.
(vi) Deliberate and continuous neglect of duty.
(vii) Use of alcohol or narcotics to the extent it
prevents, in the sole judgment of the Corporation's Board of Directors,
Employee from effectively performing the duties set forth in Paragraph 1
above.
(viii) Violating the covenants set forth in Paragraphs
11 or 12 of this Agreement.
The decision to terminate Employee's employment for "cause"
shall be made by the Corporation's Board of Directors in its sole discretion.
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<PAGE>
(c) Termination Upon Death, Incompetency or Disability.
Notwithstanding Subparagraph 10(a) above, the Corporation shall have the right
to terminate Employee's employment with the Corporation (and, except as
otherwise specifically provided hereunder, this Agreement) immediately and
without prior written notice to Employee in the event that Employee dies or is
adjudicated incompetent, or is "permanently disabled" as hereinafter defined. As
used herein, the term "permanently disabled" shall mean that Employee is unable
to adequately perform his regular duties hereunder as a result of sickness or
accident and such condition appears to be permanent. The determination of
"permanent disability" shall be made by the Corporation's Board of Directors in
its sole and absolute discretion and its decision shall be final and binding on
Employee unless found to be arbitrary or capricious by a court of competent
jurisdiction.
(d) Performance of Duties During Notice Period. In the event
that either party terminates Employee's employment with the Corporation in
accordance with the terms of Subparagraph 10(a), Employee, if requested by the
Corporation, shall continue to render services hereunder on behalf of the
Corporation for the thirty (30) day period until the effective date of
termination, and shall, in such event, be paid the compensation due him
hereunder for the remainder of such period.
11. Confidential Information. Employee acknowledges and recognizes
that, in connection with the performance of his duties and obligations for the
Corporation, Employee has and will have access to certain confidential
information of the Corporation, including, but not limited to, any intellectual
property of the Corporation, the identity of the Corporation's clients,
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<PAGE>
the identity of prospective clients, the existence of negotiations with
prospective clients of the Corporation, all drawings, records, sketches, models,
financial information, customer information, trade secrets, and trade secrets
relating to services of the Corporation, and products being developed by the
Corporation (the "Confidential Information"). Employee hereby acknowledges that
the maintenance of the confidentiality of the Confidential Information and
restrictions on the use of the Confidential Information is essential to the
Corporation. Employee shall not, at any time, whether during the term of this
Agreement or after the termination of Employee's employment with the Corporation
for any reason whatsoever, divulge or reveal any of the Confidential Information
to any person, party or entity, directly or indirectly. In addition, Employee
shall not utilize any of the Confidential Information for his own benefit, for
the benefit of any subsequent employer or competitor of the Corporation.
Employee shall maintain the Confidential Information in strict confidence and
shall not copy, duplicate or otherwise reproduce, in whole or in part, such
Confidential Information, except as necessary for Employee to perform services
for the Corporation. Upon the termination of Employee's employment by the
Corporation, or at the earlier request of the Corporation, Employee shall
immediately surrender to the Corporation any and all memoranda, records, files
or other documents and any other materials (including photocopies or other
reproductions) containing or relating to the Confidential Information. Employee
shall indemnify and hold the Corporation harmless from any loss, damage,
expense, cost or liability arising out of any unauthorized use or disclosure of
the Confidential Information by Employee. The provisions of this Paragraph 11
shall survive the termination of Employee's employment with the Corporation and
the termination of this Agreement.
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<PAGE>
12. Employee Developments. Employee is aware and understands that,
during the term of Employee's employment with the Corporation or with the
financial and other assistance that may be provided by the Corporation, Employee
may invent, create, develop and improve certain valuable property such as, but
not limited to, patents, trademarks, inventions, other patentable inventions and
other trade secrets and formula, where such valuable property is (1) created
during Employee's normal work hours; (2) created using the equipment or
facilities of the Corporation; (3) created by Employee under the supervision or
guidance of the Corporation; or (4) within the field of use which includes human
or animal allograft tissue ("Employee Developments"). Employee agrees that all
Employee Developments that may be developed or produced by Employee during
Employee's employment by the Corporation are and will be the property of the
Corporation, and that Employee further agrees that he will, at the request of
the Corporation, execute such documents as the Corporation may reasonably
request from time to time, to assign and transfer all of the right, title and
interest in Employee Developments that are the property of the Corporation to
the Corporation and he will cooperate with the Corporation in connection with
any patent applications. In this regard, Employee will, at all times, fully
advise and inform the Corporation of all matters that Employee may be developing
or working on while employed by the Corporation. Employee further agrees that
upon the termination of his employment with the Corporation for any reason
whatsoever, he shall immediately deliver and surrender to the Corporation any
and all plans, documents and other materials of any nature relating to Employee
Developments. The Corporation may provide additional compensation to Employee as
consideration for Employee Developments in
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<PAGE>
accordance with any patent policy of the Corporation. The provisions of this
Paragraph 12 shall survive the termination of this Agreement.
13. Limitation of Employment.
(a) In the event of the termination of Employee's employment
with the Corporation by the Corporation for cause (as defined in Subparagraph
10(b) above), Employee agrees that for a period of one (1) year following the
effective date of such termination, he will not engage in any business which
receives, processes, or distributes human tissue within the United States. In
the event of the termination of Employee's employment with the Corporation by
the Corporation without cause, Employee agrees that for a period of one (1) year
following the effective date of such termination, Employee will not engage in
any business which receives, processes, or distributes human tissue (or in any
business that competes with the Corporation) within the United States; provided,
however, that Employee shall then be entitled to a severance payment in the
amount of one (1) times his then-current salary (computed without reference to
shares of stock in the Corporation, fringe benefits, or any other form of
compensation). The Corporation may require Employee to execute a release of
claims against the Corporation as a condition precedent to its obligation to
make the severance payment described herein.
(b) Employee acknowledges that this restrictive covenant is
reasonably necessary to protect the Corporation's legitimate business interests,
which are represented by, among other things, the substantial relationships
between the Corporation and its licensees and tissue sources, as well as the
goodwill established by the Corporation with licensees and tissue sources in the
United States and other countries where the Corporation's products are
manufactured or distributed over a protracted period.
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<PAGE>
(c) Employee recognizes the fact that the Corporation would
not sign this Agreement without the inclusion of this covenant, and Employee
confirms the sufficiency of the consideration received by him, in the form of
employment by the Corporation, in accepting this covenant as a material term of
the Agreement.
(d) The period set forth in subparagraph (a) above will be
tolled during any time in which Employee is in violation of the restrictive
covenant contained in this Paragraph 13, and that period will begin to run again
from the date Employee ceases such violation.
(e) This Paragraph 13 will survive the termination of this
Agreement and the termination of Employee's employment with the Corporation.
14. Remedies For Breach. The parties understand and agree that no
amount of money would adequately compensate the Corporation for damages which
the parties acknowledge would be suffered as a result of a violation by Employee
of the covenants contained in Paragraphs 11, 12 or 13 above, and that,
therefore, the Corporation shall be entitled, upon application to a court of
competent jurisdiction, to obtain injunctive relief to enforce the provisions of
Paragraphs 11, 12 and/or 13, which injunctive relief shall be in addition to any
other rights or remedies available to the Corporation. If such a violation
occurs, Employee shall be responsible for the payment of reasonable attorney's
fees and other costs and expenses incurred by the Corporation in enforcing the
covenants contained in Paragraphs 11, 12 and/or 13 above, whether incurred at
the trial level or in any appellate proceeding. The provisions of this Paragraph
14 shall survive the termination of this Agreement.
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<PAGE>
15. Limitations on Authority. Without the express written consent of
the Corporation's Board of Directors, Employee shall have no authority to do any
of the following:
(a) Pledge the credit of the Corporation or any of its other
employees;
(b) Bind the Corporation under any contract, agreement, note,
mortgage or other obligation, except as provided in the Corporation's Standard
Operating Procedures;
(c) Release or discharge any debt due the Corporation unless
the Corporation has received the full amount thereof; or
(d) Sell, mortgage, transfer or otherwise dispose of any
assets of the Corporation.
Notwithstanding the foregoing, Employee may bind the Corporation under
contracts, agreements, notes, mortgages or other obligations up to a value of
$100,000, provided the approval and signature of either the Corporation's Chief
Operating Officer or Chief Financial Officer is also obtained with respect to
same.
16. Severability. If any provision of this Agreement shall be
declared invalid or unenforceable by a court of competent jurisdiction, the
invalidity or unenforceability of such provision shall not affect the other
provisions hereof, and this Agreement shall be construed and enforced in all
respects as if such invalid or unenforceable provision was omitted.
17. Attorney's Fees and Costs. Except as provided in Paragraph 14
above, in the event a dispute arises between the parties hereto and suit is
instituted, the prevailing party in such litigation shall be entitled to recover
reasonable attorney's fees and other costs and expenses from the nonprevailing
party, whether incurred at the trial level or in any appellate proceeding.
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<PAGE>
18. Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida, and venue for any
legal proceeding or action at law arising out of or construing this Agreement
shall lie in the state courts of Alachua County, Florida, or the United States
District Court for the Northern District of Florida, Gainesville Division.
19. Completeness of Agreement. All understandings and agreements
heretofore made between the parties hereto with respect to the subject matter of
this Agreement are merged into this document which alone fully and completely
expresses their agreement. No change or modification may be made to this
Agreement except by instrument in writing duly executed by the parties hereto
with the same formalities as this document.
20. Notices. Any and all notices or other communications provided
for herein shall be given in writing and shall be hand delivered or sent by
United States mail, postage prepaid, registered or certified, return receipt
requested, addressed as follows:
If to the Corporation:
Regeneration Technologies, Inc.
One Innovation Drive
Alachua, Florida 32615
Attn: Board of Directors - Compensation Committee
If to Employee:
James M. Grooms
5131 NW 76th Lane
Gainesville, Florida 32653
provided, however, that any party may, from time to time, give notice to the
other party of some other address to which notices or other communications to
such party shall be sent, in which
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<PAGE>
event, notices or other communications to such party shall be sent to such
address. Any notice or other communication shall be deemed to have been given
and received hereunder as of the date the same is actually hand delivered or, if
mailed, when deposited in the United States mail, postage prepaid, registered or
certified, return receipt requested.
21. Assignment. Neither party to this Agreement may assign its
rights or obligations hereunder without the prior written consent of the other
party.
22. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the respective parties hereto, their heirs, legal
representatives, successors and permitted assigns.
23. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which shall
constitute but one and the same instrument.
24. Captions. The captions appearing in this Agreement are inserted
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of any provisions of this Agreement or in any way
affect this Agreement.
25. Employee Handbook. Employee agrees to follow and be bound by the
guidelines contained in the Corporation's Employee Handbook, as same may be
modified from time to time.
(Signatures on following page)
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on
this 12th day of February, 1998.
WITNESSES: "CORPORATION"
Regeneration Technologies, Inc.
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
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"EMPLOYEE"
/s/ [ILLEGIBLE] /s/ James M. Grooms
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James M. Grooms
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EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
this 13 day of February, 1998, by and between REGENERATION TECHNOLOGIES, INC., a
Florida corporation (the "Corporation") and RICHARD R. ALLEN ("Employee").
WHEREAS, the Corporation is engaged in the business of manufacturing
products from bone tissue in Alachua, Florida; and
WHEREAS, the Corporation desires to employ Employee and Employee
desires to accept such employment during the term of this Agreement and upon the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and the
benefits accruing to the parties hereto, the parties agree as follows:
1. Employment. The Corporation hereby agrees to employ Employee, and
Employee hereby agrees to accept such employment, to render services on behalf
of the Corporation as Chief Financial Officer. The duties of Employee shall be
those established by the Corporation's Board of Directors, or its officers, from
time to time.
2. Devotion to Employment. During the term of this Agreement,
Employee shall devote his full time on behalf of the Corporation, and Employee
shall not engage in any other gainful employment without the written consent of
the Corporation. Provided, however, that nothing contained herein shall prohibit
Employee from investing or trading in stocks, bonds, commodities or other forms
of investment, including real property.
<PAGE>
3. Term of Agreement. This Agreement shall be effective as of the
date first written above, and it shall continue in full force and effect for a
period of five (5) years unless sooner terminated as hereinafter provided.
4. Compensation.
(a) Annual Salary. The Corporation shall pay to Employee as
compensation for his services a salary of One Hundred Twenty-Five Thousand
Dollars ($125,000.00) per year, payable in equal monthly installments.
Employee's salary shall be reviewed annually by the Corporation's Board of
Directors, at which time Employee's salary may be adjusted as mutually agreed
upon by Employee and the Corporation's Board of Directors.
(b) Performance Bonus. To provide greater incentive for
Employee by rewarding him with additional compensation, a cash bonus may be
paid to Employee at any time during the year, or after the close of the year,
based upon the performance of the Corporation and the performance of Employee
during such year; provided, however, that the payment of any such bonus and
the amount thereof shall be within the sole discretion of the Corporation's
Board of Directors. In making such determination, the Directors will consider
the following:
(i) The net profits of the Corporation for the year;
(ii) The base salary of Employee;
(iii) Employee's overall performance as an employee of
the Corporation;
(iv) A comparison of Employee's performance with the
performance of the other employees of the Corporation; and
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(v) Such other matters as may be considered appropriate
by the Directors.
(c) Stock of the Corporation. The Corporation shall issue to
Employee One Hundred Twenty Thousand (120,000) shares of common stock of the
Corporation (the "Shares"). The Shares shall be issued as described herein only
upon Employee's execution of a Stock Restriction Agreement for Regeneration
Technologies, Inc. (the "Stock Restriction Agreement"), which, inter alia,
restricts the transfer of the Shares and contains certain buy-back provisions
regarding the Shares upon the termination of Employee's employment with the
Corporation.
(d) Withholding, FICA, FUTA. Employee's salary and performance
bonus, if any, shall be subject to, and reduced by, applicable federal income
tax withholding and FICA tax, and any other taxes imposed by law.
5. Fringe Benefits. During the term of this Agreement, Employee
shall be entitled to all fringe benefits offered generally to the Corporation's
managerial employees as established or modified from time to time by the
Corporation, subject always to the rules in effect regarding participation in
such plans. Employee shall not be entitled to any other fringe benefits as a
result of his employment with the Corporation.
6. Business Expenses. Except as otherwise provided herein, the
Corporation shall pay, either directly or by reimbursement to Employee, such
reasonable and necessary business expenses incurred by Employee in the course of
his employment by the Corporation as are consistent with the Corporation's
policies in existence from time to time, subject to such dollar limitations and
verification and record keeping requirements as may be established from time to
time by the Corporation.
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7. Vacation. Employee shall be entitled to four (4) weeks paid
vacation time each calendar year, prorated in accordance with Corporation
policy. All vacations shall be taken by Employee at such time or times as may be
approved by the Corporation. There will be no carryover of unused vacation time
or sick leave from one year to another, and no compensation for such unused
vacation or sick leave, if any.
8. Time Off. Employee shall be entitled to such time off with pay
for attendance at seminars, courses, meetings and conventions as is authorized
by the Corporation from time to time. The specific seminars, courses, meetings
and conventions to be attended by Employee shall be subject to the Corporation's
prior approval.
9. Termination of Employment.
(a) Voluntary Termination. Employee or the Corporation may
voluntarily terminate Employee's employment with the Corporation (and, except as
otherwise specifically provided hereunder, this Agreement) at any time, by
delivering to the other party written notice of such intention not less than
thirty (30) days prior to the effective date of termination. Notwithstanding the
foregoing, if notice of termination is given by Employee to the Corporation,
then the Corporation shall have the option of advancing the effective date of
such termination to any date after receipt of such notice from Employee, which
option shall be exercised by the Corporation within three (3) business days of
receipt of such notice.
(b) Termination for Cause. The Corporation may immediately
terminate Employee's employment with the Corporation (and, except as otherwise
specifically provided hereunder, this Agreement) for "cause" by giving written
notice (without regard to the
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thirty (30) day period provided above) of such termination to Employee
specifying the grounds therefor. A termination for "cause" shall only be for any
one or more of the following reasons:
(i) Willfully or negligently damaging the Corporation's
property, business, reputation or goodwill.
(ii) Willfully injuring any employee of the Corporation.
(iii) Willfully injuring any person in the course of the
performance of services for the Corporation.
(iv) Lawfully charged with commission of a felony.
(v) Stealing, dishonesty, fraud or embezzlement.
(vi) Deliberate and continuous neglect of duty.
(vii) Use of alcohol or narcotics to the extent it
prevents, in the sole judgment of the Corporation's Board of Directors,
Employee from effectively performing the duties set forth in Paragraph 1
above.
(viii) Violating the covenants set forth in Paragraphs
10 or 11 of this Agreement.
The decision to terminate Employee's employment for "cause"
shall be made by the Corporation's Board of Directors in its sole discretion.
(c) Termination Upon Death, Incompetency or Disability.
Notwithstanding Subparagraph 9(a) above, the Corporation shall have the right to
terminate Employee's employment with the Corporation (and, except as otherwise
specifically provided hereunder, this Agreement) immediately and without prior
written notice to Employee in the event that Employee dies, or is adjudicated
incompetent, or is "permanently disabled", as
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hereinafter defined. As used herein, the term "permanently disabled" shall mean
that Employee is unable to adequately perform his regular duties hereunder as a
result of sickness or accident and such condition appears to be permanent. The
determination of "permanent disability" shall be made by the Corporation's Board
of Directors in its sole and absolute discretion and its decision shall be final
and binding on Employee unless found to be arbitrary or capricious by a court of
competent jurisdiction.
(d) Performance of Duties During Notice Period. In the event
that Employee terminates Employee's employment with the Corporation in
accordance with the terms of Subparagraph 9(a), Employee, if requested by the
Corporation, shall continue to render services hereunder on behalf of the
Corporation for the thirty (30) day period until the effective date of
termination, and shall, in such event, be paid the compensation due Employee
hereunder for the remainder of such period.
10. Confidential Information. Employee acknowledges and recognizes
that, in connection with the performance of Employee's duties and obligations
for the Corporation, Employee has and will have access to certain confidential
information of the Corporation, including, but not limited to, any intellectual
property of the Corporation, the identity of the Corporation's clients, the
identity of prospective clients, the existence of negotiations with prospective
clients of the Corporation, all drawings, records, sketches, models, financial
information, customer information, trade secrets, and trade secrets relating to
services of the Corporation, and products being developed by the Corporation
(the "Confidential Information"). Employee hereby acknowledges that the
maintenance of the confidentiality of the Confidential Information and
restrictions on the use of the Confidential Information is essential to the
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Corporation. Employee shall not, at any time, whether during the term of this
Agreement or after the termination of Employee's employment with the Corporation
for any reason whatsoever, divulge or reveal any of the Confidential Information
to any person, party or entity, directly or indirectly. In addition, Employee
shall not utilize any of the Confidential Information for Employee's own
benefit, or for the benefit of any subsequent employer or competitor of the
Corporation. Employee shall maintain the Confidential Information in strict
confidence and shall not copy, duplicate or otherwise reproduce, in whole or in
part, such Confidential Information, except as necessary for Employee to perform
services for the Corporation. Upon the termination of Employee's employment by
the Corporation, or at the earlier request of the Corporation, Employee shall
immediately surrender to the Corporation any and all memoranda, records, files
or other documents and any other materials (including photocopies or other
reproductions) containing or relating to the Confidential Information. Employee
shall indemnify and hold the Corporation harmless from any loss, damage,
expense, cost or liability arising out of any unauthorized use or disclosure of
the Confidential Information by Employee. The provisions of this Paragraph 10
shall survive the termination of Employee's employment with the Corporation and
the termination of this Agreement.
11. Employee Developments. Employee is aware and understands that,
during the term of Employee's employment with the Corporation or with the
financial and other assistance that may be provided by the Corporation, Employee
may invent, create, develop and improve certain valuable property such as, but
not limited to, patents, trademarks, inventions, other patentable inventions and
other trade secrets and formula, where such valuable property is (1) created
during Employee's normal work hours; (2) created using the equipment or
facilities
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of the Corporation; (3) created by Employee under the supervision or guidance of
the Corporation; or (4) within the field of use which includes human or animal
allograft tissue ("Employee Developments"). Employee agrees that all Employee
Developments that may be developed or produced by Employee during Employee's
employment by the Corporation are and will be the property of the Corporation
and that Employee further agrees that he will, at the request of the
Corporation, execute such documents as the Corporation may reasonably request
from time to time, to assign and transfer all of the right, title and interest
in Employee Developments to the Corporation and he will cooperate with the
Corporation in connection with any patent applications. In this regard, Employee
will, at all times, fully advise and inform the Corporation of all matters that
Employee may be developing or working on while employed by the Corporation.
Employee further agrees that upon the termination of his employment with the
Corporation for any reason whatsoever, Employee shall immediately deliver and
surrender to the Corporation any and all plans, documents and other materials of
any nature relating to the Employee Developments. The Corporation may provide
additional compensation to Employee as consideration for Employee Developments
in accordance with any patent policy of the Corporation. The provisions of this
Paragraph 11 shall survive the termination of this Agreement.
12. Limitation of Employment.
(a) In the event of the termination of Employee's employment
with the Corporation either by the Corporation for cause (as defined in
Subparagraph 9(b) above) or voluntarily by Employee, Employee agrees that for a
period of two (2) years following the
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effective date of such termination, Employee will not engage in the tissue
banking business (or in any business that competes with Corporation) within the
Southeastern United States. In the event of the termination of Employee's
employment with the Corporation by the Corporation without cause, Employee
agrees that for a period of one (1) year following the effective date of such
termination, Employee will not engage in the tissue banking business (or in any
business that competes with such business) within the Southeastern United
States. For purposes of this Agreement, the "Southeastern United States" shall
include the following states: Florida, Georgia, Alabama, Mississippi, South
Carolina, North Carolina, Tennessee, Kentucky and Virginia.
(b) Employee acknowledges that this restrictive covenant is
reasonably necessary to protect the Corporation's legitimate business interests,
which are represented by, among other things, the substantial relationships
between the Corporation and its licensees and tissue sources, as well as the
goodwill established by the Corporation with licensees and tissue sources in the
United States and other countries where the Corporation's tissues are
distributed over a protracted period.
(c) Employee recognizes the fact that the Corporation would
not sign this Agreement without the inclusion of this covenant, and Employee
confirms the sufficiency of the consideration received by Employee, in the form
of employment by the Corporation, in accepting this covenant as a material term
of the Agreement.
(d) The parties acknowledge and agree that no amount of money
would adequately compensate the Corporation for damages which the parties
acknowledge would be suffered as a result of the violation of the terms of this
provision by Employee, and they confirm that any such violation would result in
irreparable injury to the Corporation because
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of the reduction in its income caused by the loss of or damage to the aforesaid
relationships. It is agreed that the Corporation will be entitled to specific
performance of this provision, and to injunctive relief, in view of the fact
that the actual harm is not readily ascertainable or compensable by money
damages.
(e) The period set forth in subparagraph (a) above will be
tolled during any time in which Employee is in violation of the restrictive
covenant contained in this Paragraph 12, and that period will begin to run again
from the date Employee ceases such violation.
(f) This Paragraph 12 will survive the termination of this
Agreement and the termination of Employee's employment with the Corporation.
13. Remedies For Breach. It is understood and agreed by the parties
that no amount of money would adequately compensate the Corporation for damages
which the parties acknowledge would be suffered as a result of a violation by
the Employee of the covenants contained in Paragraphs 10, 11 and 12 above, and
that, therefore, the Corporation shall be entitled, upon application to a court
of competent jurisdiction, to obtain injunctive relief to enforce the provisions
of Paragraphs 10, 11 and 12, which injunctive relief shall be in addition to any
other rights or remedies available to the Corporation. If such a violation
occurs, Employee shall be responsible for the payment of reasonable attorney's
fees and other costs and expenses incurred by the Corporation in enforcing the
covenants contained in Paragraphs 10, 11 and 12 above, whether incurred at the
trial level or in any appellate proceeding. The provisions of this Paragraph 13
shall survive the termination of this Agreement.
14. Limitations on Authority. Without the express written consent of
the Corporation's Board of Directors, Employee shall have no authority to do any
of the following:
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(a) Pledge the credit of the Corporation or any of its other
employees;
(b) Bind the Corporation under any contract, agreement, note,
mortgage or other obligation, except as provided in the Corporation's Standard
Operating Procedures;
(c) Release or discharge any debt due the Corporation unless
the Corporation has received the full amount thereof; or
(d) Sell, mortgage, transfer or otherwise dispose of any
assets of the Corporation.
Notwithstanding the foregoing, Employee may bind the Corporation under
contracts, agreements, notes, mortgages or other obligations up to a value of
$500,000, provided the approval and signature of either the Corporation's
President or Chief Operating Officer is also obtained with respect to same.
15. Severability. If any provision of this Agreement shall be
declared invalid or unenforceable by a court of competent jurisdiction, the
invalidity or unenforceability of such provision shall not affect the other
provisions hereof, and this Agreement shall be construed and enforced in all
respects as if such invalid or unenforceable provision was omitted.
16. Attorney's Fees and Costs. Except as provided in Paragraph 13
above, in the event a dispute arises between the parties hereto and suit is
instituted, the prevailing party in such litigation shall be entitled to recover
reasonable attorney's fees and other costs and expenses from the nonprevailing
party, whether incurred at the trial level or in any appellate proceeding.
17. Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida, and venue for any
legal proceeding
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or action at law arising out of or construing this Agreement shall lie in the
state courts of Alachua County, Florida, or the United States District Court for
the Northern District of Florida, Gainesville Division.
18. Completeness of Agreement. All understandings and agreements
heretofore made between the parties hereto with respect to the subject matter of
this Agreement are merged into this document which alone fully and completely
expresses their agreement. No change or modification may be made to this
Agreement except by instrument in writing duly executed by the parties hereto
with the same formalities as this document.
19. Notices. Any and all notices or other communications provided
for herein shall be given in writing and shall be hand delivered or sent by
United States mail, postage prepaid, registered or certified, return receipt
requested, addressed as follows:
If to the Corporation:
University of Florida Tissue Bank, Inc.
One Innovation Drive
Alachua, Florida 32615
Attn: President
If to Employee:
Richard R. Allen
1110 NE Third Street
Gainesville, Florida 32601
provided, however, that any party may, from time to time, give notice to the
other party of some other address to which notices or other communications to
such party shall be sent, in which event, notices or other communications to
such party shall be sent to such address. Any notice or other communication
shall be deemed to have been given and received hereunder as of the date
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the same is actually hand delivered or, if mailed, when deposited in the United
States mail, postage prepaid, registered or certified, return receipt requested.
20. Assignment. Neither party to this Agreement may assign its
rights or obligations hereunder without the prior written consent of the other
party.
21. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the respective parties hereto, their heirs, legal
representatives, successors and permitted assigns.
22. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which shall
constitute but one and the same instrument.
23. Captions. The captions appearing in this Agreement are inserted
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of any provisions of this Agreement or in any way
affect this Agreement.
24. Employee Handbook. Employee agrees to follow and be bound by the
guidelines contained in the Corporation's Employee Handbook, as same may be
modified from time to time.
(Signatures on following page)
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IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date and year set forth above.
WITNESSES: "CORPORATION"
Regeneration Technologies, Inc.
/s/ [ILLEGIBLE] By: /s/ Jamie M. Grooms
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James M. Grooms, President
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"EMPLOYEE"
/s/ [ILLEGIBLE] /s/ Richard R. Allen
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Richard R. Allen
/s/ [ILLEGIBLE]
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Exhibit 10.15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered in this
25th day of November, 1998, by and between REGENERATION TECHNOLOGIES, INC., a
Florida corporation (the "Corporation") having its principal address at 2
Innovation Drive, Alachua, Florida 32615 and Frederick Preiss ("Employee").
WHEREAS, the Corporation operates a tissue processing /
manufacturing facility in Alachua, Florida; and
WHEREAS, the Corporation desires to employ Employee and Employee
desires to accept such employment during the term of this Agreement and upon the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and the benefits
accruing to the parties hereto, the parties agree as follows:
1. Employment. The Corporation hereby agrees to employ Employee, and
Employee hereby agrees to accept such employment, to render services on behalf
of the Corporation as General Manager. The duties of Employee shall be those
established by the Corporation's Board of Directors, or its officers, from time
to time.
2. Devotion to Employment. During the term of this Agreement,
Employee shall devote his full time on behalf of the Corporation, and Employee
shall not engage in any other gainful employment without written consent of the
Corporation; provided, however, that nothing contained herein shall prohibit
Employee from investing or trading in stocks, bonds, commodities or other forms
of investment, including real property.
3. Term of Agreement. The effective date of this Agreement shall be
the
<PAGE>
Subj: Employment Agreement ICO Frederick Preiss
date of this Agreement, and it shall continue in full force and effect for a
period of five (5) years unless sooner terminated as hereinafter provided.
4. Compensation.
(a) Annual Salary. The Corporation shall pay to Employee as
compensation for Employee's services a salary of $125,000 per year, payable in
installments in accordance with the payroll policies of the Corporation in
effect from time to time during the Employment Term. Employee's salary shall be
reviewed annually by the Corporation's Board of Directors, at which time
Employee's salary may be adjusted as mutually agreed upon by Employee and the
Corporation's Board of Directors.
(b) Performance Bonus. To provide greater incentive for
Employee by rewarding him with additional compensation, a cash bonus may be paid
to Employee at any time during the year, or after the close of the year, based
upon the performance of the Corporation and the performance of Employee during
such year; provided, however, that the payment of any such bonus and the amount
thereof shall be within the sole discretion of the Corporation's Board of
Directors. Bonus agreements made as indicated by the initial employment offer
shall be honored provided all conditions and responsibilities remain the same.
In making bonus determinations, the Directors will consider the following:
(i) The net profit of the Corporation for the year;
(ii) The base salary of Employee;
(iii) Employee's overall performance as an employee of the
Corporation;
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Subj: Employment Agreement ICO Frederick Preiss
(iv) A comparison of Employee's performance with the
performance of the other employees of the Corporation; and
(v) Such other matters as may be considered appropriate by the
Directors.
(c) Stock Options. Employee shall be granted an option to
purchase seventeen thousand five hundred (17,500) shares of common stock of
Regeneration Technologies, Inc. ("RTI") at the exercise price of Six and 25/100
Dollars ($6.25) per share, subject to approval of the Board of Directors and
subject to such vesting and other requirements as are set forth in the Omnibus
Stock Plan, the Employee Restricted Stock Agreement and the Incentive Stock
Option Grant Agreement between RTI and Employee as additional consideration for
services rendered to RTI.
(d) Withholding, FICA, FUTA. Employee's salary and performance
bonus, if any, shall be subject to, and reduced by, applicable federal income
tax withholding and FICA tax, and any other taxes imposed by law.
5. Other Benefits. The Employee shall be entitled to such vacation
days, sick days, insurance and other benefit programs as are established for all
other employees of the Corporation, on the same basis as such other employees
are entitled thereto, it being understood that the establishment, termination,
or change of any such program shall be at the instance of the Company, in
exercise of its sole discretion, from time to time, and any such termination or
change in any such program shall not affect this Agreement.
6. Fringe Benefits. During the term of this Agreement, Employee
shall be
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Subj: Employment Agreement ICO Frederick Preiss
entitled to all fringe benefits offered generally to the Corporation's
managerial employees as established or modified from time to time by the
Corporation, pro-rated based on the percentage of time Employee devotes to the
Corporation, subject always to the rules in effect regarding participation in
such plans. Employee shall not by entitled to any fringe benefits as a result of
his employment with the Corporation.
7. Business Expenses. Except as otherwise provided herein, the
Corporation shall pay, either directly or by reimbursement to Employee, such
reasonable and necessary business expenses incurred by Employee in the course of
his employment by the Corporation as are consistent with the Corporation's
policies in existence from time to time, subject to such dollar limitations and
verification and record keeping requirements as may be established from time to
time by the Corporation.
8. Vacation and Sick Leave. Employee shall be entitled to such paid
vacation time and paid sick leave each year, as shall be authorized by the
Corporation from time to time. All vacations shall be taken by Employee at such
time or times as may be approved by the Corporation. There will be no carryover
of unused vacation time or sick leave from one year to another, and Employee
shall not be entitled to any pay for unused vacation or sick leave.
9. Time Off. Employee shall be entitled to such time off with pay
for attendance at seminars, courses, meetings and conventions as is authorized
by the Corporation from time to time. The specific seminars, courses, meetings
and conventions to be attended by Employee shall be subject to the Corporation's
prior approval.
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Subj: Employment Agreement ICO Frederick Preiss
10. Termination of Employment.
(a) Voluntary Termination. Employee or the Corporation may
voluntarily terminate Employee's employment with the Corporation (and, expect as
otherwise specifically provided hereunder, this Agreement) at any time, by
delivering to the other party written notice of such intention not less than
thirty (30) days prior to the effective date of termination. Notwithstanding the
foregoing, if notice of termination is given by Employee to the Corporation,
then the Corporation shall have the option of advancing the effective date of
such termination to any date after receipt of such notice from Employee, which
option shall be exercised by the Corporation within three (3) business days of
receipt of such notice.
(b) Termination for Cause. The Corporation may immediately terminate
Employee's employment with the Corporation (and, except as otherwise
specifically provided hereunder, this Agreement) for "cause" by giving written
notice (without regard to the thirty (30) day period provided above) of such
termination to Employee specifying the grounds therefor. A termination for
"cause" shall only be for any one or more of the following reasons:
(i) Willfully or negligently damaging the Corporation's
property, business, reputation or goodwill;
(ii) Willfully injuring any employee of the Corporation;
(iii) Willfully injuring any person in the course of the
performance of services for the Corporation;
(iv) Lawfully charged with commission of a felony;
(v) Stealing, dishonesty, fraud or embezzlement;
(vi) Deliberate and continuous neglect of duty;
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<PAGE>
Subj: Employment Agreement ICO Frederick Preiss
(vii) Failure to properly perform Employee's duties;
(viii) Use of alcohol or narcotics to the extent it prevents,
in the sole judgement of the Corporation's Board of Directors, Employee from
effectively performing the duties set forth in Paragraph I above;
(ix) Violating the covenants set forth in Paragraph 11 or 12
of this Agreement.
The decision to terminate Employee's employment for "cause"
shall be made by the Corporation's Board of Directors in its sole discretion.
(c) Termination Upon Death, Incompentency or Disability.
Notwithstanding Subparagraph 9(a) above, the Corporation shall have the right to
terminate Employee's employment with the Corporation (and, expect as otherwise
specifically provided hereunder, this Agreement) immediately and without prior
written notice to Employee in the event that the Employee dies, or is
adjudicated incompetent, or is "permanently disabled", as hereinafter denied. As
used herein, the term "permanently disabled" shall mean that Employee is unable
to adequately perform his regular duties hereunder as a result of sickness or
accident and such condition appears to be permanent. The determination of
"permanent disability" shall be made by the Corporation's Board of Directors in
its sole and absolute discretion and its decision shall be final and binding on
Employee unless found to be arbitrary or capricious by a court of competent
jurisdiction.
(d) Performance of Duties During Notice Period. In the event that
Employee terminates Employee's employment with the Corporation in accordance
with the terms of Subparagraph 9(a), Employee, if requested by the Corporation,
shall continue to render services
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<PAGE>
Subj: Employment Agreement ICO Frederick Preiss
hereunder on behalf of the Corporation for the thirty (30) day period until the
effective date of termination, and shall, in such event, be paid the
compensation due Employee hereunder for the remainder of such period.
11. Confidential Information. Employee acknowledges and recognizes
that, in connection with the performance of Employee's duties and obligations
for the Corporation, Employee has and will have access to certain confidential
information of the Corporation, including, but not limited to, any intellectual
property of the Corporation, the identity of the Corporation's clients, the
identity of prospective clients, the existence of negotiations with prospective
clients of the Corporation, all drawings, records, sketches, models, financial
information, customer information, trade secrets, and trade secrets relating to
services of the Corporation, and products being developed by the Corporation
(the "Confidential Information"). Employee hereby acknowledges that the
maintenance of the confidentiality of the Confidential Information and
restrictions on the use of the Confidential Information is essential to the
Corporation. Employee shall not, at any time, whether during the term of this
Agreement or after the termination of Employee's employment with the Corporation
for any reason whatsoever, divulge or reveal any of the Confidential Information
to any person, party or entity, directly or indirectly. In addition, Employee
shall not utilize any of the Confidential Information for Employee's own
benefit, or for the benefit of any subsequent employer or competitor of the
Corporation. Employee shall maintain the Confidential Information in strict
confidence and shall not copy, duplicate or otherwise reproduce, in whole or in
part, such Confidential Information, except as necessary for Employee to perform
services for the Corporation. Upon the termination of Employee's employment by
the Corporation, or at the earlier request of the
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Subj: Employment Agreement ICO Frederick Preiss
Corporation, Employee shall immediately surrender to the Corporation any and all
memoranda, records, files or other documents and any other materials (including
photocopies or other reproductions) relating to the Confidential Information.
Employee shall indemnify and hold the Corporation harmless from any loss,
damage, expense, cost or liability arising out of any unauthorized use or
disclosure of the Confidential Information by Employee. The provisions of this
Paragraph 11 shall survive the termination of Employee's employment with the
Corporation and the termination of this Agreement.
12. Employee Developments. Employee is aware and understands that
during the term of Employee's employment with the Corporation or with the
financial and other assistance that may be provided by the Corporation, Employee
may invent, create, develop and improve certain valuable property such as, but
not limited to, patents, trademarks, inventions, other patentable inventions and
other trade secrets and formula ("Employee Developments"). Employee agrees that
all Employee Developments that may be developed or produced by Employee during
Employee's employment by the Corporation are and will be the property of the
Corporation and that Employee further agrees that she will, at the request of
the Corporation, execute such documents as the Corporation may reasonably
request from time to time, to assign and transfer all of the right, title and
interest in Employee Developments that are the property of the Corporation to
the Corporation and she will cooperate with the Corporation in connection with
any patent applications. In this regard, Employee will, at all times, fully
advise and inform the Corporation of all matters that Employee may be developing
or working on while employed by the Corporation. Employee further agrees that
upon the termination of her employment with the Corporation for any reason
whatsoever, Employee shall immediately deliver and surrender to
8
<PAGE>
Subj: Employment Agreement ICO Frederick Preiss
the Corporation any and all plans, documents and other materials of any nature
relating to the Employee Developments. The Corporation may provide additional
compensation to Employee as consideration for Employee Developments in
accordance with any patent policy of the Corporation. The provisions of this
Paragraph 12 shall survive the termination of this Agreement.
13. Limitation of Employment.
(a) In the event of the termination of Employee's employment with
the Corporation either by the Corporation for cause (as defined in Subparagraph
10(b) above) or voluntarily by Employee, Employee agrees that for a period of
three (3) years following the effective date of such termination, Employee will
not engage in or be employed by any business which engages in the business of
manufacturing or distributing products from bone tissue in the United States.
(b) In the event of the termination of Employee's employment with
the Corporation by the Corporation without cause, Employee agrees that for a
period of one (1) year following the effective date of such termination,
Employee will not engage in or be employed by any business which engages in the
business of manufacturing or distributing products from bone tissue within the
United States. In the event Employee is terminated by the Corporation without
cause, the Corporation will provide severance compensation to Employee as
follows:
(1) The Corporation provides no severance compensation in the
event of termination prior to the end of four (04) months of full time
employment;
(2) The Corporation provides one month of basic annual salary
if Employee has served five months of full time employment upon termination.
9
<PAGE>
Subj: Employment Agreement ICO Frederick Preiss
(3) The Corporation provides Employee two (2) months of basic
annual salary upon termination, if the Employee has served six (06) full months
of employment, to be paid monthly;
(4) the Corporation provides Employee three (3) months of
basic annual salary if Employee has served at least (08) full months of
employment upon termination, to be paid out monthly;
(5) The Corporation provides Employee four (4) months of basic
annual salary if Employee has served at least (09) months of employment upon
termination, to be paid out monthly;
(6) The Corporation provides Employee five (5) months of basic
annual salary if Employee has served at least (10) months of employment upon
termination, to be paid out monthly;
(7) The Corporation provides Employee six (6) months of basic
annual salary if Employee has served at least (12) months of employment upon
termination, to be paid out monthly.
(b) Employee acknowledges that this restrictive covenant is
reasonably necessary to protect the Corporation's legitimate business interests,
which are represented by, among other things, the substantial relationships
between the Corporation and its licensees and tissue sources, as well as the
goodwill established by the Corporation with licensees and tissue sources in the
United States and other countries where the Corporation's tissues are
distributed over a protracted period.
10
<PAGE>
Subj: Employment Agreement ICO Frederick Preiss
(c) Employee recognizes the fact that the Corporation would not sign
this Agreement without the inclusion of this covenant, and Employee confirms the
sufficiency of the consideration received by Employee, in the form of employment
by the Corporation, in accepting this covenant as a material term of the
Agreement.
(d) It is agreed that the Corporation will be entitled to specific
performance of this provision, and to injunctive relief, in view of the fact
that the actual harm is not readily ascertainable or compensable by money
damages.
(e) The period set forth in subparagraph (a) above will be tolled
during any time in which Employee is in violation of the restrictive covenant
contained in this Paragraph 13, and that period will begin to run again from the
date Employee ceases such violation.
(f) This Paragraph 13 will survive the termination of this Agreement
and the termination of Employee's employment with the Corporation.
14. Remedies For Breach. It is understood and agreed by the parties
that no amount of money would adequately compensate the Corporation for damages
which the parties acknowledge would be suffered as a result of a violation by
the Employee of the covenants contained in Paragraphs 12 and 13 above, and that,
therefore, the Corporation shall be entitled, upon application to a court of
competent jurisdiction, to obtain injunctive relief to enforce the provisions of
Paragraphs 12 and 13, which injunctive relief shall be in addition to any other
rights or remedies available to the Corporation. If such a violation occurs,
Employee shall be responsible for the payment of reasonable attorney's fees and
other costs and expenses incurred by the Corporation in enforcing the covenants
contained in Paragraphs 12 and 13 above, whether
11
<PAGE>
Subj: Employment Agreement ICO Frederick Preiss
incurred at the trial level or in any appellate proceeding. The provisions of
this Paragraph 14 shall survive the termination of this Agreement.
15. Limitations on Authority. Without the express written consent of
the Corporation's Board of Directors, Chief Executive Officer, or the Vice
President of Business Development, Employee shall have no apparent or implied
authority to do any of the following:
(a) Pledge the credit of the Corporation or any of its other
employees;
(b) Bind the Corporation under any contract, agreement, note,
mortgage or other obligation, except in the performance of his/her functional
duties relating to Director, Sales and in conjunction with signature of CEO or
VP of Business Development;
(c) Release or discharge any debt due the Corporation unless
the Corporation has received the full amount thereof; or
(d) Sell, mortgage, transfer or otherwise dispose of any
assets of the Corporation.
16. Severability. If any provision of this Agreement shall be
declared invalid or unenforceable by a court of competent jurisdiction the
invalidity or unenforceability of such provision shall not affect the other
provisions hereof, and this Agreement shall be construed and enforced in all
respects as if such invalid or unenforceable provision was omitted.
17. Attorney's Fees and Costs. Except as provided in Paragraph 14
above, in the event a dispute arises between the parties hereto and suit is
instituted, the prevailing party in such litigation shall be entitled to recover
reasonable attorney's fees and other costs and expenses from the nonprevailing
party, whether incurred at the trial level or in any appellate proceeding.
12
<PAGE>
Subj: Employment Agreement ICO Frederick Preiss
18. Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida, and venue for any
legal proceeding or action at law arising out of or construing this Agreement
shall lie in the state courts of Alachua County, Florida, or the United States
District Court for the Northern District of Florida, Gainesville Division.
19. Completeness of Agreement. All understandings and agreements
heretofore made between the parties hereto with respect to the subject matter of
this Agreement are merged into this document which alone fully and completely
expresses their agreement. No change or modification may be made to this
Agreement except by instrument in writing duly executed by the parties hereto
with the same formalities as this document.
20. Notices. Any and all notices or other communications provided
for herein shall be given in writing and shall be hand delivered or sent by
United States mail, postage prepaid, registered or certified, return receipt
requested, addressed as follows:
If to the Corporation:
Regeneration Technologies, Inc.
Two Innovation Drive
Alachua, Florida 32615
Attn: President
If to Employee:
Frederick Preiss
/s/ Frederick Preiss
------------------------------
------------------------------
13
<PAGE>
Subj: Employment Agreement ICO Frederick Preiss
provided, however, that any party may, from time to time, give notice to the
other party of some other address to which notices or other communications to
such party shall be sent, in which event, notices or other communications to
such party shall be sent to such address. Any notice or other communication
shall be deemed to have been given and received hereunder as of the date the
same is actually hand delivered or, if mailed, when deposited in the United
States mail, postage prepaid, registered or certified, return receipt requested.
21. Assignment. Neither party to this Agreement may assign its
rights or obligations hereunder without the prior written consent of the other
party.
22. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the respective parties hereto, their heirs, legal
representatives, successors and permitted assigns.
23. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which shall
constitute but one and the same instrument.
14
<PAGE>
Subj: Employment Agreement ICO Frederick Preiss
24. Captions. The captions appearing in this Agreement are inserted
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of any provisions of this Agreement or in any way
affect this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date and year set forth above.
WITNESSES: "CORPORATION"
Regeneration Technologies, Inc.
By: /s/ Nancy R. Holland
- ----------------------------------- -------------------------------------
Witness Nancy R. Holland Date
Title: VP Business Development
----------------------------------
"EMPLOYEE"
Frederick Preiss
/S/ ILLEGIBLE By: /s/ Frederick Preiss
- ----------------------------------- -------------------------------------
Witness Frederick Preiss (Signature / Date)
15
<PAGE>
[DRIVERS LICENSE OF FREDERICK PREISS]
[BIRTH CERTIFICATE OF FREDERICK PREISS]
<PAGE>
[LETTERHEAD OF REGENERATION TECHNOLOGIES]
December 8, 1998
Mr. Frederick Preiss
55 Llynwood Drive
Bolton, CT 06043
Dear Fred:
I am pleased to learn that you have verbally accepted our November 25 1998
letter of offer with two modifications. Jamie Grooms has directed me to
outline these modifications as follows:
1. Employee Benefit Program -- RTI will reimburse Mr. Preiss for current
health insurance policies (providing they are not Cobra) during the
initial ninety (90) days of employment.
2. Severance Compensation/Protection - (In addition to standard compensation
package and to be included in employment contract drafted by counsel.) If
during Mr. Preiss' employment the controlling interest(s) of the
corporation should change and, if Mr. Preiss is terminated for any reason
other than cause during the six month period from the date of change of
said control, then Mr. Preiss will be entitled to six (6) months salary
compensation as severance.
We look forward to seeing you on Monday, December l4th. Hotel accommodations
(directions attached) and car rental has been arranged as follows:
LaQuinta Inn. 920 NW 69th Terrace, Gainesville (I-75 & Newberry Road)
Phone # 352-332-6466 / Confirmation # 66912446 / December 13 & 14
Avis Rental Car: Jacksonville Airport; approximately noon
Confirmation #: 3305134US1 - 1 Week at rate of $159-00
Yours truly,
/s/ Kathleen
Kathleen M. Davis
Executive Administator
Enc.
kmd
<PAGE>
Exhibit 10.16
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
15th day of June, 1998, by and between REGENERATION TECHNOLOGIES, INC., a
Florida corporation (the "Corporation") and THOMAS BREWER ("Employee").
WHEREAS, the Corporation is engaged in the business of manufacturing
products from bone tissue in Alachua, Florida; and
WHEREAS, the Corporation desires to employ Employee and Employee desires
to accept such employment during the term of this Agreement and upon the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and the benefits
accruing to the parties hereto, the parties agree as follows:
1. Employment. The Corporation hereby agrees to employ Employee, and
Employee hereby agrees to accept such employment, to render services on behalf
of the Corporation as Director of Marketing. The duties of Employee shall be
those established by the Corporation's Board of Directors, or its officers, from
time to time.
2. Devotion to Employment. During the term of this Agreement, Employee
shall devote his full time on behalf of the Corporation, and Employee shall not
engage in any other gainful employment without the written consent of the
Corporation. Provided, however, that nothing contained herein shall prohibit
Employee from investing or trading in stocks, bonds, commodities or other forms
of investment, including real property.
<PAGE>
3. Term of Agreement. This Agreement shall be effective as of the date
first written above, and it shall continue in full force and effect for a period
of five (5) years unless sooner terminated as hereinafter provided.
4. Compensation.
(a) Annual Salary. The Corporation shall pay to Employee as
compensation for his services a salary of One Hundred Forty-Eight Thousand
Dollars ($148,000.00) per year, payable in equal biweekly installments.
Employee's salary shall be reviewed annually by the Corporation's Board of
Directors, at which time Employee's salary may be adjusted as mutually agreed
upon by Employee and the Corporation's Board of Directors.
(b) Performance Bonus. To provide greater incentive for Employee by
rewarding him with additional compensation, a cash bonus may be paid to Employee
at any time during the year, or after the close of the year, based upon the
performance of the Corporation and the performance of Employee during such year;
provided, however, that the payment of any such bonus and the amount thereof
shall be within the sole discretion of the Corporation's Board of Directors. In
making such determination, the Directors will consider the following:
(i) The net profits of the Corporation for the year;
(ii) The base salary of Employee;
(iii) Employee's overall performance as an employee of
the Corporation;
-2-
<PAGE>
(iv) A comparison of Employee's performance with the
performance of the other employees of the Corporation; and
(v) Such other matters as may be considered appropriate by the
Directors.
The performance bonus described herein, if any, shall not exceed twenty
percent (20%) of Employee's base annual salary.
(c) Stock of the Corporation. The Corporation shall issue to
Employee the option to purchase Forty-Five Thousand (45,000) shares of common
stock of the Corporation (the "Shares") at a price and on the terms set forth in
the "Regeneration Technologies, Inc. Omnibus Stock Plan." The Shares shall be
issued as described therein only upon Employee's execution of a Stock
Restriction Agreement for Regeneration Technologies, Inc. (the "Stock
Restriction Agreement"), which, inter alia restricts the transfer of the Shares
and contains certain buy-back provisions regarding the Shares upon the
termination of Employee's employment with the Corporation.
(d) Withholding, FICA, FUTA. Employee's salary and performance
bonus, if any, shall be subject to, and reduced by, applicable federal income
tax withholding and FICA tax, and any other taxes imposed by law.
5. Fringe Benefits. During the term of this Agreement, Employee shall be
entitled to all fringe benefits offered generally to the Corporation's
managerial employees as established or modified from time to time by the
Corporation, subject always to the rules in effect regarding participation in
such plans. Notwithstanding the foregoing, Employee shall not be entitled to
receive health insurance, life insurance, or long term disability insurance
-3-
<PAGE>
until the three month waiting period, commencing on Employee's first day of
performance hereunder, has expired. During such three month waiting period, the
Corporation shall reimburse Employee for his actual out-of-pocket expenses
incurred in maintaining his pre-existing health, life, and long term disability
coverages, if any. Employee shall not be entitled to any other fringe benefits
as a result of his employment with the Corporation.
6. Business Expenses. Except as otherwise provided herein, the Corporation
shall pay, either directly or by reimbursement to Employee, such reasonable and
necessary business expenses incurred by Employee in the course of his employment
by the Corporation as are consistent with the Corporation's policies in
existence from time to time, subject to such dollar limitations and verification
and record keeping requirements as may be established from time to time by the
Corporation.
7. Vacation. Employee shall be entitled to four (4) weeks paid vacation
time each calendar year, prorated in accordance with Corporation policy. All
vacations shall be taken by Employee at such time or times as may be approved by
the Corporation. There will be no carryover of unused vacation time or sick
leave from one year to another, and no compensation for such unused vacation or
sick leave, if any.
8. Time Off. Employee shall be entitled to such time off with pay for
attendance at seminars, courses, meetings and conventions as is authorized by
the Corporation from time to time. The specific seminars, courses, meetings and
conventions to be attended by Employee shall be subject to the Corporation's
prior approval.
9. Termination of Employment.
-4-
<PAGE>
(a) Voluntary Termination. Employee or the Corporation may
voluntarily terminate Employee's employment with the Corporation (and, except as
otherwise specifically provided hereunder, this Agreement) at any time, by
delivering to the other party written notice of such intention not less than
thirty (30) days prior to the effective date of termination. Notwithstanding the
foregoing, if notice of termination is given by Employee to the Corporation,
then the Corporation shall have the option of advancing the effective date of
such termination to any date after receipt of such notice from Employee, which
option shall be exercised by the Corporation within three (3) business days of
receipt of such notice.
(b) Termination for Cause. The Corporation may immediately terminate
Employee's employment with the Corporation (and, except as otherwise
specifically provided hereunder, this Agreement) for "cause" by giving written
notice (without regard to the thirty (30) day period provided above) of such
termination to Employee specifying the grounds therefor. A termination for
"cause" shall only be for any one or more of the following reasons:
(i) Willfully or negligently damaging the Corporation's
property, business, reputation or goodwill.
(ii) Willfully injuring any employee of the Corporation.
(iii) Willfully injuring any person in the course of the
performance of services for the Corporation.
(iv) Lawfully charged with commission of a felony.
(v) Stealing, dishonesty, fraud or embezzlement.
(vi) Deliberate and continuous neglect of duty.
-5-
<PAGE>
(vii) Use of alcohol or narcotics to the extent it prevents,
in the sole judgment of the Corporations Board of Directors,
Employee from effectively performing the duties set forth in
Paragraph 1 above.
(viii) Violating the covenants set forth in Paragraphs 10 or
11 of this Agreement.
The decision to terminate Employee's employment for "cause" shall be
made by the Corporation's Board of Directors in its sole discretion.
(c) Termination Upon Death, Incompetency or Disability.
Notwithstanding Subparagraph 9(a) above, the Corporation shall have the right to
terminate Employee's employment with the Corporation (and, except as otherwise
specifically provided hereunder, this Agreement) immediately and without prior
written notice to Employee in the event that Employee dies, or is adjudicated
incompetent, or is "permanently disabled", as hereinafter defined. As used
herein, the term "permanently disabled" shall mean that Employee is unable to
adequately perform his regular duties hereunder as a result of sickness or
accident and such condition appears to be permanent. The determination of
"permanent disability" shall be made by the Corporation's Board of Directors in
its sole and absolute discretion and its decision shall be final and binding on
Employee unless found to be arbitrary or capricious by a court of competent
jurisdiction.
(d) Performance of Duties During Notice Period. In the event that
Employee terminates Employee's employment with the Corporation in accordance
with the terms of Subparagraph 9(a), Employee, if requested by the Corporation,
shall continue to render services hereunder on behalf of the Corporation for the
thirty (30) day period until the
-6-
<PAGE>
effective date of termination, and shall, in such event, be paid the
compensation due Employee hereunder for the remainder of such period.
10. Confidential Information. Employee acknowledges and recognizes that,
in connection with the performance of Employee's duties and obligations for the
Corporation, Employee has and will have access to certain confidential
information of the Corporation, including, but not limited to any intellectual
property of the Corporation, the identity of the Corporation's clients, the
identity of prospective clients, the existence of negotiations with prospective
clients of the Corporation, all drawings, records, sketches, models, financial
information, customer information, trade secrets, and trade secrets relating to
services of the Corporation, and products being developed by the Corporation
(the "Confidential Information"). Employee hereby acknowledges that the
maintenance of the confidentiality of the Confidential Information and
restrictions on the use of the Confidential Information is essential to the
Corporation. Employee shall not, at any time, whether during the term of this
Agreement or after the termination of Employee's employment with the
Corporation for any reason whatsoever, divulge or reveal any of the Confidential
Information to any person, party or entity, directly or indirectly. In addition,
Employee shall not utilize any of the Confidential Information for Employee's
own benefit, or for the benefit of any subsequent employer or competitor of the
Corporation. Employee shall maintain the Confidential Information in strict
confidence and shall not copy, duplicate or otherwise reproduce, in whole or in
part, such Confidential Information, except as necessary for Employee to perform
services for the Corporation. Upon the termination of Employee's employment by
the Corporation, or at the
-7-
<PAGE>
earlier request of the Corporation, Employee shall immediately surrender to the
Corporation any and all memoranda, records, files or other documents and any
other materials (including photocopies or other reproductions) containing or
relating to the Confidential Information. Employee shall indemnify and hold the
Corporation harmless from any loss, damage, expense, cost or liability arising
out of any unauthorized use or disclosure of the Confidential Information by
Employee. The provisions of this Paragraph 10 shall survive the termination of
Employee's employment with the Corporation and the termination of this
Agreement.
11. Employee Developments. Employee is aware and understands that, during
the term of Employee's employment with the Corporation or with the financial and
other assistance that may be provided by the Corporation, Employee may invent,
create, develop and improve certain valuable property such as, but not limited
to, patents, trademarks, inventions, other patentable inventions and other trade
secrets and formula, where such valuable property is (1) created during
Employee's normal work hours; (2) created using the equipment or facilities of
the Corporation; (3) created by Employee under the supervision or guidance of
the Corporation; or (4) within the field of use which includes human or animal
allograft tissue ("Employee Developments"). Employee agrees that all Employee
Developments that may be developed or produced by Employee during Employee's
employment by the Corporation are and will be the property of the Corporation
and that Employee further agrees that he will, at the request of the
Corporation, execute such documents as the Corporation may reasonably request
from time to time, to assign and transfer all of the right, title and interest
in Employee Developments to the Corporation and he will cooperate with the
Corporation in connection with any patent applications. In this regard,
-8-
<PAGE>
Employee will, at all times, fully advise and inform the Corporation of all
matters that Employee may be developing or working on while employed by the
Corporation. Employee further agrees that upon the termination of his employment
with the Corporation for any reason whatsoever, Employee shall immediately
deliver and surrender to the Corporation any and all plans, documents and other
materials of any nature relating to the Employee Developments. The Corporation
may provide additional compensation to Employee as consideration for Employee
Developments in accordance with any patent policy of the Corporation. The
provisions of this Paragraph 11 shall survive the termination of this Agreement.
12. Limitation of Employment.
(a) After nine months of performance hereunder, in the event of the
termination of Employee's employment with the Corporation either by the
Corporation for cause (as defined in Subparagraph 9(b) above) or voluntarily by
Employee, Employee agrees that for a period of two (2) years following the
effective date of such termination, Employee will not engage in any business
which receives, processes, or distributes human tissue (or in any business that
competes with the Corporation) within the United States. In the event of the
termination of Employee's employment with the Corporation by the Corporation
without cause, Employee agrees that for a period of two (2) years following the
effective date of such termination, Employee will not engage in any business
which receives, processes, or distributes human tissue (or in any business that
competes with the Corporation) within the United States; provided, however, that
Employee shall then be entitled to a severance payment in the amount of one-half
(1/2) his then current annual salary (computed without reference to shares of
stock in the Corporation, fringe benefits, or any other form of compensation).
The
-9-
<PAGE>
Corporation may require Employee to execute a release of claims against the
Corporation as a condition precedent to its obligation to make the severance
payment described herein.
(b) During the first nine months of performance hereunder, in the
event of the termination of Employee's employment with the Corporation either by
the Corporation for cause (as defined in Subparagraph 9(b) above) or voluntarily
by Employee, Employee will not engage in the tissue banking business (or in any
business that competes with the Corporation) within the United States, subject
to the following terms:
Length of Service Length of Noncompetition Period Severance Amount
- ----------------- ------------------------------- ----------------
0-3 months none none
4-9 months one month for each month of none
service after the third month
In the event of the termination of Employee's employment with the
Corporation by the Corporation without cause, Employee will not engage in the
tissue banking business (or in any business that competes with the Corporation)
within the United States, subject to the following terms:
Length of Service Length of Noncompetition Period Severance Amount
- ----------------- ------------------------------- ----------------
0-3 months none none
4-9 months one month for each month of none
service after the third month
-10-
<PAGE>
The base salary described in this subparagraph shall be computed without
reference to shares of stock in the Corporation, fringe benefits, or any other
form of compensation. The Corporation may require Employee to execute a release
of claims against the Corporation as a condition precedent to its obligation to
make the severance payment described herein.
(c) Employee acknowledges that this restrictive covenant is
reasonably necessary to protect the Corporation's legitimate business interests,
which are represented by, among other things, the substantial relationships
between the Corporation and its licensees and tissue sources, as well as the
goodwill established by the Corporation with licensees and tissue sources in the
United States and other countries where the Corporation's tissues are
distributed over a protracted period.
(d) Employee recognizes the fact that the Corporation would not sign
this Agreement without the inclusion of this covenant, and Employee confirms the
sufficiency of the consideration received by Employee, in the form of employment
by the Corporation, in accepting this covenant as a material term of the
Agreement.
(e) The parties acknowledge and agree that no amount of money would
adequately compensate the Corporation for damages which the parties acknowledge
would be suffered as a result of the violation of the terms of this provision by
Employee, and they confirm that any such violation would result in irreparable
injury to the Corporation because of the reduction in its income caused by the
loss of or damage to the aforesaid relationships. It is agreed that the
Corporation will be entitled to specific performance of this provision, and to
injunctive relief, in view of the fact that the actual harm is not readily
ascertainable or compensable by money damages.
-11-
<PAGE>
(f) The period set forth in subparagraph (a) above will be tolled
during any time in which Employee is in violation of the restrictive covenant
contained in this Paragraph 12, and that period will begin to run again from the
date Employee ceases such violation.
(g) This Paragraph 12 will survive the termination of this Agreement
and the termination of Employee's employment with the Corporation.
13. Remedies For Breach. It is understood and agreed by the parties that
no amount of money would adequately compensate the Corporation for damages which
the parties acknowledge would be suffered as a result of a violation by the
Employee of the covenants contained in Paragraphs 10, 11 and 12 above, and that,
therefore, the Corporation shall be entitled, upon application to a court of
competent jurisdiction, to obtain injunctive relief to enforce the provisions of
Paragraphs 10, 1] and 12. which injunctive relief shall be in addition to any
other rights or remedies available to the Corporation. If such a violation
occurs, Employee shall be responsible for the payment of reasonable attorney's
fees and other costs and expenses incurred by the Corporation in enforcing the
covenants contained in Paragraphs 10, 11 and 12 above, whether incurred at the
trial level or in any appellate proceeding. The provisions of this Paragraph 13
shall survive the termination of this Agreement.
14. Limitations on Authority. Without the express written consent of the
Corporation's Board of Directors, Employee shall have no authority to do any of
the following:
(a) Pledge the credit of the Corporation or any of its other
employees;
-12-
<PAGE>
(b) Bind the Corporation under any contract, agreement, note,
mortgage or other obligation, except as provided in the Corporation's Standard
Operating Procedures;
(c) Release or discharge any debt due the Corporation unless the
Corporation has received the full amount thereof; or
(d) Sell, mortgage, transfer or otherwise dispose of any assets of
the Corporation.
15. Severability. If any provision of this Agreement shall be declared
invalid or unenforceable by a court of competent jurisdiction, the invalidity or
unenforceability of such provision shall not affect the other provisions hereof.
and this Agreement shall be construed and enforced in all respects as if such
invalid or unenforceable provision was omitted.
16. Attorneys Fees and Costs. Except as provided in Paragraph 13 above, in
the event a dispute arises between the parties hereto and suit is instituted,
the prevailing party in such litigation shall be entitled to recover reasonable
attorney's fees and other costs and expenses from the nonprevailing party,
whether included at the trial level or in any appellate proceeding.
17. Governing Law: Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida, and venue for any
legal proceeding or action at law arising out of or construing this Agreement
shall lie in the state courts of Alachua County, Florida, or the United States
District Court For the Northern District of Florida, Gainesville Division.
18. Completeness of Agreement. All understandings and agreements
heretofore made between the parties hereto with respect to the subject matter of
this Agreement
-13-
<PAGE>
are merged into this document which alone fully and completely expresses their
agreement. No change or modification may be made to this Agreement except by
instrument in writing duly executed by the parties hereto with the same
formalities as this document.
19. Notices. Any and all notices or other communications provided for
herein shall be given in writing and shall be hand delivered or sent by United
States mail, postage prepaid, registered or certified, return receipt requested,
addressed as follows:
If to the Corporation:
Regeneration Technologies. Inc.
One Innovation Drive
Alachua, Florida 32615
Attn: President
If to Employee:
Thomas Brewer
4525 SW 96th DRIVE
---------------------
GAINSVILLE, FL 32608
---------------------
provided, however, that any party may, from time to time, give notice to the
other party of some other address to which notices or other communications to
such party shall be sent, in which event, notices or other communications to
such party shall be sent to such address. Any notice or other communication
shall be deemed to have been given and received hereunder as of the date
the same is actually hand delivered or, if mailed, when deposited in the United
States mail, postage prepaid, registered or certified, return receipt requested.
20. Assignment. Neither party to this Agreement may assign its rights or
obligations hereunder without the prior written consent of the other party.
-14-
<PAGE>
21. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the respective parties hereto, their heirs, legal representatives,
successors and permitted assigns.
22. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, and all of which shall constitute but
one and the same instrument.
23. Captions. The captions appearing in this Agreement are inserted only
as a matter of convenience and in no way define, limit, construe or describe
the scope or intent of any provisions of this Agreement or in any way affect
this Agreement.
24. Employee Handbook. Employee agrees to follow and be bound by the
guidelines contained in the Corporation's Employee Handbook, as same may be
modified from time to time.
(Signatures on following page)
-15-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date and year set forth above.
WITNESSES: "CORPORATION"
Regeneration Technologies, Inc.
[ILLEGIBLE] /s/ James M. Grooms
- ----------------------- --------------------------------
James M. Grooms, President
- -----------------------
"EMPLOYEE"
[ILLEGIBLE] /s/ Thomas Brewer
- ----------------------- --------------------------------
Thomas Brewer
- -----------------------
-16-
<PAGE>
Exhibit 10.17
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered in this
day of November, 1998, by and between REGENERATION TECHNOLOGIES, INC., a Florida
corporation (the "Corporation") having its principal address at 2 Innovation
Drive, Alachua, Florida 32615 and James P. Abraham ("Employee").
WHEREAS, the Corporation operates a tissue processing / manufacturing
facility in Alachua, Florida; and
WHEREAS, the Corporation desires to employ Employee and Employee desires
to accept such employment during the term of this Agreement and upon the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and the benefits
accruing to the parties hereto, the parties agree as follows:
1. Employment. The Corporation hereby agrees to employ Employee, and
Employee hereby agrees to accept such employment, to render services on behalf
of the Corporation as Director of Sales. The duties of Employee shall be those
established by the Corporation's Board of Directors, or its officers, from time
to time.
2. Devotion to Employment. During the term of this Agreement,
Employee shall devote his full time on behalf of the Corporation, and Employee
shall not engage in any other gainful employment without written consent of the
Corporation; provided, however, that nothing contained herein shall prohibit
Employee from investing or trading in stocks, bonds, commodities or other forms
of investment, including real property.
3. Term of Agreement. The effective date of this Agreement shall be
the
<PAGE>
Subj: Employment Agreement ICO James P. Abraham
date of this Agreement, and it shall continue in full force and effect for a
period of five (5) years unless sooner terminated as hereinafter provided.
4. Compensation.
(a) Annual Salary. The Corporation shall pay to Employee as
compensation for Employee's services a salary of $150,000 per year, payable in
installments in accordance with the payroll policies of the Corporation in
effect from time to time during the Employment Term. Employee's salary shall be
reviewed annually by the Corporation's Board of Directors, at which time
Employee's salary may be adjusted as mutually agreed upon by Employee and the
Corporation's Board of Directors.
(b) Performance Bonus. To provide greater incentive for
Employee by rewarding him with additional compensation, a cash bonus may be paid
to Employee at any time during the year, or after the close of the year, based
upon the performance of the Corporation and the performance of Employee during
such year; provided, however, that the payment of any such bonus and the amount
thereof shall be within the sole discretion of the Corporation's Board of
Directors. The Corporation may offer a quarterly incentive consideration as a
percentage of the sales of the Corporation. Bonus agreements made as indicated
by the initial employment offer shall be honored provided all conditions and
responsibilities remain the same. In making bonus determinations, the Directors
will consider the following:
(i) The net profit of the Corporation for the year;
(ii) The base salary of Employee;
(iii) Employee's overall performance as an employee of
the Corporation;
2
<PAGE>
Subj: Employment Agreement ICO James P. Abraham
(iv) A comparison of Employee's performance with the
performance of the other employees of the Corporation; and
(v) Such other matters as may be considered appropriate
by the Directors.
(c) Stock Options. Employee shall be granted an option to
purchase seventeen thousand (17,000) shares of common stock of Regeneration
Technologies, Inc. ("RTI") at the exercise price of Six and 25/100 Dollars
($6.25) per share, subject to approval of the Board of Directors and subject to
such vesting and other requirements as are set forth in the Omnibus Stock Plan,
the Employee Restricted Stock Agreement and the Incentive Stock Option Grant
Agreement between RTI and Employee as additional consideration for services
rendered to RTI.
(d) Withholding, FICA, FUTA. Employee's salary and performance
bonus, if any, shall be subject to, and reduced by, applicable federal income
tax withholding and FICA tax, and any other taxes imposed by law.
5. Other Benefits. The Employee shall be entitled to such vacation
days, sick days, insurance and other benefit programs as are established for all
other employees of the Corporation, on the same basis as such other employees
are entitled thereto, it being understood that the establishment, termination,
or change of any such program shall be at the instance of the Company, in
exercise of its sole discretion, from time to time, and any such termination or
change in any such program shall not affect this Agreement.
6. Fringe Benefits. During the term of this Agreement, Employee
shall be
3
<PAGE>
Subj: Employment Agreement ICO James P. Abraham
entitled to all fringe benefits offered generally to the Corporation's
managerial employees as established or modified from time to time by the
Corporation, pro-rated based on the percentage of time Employee devotes to the
Corporation, subject always to the rules in effect regarding participation in
such plans. Employee shall not by entitled to any fringe benefits as a result of
his employment with the Corporation.
7. Business Expenses. Except as otherwise provided herein, the
Corporation shall pay, either directly or by reimbursement to Employee, such
reasonable and necessary business expenses incurred by Employee in the course of
his employment by the Corporation as are consistent with the Corporation's
policies in existence from time to time, subject to such dollar limitations and
verification and record keeping requirements as may be established from time to
time by the Corporation.
8. Vacation and Sick Leave. Employee shall be entitled to such paid
vacation time and paid sick leave each year, as shall be authorized by the
Corporation from time to time. All vacations shall be taken by Employee at such
time or times as may be approved by the Corporation. There will be no carryover
of unused vacation time or sick leave from one year to another, and Employee
shall not be entitled to any pay for unused vacation or sick leave.
9. Time Off. Employee shall be entitled to such time off with pay
for attendance at seminars, courses, meetings and conventions as is authorized
by the Corporation from time to time. The specific seminars, courses, meetings
and conventions to be attended by Employee shall be subject to the Corporation's
prior approval.
4
<PAGE>
Subj: Employment Agreement ICO James P. Abraham
10. Termination of Employment.
(a) Voluntary Termination. Employee or the Corporation may
voluntarily terminate Employee's employment with the Corporation (and, expect as
otherwise specifically provided hereunder, this Agreement) at any time, by
delivering to the other party written notice of such intention not less than
thirty (30) days prior to the effective date of termination. Notwithstanding the
foregoing, if notice of termination is given by Employee to the Corporation,
then the Corporation shall have the option of advancing the effective date of
such termination to any date after receipt of such notice from Employee, which
option shall be exercised by the Corporation within three (3) business days of
receipt of such notice.
(b) Termination for Cause. The Corporation may immediately terminate
Employee's employment with the Corporation (and, except as otherwise
specifically provided hereunder, this Agreement) for "cause" by giving written
notice (without regard to the thirty (30) day period provided above) of such
termination to Employee specifying the grounds therefor. A termination for
"cause" shall only be for any one or more of the following reasons:
(i) Willfully or negligently damaging the Corporation's
property, business, reputation or goodwill;
(ii) Willfully injuring any employee of the Corporation;
(iii) Willfully injuring any person in the course of the
performance of services for the Corporation;
(iv) Lawfully charged with commission of a felony;
(v) Stealing, dishonesty, fraud or embezzlement;
(vi) Deliberate and continuous neglect of duty;
5
<PAGE>
Subj: Employment Agreement ICO James P. Abraham
(vii) Failure to properly perform Employee's duties;
(viii) Use of alcohol or narcotics to the extent it prevents,
in the sole judgement of the Corporation's Board of Directors, Employee from
effectively performing the duties set forth in Paragraph 1 above;
(ix) Violating the covenants set forth in Paragraph 11 or 12
of this Agreement.
The decision to terminate Employee's employment for "cause"
shall be made by the Corporation's Board of Directors in its sole discretion.
(c) Termination Upon Death, Incompentency or Disability.
Notwithstanding Subparagraph 9(a) above, the Corporation shall have the right to
terminate Employee's employment with the Corporation (and, expect as otherwise
specifically provided hereunder, this Agreement) immediately and without prior
written notice to Employee in the event that the Employee dies, or is
adjudicated incompetent, or is "permanently disabled", as hereinafter denied. As
used herein, the term "permanently disabled" shall mean that Employee is unable
to adequately perform his regular duties hereunder as a result of sickness or
accident and such condition appears to be permanent. The determination of
"permanent disability" shall be made by the Corporation's Board of Directors in
its sole and absolute discretion and its decision shall be final and binding on
Employee unless found to be arbitrary or capricious by a court of competent
jurisdiction.
(d) Performance of Duties During Notice Period. In the event that
Employee terminates Employee's employment with the Corporation in accordance
with the terms of Subparagraph 9(a), Employee, if requested by the Corporation,
shall continue to render services
6
<PAGE>
Subj: Employment Agreement ICO James P. Abraham
hereunder on behalf of the Corporation for the thirty (30) day period until the
effective date of termination, and shall, in such event, be paid the
compensation due Employee hereunder for the remainder of such period.
11. Confidential Information. Employee acknowledges and recognizes
that, in connection with the performance of Employee's duties and obligations
for the Corporation, Employee has and will have access to certain confidential
information of the Corporation, including, but not limited to, any intellectual
property of the Corporation, the identity of the Corporation's clients, the
identity of prospective clients, the existence of negotiations with prospective
clients of the Corporation, all drawings, records, sketches, models, financial
information, customer information, trade secrets, and trade secrets relating to
services of the Corporation, and products being developed by the Corporation
(the "Confidential Information"). Employee hereby acknowledges that the
maintenance of the confidentiality of the Confidential Information and
restrictions on the use of the Confidential Information is essential to the
Corporation. Employee shall not, at any time, whether during the term of this
Agreement or after the termination of Employee's employment with the Corporation
for any reason whatsoever, divulge or reveal any of the Confidential Information
to any person, party or entity, directly or indirectly. In addition, Employee
shall not utilize any of the Confidential Information for Employee's own
benefit, or for the benefit of any subsequent employer or competitor of the
Corporation. Employee shall maintain the Confidential Information in strict
confidence and shall not copy, duplicate or otherwise reproduce, in whole or in
part, such Confidential Information, except as necessary for Employee to perform
services for the Corporation. Upon the termination of Employee's employment by
the Corporation, or at the earlier request of the
7
<PAGE>
Subj: Employment Agreement ICO James P. Abraham
Corporation, Employee shall immediately surrender to the Corporation any and all
memoranda, records, files or other documents and any other materials (including
photocopies or other reproductions) relating to the Confidential Information.
Employee shall indemnify and hold the Corporation harmless from any loss,
damage, expense, cost or liability arising out of any unauthorized use or
disclosure of the Confidential Information by Employee. The provisions of this
Paragraph 11 shall survive the termination of Employee's employment with the
Corporation and the termination of this Agreement.
12. Employee Developments. Employee is aware and understands that
during the term of Employee's employment with the Corporation or with the
financial and other assistance that may be provided by the Corporation, Employee
may invent, create, develop and improve certain valuable property such as, but
not limited to, patents, trademarks, inventions, other patentable inventions and
other trade secrets and formula ("Employee Developments"). Employee agrees that
all Employee Developments that may be developed or produced by Employee during
Employee's employment by the Corporation are and will be the property of the
Corporation and that Employee further agrees that she will, at the request of
the Corporation, execute such documents as the Corporation may reasonably
request from time to time, to assign and transfer all of the right, title and
interest in Employee Developments that are the property of the Corporation to
the Corporation and she will cooperate with the Corporation in connection with
any patent applications. In this regard, Employee will, at all times, fully
advise and inform the Corporation of all matters that Employee may be developing
or working on while employed by the Corporation. Employee further agrees that
upon the termination of her employment with the Corporation for any reason
whatsoever, Employee shall immediately deliver and surrender to
8
<PAGE>
Subj: Employment Agreement ICO James P. Abraham
the Corporation any and all plans, documents and other materials of any nature
relating to the Employee Developments. The Corporation may provide additional
compensation to Employee as consideration for Employee Developments in
accordance with any patent policy of the Corporation. The provisions of this
Paragraph 12 shall survive the termination of this Agreement.
13. Limitation of Employment.
(a) In the event of the termination of Employee's employment
with the Corporation either by the Corporation for cause (as defined in
Subparagraph 10(b) above) or voluntarily by Employee, Employee agrees that for a
period of three (3) years following the effective date of such termination,
Employee will not engage in or be employed by any business which engages in the
business of manufacturing or distributing products from bone tissue in the
United States.
(b) In the event of the termination of Employee's employment
with the Corporation by the Corporation without cause, Employee agrees that for
a period of one (1) year following the effective date of such termination,
Employee will not engage in or be employed by any business which engages in the
business of manufacturing or distributing products from bone tissue within the
United States. In the event Employee is terminated by the Corporation without
cause, the Corporation will provide severance compensation to Employee as
follows:
(1) The Corporation provides no severance compensation
in the event of termination prior to the end of four (04) months of full time
employment;
(2) The Corporation provides one month of basic annual
salary if Employee has served four months of full time employment upon
termination.
9
<PAGE>
Subj: Employment Agreement ICO James P. Abraham
(3) The Corporation provides Employee two (2) months of
basic annual salary upon termination, if the Employee has served six (06) full
months of employment, to be paid monthly;
(4) the Corporation provides Employee three (3) months
of basic annual salary if Employee has served at least (08) full months of
employment upon termination, to be paid out monthly;
(5) The Corporation provides Employee four (4) months of
basic annual salary if Employee has served at least (09) months of employment
upon termination, to be paid out monthly;
(6) The Corporation provides Employee five (5) months of
basic annual salary if Employee has served at least (10) months of employment
upon termination, to be paid out monthly;
(7) The Corporation provides Employee six (6) months of
basic annual salary if Employee has served at least (12) months of employment
upon termination, to be paid out monthly.
(b) Employee acknowledges that this restrictive covenant is
reasonably necessary to protect the Corporation's legitimate business interests,
which are represented by, among other things, the substantial relationships
between the Corporation and its licensees and tissue sources, as well as the
goodwill established by the Corporation with licensees and tissue sources in the
United States and other countries where the Corporation's tissues are
distributed over a protracted period.
10
<PAGE>
Subj: Employment Agreement ICO James P. Abraham
(c) Employee recognizes the fact that the Corporation would
not sign this Agreement without the inclusion of this covenant, and Employee
confirms the sufficiency of the consideration received by Employee, in the form
of employment by the Corporation, in accepting this covenant as a material term
of the Agreement.
(d) It is agreed that the Corporation will be entitled to
specific performance of this provision, and to injunctive relief in view of the
fact that the actual harm is not readily ascertainable or compensable by money
damages.
(e) The period set forth in subparagraph (a) above will be
tolled during any time in which Employee is in violation of the restrictive
covenant contained in this Paragraph 13, and that period will begin to run again
from the date Employee ceases such violation.
(f) This Paragraph 13 will survive the termination of this
Agreement and the termination of Employee's employment with the Corporation.
14. Remedies For Breach. It is understood and agreed by the parties
that no amount of money would adequately compensate the Corporation for damages
which the parties acknowledge would be suffered as a result of a violation by
the Employee of the covenants contained in Paragraphs 12 and 13 above, and that,
therefore, the Corporation shall be entitled, upon application to a court of
competent jurisdiction, to obtain injunctive relief to enforce the provisions of
Paragraphs 12 and 13, which injunctive relief shall be in addition to any other
rights or remedies available to the Corporation. If such a violation occurs,
Employee shall be responsible for the payment of reasonable attorney's fees and
other costs and expenses incurred by the Corporation in enforcing the covenants
contained in Paragraphs 12 and 13 above, whether
11
<PAGE>
Subj: Employment Agreement ICO James P. Abraham
incurred at the trial level or in any appellate proceeding. The provisions of
this Paragraph 14 shall survive the termination of this Agreement.
15. Limitations on Authority. Without the express written consent of
the Corporation's Board of Directors, Chief Executive Officer, or the Vice
President of Business Development, Employee shall have no apparent or implied
authority to do any of the following:
(a) Pledge the credit of the Corporation or any of its other
employees;
(b) Bind the Corporation under any contract, agreement, note,
mortgage or other obligation, except in the performance of his/her functional
duties relating to Director, Sales and in conjunction with signature of CEO or
VP of Business Development;
(c) Release or discharge any debt due the Corporation unless
the Corporation has received the full amount thereof; or
(d) Sell, mortgage, transfer or otherwise dispose of any
assets of the Corporation.
16. Subject to the terms and conditions set forth herein, RTI
indemnifies Employee if Employee is made a party to any lawsuit initiated by
Encore Orthopedics, Inc. ("Encore") which is based primarily on Employee taking
employment with Regeneration Technologies, Inc. (RTI). This indemnification
covers expenses (including attorneys' fees) actually and reasonably incurred by
Employee in connection with the defense or settlement of such action. In the
event that RTI has the obligation to indemnify Employee under this agreement,
then RTI shall have the right to designate the counsel that will handle the
litigation. RTI will not have a duty to provide indemnification if Employee has
not fully disclosed to RTI his contractual obligations to RTI, or if Employee
breaches any confidentiality arrangements
12
<PAGE>
Subj: Employment Agreement ICO James P. Abraham
(contractual or otherwise) that he has with RTI. It is RTI's understanding that
the only contractual obligation Employee has with Encore regarding employment
with Encore or concerning obligations owed to Encore after his termination of
employment with Encore is the Indemnification Agreement dated August 16, 1995,
the Employment Agreement dated August 17, 1995, and the Severance Agreement
dated September 19, 1995, between Employee and Encore. Employee must disclose to
RTI and, prior to his commencement of employment with RTI, provide RTI with a
copy of those agreements and any other agreements that he has with Encore.
As a condition of RTI's promise to indemnify Employee, Employee agrees not to
take any actions that may be deemed by a reasonable person to breach any
confidentiality agreements you have with Encore. These prohibited actions
include, but are not limited to, making copies of internal, confidential lists
of customers, sales agents or distributors of Encore, removing from Encore any
property of Encore, or disclosing to any current or future employee of RTI any
information that Employee knows to be a trade secret or protected confidential
information of Encore. Employee's failure to fully comply with this condition
will nullify RTI's obligation to indemnify Employee.
17. Severability. If any provision of this Agreement shall be
declared invalid or unenforceable by a court of competent jurisdiction, the
invalidity or unenforceability of such provision shall not affect the other
provisions hereof, and this Agreement shall be construed and enforced in all
respects as if such invalid or unenforceable provision was omitted.
18. Attorney's Fees and Costs. Except as provided in Paragraph 14
above, in
13
<PAGE>
Subj: Employment Agreement ICO James P. Abraham
the event a dispute arises between the parties hereto and suit is instituted,
the prevailing party in such litigation shall be entitled to recover reasonable
attorney's fees and other costs and expenses from the nonprevailing party,
whether incurred at the trial level or in any appellate proceeding.
19. Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida, and venue for any
legal proceeding or action at law arising out of or construing this Agreement
shall lie in the state courts of Alachua County, Florida, or the United States
District Court for the Northern District of Florida, Gainesville Division.
20. Completeness of Agreement. All understandings and agreements
heretofore made between the parties hereto with respect to the subject matter of
this Agreement are merged into this document which alone fully and completely
expresses their agreement. No change or modification may be made to this
Agreement except by instrument in writing duly executed by the parties hereto
with the same formalities as this document.
14
<PAGE>
Subj: Employment Agreement ICO James P. Abraham
21. Notices. Any and all notices or other communications provided
for herein shall be given in writing and shall be hand delivered or sent by
United States mail, postage prepaid, registered or certified, return receipt
requested, addressed as follows:
If to the Corporation:
Regeneration Technologies, Inc.
Two Innovation Drive
Alachua, Florida 32615
Attn: President
If to Employee:
James P. Abraham
404 SW 117th St
GAINSEVILLE, FL
provided, however, that any party may, from time to time, give notice to the
other party of some other address to which notices or other communications to
such party shall be sent, in which event, notices or other communications to
such party shall be sent to such address. Any notice or other communication
shall be deemed to have been given and received hereunder as of the date the
same is actually hand delivered or, if mailed, when deposited in the United
States mail, postage prepaid, registered or certified, return receipt requested.
22. Assignment. Neither party to this Agreement may assign its
rights or obligations hereunder without the prior written consent of the other
party.
23. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the respective parties hereto, their heirs, legal
representatives, successors and permitted assigns.
15
<PAGE>
Subj: Employment Agreement ICO James P. Abraham
24. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which shall
constitute but one and the same instrument.
25. Captions. The captions appearing in this Agreement are inserted
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of any provisions of this Agreement or in any way
affect this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date and year set forth above.
WITNESSES: "CORPORATION"
Regeneration Technologies, Inc.
[ILLEGIBLE] By: /s/ Nancy R. Holland 11/28/98
- ------------------------------- ----------------------------------
Witness Nancy R. Holland Date
Title: VP Bus. Development
-------------------------------
[ILLEGIBLE]
"EMPLOYEE"
James P. Abraham
[ILLEGIBLE] By: /s/ James P. Abraham
- ------------------------------- ----------------------------------
Witness James P. Abraham (Signature/Date)
16
<PAGE>
Proposal for compensation for the position of V.P. Sales:
Salary: $175,000 per year
Car Allowance: $550 per month
Club Dues: Local golf course
Stock Options: 50,000 shares total
Year-End Bonus Program: 15% of salary based on Top Line Revenue achievement
10% of salary based on Profitability Performance
5% of salary based on Expense Budget Performance
Quarterly Override: .2% of sales from dollar one on all sports medicine and oral
maxilliofacial products.
.02% of sales from dollar one on conventional tissue sales.
Presidents discretion: Bonus based on increase in all RTI direct products as a
percentage of overall sales as Compared to SDG sales.
1) Salary is based on current salary as Director of sales of $150k per year
and promotion to V.P. level. This figure is very consistent with salary
ranges of vice presidents in the health care profession. This would be the
current bottom of a range that caps around 5225K.
2) Car allowance is a perk of most sales executives that are entertaining
clients. 3l cents per mile is much less cost effective. I currently have
only utilized this mileage charge if I have traveled over 200 miles.
3) Club dues follow the same path as perks for sales executives. I have been
informed tat we have been paying dues for certain executives at the
Heritage club. It is more effective for us to have a membership at a golf
club for entertaining surgeons and distributors.
4) Stock options bring me in line with other vice presidents and several
directors. My original negotiations were based on outstanding stock of 2
million shares. The current outstanding stock is 4 million, this gives me
just at 1% of current outstanding shares.
5) Bonus Program should reflect every Vice Presidents efforts to achieve
revenue profitability and budget control. I would suggest that we make
this a standard program for all of us and recognize this with stock
options or profit sharing of some type.
6) The president should retain the ability to compensate sales and marketing
executives with a discretionary bonus based on achievements. This is a
personal goal to succeed at a faster rate than Danek.
I have the greatest ability of anyone in the company to affect sales and top
line performance. My compensation is currently heavily weighted towards sales of
all partner products. This seems to have been conceived in an attempt to
justify getting me to an overall compensation dollar amount that we agreed upon
for my hire of 100k in bonus. This is good for me, but may not be in the
companies best interest.
My 1998 total W-2 was over $312,000. W-2 is available for your review. The
current compensation structure is attached for your review. This new
compensation structure enclosed should be very similar to the current
compensation program with the addition of a salary raise.
Coming to work with RTI has been a great career move for me and my family. We
are enjoying Gainesville and appreciate the confidence you have shown in
promoting me to Vice President. We will be successful in developing the company
into the market leader in Allograft\Xenograft tissue.
<PAGE>
<TABLE>
<CAPTION>
Net Sales Net Sales
Product Line Budget Over Base Old Rate New Rate New Incentive Old Incentive
- ------------ ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
MDDowel - SDG 10,910.540 0.100% 10,910.54 13,638 18
SR - SDG 2,313,525 0.100% 2,313.53 2891.91
PLIF - SDG 3,942,720 0.100% 3,942.72 4,928.40
Opteform - Exactech 4,461,275 0.100% 4,461.28 5,576.59
Osteofil - SDG 8,923,599 0.100% 8,923.60 11,154.50
FasLata - Bard 2,049,260 0.100% 2,049.26 2,561.58
Osteofil - RTI 873,738 2.000% 17,474.76 17,474.76
Conventional* 13,000,000 7,000,000 0.212% 14,840.00
Interference Screw 807,040 2% 1.750% 14,123.20 16,141
Maxillofacial 110,400 2% 1.750% 1,932.00 2,208
Cortical Bone Pins 93,000 2% 1.750% 1,627.50 1,860
Suture Anchors 571,200 2% 1.750% 9,996.00 11,424
Fib Shafts & Wedges 965,050 2% 1.750% 16,888.38 19.301
--------------------------------------------------------------------------------------------
49,021,347 109,482.75 109,159.72
============================================================================================
</TABLE>
Incentive based on net sales over base of 500,000/month * 12 months = $6,000,000
UFTB will support the conventional tissue incentive monthly until this tissue
transfers to RTI
/s/ James Abraham
- ------------------
James Abraham
/s/ Nancy Holland
- ------------------
Nancy Holland
/s/ Richard Allen
- ------------------
Richard Allen
/s/ Richard Zahn
- ------------------
Richard Zahn
25-Mar-99
<PAGE>
Regeneration Technologies, Inc.
Incentive Analysis
<TABLE>
<CAPTION>
2nd Half Gross 2nd Half (B) Suggested Adjusted
Product Line Forecast Net Forecast Rate Incentive
- ------------ -------------- ------------ --------- ---------
<S> <C> <C> <C> <C>
MD Dowel - SDG -- 0.00% --
SR - SDG -- 0.00% --
PLIF - SDG -- 0.00% --
Opteform - Exactech 900,180 900,180 0.50% 4,500.90
Osteofil - SOG 6,581,494 2,632,598 0.50% 13,162.99
FasLata - Bard 0.00% --
Conventional - (A) 4,712.975 1,327,556 2.50% 33,188.89
Osteofil - RTI - Italy 304,218 304.218 2.50% 7,605.45
Osteofil - RTI 525,116 406,965 2.50% 10,174.12
Regenaform 160,550 124,426 2.50% 3,110.66
Regenafil 258,060 199,997 2.50% 4,999.91
Interference Screw 514,800 398,970 2.50% 9,974.25
Maxillofacial Screw 65,000 50,375 2.50% 1,259.38
Cortical Bone Pins 101,280 78,492 2.50% 1,962.30
Suture Anchors & Spears 278,000 215,450 2.50% 5,386.25
Fib Shafts & Wedges -- -- 2.50% --
----------
Total Q3 & Q4 95,325.10
Q1 & Q2 Incentive 20,000.00
Total Potential Incentive for Year 115,325.10
==========
</TABLE>
(A) - Incremental over base of 500,000 per month
(B) - 2nd Half forecast is after Mgmt Fees or Distributor Commissions, where
applicable.
/s/ James Abraham July 7, 1999
- -------------------
James Abraham
/s/ Richard Allen July 7, 1999
- -------------------
Richard Allen
/s/ Jamie Grooms July 7, 1999
- -------------------
Jamie Grooms
<PAGE>
Terms of Employment
for
Jim Abraham, Director of Sales
November 3, 1998
Salary: $150,000
Bonus: $15,230
Initially, 1% of estimated fourth quarter 98 RTI sales to be available for down
payment on house
Year 1 - 1% sales, net distribution and management service fees for 1999
Years 2-5 to be determined in concert with salary cap
RTI options
Initially, 17,000 @ $6.25, subject to approval of the board of directors
Additional options will be available at a later date
Employment Agreement
5 years
Indemnification from Encore non-compete
Salary for years 2-5 to include cap to leave combined total of salary and sales
bonus consistent with other executive salaries at RTI.
Transition Incidentals: $5,000
Includes transportation, lodging, meals in relation to finding living quarters
and preparation for house sale
Moving:
AUSTIN - Estimates to be supplied for approval
No more than the actual cost will be reimbursed
Packing, unpacking, insurance, storage, if necessary, vehicle transfer Realtor's
fees @ 6% of sale of home
GAINESVILLE-- Temporary housing up to 90 days for Mr. Abraham. If family is
included in the 90 days temporary housing, Mr. Abraham will pay the difference.
Closing costs and one (1) point towards loan on new home
Please remit receipts for reimbursement of all moving expenses, except the
$5,000 for Transition Incidentals.
In addition to the compensation cited above, Mr. Abraham will be eligible for
the RTI 401 (k) retirement plan, life and health insurance benefits, annual and
sick leave.
<PAGE>
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
by and between REGENERATION TECHNOLOGIES, INC. a Florida for-profit corporation
(the "Corporation") and NANCY R. HOLLAND ("Employee").
WHEREAS, the Corporation is engaged in the business of manufacturing
products from human and animal tissue in Alachua, Florida; and
WHEREAS, the Corporation desires to employ Employee and Employee
desires to accept such employment during the term of this Agreement and upon the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and the
benefits accruing to the parties hereto, the parties agree as follows:
1. Employment. The Corporation hereby agrees to employ Employee, and
Employee hereby agrees to accept such employment, to render services on behalf
of the Corporation as Vice President of Business Development. The duties of
Employee shall be those established by the Corporation's Board of Directors, or
its officers, from time to time.
2. Devotion to Employment. During the term of this Agreement,
Employee shall devote approximately fifty percent (50%) of her time on behalf of
the Corporation, it being understood and agreed between the Corporation and
Employee that Employee shall devote the remaining fifty percent (50%) of her
time on behalf of University of Florida Tissue Bank, Inc. ("Tissue Bank") and
Employee shall not engage in any other gainful employment without the written
consent of the Corporation. Provided, however, that nothing contained herein
shall prohibit Employee from investing or trading in stocks, bonds, commodi-
<PAGE>
ties or other forms of investment, including real property. Employee and
Corporation agree to review, on a semi-annual basis, the actual division of
Employee's time between Corporation and Tissue Bank.
3. Term of Agreement. This Agreement shall be effective as of
February 13, 1998, and it shall continue in full force and effect for a period
of five (5) years unless sooner terminated as hereinafter provided.
4. Compensation.
(a) Annual Salary. The Corporation shall pay to Employee as
compensation for her services a salary of Seventy-Five Thousand Dollars
($75,000.00) per year, payable in equal monthly installments. Employee's salary
shall be reviewed annually by the Corporation's Board of Directors, at which
time Employee's salary may be adjusted as agreed upon by the Corporation's Board
of Directors.
(b) Performance Bonus. To provide greater incentive for
Employee by rewarding her with additional compensation, a cash bonus may be paid
to Employee at any time during the year, or after the close of the year, based
upon the performance of the Corporation and the performance of Employee during
such year; provided, however, that the payment of any such bonus and the amount
thereof shall be within the sole discretion of the Corporation's Board of
Directors. In making such determination, the Directors will consider the
following:
(i) The net profits of the Corporation for the year;
(ii) The base salary of Employee;
-2-
<PAGE>
(iii) Employee's overall performance as an employee of
the Corporation;
(iv) A comparison of Employee's performance with the
performance of the other employees of the Corporation; and
(v) Such other matters as may be considered appropriate
by the Directors.
(c) Stock of the Corporation. The Corporation shall issue to
Employee Two Hundred Twenty Thousand (220,000) shares of common stock of the
Corporation (the "Shares"). The Shares shall be issued as described herein only
upon Employee's execution of a Stock Restriction Agreement for Regeneration
Technologies, Inc. (the "Stock Restriction Agreement"), which, inter alia,
restricts the transfer of the Shares and contains certain buy-back provisions
regarding the Shares upon the termination of Employee's employment with the
Corporation.
(d) Withholding, FICA, FUTA. Employee's salary and performance
bonus, if any, shall be subject to, and reduced by, applicable federal income
tax withholding and FICA tax, and any other taxes imposed by law.
5. Fringe Benefits. During the term of this Agreement, Employee
shall be entitled to all fringe benefits offered generally to the Corporation's
managerial employees as established or modified from time to time by the
Corporation, pro rated based on the percentage of time Employee devotes to the
Corporation, subject always to the rules in effect regarding participation in
such plans. In addition, the Corporation shall obtain and maintain in force
during the term of this Agreement a life insurance policy covering Employee's
life in a
-3-
<PAGE>
face value of not less than one million dollars ($1,000,000.00). The death
benefit of such policy shall be made payable to the beneficiary or beneficiaries
Employee may from time to time designate in writing.
6. Business Expenses. Except as otherwise provided herein, the
Corporation shall pay, either directly or by reimbursement to Employee, such
reasonable and necessary business expenses incurred by Employee in the course
of her employment by the Corporation as are consistent with the Corporation's
policies in existence from time to time, subject to such dollar limitations and
verification and record keeping requirements as may be established from time to
time by the Corporation.
7. Vacation. Employee shall be entitled to two (2) weeks paid
vacation time each year. All vacations shall be taken by Employee at such time
or times as may be approved by the Corporation. There will be no carryover of
unused vacation time or sick leave from one year to another, and no compensation
for such unused vacation or sick leave, if any.
8. Time Off. Employee shall be entitled to such time off with pay
for attendance at seminars, courses, meetings and conventions as is authorized
by the Corporation from time to time. The specific seminars, courses, meetings
and conventions to be attended by Employee shall be subject to the Corporation's
prior approval.
9. Termination of Employment.
(a) Voluntary Termination. Employee or the Corporation may
voluntarily terminate Employee's employment with the Corporation (and, except as
otherwise specifically provided hereunder, this Agreement) at any time, by
delivering to the other party
-4-
<PAGE>
written notice of such intention not less than thirty (30) days prior to the
effective date of termination. Notwithstanding the foregoing, if notice of
termination is given by Employee to the Corporation, then the Corporation shall
have the option of advancing the effective date of such termination to any date
after receipt of such notice from Employee, which option shall be exercised by
the Corporation within three (3) business days of receipt of such notice.
(b) Termination for Cause. The Corporation may immediately
terminate Employee's employment with the Corporation (and, except as otherwise
specifically provided hereunder, this Agreement) for "cause" by giving written
notice (without regard to the thirty (30) day period provided above) of such
termination to Employee specifying the grounds therefor. A termination for
"cause" shall only be for any one or more of the following reasons:
(i) Willfully or negligently damaging the Corporation's
property, business, reputation or goodwill.
(ii) Willfully injuring any employee of the Corporation.
(iii) Willfully injuring any person in the course of the
performance of services for the Corporation.
(iv) Lawfully charged with commission of a felony.
(v) Stealing, dishonesty, fraud or embezzlement.
(vi) Deliberate and continuous neglect of duty.
(vii) Use of alcohol or narcotics to the extent it
prevents, in the sole judgment of the Corporation's Board of Directors,
Employee from effectively performing the duties set forth in Paragraph 1
above.
-5-
<PAGE>
(viii) Violating the covenants set forth in Paragraphs
10 or 11 of this Agreement.
The decision to terminate Employee's employment for "cause"
shall be made by the Corporation's Board of Directors in its sole discretion.
(c) Termination Upon Death, Incompetency or Disability.
Notwithstanding Subparagraph 9(a) above, the Corporation shall have the right to
terminate Employee's employment with the Corporation (and, except as otherwise
specifically provided hereunder, this Agreement) immediately and without prior
written notice to Employee in the event that Employee dies, or is adjudicated
incompetent, or is "permanently disabled", as hereinafter defined. As used
herein, the term "permanently disabled" shall mean that Employee is unable to
adequately perform her regular duties hereunder as a result of sickness or
accident and such condition appears to be permanent. The determination of
"permanent disability" shall be made by the Corporation's Board of Directors in
its sole and absolute discretion and its decision shall be final and binding on
Employee unless found to be arbitrary or capricious by a court of competent
jurisdiction.
(d) Performance of Duties During Notice Period. In the event
that Employee terminates Employee's employment with the Corporation in
accordance with the terms of Subparagraph 9(a), Employee, if requested by the
Corporation, shall continue to render services hereunder on behalf of the
Corporation for the thirty (30) day period until the effective date of
termination, and shall, in such event, be paid the compensation due Employee
hereunder for the remainder of such period.
-6-
<PAGE>
10. Confidential Information. Employee acknowledges and recognizes
that, in connection with the performance of Employee's duties and obligations
for the Corporation, Employee has and will have access to certain confidential
information of the Corporation, including, but not limited to, any intellectual
property of the Corporation, the identity of the Corporation's clients, the
identity of prospective clients, the existence of negotiations with prospective
clients of the Corporation, all drawings, records, sketches, models, financial
information, customer information, trade secrets, and trade secrets relating to
services of the Corporation, and products being developed by the Corporation
(the "Confidential Information"). Employee hereby acknowledges that the
maintenance of the confidentiality of the Confidential Information and
restrictions on the use of the Confidential Information is essential to the
Corporation. Employee shall not, at any time, whether during the term of this
Agreement or after the termination of Employee's employment with the Corporation
for any reason whatsoever, divulge or reveal any of the Confidential Information
to any person, party or entity, directly or indirectly. In addition, Employee
shall not utilize any of the Confidential Information for Employee's own
benefit, or for the benefit of any subsequent employer or competitor of the
Corporation. Employee shall maintain the Confidential Information in strict
confidence and shall not copy, duplicate or otherwise reproduce, in whole or in
part, such Confidential Information, except as necessary for Employee to perform
services for the Corporation. Upon the termination of Employee's employment by
the Corporation, or at the earlier request of the Corporation, Employee shall
immediately surrender to the Corporation any and all memoranda, records, files
or other documents and any other materials (including photocopies or other
reproductions) containing or relating to the Confidential Information.
-7-
<PAGE>
Employee shall indemnify and hold the Corporation harmless from any loss,
damage, expense, cost or liability arising out of any unauthorized use or
disclosure of the Confidential Information by Employee. The provisions of this
Paragraph 10 shall survive the termination of Employee's employment with the
Corporation and the termination of this Agreement.
11. Employee Developments. Employee is aware and understands that,
during the term of Employee's employment with the Corporation or with the
financial and other assistance that may be provided by the Corporation, Employee
may invent, create, develop and improve certain valuable property such as, but
not limited to, patents, trademarks, inventions, other patentable inventions and
other trade secrets and formula, where such valuable property is (1) created
during Employee's normal work hours; (2) created using the equipment or
facilities of the Corporation; (3) created by Employee under the supervision or
guidance of the Corporation; or (4) within the field of use which includes human
or animal allograft tissue ("Employee Developments"). Employee agrees that all
Employee Developments that may be developed or produced by Employee during
Employee's employment by the Corporation are and will be the property of the
Corporation and that Employee further agrees that she will, at the request of
the Corporation, execute such documents as the Corporation may reasonably
request from time to time, to assign and transfer all of the right, title and
interest in Employee Developments to the Corporation and she will cooperate with
the Corporation in connection with any patent applications. In this regard,
Employee will, at all times, fully advise and inform the Corporation of all
matters that Employee may be developing or working on while employed by the
Corporation. Employee
-8-
<PAGE>
further agrees that upon the termination of her employment with the Corporation
for any reason whatsoever, Employee shall immediately deliver and surrender to
the Corporation any and all plans, documents and other materials of any nature
relating to the Employee Developments. The Corporation may provide additional
compensation to Employee as consideration for Employee Developments in
accordance with any patent policy of the Corporation. The provisions of this
Paragraph 11 shall survive the termination of this Agreement.
12. Limitation of Employment.
(a) In the event of the termination of Employee's employment
with the Corporation by the Corporation for cause (as defined in Subparagraph
9(b) above), Employee agrees that for a period of one (1) year following the
effective date of such termination, Employee will not engage any business which
receives, processes, or distributes human tissue within the United States. In
the event of the termination of Employee's employment with the Corporation by
the Corporation without cause, Employee agrees that for a period of one (1) year
following the effective date of such termination, Employee will not engage in
any business which receives, processes, or distributes human tissue within the
United States; provided, however, that Employee shall then be entitled to a
severance payment in the amount of one (1) times Employee's annual salary
(computed without reference to shares of stock in the Corporation, fringe
benefits, or any other form of compensation). The Corporation may require
Employee to execute a release of claims against the Corporation as a condition
precedent to its obligation to make the severance payment described herein.
-9-
<PAGE>
(b) Employee acknowledges that this restrictive covenant is
reasonably necessary to protect the Corporation's legitimate business interests,
which are represented by, among other things, the substantial relationships
between the Corporation and its licensees and tissue sources, as well as the
goodwill established by the Corporation with licensees and tissue sources in the
United States and other countries where the Corporation's tissues are
distributed over a protracted period.
(c) Employee recognizes the fact that the Corporation would
not sign this Agreement without the inclusion of this covenant, and Employee
confirms the sufficiency of the consideration received by Employee, in the form
of employment by the Corporation, in accepting this covenant as a material term
of the Agreement.
(d) The parties acknowledge and agree that no amount of money
would adequately compensate the Corporation for damages which the parties
acknowledge would be suffered as a result of the violation of the terms of this
provision by Employee, and they confirm that any such violation would result in
irreparable injury to the Corporation because of the reduction in its income
caused by the loss of or damage to the aforesaid relationships. It is agreed
that the Corporation will be entitled to specific performance of this provision,
and to injunctive relief, in view of the fact that the actual harm is not
readily ascertainable or compensable by money damages.
(e) The period set forth in subparagraph (a) above will be
tolled during any time in which Employee is in violation of the restrictive
covenant contained in this Paragraph 12, and that period will begin to run again
from the date Employee ceases such violation.
-10-
<PAGE>
(f) This Paragraph 12 will survive the termination of this
Agreement and the termination of Employee's employment with the Corporation.
13. Remedies For Breach. It is understood and agreed by the parties
that no amount of money would adequately compensate the Corporation for damages
which the parties acknowledge would be suffered as a result of a violation by
the Employee of the covenants contained in Paragraphs 10, 11 and 12 above, and
that, therefore, the Corporation shall be entitled, upon application to a court
of competent jurisdiction, to obtain injunctive relief to enforce the provisions
of Paragraphs 10, 11 and 12, which injunctive relief shall be in addition to any
other rights or remedies available to the Corporation. If such a violation
occurs, Employee shall be responsible for the payment of reasonable attorney's
fees and other costs and expenses incurred by the Corporation in enforcing the
covenants contained in Paragraphs 10, 11 and 12 above, whether incurred at the
trial level or in any appellate proceeding. The provisions of this Paragraph 13
shall survive the termination of this Agreement.
14. Limitations on Authority. Without the express written consent of
the Corporation's Board of Directors, Employee shall have no authority to do any
of the following:
(a) Pledge the credit of the Corporation or any of its other
employees;
(b) Bind the Corporation under any contract, agreement, note,
mortgage or other obligation, except as provided in the Corporation's Standard
Operating Procedures;
(c) Release or discharge any debt due the Corporation unless
the Corporation has received the full amount thereof; or
-11-
<PAGE>
(d) Sell, mortgage, transfer or otherwise dispose of any
assets of the Corporation.
Notwithstanding the foregoing, Employee may bind the Corporation under
contracts, agreements, notes, mortgages or other obligations up to a value of
$100,000, provided the approval and signature of either the Corporation's
President or Chief Financial Officer is also obtained with respect to same.
15. Severability. If any provision of this Agreement shall be
declared invalid or unenforceable by a court of competent jurisdiction, the
invalidity or unenforceability of such provision shall not affect the other
provisions hereof, and this Agreement shall be construed and enforced in all
respects as if such invalid or unenforceable provision was omitted.
16. Attorney's Fees and Costs. Except as provided in Paragraph 13
above, in the event a dispute arises between the parties hereto and suit is
instituted, the prevailing party in such litigation shall be entitled to recover
reasonable attorney's fees and other costs and expenses from the nonprevailing
party, whether incurred at the trial level or in any appellate proceeding.
17. Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida, and venue for any
legal proceeding or action at law arising out of or construing this Agreement
shall lie in the state courts of Alachua County, Florida, or the United States
District Court for the Northern District of Florida, Gainesville Division.
18. Completeness of Agreement. All understandings and agreements
heretofore made between the parties hereto with respect to the subject matter of
this Agreement are merged into this document which alone fully and completely
expresses their agreement. No
-12-
<PAGE>
change or modification may be made to this Agreement except by instrument in
writing duly executed by the parties hereto with the same formalities as this
document.
19. Notices. Any and all notices or other communications provided
for herein shall be given in writing and shall be hand delivered or sent by
United States mail, postage prepaid, registered or certified, return receipt
requested, addressed as follows:
If to the Corporation:
Regeneration Technologies, Inc.
One Innovation Drive
Alachua, Florida 32615
Attn: President
If to Employee:
Nancy R. Holland
11530 NW 67th
Alachua, Florida 32615
provided, however, that any party may, from time to time, give notice to the
other party of some other address to which notices or other communications to
such party shall be sent, in which event, notices or other communications to
such party shall be sent to such address. Any notice or other communication
shall be deemed to have been given and received hereunder as of the date the
same is actually hand delivered or, if mailed, when deposited in the United
States mail, postage prepaid, registered or certified, return receipt requested.
20. Assignment. Neither party to this Agreement may assign its
rights or obligations hereunder without the prior written consent of the other
party.
21. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the respective parties hereto, their heirs, legal
representatives, successors and permitted assigns.
-13-
<PAGE>
22. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which shall
constitute but one and the same instrument.
23. Captions. The captions appearing in this Agreement are inserted
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of any provisions of this Agreement or in any way
affect this Agreement.
24. Employee Handbook. Employee agrees to follow and be bound by the
guidelines contained in the Corporation's Employee Handbook, as same may be
modified from time to time.
(Signatures on following page)
-14-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on
this 14th day of December, 1998.
WITNESSES: "CORPORATION"
Regeneration Technologies, Inc.
/s/ [ILLEGIBLE] By: /s/ James M. Grooms
- --------------------------------- ---------------------------------------
James M. Grooms, President
"EMPLOYEE"
/s/ [ILLGIBLE] /s/ Nancy R. Holland
- --------------------------------- ---------------------------------------
Nancy R. Holland
/s/ [ILLEGIBLE]
- ---------------------------------
-15-
<PAGE>
Exhibit 10.19
REGENERATION TECHNOLOGIES, INC.
OMNIBUS STOCK PLAN
1. Establishment, Purpose and Types of Awards
REGENERATION TECHNOLOGIES, INC. (the "Corporation') hereby establishes the
REGENERATION TECHNOLOGIES INC. OMNIBUS STOCK PLAN (the "Plan"). The purpose of
the Plan is to promote the long-term growth and profitability of the Corporation
by (i) providing key people with incentives to improve stockholder value and to
contribute to the growth and financial success of the Corporation, and (ii)
enabling the Corporation to attract, retain and reward the best-available
persons for positions of substantial responsibility.
The Plan permits the granting of stock options (including incentive stock
options qualifying under Code section 422 and nonqualified stock options), stock
appreciation rights, restricted or unrestricted stock awards, phantom stock,
performance awards, or any combination of the foregoing.
2. Definitions
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "Affiliate shall mean any entity, whether now or hereafter existing,
which controls, is controlled by, or is under common control with, the
Corporation (including, but not limited to, joint ventures, limited liability
companies, and partnerships). For this purpose, "control" shall mean ownership
of 50% or more of the total combined voting power or value of all classes of
stock or interests of the entity.
(b) "Award" shall mean any stock option, stock appreciation right, stock
award, phantom stock award, or performance award.
(c) "Board" shall mean the Board of Directors of the Corporation.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended,
regulations promulgated thereunder.
(e) "Common Stock" shall mean shares of the Corporation's Common Stock,
par value of $.001 per share.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "Fair Market Value" of a share of the Corporation's Common Stock for
any purpose on a particular date shall be determined in a manner such as the
Administrator shall in good faith determine to be appropriate; provided that in
the event the Common Stock shall become registered under Section 12 of the
Exchange Act, then thereafter the Fair Market Value of the Corporation's Common
Stock for any purpose on a particular date shall mean the last reported sale
price per share of Common Stock, regular way, on such date or, in case no such
sale takes place on such date, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on a national securities exchange or included for quotation on the
Nasdaq-National Market, or if the Common Stock
<PAGE>
is not so listed or admitted to trading or included for quotation, the last
quoted price, or if the Common Stock is not so quoted, the average of the high
bid and low asked prices, regular way, in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal other
automated quotations system that may then be in use or, if the Common Stock is
not quoted by any such organization, the average of the closing bid and asked
prices, regular way, as furnished by a professional market maker making a market
in the Common Stock as selected in good faith by the Administrator or by such
other source or sources as shall be selected in good faith by the Administrator.
If, as the case may be, the relevant date is not a trading day, the
determination shall be made as of the next preceding trading day. As used
herein, the term "trading day" shall mean a day on which public trading of
securities occurs and is reported in the principal consolidated reporting system
referred to above, or if the Common Stock is not listed or admitted to trading
on a national securities exchange or included for quotation on the
Nasdaq-National Market, any business day.
(h) "Grant Agreement" shall mean a written document memorializing the
terms and conditions of an Award granted pursuant to the Plan and shall
incorporate the terms of the Plan.
(i) "Rule 16b-3" shall mean Rule 16b-3 as in effect under the Exchange Act
on the effective date of the Plan, or any successor provision prescribing
conditions necessary to exempt the issuance of securities under the Plan (and
further transactions in such securities) from Section 16(b) of the Exchange Act.
(j) "Stockholders' Agreement" shall mean the Corporation's Stockholders'
Agreement dated February 12, 1998, as it may be amended and/or restated from
time to time.
3. Administration
(a) Administration of the Plan. The Plan shall be administered by the
Board or by such committee or committees as may be appointed by the Board from
time to time (the Board, committee or committees hereinafter referred to as the
"Administrator").
(b) Powers of the Administrator. The Administrator shall have all the
powers vested in it by the terms of the Plan, such powers to include authority,
in its sole and absolute discretion, to grant Awards under the Plan, prescribe
Grant Agreements evidencing such Awards and establish programs for granting
Awards.
The Administrator shall have full power and authority to take all other
actions necessary to carry out the purpose and intent of the Plan, including,
but not limited to, the authority to: (i) determine the eligible persons to
whom, and the time or times at which Awards shall be granted; (ii) determine the
types of Awards to be granted; (iii) determine the number of shares to be
covered by or used for reference purposes for each Award; (iv) impose such
terms, limitations, restrictions and conditions upon any such Award as the
Administrator shall deem appropriate; (v) modify, amend, extend or renew
outstanding Awards, or accept the surrender of outstanding Awards and substitute
new Awards (provided however, that, except as provided in Section 7(d) of the
Plan, any modification that would materially adversely affect any outstanding
Award shall not be made without the consent of the holder); (vi) accelerate or
otherwise change the time in which an Award may be exercised or becomes payable
and to waive or accelerate the lapse, in whole or in part, of any restriction or
condition with
-2-
<PAGE>
respect to such Award, including, but not limited to, any restriction or
condition with respect to the vesting or exercisability of an Award following
termination of any grantee's employment; and (vii) establish objectives and
conditions, if any, for earning Awards and determining whether Awards will be
paid after the end of a performance period.
The Administrator shall have full power and authority, in its sole and
absolute discretion, to administer and interpret the Plan and to adopt and
interpret such rules, regulations, agreements, guidelines and instruments for
the administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.
(c) Non-Uniform Determinations. The Administrator's determinations under
the Plan (including without limitation, determinations of the persons to receive
Awards, the form, amount and timing of such Awards, the terms and provisions of
such Awards and the Grant Agreements evidencing such Awards) need not be uniform
and may be made by the Administrator selectively among persons who receive, or
are eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
(d) Limited Liability. To the maximum extent permitted by law, no member
of the Administrator shall be liable for any action taken or decision made in
good faith relating to the Plan or any Award thereunder.
(e) Indemnification. To the maximum extent permitted by law and by the
Corporation's charter and by-laws, the members of the Administrator shall be
indemnified by the Corporation in respect of all their activities under the
Plan.
(f) Effect of Administrator's Decision. All actions taken and decisions
and determinations made by the Administrator on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Administrator's
sole and absolute discretion and shall be conclusive and binding on all parties
concerned, including the Corporation, its stockholders, any participants in the
Plan and any other employee of the Corporation, and their respective successors
in interest.
4. Shares Available for the Plan; Maximum Awards
Subject to adjustments as provided in Section 7(d) of the Plan, the shares
of Common Stock that may be issued with respect to Awards granted under the Plan
shall not exceed an aggregate of two hundred thousand (200,000) shares of Common
Stock. The Corporation shall reserve such number of shares for Awards under the
Plan, subject to adjustments as provided in Section 7(d) of the Plan. If any
Award, or portion of an Award, under the Plan expires or terminates unexercised,
becomes unexercisable or is forfeited or otherwise terminated, surrendered or
canceled as to any shares, or if any shares of Common Stock are surrendered to
the Corporation in connection with any Award (whether or not such surrendered
shares were acquired pursuant to any Award), the shares subject to such Award
and the surrendered shares shall thereafter be available for further Awards
under the Plan; provided, however, that any such shares that are surrendered to
the Corporation in connection with any Award or that are otherwise forfeited
after issuance shall not be available for purchase pursuant to incentive stock
options intended to qualify under Code section 422.
-3-
<PAGE>
5. Participation
Participation in the Plan shall be open to all employees, officers, and
directors of the Corporation, or of any Affiliate of the Corporation and to
third parties which provide services to the Corporation, their employees and
officers, as may be selected by the Administrator from time to time.
6. Awards
The Administrator, in its sole discretion, establishes the terms of all
Awards granted under the Plan. Awards may be granted individually or in tandem
with other types of Awards. All Awards are subject to the terms and conditions
provided in the Grant Agreement.
(a) Stock Options. The Administrator may from time to time grant to
eligible participants Awards of incentive stock options as that term is defined
in Code section 422 or nonqualified stock options; provided, however, that
Awards of incentive stock options shall be limited to employees of the
Corporation or of any Parent or Subsidiary of the Corporation. Options intended
to qualify as incentive stock options under Code section 422 must have an
exercise price at least equal to Fair Market Value on the date of grant, but
nonqualified stock options may be granted with an exercise price less than Fair
Market Value. No stock option shall be an incentive stock option unless so
designated by the Administrator at the time of grant or in the Grant Agreement
evidencing such stock option.
(b) Stock Appreciation Rights. The Administrator may from time to time
grant to eligible participants Awards of Stock Appreciation Rights ("SAR"). An
SAR entitles the grantee to receive, subject to the provisions of the Plan and
the Grant Agreement, a payment having an aggregate value equal to the product of
(i) the excess of (A) the Fair Market Value on the exercise date of one share of
Common Stock over (B) the base price per share specified in the Grant Agreement,
times (ii) the number of shares specified by the SAR, or portion thereof, which
is exercised. Payment by the Corporation of the amount receivable upon any
exercise of an SAR may be made by the delivery of Common Stock or cash, or any
combination of Common Stock and cash, as determined in the sole discretion of
the Administrator. If upon settlement of the exercise of an SAR a grantee is to
receive a portion of such payment in shares of Common Stock, the number of
shares shall be determined by dividing such portion by the Fair Market Value of
a share of Common Stock on the exercise date. No fractional shares shall be used
for such payment and the Administrator shall determine whether cash shall be
given in lieu of such fractional shares or whether such fractional shares shall
be eliminated.
(c) Stock Awards. The Administrator may from time to time grant restricted
or unrestricted stock Awards to eligible participants in such amounts, on such
terms and conditions, and for such consideration, including no consideration or
such minimum consideration as may be required by law, as it shall determine. A
stock Award may be paid in Common Stock, in cash, or in a combination of Common
Stock and cash, as determined in the sole discretion of the Administrator.
(d) Phantom Stock. The Administrator may from time to time grant Awards to
eligible participants denominated in stock-equivalent units ("phantom stock") in
such amounts and on such terms and conditions as it shall determine. Phantom
stock units granted to a participant shall be credited to a bookkeeping reserve
account solely for accounting purposes and shall not require a segregation of
any of the Corporation's assets. An Award of phantom stock may be settled in
Common Stock, in cash, or in a combination of Common Stock and cash, as
determined in the sole
-4-
<PAGE>
discretion of the Administrator. Except as otherwise provided in the applicable
Grant Agreement, the grantee shall not have the rights of a stockholder with
respect to any shares of Common Stock represented by a phantom stock unit solely
as a result of the grant of a phantom stock unit to the grantee.
(e) Performance Awards. The Administrator may, in its discretion, grant
performance awards which become payable on account of attainment of one or more
performance goals established by the Administrator. Performance awards may be
paid by the delivery of Common Stock or cash, or any combination of Common Stock
and cash, as determined in the sole discretion of the Administrator. Performance
goals established by the Administrator may be based on the Corporation's or an
Affiliate's operating income or one or more other business criteria selected by
the Administrator that apply to an individual or group of individuals, a
business unit, or the Corporation or an Affiliate as a whole, over such
performance period as the Administrator may designate.
7. Miscellaneous
(a) Withholding of Taxes. Grantees and holders of Awards shall pay to the
Corporation, or make provision satisfactory to the Administrator for payment of,
any taxes required to be withheld in respect of Awards under the Plan no later
than the date of the event creating the tax liability. The Corporation may, to
the extent permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to the grantee or holder of an Award. In the event that
payment to the Corporation of such tax obligations is made in shares of Common
Stock, such shares shall be valued at Fair Market Value on the applicable date
for such purposes.
(b) Loans. The Corporation may make or guarantee loans to grantees to
assist grantees in exercising Awards and satisfying any withholding tax
obligations.
(c) Transferability. Except as otherwise determined by the Administrator,
and in any event in the case of an incentive stock option or a stock
appreciation right granted with respect to an incentive stock option, no Award
granted under the Plan shall be transferable by a grantee otherwise than by will
or the laws of descent and distribution. Unless otherwise determined by the
Administrator in accord with the provisions of the immediately preceding
sentence, an Award may be exercised during the lifetime of the grantee, only by
the grantee or, during the period the grantee is under a legal disability, by
the grantee's guardian or legal representative.
(d) Adjustments; Business Combinations. In the event of changes in the
Common Stock of the Corporation by reason of any stock dividend, split-up,
recapitalization, merger, consolidation. business combination or exchange of
shares and the like, the Administrator shall, in its discretion, make
appropriate adjustments to the maximum number and kind of shares reserved for
issuance or with respect to which Awards may be granted under the Plan as
provided in Section 4 of the Plan and to the number, kind and price of shares
covered by Awards granted, and shall, in its discretion and without the consent
of holders of Awards, make any other adjustments in Awards, including but not
limited to reducing the number of shares subject to Awards or providing or
mandating alternative settlement methods such as settlement of the Awards in
cash or in shares of Common Stock or other securities of the Corporation or of
any other entity, or in any other matters which relate to Awards as the
Administrator shall, in its sole discretion, determine to be necessary or
appropriate.
-5-
<PAGE>
Notwithstanding anything in the Plan to the contrary and without the
consent of holders of Awards, the Administrator, in its sole discretion, may
make any modifications to any Awards, including but not limited to cancellation,
forfeiture, surrender or other termination of the Awards in whole or in part
regardless of the vested status of the Award, in order to facilitate any
business combination that is authorized by the Board to comply with requirements
for treatment as a pooling of interests transaction for accounting purposes
under generally accepted accounting principles.
The Administrator is authorized to make, in its discretion and without the
consent of holders of Awards, adjustments in the terms and conditions of, and
the criteria included in, Awards in recognition of unusual or nonrecurring
events affecting the Corporation, or the financial statements of the Corporation
or any Subsidiary, or of changes in applicable laws, regulations, or accounting
principles, whenever the Administrator determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
(e) Stockholders' Agreement. As a condition precedent to the grant of any
Award under the Plan or the exercise pursuant to such an Award or to the
delivery of certificates for shares issued pursuant to any Award, the
Administrator may require the grantee or the grantee's successor or permitted
transferee, as the case may be, to become a party to the Stockholders' Agreement
of the Corporation and/or to a stock restriction agreement substantially in the
form attached hereto as Attachment A.
(f) Termination, Amendment and Modification of the Plan. The Board may
terminate, amend or modify the Plan or any portion thereof at any time.
(g) Non-Guarantee of Employment or Service. Nothing in the Plan or in any
Grant Agreement thereunder shall confer any right on an individual to continue
in the service of the Corporation or shall interfere in any way with the right
of the Corporation to terminate such service at any time.
(h) Compliance with Securities Laws; Listing and Registration. Common
Stock shall not be issued with respect to an Award granted under the Plan unless
the exercise of such Award and the issuance and delivery of stock certificates
for such Common Stock pursuant thereto shall comply with all relevant provisions
of law, including, without limitation, the Securities Act of 1933 and the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any national securities exchange or any listing or quotation
system established by the National Association of Securities Dealers, Inc.
("Nasdaq System") upon which the Common Stock may then be listed or quoted, and
shall be further subject to the approval of counsel for the Corporation with
respect to such compliance to the extent such approval is sought by the
Administrator. The Corporation may require that a grantee, as a condition to
exercise of an Award, and as a condition to the delivery of any share
certificate, provide to the Corporation, at the time of each such exercise and
each such delivery, a written representation that the shares of Common Stock
being acquired shall be acquired by the grantee solely for investment and will
not be sold or transferred without registration or the availability of an
exemption from registration under the Securities Act and applicable state
securities laws. The Corporation may also require that a grantee submit other
written representations which will permit the Corporation to comply with federal
and applicable state securities laws in connection with the issuance of the
Common Stock, including representations as to the knowledge and experience in
financial and business matters of the grantee and the grantee's ability to bear
the economic risk of the grantee's
-6-
<PAGE>
investment. The Corporation may require that the grantee obtain a "purchaser
representative" as that term is defined in applicable federal and state
securities laws. The stock certificates for any shares of Common Stock issued
pursuant to this Plan may bear a legend restricting transferability of the
shares of Common Stock unless such shares are registered or an exemption from
registration is available under the Securities Act and applicable state
securities laws. The Corporation may notify its transfer agent to stop any
transfer of shares of Common Stock not made in compliance with these
restrictions. If the Corporation determines that the listing, registration or
qualification upon any securities exchange or upon the Nasdaq System or under
any law, of shares subject to any Award is necessary or desirable as a condition
of, or in connection with, the granting of the Award or the issuance or purchase
of shares thereunder, no such Award may be exercised in whole or in part and no
restrictions on such Award shall lapse, unless such listing, registration or
qualification is effected free of any conditions not acceptable to the
Corporation.
(i) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Corporation and a grantee or any other person. To the
extent that any grantee or other person acquires a right to receive payments
from the Corporation pursuant to an Award, such right shall be no greater than
the right of any unsecured general creditor of the Corporation.
(j) Governing Law. The validity, construction and effect of the Plan, of
Grant Agreements entered into pursuant to the Plan, and of any rules,
regulations, determinations or decisions made by the Administrator relating to
the Plan or such Grant Agreements, and the rights of any and all persons having
or claiming to have any interest therein or thereunder, shall be determined
exclusively in accordance with applicable federal laws and the laws of Florida
without regard to its conflict of laws principles.
(k) Effective Date; Termination Date. The Plan is effective as of the
date on which the Plan was adopted by the Board, subject to approval of the
stockholders within twelve months before or after such date. No Award shall be
granted under the Plan after the close of business on the day immediately
preceding the tenth anniversary of the effective date of the Plan. Subject to
other applicable provisions of the Plan, all Awards made under the Plan prior to
such termination of the Plan shall remain in effect until such Awards have been
satisfied or terminated in accordance with the Plan and the terms of such
Awards.
Date Approved by the Board: ___________________________
Date Approved by the Stockholders: ____________________
-7-
<PAGE>
Exhibit 10.20
Regeneration Technologies, Inc.
- Incentive Compensation Plan -
- Year 2000 -
APPROVED
BY Resolution
----------
DATE 1/25/00
--------
The RTI annual Incentive Compensation Plan incorporates the following three
separate plans:
o RTI Corporate Plan
o Sales & Marketing Plan
o National Accounts/Recovery Plan
Employees only participate in one of the Plans. Plan participants from the Sales
& Marketing Plan and the National Accounts/Recovery Plan are not eligible as
participants in the RTI Corporate Plan.
Index:
Page
----
Sales & Marketing Plan 2
National Accounts/Donor Recovery Plan 3
RTI Corporate Plan 4-7
Administrative & Operating Provisions 8
Revenue, Profit & Plan Income for 2000 9
Summary of Plan Pay-Outs 10
Spreadsheet: Sales & Marketing Plan 11
Spreadsheet: National Accounts/Donor Recovery Plan 12
<PAGE>
Regeneration Technologies, Inc.
- Incentive Compensation Plan -
- Year 2000 -
Sales & Marketing Plan:
The following employees are participants in the Sales & Marketing Plan.
Participants -
VP Sales
National Sales Director
Regional Sales Managers
Distribution Manager
Oral-Maxillofacial Group
How Sales & Marketing Plan awards are computed:
The Sales & Marketing Plan establishes, for each product group under the
employee's control:
o Baseline sales volumes
o "Budget" sales volumes (external goals)
o "Internal Target" sales volumes (optimistic goals)
For each product group, the potential award is calculated as a pre-determined
percentage of the sales over baseline and over Budget.
VP and Director-level participants in the Sales & Marketing Plan, like Officer &
Director-level participants in the RTI Corporate Plan, do not achieve any awards
unless sales equal to the "Budget" levels are achieved.
Full Plan Computation:
The attached spreadsheet titled "Year 2000 Sales & Marketing Incentive Plans" on
page 11 reflects the specific baselines, percentages and proposed bonuses at
Budget, Target and 110% of Target for all participants in the Sales & Marketing
Plan.
2
<PAGE>
Regeneration Technologies, Inc.
- Incentive Compensation Plan -
- Year 2000 -
National Accounts/Donor Recovery Plan:
The following employees are participants in the National Accounts/Donor Recovery
Plan.
Participants -
Dan Towers, National Recovery Manager
Stacey Barron, National Recovery Manager
Kathy Croft, National Recovery Manager
How National Accounts/Donor Recovery awards are computed:
The National Accounts/Donor Recovery Plan establishes bonuses for adding new
recovery groups or increasing donor recovery in the territory's or programs
under the employee's control. Bonus programs include:
o Adding new recovery groups (% based on # of donors)
o Adding contracts that decrease average per-donor recovery cost
o Overachieving donor recovery in existing territories
o Adding funeral homes to the recovery network
o Adding medical examiner recovery of heart valves
o Converting or signing "Management Services Agreements"
Full Plan Computation:
The attached spreadsheet titled "Year 2000 National Accounts / Donor Recovery
Incentive Plan" on page 12 reflects the specific bonuses and targets for each
aspect of this Plan, for all participants in the National Accounts / Donor
Recovery Plan
3
<PAGE>
Regeneration Technologies, Inc.
- Incentive Compensation Plan -
- Year 2000 -
RTI Corporate Plan:
All employees who are not participants in the Sales & Marketing Plan or the
National Accounts/Donor Recovery Plan will be eligible to participate in the RTI
Corporate Plan.
The RTI Corporate Plan has the following participant levels:
Participant
Job Levels Group
CEO/CFO/COO I
Vice Presidents II
Directors III
Managers IV
Exempt V
Non-Exempt VI
Calculating the Incentive Pool under the RTI Corporate Plan:
The pool of funds that is available for incentives under the RTI Corporate Plan
is computed as a percentage of the company's performance over budgetary targets.
For 2000, that overall corporate target is:
o Overall corporate Pre-Tax Operating Income above the Budget level
Each department within the company has other targets which must be achieved in
order to achieve full participation in the pool of funds that is available.
These departmental targets include such items as corporate revenue above
baselines, product-line revenue above baselines, new product introductions, etc.
How Individual awards are computed in the RTI Corporate Plan:
Incentive award opportunities in the RTI Corporate Plan are computed based on
the following factors:
o Overall Corporate Performance (above)
o Achievement of Departmental Goals & Metrics
o Individual Performance
Participants in the RTI Corporate Plan do not achieve any awards unless profits
are above to the company's "Budget" level for profits.
4
<PAGE>
Regeneration Technologies, Inc.
- Incentive Compensation Plan -
- Year 2000 -
RTI Corporate Plan, cont.:
Computing the Pool Available for the RTI Corporate Plan:
The pool of funds potentially available for pay-out under the RTI Corporate Plan
is computed as follows:
If Plan Income* is at or below RTI's "Budget" for Plan Income:
-0-Funding of Pool
If Plan Income is above "Budget" for Plan Income:
+ 30.0% of Plan Income above "Budgeted" Plan Income
"Budgeted Net Income" for Year 2000 does not include any incentive compensation
expense, as no incentive compensation is earned until earnings exceed Budgeted
Net Income.
Examples of Pool Available at "Budget" & "Internal Target":
At At At 110%
Budget Target Target
Computed "Plan Income" $9.7m $14.4m $17.3m
RTI Corporate Incentive Pool Available $ -0- $1.4m $2.3m
RTI Corporate After-Tax Net income $5.8m $7.8m $9.Om
"Plan Income" = Net Operating Income before Tax or RTI Corporate Incentive Plan
expense
5
<PAGE>
Regeneration Technologies, Inc.
- Incentive Compensation Plan -
- Year 2000 -
RTI Corporate Plan, cont.:
Division of the Pool Among Participant Groups:
Assuming an incentive pool is earned as described above, the pool will be
divided initially among the six categories of employees as reflected below,
creating six sub-pools. The percentage for each sub-pool has been calculated to
result in a potential pay-out, if the company achieves it's Internal Profit
Target (above "Budget"), of the following multiple of "base compensation":
% of Base Pay % of Pool
Job Levels Group at Internal Target Required
CEO/CFO/COO I 35% of base earnings 14.2% of Pool
Vice Presidents II 30% of base earnings 8.3% of Pool
Directors III 25% of base earnings 20.4% of Pool
Managers IV 15% of base earnings 18.8% of Pool
Exempt V 10% of base earnings 17.6% of Pool
Non-Exempt VI 5% of earned(1) 20.7% of Pool
1. Expressed as a percentage of earnings, including overtime payments,
for non-exempt participants, in order to prevent overtime from being
used to increase the "base wages" qualifying for incentives.
All individual pay-outs from the sub-pools will be dependent upon achievement of
Department goals and individual performance, and subject to executive review.
No pay-out exists if the company only achieves the "Budget" level of Net Income.
At 110% of "Internal Target" Net Profit, the pay-outs are estimated to be
roughly 60% higher for each bracket than the percentages shown above. Page 9,
"Revenue, Profit & Plan Income for 2000 Budget Year," reflects the pay-outs
projected, by category, at Budget, Internal Target, and 110% of Internal Target.
6
<PAGE>
Regeneration Technologies, Inc.
- Incentive Compensation Plan -
-Year 2000-
RTI Corporate Plan, cont.:
Recap:
1. The "Incentive Pool" will only exist if the company achieves its Budgeted
Net Profit level
2. After Budgeted Net Profit level is achieved, the Pool is increased only as
a percentage of earnings above the Budget
3. Employees will still be required to achieve Departmental goals to
participate in the potential Pool
4. Individual performance will be used to determine the final pay-out (if
any) from the pool
5. A review of all proposed pay-outs under the Plan will be conducted by the
company's CEO, COO and CEO prior to any pay-outs
Specific goals of each Department (or Business Unit) will be weighted based on
importance
7
<PAGE>
Regeneration Technologies, Inc.
- Incentive Compensation Plan -
-Year 2000-
RTI Corporate Plan, cont.:
Operational Provisions of Plan:
-- Participant award ranges reviewed and approved annually
-- Organizational performance measures reviewed and approved annually
-- Review of extraordinary items affecting financial results will be
conducted annually, with appropriate adjustments made in determining
the bonus pool funding level
-- Individual contribution to RTI success reviewed annually
-- The plan may be amended or discontinued by RTI at anytime
-- RTI maintains the right to change or terminate any individual's
participation in the Plan at any time
-- Nothing in the plan shall confer on any participant the right to
continued employment or affect RTI's right to terminate a
participant's employment for any reason
Administrative Guidelines:
-- Full participation if employed throughout the fiscal year;
-- Partial participation if a participant enters the plan in the first
nine months of the year;
-- Employees joining in 4Q are excluded;
-- Pro-rata participation at regular distribution date if termination
occurs due to death, total disability, retirement or layoff;
-- No award for other types of termination prior to end of fiscal year;
-- No award for participants evaluated unsatisfactory on
performance/appraisal;
-- If promotion results in a change in target bonus prior to the fourth
quarter, final award is pro-rated based on the number of months at
each level.
End-of-Year Administrative Steps:
-- Compute amount (if any) of Incentive Pool
-- Approve plan participants
-- Review status of Departmental goals
-- Approve final incentive awards
-- CEO/CFO/COO review individual performance
8
<PAGE>
Regeneration Technologies, Inc.
- Incentive Compensation Plan -
Revenue, Profit and "Plan Income" for 2000 Budget Year
<TABLE>
<CAPTION>
----------------- -------------------- ------------------
Year 2000 Year 2000 Year 2000
Per Budget & internal Targets: Budget Internal Target 110% of Int Targ
----------------- -------------------- ------------------
<S> <C> <C> <C>
Gross Revenue 124,259,764 137,701,701 151,471,871
Net Revenue 62,422,314 68,782,367 75,660,604
Net income from Operations * 9,675,730 12,961,900 15,008,176
Net Pre-Tax Income 9,713,730 12,999,900 15,046,176
Net Income 5,828,238 7,799,940 9,027,706
----------------- -------------------- ------------------
<CAPTION>
----------------- -------------------- ------------------
Year 2000 Year 2000 Year 2000
Computed for Plan Purposes: Budget Internal Target 110% of Int Targ
----------------- -------------------- ------------------
<S> <C> <C> <C>
Pre-Tax Operating income (from above) * 9,675,730 12,961,900 15,008,176
RTI Corporate incentive Compensation -- 1,405,000 2,281,975
"PLAN INCOME" (computed) 9,675,730 14,366,900 17,290,151
----------------- -------------------- ------------------
<CAPTION>
----------------- -------------------- ------------------
Year 2000 Year 2000 Year 2000
Incentive Comp as % of Pre-Tax Income: Budget Internal Target 110% of Int Targ
----------------- -------------------- ------------------
<S> <C> <C> <C>
Incentive Compensation (above) -- 1,405,000 2,281,975
% of "Plan income over Budget" 0% 30% 30%
% of Pre-Tax Operating Income 0% 11% 15%
----------------- -------------------- ------------------
</TABLE>
IncentiveCompPlan-2000-Full Plan Income
9
<PAGE>
Regeneration Technologies, Inc.
- Incentive Compensation Plan -
Summary of Plan Pay-Outs
Note: Award computation below is at "Budget" Net Profit; "Internal Target" & 10%
above Internal Target
<TABLE>
<CAPTION>
------------------------ -------------------------- -------------------------
At "Budget" Net Profit At "internal Tar et" 110% over Internal
------------------------ -------------------------- -------------------------
------------ $ Pay-Out $ Pay-Out
Base Computed $ Pay-Out Computed at profit Computed at profit
Compensation Pay-Out as at profit Pay-Out as = to Internal Pay-Out as = 110% of
by Category % of Base = to Budget % of Base Target % of Base Int. Target
------------ ------------------------ -------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RTI Corporate Incentive Plan:
Executives CEO/CFO/COO $570,638 0% $0 35% $199,723 57% $324,040
Executives VP's $388,170 0% $0 30% $116,451 49% $189,404
Directors 1,147,175 0% $0 25% $286,794 41% $465,523
Managers 1,757,128 0% 50 15% $263,569 24% $429,011
Exempt 2,472,026 0% $0 10% $247,203 16% $401,628
Non-Exempt 5,825,200 0% $0 5% $291,260 8% $472,369
----------- ---------- ----------
Total $12,160,337 $0 $1,405,000 $2,281,975
% of Eligible Payroll -
Corporate Plan 0.0% 11.6% 18.8%
Sales & Marketing Plan 1,003,000 21% $209,061 44% $438,734 66% $657,421
Donor Recovery Plan 192,000 18% $34,434 21% $40,510 24% $46,587
</TABLE>
10
<PAGE>
Regeneration Technologies, Inc.
Year 2000 Sales and Marketing Incentive Plans
Year 2000 Numbers:
NOTE: All sales numbers are NET of ACTUAL Returns
Each plan participant must achieve at least their Baseline on ALL product
lines in their control, or their total bonus is reduced by 50%
All awards subject to final review & approval by CEO/CFO
<TABLE>
<CAPTION>
Budget Internal Target Established
Revenue Revenue Baseline
------------------ ---------------- ----------------------------------
<S> <C> <C> <C> <C>
Sales Dept:
Jim Abraham Incentive Lines:
Domestic Non-Spinal Osteofil $ 3,536,160 $ 4,018,768 99% of budget $ 3,500,798
Italy Osteofil $ 86,736 $ 100,080 99% of budget $ 85,869
Regenafil/form $ 5,016,221 $ 5,700,069 99% of budget $ 4,966,059
Sports Medicine $ 5,154,125 $ 7,395,125 99% of budget $ 5,102,584
Conventional (w/ Pericardium) $ 14,454,155 $ 16,290,035 99% of budget $ 14,309,613
SDG Spinal Non-Paste $ 75,028,060 $ 83,355,940 99% of budget $ 74,277,779
SDG Spinal Paste $ 14,063,231 $ 15,981,480 99% of budget $ 13,922,599
Exactech Opteform $ 1,319,968 $ 1,500,096 99% of budget $ 1,306,768
------------------ ---------------- ----------------
$ 118,658,656 $ 134,341,593 $ 117,472,069
National Director Incentive Lines:
Sports Medicine $ 5,154,125 $ 7,395,125 80% of budget $ 4,123,300
Domestic Non-Spinal Osteofil $ 3,536,160 $ 4,018,768 80% of budget $ 2,828,928
Conventional(w/o O/M Pericard) $ 14,190,000 $ 15,990,000 80% of budget $ 11,352,000
------------------ ---------------- ----------------
$ 22,880,285 $ 27,403,893 $ 18,304,228
Regional Managers Incentive Lines:
Sports Medicine $ 5,154,125 $ 7,395,125 80% of budget $ 4,123,300
Domestic Non-Spinal Osteofil $ 3,536,160 $ 4,018,768 80% of budget $ 2,828,928
Conventional(w/o O/M Pericard) $ 14,190,000 $ 15,990,000 80% of budget $ 11,352,000
NOTE: Each region's Internal Target
& Budget will need to be estabtished
individually (& the 3 regions must
= the totals above), and then separate
tiered % can be developed for each
region, which in total must =
commission totals above.
Distribution Manager Incentive Lines:
Sports Medicine $ 5,154,125 $ 7,395,125 80% of budgot $ 4,123,300
Conventional $ 14,454,155 $ 16,290,035 80% of budget $ 11,563,324
(Brian & Phil are assumed to be part
of the corporate incentive
compensation plan)
Marketing Dept:
Oral-Maxillofacial Incentive Lines:
Regenafil $ 2,904,096 $ 3,300,024 70% of budget $ 2,032,867
Regenaform $ 2,112,125 $ 2,400,045 70% of budget $ 1,478,488
Pericardium $ 264,155 $ 300,035 70% of budget $ 184,909
------------------ ---------------- ----------------
$ 5,280,376 $ 6,000,104 $ 3,696,263
Breakdown of O/M Sales:
Internal $ 880,047 $ 1,000,000 70% of budget $ 616,033
Regional 1 $ 1,100,082 $ 1,250,026 70% of budget $ 770,057
Regional 2 $ 1,100,082 $ 1,250,026 70% of budget $ 770,057
Regional 3 $ 1,100,082 $ 1,250,026 70% of budget $ 770,057
Regional 4 $ 1,100,082 $ 1,250,026 70% of budget $ 770,057
------------------ ---------------- ----------------
$ 5,280,375 $ 6,000,104 $ 3,696,263
------------------ ---------------- ----------------
Tim: National Manager $ 5,280,375 $ 6,000,104 70% of budget $ 3,696,263
<CAPTION>
Total Total
Bonus Bonus Bonus
at Budget at Int Target at 110% Target Bonus at Budget
------------ ------------- -------------- -------------------------------
<S> <C> <C> <C> <C>
Sales Dept:
Jim Abraham Incentive Lines:
Domestic Non-Spinal Osteofil $ - $ 12,065 $ 24,122 0.00% from baseline to "budget"
Italy Osteofil $ - $ 334 $ 634 0.00% from baseline to "budget"
Regenafil/form $ - $ 5,129 $ 10,829 0.00% from baseline to "budget"
Sports Medicine $ - $ 56,025 $ 78,210 0.00% from baseline to "budget"
Conventional (w/ Pericardium) $ - $ 36,718 $ 85,588 0.00% from baseline to "budget"
SDG Spinal Non-Paste $ - $ 3,331 $ 6,665 0.00% from baseline to "budget"
SDG Spinal Paste $ - $ 9,591 $ 17,582 0.00% from baseline to "budget"
Exactech Opteform $ - $ 901 $ 1,651 0.00% from baseline to "budget"
------------ ------------- --------------
$ - $ 124,093 $ 225,280
National Director Incentive Lines:
Sports Medicine $ 3,866 $ 26,276 $ 37,368 0.375% from baseline to "budget"
Domestic Non-Spinal Osteofil $ 2,652 $ 7,478 $ 13,506 0.375% from baseline to "budget"
Conventional(w/o O/M Pericard) $ 10,643 $ 28,643 $ 52,628 0.375% from baseline to "budget"
------------ ------------- --------------
$ 17,180 $ 62,396 $ 103,502
Regional Managers Incentive Lines:
Sports Medicine $ 7,731 $ 52,551 $ 74,731 0.75% from baseline to "budget" i
Domestic Non-Spinal Osteofil $ 5,304 $ 14,956 $ 21,013 0.75% from baseline to "budget"
Conventional(w/o O/M Pericard) $ 21,285 $ 51,285 $ 105,255 0.75% from baseline to "budget"
------------ ------------- --------------
Note: The total bonuses
computed on this line
are split among all
three Regional Managers >> $ 34,320 $ 124,793 $ 207,004
Distribution Manager Incentive Lines:
Sports Medicine $ 1,546 $ 8,269 $ 11,597 0.15% from baseline to "budget"
Conventional $ 14,454 $ 28,223 $ 44,513 0.50% from baseline to "budget"
------------ ------------- --------------
$ 16,000 $ 36,492 $ 56,110
Marketing Dept:
Oral-Maxillofacial Incentive Lines:
Regenafil
Regenaform
Pericardium
Breakdown of O/M Sales:
Internal $ 2,640 $ 5,039 $ 8,039 1.00% from baseline to "budget"
Regional 1 $ 33,002 $ 37,501 $ 41,251 3.00% on all sales
Regional 2 $ 24,752 $ 39,140 $ 54,747 7.50% from baseline to "budget"
Regional 3 $ 24,752 $ 39,746 $ 54,747 7.50% from baseline to "budget"
Regional 4 $ 24,752 $ 39,746 $ 54,747 7.50% from baseline to "budget"
------------ ------------- --------------
$ 109,898 $ 161,779 $ 213,530
Tim: National Manager $ 31,682 $ 53,274 $ 77,275 2.00% from baseline to "budget"
------------ ------------- --------------
$ 141,580 $ 215,053 $ 290,804
<CAPTION>
Additional Bonus at Target Addtl Bonus over Target
--------------------------------- -----------------------
<S> <C> <C>
Sales Dept:
Jim Abraham Incentive Lines:
Domestic Non-Spinal Osteofil + 2.50% from "budget" to Int Target + 3.00% over Int Target
Italy Osteofil + 2.50% from "budget" to Int Target + 3.00% over Int Target
Regenafil/form + 0.75% from "budget" to Int Target + 1.00% over Int Target
Sports Medicine + 2.50% from "budget" to Int Target + 3.00% over Int Target
Conventional (w/ Pericardium) + 2.00% from "budget" to Int Target + 3.00% over Int Target
SDG Spinal Non-Paste + 0.04% from "budget" to Int Target + 0.04% over Int Target
SDG Spinal Paste + 0.50% from "budget" to Int Target + 0.50% over Int Target
Exactech Opteform + 0.50% from "budget" to Int Target + 0.50% over Int Target
National Director Incentive Lines:
Sports Medicine + 1.00% from "budget" to Int Target + 1.50% over Int Target
Domestic Non-Spinal Osteofil + 1.00% from "budget" to Int Target + 1.50% over Int Target
Conventional(w/o O/M Pericard) + 1.00% from "budget" to Int Target + 1.50% over Int Target
Regional Managers Incentive Lines:
Sports Medicine + 2.00% from "budget" to Int Target + 3.00% over Int Target
Domestic Non-Spinal Osteofil + 2.00% from "budget" to Int Target + 3.00% over Int Target
Conventional(w/o O/M Pericard) + 2.00% from "budget" to Int Target + 3.00% over Int Target
Distribution Manager Incentive Lines:
Sports Medicine + 0.30% from "budget" to Int Target + 0.45% over Int Target
Conventional + 0.75% from "budget" to Int Target + 1.00% over Int Target
Marketing Dept:
Oral-Maxillofacial Incentive Lines:
Regenafil
Regenaform
Pericardium
Breakdown of O/M Sales:
Internal + 2.00% from "budget" to Int Target + 3.00% over Int Target
Regional 1
Regional 2 + 10.00% from "budget" to Int Target + 12.00% over Int Target
Regional 3 + 10.00% from "budget" to Int Target + 12.00% over Int Target
Regional 4 + 10.00% from "budget" to Int Target + 12.00% over Int Target
Tim: National Manager + 3.00% from "budget" to Int Target + 4.00% over Int Target
</TABLE>
Discounts:
In all lines where previous sales history exists, the average discount
must be maintained in order to achieve the above bonuses.
If the average sales in any quarterly period are at a discount greater
than the average, 2.5% of the bonus will be lost for each 1% discount off
average.
If the average sales in any quarterly period are 5% or more ABOVE the
average, the bonus will be increased by 10% (new bonus will = 110% x
normal bonus).
The term "average discount" means the average discount off of catalog
pricing within the region for the preceding 6-month period.
<PAGE>
Regeneration Technologies, Inc.
Year 2000 National Accounts / Donor Recovery Incentive Plan
Field Staff Incentives:
1. For signing a new account, or conversion of competitor account -
Payout of a bonus based on the size & avg recovery cost of the
program, as per the following table:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Program with Program with Program with
Greater than or equal to 7 Less than 7 but Greater than 15 Less than 15
donors/month donors/month donors/month
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
More than 10% under the
current avg per-donor cost $500/donor $750/donor $1,250/donor
------------------------------------------------------------------------------------------------------------------
At avg per-donor cost, or up
to 9% under current avg $350/donor $500/donor $750/donor
------------------------------------------------------------------------------------------------------------------
Over the current avg per-
donor cost $125/donor $175/donor $200/donor
------------------------------------------------------------------------------------------------------------------
</TABLE>
Rules:
a. For a new program, payout is initially based on
agreed-upon estimates (& paid upon closing), with
adjustment at end of year one for actual performance of
the program, using actual months 7-12 multiplied by two
(annualized).
b. For a conversion program, payout is initially based on
agreed-upon estimates (& paid upon closing), with
adjustment at end of six months for actual performance,
using actual months 1-6 multiplied by two (annualized).
c. Finance will provide quarterly updates to National
Accounts of the "average per-donor cost" of RTI recovery
programs.
d. "Donors" are whole donors as defined in recovery
contracts, plus "equivalent whole" for partial donors
2. For all accounts assigned in territory, monthly bonus for each donor
over the total target for those accounts.
-----------------------------
$50 per donor over the target
-----------------------------
Rules:
a. Targets for all accounts under management to be
reviewed, & modified if needed, quarterly with Director
b. All targets to be revised annually
c. Targets will exclude certain accounts, at discretion of
Director, such as UFTB, Tutogen. etc.
3. Funeral Home Program:
------------------------------------------------------------
$100 per donor for more than 5 donors per month from funeral
homes in territory
------------------------------------------------------------
4. Medical Examiner Heart Recovery Program:
------------------------------------------------------------
$100 per donor for more than 2 heart recoveries per month from
medical examiners in territory
------------------------------------------------------------
5. Management Services Agreement Program:
------------------------------------------------------------
$1,000 for executing any MSA with more than 5 donors per
month, at a cost per-donor < or = current avg cost
------------------------------------------------------------
Support Staff Incentives:
For all National Accounts (all territories), monthly bonus for exceeding
the total National Accounts target for the month
--------------------------
$100 for each staff person
--------------------------
Rules:
a. Targets will be set by Director, subject to Director
discretion
b. All targets to be revised annually, or more often at
Director discretion
c. Target will exclude certain accounts (ie., Tutogen)
Other Awards:
Chairman's Award of Excellence (Quarterly) -
Excellence in Orthopedic Donor Recovery
Excellence in Soft Tissue Donor Recovery
Excellence in Cardiovascular Donor Recovery
-12-
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Regeneration
Technologies, Inc. and subsidiary on Form S-1 of our report dated March 22, 2000
(April 27, 2000 as to Note 18) appearing in the Prospectus, which is part of
this Registration Statement, and of our report relating to the consolidated
financial statement schedule dated March 22, 2000 (April 27, 2000 as to
Note 18), appearing elsewhere in this Registration Statement. We also consent to
the reference to us under the headings "Selected Financial Data" and "Experts"
in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Tampa, Florida
April 27, 2000
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Regeneration
Technologies, Inc. and subsidiary on Form S-1 of our report relating to the
statements of revenues and direct costs of the predecessor business of
Regeneration Technologies, Inc. dated April 17, 2000, appearing in the
Prospectus, which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Tampa, Florida
April 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF REGENERATION TECHNOLOGIES, INC.
AND SUBSIDIARY AS OF DECEMBER 31, 1998 AND 1999 AND FOR THE PERIOD FROM FEBRUARY
12, 1998 (DATE OPERATIONS BEGAN) TO DECEMBER 31, 1998 AND THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> OTHER YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> FEB-12-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 3,925,880 7,536,287
<SECURITIES> 0 0
<RECEIVABLES> 5,940,370 15,841,837
<ALLOWANCES> 38,500 335,087
<INVENTORY> 4,356,849 16,232,109
<CURRENT-ASSETS> 15,010,574 41,197,787
<PP&E> 4,473,824 6,951,713
<DEPRECIATION> 347,836 1,138,930
<TOTAL-ASSETS> 19,267,530 48,538,314
<CURRENT-LIABILITIES> 15,023,080 27,146,209
<BONDS> 1,522,249 2,026,796
0 0
6,581,777 16,581,777
<COMMON> 770 770
<OTHER-SE> (8,013,346) (1,145,238)
<TOTAL-LIABILITY-AND-EQUITY> 19,267,530 48,538,314
<SALES> 11,128,079 33,025,987
<TOTAL-REVENUES> 11,128,079 33,025,987
<CGS> (9,844,771) (19,172,398)
<TOTAL-COSTS> (3,986,946) (9,739,790)
<OTHER-EXPENSES> (1,472,410) (1,675,019)
<LOSS-PROVISION> (38,500) (171,587)
<INTEREST-EXPENSE> (152,631) (285,166)
<INCOME-PRETAX> (4,141,947) 2,340,631
<INCOME-TAX> 0 618,862
<INCOME-CONTINUING> (4,141,947) 2,959,493
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,141,947) 2,959,493
<EPS-BASIC> (5.37) 3.84
<EPS-DILUTED> (5.37) 0.84
</TABLE>
