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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended JUNE 30, 1995, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _______________
Commission file number: 0-10640
COLLAGEN CORPORATION
(Exact name of Registrant as specified in its charter)
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<S> <C>
DELAWARE 94-2300486
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
2500 FABER PLACE, PALO ALTO, CA 94303
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (415) 856-0200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01
PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 month (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing price of the Common Stock on September 1,
1995, in the Nasdaq National Market, was approximately $120,941,818. Shares
of Common Stock held by each officer and director and by each person who owns
5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of September 1, 1995, Registrant had 8,970,732 shares of Common Stock
outstanding.
Parts of the following documents are incorporated by reference to Parts I, II,
III and IV of this Form 10-K Report: (1) Proxy Statement for Registrant's 1995
Annual Meeting of Stockholders, and (2)
Form 10-K Annual Report for the fiscal year ended March 31, 1995 of
Registrant's unconsolidated affiliate, Target Therapeutics, Inc.
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PART I
ITEM 1. BUSINESS
GENERAL
Collagen develops, manufactures and markets on a worldwide basis high
quality biocompatible products for the treatment of defective, diseased,
traumatized or aging human tissues. Collagen has grown by identifying medical
applications for its technology, developing innovative products and building
markets with respected healthcare professionals, either directly or with
marketing and technology partners. Collagen's core products are principally
used in cosmetic and reconstructive applications, the treatment of stress
urinary incontinence, and bone repair. Collagen focuses on development of new
products based upon biomaterials, especially collagen, for sale in human
healthcare markets worldwide.
CORE TECHNOLOGY
The foundation of Collagen's current business is the collagen protein
family, around which Collagen has developed proprietary technology and patented
materials, processes and uses. Collagen is a family of naturally occurring
proteins that serve as the basic structural building blocks of the tissues
found in skin, cartilage, bone, tendons, ligaments, arterial walls, nerve
sheaths and other organs and tissues of the body. Collagen is present in all
mammals in higher concentration than any other protein and is quite similar
among species. There are at least fifteen types of collagen, the most common of
which is the type primarily used in Collagen's commercial products and products
under development.
Collagen has developed proprietary processes to purify its bovine
(cow)-source collagen on a commercial scale and to manufacture "tissue-like"
implants from the resulting materials. These proprietary processes alter the
immunological profile of the bovine-source collagen, thus minimizing the
potential for causing an allergic reaction. The result is a purified and
sterilized fibrous collagen material that can be easily injected or implanted
into the human body.
The potential for causing an allergic reaction arising from the
injection of bovine-source collagen is relatively low. Based on Collagen's
statistics, approximately 97% of men and women tested show no allergic reaction
to a skin test and can be treated with the bovine-source collagen injection.
The 3% that show an allergic reaction to the skin test display typical symptoms
of hypersensitivity, which include redness, itchiness and swelling. An
additional 1-2% of the people treated develop an allergic reaction after one or
more injections.
In August 1995, the Company entered into an agreement with certain of
the stockholders of LipoMatrix, Incorporated ("LipoMatrix") under which the
Company will acquire, subject to certain conditions, outstanding securities of
LipoMatrix that will increase the Company's ownership position in LipoMatrix
from approximately 40 percent to 90 percent on a fully diluted basis, for an
aggregate of approximately $18 million. The transaction is scheduled to close
in January 1996; however, due to the limited nature of the conditions on
closing, this transaction is being treated for accounting purposes as if it
were completed in the first quarter of fiscal 1995. Accordingly, for purposes
of this report, this transaction shall be deemed to have been completed.
LipoMatrix is developing a proprietary family of biocompatible
products. Trilucent(TM) Breast Implant ("Trilucent implant"), recently
commercially introduced in the U.K, achieves biocompatibility by utilizing
soybean oil, which has a long history of parenteral use in human beings as a
filler. Since the neutral triglycerides of the soybean oil have the same
radiodensity as human fat, Trilucent implant permits meaningful mammograms to
facilitate detection of breast cancer. Laminated into the implant shell is an
electronic transponder, which will allow non-invasive implant identification.
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STRATEGY
Collagen's strategy consists of the following principal elements:
Expand Existing Medical Franchise. Collagen has a 14-year
involvement with the cosmetic procedure-oriented segments of
the plastic surgery and dermatology markets. Medical
procedures for cosmetic indications in those markets are
generally paid for by the patient and therefore are not
commonly subject to reimbursement constraints imposed by third
party payors. The recently developed Trilucent implant is
another example of a high value product for the cosmetic and
reconstructive plastic surgery market. Collagen's objectives
include developing, in-licensing, and acquiring additional
products related to this market.
Broaden Therapeutic Applications. Collagen has developed
innovative medical products that take advantage of the
physical and biological properties of collagen, and has
developed proprietary collagen technology platforms that could
lead to new applications for product development. In addition,
Collagen has implemented an "affiliate" program to expand its
new product development activities outside of the areas of its
core competence, such as interventional cardiology,
ophthalmology, and otology (treatment of ear disorders).
Enhance Biomaterials Technology. Collagen has substantial
research, pre-clinical, clinical and regulatory expertise in
the development of collagen-based medical devices. Collagen's
current objectives include improving the clinical persistence
of current collagen materials and reducing or eliminating
allergic reactions arising from the bovine source of current
collagen products.
PRODUCTS, MARKETS AND METHODS OF DISTRIBUTION
Cosmetic and Reconstructive Surgery. Collagen has three principal
products for the treatment of skin contour defects: Zyderm(R) I Implant
("Zyderm I implant"), Zyderm(R) II Implant ("Zyderm II implant"), a more
concentrated form of injectable collagen, and Zyplast(R) Implant ("Zyplast
implant"), a cross-linked collagen product. These products are sterile devices,
composed of highly purified bovine dermal collagen, dispersed in a saline
solution containing a small amount of lidocaine and packaged in a sterile
syringe. They are injected with a fine gauge needle into depressed layers of
skin to elevate the area to surface contour.
Depending on the indication and the product (or product combination)
used, most patients can achieve considerable correction in one to four
treatment sessions, utilizing an average of 1.5 - 2.0 cc of collagen product.
The implants take on the texture and appearance of normal host tissue and are
subject to similar stresses and aging processes. Consequently, supplemental
treatments are often necessary after initial treatment, depending on the
location and original cause of the skin deformity.
Collagen believes that opportunities exist in the market for
injectable collagen implants based on potential new products and product
applications, potential increases in patient awareness of the procedure and
product price, demand among younger people for cosmetic procedures and
increased physician interest in cosmetic procedures not reimbursed by third
party payors. Factors such as negative publicity, adverse rulings by regulatory
authorities or in connection with product liability lawsuits, introduction of
competitive products by third parties or other loss of market acceptance for
Collagen's principal products may significantly and adversely affect Collagen's
business, financial condition and results of operations.
Collagen markets Zyderm and Zyplast implants primarily to the
approximately 11,000 dermatologists and plastic surgeons in the United States
through a direct sales force. Approximately
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4,000 of these medical professionals have purchased Zyderm and Zyplast implants
from Collagen in the past year. United States sales of Zyderm and Zyplast
implants, which represents approximately 49% of worldwide sales of Zyderm and
Zyplast implants, increased 12% over prior year's sales.
Collagen utilizes a variety of methods to market its dermatological
products. Collagen sponsors a "Partners in Growth" program for plastic surgeons
and dermatologists. This program is designed to identify and support a
committed group of physicians who endorse the appropriate use of injectable
collagen and are skilled in its proper use. Collagen conducts other physician
marketing activities such as direct mail campaigns, physician education,
in-office merchandising and patient seminars. Collagen has emphasized physician
education to ensure proper training in the use of its products and timely
communication of clinical and product use information. To stimulate demand at
the patient level, Collagen also conducts consumer marketing awareness programs
such as public relations events, health and beauty magazine advertising and
direct mailing campaigns.
Collagen markets its Zyderm and Zyplast implants directly to
physicians in 10 European countries, Canada, Australia and New Zealand.
Collagen markets its products through distributors in all other international
markets. Collagen has granted exclusive distribution rights for Zyderm and
Zyplast implants in Japan. Over the past two years, Collagen has appointed a
number of new foreign distributors for its injectable collagen products.
A large portion of Collagen's revenues in recent years has come from
its international operations. Consolidated export sales of Zyderm and Zyplast
implants totaled $26.1, $20.8 and $21.3 million in fiscal 1995, 1994 and 1993
respectively. Export sales for Zyderm and Zyplast implants represented 36%, 32%
and 43% of Collagen's revenues for those fiscal years. Collagen has expanded
and intends to further expand its direct selling efforts in certain
international markets. There can be no assurance that difficulties associated
with a transition to direct marketing efforts would not have an adverse effect
on Collagen's results of operations.
In 1992, Collagen participated in the formation of LipoMatrix, which
intended to research, develop, manufacture, and market medical devices designed
to replace, restore, or augment body structures that consist largely of adipose
(fat) tissues, including the human breast. LipoMatrix recently received
clearance from the FDA to commence clinical studies in the U.S., and in August
1995, introduced the Trilucent implant into the United Kingdom market through
Collagen's U.K subsidiary. LipoMatrix already has gathered clinical data on
its breast implants from more than 100 patients treated in Europe.
Incontinence. According to the National Institutes of Health, more
than ten million Americans suffer from urinary incontinence, or the involuntary
loss of urine. While comprehensive data are not available as to the incidence
of a form of stress urinary incontinence called intrinsic sphincter deficiency
("ISD"). Collagen has estimated, based upon physician survey information, that
as many as one million of these persons suffer from ISD, a poor or
nonfunctioning bladder outlet mechanism that may be helped by a locally
injected bulking agent. Collagen and its marketing and distribution partner,
C.R. Bard, Inc. ("Bard"), received approval from the FDA to produce and market
Contigen(R) Bard collagen implant ("Contigen implant") in September, 1993 for
the treatment of ISD. ISD occurs among all demographic groups, but its
incidence increases with age and is twice as high in women as men. Management
and treatment alternatives have historically included absorbent products,
behavior modification, medication and surgery. Contigen implant injections may
improve stress incontinence caused by stretched pelvic muscles from childbirth,
decreased tone in the pelvic muscles supporting the bladder (often associated
with menopause and aging) and prostate surgery.
Contigen implant is a sterile, highly purified bovine dermal collagen
that is lightly crosslinked and dispersed in a saline solution. Contigen
implant is injected into the submucosal tissues of the urethra and/or bladder
neck, and into the tissues adjacent to the urethra. The injection of Contigen
implant creates increased tissue bulk and subsequent coaptation (joining) of
the urethral lumen. After
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injection, the suspended collagen forms a soft cohesive network of fibers. Over
time, the implant takes on the appearance of normal host tissue.
Pursuant to the terms of an agreement between Collagen and Bard, Bard
purchases commercial products, including Contigen implant, developed under this
agreement. In addition, Collagen receives a percentage of Bard's direct sales
to physician customers. Bard holds exclusive worldwide marketing and
distribution rights to Contigen Implant.
Collagen recorded approximately $16.5 million and $16.7 million of
revenue from sales of Contigen Implant in fiscal 1995 and 1994 respectively. Of
such revenue, $13.4 million and $15.9 million was derived from sales of
Contigen implant to Bard and $3.1 million and $789,000 from Bard's direct sales
to physicians in 1995 and 1994 respectively, compared to $4.4 million of sales
of Contigen implant to Bard recorded in fiscal 1993 (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Product Sales").
Orthopaedics. Collagen and its orthopaedic marketing partner, Zimmer
Inc., a wholly-owned subsidiary of Bristol-Myers Squibb ("Zimmer"), received
approval from the FDA in May 1993 to produce and market Collagraft(R) bone
graft matrix implant ("Collagraft implant"). Collagraft(R) bone graft matrix
strip ("Collagraft strip"), a "premixed" formulation which is an early
"ready-to-mix" Collagraft implant formulation, was subsequently approved in
January 1994. Collagraft implant and Collagraft strip, when used with
autogenous bone marrow, is indicated for use in acute long bone fractures and
traumatic osseous defects to provide a matrix for the repair process of bone.
Bone graft substitute eliminates the need for patients to undergo a painful
autograft bone grafting procedure, which involves harvesting patients' own bone
from another site, and it prevents the transmission of human infectious agents
and inconsistent results from allograft procedures (bone graft supplied through
a bone bank). During surgery Collagraft strip or Collagraft implant is mixed
with the patient's own bone marrow and is placed into the fracture site
providing a scaffolding around which new bone will grow. Medical conditions
which may require bone grafting include acute long bone fractures and certain
tumors and cysts.
Collagraft implant and Collagraft strip are a mixture of purified
fibrillar collagen and hydroxyapatite/tricalcium phosphate ceramic ("HA/TCP"),
and is supplied sterile in both a strip form (premixed) and a ready-to-mix
form. Hydroxyapatite is a substance which is biocompatible and is minimally
resorbed. Tricalcium phosphate is radiopaque, biocompatible and biodegradable.
Its degradation products can be reconstituted by the body to form new bone
mineral allowing for bone deposition.
An agreement between Collagen and Zimmer provides for the development
and distribution of collagen and other biologically-based products for
orthopaedic applications. Collagen will manufacture approved products and sell
them to Zimmer, which has exclusive marketing rights for Collagraft implant and
Collagraft strip in the United States and Asia. Collagen holds marketing rights
for Collagraft implant and Collagraft strip in Europe, Canada, Africa and the
Middle East. Collagraft implant and Collagraft strip are currently sold only in
the United States, and Collagen does not anticipate substantial sales outside
the United States for the foreseeable future.
Sales of Collagraft implant and Collagraft strip to Zimmer in fiscal
1995 totaled $3.0 million compared with $2.7 million in fiscal 1994, the first
full year of sales for these products. The Company had approximately $150,000
of combined Collagraft implant and Collagraft strip sales in fiscal 1993.
A number of uncertainties exist surrounding the marketing and
distribution of Collagen's new products, Contigen implant, Collagraft implant
and Collagraft strip. Collagen's business and financial results could be
adversely affected in the event that either or both of Bard and Zimmer, or
Collagen,
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are unable to effectively market the product, accurately anticipate customer
demand, or effectively manage industry-wide pricing and cost containment
pressures in health care.
Other Medical Products. During fiscal 1995, the Company expanded its
product offerings to include aline of collagen-based materials for research
applications and other custom needs. Sales of these products were not
material.
COMPETITION
The medical device industry is characterized by rapidly evolving
technology and increasing competition under the recent changes in the health
care environment. Collagen faces competition in each of its target product
markets.
Zyderm and Zyplast Implants. Collagen is aware of one commercial
product in the United States that is directly competitive with Zyderm and
Zyplast implants. This product is a gelatin-based (denatured collagen) product
for soft tissue augmentation presently being marketed in the U.S. and Canada.
Collagen is also aware of one foreign company which is marketing a
collagen-based material for soft tissue augmentation internationally. Indirect
competitors to Zyderm and Zyplast implants include, among others, chemical
peels, fat injections, dermabrasion, laser treatment and face lifts. In
addition, several companies are engaged in research and development activities
examining the use of collagen and other biomaterials for the correction of soft
tissue defects. There can be no assurance that Collagen will not face increased
direct and indirect competition in the soft-tissue augmentation market.
Trilucent implant. The principal competitiors of Trilucent implant
are saline implants worldwide, and silicone gel implants outside the U.S. These
products are generally marketed by a few companies wielding greater resources
than the Company, and having substantially more experience in manufacturing and
marketing in the breast implant market.
Contigen. At the present time, autologous fat, silicon micro-implants
and polytetrafluorethane (Teflon paste, or PTFE) are directly competing with
Contigen implant for the treatment of stress incontinence due to ISD. Neither
silicon micro-implants nor PTFE have been approved by the FDA for use in the
United States. Other methods of treatment or amelioration of ISD may be
considered competitive with Contigen implant. These include surgery,
medication, absorbent products and behavior modification.
Collagraft. Bone graft substitutes currently are used in a small
fraction of bone grafting procedures. The vast majority of bone grafting
procedures currently use autograft (autologous bone) taken from the patient's
own body and allograft (bone bank bone taken from deceased donors). Collagraft
implant and Collagraft strip belong to a new family of products called bone
graft substitutes. The most direct competitor to Collagraft implant and
Collagraft strip is Pro-Osteon, a synthetic bone graft substitute made of a
coral-like mineral. A less direct competitor to Collagraft implant and
Collagraft strip is an allograft bone product called Grafton, which is packaged
in a syringe and marketed and priced like a bone graft substitute.
In addition, several companies and institutions are engaged in the
development of collagen-based and other materials, techniques, procedures and
products for use in medical applications anticipated to be addressed by
Collagen's products, including Contigen implant and Collagraft implant
products. Some of these companies and institutions may have substantially
greater capital resources; research and development staffs and facilities; and
experience in conducting clinical trials, obtaining regulatory approvals, and
manufacturing and marketing products similar to those of Collagen. There can be
no assurance that Collagen's competitors will not succeed in developing
technologies and products that are more effective than any which have been or
may be developed by Collagen or that would render Collagen's technology and
products obsolete or non-competitive. There can be no assurance that such
potential competition will not have an adverse effect on the future business or
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financial condition of Collagen. Certain of Collagen's collagen-based products,
including the Zyderm implants, were manufactured and sold pursuant to an
exclusive license from Stanford University under a U.S. patent, which expired
in April 1993, covering the use of native, solubilized collagen for soft-tissue
augmentation. The expiration of this patent may result in increased competition
in the market for injectable collagen implants if and as other companies enter
that market.
MANUFACTURING
Collagen manufactures its collagen-based products utilizing readily
available chemicals and enzymes. The source of its collagen is bovine (cow)
dermis. In an attempt to ensure that the hides are free from any
herd-threatening disease such as Bovine Spongiform Encephalopathy ("BSE"), the
hides are sourced from a closed herd, which requires the physical separation of
the herd from other herds, the tracking of the lineage of each animal and the
maintenance of each animal under a veterinarian program. Collagen obtains
HA/TCP solely from Zimmer for the manufacture of Collagraft Implant. Collagen
believes that the supply of raw materials and processing materials for its
manufacturing operations is and will continue to be adequate for the
foreseeable future and that such materials are available from other sources.
Collagen's principal products have various refrigerated shelf lives of
30 to 36 months. Collagen typically ships products to physicians as orders are
received on an express delivery basis, and has no material backlog. It is
Collagen's policy to maintain levels of finished goods inventory adequate to
allow for the expeditious handling of orders received. Collagen believes its
physician customers typically purchase products on an as-needed basis, while
distributor customers purchase products based on inventory stocking levels.
In November 1990, Collagen commenced manufacture of its collagen-based
products in its facility located in Fremont, California, significantly
increasing its capacity. Collagen has experienced and may continue to
experience disruptions in its manufacturing schedule as it continues to
manufacture products in increasingly larger quantities and with new process
improvements. Collagen's manufacturing facilities are subject to regulatory
requirements and periodic inspection by regulatory authorities such as the Food
and Drug Administration ("FDA") in the United States, and in countries such as
the United Kingdom, outside the United States.
LipoMatrix produces Trilucent implant in Neuchatel, Switzerland, and
its facility there was certified in compliance with ISO9001 and EN46001 by SQS
and TUV Product Services in December 1994. LipoMatrix may experience
disruptions in manufacturing schedules as a consequence of the normal
transitional effects of producing its first product, and as it manufactures
increasingly larger quantities of products. In addition, it may experience a
significant shortage of manufacturing capacity if its facility fails to operate
as planned.
PRODUCT RESEARCH AND DEVELOPMENT
Collagen maintains an active program of technology and new product
development. Collagen intends to continue to devote a significant portion of
revenues to research and product development activities throughout its product
lines to generate significant returns to stockholders. Research and Development
("R & D") expenses for Collagen totaled $9.9 million, $9.4 million, and $8.8
million in fiscal 1995, 1994 and 1993, respectively. R & D expenses
represented 14%, 15%, and 18% of product sales for those years.
Collagen is pursuing a soft tissue augmentation product development
program with the objective of developing new injectable products and
enhancements to existing products for the treatment of skin contour defects.
The types of improvements being focused on relate to one of two performance
criteria: duration of treatment benefit and/or the elimination of local
inflammatory reactions. Collagen is exploring human collagen, which may prove
to be the alternative for the
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potential collagen patients who are allergic to bovine-based products as well
as first choice for patients who elect to minimize this possibility; in
addition, human collagen could become the basis for numerous future products
that currently rely on a bovine collagen foundation. There are two potential
sources for human collagen: placental-sourced human collagen and recombinant
human collagen through transgenic animals. Collagen has an ongoing
collaboration with IMEDEX, a subsidiary of Rhone-Poulenc S.A., to develop new
products based on the use of human placental-collagen. In addition, Collagen
has made an equity investment in and is actively collaborating with GenPharm
International, Inc. for the purpose of developing recombinant human collagen.
LipoMatrix products are designed and developed at its Neuchatel,
Switzerland facility in accordance with EN46001 and ISO9001 and other
international standards, including risk analysis, design dossiers, validation
and testing.
An additional element of Collagen's product development strategy is
the support of research at leading institutions in areas that may broaden
Collagen's basic technology or suggest new clinical applications for Collagen's
products. Collagen enters into contractual research agreements with various
institutions throughout the United States and Europe in the normal course of
business. These agreements typically provide for various levels of funding over
time periods not exceeding two years. These agreements typically give Collagen
rights of first refusal to develop and market any commercial products which may
result from research performed and impose, in some cases, royalty and payment
obligations and marketing restrictions.
In addition to joint development arrangements, Collagen has an active
program for developing new products through affiliated companies in which
Collagen makes equity and debt investments. Collagen believes the formation of
new companies allows each to focus its technology on select market segments, to
bring products efficiently to market and to advance proprietary know-how at a
rapid rate. However, there can be no assurance that these investments will
result in positive returns nor can there be any assurance on the timing of any
return on such investments. Collagen's product development and research
strategy consists of the following principal elements:
New Products in New Market Segments. In fiscal 1994, Collagen,
together with Target, and Celtrix Pharmaceuticals, Inc.,
formed Prograft Medical Inc. ("Prograft"). Prograft focuses on
the development of proprietary vascular grafts, vascular
stents and vascular stent-graft combinations, which may use
certain of Collagen's biomaterials, for use in the repair and
replacement of diseased and damaged blood vessels. As of June
30, 1995, Collagen held approximately 21% of the equity of,
and has also entered into license and supply agreements with,
Prograft. Also in fiscal 1994, Collagen and its founder, Dr.
Rodney Perkins, formed Otogen Corporation, a start-up company
which is currently developing surgical tissue adhesives for
use in general surgical applications in such areas as plastic
surgery, neurology, thoracic surgery and cardiology. In fiscal
1993, Collagen participated in the formation of CollOptics,
Inc. to develop collagen-based lenticules, which are custom-
made contact lenses for refractive errors.
Access to New Technology. In addition, Collagen has made an
equity investment in and is actively collaborating with
GenPharm International, Inc. for the purpose of developing
recombinant human collagen. This technology could provide
Collagen with a source of recombinant human collagen that is
chemically identical to native human collagen.
EMPLOYEES
As of September 1, 1995, Collagen employed 312 full-time employees, of
which 59 were engaged in research and development, 85 were engaged in sales and
marketing, 91 were involved in production and quality control, and 77 were
engaged in finance and administration. None of Collagen's
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employees is covered by a collective bargaining agreement. Collagen also has a
Board of Scientific Advisors which currently consists of five scientists, each
of whom is prominent in his field and serves as a professor at a major academic
institution. Collagen has a consulting agreement with each advisor which ranges
from two to three years.
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EXECUTIVE OFFICERS
The executive officers of the Company as of September 1, 1995 who are
elected by and serve at the discretion of the Board of Directors, are as
follows:
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OFFICER
NAME AGE POSITION SINCE
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Howard D. Palefsky 48 Chairman and Chief Executive Officer 1978
Gary S. Petersmeyer 48 President and Chief Operating Officer 1995
Frank A. DeLustro, Ph.D. 47 Senior Vice President, Scientific Affairs 1990
Ross R. Erickson 50 Vice President, Regulatory Affairs and Quality Assurance 1990
Deborah W. Berard 36 Vice President, Human Resources and Administrative Services 1991
David Foster 38 Vice President, Finance & MIS, and Chief Financial Officer 1990
A. Neville H. Pelletier 54 Vice President and Managing Director, Europe 1992
Michael Levitt 43 Vice President, Operations 1994
</TABLE>
Except as set forth below, all of the officers have been associated
with the Company in their present position for more than the past five years.
Mr. Palefsky joined the Company as President, Chief Executive Officer
and Director in March, 1978 and served in such capacities unt il February
1995, when he became the Chairman of the Board and Chief Executive Officer.
From 1973 to March 1978, Mr. Palefsky was employed by Alza Corporation where
his last position was Vice President, Marketing. Prior to 1973, Mr. Palefsky
was employed by Whitehall Laboratories as Assistant to the President. Both
Alza Corporation and Whitehall Laboratories are manufacturers of pharmaceutical
products. Mr. Palefsky is also a director of Calgene, Inc., and Target
Therapeutics, Inc.
Mr. Petersmeyer joined Collagen as President, Chief Operating Officer
and Director in February, 1995. Prior to joining Collagen, Mr. Petersmeyer was
employed by Syntex Corporation, a manufacturer of pharmaceutical products,
from 1991 to January 1995, where he served as Vice President of Managed Health
Care from March 1993 to January 1995, as well as serving at various times as
National Sales Director and Director of Corporate Development. From 1986 to
1990, he served as President and Chief Operating Officer of Beta Phase, Inc., a
medical device manufacturer, and from 1982 to 1986 he was the Executive Vice
President and General Manager, Ophthalmic Products Division, of CooperVision,
Inc., a manufacturer and distributor of ophthalmic products.
Dr. DeLustro joined the Company as Manager of Immunology in June 1983
and served in various positions in the Company. In 1991, Dr. DeLustro was
promoted to Senior Vice President, Scientific Affairs. Prior to 1983, he was
Assistant Professor of Medicine at the Medical University of South Carolina.
Mr. Erickson joined the Company as Program Director in January 1987
and served in various senior regulatory positions. In 1990, Mr. Erickson was
promoted to Vice President, Regulatory Affairs and Quality Assurance. From
1983 to 1986, Mr. Erickson was employed by Laserscope as Director of Biomedical
Affairs. From 1977 to 1983, he was employed by Cobe Laboratories as Manager
of Clinical Evaluations. Both Laserscope and Cobe Laboratories are medical
device manufacturers. From 1970 to 1977, Mr. Erickson was employed by Alza
Corporation.
Mr. Foster joined the Company as Financial Analyst in November 1984
and served in various positions in the Company. In 1992, Mr. Foster was
appointed Chief Financial Officer. From 1979 to 1984, Mr. Foster was employed
by Brown, Vence and Associates, an energy and environmental consulting firm, as
Engineering Project Manager.
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Ms Berard joined the Company as a member of the Finance staff in
February 1982 and served in various Human Resource positions. In 1991, Ms
Berand was promoted to Vice President, Human Resources and Administrative
services. Prior to 1982, Ms Berard held a position in medical development in
the Stanford Medical School.
Mr. Pelletier joined the Company in May of 1991 as Vice President of
Collagen International, Inc. In 1992, he was appointed Vice President and
Managing Director, Europe. From 1979 to 1991, Mr. Pelletier was employed by
Sandoz AG, a manufacturer of food products, where his most recent position was
Senior Vice President, Sandoz Nutrition, Inc. During his time at Sandoz, Mr.
Pelletier was based in Minnesota in the U.S., Australia and Switzerland. Prior
to 1979, Mr. Pelletier held a variety of marketing positions with PepsiCo,
Inc., a manufacturer of beverages; Miles Laboratories, Inc., a manufacturer of
over-the-counter toiletries and micro-nutrients; and Proctor and Gamble, a
manufacturer of consumer products. In addition to Australia and Switzerland,
Mr. Pelletier has spent his international career in Canada, the Philippines,
Venezuela and Spain.
Mr. Levitt joined the Company in July 1994 as Vice President,
Operations. Prior to joining the Company, Mr. Levitt was employed by Eli Lilly
and Company, a manufacturer of pharmaceutical products. During his 18 years
with Eli Lilly and Company, Mr. Levitt held positions in sales, research,
human resources and operations. Mr. Levitt's last position with Eli Lilly and
Company was Director of Pharmaceutical Operations.
ITEM 2. PROPERTIES
Collagen's principal executive, marketing, and research activities are
presently located in three buildings in Palo Alto, California which occupy a
total of approximately 77,000 square feet. Collagen has leased these buildings
under various leases that expire between June 1999 and November 2004 and
contain renewal options. Collagen's international facilities are also leased
under various leases and amount to approximately 10,000 square feet in total.
In 1989, Collagen completed a sale-leaseback transaction relating to
its manufacturing facility in Fremont, California. The facility lease term
extends for fifteen years with four five-year renewal options. Collagen
commenced commercial manufacturing in this facility in November 1990. In
addition, Collagen leases approximately 11,000 square feet of warehouse space
in Fremont, California.
LipoMatrix' administrative, research and development, manufacturing
and quality assurance functions are located in a 12,000 square foot facility in
Neuchatel, Switzerland.
Collagen considers that its facilities are adequate to meet its
requirements for at least the next twelve months.
ITEM 3. LEGAL PROCEEDINGS
Collagen is involved in various legal actions arising in the ordinary
course of business, the majority of which involve product liability claims.
While the outcome of such matters is currently not determinable, it is
management's opinion that these matters, including the matters discussed below,
will not have a material adverse effect on Collagen's future consolidated
financial position, results of operations or cash flows.
Collagen faces an inherent business risk of exposure to product
liability claims alleging that the use of Collagen's technology or products has
resulted in adverse effects. Such risks will exist even
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with respect to those products that have received or in the future may receive
regulatory approval for commercial sale. There can be no assurance that
Collagen will avoid significant product liability claims and attendant negative
publicity. Furthermore, there can be no assurance that present insurance
coverage will be adequate or that adequate insurance coverage will remain
available at acceptable costs, if at all, or that a product liability claim or
recall would not adversely affect the future business or financial condition of
Collagen. It is possible that adverse product liability actions could
negatively affect Collagen's ability to obtain and maintain regulatory approval
for its products.
In light of regulatory investigations surrounding product safety,
Collagen announced in September 1991 that it will indemnify physicians against
damages and legal fees arising from lawsuits brought to a jury trial alleging a
link between collagen injections and Polymyositis and Dermatomyositis. To date,
the impact of this indemnification on Collagen's results of operations has not
been significant. There can be no assurance, however, that any future such
claims would not have a material adverse effect on Collagen's operating
results.
On December 21, 1994, Collagen filed suit in Santa Clara County
Superior Court against Matrix Pharmaceutical, Inc., ("Matrix") alleging fraud,
misappropriation of trade secrets, unfair competition, breach of fiduciary
duty, inducing breach of contract, breach of duty of loyalty and tortious
interference. Collagen alleges that Matrix, which uses collagen for certain
drug delivery applications, unlawfully obtained Collagen's confidential and
proprietary information relating to Collagen's products and operations by
hiring ten former employees that Collagen alleges had access to or were
knowledgeable about Collagen's proprietary information. On February 12, 1995,
Matrix denied Collagen's allegations and filed a cross-complaint charging
Collagen with, among other things, unfair competition, defamation and restraint
of trade. Matrix also has requested certain declaratory relief. Howard
Palefsky, Chairman of the Board and Chief Executive Officer of Collagen, was
personally named as an additional defendant to the Matrix defamation charge.
Collagen intends to vigorously contest Matrix's charges. In September, 1995,
Collagen filed an amended complaint naming two additional former employees, and
alleging the acquisition of additional proprietary information obtained
unlawfully.
ITEM 4. RESULTS OF VOTES BY SECURITY HOLDERS
No matters were submitted to a vote of stockholders of Collagen
Corporation during its fourth fiscal quarter ended June 30, 1995.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
MARKET FOR COMMON STOCK
The Company's Common Stock is traded on The Nasdaq Stock Market under
the symbol CGEN. The following table presents the high and low sale prices for
the Company's Common Stock for each fiscal quarter for the fiscal years ended
June 30, 1995 and 1994, as reported by The Nasdaq Stock Market Summary of
Activity(TM).
<TABLE>
<CAPTION>
Fiscal year ended June 30 1995 1994
---- ----
Quarter ended High Low High Low
------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
September 30 $22.75 $17.25 $29.00 $21.75
December 31 24.00 19.25 30.25 25.25
March 31 28.25 21.50 31.75 19.00
June 30 22.50 15.00 23.75 17.00
</TABLE>
HOLDERS OF RECORD
At September 1, 1995 there were approximately 1,121 holders of record
of the Company's Common Stock.
DIVIDENDS
The Company declared a cash dividend of $.075 per share on its common
stock payable to stockholders of record on June 15, 1995, in addition to a
$.075 per share dividend declared and paid earlier in fiscal 1995. In fiscal
1994, the Company declared a cash dividend of $.10 per share. The Board of
Directors expects to review the potential for future dividends semi-annually.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following data have been derived from consolidated financial
statements that have been audited by Ernst & Young LLP, independent auditors.
The information set forth below is not necessarily indicative of the results of
future operations and should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Annual
Report on Form 10-K.
<TABLE>
<CAPTION>
Fiscal years ended June 30, 1995(1) 1994(1) 1993(1) 1992(2) 1991(2)
----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues $72,560 $65,552 $49,743 $67,182 $61,382
Research and development expenses 9,943 9,366 8,767 12,023 8,954
Operating income (loss) 11,854 8,607 (3,859) (6,294) 8,657
Gain from investments, net(1) 5,110 -- 20,323 9,439 --
Income from continuing operations 8,760 4,920 9,732 1,408 5,113
Net income (loss) 8,760 4,920 8,743 1,147 (4,349)
Income (loss) per share:
Continuing operations .93 .50 .95 .14 .53
Net income (loss) .93 .50 .85 .11 (.45)
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION AT JUNE 30,
Cash, cash equivalents and short-term investments $ 9,384 $12,736 $19,630 $44,686 $16,517
Total assets 76,906 74,505 76,206 95,479 67,591
Long-term obligations, excluding minority interest 9,972 9,507 8,784 1,786 10,168
Total stockholders' equity 47,920 49,082 54,936 57,174 37,798
Book value per share at June 30 5.31 5.21 5.64 5.71 3.88
ADDITIONAL INFORMATION:
Cash dividends declared per share .15 .10 -- -- --
</TABLE>
(1) As a result of the sale of a portion of the Company's shares of Target
Therapeutics, Inc. ("Target"), the Company's ownership position in Target
decreased to below 50% in December 1992. The fiscal 1995, 1994 and 1993
financial information is presented with Target accounted for under the equity
method. All previous years contain consolidated results of Target (see Notes 1
and 4 to the Consolidated Financial Statements). Gains from the Company's
investment in Target contributed $6,035,000, $20,323,000, and $10,239,000 to
fiscal 1995, 1993 and 1992 pre-tax earnings, respectively.
(2) Includes consolidated results of Target.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Collagen Corporation (the "Company") is a technology-based company that
develops, manufactures and markets biomedical devices for the treatment of
defective, diseased, traumatized or aging human tissues.
The Company's revenues have been derived primarily from the sale of products
used in reconstructive and cosmetic applications for the face, the treatment of
stress urinary incontinence, and in bone repair. The Company markets its
reconstructive and cosmetic products directly and through a network of
international distributors and its stress urinary incontinence and bone repair
products through marketing partners.
In addition to internal research and development ("R&D") and joint product
development arrangements, the Company has an active program for developing new
products through affiliated companies in which the Company makes equity and
debt investments. The Company believes the formation of new companies allows
each to focus its technology on select market segments to bring products to
market efficiently and to expand its proprietary knowledge.
RESULTS OF OPERATIONS
The following table shows, for the periods indicated, the percentage
relationship to product sales of
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certain items in the Consolidated Statements of Income and the percentage
changes in the dollar amounts of such items from year to year.
<TABLE>
<CAPTION>
Percent Change
1995 1994
Percent of Product Sales vs. vs.
Year ended June 30, 1995 1994 1993 1994 1993
--------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Product sales 100% 100% 100% 11% 30%
Other revenue 1% 2% -- -- --
- ----------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 26% 29% 31% (2%) 21%
Research and development 14% 15% 18% 6% 7%
Selling, general and administrative 45% 44% 59% 12% (2%)
- ----------------------------------------------------------------------------------------------------------
Income (loss) from operations 17% 13% (8%) 38% NM*
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Comparison not meaningful as operating result was positive in fiscal 1994
but negative in fiscal 1993.
PRODUCT SALES. Product sales of $71.6 million in fiscal 1995 increased $7.0
million or 11% over fiscal 1994 sales of $64.6 million, which in turn increased
$14.9 million or 30% over fiscal 1993 sales of $49.7 million. The $7.0 million
increase in fiscal 1995 is primarily due to growth in worldwide sales of
plastic surgery and dermatological products. The $14.9 million increase in
fiscal 1994 was principally attributable to new products, primarily Contigen(R)
Bard collagen implant ("Contigen implant"), Collagraft(R) bone graft matrix
implant ("Collagraft implant") and Collagraft(R) bone graft matrix strip
("Collagraft strip").
Worldwide sales of plastic surgery and dermatological products in fiscal year
1995 were $51.5 million or 18% higher than fiscal 1994 sales of $43.5 million,
compared to a 2% decrease in fiscal 1994 over fiscal 1993 sales of $44.2
million. U.S. sales of plastic surgery and dermatological products increased
12% in fiscal 1995 over fiscal 1994, which was relatively flat compared to the
prior year. The Company believes that the increase in sales in the current
fiscal year was due to a combination of a price increase and a growth in
demand. The increase in unit demand may be attributable to advertising and
public relations campaigns, the introduction of a new injection device in the
second half of the year, and general increased physician interest in cosmetic
procedures not reimbursed by third party payers. The Company believes the lack
of growth in demand in fiscal 1994 was primarily due to competition from
alternative cosmetic procedures such as fat injections and chemical peels, as
well as the lingering effects of adverse publicity in prior years from the news
media on cosmetic procedures in general and to regulatory investigations
specific to the Company. (See--"Factors that May Affect Future Results of
Operations".) U.S. sales represented approximately 49% of worldwide sales in
dollars in fiscal 1995 and 52% in both fiscal years 1994 and 1993.
International unit sales of plastic surgery and dermatological products
increased approximately 29% in fiscal 1995 over fiscal 1994 and 8% in fiscal
1994 over the prior year. The Company believes the improved performance in the
international market is a result of strong distributor sales, especially in
Japan, successful international marketing and public relations efforts by the
Company's subsidiaries, the launch of improved syringe configurations, and
improving economic conditions in Europe. International sales in dollars were
positively impacted by favorable exchange rates in fiscal 1995 by approximately
$1.6 million, whereas in fiscal 1994, international sales in dollars were
negatively impacted by unfavorable foreign exchange rates by approximately $1.6
million compared to the prior year. The Company anticipates continued growth
in future worldwide product sales in dollars in the plastic surgery and
dermatological market, but at rates lower than the 18% achieved in fiscal 1995.
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In September 1993, the Company and its marketing partner, C.R. Bard, Inc.
("Bard"), received final clearance from the U.S. Food and Drug Administration
("FDA") to market Contigen implant. The table below outlines the two
components of product sales for Contigen implant over the three year period.
<TABLE>
<CAPTION>
Years ended June 30, 1995 1994 1993
- ----------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C>
Shipments of Contigen implant to Bard $13.4 $15.9 $4.4
Income from Bard's direct sales to physician customers 3.1 .8 --
-------------------------
$16.5 $16.7 $4.4
=========================
</TABLE>
The Company did not record any income from Bard's direct sales to physician
customers until fiscal 1994 as Bard's sales to customers commenced late in the
second quarter of fiscal 1994. In the quarter ended December 31, 1994, the
Company's share of Bard's direct sales increased from 5% to 10%, pursuant to
terms of an agreement. Fiscal 1995 sales to Bard represent minimum shipment
levels made in accordance with an agreement between the two companies. There
is no agreement for fiscal 1996 sales to Bard. Bard currently has a
significant inventory of these products and as a result, the Company expects to
make minimal or no shipments to Bard in fiscal 1996. Future income from Bard's
direct sales of Contigen implant to physicians is expected to continue but may
fluctuate significantly due to market demand. As a result of the forgoing,
revenues from Contigen implant during fiscal 1996 are expected to decline by
more than 50 percent compared with fiscal 1995.
In January 1994, the Company and its marketing partner, Zimmer, Inc.
("Zimmer"), received clearance from the FDA to market Collagraft strip, a
second-generation product for the treatment of acute long bone fractures and
traumatic osseous (bony) defects. Combined sales of Collagraft implant and
Collagraft strip to Zimmer totaled $3.0 million in fiscal 1995 and $2.7 million
in fiscal 1994 compared to sales of Collagraft implant of $150,000 in fiscal
1993. Fiscal 1994 represented the first full fiscal year of Collagraft implant
sales.
A number of uncertainties exist surrounding the marketing and distribution of
Contigen implant, Collagraft implant and Collagraft strip. The Company's
primary means of distribution for these products is through third party firms,
Bard, in the case of Contigen implant, and Zimmer, in the case of Collagraft
implant and Collagraft strip. The Company's business and financial results
could be adversely affected in the event that either or both of these parties
are unable to effectively market the products, accurately anticipate customer
demand, or effectively manage industry-wide pricing and cost containment
pressures in health care.
OTHER REVENUE. Other revenue in fiscal years 1995 and 1994 consisted of
milestone payments of $1.0 million in each period from Bard in accordance with
an agreement between the Company and Bard. Under the agreement, Bard is
scheduled to pay a final milestone payment of $2.0 million to the Company on
September 30, 1995.
COST OF SALES. Cost of sales as a percentage of product sales averaged 26%,
29% and 31% in fiscal 1995, 1994 and 1993, respectively. The decrease in cost
of sales as a percentage of product sales over the three year period is
primarily due to increased product revenues resulting from income received from
Bard's direct sales of Contigen implant to physician customers, which lowered
the cost of sales as a percentage of product sales, as well as the favorable
impact of foreign exchange rates on international product sales in fiscal 1995.
Additionally, cost of sales reflects slightly lower unit costs due to increased
production volumes in fiscal 1995 and 1994, primarily from Contigen implant.
Due to the high fixed costs of the Company's manufacturing facility, unit cost
of sales is expected to remain highly dependent on the level of output at the
Company's manufacturing facility, which is heavily dependent on production of
Contigen implant. The Company anticipates that unit cost will be higher in
fiscal 1996 compared to fiscal 1995 as a result of minimal or no shipments of
Contigen implant to
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Bard. Cost of sales as a percentage of sales is also contingent on the product
mix of future sales for which demand and pricing characteristics may vary.
R&D. R&D expenses, which include expenditures for regulatory compliance, were
$9.9 million (14% of product sales) in fiscal 1995, $9.4 million (15% of
product sales) in fiscal 1994, and $8.8 million (18% of product sales) in fiscal
1993. The R&D spending increase in fiscal 1995 over fiscal 1994 was primarily
attributable to advancements in soft tissue programs, including clinical trials
for Zyplast(R) II Implant (a concentrated collagen material for soft tissue
augmentation). The increase in R&D expenses in fiscal 1994 over the prior year
were primarily attributable to the Company devoting additional resources to
expand its capabilities in collagen-based technologies through the hiring of
additional personnel and expanding its facilities. The Company expects internal
R&D spending, both in absolute dollars and as a percentage of product sales, to
increase in fiscal 1996, due to the acquisition of LipoMatrix, Incorporated
("LipoMatrix") securities. (See Equity in earnings/losses of affiliate
companies.) In addition, the Company anticipates that a significant portion of
the LipoMatrix purchase price will be recognized as in-process R&D expense in
the first quarter of fiscal 1996.
SG&A. Selling, general and administrative ("SG&A") expenses totaled $32.2
million in fiscal 1995, $28.6 million in fiscal 1994 and $29.2 million in
fiscal 1993, representing 45%, 44%, and 59% of product sales, respectively.
The $3.5 million, or 12% increase in fiscal 1995 over the prior year was
primarily due to higher international sales and marketing spending, including
the unfavorable impact of foreign exchange rates. The $600,000, or 2%,
decrease in fiscal 1994 from fiscal 1993 was primarily due to lower commission
expenses related to international sales, the favorable impact of foreign
exchange rates, and lower promotional expense for the U.S. plastic surgery and
dermatological products, offset by increased personnel costs. The Company
expects SG&A spending in fiscal 1996, both in absolute dollars and as a
percentage of product sales, to be at substantially higher levels compared to
fiscal 1995 due to the acquisition of LipoMatrix securities (see Equity in
earnings/losses of affiliate companies), costs of launching and marketing a new
product in Europe, Trilucent(TM) implant, and a transition from using a
European inventory logistics vendor to using internal resources.
OPERATING INCOME. Operating income was $11.9 million in fiscal 1995, compared
to operating income of $8.6 million in fiscal 1994 and an operating loss of
$3.9 million in fiscal 1993. The 38% increase in operating income in fiscal
1995 is primarily attributable to improved sales of plastic surgery and
dermatological products, partially offset by increased SG&A expenses. The
turnaround in operating income in fiscal 1994 over the prior year was primarily
the result of increased sales of Contigen implant, Collagraft implant and
Collagraft strip, as well as decreased SG&A expenses.
IMPACT OF FOREIGN EXCHANGE RATES. The impact of foreign exchange rates from
fiscal 1994 to fiscal 1995 resulted in an increase in revenue of approximately
$1.5 million on equivalent local currency sales and an increase in operating
expenses of approximately $1.0 million, resulting in a net increase in
operating income of approximately $500,000 on an equivalent local currency
basis, compared to a reduction of approximately $1.6 million in revenue, a
reduction of approximately $1 million in operating expenses and a net reduction
of approximately $600,000 in operating income from fiscal 1993 to fiscal 1994.
Unhedged net foreign assets were $10.4 million at June 30, 1995. (See Note 1 to
the Consolidated Financial Statements.)
GAIN ON INVESTMENTS. In fiscal 1995, the Company sold 245,000 shares of common
stock of Target Therapeutics, Inc. ("Target") for a pre-tax gain of
approximately $6.0 million. In addition, the Company recorded an investment
reserve of $925,000 to write-down the carrying value of certain equity
investments due to a decline in value determined to be other than temporary.
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EQUITY IN EARNINGS/LOSSES OF AFFILIATE COMPANIES. Equity in earnings of Target
was $2.4 million in fiscal 1995 compared to $1.7 million and $1.5 million in
fiscal 1994 and 1993, respectively. Equity in Target's earnings increased over
the three-year period due to increased earnings of Target, partially offset by
the Company's reduced ownership interest resulting from the sale of Target
shares. Equity in losses of other affiliate companies in fiscal 1995 was $3.6
million compared to $1.9 million in fiscal 1994 and $487,000 in fiscal 1993.
Equity in affiliates' losses increased over the three-year period due to
additional investments made in affiliate companies. The Company intends to
continue to expand its new product development activities through more equity
investments in or loans to affiliate companies. These affiliate companies
typically are in an early stage of development and may be expected to incur
substantial losses which in turn will have an adverse effect on the Company's
operating results. In August 1995, the Company entered into an agreement with
certain of the stockholders in LipoMatrix, in which the Company will acquire,
subject to certain conditions, approximately 50 percent of the outstanding
securities on a fully diluted basis. The purchase increases the Company's
ownership in LipoMatrix from approximately 40 percent to 90 percent of the
outstanding securities on a fully diluted basis. The purchase is scheduled to
close in January 1996.
Due to the Company's increased ownership interest and depending on the
financial and operating results of LipoMatrix in fiscal 1996, the Company's
recognition of its share of losses of LipoMatrix, which was $2.3 million in
fiscal 1995, will increase substantially in the next fiscal year. There can be
no assurance that these investments in affiliates will result in positive
returns nor can there be any assurance on the timing of any return on
investment, or that the Company will not lose its entire investment.
INTEREST INCOME AND EXPENSE. Interest income was $487,000 in fiscal 1995,
$510,000 in fiscal 1994 and $880,000 in fiscal 1993. The decrease in fiscal
1995 over fiscal 1994 was due to lower average investment balances, partially
offset by higher interest rates. The decrease in fiscal 1994 from fiscal 1993
was primarily due to lower average investment balances resulting primarily from
the repurchase of common stock and to lower interest rates. Interest expense
of $91,000 in fiscal 1995 was related primarily to a $7 million revolving
credit facility which the Company established in November 1994.
INCOME TAXES. The Company's effective income tax rate was approximately 46% for
fiscal 1995 compared to 44% for fiscal 1994 and 47% for fiscal 1993. The
increase in fiscal 1995 compared to fiscal 1994 is primarily due to increased
non-deductible equity in losses of affiliates and investment reserves. The
decrease in fiscal 1994 from fiscal 1993 was primarily attributable to a
reduction in unbenefited foreign subsidiary losses and the recognition of tax
credits, partially offset by an increase in non-deductible equity losses of
affiliates. It is expected that the overall effective income tax rate for
fiscal 1996 will be higher compared to fiscal 1995. As the Company continues
its investments in affiliate companies, the effective tax rate for fiscal 1996
is expected to increase as a result of increased non-deductible equity losses
and investment reserves. Effective July 1, 1992, the Company prospectively
changed its method of accounting for income taxes from the deferred method to
the liability method required by SFAS No. 109, "Accounting for Income Taxes".
The cumulative effect of adopting SFAS No. 109 was a charge to earnings of
$989,000 in the first quarter of fiscal 1993. (See Notes 1 and 10 to the
Consolidated Financial Statements.)
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, the Company's cash, cash equivalents and short-term
investments were $9.4 million compared to $12.7 million at June 30, 1994. Net
cash provided by operating activities was $10.3 million for the fiscal year
ended 1995, compared with $10.7 million provided by operating activities for
the same prior-year period.
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The $10.3 million of cash provided by operating activities in the current
fiscal year was offset by $11.3 million used to repurchase 562,500 shares of
the Company's common stock at an average acquisition price of approximately $20
per share, $5.7 million of additional investments in and loans to affiliate
companies and the payments of aggregate cash dividends of approximately $1.6
million to the Company's stockholders in July 1994 and January 1995. The
purchase price of the aforementioned acquisition of LipoMatrix securities is
approximately $18 million. The Company intends to finance the purchase price
by selling additional shares from its holdings of Target stock, and/or by
borrowing funds, as needed, under its existing or other credit facility. Gains
from the sale of Target stock are expected to offset these additional losses in
part or in whole. The Company anticipates capital expenditures, and additional
equity investments in, and loans to affiliate companies to be approximately
$18.0 million in fiscal 1996. In June 1995, the Company's Board of Directors
authorized the repurchase of an additional 300,000 shares of the Company's
common stock under the stock repurchase program. Also in June 1995, the
Company declared a dividend of 7.5 cents per share for stockholders of record
as of June 15, 1995. This dividend totaled $676,000 and was paid to
stockholders on July 14, 1995.
The Company's principal sources of liquidity include cash generated from
operations and its cash, cash equivalents and short-term investments. In
addition, during the fiscal quarter ended September 30, 1994, the Company's
Board of Directors authorized the Company to sell portions of its holdings of
approximately 2.3 million shares of Target's common stock. In fiscal 1995,
the Company sold an aggregate of 245,000 shares of Target common stock for a
pre-tax gain of approximately $6.0 million. The Company anticipates that stock
sales pursuant to the authorization will be made from time to time, under SEC
Rule 144, with the objective of generating cash, for, among other things,
further investments in both current and new affiliate companies. In addition,
the Company established a $7.0 million revolving credit facility with a bank in
November 1994. The Company may use funds from this source to partially finance
the acquisition of LipoMatrix securities as well as for general corporate
purposes. The Company believes that these sources should be adequate to fund
its anticipated cash needs through at least the next twelve months.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
A large portion of the Company's revenues in recent years has come from its
international operations. As a result, the Company's operations and financial
results could be significantly affected by international factors, including
numerous regulatory agencies, changes in foreign currency exchange rates and
foreign economic and political conditions generally. The Company's operating
strategy takes into account changes in these factors over time; however, the
Company's results of operations could be significantly affected in the short
term by fluctuations in foreign currency exchange rates or disruptions to
shipments.
All of the Company's manufacturing capacity, the majority of its research and
development activities, its corporate headquarters, and other critical business
functions are located near major earthquake faults. In addition, all of the
manufacturing capacity is located in a single facility, with the Company
currently maintaining only limited amounts of finished product inventory.
While the Company has some limited protection in the form of disaster recovery
programs and basic insurance coverages, the Company's operating results and
financial condition would be materially adversely affected in the event of a
major earthquake, fire or other similar calamity.
The Company is involved in various legal actions arising in the course of
business, some of which involve product liability and intellectual property
claims. The Company operates in an industry susceptible to claims that may
allege that the use of the Company's technology or products has resulted in
adverse effects or infringes on third-party technology. With respect to product
liability claims, such
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risks will exist even with respect to those products that have received or in
the future may receive regulatory approval for commercial sale. It is possible
that adverse product liability or intellectual property actions could
negatively affect the Company's future results of operations.
The Company has been and may be in the future the subject of negative
publicity, which can arise from various sources, ranging from the news media on
cosmetic procedures in general to legislative and regulatory investigations
specific to the Company concerning, among other things, the safety and efficacy
of its collagen-based products. The Company is confident of the safety and
effectiveness of its collagen-based products; however, there can be no
assurance that such investigations or negative publicity from such
investigations or from the news media will not result in a material adverse
effect on the Company's future financial position, its results of operations or
the market price of its stock. In addition, significant negative publicity
could result in an increased number of product liability claims.
The Company's manufacturing activities and products sold in the United States
are subject to extensive and rigorous regulations by the FDA and by comparable
agencies in certain foreign countries where these products are manufactured or
distributed. The FDA regulates the manufacture and sale of medical devices in
the U.S., including labeling, advertising and record keeping. Failure to
obtain, or delays in obtaining, the required regulatory approvals for new
products, as well as product recalls, both inside and outside of the U.S. could
adversely affect the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Statements:
Consolidated Balance Sheets at June 30, 1995 and 1994 21
Consolidated Statements of Income for the fiscal years ended June 30, 1995, 1994 and
1993 22
Consolidated Statements of Stockholders' Equity for the fiscal years ended June 30,
1995, 1994, and 1993 23
Consolidated Statements of Cash Flows for the fiscal years ended June 30, 1995, 1994, 24
and 1993
Notes to Consolidated Financial Statements 25
Report of Ernst & Young LLP, Independent Auditors 35
Supplementary Quarterly Consolidated Financial Data (Unaudited) 36
Financial Statement Schedule:
For the years ended June 30, 1995, 1994, and 1993:
Schedule II - Valuation and Qualifying Accounts 37
</TABLE>
Schedules not listed above have been omitted because they are not
required or the information required to be set forth therein is
included in the Consolidated Financial Statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable
Page 20
<PAGE> 21
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1995 1994
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands, except share and per share amounts)
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short-term investments $ 9,384 $12,736
Accounts receivable, less allowance for doubtful accounts
($383 in 1995 and $353 in 1994) 13,402 12,241
Inventories 5,056 3,861
Other current assets 5,568 3,305
------- -------
Total current assets 33,410 32,143
Property and equipment, net 16,506 17,108
Intangible assets 2,727 2,243
Investment in Target Therapeutics, Inc. 17,570 17,499
Other investments and assets 6,693 5,512
------- -------
$76,906 $74,505
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,250 $1,420
Accrued compensation 2,908 2,169
Accrued liabilities 7,954 8,076
Income taxes payable 5,902 4,251
------ ------
Total current liabilities 19,014 15,916
Deferred income taxes 8,478 8,240
Other long-term liabilities 1,494 1,267
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value, authorized:
5,000,000 shares; none issued or outstanding -- --
Common shares, $.01 par value, authorized:
28,950,000 shares; issued: 10,519,632 shares
(10,354,633 shares in 1994); outstanding:
9,019,632 shares (9,417,133 shares in 1994) 106 104
Additional paid-in capital 63,855 61,172
Retained earnings 17,273 9,882
Cumulative translation adjustment (604) (648)
Treasury stock, 1,500,000 shares in 1995 (937,500 shares -------- --------
in 1994) (32,710) (21,428)
Total stockholders' equity 47,920 49,082
-------- --------
$ 76,906 $ 74,505
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
Page 21
<PAGE> 22
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended June 30, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
REVENUES:
Product sales $71,560 $64,552 $49,743
Other 1,000 1,000 --
72,560 65,552 49,743
COSTS AND EXPENSES:
Cost of sales 18,584 18,940 15,659
Research and development 9,943 9,366 8,767
Selling, general and administrative 32,179 28,639 29,176
------------------------------------
60,706 56,945 53,602
------------------------------------
Income (loss) from operations 11,854 8,607 (3,859)
Other income (expense):
Net gain from investments, principally Target
Therapeutics, Inc. 5,110 -- 20,323
Equity in earnings of Target Therapeutics, Inc. 2,417 1,675 1,455
Equity in losses of other affiliates (3,577) (1,944) (487)
Interest income 487 510 880
Interest expense (91) -- --
Income before income taxes and cumulative effect of -------------------------------------
accounting change 16,200 8,848 18,312
Provision for income taxes 7,440 3,928 8,580
-------------------------------------
Income before cumulative effect of accounting change 8,760 4,920 9,732
Cumulative effect of change in accounting for income
taxes -- -- (989)
-------------------------------------
Net income $8,760 $4,920 $8,743
=====================================
INCOME (LOSS) PER SHARE:
Income before cumulative effect of accounting change $.93 $.50 $.95
Cumulative effect of accounting change -- -- (.10)
-------------------------------------
Net income per share $.93 $.50 $.85
=====================================
Shares used in calculating per share information 9,460 9,896 10,267
=====================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
Page 22
<PAGE> 23
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<Caption)
Retained Total
Additional earnings Cumulative stock-
Common Paid-in (Accumulated translation Treasury holders'
stock Capital deficit) adjustment stock equity
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1992 $100 $59,901 $(2,838) $ 11 $ -- $ 57,174
Change in method of accounting for
income taxes -- (4,346) -- -- -- (4,346)
Sale of common stock under options
and employee stock purchase plan 1 1,009 -- -- -- 1,010
Tax benefit relating to stock options -- 298 -- -- -- 298
Foreign currency translation adjustment
and other -- 63 -- (425) -- (362)
Treasury stock purchased -- -- -- -- (7,581) (7,581)
Net income -- -- 8,743 -- -- 8,743
------------------------------------------------------------------------
BALANCE AT JUNE 30, 1993 101 56,925 5,905 (414) (7,581) 54,936
Sale of common stock under options
and employee stock purchase plan 3 2,909 -- -- -- 2,912
Tax benefit relating to stock options -- 1,338 -- -- -- 1,338
Foreign currency translation adjustment -- -- -- (234) -- (234)
Dividends declared ($.10 per share) -- -- (943) -- -- (943)
Treasury stock purchased -- -- -- -- (13,847) (13,847)
Net income -- -- 4,920 -- -- 4,920
------------------------------------------------------------------------
BALANCE AT JUNE 30, 1994 104 61,172 9,882 (648) (21,428) 49,082
Sale of common stock under options
and employee stock purchase plan 2 2,300 -- -- -- 2,302
Tax benefit relating to stock options -- 383 -- -- -- 383
Foreign currency translation adjustment -- -- -- 44 -- 44
Dividends declared ($.15 per share) -- -- (1,369) -- -- (1,369)
Treasury stock purchased -- -- -- -- (11,282) (11,282)
Net income -- -- 8,760 -- -- 8,760
------------------------------------------------------------------------
BALANCE AT JUNE 30, 1995 $106 $63,855 $17,273 $ (604) $(32,710) $ 47,920
========================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
Page 23
<PAGE> 24
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Years ended June 30, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $8,760 $4,920 $8,743
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Equity in losses (earnings) of affiliates 1,160 269 (968)
Depreciation and amortization 4,368 3,909 3,808
Deferred income taxes 238 553 (4,711)
Tax benefit relating to stock options 383 1,338 298
Gain from investments, net (5,110) -- (20,323)
Cumulative effect of accounting change -- -- 989
Decrease (increase) in assets:
Accounts receivable (1,161) (2,968) (1,588)
Inventories (1,195) 306 2,068
Other (737) 16 4,443
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 1,709 764 (3,650)
Income taxes payable 1,651 1,720 1,854
Other long-term liabilities 224 (126) (21)
------------------------------------
Total adjustments 1,530 5,781 (17,801)
------------------------------------
Net cash provided by (used in) operating activities 10,290 10,701 (9,058)
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sales of Target Therapeutics, Inc. stock 8,379 -- 28,456
Reduction in cash from deconsolidation of Target Therapeutics,
Inc. -- -- (5,974)
Proceeds from sales and maturities of short-term investments 7,366 15,331 27,561
Purchase of short-term investments (3,126) (12,362) (34,935)
Expenditures for investments in and loans to affiliates (5,737) (2,378) (3,025)
Expenditures for property and equipment (4,385) (4,011) (2,510)
(Increase) in intangible and other assets (1,385) (269) (663)
-------------------------------------
Net cash provided by (used in) investing activities 1,112 (3,689) 8,910
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (11,282) (13,847) (7,581)
Net proceeds from issuance of common stock 2,302 2,910 1,009
Cash dividends paid (1,636) -- --
-------------------------------------
Net cash used in financing activities (10,616) (10,937) (6,572)
-------------------------------------
Net increase (decrease) in cash and cash equivalents 786 (3,925) (6,720)
Cash and cash equivalents at beginning of period 5,369 9,294 16,014
-------------------------------------
Cash and cash equivalents at end of period $6,155 $5,369 $9,294
=====================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
Page 24
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Collagen
Corporation (the "Company"), a Delaware corporation, and its wholly-owned and
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Investments in unconsolidated subsidiaries,
and other investments in which the Company has a 20% to 50% interest or
otherwise has the ability to exercise significant influence, are accounted for
under the equity method (See Note 4).
Investments in companies in which the Company has less than a 20% interest are
carried at cost or estimated realizable value, if less. In fiscal 1995,
investments were written down by $925,000 to estimated net realizable value.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity from date
of purchase of three months or less to be cash equivalents.
Effective July 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and
Equity Securities". The adoption at July 1, 1994 did not have a material
impact on the Company's financial statements.
Management determines the appropriate classification of investment securities
at the time of purchase and reevaluates such designation as of each balance
sheet date. The Company's investment securities are classified as
available-for-sale and are carried at estimated fair value in cash equivalents
and short-term investments. Material unrealized gains and losses will be
recorded, net of tax, in a separate component of stockholders' equity. Both
realized and unrealized gains and losses were immaterial at and for the year
ended June 30, 1995.
The Company invests its excess cash in deposits with major banks and in money
market securities of companies with strong credit ratings and from a variety of
industries. These securities are typically short-term in nature and,
therefore, bear minimal risk. The Company has not experienced any losses on
its money market investments.
INVENTORIES
Inventories are valued at the lower of cost, determined on a standard cost
basis which approximates average cost, or market.
PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment which is stated at cost
are provided on the straight-line method over estimated useful lives as
follows:
<TABLE>
<S> <C>
Machinery and equipment 5 - 10 years
Leasehold improvements Term of lease
</TABLE>
Page 25
<PAGE> 26
INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method. Patents are
amortized over a seventeen-year period beginning with the effective date or
over the remainder of such period from the date acquired. Trademarks are
amortized over a twenty-year period beginning with the trademark filing dates.
Organization costs are amortized over a five-year period. Purchased product
rights are amortized over their estimated useful lives.
OTHER ASSETS
Other assets include loans to employees and directors totaling $759,000 and
$285,000, at June 30, 1995 and 1994, respectively.
REVENUE RECOGNITION
Revenue from product sales is recognized at time of shipment net of allowances
for estimated future returns.
CONCENTRATION OF CREDIT RISK
The Company sells its plastic surgery and dermatological products primarily to
physicians and pharmacies in North America, Europe and the Pacific Rim. The
Company sells Contigen(R) Bard collagen implant ("Contigen implant") to C.R.
Bard, Inc. ("Bard"), its marketing partner for Contigen implant, and
Collagraft(R) bone graft matrix implant and Collagraft(R) bone graft matrix
strip to Zimmer, Inc., the Company's marketing partner for Collagraft(R)
products. The Company performs ongoing credit evaluations of its customers
and generally does not require collateral. The Company maintains reserves for
potential credit losses and such losses have been within management's
expectations.
The Company allows, on occasion, its customers to return product for credit,
and also allows customers to return defective or damaged product for credit or
replacement. Written authorization from the Company is required to return
merchandise. Some domestic and foreign customers are subject to extended
payment terms. These practices have not had a material effect on the company's
working capital.
ADVERTISING COSTS
The Company charges advertising costs to expense when incurred. Total
advertising expense was $840,000 for 1995, and was not material for fiscal 1994
or 1993.
INCOME TAXES
Effective July 1, 1992, the Company prospectively adopted the liability method
of accounting for income taxes as required by SFAS No. 109, "Accounting for
Income Taxes". Prior to the adoption of SFAS No. 109, the Company accounted
for income taxes under the deferred method of APB No. 11 (See Note 10).
EARNINGS PER SHARE
Earnings per share have been computed based upon the weighted average number of
common and dilutive common equivalent shares outstanding. Common equivalent
shares result from stock options.
FOREIGN CURRENCY TRANSLATION
The functional currency for each foreign subsidiary is its respective foreign
currency. Accordingly, all assets and liabilities related to these operations
are translated at the current exchange rates at the end of each period. The
resulting cumulative translation adjustments are recorded directly to the
accumulated foreign currency translation adjustment account included in
stockholders' equity. Revenues and expenses are translated at average exchange
rates in effect during the period. Foreign currency transaction gains and
losses are included in results of operations.
Page 26
<PAGE> 27
Until December, 1994, the Company's policy was to hedge material foreign
currency transaction exposures. At June 30, 1995, no foreign currency
transaction exposures were hedged. Unhedged net foreign assets were $10.4
million.
FORWARD EXCHANGE CONTRACTS
Prior to December 1994, the Company used foreign currency forward exchange
contracts with various issuers to hedge against the effects for fluctuating
currency rates on its net foreign currency position denominated in currencies
other than the United States dollar. The Company's net foreign currency
position is approximately equal to its foreign subsidiary assets minus
liabilities resulting from transaction related exposures. The forward exchange
contracts were denominated in readily tradable major European currencies and
the unhedged exposure on the balance sheet was immaterial. Gains and losses on
forward exchange contracts, based on the difference between the forward
exchange rate and the actual spot rate at the time of valuation, were generally
deferred and accumulated in a separate component of stockholders' equity to the
extent such contracts were designated as hedges of a net investment in a
foreign entity. The Company discontinued its purchase of forward exchange
contracts in December 1994. There were no deferred gains or losses on forward
contracts at June 30, 1994.
RECLASSIFICATION
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform with the current year presentation.
2. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
June 30, 1995 1994
- -------------------------------------------------------------------------- -----------
(In thousands)
<S> <C> <C>
Cash, cash equivalents and short-term investments:
Cash and cash equivalents $6,155 $ 5,369
Short-term investments 3,229 7,367
---------- ----------
$9,384 $12,736
Inventories:
Raw materials $ 684 $ 625
Work-in-process 1,845 1,763
Finished goods 2,527 1,473
---------- ----------
$5,056 $ 3,861
========== ==========
Other current assets:
Deferred taxes $3,142 $ 2,501
Other 2,426 804
---------- ----------
$5,568 $ 3,305
========== ==========
Property and equipment:
Machinery and equipment $ 24,095 $ 21,544
Leasehold improvements 11,937 11,835
---------- ----------
36,032 33,379
Less accumulated depreciation and
amortization (19,526) (16,271)
---------- ----------
$ 16,506 $ 17,108
========== ==========
</TABLE>
Page 27
<PAGE> 28
<TABLE>
<S> <C> <C>
Intangible assets:
Patents, trademarks, and other $ 3,840 $ 2,910
Organization costs* 1,677 1,451
---------- ----------
5,517 4,361
Less amortization (2,790) (2,118)
---------- ----------
$ 2,727 $ 2,243
========== ==========
</TABLE>
<TABLE>
<S> <C> <C>
Accrued liabilities:
Dividends payable $ 676 $ 943
Other accrued liabilities 7,278 7,133
------- -------
$ 7,954 $ 8,076
======= =======
</TABLE>
* In March 1991, the Company formed Collagen International, Inc., a completely
new and wholly owned subsidiary of the Company, to assume responsibility for
the direct sales and marketing of its plastic surgery and dermatological
products in nine European countries, Australia and New Zealand from Essex
Chemie, A.G., a subsidiary of Schering-Plough Corporation. Organization costs
are related to the formation of Collagen International, Inc.
3. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The following is a summary of available-for-sale securities as of June 30,
1995:
<TABLE>
<CAPTION>
Amortized Cost and Estimated Fair Value
- ----------------------------------------------------------------------
(In thousands)
<S> <C>
Cash Equivalents:
Money market funds $ 519
Commercial paper 1,638
-------
$ 2,157
=======
Short-term investments:
Municipal obligations $
Commercial paper 2,257
-------
$3,229
======
</TABLE>
During the year ended June 30, 1995, the Company sold available-for-sale
investments with a fair value at the dates of sale of $7,269,000. Both gross
realized and unrealized gains and losses on these securities were
insignificant. The Company uses amortized cost as the basis for recording
gains and losses from securities transactions. Contractual maturities of the
debt securities did not exceed one year at June 30, 1995.
4. INVESTMENT IN TARGET THERAPEUTICS, INC.
In December 1992, the Company sold 1,129,700 shares of common stock of Target
Therapeutics, Inc. ("Target"), for approximately $28.5 million, decreasing its
ownership position from 52% to approximately 34%. The gain before taxes from
the sale of the stock was $20.3 million. Beginning fiscal 1993, the Company's
investment in Target has been accounted for under the equity method. In fiscal
1995, the Company sold an additional 245,000 shares of Target common stock for
a pre-tax gain of approximately $6.0 million. The Company's ownership position
in Target as of June 30, 1995 was approximately 29%. Condensed financial
information for Target is shown below:
Page 28
<PAGE> 29
BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
As of June 30, 1995 1994
- ---------------------------------------------------------------- ---- ----
(In thousands)
<S> <C> <C>
Current assets $ 58,002 $ 52,152
Property and equipment 7,704 4,856
Other 6,484 3,296
----- -----
Total assets $ 72,190 $60,304
======== =======
Current liabilities $ 11,110 $ 9,260
Long-term liabilities 107 113
Stockholders' equity 60,973 50,931
------ ------
Total liabilities and stockholders' equity $72,190 $60,304
======= =======
Collagen Corporation's share of net assets $17,570 $17,499
======= =======
</TABLE>
STATEMENT OF INCOME INFORMATION
<TABLE>
<CAPTION>
Twelve months ended June 30, 1995 1994 1993
- --------------------------------------------------------------- ---- ---- ----
(in thousands)
<S> <C> <C> <C>
Net sales $50,937 $ 38,275 $29,585
Costs and expenses (42,058) (32,260) (24,666)
Interest and other income 2,081 1,894 755
------------------------------------------
Income before income taxes 10,960 7,909 5,674
Provision for income taxes (3,097) (2,780) (1,867)
Cumulative effect of accounting change --- --- 631
------------------------------------------
Net income $7,863 $ 5,129 $4,438
==========================================
</TABLE>
Target's common stock is quoted on The Nasdaq Stock Market. The closing price
of Target's stock at June 30, 1995 was $44 per share. The Company held
2,049,194 shares of Target's common stock at June 30, 1995.
5. COMMITMENTS
MINIMUM LEASE PAYMENTS
Future minimum lease payments under noncancelable operating leases at June 30,
1995 are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C> <C>
1996 $ 4,886
1997 4,722
1998 4,392
1999 4,181
2000 3,242
Thereafter 13,176
-------
Total minimum lease payments $34,599
=======
</TABLE>
Page 29
<PAGE> 30
Rental expense for fiscal 1995 was approximately $4,743,000 ($4,643,000 in 1994
and $4,672,000 in 1993).
CREDIT AGREEMENT
In November 1994, the Company entered into a $7 million revolving line of
credit with a bank, secured by shares of Target common stock held by the
Company. The terms of this facility contain certain financial covenants and
restricts the aggregate amount of cash dividends. No amounts were borrowed
under this agreement through June 30, 1995.
FUNDING COMMITMENT
The Company has provided a credit facility of up to $4,000,000 to one of its
affiliates. As of June 30, 1995, a total of $1,790,000 had been disbursed
under this arrangement.
6. LEGAL MATTERS
The Company is involved in legal actions, including product liability and
intellectual property claims, arising in the ordinary course of business.
While the outcome of such matters is currently not determinable, it is
management's opinion that these matters will not have a material adverse effect
on the Company's consolidated financial position or results of its operations.
7. STOCKHOLDERS' EQUITY
STOCK OPTIONS
The Company has various stock option plans under which incentive stock options
or non-statutory stock options may be granted to officers, directors, key
employees and consultants to purchase the Company's common stock. The options
are granted at no less than the fair market value at the dates of grant and
generally expire after ten years. Incentive stock options become exercisable
at the rate of two percent each month beginning the first full month after the
date of grant unless accelerated by the Board of Directors. Non-statutory
stock options become exercisible on a monthly or yearly basis as determined by
the Board of Directors at the date of grant.
At June 30, 1995, the total number of shares of common stock reserved for
issuance under the Company's current stock option plans was 1,900,450. Stock
option activities under the stock option plans were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
NUMBER
NUMBER OPTION PRICE OF SHARES
OF SHARES RANGE PER SHARE EXERCISIBLE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at June 30, 1993 1,285,172 $ 4.69 - $28.25 832,120
Granted 229,760 22.13 - 26.00
Exercised (209,922) 5.13 - 26.50
Canceled or expired (54,030) 7.25 - 28.25
---------
Outstanding at June 30, 1994 1,250,980 4.69 - 28.25 780,412
Granted 142,350 17.88 - 25.00
Exercised (128,918) 5.13 - 22.75
Canceled or expired (46,436) 5.50 - 26.50
--------
Outstanding at June 30, 1995 1,217,976 $4.69 - $28.25 851,702
=========
Available for grant at June 30, 1995 682,474
=======
</TABLE>
Page 30
<PAGE> 31
STOCK PURCHASE PLAN
In 1985, the Company established an employee stock purchase plan under which
450,000 shares of the Company's common stock were reserved for issuance to
employees. Subsequently, the Company increased the authorization to 600,000
shares. Under the plan, the Company's employees, subject to certain
restrictions, may purchase shares at a price per share that is the lesser of 85
percent of the fair market value as of the beginning or close of the yearly
offering period.
For fiscal 1995, 1994 and 1993, shares issued under the plan were 36,100,
32,741 and 23,103, respectively. The average issuance price per share was
$19.28, $19.00 and $18.27 for fiscal 1995, 1994 and 1993, respectively. At
June 30, 1995, 101,993 shares remained available for future sales under this
plan.
STOCK REPURCHASE PROGRAM
In February 1993, the Company's Board of Directors authorized a stock
repurchase program. In fiscal 1995, 1994 and 1993, the Company repurchased
562,500, 567,500 and 370,000 shares at average acquisition prices of
approximately $20, $24, and $21 per share respectively. In June 1995, the
Board of Directors authorized the repurchase of up to an additional 300,000
shares. The Company plans to retain repurchased shares as treasury stock but
may use a portion of the stock in various company stock benefit plans.
STOCKHOLDER RIGHTS PLAN
In November 1994, the Board of Directors approved a stockholder rights plan
which would entitle stockholders to purchase stock in the Company or in an
acquirer of the Company at a discounted price in the event of certain hostile
efforts to acquire control of the Company. The rights may only be exercised,
if at all, upon the occurrence of certain events unless earlier redeemed
pursuant to the plan. The rights expire on November 28, 2004.
8. INTERNATIONAL SALES AND DISTRIBUTION RIGHTS
Consolidated export sales were $26.1 million in fiscal 1995, $20.8 million in
fiscal 1994 and $21.4 million in fiscal 1993. These export sales are primarily
in Europe, Canada and the Pacific Rim. The Company markets its products
internationally directly in Canada, ten European countries, Australia and New
Zealand and via distributors in other countries. The Company pays commissions
to its former European distributor based upon a percentage of net sales.
9. MAJOR CUSTOMER
During fiscal 1995 and 1994, the Company realized revenues from its marketing
partner, Bard, of $16.5 and $16.7 million respectively, which represented 23%
and 26% of product sales. Bard has exclusive worldwide marketing and
distribution rights for Contigen implant, a product introduced in fiscal 1994.
These amounts were comprised of product sales of $13.4 and $15.9 million of
Contigen implant as well as $3.1 million and $0.8 million of income from Bard's
direct sales of Contigen implant to physicians in 1995 and 1994, respectively.
The Company also recorded $1.0 million other revenue in each year representing
milestone payments from Bard. No other single customer accounted for more than
10% of total product sales in the three years ended June 30, 1995.
Page 31
<PAGE> 32
10. INCOME TAXES
The Company prospectively adopted the liability method of accounting for income
taxes required by SFAS No. 109 effective July 1, 1992. The cumulative effect
of adopting SFAS No. 109 in fiscal 1993 was to decrease net income by $989,000.
Previously, income taxes were accounted for under the deferred method under APB
No. 11.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities under SFAS 109 as of June
30, 1995 and June 30, 1994 are presented as follows:
<TABLE>
<CAPTION>
JUNE 30, 1995 1994
- ---------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Property, plant & equipment $ 332 $ 619
Intangible assets 651 587
Investments 7,491 7,034
Foreign earnings and credits (net) 4 --
-------------------
Total deferred tax liabilities $ 8,478 $ 8,240
===================
Deferred tax assets:
Accounts receivable $ 948 $ 672
Inventories 15 495
State income taxes 731 311
Equity in losses of affiliates 3,419 1,416
Non-deductible accruals 1,893 1,995
Other 360 181
Valuation allowance (3,595) (1,597)
--------------------
Total deferred tax assets 3,771 3,473
--------------------
Net deferred tax liabilities $ 4,707 $ 4,767
====================
</TABLE>
The valuation allowance increased by $1,998,000 and $717,000 in fiscal 1995 and
1994, respectively. Significant components of the provision for income taxes
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $6,358 $ 2,732 $8,907
Foreign 164 187 250
State 979 456 2,089
--------------------------------------
Total current 7,501 3,375 11,246
--------------------------------------
Deferred:
Federal $ (368) $ 352 $(2,111)
State 307 201 (555)
--------------------------------------
Total deferred (61) 553 (2,666)
--------------------------------------
$7,440 $ 3,928 $ 8,580
======================================
</TABLE>
Page 32
<PAGE> 33
For financial reporting purposes, income before income taxes includes the
following components:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Domestic operations $16,171 $ 8,636 $16,508
Foreign operations 29 212 1,804
-------------------------------------
$16,200 $ 8,848 $18,312
=====================================
</TABLE>
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before taxes. The sources and tax
effects of the differences are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Income before income taxes $16,200 $8,848 $ 18,312
=====================================
Expected tax at 35% or 34% $5,670 $ 3,008 $ 6,226
State income tax, net of federal benefit 832 434 1,012
Net operating losses of subsidiaries for
which no current benefit is realizable 80 (45) 612
Equity in losses of affiliates 1,549 660 165
Tax credits recognized (153) (315) --
Foreign Sales Corporation benefit (102) (150) --
(543) -- --
Benefit from favorable tax settlement
Other 107 336 565
------------------------------------
$7,440 $ 3,928 $ 8,580
====================================
</TABLE>
11. STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash paid during the year for:
Interest (net of capitalized interest) $ 91 $ -- $ --
Income taxes (net of refunds) 5,518 (54) 6,934
Non-cash financing activity:
Dividends declared $ 676 $ 943 $ --
</TABLE>
Page 33
<PAGE> 34
12. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
In August 1995, the Company entered into an agreement to purchase a controlling
interest in LipoMatrix, Incorporated for approximately $18 million, increasing
its equity and debt ownership percentage from approximately 40 percent to
approximately 90 percent. Payment for the shares will be due in January 1996.
The Company anticipates that a significant portion of the purchase price will
be recognized as in-process R&D expense.
Page 34
<PAGE> 35
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders,
Collagen Corporation
We have audited the accompanying consolidated balance sheets of Collagen
Corporation as of June 30, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended June 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Collagen
Corporation at June 30, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1995 in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 10 to the consolidated financial statements, in
1993 the Company changed its method of accounting for income taxes.
ERNST & YOUNG LLP
Palo Alto, California
August 1, 1995
Page 35
<PAGE> 36
SUPPLEMENTARY QUARTERLY CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL 1995, QUARTER ENDED June 30 March 31 December 31 September 30
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Product sales $20,226 $17,032 $18,870 $15,432
Other revenue -- -- -- 1,000
Cost of sales 4,917 4,451 4,810 4,406
Research and development expenses 2,672 2,223 2,504 2,534
Selling, general & administrative expenses 9,405 7,443 8,107 7,224
Operating income 3,232 2,905 3,449 2,268
Gain on investments, net 1,766 2,569 775 --
Net income 2,700 2,508 2,245 1,307
Net income per share .29 .26 .24 .14
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1994, QUARTER ENDED June 30 March 31 December 31 September 30
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Product sales $18,726 $15,588 $16,930 $13,308
Other revenue -- -- -- 1,000
Cost of sales 5,968 4,382 4,892 3,698
Research and development expenses 2,377 2,424 2,339 2,226
Selling, general & administrative expenses 7,666 6,681 7,664 6,628
Operating income 2,715 2,101 2,035 1,756
Net income 1,631 1,252 1,271 766
Net income per share .17 .13 .13 .08
</TABLE>
Page 36
<PAGE> 37
SCHEDULE II
COLLAGEN CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 1993, 1994, and 1995
<TABLE>
<CAPTION>
Balance at Additions charged Balance at
beginning of to costs and end of
Description Period expenses Deductions period
- -------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
1993:
Allowance for doubtful accounts $ 720 $ 84 $ 388 (1) $ 416
1994
Allowance for doubtful accounts $ 416 $ -- $ 63 (2) $ 353
1995
Allowance for doubtful accounts $ 353 $ 46 $ 16 $ 383
</TABLE>
__________________________________
1 Includes write-off of uncollectible accounts of $78 and reduction in allowance
for doubtful accounts of $310 of Target Therapeutics, Inc. (Target) due to
change to the equity method of accounting for Target in fiscal 1993.
2 Write-off of uncollectible accounts
Page 37
<PAGE> 38
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
OF THE REGISTRANT
The information required by this item concerning the Company's
directors is incorporated by reference from pages 3-5 of the Company's Proxy
Statement for its Annual Meeting of Stockholders filed on or about September
21, 1995 (the "Proxy Statement"). See "Business - Executive Officers" in Item
I of this Form 10-K Annual Report for information concerning the Company's
executive officers.
ITEM 11. EXECUTIVE COMPENSATION REGISTRANT
The information required by this item is incorporated by reference
from pages 13-18 of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT REGISTRANT
The information required by this item is incorporated by reference
from pages 11-12 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS REGISTRANT
The information required by this item is incorporated by reference
from pages 18-20 of the Proxy Statement.
Page 38
<PAGE> 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Collagen Corporation
Financial Statements and Financial Statement Schedule - See
Index to Consolidated Financial Statements at Item 8 of this
report
2. Target Therapeutics, Inc.
The following Consolidated Finacial Statements of Target
Therapeutics, Inc. ("Target") are included as Exhibit 99.1
Consolidated Balance Sheets at March 31, 1995 and 1994
Consolidated Statements of Income for the years ended
March 31, 1995, 1994, and 1993
Consolidated Statements of Stockholders' Equity for the years
ended March 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows for the years ended
March 31, 1995, 1994, and 1993
Notes to Consolidated Financial Statements
The Report of Ernst & Young LLP, independent auditors
The following financial statement schedule of Target for the
years ended March 31, 1995, 1994, and 1993 is filed as Exhibit
No. 99.2.
Schedule II - Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are not
required or the information required to be set forth therein is
included in the Consolidated Financial Statements or notes thereto.
3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NOTES DESCRIPTION
- ------ ----- -----------
<S> <C> <C>
3.1 (9) Certificate of Incorporation of Collagen Subsidiary, Inc.
3.2 (9) Certificate of Merger of Collagen Corporation, a California
corporation, into Collagen Subsidiary, Inc., a Delaware corporation
3.3 By-Laws, as amended
10.24 (1) Collaborative Research and Distribution Agreement with Zimmer, Inc.
dated as of June 26, 1985
10.27 (1) Distribution Agreement between Registrant and Lederle (Japan), Ltd.
dated as of June 26, 1985
</TABLE>
Page 39
<PAGE> 40
<TABLE>
<S> <C> <C>
10.34 (2) Agreement for Sale and Leaseback of Manufacturing Facility between
Registrant and Heleasco Seven, Inc.
10.36 (3) Amended and Restated Development and Distribution Agreement with
C.R. Bard, Inc., dated as of August 4, 1989.
10.38 (4) Agreement for Sale and Leaseback of Manufacturing Facility between
Registrant and Heleasco Seven, Inc. dated September 25, 1989
10.39 (4) Agreement for Sale and Leaseback of Manufacturing Facility between
Registrant and Heleasco Seven, Inc. dated December 29, 1989
10.40 (4) Amended and Restated Promissory Note of Dale A. Stringfellow, dated
September 7, 1990
10.41 (4) Amended and Restated Promissory Note Secured by Deed of Trust by
Dale A. Stringfellow, dated September 7, 1990
10.42 (4) 1984 Incentive Stock Option Plan, as amended.
10.43 (4) 1985 Employee Stock Purchase Plan, as amended.
10.44 1990 Directors' Stock Option Plan, as amended
10.46 (5) Agreement between Registrant and Essex Chemie, A.G. dated November
19, 1990.
10.56 (6) Lease Agreement dated June 1, 1992 by and between Registrant and
Harbor Investment Partners
10.58 (6) License and Option Agreement dated June 30, 1992 between Registrant
and Research Development Foundation.
10.60 (7) Amendments dated February 16, 1993 and February 18, 1993
respectively, to the Product Development and Distribution Agreement
dated January 18, 1985 by and between Registrant and Zimmer, Inc.,
originally filed as Exhibit 10.24 to Registrant's Form 10-K for
the fiscal year ended June 30, 1985.
10.61* (7) Letter Agreement, dated April 26, 1991 and May 21, 1993 by and
between Collagen Corporation and A. Neville Pelletier.
10.62 (8) 1994 Stock Option Plan
10.63 (9) Renewed Lease for 2500 Faber Place, Palo Alto, California dated
December 1, 1992 between Registrant and Leonard Ely, Shirley Ely,
Carl Carlsen and Mary L. Carlsen.
10.65* (9) Promissory Note of Howard D. Palefsky dated August 3, 1994
10.66 (9) Revised Form of Agreement Regarding Proprietary Information and
Inventions between Registrant and all employees or consultants.
10.67 (10) Credit Agreement, dated November 15, 1994, by and between the Bank
of New York and the Registrant, as amended January 24, 1995.
10.68 (10) Letter Agreement, dated October 7, 1994, by and between C.R. Bard.
Inc. and the Registrant, amending the Amended and Restated
Development and Distribution Agreement dated August 4, 1989 between
the Parties originally filed as Exhibit 10.36 to the Registrant's
Form 10-K for the fiscal year ended June 30, 1989.
</TABLE>
__________________________________
* Constitutes a management contract or compensatory contract, plan or
arrangement.
Page 40
<PAGE> 41
<TABLE>
<S> <C> <C>
10.70* Letter of Acceptance of Employment by and between Gary Petersmeyer
and the Registrant, dated December 19, 1994.
10.71** License, Supply and Option Agreement, dated March 24, 1995 by and
between LipoMatrix, Incorporated and Regristrant.
10.72** Distributor Agreement dated March 24, 1995 by and between
LipoMatrix, Incorporated and Registrant's wholly owned subsidiary,
Collagen International Incorporated.
10.73** Coordinaton Agreement dated March 24, 1995, by and between
LipoMatrix Incorporated and Registrant's wholly owned subsidiary,
Collagen International Incorporated.
10.74* Promissory Note of Howard D. Palefsky dated June 5, 1995.
10.75** Letter Agreement, dated July 10, 1995 by and between C.R. Bard,
Inc. and the Registrant , amending the Amended and Restated
Development and Distribution Agreement dated August 4, 1989
between the Parties originally filed as Exhibit 10.36 to the
Registrant's Form 10-K for the fiscal year ended June 30, 1989.
10.76 (11) Stock Purchase Agreement dated August 22, 1995 between the
Registrant and certain stockholders of LipoMatrix, Incorporated
11.1 Statement Regarding Weighted Average Common and Common Equivalent
Shares Used in Computation of Per Share Income.
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Ernst & Young LLP, Independent Auditors, with respect to
the consolidated financial statements of Target Therapeutics, Inc.,
for the fiscal years ended March 31, 1995, 1994, and 1993.
24.1 Power of Attorney (see page 40)
27.1 Financial Data Schedule (EDGAR version only)
99.1 Target Therapeutics, Inc. Consolidated Financial Statements for the fiscal
years ended March 31, 1995, 1994, and 1993 with Report of Ernst &
Young LLP, Independent Auditors.
99.2 Financial Statement Schedule of Target Therapeutics Inc., for the
fiscal years ended March 31, 1993, 1994 & 1995
</TABLE>
Notes to Exhibits:
(1) Incorporated by reference to the same exhibits filed with
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1985.
(2) Incorporated by reference to the same exhibits filed with
Registrant's Current Report on Form 8-K dated March 31,
1989.
(3) Incorporated by reference to the same exhibits filed with
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1989.
(4) Incorporated by reference to the same exhibits filed with
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1990.
(5) Incorporated by reference to the same exhibits filed with
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1991.
(6) Incorporated by reference to the same exhibits filed with
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1992.
(7) Incorporated by reference to the same exhibits filed with
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1993.
- ---------------
* Constitutes a management contract or compensating contract, plan or
arrangement.
** Confidential treatment requested for a portion of this document.
Page 41
<PAGE> 42
(8) Incorporated by reference to Exhibit 4.1 filed with
Registrant's Registration statement of Form S-8 (No.
33-80038) which became effective June 9, 1994.
(9) Incorporated by reference to the same exhibits filed with
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1994
(10) Incorporated by reference to the same exhibits filed with
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 31, 1994.
(11) Incorporated by reference to exhibit 2.1 filed with
Registrant's Current Report on Form 8-K dated September
6, 1995.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by
Registrant during the fiscal quarter ended June 30, 1995.
Page 42
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized
COLLAGEN CORPORATION
/s/ Gary S. Petersmeyer
----------------------------
Gary S. Petersmeyer
President and
Chief Operating Officer
Dated: September 28,1995
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Howard D. Palefsky and David Foster, jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this report on Form 10-K,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Page 43
<PAGE> 44
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ Howard D. Palefsky Chairman of the Board of Directors and Chief
- --------------------------------- Executive Officer (Principal Executive September 27, 1995
Howard D. Palefsky Officer)
/s/ Gary S. Petersmeyer President, Chief Operating Officer, and
- --------------------------------- Director September 27, 1995
Gary S. Petersmeyer
/s/ David J. Foster Vice President and Chief Financial Officer
- --------------------------------- (Principal Financial and Accounting Officer) September 27, 1995
David J. Foster
/s/ Anne L. Bakar Director September 20, 1995
- ---------------------------------
Anne L. Bakar
/s/ John R. Daniels Director September 27, 1995
- ---------------------------------
John R. Daniels, M.D.
/s/ William G. Davis Director September 27, 1995
- ---------------------------------
William G. Davis
/s/ Reid W. Dennis Director September 20, 1995
- ---------------------------------
Reid W. Dennis
/s/ Craig W. Johnson Director September 27, 1995
- ---------------------------------
Craig W. Johnson, Esq.
/s/ Terry R. Knapp M.D. Director September 27, 1995
- ---------------------------------
Terry R. Knapp, M.D.
/s/ Michael F. Mee Director September 20, 1995
- ---------------------------------
Michael F. Mee
/s/ Rodney Perkins Director September 27, 1995
- ---------------------------------
Rodney Perkins, M.D.
Director September , 1995
- ---------------------------------
Cornelius W. Pettinga, Ph.D.
/s/ Roger H. Salquist Director September 27, 1995
- -----------------------------
Roger H. Salquist
</TABLE>
Page 44
<PAGE> 45
COLLAGEN CORPORATION
FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED JUNE 30, 1995
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Page
- --------------------------------------------------------------------------------------------------------------
<S> <C>
3.3 By-Laws, as amended
10.44 1990 Directors' Stock Option Plan, as amended
10.70 Letter of Acceptance of Employment by and between Gary Petersmeyer and the
Registrant, dated December 19, 1994.
10.71** License, Supply and Option Agreement, dated March 24, 1995 by and between
LipoMatrix, Incorporated and Regristrant.
10.72** Distributor Agreement dated March 24, 1995 by and between LipoMatrix,
Incorporated and Registrant
10.73** Coordinaton Agreement dated March 24, 1995, by and between LipoMatrix
Incorporated and Registrant.
10.74 Promissory Note of Howard D. Palefsky dated June 5, 1995.
10.75** Letter Agreement, dated July 10, 1995 by and between C.R. Bard, Inc. and the
Registrant, amending the Amended and Restated Development and Distribution
Agreement dated August 4, 1989 between the Parties originally filed as Exhibit
10.36 to the Registrant's Form 10-K for the fiscal year ended June 30, 1989.
11.1 Statement Regarding Weighted Average Common and Common Equivalent Shares Used
in Computation of Per Share Income.
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP, Independent Auditors (see page X)
23.2 Consent of Ernst & Young LLP, Independent Auditors, with respect to the
consolidated financial statements of Target Therapeutics, Inc., for the fiscal
years ended March 31, 1995, 1994 and 1993.
24.1 Power of Attorney (see page 40)
27.1 Financial Data Schedule (EDGAR version only)
99.1 Target Therapeutics, Inc. Consolidated Financial Statements for the Years Ended
March 31, 1995, 1994, and 1993 with Report of Ernst & Young LLP, Independent
Auditors.
99.2 Financial Statement Schedule of Target Therapeutics Inc., for the fiscal
years ended March 31, 1993, 1994 & 1995
</TABLE>
**Confidential treatment requested for a portion of this document.
Page 45
<PAGE> 1
EXHIBIT 3.3
BY-LAWS
OF
COLLAGEN CORPORATION
<PAGE> 2
BY-LAWS OF
COLLAGEN CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I CORPORATE OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.4 Notice of Stockholders' Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Advance Notice of Stockholder Nominees . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Manner of Giving Notice; Affidavit of Notice . . . . . . . . . . . . . . . . . . . . . . 3
2.7 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.8 Adjourned Meeting; Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.10 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.11 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 Stockholder Action by Written Consent Without a Meeting . . . . . . . . . . . . . . . . . 5
2.13 Record Date For Stockholder Notice; Voting; Giving Consents . . . . . . . . . . . . . . . 5
2.14 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.15 List of Stockholders Entitled to Vote . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Number of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 Election, Qualification and Term of Office of Directors . . . . . . . . . . . . . . . . . 8
3.4 Resignation And Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.5 Place of Meetings; Meetings by Telephone . . . . . . . . . . . . . . . . . . . . . . . . 9
3.6 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.7 Special Meetings; Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.8 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.9 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.10 Board Action by Written Consent Without a Meeting . . . . . . . . . . . . . . . . . . . . 10
3.11 Fees and Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE> 3
BY-LAWS OF
COLLAGEN CORPORATION
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.12 Approval of Loans to Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.13 Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.14 Chairman of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 Committees of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2 Committee Minutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Meetings and Action of Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Appointment of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.3 Subordinate Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4 Removal and Resignation of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Vacancies in Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.6 President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.7 Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.8 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.9 Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.10 Representation of Shares of Other Corporations . . . . . . . . . . . . . . . . . . . . . 15
5.11 Authority and Duties of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.1 Third Party Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.2 Actions By or in the Right of the Corporation . . . . . . . . . . . . . . . . . . . . . . 16
6.3 Successful Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.4 Determination of Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.5 Payment of Expenses in Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.6 Indemnity Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.7 Insurance Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.8 The Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.9 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.10 Continuation of Indemnification and Advancement of Expenses . . . . . . . . . . . . . . . 18
ARTICLE VII RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 Maintenance and Inspection of Records . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Inspection by Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.3 Annual Statement to Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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BY-LAWS OF
COLLAGEN CORPORATION
TABLE OF CONTENTS
(continued)
<TABLE>
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ARTICLE VIII GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.1 Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.2 Execution of Corporate Contracts and Instruments . . . . . . . . . . . . . . . . . . . . 20
8.3 Stock Certificates; Partly Paid Shares . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.4 Special Designation on Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.5 Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.6 Construction; Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.7 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.8 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.9 Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.10 Transfer of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.11 Stock Transfer Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.12 Registered Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IX AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
<PAGE> 5
BY-LAWS
OF
COLLAGEN CORPORATION
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the
registered agent of the corporation at such location is The Corporation Trust
Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. At the meeting, directors
shall be elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president or by
one or more stockholders holding shares in the aggregate entitled to cast not
less than ten percent of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of
such meeting and the general nature of the business proposed to be transacted,
and shall be delivered
<PAGE> 6
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president,
or the secretary of the corporation. No business may be transacted at such
special meeting otherwise than specified in such notice. The officer receiving
the request shall cause notice to be promptly given to the stockholders
entitled to vote, in accordance with the provisions of Sections 4 and 5 of
this Article II, that a meeting will be held at the time requested by the
person or persons calling the meeting, not less than thirty-five (35) nor more
than sixty (60) days after the receipt of the request. If the notice is not
given within twenty (20) days after the receipt of the request, the person or
persons requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 3 shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the board
of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and
shall be sent or otherwise given in accordance with Section 2.5 of these
by-laws not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder entitled to vote at such meeting. The notice
shall specify the place, date, and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES
Only persons who are nominated in accordance with the procedures set
forth in this Section 2.5 shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to
vote for the election of Directors at the meeting who complies with the notice
procedures set forth in this Section 2.5. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant
to timely notice in writing to the Secretary of the corporation. To be timely,
a stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 60 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must
be so received not later than the close of business on the 10th day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made. Such stockholder's notice shall set forth (a) as
to each person whom the stockholder proposes to nominate for election or
re-election as a Director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the corporation which are
beneficially owned by such person and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
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Regulation 14A under the Securities Exchange Act of 1934, as amended
(including without limitation such person's written consent to being named in
the proxy statement as a nominee and to serving as a Director if elected); and
(b) as to the stockholder giving the notice (i) the name and address, as they
appear on the corporation's books, of such stockholder and (ii) the class and
number of shares of the corporation which are beneficially owned by such
stockholder. At the request of the Board of Directors any person nominated by
the Board of Directors for election as a Director shall furnish to the
Secretary of the corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the corporation unless
nominated in accordance with the procedures set forth in this Section 2.5. The
Chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures
prescribed by the By-Laws, and if he should so determine, he shall so declare
to the meeting and the defective nomination shall be disregarded.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent
of the corporation that the notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
2.7 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) the Chairman of the meeting or
(ii) the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.
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<PAGE> 8
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
by-laws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact
any business that might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
2.9 CONDUCT OF BUSINESS
The Chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.
2.10 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.14 of these
by-laws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.11, or as
may be otherwise provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
At a stockholders' meeting at which directors are to be elected, each
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such stockholder
normally is entitled to cast) if the candidates' names have been properly
placed in nomination (in accordance with these by-laws) prior to commencement
of the voting and the stockholder requesting cumulative voting has given notice
prior to commencement of the voting of the stockholder's intention to cumulate
votes. If cumulative voting is properly requested, each holder of stock, or of
any class or classes or of a series or series thereof, who elects to cumulate
votes shall be entitled to as many votes as equals the number of votes which
(absent this provision as to cumulative voting) he would be entitled to cast
for the election of directors with respect to his shares of stock multiplied by
the number of directors to be elected by him, and he may cast all of such votes
for a single director or may distribute them among the number to be voted for,
or for any two or more of them, as he may see fit.
2.11 WAIVER OF NOTICE
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<PAGE> 9
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these by-laws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the certificate of incorporation or
these by-laws.
2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any
action required by this chapter to be taken at any annual or special meeting of
stockholders of the corporation, or any action that may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting,
without prior notice, and without a vote if a consent in writing, setting forth
the action so taken, is signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the
General Corporation Law of Delaware if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such
section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written notice and written consent
have been given as provided in Section 228 of the General Corporation Law of
Delaware.
2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without
a meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of any other
lawful action, the board of directors may fix, in advance, a record date, which
shall not be more than sixty (60) nor less than ten (10) days before the date
of such meeting, nor more than sixty (60) days prior to any other action.
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<PAGE> 10
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the board of directors is necessary, shall be the day on which
the first written consent is expressed.
(iii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the board
of directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
2.14 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed
by the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting
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<PAGE> 11
during the whole time thereof, and may be inspected by any stockholder who is
present. Such list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these by-laws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction
of the board of directors.
3.2 NUMBER OF DIRECTORS
The Board of Directors shall consist of eight persons until changed by
a proper amendment of this Section 3.2.*
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
* See amendments to this section at end of document.
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<PAGE> 12
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these by-laws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these by-laws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his successor is elected and qualified
or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
attention of the Secretary of the corporation. When one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective, and each director so
chosen shall hold office as provided in this section in the filling of other
vacancies.
Unless otherwise provided in the certificate of incorporation or these
by-laws:
(i) Vacancies and newly created directorships resulting
from any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock
or series thereof are entitled to elect one or more directors by the provisions
of the certificate of incorporation, vacancies and newly created directorships
of such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders
in accordance with the provisions of the certificate of incorporation or these
by-laws, or may apply to the Court of Chancery for a decree summarily ordering
an election as provided in Section 211 of the General Corporation Law of
Delaware.
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<PAGE> 13
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as
aforesaid, which election shall be governed by the provisions of Section 211 of
the General Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or
these by-laws, members of the board of directors, or any committee designated
by the board of directors, may participate in a meeting of the board of
directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or by telegram, it shall be delivered personally or
by telephone or to the telegraph company at least forty-eight (48) hours before
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose or
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<PAGE> 14
the place of the meeting, if the meeting is to be held at the principal
executive office of the corporation.
3.8 QUORUM
At all meetings of the board of directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these by-laws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so required
by the certificate of incorporation or these by-laws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or
these by-laws, any action required or permitted to be taken at any meeting of
the board of directors, or of any committee thereof, may be taken without a
meeting if all members of the board or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the board or committee.
3.11 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or
these by-laws, the board of directors shall have the authority to fix the
compensation of directors.
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<PAGE> 15
3.12 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
3.13 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these by-laws, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority
of the shares then entitled to vote at an election of directors; provided,
however, that, so long as shareholders of the corporation are entitled to
cumulative voting, if less than the entire board is to be removed, no director
may be removed without cause if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the entire
board of directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
3.14 CHAIRMAN OF THE BOARD OF DIRECTORS
The corporation may also have, at the discretion of the board of
directors, a chairman of the board of directors who shall not be considered an
officer of the corporation.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist
of one or more of the directors of the corporation. The board may designate
one or more directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee. In the
absence or disqualification of a member of a committee, the member or members
thereof
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<PAGE> 16
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board
of directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors or in the by-laws of the corporation,
shall have and may exercise all the powers and authority of the board of
directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers that may
require it; but no such committee shall have the power or authority to (i)
amend the certificate of incorporation (except that a committee may, to the
extent authorized in the resolution or resolutions providing for the issuance
of shares of stock adopted by the board of directors as provided in Section
151(a) of the General Corporation Law of Delaware, fix the designations and any
of the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation
Law of Delaware, (iii) recommend to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
(iv) recommend to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or (v) amend the bylaws of the corporation; and,
unless the board resolution establishing the committee, the by-laws or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section
253 of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these by-laws,
Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular
meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum),
Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting),
with such changes in the context of those by-laws as are necessary to
substitute the committee and its members for the board of directors and its
members; provided, however, that the time of regular meetings of committees may
be determined either by resolution of the board of directors or by resolution
of the committee, that special meetings of committees may also be called by
resolution of the board of directors and that notice of special meetings of
committees shall also be given to all alternate members, who shall have
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the right to attend all meetings of the committee. The board of directors may
adopt rules for the government of any committee not inconsistent with the
provisions of these by-laws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and
a chief financial officer. The corporation may also have, at the discretion of
the board of directors, one or more vice presidents, one or more assistant
secretaries, one or more assistant treasurers, and any such other officers as
may be appointed in accordance with the provisions of Section 5.3 of these
by-laws. Any number of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
by-laws, shall be appointed by the board of directors, subject to the rights,
if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to
appoint, such other officers and agents as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these by-laws or as the board of
directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective.
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Any resignation is without prejudice to the rights, if any, of the corporation
under any contract to which the officer is a party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled
by the board of directors.
5.6 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, the president shall be the
chief executive officer of the corporation and shall, subject to the control of
the board of directors, have general supervision, direction, and control of the
business and the officers of the corporation. He shall preside at all meetings
of the stockholders and, in the absence or nonexistence of a chairman of the
board, at all meetings of the board of directors. He shall have the general
powers and duties of management usually vested in the office of president of a
corporation and shall have such other powers and duties as may be prescribed by
the board of directors or these by-laws.
5.7 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform
all the duties of the president and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the president. The vice
presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the board of directors,
these by-laws, the president or the chairman of the board.
5.8 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names
of all stockholders and their addresses, the number and classes of shares held
by each, the number and date of certificates evidencing such shares, and the
number and date of cancellation of every certificate surrendered for
cancellation.
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The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law
or by these by-laws. He shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or by these
by-laws.
5.9 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the board of directors. He shall disburse
the funds of the corporation as may be ordered by the board of directors, shall
render to the president and directors, whenever they request it, an account of
all his transactions as chief financial officer and of the financial condition
of the corporation, and shall have other powers and perform such other duties
as may be prescribed by the board of directors or the by-laws.
5.10 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority
granted herein may be exercised either by such person directly or by any other
person authorized to do so by proxy or power of attorney duly executed by such
person having the authority.
5.11 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from
time to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
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<PAGE> 20
6.1 THIRD PARTY ACTIONS
The corporation shall 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, partnership, joint
venture trust or other 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 reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interest of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The corporation shall 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 is or was a director, officer, employee or agent
of corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise 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 in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall 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 Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
6.3 SUCCESSFUL DEFENSE
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense
of any claim, issue or
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matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that the indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 6.1 and 6.2. Such
determination shall be made (1) by the Board of Directors or the Executive
Committee by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding or (2) or if such quorum is not
obtainable or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided or granted
pursuant to the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
6.7 INSURANCE INDEMNIFICATION
The corporation shall have the power to 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,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and 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 liability under the provisions of this Article VI.
6.8 THE CORPORATION
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For purposes of this Article VI, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so
that any person who is or was a director, office, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under and subject to the provisions of this Article VI
(including, without limitation the provisions of Section 6.4) with respect to
the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee,
or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
Article VI.
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VI shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive offices or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these by-laws as amended to date,
accounting books, and other records.
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Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean
a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent is the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent to
so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in Delaware or at its principal
place of business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether
a director is entitled to the inspection sought. The Court may summarily order
the corporation to permit the director to inspect any and all books and
records, the stock ledger, and the stock list and to make copies or extracts
therefrom. The Court may, in its discretion, prescribe any limitations or
conditions with reference to the inspection, or award such other and further
relief as the Court may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts,
other orders for payment of money, notes or other evidences of indebtedness
that are issued in the name of or payable to the corporation, and only the
persons so authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these by-laws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or
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execute any instrument in the name of and on behalf of the corporation; such
authority may be general or confined to specific instances. Unless so
authorized or ratified by the board of directors or within the agency power of
an officer, no officer, agent or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or
to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the
board of directors, every holder of stock represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the corporation by the chairman or
vice-chairman of the board of directors, or the president or vice-president,
and by the chief financial officer or an assistant treasurer, or the secretary
or an assistant secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be
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set forth on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, the designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
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8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it
on account of the alleged loss, theft or destruction of any such certificate or
the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these by-laws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions
contained in (i) the General Corporation Law of Delaware or (ii) the
certificate of incorporation, may declare and pay dividends upon the shares of
its capital stock. Dividends may be paid in cash, in property, or in shares of
the corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of
the corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of
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succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock
of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends
and to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of another person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
ARTICLE IX
AMENDMENTS
The by-laws of the corporation may be adopted, amended or repealed by
the stockholders entitled to vote; provided, however, that the corporation may,
in its certificate of incorporation, confer the power to adopt, amend or repeal
by-laws upon the directors. The fact that such power has been so conferred
upon the directors shall not divest the stockholders of the power, nor limit
their power to adopt, amend or repeal by-laws.
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AMENDMENT TO THE BY-LAWS
OF COLLAGEN CORPORATION
On November 16 and 17, 1990 the Board of Directors of Collagen
Corporation (the "Company") amended the Company's By-laws as follows:
RESOLVED: That the first sentence of Section 3.2 of the By-Laws of
the Company is amended to read as follows:
"The Board of Directors shall consist of nine persons until changed by
a proper amendment of this Section 3.2."
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AMENDMENT TO THE BY-LAWS
OF COLLAGEN CORPORATION
On May 10, 1991 the Board of Directors of Collagen Corporation (the
"Company") amended the Company's By-Laws as follows:
RESOLVED: That Article III, Section 3.2 of the By-Laws of the Company
is amended to increase the authorized number of the Company's
directors to ten.
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AMENDMENT TO THE BY-LAWS
OF COLLAGEN CORPORATION
On November 12, 1993 the Board of Directors of Collagen Corporation
(the "Company") amended the Company's By-Laws as follows:
RESOLVED: That Article III, Section 3.2 of the By-Laws of the Company
is amended to increase the authorized number of the Company's
directors to eleven.
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AMENDMENT TO THE BY-LAWS
OF COLLAGEN CORPORATION
On February 9 and 10, 1995, the Board of Directors of Collagen
Corporation (the "Company") amended the Company's By-Laws as follows:
RESOLVED: That the Bylaws of the Company are amended to increase the
size of the Board of Directors to twelve persons.
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EXHIBIT 10.44
COLLAGEN CORPORATION
1990 DIRECTORS' STOCK OPTION PLAN
as amended May 21, 1993
as amended August 11, 1995
1. Purposes of the Plan. The purposes of this Directors' Stock
Option Plan are to attract and retain the best available personnel for service
as Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their
continued service on the Board.
All options granted hereunder shall be "non-statutory stock
options".
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Collagen Corporation, a Delaware
corporation.
(e) "Continuous Status as a Director" means the absence
of any interruption or termination of service as a Director.
(f) "Director" means a member of the Board.
(g) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and
of itself to constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(i) "Fair Market Value" means, as of any date, the value,
of Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a
Share of Common Stock shall be the closing sales price for such stock (or the
closing bid, if no sales were reported, as quoted on such system or exchange
(or the exchange with the greatest volume of trading in Common Stock) on the
last market trading day prior to the day of determination) as reported in the
Wall Street Journal or such other source as the Board deems reliable;
<PAGE> 2
(ii) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high and
low asked prices for the Common Stock on the last market trading day prior to
the date of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable, or;
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Board.
(j) "Option" means a stock option granted pursuant to the
Plan.
(k) "Optioned Stock" means the Common Stock subject to an
Option.
(l) "Optionee" means an Outside Director who receives an
Option.
(m) "Outside Director" means a Director who is not an
Employee.
(n) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 425(e) of the Internal Revenue Code
of 1986.
(o) "Plan" means this 1990 Directors' Stock Option Plan.
(p) "Share" means a share of the Common Stock, as
adjusted in accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 425(f) of the
Internal Revenue Code of 1986.
3. Stock Subject to the Plan. Subject to the provisions of
Section 10 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 300,000 Shares (the "Pool") of Common
Stock. The Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein,
the Plan shall be administered by the Board. No discretion concerning decisions
regarding the Plan shall be afforded to any person who is not a "disinterested
person" (as defined in Rule 16b-3 under the Exchange Act).
(b) Procedure for Grants. All grants of Options
hereunder shall be automatic and non-discretionary and shall be made strictly
in accordance with the following provisions:
<PAGE> 3
(i) No person shall have any discretion to select
which Outside Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically
granted an Option (an "Initial Option") to purchase 15,000 Shares upon the date
(on or after the effective date of this Plan) on which such person first
becomes a Director and each Outside Director shall automatically be granted an
Option to purchase an additional 10,000 Shares upon the date (on or after the
effective date of this Plan) on which such person becomes Chairman of the Board
of Directors for the first time, whether through election by the shareholders
of the Company or appointment by the Board to fill a vacancy; provided,
however, that no Option shall be issued under the Plan or become exercisable
until shareholder approval of the Plan has been obtained in accordance with
Section 16 hereof.
(iii) On July 1, 1991 and on each July 1 thereafter
during the term of this Plan, each Outside Director shall automatically receive
an Option to purchase 3,000 Shares (an "Annual Option").
(iv) The terms of each Option granted hereunder
shall be as follows:
(A) the term of the Option shall be ten
(10) years.
(B) the Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Section 8 hereof.
(C) the exercise price per Share shall
be 100% of the Fair Market Value per Share on the date of grant of the Option.
(D) the Annual Option shall become
exercisable in full as to the Optioned Stock on the first anniversary of the
date of grant of the Annual Option.
(E) the Initial Option shall become
exercisable in installments cumulatively as to twenty-five percent (25%) of the
Optioned Stock on the first anniversary of the date of grant of the Initial
Option and as to twenty-five percent (25%) of the remaining Optioned Stock for
each full year thereafter that the Optionee remains a Director.
(v) In the event that any Option granted under
the Plan would cause the number of Shares subject to outstanding Options plus
the number of Shares previously purchased upon exercise of Options to exceed
the Pool, then each such automatic grant shall be for that number of Shares
determined by dividing the total number of Shares remaining available for grant
by the number of Outside Directors on the automatic grant date. No further
grants shall be made until such time, if any, as additional Shares become
available for grant under the Plan through action of the shareholders to
increase the number of Shares which may be issued under the Plan or through
cancellation or expiration of Options previously granted hereunder.
<PAGE> 4
(c) Powers of the Board. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its
discretion: (i) to determine, upon review of relevant information and in
accordance with Section 2(i) of the Plan, the Fair Market Value of the Common
Stock; (ii) to interpret the Plan; (iii) to prescribe, amend and rescind rules
and regulations relating to the Plan; (iv) to authorize any person to execute
on behalf of the Company any instrument required to effectuate the grant of an
Option previously granted hereunder; and (v) to make all other determinations
deemed necessary or advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions,
determinations and interpretations of the Board shall be final.
(e) Suspension or Termination of Option. If the
President of the Company or his or her designee reasonably believes that
an Optionee has committed an act of misconduct as defined in the section, the
President may suspend the Optionee's right to exercise any Option pending a
determination by the Board (excluding the Outside Director accused of such
misconduct). An optionee shall be deemed to have committed an act of misconduct
if the Board (excluding the Outside Director accused of such misconduct)
determines an Optionee has committed an act of embezzlement, fraud, dishonesty,
nonpayment of an obligation owed to the Company, breach of fiduciary duty or
deliberate disregard of the Company rules resulting in loss, damage or injury
to the Company, or if an Optionee makes an unauthorized disclosure of any
Company trade secret or confidential information, engages in any conduct
constituting unfair competition, induces any Company customer to breach a
contract with the Company or induces any principal for whom the Company acts as
agent to terminate such agency relationship, neither the Optionee nor his or
her estate shall be entitled to exercise any Option whatsoever. In making such
determination, the Board (excluding the Outside Director accused of such
misconduct) shall act fairly and shall give the Optionee an opportunity to
appear and present evidence on Optionee's behalf at a hearing before the Board
or a committee of the Board.
5. Eligibility. Options may be granted only to Outside
Directors. All Options shall be automatically granted in accordance with the
terms set forth in Section 4(b) hereof. An Outside Director who has been
granted an Option may, if otherwise eligible, be granted an additional Option
or Options in accordance with such provisions.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate his or her directorship at any time.
6. Term of Plan. The Plan shall become effective upon the
earlier to occur of its adoption by the Board or its approval by the
shareholders of the Company as described in Section 16 of the Plan. It shall
continue in effect for a term of ten (1 O) years unless sooner terminated under
Section 12 of the Plan.
7. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for
Optioned Stock shall be 100% of the Fair Market Value per Share on the date of
grant of the Option.
<PAGE> 5
(b) Form of Consideration. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Board and may consist entirely of (i) cash,
(ii) check, (iii) promissory note, (iv) other shares which (x) in the case of
Shares acquired upon exercise of an Option either have been owned by the
Optionee for more than six (6) months on the date of surrender or were not
acquired, directly or indirectly, from the Company, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (v) delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds required to
pay the exercise price, (vi) by delivering an irrevocable subscription
agreement for the Shares which irrevocably obligates the Optionee to take and
pay for the Shares not more than twelve (12) months after the date of delivery
of the subscription agreement, (vii) any combination of the foregoing methods
of payment, or (viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted under applicable law.
8. Exercise of Option.
(a) Procedure for Exercise: Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4(b) hereof; provided, however, that no Options shall be exercisable
until shareholder approval of the Plan in accordance with Section 16 hereof has
been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may consist of any consideration and method of
payment allowable under Section 7(b) of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. A share certificate for the number of Shares so
acquired shall be issued to the Optionee as soon as practicable after exercise
of the Option. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock certificate is issued,
except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Rule 16b-3. Options granted to Outside Directors
must comply with the applicable provisions of Rule 16b-3 promulgated under the
Exchange Act or any successor thereto and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
(c) Termination of Status as a Director. If an Outside
Director ceases to serve as a Director, he may, but only within three (3)
months after the date he ceases to be a Director of the Company, exercise his
or her Option to the extent that he or she was entitled to exercise it at the
date of such termination. Notwithstanding the foregoing, in no
<PAGE> 6
event may the Option be exercised after its ten (10) year term has expired. To
the extent that the Optionee was not entitled to exercise an Option at the date
of such termination, or if he does not exercise such Option (which the Optionee
was entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) Disability of Optionee. Notwithstanding the
provisions of Section 8(c) above, in the event an Optionee is unable to
continue his or her service as a Director as a result of total and permanent
disability (as defined in Section 22(e)(3) of the Code), the Optionee may, but
only within six (6) months from the date of termination, exercise an Option to
the extent the Optionee was entitled to exercise it at the date of such
termination. Notwithstanding the foregoing, in no event may the Option be
exercised after its ten (10) year term has expired. To the extent that the
Optionee was not entitled to exercise the Option at the date of termination, or
if the Optionee does not exercise such Option (which the Optionee was entitled
to exercise) within the time specified herein, the Option shall terminate.
(e) Death of Optionee. In the-event of the death of an
Optionee, the Option may be exercised, at any time within six (6) months
following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only
to the extent of the right to exercise that had accrued at the date of death.
Notwithstanding the foregoing, in no event may the option be exercised after
its ten (10) year term has expired.
9. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization or Merger.
(a) Subject to any required action by the shareholders of
the Company, the number of Shares covered by each outstanding Option, and the
number of Shares which have been authorized for issuance under the Plan but as
to which no Options have yet been granted or which have been returned to the
Plan upon cancellation or expiration of an Option, as well as the price per
Share covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued Shares resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
aggregate number of issued Shares effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of Shares of stock of any class, or
securities convertible into Shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, all outstanding Options will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board.
The Board may, in the exercise of its sole discretion in such
<PAGE> 7
instances, declare that any Option shall terminate as of a date fixed by the
Board and give each Optionee the right to exercise any Option as to all or any
part of the Optioned Stock, including Shares as to which the Option would not
otherwise be exercisable.
Subject to the provisions of paragraph (b) hereof, in the
event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, each
outstanding Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the Optionee
shall have the right to exercise the Option as to all of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable. If
the Board makes an Option fully exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Company shall
notify the Optionee that the Option shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option will terminate
upon the expiration of such period. For purposes of this paragraph, an Option
granted under the Plan shall be deemed to be assumed if, following the sale of
assets or merger, the Option confers the right to purchase, for each Share of
Optioned Stock subject to the Option immediately prior to the sale of assets or
merger, the consideration (whether stock, cash or other securities or property)
received in the sale of assets or merger by holders of Common Stock for each
Share held on the effective date of the transaction (and if such holders were
offered a choice of consideration, the type of consideration chosen by the
holders if a majority of the outstanding Shares); provided, however, that if
such consideration received in the sale of assets or merger was not solely
Common Stock of the successor corporation or its parent, the Board may, with
the consent of the successor corporation and the participant, provide for the
consideration to be received upon exercise of the Option to be solely Common
Stock of the successor corporation or its parent equal in Fair Market Value to
the per share consideration received by holders of Common Stock in the sale of
assets or merger.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act (or any other applicable law or regulation), the Company shall
obtain shareholder approval of any Plan amendment in such a manner and to such
a degree as required.
(b) Effect of Amendment or Termination. Any such
amendment or termination of the Plan shall not affect Options already granted
and such Options shall remain in full force and effect as if this Plan had not
been amended or terminated.
12. Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date determined in accordance with Section 4(b)
hereof. Notice of the determination shall be given to each Outside Director to
whom an Option is so granted within a reasonable time after the date of such
grant.
13. Conditions Upon Issuance of Shares. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, state securities laws, and the requirements of any
stock exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
<PAGE> 8
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment
and without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not
have been obtained.
14. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written
option agreements in such form as the Board shall approve.
16. Shareholder Approval. Continuance of the Plan shall be
subject to approval by the shareholders of the Company at or prior to the
first annual meeting of shareholders held subsequent to the granting of an
Option hereunder. Such shareholder approval shall be obtained in the degree
and manner required under applicable state and federal law.
<PAGE> 1
EXHIBIT 10.70
[Letterhead]
December 19, 1994
Gary S. Petersmeyer
447 Van Buren
Los Altos, CA 94022
Dear Gary:
I am delighted you have decided to accept the offer for the position of Chief
Operating Officer and President at Collagen Corporation. This letter confirms
my offer and specifies the terms on which we mutually agreed.
Your salary will be $200,000 per year, to be evaluated at our August, 1996,
Board Meeting. A hire-on bonus of $35,000 will be paid on February 1, 1995,
your first day of employment. You will be eligible to participate in our annual
bonus program commencing in Fiscal Year 1996. You will be elected a board
member of Collagen's Board at the February 10, 1995, Board Meeting.
With the Board's approval, you will be granted 60,000 incentive stock options
and non-qualified options to purchase Collagen Corporation Common Stock. The
options will be priced at fair market value determined on the date of the Board
approval meeting. As discussed, in the event of sale of substantially all of
the assets of the Company or in the event of a merger, vesting of options is at
the discretion of the Board.
You will be eligible to participate in our Company's group health, dental,
vision, long-term disability, and life insurance plans, and our short-term
disability plan, effective immediately upon your first day of employment. You
will also be eligible to invest in the Collagen Investment & Savings (CIS) Plan
and our Employee Stock Purchase Plan beginning on April 1, 1995.
In the event you are terminated from the Company during your first two years of
employment for any reason other than cause, you will receive a minimum of six
month's salary as compensation. If termination of employment occurs after your
second year with Collagen, your severance will be at the discretion of our
Board of Directors.
<PAGE> 2
Gary S. Petersmeyer
Page 2
December 19, 1994
In compliance with the Immigration and Naturalization Service requirements,
please be prepared to produce documentation that verifies your eligibility to
be employed in the United States. This documentation generally consists of two
pieces of identification (that is, a Social Security card and a valid driver's
license, or a birth certificate and a valid driver's license with photo).
Please have this documentation available on your first working day.
If you have any questions or concerns, please don't hesitate to call me or
Deborah Berard at any time. I look forward to your arrival on February 11.
Sincerely,
/s/ Howard D. Paletsky
Howard D. Paletsky
President & Chief Executive Officer
- ------------------------------------------------------------------------------
Dear Howard:
I have read your letter of December 19, 1994. I fully understand and accept the
terms outlined.
Signed,
/s/ Gary S. Petersmeyer
Gary S. Petersmeyer
<PAGE> 1
LipoMatrix Contract Number LMI 045
EXHIBIT 10.71
LICENSE, SUPPLY AND OPTION AGREEMENT*
This License, Supply and Option Agreement (the "Agreement") is made as
of March 24, 1995, (the "Effective Date") between Collagen Corporation, a
Delaware corporation ("Collagen"), and LipoMatrix, Incorporated, a British
Virgin Islands corporation ("LipoMatrix").
RECITALS.
Collagen and a predecessor of LipoMatrix ("Old LipoMatrix") have
entered into a Amended Product Development and Marketing Agreement dated
January 19, 1993, as amended. The parties desire to terminate that agreement
and enter into a License, Supply and Option Agreement (as set forth herein),
and a distributor agreement (covering distribution of certain LipoMatrix
products within the United States) in the form attached hereto as Exhibit A
(the "U.S. Distributor Agreement").
1. DEFINITIONS.
1.1 "Change in Control of Collagen" shall mean (i) a merger or
consolidation to which Collagen is a party if the individuals and entities who
were stockholders of Collagen immediately prior to the effective date of such
merger or consolidation have beneficial ownership (as defined in Rule 13d-3
under the 1934 Act) of less than fifty percent (50%) of the total combined
voting power for election of directors of the surviving corporation following
the effective date of such merger or consolidation; (ii) the acquisition of
direct or indirect beneficial ownership (as defined in Rule 13d-3 under the
1934 Act) in the aggregate of securities of Collagen representing fifty percent
(50%) or more of the total combined voting power of Collagen's then issued and
outstanding voting securities by any person or entity, or group, as shown on a
Schedule 13D filed with the SEC pursuant to the 1934 Act; (iii) the sale of all
or substantially all of the assets of Collagen to any person or entity which is
not a majority-owned subsidiary of Collagen; (iv) the liquidation of Collagen
accompanied by a distribution to its shareholders; or (v) a change in
composition of a majority of Collagen's Board of Directors as a result of an
election contest, following the filing of a Schedule 14B with the SEC pursuant
to the 1934 Act.
1.2 "Coating Technology" shall mean implant coating techniques
using Collagen Materials.
1.3 "Collagen Materials" shall mean atelopeptide collagen
formulations, including fibrillar and nonfibrillar collagen, crosslinked
collagen, succinylated collagen and other chemically modified collagen from any
mammalian source (including bovine, porcine, ovine, avian and human collagens).
1.4 "LipoMatrix Products" shall mean LipoMatrix's present and
future breast implant products and other products intended for use in cosmetic
or reconstructive breast surgery.
1.5 "1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
- --------------
* Confidential treatment is requested for a portion of this document.
<PAGE> 2
2. TERMINATION OF PRIOR AGREEMENT.
2.1 Collagen and LipoMatrix hereby terminate, effective as of the
Effective Date, the Amended Product Development and Marketing Agreement between
Collagen and Old LipoMatrix dated January 19, 1993.
3. SUBLICENSE OF COATING TECHNOLOGY.
3.1 Grant of Sublicense. Subject to the terms and conditions
hereof, Collagen hereby grants to LipoMatrix, and LipoMatrix hereby accepts
from Collagen, a worldwide, exclusive, royalty-free sublicense of Collagen's
rights under the License Agreement between Collagen and Stanford University
dated June 1, 1989, to use the Coating Technology solely for the LipoMatrix
Products.
3.2 No Other Licenses. No license or sublicense is granted under
this Agreement by Collagen to LipoMatrix, either directly or by implication,
estoppel or otherwise, except as expressly provided in Section 3.1.
3.3 Intellectual Property Notice. LipoMatrix agrees to mark such
patent, copyright, and other proprietary rights notices on documentation and
packages for the Coating Technology or Collagen Materials used by LipoMatrix as
are appropriate to protect Collagen's intellectual property rights, such
notices to be designated by Collagen subject to the consent of LipoMatrix
(which shall not unreasonably be delayed or withheld). All Coating Technology
or Collagen Materials will have, at the option of Collagen, either a notice
stating that such product was made with Collagen technology or a designated
trademark of Collagen.
3.4 Disclaimer of Warranty. COLLAGEN IS PROVIDING THE COATING
TECHNOLOGY TO LIPOMATRIX "AS IS," AND DISCLAIMS ALL WARRANTIES WITH RESPECT
THERETO, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE AND ANY WARRANTY OF NONINFRINGEMENT OF
THIRD PARTY PATENTS, COPYRIGHTS OR OTHER PROPRIETARY RIGHTS. COLLAGEN SHALL
HAVE NO LIABILITY OR OBLIGATION WITH RESPECT TO DEFECTS OR ERRORS IN THE
COATING TECHNOLOGY.
4. SUPPLY OF COLLAGEN MATERIALS.
4.1 LipoMatrix Requirements. Collagen shall use its reasonable
best efforts to meet or arrange with a third party to meet LipoMatrix's
requirements of the Collagen Materials for the LipoMatrix Products on a timely
basis, provided that LipoMatrix gives Collagen reasonable advance notice of its
requirements and that Collagen shall be entitled to meet its own requirements
for the Collagen Materials before supplying the Collagen Materials to
LipoMatrix.
4.2 Orders and Ordering Period. The terms of sale by Collagen of
the Collagen Materials to LipoMatrix (including lead time, forecasts, and
ordering mechanisms) shall be mutually determined by the parties.
- 2 -
<PAGE> 3
4.3 Price and Payment Terms.
(a) Price. The price for Collagen Materials ordered by
LipoMatrix hereunder shall be negotiated later.
(b) Due Date; Penalty. LipoMatrix shall pay for Collagen
Materials delivered hereunder net thirty (30) days after receipt of invoice and
shipping waybills from Collagen. In the event Collagen notifies LipoMatrix of
its failure to make such payment and LipoMatrix does not make such payment
within thirty (30) days of receipt of such notice, Collagen may charge
LipoMatrix interest on the late payment from the date due until paid in full at
the rate of twelve percent (12%) simple, annual interest, or, if lower, the
highest rate permitted by law.
(c) Taxes. LipoMatrix shall pay or reimburse Collagen
for any municipal, county, state or federal sales, excise or other taxes which
may be levied upon the sale or transfer of ownership of the Collagen Materials.
LipoMatrix also shall pay any such taxes which may be levied or assessed
against the Collagen Materials or the ownership or use thereof, except for any
tax assessed upon Collagen's net income. Said tax payments shall be made
according to requirements of local law and are due and payable on invoice by
Collagen, unless LipoMatrix provides Collagen with a proper tax exemption
certificate.
4.4 Product Warranty. Collagen warrants that all quantities of
the Collagen Materials delivered to LipoMatrix pursuant to this Agreement will
be manufactured in accordance with good manufacturing practices and will meet
mutually agreed upon specifications for the Collagen Materials. THE WARRANTIES
SET FORTH IN THIS SECTION ARE EXCLUSIVE, AND EACH PARTY DISCLAIMS ALL OTHER
WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, OF ANY KIND, INCLUDING
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
5. MARKETING RIGHTS.
5.1 LipoMatrix has granted Collagen certain rights to distribute,
market and sell the LipoMatrix Products in the United States as set forth in
the U.S. Distributor Agreement.
5.2 Collagen has no objection to LipoMatrix offering marketing
rights to LipoMatrix Products to any subsidiary of Collagen International, Inc.
in any country where such a subsidiary exists on terms acceptable to such
subsidiary.
6. PURCHASE OPTION.
6.1 Grant of Purchase Option.
(a) At any time after
(i) April 19, 2000, or
(ii) A Change in Control of Collagen, or
(iii) LipoMatrix receives a bona fide written offer
from a third party expressing its interest to
acquire LipoMatrix at a substantial premium
in excess of $1.25 per share (as adjusted for
stock splits and
- 3 -
<PAGE> 4
dividends), provided, if Collagen so
requests, such offer is substantiated by an
investment banker,
the Board of Directors of LipoMatrix (with the representatives of Collagen
abstaining) may direct LipoMatrix to offer ("LipoMatrix Offer") to purchase all
outstanding shares, options or other rights to equity of LipoMatrix held by
Collagen ("Collagen Shares").
(b) The Board of Directors of Collagen shall have thirty
(30) days after receipt of the LipoMatrix Offer and shall be obligated within
such thirty (30)-day period either
(i) to accept the LipoMatrix Offer, or
(ii) to agree to purchase all outstanding shares,
options or warrants of LipoMatrix at the same
terms and conditions (including form of
consideration and price per share) as in the
LipoMatrix Offer ("Collagen Purchase
Option").
In the event Collagen has accepted (or is deemed to have accepted) the
LipoMatrix Offer, Collagen shall sell all the Collagen Shares in accordance
with the LipoMatrix Offer. If Collagen does not exercise the Collagen Purchase
Option within such thirty (30)-day period, Collagen will be deemed to have
accepted the LipoMatrix Offer.
If Collagen elects to exercise the Collagen Purchase Option,
LipoMatrix shall be obligated to sell in accordance with the Collagen Purchase
Option.
The election by Collagen to purchase or sell shall be irrevocable and
unconditional once made. The closing of the purchase by (i) LipoMatrix of
Collagen Shares or (ii) Collagen of LipoMatrix shall take place within ninety
(90) days after acceptance (including deemed acceptance) or rejection of the
LipoMatrix Offer by Collagen.
The Collagen Purchase Option and the right to make a LipoMatrix Offer
under this Section 6.1 shall be collectively referred to as the "Option."
6.2 Grant of LipoMatrix Stockholder Option and Proxy. All present
and future holders of more than five percent (5%) of the outstanding voting
securities of LipoMatrix (on an as-converted basis) shall be obligated as a
condition precedent to the issuance of such securities (i) to agree to the
Collagen Purchase Option, (ii) to agree to the ability of the LipoMatrix Board
of Directors to trigger the LipoMatrix Offer, and (iii) to enter into a
Stockholder Option Agreement in the form attached hereto as Exhibit B. Sierra
Ventures, B.J. Cassin, A/W Company, Terry Knapp, and Alta Berkeley Associates
shall also agree to the Collagen Purchase Option. In the event Collagen elects
to exercise the Collagen Purchase Option, Collagen shall offer to buy out all
LipoMatrix shareholders at the same price and time, whether or not they have
previously agreed to the Collagen Purchase Option.
6.3 Termination of Marketing Rights. If Collagen accepts the
LipoMatrix Offer, then the U.S. Distributor Agreement shall terminate on the
closing of the purchase of the Collagen Shares.
6.4 Termination on Initial Public Offering. The Option shall
terminate upon the closing of the initial public offering of LipoMatrix's
Common Stock.
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<PAGE> 5
6.5 Legend. Each stock certificate, option or warrant of
LipoMatrix owned by Collagen shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS [CERTIFICATE, OPTION OR
WARRANT] ARE SUBJECT TO THE TERMS OF THE MASTER AGREEMENT
BETWEEN THE HOLDER AND THE COMPANY, WHICH INCLUDES A RIGHT OF
REPURCHASE, A COPY OF WHICH MAY BE OBTAINED UPON THE WRITTEN
REQUEST TO THE SECRETARY OF THE COMPANY.
6.6 Further Assurances. In the event that the Collagen Purchase
Option has been exercised or the LipoMatrix Offer has been accepted, both
parties shall take all steps reasonably necessary to facilitate the acquisition
of shares, options or warrants pursuant to such Collagen Purchase Option or
LipoMatrix Offer.
7. OWNERSHIP OF INVENTIONS.
7.1 Rights. Inventions shall belong to the inventing party;
provided, however, if such invention is jointly developed by the parties, the
invention shall be jointly owned with each party having an equal and undivided
one-half co-ownership interest therein and the unrestricted right to use and
license others to make, have made, use, sell and otherwise distribute such
product. In connection therewith, each of LipoMatrix and Collagen may make,
have made, use, sell and otherwise distribute, import, export, reproduce, copy,
vend, prepare derivatives, display and otherwise exploit any jointly owned
intellectual property rights relating to any jointly owned product without the
consent of, and without paying royalties or accounting to, the other, and may
grant licenses to others thereunder without such consent, payment or
accounting.
7.2 Patent Filings. The party owning the rights to an application
shall have the responsibility for patent filings. The other party and its
employees shall cooperate in such filings to the extent requested and at the
expense of the party making such filings.
8. PRODUCT LIABILITY.
8.1 Indemnity By Collagen. Collagen shall indemnify and hold
LipoMatrix harmless from and against any and all liability, damage, loss, cost
or expense (including reasonable attorney's fees) resulting from any claims
made or suits brought against LipoMatrix, its employees, directors and
customers which arise or result solely from Collagen's handling, distribution
and marketing of the LipoMatrix Products or Collagen Materials, from failure to
manufacture the Collagen Materials in accordance with agreed upon
specifications, FDA Good Manufacturing Practices or other applicable standards
for medical device manufacturers, or from negligence or willful misconduct.
8.2 Apportionment of Damages. In the event that any liability,
damage, loss, cost or expense (including reasonable attorney's fees) as
aforesaid cannot be established to have resulted solely from the actions or
failures to act of LipoMatrix or Collagen or their affiliates, responsibility
for payment of such liability, damage, loss, cost or expense (including
reasonable attorney's fees) will be apportioned between LipoMatrix and Collagen
according to the contribution of either party to the damage and if such
allocation is not mutually agreed then it will be determined by mandatory
arbitration as provided in Section 14.3. The apportionment of damages as
aforesaid will apply with respect to final judgments of a court of competent
jurisdiction from which no
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<PAGE> 6
appeal is or can be taken as well as settlements made prior to, during or
following termination of litigation to which the parties have expressly agreed
in writing.
9. REPRESENTATIONS.
9.1 Collagen. Collagen represents and warrants to LipoMatrix that
(a) it has the full authority and capacity to enter into and perform this
Agreement in accordance with its terms and conditions and (b) this Agreement is
a valid and binding obligation of Collagen, enforceable in accordance with its
terms, except as the enforceability of the Agreement may be subject to or
limited by bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws relating to or affecting the rights of creditors generally.
9.2 LipoMatrix. LipoMatrix warrants that (a) it has the full
authority and capacity to enter into and perform this Agreement in accordance
with its terms and conditions, and (b) this Agreement is a valid and binding
obligation of LipoMatrix, enforceable in accordance with its terms, except as
the enforceability of the Agreement may be subject to or limited by bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws
relating to or affecting the rights of creditors generally.
10. PATENT INFRINGEMENT DEFENSE AND PROSECUTION.
10.1 Claims Involving Collagen Materials. Collagen shall have the
right and obligation to defend, or at its option to settle, any claim, suit or
proceeding brought against LipoMatrix or its employees, directors, or customers
on the issue of infringement of any United States or foreign patent or other
proprietary right by reason of LipoMatrix's use of the Collagen Materials in
LipoMatrix Products, subject to the limitations hereafter set forth. Collagen
shall have sole control of any such action or settlement negotiations, and
Collagen agrees to pay any final judgment entered against LipoMatrix or its
customers on such issue.
10.2 Notification and Cooperation. Each party shall promptly
notify the other party if it becomes aware of any claim, action or proceeding
subject to Sections 10.1 and shall cooperate in the defense of such claim,
action or proceeding, provided that the party responsible for such defense
shall reimburse the other party for any reasonable out-of-pocket expenses
incurred by such other party at the defending party's request.
10.3 Prosecution of Infringers. Each party will promptly notify
the other in writing if it becomes aware of any possible infringement of the
patent or other proprietary rights of the other party related to this
Agreement. Each party will be responsible for the prosecution or other action
taken with respect to possible infringement of its patents or other rights.
10.4 Sole Remedy. THIS INFRINGEMENT INDEMNITY STATES COLLAGEN'S
ENTIRE LIABILITY AND OBLIGATION TO LIPOMATRIX FOR ANY CLAIM OF INFRINGEMENT OF
THIRD PARTY PATENT, COPYRIGHT, TRADEMARK, TRADE SECRET OR OTHER INTELLECTUAL
PROPERTY RIGHTS.
11. CONFIDENTIAL INFORMATION.
11.1 Definition. "Confidential Information" of either party means
information disclosed to or learned by the other party concerning the first
party's business, customers, products, proposed products, plans, inventions,
processes and techniques, but does not include information that:
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<PAGE> 7
(a) is or becomes generally known to the public through
no fault or breach on the part of the receiving party;
(b) the receiving party obtains from a third party
rightfully, without breach of nondisclosure obligations and without restriction
on disclosure;
(c) the providing party regularly provides to others
without restriction on disclosure; or
(d) was already known to the receiving party at the time
of such disclosure.
11.2 Protection. Except as explicitly authorized in writing by
this Agreement or otherwise, each party agrees: (a) not to use for its own
benefit or the benefit of any third party the other party's Confidential
Information; and (b) to use all reasonable care, but in no event less care than
it takes to protect its own Confidential Information of similar importance, to
protect the other party's Confidential Information from unauthorized use,
disclosure and publication.
12. TERM AND TERMINATION.
12.1 Term. This Agreement shall commence on the Effective Date and
shall continue for a term of ten (10) years from the date of marketing
clearance by the United States Food and Drug Administration of the first
LipoMatrix Product, unless and until earlier terminated as provided in this
Section 12.
12.2 Termination For Cause. Either party may terminate this
Agreement, upon a material default in the fulfillment of the obligations of the
other party under this Agreement by giving written notice to such other party,
specifying the nature of such default, not less than ninety (90) days prior to
the date the non-defaulting party intends to terminate this Agreement. If such
default is cured by the defaulting party within ninety (90) days, or, if such
default cannot be cured during such period, such defaulting party is taking
reasonable steps to correct such default within a reasonable period thereafter,
no such termination shall occur.
12.3 Termination of the U.S. Distributor Agreement. In the event
that either party terminates this Agreement for cause as provided in Section
12.2, then as of the effective date of such termination, the U.S. Distributor
Agreement shall terminate.
12.4 Survival of Provisions. The provisions of Sections 7, 8, 10,
11, 12, 13 and 14 shall survive any termination of this Agreement.
12.5 Remedies. Nothing herein shall limit any remedies which a
party may have for the other party's default, except as set forth in Section
13.
13. LIMITATION OF LIABILITY.
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY
INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES OF ANY NATURE WHATSOEVER ARISING
FROM THE PERFORMANCE OR FAILURE TO PERFORM OF EITHER PARTY HEREUNDER, OR ANY OF
THE TECHNICAL INFORMATION TRANSFERRED PURSUANT HERETO, OR THE PERFORMANCE OR
FAILURE TO PERFORM OF ANY GOODS DELIVERED HEREUNDER, WHETHER DUE TO
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<PAGE> 8
BREACH OF WARRANTY, BREACH OF CONTRACT, NEGLIGENCE OR OTHERWISE. THESE
LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE. THE
FOREGOING LIMITATIONS SHALL NOT AFFECT EITHER PARTY'S DUTY TO INDEMNIFY THE
OTHER PARTY FOR THIRD-PARTY SUITS FOR SUCH DAMAGES, AS SET FORTH IN SECTIONS 8
AND 10.
14. MISCELLANEOUS.
14.1 Assignment. Neither party may assign any rights (other than
the right to receive money) or delegate any duties under this Agreement without
the other party's prior written consent, and any attempt to assign or delegate
without that consent will be void. Notwithstanding the foregoing, however,
either party may assign this Agreement to any wholly-owned subsidiary of such
party or to any successor to its business by merger, sale of assets or sale of
stock, provided that such successor agrees in writing to be bound by the terms
of this Agreement and a copy of such agreement is delivered to the other party.
Subject to the foregoing, this Agreement will be binding upon and inure to the
benefit of the parties, their respective successors and permitted assigns.
14.2 Applicable Law. This Agreement shall be construed in
accordance with, and all the rights, powers and liabilities of the parties
hereunder shall be governed by, the internal laws of the State of California,
without reference to choice of law principles thereof.
14.3 Arbitration. The parties shall attempt to settle all disputes
arising in connection with this Agreement through good faith consultation. In
the event no agreement can be reached on such dispute within sixty (60) days
after notification in writing by either party to the other concerning such
dispute, the parties shall submit such dispute to arbitration by three
arbitrators under the Rules of the American Arbitration Association. One
arbitrator shall be selected by Collagen, one arbitrator shall be selected by
LipoMatrix and the third arbitrator shall be selected by the first two
arbitrators. The place of arbitration shall be a site in the United States
mutually agreeable to the parties. The arbitrator's decision shall be final,
conclusive, and binding; and such decision and any arbitration award may be
entered in any court of competent jurisdiction. Expenses and fees of such
arbitration shall be borne by the non-prevailing party in such arbitration (see
Section 14.8 below).
14.4 Public Statements. Neither party shall make any public
announcement or press release regarding the existence of this Agreement or any
of the terms and conditions hereof (except as required by applicable
governmental regulations) without the written consent of the other party.
14.5 Entire Agreement. This Agreement, including the exhibits
attached hereto, sets forth the entire Agreement and understanding of the
parties relating to its subject matter and merges all prior discussions and
agreements between them, including without limitation any non-disclosure or
confidentiality agreement prior to the Effective Date. No modification or
amendment to this Agreement, nor any waiver of any rights under this Agreement,
will be effective unless in writing signed by both parties.
14.6 Severability. If any provision of this Agreement is found
invalid or unenforceable, that provision will be enforced to the maximum extent
permissible under applicable law, and the remaining provisions of this
Agreement will stay in force. In addition, the parties agree to negotiate in
good faith a provision to replace the provision found invalid or unenforceable
that will have, to the extent possible, the same economic effect.
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<PAGE> 9
14.7 Notices. All notices required or to be given pursuant to this
Agreement shall be in writing, shall be effective upon receipt and shall be
delivered in person or by first class mail, postage prepaid to the following
addresses, with a copy of such notice to be sent simultaneously by telex,
facsimile copier or similar device to the party receiving such notice:
To Collagen: Collagen Corporation
2500 Faber Place
Palo Alto, California, U.S.A. 94303
Attention: President
To LipoMatrix: LipoMatrix, Incorporated
24 Puits Godet, CH-2000 Neuchatel,
Switzerland
Attention: President
14.8 Attorney's Fees. If a dispute arises pursuant to this
Agreement, the prevailing party shall be entitled to receive its attorney's
fees and costs in connection with such dispute, as determined by the
arbitrator.
14.9 Force Majeure. Each of the parties shall be excused from the
performance of its obligations hereunder in the event such Performance is
prevented by force majeure, and such excuse shall continue so long as the
condition constituting such force majeure continues plus thirty (30) days after
the termination of such condition. For the purposes of this Agreement, force
majeure is defined to include causes beyond the control of LipoMatrix or
Collagen, including without limitation acts of God, acts, regulations or laws
of any government, war, civil commotion, destruction of production facilities
or materials by fire, earthquake or storm, labor disturbances, epidemic and
failure of public utilities or common carriers.
14.10 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
14.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
14.12 Waiver of Conflict. EACH PARTY TO THIS AGREEMENT THAT HAS
BEEN OR CONTINUES TO BE REPRESENTED BY VENTURE LAW GROUP ("VLG") HEREBY
ACKNOWLEDGES THAT RULE 3-310 OF THE RULES OF PROFESSIONAL CONDUCT PROMULGATED
BY THE STATE BAR OF CALIFORNIA REQUIRES AN ATTORNEY TO AVOID REPRESENTATIONS IN
WHICH THE ATTORNEY HAS OR HAD A RELATIONSHIP WITH ANOTHER PARTY INTERESTED IN
THE REPRESENTATION WITHOUT THE INFORMED WRITTEN CONSENT OF ALL PARTIES
AFFECTED. BY EXECUTING THIS AGREEMENT, EACH SUCH PARTY GIVES ITS INFORMED
WRITTEN CONSENT TO THE REPRESENTATION OF LIPOMATRIX BY VLG IN CONNECTION WITH
THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement through
the signatures of their duly authorized representatives set forth below.
COLLAGEN CORPORATION LIPOMATRIX, INCORPORATED
a Delaware corporation a British Virgin Islands corporation
By: /s/ Howard D. Palefsky By: /s/ Terry R. Knapp, MD
----------------------------------- ---------------------------------
Title: Chairman & CEO Title: Chairman & CEO
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<PAGE> 11
LipoMatrix Contract Number LMI 045
EXHIBIT A
U.S. DISTRIBUTOR AGREEMENT
<PAGE> 12
LipoMatrix Contract Number LMI 046
DISTRIBUTOR AGREEMENT
BETWEEN
LIPOMATRIX, INCORPORATED.
AND
COLLAGEN CORPORATION
Note: Confidential treatment requested for a portion of this document.
<PAGE> 13
LipoMatrix Contract Number LMI 046
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. APPOINTMENT AS EXCLUSIVE DISTRIBUTOR . . . . . . . . . . . . . . . . 2
III. SPECIFIC RESPONSIBILITIES . . . . . . . . . . . . . . . . . . . . . 3
IV. TERMS AND CONDITIONS OF SALE . . . . . . . . . . . . . . . . . . . . 7
V. ACQUISITION AND USE OF DEMONSTRATION PRODUCT AND
TRANSPONDER READERS . . . . . . . . . . . . . . . . . . . . . . . . 9
VI. TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . 10
VII. PATENT INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . 11
VIII. PRODUCT LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 12
IX. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . 13
X. NO RIGHT TO MANUFACTURE OR COPY . . . . . . . . . . . . . . . . . . 13
XI. INTELLECTUAL PROPERTY RIGHTS . . . . . . . . . . . . . . . . . . . . 13
XII. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
EXHIBITS
Exhibit A Risk Management Program*
Exhibit B Risk Management Support Documents*
</TABLE>
* Confidential treatment requested for this exhibit.
<PAGE> 14
LipoMatrix Contract Number LMI 046
DISTRIBUTOR AGREEMENT
This Distributor Agreement (the "Agreement") is entered into as of
March 24, 1995, (the "Effective Date") between LIPOMATRIX, INCORPORATED
("LIPOMATRIX"), a corporation organized under the laws of the British Virgin
Islands with an office located at Puits Godet 24, CH-2000 Neuchatel,
Switzerland and COLLAGEN CORPORATION ("DISTRIBUTOR"), a Delaware corporation
with an office located at 2500 Faber Place, Palo Alto, CA 94303.
IN CONSIDERATION OF THE MUTUAL PROMISES HEREIN CONTAINED, THE PARTIES
AGREE AS FOLLOWS:
I. DEFINITIONS
A. "PRODUCTS" shall mean LipoMatrix's present and future (subject
to Section II.A) breast implant products and other products intended for use in
cosmetic or reconstructive breast surgery. Products may be changed, abandoned
or added by LipoMatrix, at its sole discretion, after reasonable prior written
notice (which shall not be less than ninety (90) days) is given to Distributor,
or in any other manner necessary in order to comply with applicable laws.
LipoMatrix shall be under no obligation to continue the production of any
Product, except as provided herein.
B. "TERRITORY" shall mean the United States of America.
C. "TECHNICAL DATA" shall mean all information belonging to
LipoMatrix in written, graphic or tangible form relating to design,
programming, operation or service of the Products, including all information
that exists as of the Effective Date of this Agreement, or is developed by
LipoMatrix during the term hereof.
D. "INTELLECTUAL PROPERTY RIGHTS" shall mean all of LipoMatrix's
worldwide patents, trademarks, trade names, inventions, copyrights, regulatory
approvals, know-how, trade secrets, and all other intellectual property rights,
in existence as of the Effective Date of this Agreement or hereafter developed
or acquired by LipoMatrix, relating to the design, manufacture, or marketing of
the Products.
E. "TRADE SECRETS" shall mean any formula, pattern, device, or
compilation of information which is used in LipoMatrix's business and which
provides competitive advantage to LipoMatrix and which is not known or used by
LipoMatrix's competitors. This term includes, but is not limited to, formulas,
compounds, manufacturing processes, methods for treating or preserving
materials, patterns for the design or operation of devices, materials filed
with governmental agencies in connection with regulatory approval of
LipoMatrix's products, and information relating to marketing of LipoMatrix
products and services.
F. "LIPOMATRIX TRADEMARKS" shall mean those trademarks, trade
names, service marks, slogans, designs, distinct advertising, labels, logos and
other trade-identifying symbols as are or have been developed and used by
LipoMatrix and/or any of its subsidiaries or affiliate companies anywhere in
the world.
G. "GOVERNMENT AGENCY" shall include all local, national and
supranational bodies with the legal authority to establish rules, regulations,
standards and guidelines, (or to issue certificates of compliance with these),
covering the design, manufacturing and marketing of the
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<PAGE> 15
Products in the Territory. This will include without limitation the United
States Food and Drug Administration.
H. COMMERCIAL SALE. The sale of a Product by Distributor, other
than for clinical use required to obtain governmental approvals to market such
Product.
I. ORDERING YEAR. The twelve-month period commencing on the
first Commercial Sale and each subsequent twelve-month period commencing on the
anniversary of such date.
II. APPOINTMENT AS EXCLUSIVE DISTRIBUTOR
A. Subject to the terms and conditions set forth herein
LipoMatrix hereby appoints Distributor, and Distributor hereby accepts such
appointment, as LipoMatrix's exclusive distributor for the Products in the
Territory. As a result, LipoMatrix will not sell the Products in the Territory,
other than through Distributor. The mechanism for sales of Products for
clinical trials in the Territory shall be determined by mutual agreement. Any
future Product developed by LipoMatrix shall be deemed a Product hereunder. If
Distributor does not initiate commercial sales of such future Product within
ninety (90) days of regulatory clearance, then all rights to such product will
revert to LipoMatrix.
B. Distributor shall not represent or sell competitive products
in the Territory which, in LipoMatrix's opinion, are likely to conflict with
Distributor's obligation to use its reasonable commercial efforts to represent
and sell Products in the Territory.
C. Distributor shall not, directly or indirectly, solicit sales
of the Products outside the Territory. Distributor shall forward to
LipoMatrix all unsolicited inquiries relating to the Products or potential
customers outside of both the Territory and the territory, if any, covered by
affiliates of Distributor that are authorized to distribute Products.
D. The relationship of LipoMatrix and Distributor established by
this Agreement is that of independent contractors, and nothing contained in
this Agreement shall be construed to give either party the power to direct or
control the day-to-day activities of the other or allow one party to create or
assume any obligation on behalf of the other for any purpose whatsoever.
III. SPECIFIC RESPONSIBILITIES
A. MARKETING.
1. MARKETING EFFORTS. During the term of the Agreement,
Distributor shall use its reasonable commercial efforts to develop and exploit
the market and to sell the Products throughout the Territory.
2. MARKETING PLAN. Distributor shall complete, as soon
as practicable (but no later than ninety (90) days prior to the scheduled
commencement of sales), and thereafter, annually on or before March 31, a
comprehensive marketing plan for each country within the Territory.
3. PRINTED MATERIALS.
a. Packaging. LipoMatrix will provide at its
expense all materials in and on the Product packages.
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<PAGE> 16
b. Risk Management Support Documents. The text
of the risk management documents, including the Patient Advisory and Consent
and the Supply Agreement, as of the date of this Agreement in the form attached
as Exhibit B hereto, will be provided by LipoMatrix, but printing and
distribution expenses will be borne by Distributor.
c. Sales and Promotional Literature.
Distributor will produce all sales and promotional literature, obtaining
LipoMatrix's prior approval of scientific and regulatory matters contained
therein. Distributor and LipoMatrix will cooperate on the development of such
materials.
4. TRADE SHOWS. Distributor shall use its reasonable
commercial efforts to attend major national and regional (i.e. regions in or
encompassing the Territory) trade shows and educational forums where similar or
competitive products are displayed and to present the Products fairly at such
shows and workshops.
5. CLINICAL REFERENCE ACCOUNTS. Distributor shall
endeavor to develop key clinical reference accounts with plastic surgeons who
are key opinion leaders within the Territory. This includes those leaders as
reasonably selected by LipoMatrix.
6. MARKETING AND SALES SUPPORT. In LipoMatrix's sole
determination, LipoMatrix personnel shall make periodic visits to the Territory
during the period of this Agreement, as necessary in order to monitor
administration, marketing and sales related to the Products. LipoMatrix shall
pay all transportation, meal, lodging, salary and related expenses for its
personnel in this regard. LipoMatrix shall use commercially reasonable efforts
to assist Distributor in locating and obtaining appropriate clinical expertise
at Distributor's reasonable request, for purposes of supporting Distributor's
marketing effort. The parties will mutually agree in advance on the amount and
duration of clinical education and the allocation of costs associated with such
clinical education.
B. PURCHASE QUOTAS, ORGANIZATION AND FORECASTS.
1. PURCHASE QUOTAS. The purchase quota for the first
Ordering Year shall be mutually agreed between the parties prior to first
Commercial Sale. Such purchase quota will be eighty percent (80%) of the
anticipated sales for the first Ordering Year. The purchase quota for the
second Ordering Year shall equal Distributor's actual purchases (in units) in
the first Ordering Year. The purchase quota for the third Ordering Year shall
equal Distributor's actual purchases (in units) in the second Ordering Year.
Quotas for subsequent Ordering Years shall equal the higher of actual purchases
(in units) or purchase quotas in the prior Ordering Year. Distributor agrees
to use reasonable commercial efforts to meet or exceed the purchase quotas as
set forth in this paragraph. In the event Distributor fails to meet or exceed,
on an aggregate basis, the purchase quotas for two (2) consecutive Ordering
Years beginning on or after the third Ordering Year, LipoMatrix may terminate
this Agreement for cause as provided in Section VI.C, provided, however, that
this termination option must be exercised within sixty (60) days of the
commencement of the next Ordering Year. Purchase quotas will be adjusted if
LipoMatrix is unable to supply Products due to regulatory constraints or
significant manufacturing delays.
2. SALES ORGANIZATION AND TRAINING. Distributor shall
use reasonable commercial efforts to develop a sales organization that is
knowledgeable concerning the features of the Products and the relationship of
those features to the clinical benefits to potential customers within the
Territory. In connection with the sale of Products, at LipoMatrix's request,
Distributor
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<PAGE> 17
shall make available an individual reasonably satisfactory to LipoMatrix
("Distributor's Trainer") for sales training of Distributor's other
representatives. Training for Distributor's Trainer shall be provided, at
LipoMatrix's election, either in Switzerland or in the Territory, and will
occur before commencement of Commercial Sales, with training updates to be held
as needed. LipoMatrix shall pay the costs of the training (including the
transportation, meals, lodging, salary and related expenses of LipoMatrix
employees), and Distributor shall be responsible for all transportation, meals,
lodging, salary and related expenses of Distributor employees attending such
training.
3. QUARTERLY SALES INFORMATION AND FORECASTS. On a
quarterly basis, Distributor shall provide within ten (10) days after the end
of each calendar quarter a reasonably detailed quarterly sales and promotional
report to LipoMatrix.
On a monthly basis, within the first ten (10) days of
every month, Distributor shall provide LipoMatrix with a six (6) month (during
the first Ordering Year) and fifteen (15) month (thereafter) rolling forecast.
4. SALES LAUNCH SCHEDULE. Distributor shall commence
Commercial Sales of the Products in the Territory as soon as practicable after
obtaining regulatory clearance. Clinical or marketing trials may commence at
any time by mutual agreement of the parties and will not constitute a
Commercial Sale.
C. LIPOMATRIX VISITS AND MARKETING REPRESENTATIVE. Upon
reasonable notice, Distributor shall permit and facilitate visits by LipoMatrix
personnel to Distributor's facilities to review compliance with specific
requirements of this Agreement, and to customer sites and to travel with
Distributor's sales personnel for training purposes.
Distributor shall permit the placement within Distributor's
organization of a part-time or full-time Product specialist by LipoMatrix, at
LipoMatrix's sole option and expense, for purposes of providing marketing and
risk management support. Office space will be provided for such individual by
Distributor. This requirement is waived as long as Distributor and its
affiliates collectively own at least twenty percent (20%) of the Common Stock
of LipoMatrix (on an as-converted basis) and the management of Distributor or
any of its affiliates is represented on the board of directors of LipoMatrix.
D. REGULATORY APPROVALS AND COMPLIANCE. LipoMatrix shall obtain
and own all regulatory approvals, certificates, registrations, licenses, and
permits related to the Products unless prohibited by local law. In the event
that necessary approvals, certificates, registrations, licenses and permits
required to sell and distribute the Products in the Territory are required by
local law to be owned by, or held in the name of Distributor, Distributor
agrees that upon termination of this Agreement for any reason, Distributor
shall immediately take all steps necessary to promptly transfer the ownership,
registration or entitlement of such registrations, certificates, licenses and
permits to LipoMatrix or its designee.
Distributor shall provide reasonable assistance to LipoMatrix
in order to obtain any and all applicable regulatory approvals required by
Governmental Agencies under the laws and/or regulations of any jurisdiction in
order to market the Products within Territory, including but not necessarily
limited to, meeting relevant standards and guidelines, preclinical, clinical
and safety approvals required by Government Agencies. LipoMatrix shall
reimburse Distributor for reasonable out-of-pocket expenses incurred by
Distributor in connection with such assistance provided such expenses are
approved in advance.
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<PAGE> 18
LipoMatrix shall have the primary responsibility for
manufacturing compliance and Distributor for any distribution compliance
regarding any reporting or compliance matters in the Territory required of
distributors by Government Agency rules and regulations, including but not
limited to, recalls of the Products and reporting of adverse events involving
the Products. The parties shall share information to allow each party to
fulfill its compliance obligations hereunder.
Each party shall promptly inform the other of any changes in
regulatory or compliance status that might significantly affect the marketing
of the Products in the Territory. Each party shall inform the other within two
(2) working days of any actions taken by such party that could reasonably be
expected to affect the regulatory or compliance status of LipoMatrix or the
Products.
Distributor shall make all reasonable efforts to comply with
appropriate standards for review and approval of orders from its customers.
E. IMPORT LICENSES. Distributor shall obtain import and reexport
licenses and permits and take all other actions required in connection with the
import or reexport of Products purchased hereunder.
F. CUSTOMER FEEDBACK AND POST-MARKETING SURVEILLANCE.
Distributor shall use its commercially reasonable efforts to provide LipoMatrix
with assessments of customer requirements for Product modifications and
improvements. These assessments will focus on the quality, design, functional
capability and other features of the Products, with a view to maximizing the
potential market for such Products within the Territory.
Distributor will promptly furnish LipoMatrix with copies of
any written communications from its customers with respect to the use of its
Products, suggestions for modifications or improvement to the Products,
reliability of Products, performance of the Products, compliance with
specifications, and other pertinent information.
G. REGISTRY INFORMATION. On a monthly basis, Distributor will
provide to LipoMatrix a report which will provide such information defined by
LipoMatrix as necessary for maintenance of a registry of implants, including
but not limited to, the transponder numbers for those Products shipped to
customers or otherwise disposed of, including the transponder number and the
customer number of the physician, clinic or hospital to whom the Product was
sold. Distributor will provide LipoMatrix with an inventory reconciliation as
requested by LipoMatrix from time to time.
H. INVENTORY. Distributor agrees to maintain an inventory of
Products equivalent to three (3) months of forecast sales provided the Products
have a stated shelf life of at least twenty-four (24) months.
Distributor will maintain its inventory of Products in a
clean, secure and well organized facility. In addition, such storage space
will comply with environmental requirements, including temperature or other
requirements, set forth on the labeling of the Products, or other reasonable
requirements notified from time to time by LipoMatrix to Distributor.
Distributor will maintain records of the Products to enable
traceability of Products. Distributor will use an effective materials
management system for tracking its inventory and shipments of Products to its
customers.
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I. RISK MANAGEMENT PROGRAM. Distributor recognizes that
LipoMatrix maintains an active program of risk management as set out in
Exhibits A and B attached to this Agreement (the "Risk Management Program").
The Risk Management Program may be changed by mutual agreement. Distributor
agrees to comply with the Risk Management Program and to use its best efforts
to assure compliance by Distributor's customers.
J. HEALTH AND SAFETY LAWS AND REGULATIONS. Distributor shall
comply fully with any and all applicable health and safety laws and regulations
of the Territory.
K. REPRESENTATIONS. Neither Distributor nor LipoMatrix shall
make any false or misleading representations to customers or others regarding
LipoMatrix or the Products. Distributor and its employees and agents shall not
make any representations, warranties or guarantees with respect to the
specifications, features or capabilities of the Products that are not
consistent with LipoMatrix's documentation accompanying the Products or
LipoMatrix's literature describing the Products, including LipoMatrix's
standard warranty and disclaimers. Distributor shall not make any commitments
or comments to its customers about possible future Product enhancements or
future Products without the written authorization of LipoMatrix.
L. WARRANTY. LipoMatrix warrants that each Product sold to
Distributor hereunder will (i) have any required regulatory clearance for
commercial sale in the Territory, (ii) be free from defects in materials and
workmanship, (iii) be designed in compliance with ISO 9001 design standards,
(iv) be manufactured, packaged, and labeled in accordance with the then
prevailing specifications, and (v) have a remaining shelf life at the date of
shipment of twenty-one (21) months when the stated shelf life from date of
manufacture is twenty-four (24) months (the "Warranty Period"). If Distributor
provides notice to LipoMatrix during the Warranty Period that a Product
breaches this warranty, Distributor shall, if requested by LipoMatrix, return
such Product to LipoMatrix for evaluation, or if not so requested, dispose of
such Product in accordance with LipoMatrix's instructions, and, if such Product
does breach this warranty, LipoMatrix will, in its sole discretion, either
repair or replace same, and reimburse Distributor for its reasonable return
freight incurred therefor, if any, or refund the purchase price.
This warranty does not cover defects or damage caused by
Distributor's misuse, abuse, alterations or failure to properly maintain,
handle and store any Products.
M. EXTENDED WARRANTY. In addition, an extended warranty will be
provided by LipoMatrix as set out in the Risk Management Program. All claims
pursuant to the extended warranty shall be made in a writing (including a
telecopy) stating (1) the name and address of the site at which the Product was
implanted, (2) the name and telephone number of the contact person at the site,
(3) the transponder number of the allegedly nonconforming Product, (4) the date
the Product was delivered to the site by Distributor, and (5) a reasonably
detailed description of the alleged nonconformity. The allegedly
non-conforming Product must be returned to LipoMatrix for evaluation.
LipoMatrix shall promptly advise Distributor of any changes in its extended
warranty.
N. THE WARRANTY SET FORTH IN SECTIONS III.L AND III.M ABOVE IS
EXCLUSIVE AND NO OTHER WARRANTY, WHETHER WRITTEN, ORAL OR IN ANY COMMUNICATION
WITH DISTRIBUTOR, IS EXPRESSED OR IMPLIED. LIPOMATRIX MAKES NO WARRANTIES OR
REPRESENTATIONS AS TO PERFORMANCE OF THE PRODUCT TO DISTRIBUTOR OR TO ANY OTHER
PERSONS, EXCEPT AS SET FORTH HEREIN. NOTWITHSTANDING ANYTHING IN
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<PAGE> 20
THIS AGREEMENT TO THE CONTRARY, LIPOMATRIX RESERVES THE RIGHT TO MODIFY THE
EXTENDED WARRANTY POLICY AND OBLIGATIONS SET FORTH HEREIN UPON NOTICE TO
DISTRIBUTOR FROM TIME TO TIME AS TO PRODUCTS ORDERED BY DISTRIBUTOR AFTER THE
DATE OF SUCH NOTICE. ALL IMPLIED WARRANTIES INCLUDING BUT NOT LIMITED TO, THE
IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
NON-INFRINGEMENT (EXCEPT AS SET FORTH IN SECTION VII) ARE HEREBY EXCLUDED. THE
FOREGOING DISCLAIMERS SHALL NOT AFFECT LIPOMATRIX'S OBLIGATIONS AS SET FORTH IN
SECTIONS VII AND VIII.
IV. TERMS AND CONDITIONS OF SALE
A. PRICES. Distributor and LipoMatrix shall, prior to launch in
the Territory, mutually agree on list prices for Distributor's sales of
Products to its customers. Prices charged by LipoMatrix to Distributor will
reflect a discount of fifty-five percent (55%) from the agreed upon list price
for the first Ordering Year and a discount of fifty percent (50%) thereafter.
Prices to Distributor for all Products shall be F.O.B. Swiss
manufacturing facility of LipoMatrix and shall exclude freight, taxes
(including, without limitation, export, import and local excise, sales, use,
property and other taxes, but excluding taxes imposed on LipoMatrix's net
income), insurance, duties and other governmental charges levied with respect
to the Products sold hereunder, all of which shall be paid by Distributor.
Prices may be changed at any time during the term of this Agreement, or any
extension or renewal thereof, by mutual agreement.
B. RESEARCH AND DEVELOPMENT FUND. While Distributor markets the
Products, Distributor shall pay to LipoMatrix an amount equal to five percent
(5%) of Distributor's net sales revenue from sales of Products, such payments
to be made for each month by the fifteenth day of the following month. Such
payments shall commence in respect of sales for the month of April 1997. The
payments, and the interest earned on them until expenditure, are intended to be
expended on mutually agreed research, development, clinical and manufacturing
programs for breast implant products and other products intended for use in
cosmetic or reconstructive breast surgery, and if such funding is not expended,
the funds shall revert to Distributor. LipoMatrix shall have full ownership of
the results of such programs; provided, however, if Distributor and its
affiliates beneficially own less than twenty percent (20%) of LipoMatrix,
LipoMatrix will pay Distributor a mutually agreed upon royalty for sales of
products incorporating the results of such programs outside the Territory and
other territories where Distributor and its affiliates are selling Products.
Distributor shall have the exclusive right to market in the Territory all
products developed with any use of such funds and any such product shall be
deemed a Product hereunder. If Distributor does not initiate commercial sales
of such Product within ninety (90) days of regulatory clearance, then all
rights to such product will revert to LipoMatrix.
C. PAYMENT TERMS
1. LipoMatrix agrees to grant Distributor credit terms
for sales. Distributor agrees to pay to LipoMatrix the full amount of all
invoices net sixty (60) days from the invoice date. In the event that
Distributor does not promptly pay all invoices in accordance with this Section,
then the payment terms will revert to payment by irrevocable letter of credit
(or equivalent satisfactory to LipoMatrix) payable against shipping documents.
Accounts past due will be subject to a monthly service charge of one and
one-half percent (1.5%) of unpaid sum, but in no event to exceed the maximum
allowable by law.
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<PAGE> 21
2. All payments shall be in the local currency of the
Territory.
3. Distributor must give LipoMatrix written notice of
any discrepancies among the purchase order, the invoice, and Products received,
within thirty (30) days after receipt of Products or the invoice, whichever
occurs later.
4. If Distributor fails to make payment when due,
LipoMatrix may also decline to make further shipments until all above
indebtedness is paid, and/or alternatively may decline to make further
deliveries except for cash in advance of shipment or letter of credit
acceptable to LipoMatrix.
D. PRODUCT ORDERS. All orders for Products submitted hereunder
shall be initiated by purchase orders sent by regular mail, hand delivery,
airmail, courier mail, e-mail, or facsimile to LipoMatrix. LipoMatrix shall
respond to such orders by air mail, courier mail, e-mail, or facsimile within
reasonable time, not to exceed ten (10) days after receipt thereof. All
purchase orders submitted by Distributor to LipoMatrix shall identify the
Products ordered by Product number and quantity and the desired shipment date.
E. ORDER ACCEPTANCE. All purchase orders are subject to
acceptance by LipoMatrix at its Neuchatel office. LipoMatrix shall have no
obligation or liability to Distributor with respect to purchase orders which
are not accepted; however LipoMatrix shall not unreasonably reject any purchase
order. LipoMatrix shall use reasonable efforts to deliver Products covered by
accepted purchase orders at the times specified in the corresponding quotation
or written acceptance of Distributor's purchase order.
Any orders in the ordinary course of business, consistent with
normal ordering practices, that are rejected by LipoMatrix shall be deducted
from the purchase quota for such Ordering Year as set forth in Section III.B.1.
Distributor's purchase orders hereunder shall be governed by
the terms and conditions of this Agreement. Nothing contained in any purchase
order shall in any way modify or add any terms or conditions of sale.
F. CANCELLATION/RESCHEDULING. Distributor may, at its option and
subject to the provisions of this Section, either reschedule delivery of any
Products or cancel any order or portion thereof, upon written notice to
LipoMatrix. A "reschedule" is defined as changing all or any portion of those
Products scheduled for shipment on any ship date by moving the ship date later
in time. Distributor shall have a right to cancel or reschedule any order for
later shipment provided such request is received by LipoMatrix at least thirty
(30) days in advance of the original ship date. Rescheduling or cancellation
requests made Distributor within thirty (30) days of the original ship date are
subject to LipoMatrix's approval.
G. COUNTRY SHIPMENTS. Products sold to Distributor in the
Territory will not be transferred by Distributor outside the Territory without
the written notification to LipoMatrix and an appropriate billing adjustment to
reflect any difference in prices between countries. Such transfers out of the
Territory will only be permitted to countries in a territory covered by a
distributor that is an affiliated company of Distributor.
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<PAGE> 22
V. ACQUISITION AND USE OF DEMONSTRATION PRODUCT AND TRANSPONDER READERS
A. Products will be provided without charge to Distributor for
Distributor's exclusive use in selling and marketing of Products within the
Territory, in such limited quantities as are determined by mutual agreement.
B. Transponder readers will be loaned to Distributor for use in
tracking inventory and for demonstration use with customers, in such limited
quantities as are determined by mutual agreement.
VI. TERM AND TERMINATION
A. TERM. This Agreement shall commence upon the Effective Date
and shall expire ten (10) years after first Commercial Sale, unless renewed or
terminated as provided below.
B. RENEWAL. Unless terminated in the manner provided below, the
term of this Agreement shall be extended automatically for successive one (1)
year periods, unless either party elects not to renew by written notice to the
other party at least ninety (90) days prior to the conclusion of the initial
term hereof or any such renewal period, as the case may be. Either party may
elect not to renew this Agreement for any or no reason.
C. TERMINATION FOR CAUSE. Either party shall have the right to
terminate this Agreement at any time effective upon written notice, in the
event of (1) breach by the other party of any of the terms and conditions
hereof and failure to correct the breach within the thirty (30) days of written
notice thereof; (2) the other party becoming generally unable to obtain
necessary licenses; or (3) Force Majeure which suspends or delays performance
of this Agreement for more than ninety (90) days from the beginning of such
event.
It is recognized by the parties that the Risk Management
Program (see Section III.A.3.b) is an essential element of this Agreement.
Failure by either party to adhere to its provisions or to use best efforts to
implement it, may be used as grounds for termination of this Agreement for
cause under this Section.
In the event of a substantial change in ownership of
Distributor, or the continued failure by Distributor to meet the purchase
quotas as specified in Section III.B.1, LipoMatrix shall have the right to
terminate this Agreement upon thirty (30) days written notice.
In the event that LipoMatrix is acquired by a third party,
LipoMatrix shall have the right to terminate this Agreement upon thirty (30)
days written notice.
Either party shall have the right to terminate this Agreement,
by written notice taking immediate effect, if the other party becomes
insolvent, or if there are instituted by or against the other party proceedings
in bankruptcy or under insolvency similar laws or for reorganization,
receivership or dissolution. Any such termination shall not relieve either
party from any payment obligation which accrued prior to such termination.
D. CANCELLATION AND REPURCHASE OPTIONS. Upon expiration or
termination of this Agreement, any or all unfilled orders shall be cancelled.
LipoMatrix reserves the right at its sole option to repurchase from Distributor
any or all Products unsold by Distributor, at a mutually
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<PAGE> 23
agreed upon price, which in any case shall not exceed the landed price
Distributor paid LipoMatrix for Products to be repurchased. In the event
LipoMatrix fails to repurchase such Products, Distributor shall have the right
to continue to sell its existing inventory of such Products for a reasonable
period following such expiration or termination.
E. RETURN OF MATERIALS. Upon expiration or termination of this
Agreement, Distributor shall return to LipoMatrix, at LipoMatrix's expense, all
sales promotional materials and aids and any tools or equipment loaned or
furnished to Distributor pursuant to this Agreement.
F. EFFECT OF TERMINATION. In the event of termination by either
party in accordance with any of the provisions this Agreement, or expiration of
this Agreement, neither party shall be liable to the other, because of such
termination or expiration, for compensation, reimbursement or damages on
account of the loss of prospective profits or anticipated sales or on account
of expenditures, inventory, investments, leases, or commitments in connection
with the business or goodwill of LipoMatrix or Distributor, occurring as a
result of such termination or expiration, or incurred in anticipation of
renewal.
VII. PATENT INDEMNITY
LipoMatrix will defend any suit brought against Distributor based on a
claim that the Product furnished under this Agreement infringes any patent or
trademark, and will pay all damages and costs that a court awards against
Distributor as a result of such claim and any payments made in settlement of
such claim, provided that Distributor gives LipoMatrix: (a) prompt written
notice of such suit; (b) full control over the defense or settlement thereof;
and (c) all reasonable information and assistance (at LipoMatrix's expense
excluding time spent by employees or consultants of the Distributor) to handle
the defense and settlement thereof.
If the Products, or any part thereof, are, or in the opinion of
LipoMatrix may become, the subject of any claim, suit or proceeding for
infringement of any patent or trademark, or in the event of any adjudication
that the Products, or any part thereof, infringe any patent or trademark, or if
the sale or use of Products, or any part thereof, is enjoined, LipoMatrix may,
at its option and expense: (a) procure for Distributor and its customers the
right under such patent or trademark to use or sell as appropriate the Products
or such part thereof; or (b) replace the Products, or part thereof, with other
suitable Products or parts; or (c) suitably modify the Products or part
thereof, or (d) if none of the foregoing are commercially practicable, refund
the amounts paid therefore by Distributor, and recover possession of such
Products. LipoMatrix shall not be liable for any costs or expenses incurred
without its prior written authorization.
Notwithstanding the provisions of the preceding paragraphs, LipoMatrix
shall not be liable to Distributor or its customers for: (a) infringement of
patent claims covering the usage of LipoMatrix Products in a manner not
intended under this Agreement; (b) any trademark infringements involving any
marking or branding applied by LipoMatrix or involving any marking or branding
applied at the request of Distributor, except if such marking or branding is
owned by LipoMatrix; (c) the modification of Products, or any part thereof,
unless such modification was made by LipoMatrix; or (d) the combination,
operation or use of the Product with other products not furnished by LipoMatrix
to the extent such claim would not have arisen had such combination, operation
or use not occurred.
THE FOREGOING PROVISIONS OF THIS SECTION VII STATE THE ENTIRE
LIABILITY AND OBLIGATIONS OF LIPOMATRIX, AND THE EXCLUSIVE
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<PAGE> 24
REMEDIES OF DISTRIBUTOR AND ITS CUSTOMERS WITH RESPECT TO ANY ALLEGED
INFRINGEMENT OF PATENTS, COPYRIGHTS, TRADEMARKS, OR OTHER INTELLECTUAL PROPERTY
RIGHTS, BY THE PRODUCTS OR ANY PART THEREOF.
VIII. PRODUCT LIABILITY
A. INDEMNITY BY DISTRIBUTOR. Distributor shall indemnify and
hold LipoMatrix harmless from and against any and all liability, damage, loss,
cost, expense (including reasonable attorney's fees), regulatory penalties and
enforcement actions resulting from any claims made or suits brought against
LipoMatrix, its employees, directors and customers which arise or result solely
from Distributor's marketing, distribution, handling and shipping of the
LipoMatrix Products, or from Distributor's negligence or willful misconduct.
LipoMatrix shall promptly notify Distributor of any such claim or suit and
shall permit Distributor at Distributor's cost and expense, to handle and
control such claim or suit.
B. INDEMNITY BY LIPOMATRIX. LipoMatrix shall indemnify and hold
Distributor harmless from and against any and all liability, damage, loss, cost
or expense (including reasonable attorney's fees) resulting from any claims
made or suits brought against Distributor, its employees, directors and
customers which arise or result solely from LipoMatrix's design, handling and
shipping of the LipoMatrix Products, or failure to manufacture the LipoMatrix
Products in accordance with agreed upon specifications, FDA Good Manufacturing
Practices or other applicable standards for medical device manufacturers, or
from negligence or willful misconduct. Distributor shall promptly notify
LipoMatrix of any such claim or suit and shall permit LipoMatrix at
LipoMatrix's cost and expense, to handle and control such claim or suit.
C. APPORTIONMENT OF DAMAGES. In the event that any liability,
damage, loss, cost or expense (including reasonable attorney's fees) as
aforesaid cannot be established (with respect to final judgments of a court of
competent jurisdiction from which no appeal is or can be taken as well as
settlements made prior to, during or following termination of litigation to
which the parties have expressly agreed in writing) to have resulted solely
from the actions or failures to act of LipoMatrix or Distributor or their
affiliates, responsibility for payment of such liability, damage, loss, cost or
expense (including reasonable attorney's fees) will be apportioned between
LipoMatrix and Distributor according to the contribution of either party to the
damage; and if such allocation is not mutually agreed, then it will be
determined by mandatory binding arbitration.
D. PRODUCT LIABILITY INSURANCE. LipoMatrix shall use its
reasonable commercial efforts to secure product liability insurance in the
amount of five million dollars ($5,000,000), to the extent this is available on
commercially reasonable terms. LipoMatrix shall have Distributor named as an
additional insured on its product liability insurance policy. If LipoMatrix is
unable to secure or maintain such insurance, Distributor may terminate this
Agreement. The parties agree to review the possibility of increasing the
amount of such insurance if increases in sales so warrant.
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<PAGE> 25
IX. LIMITATION OF LIABILITY
IN NO EVENT, WHETHER THE CAUSE OF ACTION BE BASED IN CONTRACT OR TORT
(INCLUDING NEGLIGENCE) OR ANY OTHER LEGAL OR EQUITABLE THEORY SHALL EITHER
PARTY BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, INDIRECT, SPECIAL OR PUNITIVE
DAMAGE OF ANY KIND, OR FOR LOSS OF REVENUE, LOSS OF BUSINESS OR OTHER FINANCIAL
LOSS ARISING OUT OF OR IN CONNECTION WITH THE SALE, USE, PERFORMANCE, FAILURE
OR INTERRUPTIONS OF ITS PRODUCTS. NOTWITHSTANDING ANY OTHER PROVISION OF THIS
AGREEMENT, LIPOMATRIX'S MAXIMUM LIABILITY FOR DAMAGES HEREUNDER SHALL NOT
EXCEED THE PURCHASE PRICE OF THE PRODUCTS PURCHASED DURING THE TERM OF THIS
AGREEMENT. THE FOREGOING LIMITATIONS SHALL NOT AFFECT EITHER PARTY'S DUTY TO
INDEMNIFY THE OTHER PARTY FOR THIRD-PARTY SUITS FOR SUCH DAMAGES, AS SET FORTH
IN SECTIONS VII AND VIII.
THE DISCLAIMER OF LIABILITY FOR DAMAGES WILL NOT BE AFFECTED IF ANY
REMEDY PROVIDED HEREUNDER SHALL FAIL OF ITS ESSENTIAL PURPOSE. DISTRIBUTOR HAS
ACCEPTED THE DISCLAIMER OF LIABILITY FOR DAMAGES AS PART OF A BARGAIN TO LOWER
THE PRICE OF THE PRODUCTS AND UNDERSTANDS THAT THE PRICE OF THE PRODUCTS WOULD
BE HIGHER IF LIPOMATRIX WERE REQUIRED TO BEAR ADDITIONAL LIABILITY FOR DAMAGES.
X. NO RIGHT TO MANUFACTURE OR COPY
The Products are offered for sale and are sold by LipoMatrix subject
in every case to the condition that such sale does not convey or license to
Distributor, expressly or by implication, the right to manufacture, duplicate
or otherwise copy or reproduce any of the Products. Distributor shall take
appropriate steps with customers, as mutually agreed, to inform them of, and
both parties shall, as mutually agreed, assist each other in assuring
compliance with, the restrictions contained in this Section.
XI. INTELLECTUAL PROPERTY RIGHTS
A. SOLE PROPERTY OF LIPOMATRIX. Distributor agrees that
Intellectual Property Rights are and shall remain sole property of LipoMatrix
and that LipoMatrix owns all right, title and interest in the product lines
which include the Products now or hereafter subject to this Agreement. The use
by Distributor of any Intellectual Property Rights, including, but not limited
to any patent, invention, trademark, trade name, trade secret or copyrighted
material, is authorized only for the purposes herein set forth. Upon
termination of this Agreement for any reason, authorization shall cease.
Distributor agrees that the Products contain a device
identification system (including software) which is proprietary to LipoMatrix.
LipoMatrix at all times retains ownership of and title to the device
identification system supplied with the Product, and to the trade secrets
embodied in such technology.
Subject to Distributor's acceptance of the obligations
contained in this Section, and to the fulfillment of these obligations,
LipoMatrix grants Distributor a non-exclusive license to use
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<PAGE> 26
the device identification system included with the Products solely in the form
and on the medium in which program is delivered for the purposes of operating
the Product in accordance with the instructions set forth in the Instructions
for Use supplied with the Product, and for no other purposes whatsoever.
Distributor may not decompile, reverse engineer or reverse assemble such
technology, nor may it make a copy of such program or apply any techniques to
derive the trade secrets embodied therein.
B. USE OF LIPOMATRIX NAME AND TRADEMARKS. During the term of
this Agreement, Distributor shall have the right to indicate to the public that
Distributor is an authorized distributor of LipoMatrix's Products and to
advertise within the Territory such Products under the LipoMatrix Trademarks.
Distributor shall not alter or remove any LipoMatrix Trademark applied to the
Products at the factory. At no time during or after the term of this Agreement
shall Distributor challenge or assist others to challenge the LipoMatrix
Trademarks or registration thereof or attempt to register any trademarks, marks
or tradenames confusingly similar to those of LipoMatrix.
C. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Distributor and
LipoMatrix acknowledge that by reason of their relationship hereunder they will
have access to certain information and materials concerning each other's
business, plans, customers and products (including Trade Secrets and Technical
Data provided to Distributor) which are confidential and of substantial value
to Distributor and LipoMatrix, which value would be impaired if such
information were disclosed to third parties.
Each party agrees that it shall not use in any way for its own
account or the account of any third party, nor disclose to any third party, any
such confidential information which is revealed to it by the other party. The
receiving party shall take every reasonable precaution to protect the
confidentiality of such information, which in no event shall be less than the
efforts exercised by such party with respect to its own confidential business
information. Distributor and LipoMatrix shall advise each other in the event
that either party considers particular information or materials to be
confidential. Distributor shall not publish any technical description of the
Products beyond the description published by LipoMatrix.
In the event of expiration or earlier termination of this
Agreement, there shall be no use or disclosure by Distributor or LipoMatrix of
any confidential information, and Distributor shall not manufacture, or have
manufactured, devices, components or assemblies utilizing any of LipoMatrix's
Intellectual Property Rights.
XII. GENERAL
A. COUNTERPARTS AND GOVERNING LAW. This Agreement may be
executed in counterparts. This Agreement shall be construed in accordance
with, and all the rights, powers and liabilities of the parties hereunder shall
be governed by, the internal laws of the State of California, without reference
to choice of law principles thereof.
B. COMPLETE AGREEMENT. This Agreement is intended as the
complete, final and exclusive statement of the terms of agreement between the
parties and supersedes any and all agreements between them relating to the
subject matter hereof. No modification, change or amendment to this Agreement,
nor any waiver of any rights in respect hereto, shall be effective unless in
writing and signed by the party to be charged, unless explicitly permitted by
the terms of this contract. The waiver of breach or default hereunder shall not
constitute the waiver of subsequent breach or default.
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<PAGE> 27
C. FORCE MAJEURE. Notwithstanding anything in this Agreement to
the contrary, other than the obligation to pay money, the obligations of either
party under this Agreement, including purchase quotas, shall be excused during
any continuing event which is beyond the reasonable control of such party,
including without limitation, strike, fire, war, rebellion, natural
disasters/Acts of God, embargo, governmental order or restriction, or inability
for any other reason to supply or deliver Products due to unnatural or
commercially impractical circumstances.
D. NOTICE. Any notice or report required or permitted under this
Agreement shall be deemed given if delivered personally or if sent by either
party to the other by registered or certified mail, postage prepaid, or
internationally recognized courier, for overnight delivery, addressed to the
other party at its address first set forth above or at such other address to
which such party shall give notice hereunder. If by mail, delivery shall
effective five (5) days after deposit with postal authorities.
E. ASSIGNMENT. Distributor shall not assign this Agreement nor
any rights hereunder without the prior written consent of LipoMatrix, granted
in LipoMatrix's sole discretion. Subject to the foregoing, this Agreement
shall bind and inure to the benefit of the parties and their respective
successors and assigns. LipoMatrix shall be entitled to assign its interest in
this Agreement in connection with a merger or other business combination in
which LipoMatrix is not the surviving entity.
F. SEVERABILITY. In the event any provision of this Agreement is
found to be invalid, illegal or unenforceable, the validity, legality and
enforceability of any of the remaining provisions shall not in any way be
affected or impaired thereby.
G. SURVIVAL. The obligations and duties listed in the Sections
titled "Warranty", "Patent Indemnity", "Limitation of Liability", "No Right to
Manufacture or Copy", "Product Liability" and "Intellectual Property Rights"
shall survive any termination or expiration of this Agreement and shall remain
in effect for a period of ten (10) years thereafter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
LIPOMATRIX, INCORPORATED COLLAGEN CORPORATION
("LIPOMATRIX") ("DISTRIBUTOR")
By:___________________________________ By:________________________________
(signature) (signature)
Printed Name: Terry R. Knapp, M.D. Printed Name: Howard Palefsky
-------------------- ---------------
Title: President & CEO Title: Chief Executive Officer
--------------- -----------------------
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EXHIBIT A
RISK MANAGEMENT PROGRAM
Confidential treatment requested for this document.
<PAGE> 29
EXHIBIT B
RISK MANAGEMENT SUPPORT DOCUMENTS
Confidential treatment requested for all documents included in this exhibit.
<PAGE> 30
EXHIBIT B
STOCKHOLDER OPTION AGREEMENT
<PAGE> 31
STOCKHOLDER OPTION AGREEMENT
THIS STOCKHOLDER OPTION AGREEMENT is entered into this ____ day of
_______ 1995 among the undersigned stockholders (the "Stockholders") of
LipoMatrix, Inc., a British Virgin Islands corporation ("LipoMatrix") and
Collagen Corporation, a Delaware corporation ("Collagen").
WHEREAS, Collagen and LipoMatrix have entered into a License, Supply
and Option Agreement dated _________, 1995 (the "Master Agreement"). The
Master Agreement provides that, in certain circumstances, LipoMatrix may offer
to purchase all outstanding shares or warrants of LipoMatrix held by Collagen
("LipoMatrix Offer"). The Board of Directors of Collagen shall be obligated
either to accept such offer or to agree to purchase all shares or warrants of
LipoMatrix at the same price ("Collagen Purchase Option"). If Collagen elects
to purchase LipoMatrix's shares or warrants, LipoMatrix shall be obligated to
sell.
WHEREAS, All present and future holders of more than 5% of the
outstanding voting securities of LipoMatrix shall be obligated to agree to the
above Collagen Purchase Option and to the ability of the LipoMatrix Board of
Directors to trigger the LipoMatrix Offer on their behalf.
WHEREAS, the Stockholders own those number of shares of Common Stock,
Series A Preferred Stock and Series B Preferred Stock of LipoMatrix ("Shares"),
listed opposite their names on Exhibit A attached hereto; and
WHEREAS, as a condition to its willingness to enter into the Master
Agreement, Collagen has requested that the Stockholders agree, and the
Stockholders have agreed, severally and not jointly, to grant Collagen an
irrevocable option as set forth herein to purchase up to an aggregate amount of
approximately __________ Shares (subject to adjustment as provided herein);
NOW, THEREFORE, to induce Collagen to enter into, and in consideration
of it entering into, the Master Agreement, and in consideration of the premises
and the representations, warranties and agreements herein contained, the
parties agree as follows:
1. Stockholder Option.
(a) Grant of Stockholder Option. Each Stockholder,
severally and not jointly, hereby grants to Collagen an irrevocable option (the
"Stockholder Option", and collectively the "Stockholder Options") to purchase
the number of outstanding shares (as adjusted for stock splits, stock
dividends, or combinations of shares) of Common Stock, Series A Preferred Stock
and Series B Preferred Stock set forth next to such Stockholder's name on
Exhibit A attached hereto (the "Optioned Shares") in the event Collagen has
exercised the Collagen Purchase Option, all in accordance with Section 6 of the
Master Agreement. The parties acknowledge that Collagen may exercise the
Collagen Purchase Option only if LipoMatrix first makes the LipoMatrix Offer to
purchase Collagen's interest in LipoMatrix's equity.
(b) Exercise of Option. Provided that Collagen shall
have exercised the Collagen Purchase Option, Collagen may exercise the
Stockholder Options in whole, and not in
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<PAGE> 32
part, at any time (provided that all the Stockholder Options must be
exercised). In the event that Collagen wishes to exercise the Stockholder
Option, Collagen shall give written notice (the date of such notice being
herein called the "Notice Date") to the Stockholder specifying the date it will
purchase pursuant to such exercise (not later than ten business days and not
earlier than five business days from the Notice Date) for the closing of such
purchase, which closing shall occur in Palo Alto, California or such other
place as the parties may agree. In the event that Collagen exercises the
Stockholder Option, Collagen will promptly offer to purchase all other
outstanding shares, and rights to acquire shares, of LipoMatrix at the same
price and terms as those set forth in the Stockholder Option.
(c) Payment of Purchase Price and Delivery of
Certificates for Optioned Shares. At any closing hereunder,
(1) against delivery of the certificates and
warrants set forth in (2) below, Collagen will make payment to each Stockholder
either in next day funds by certified or official bank check payable to the
order of such Stockholder, or with a certificate for registered (with the
Securities and Exchange Commission under a Registration Statement) or freely
tradable Common Stock of Collagen, and
(2) against such payment, such Stockholder will
deliver to Collagen his certificate or certificates representing the number of
Optioned Shares so purchased, duly endorsed for transfer to Collagen and
instruct LipoMatrix and its transfer agent to deliver to Collagen a certificate
or certificates representing the Optioned Shares, registered in the name of
Collagen, with applicable legends regarding "restricted securities" under the
Securities Act of 1933 and the Rules and Regulations thereunder ("Securities
Act").
2. Proxy.
(a) Revocation of Prior Proxies. Each Stockholder hereby
revokes any and all previous proxies granted with respect to such Stockholder's
Optioned Shares.
(b) Grant of Proxy. By entering into this Agreement,
each Stockholder hereby grants a proxy with respect to such Stockholder's
Optioned Shares appointing Collagen as such Stockholder's attorney-in-fact and
proxy, with full power of substitution, for and in such Stockholder's name, to
vote, express consent or dissent, or otherwise to utilize such voting power in
favor of the acquisition of LipoMatrix by Collagen by merger pursuant to
Section 6 of the Master Agreement upon exercise of the Collagen Purchase Option
("Merger") (whether the form of the consideration is cash or stock). Collagen
agrees to execute the proxy granted by each Stockholder by voting in favor of
the Merger pursuant to the Master Agreement. The proxy granted by each
Stockholder pursuant to this Section 2 is irrevocable and is granted in
consideration of Collagen's entering into this Agreement and the Master
Agreement.
3. Representations and Warranties of the Stockholders. Each of
the Stockholders hereby represents and warrants to Collagen, severally and not
jointly, and only with respect to such Stockholder's Optioned Shares, as
follows:
(a) Ownership. Such Stockholder is the sole, true,
lawful and beneficial owner of the number of Optioned Shares set forth opposite
his name on Exhibit A attached hereto with no restrictions on such
Stockholder's voting rights or disposition pertaining thereto, except for any
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<PAGE> 33
vesting restrictions or pursuant to this Agreement. None of such Stockholder's
Optioned Shares is subject to any voting trust or other agreement or
arrangement with respect to the voting of such Shares.
(b) Good and Marketable Title. Upon delivery of the
consideration for the Optioned Shares, Collagen will receive good and
marketable title to the Optioned Shares, free and clear of all liens,
encumbrances, equities, security interests, restrictions on transfer and claims
whatsoever, except as the transfer of the Optioned Shares may be restricted by
the Securities Act or subject to vesting.
(c) Authority. Stockholder has all requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation by the Stockholder of the transactions contemplated hereby have
been or will be duly authorized by all necessary action on the part of the
Stockholder. This Agreement has been duly executed and delivered by each
Stockholder and is valid, binding and enforceable against such Stockholder in
accordance with its terms, except as enforcement hereof may be limited by
applicable bankruptcy, insolvency, or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the
discretion of the court before which any proceeding therefor may be brought.
4. Representations and Warranties of Collagen. Collagen hereby
represents and warrants to LipoMatrix and the Stockholders as follows:
(a) Authority. Collagen has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation by Collagen of the transactions contemplated hereby have
been or will be duly authorized by all necessary corporate action on the part
of Collagen. This Agreement has been duly executed and delivered by Collagen
and constitutes a valid and binding obligation of Collagen enforceable in
accordance with its terms except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which
any proceeding therefor may be brought.
(b) Securities Act. Any Optioned Shares purchased by
Collagen will be acquired for its own account and not with a view to any public
distribution thereof and Collagen will not transfer any Optioned Shares so
acquired except in compliance with the Securities Act.
5. Term. Each Stockholder Option and proxy shall expire on the
earliest of (i) the termination of the Collagen Purchase Option under Section
6.4 of the Master Agreement, (ii) the termination of the Master Agreement, or
(iii) the termination of this Agreement.
6. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned by any of the
parties without the prior written consent of the other parties, except that
Collagen may assign, in its sole discretion, any or all of its rights,
interests and obligations under this Agreement to any direct or indirect
wholly-owned subsidiary. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by, the
parties and their respective successors and assigns.
- 3 -
<PAGE> 34
7. General Provisions.
(a) Applicable Law. This Agreement shall be construed in
accordance with, and all the rights, powers and liabilities of the parties
hereunder shall be governed by, the laws of the State of California.
(b) Arbitration. The parties shall attempt to settle all
disputes arising in connection with this Agreement through good faith
consultation. In the event no agreement can be reached on such dispute within
sixty days after notification in writing by either party to the other
concerning such dispute, either party may submit such dispute to arbitration by
three arbitrators under the Rules of the American Arbitration Association. One
arbitrator shall be selected by Collagen, one arbitrator shall be selected by
LipoMatrix and the third arbitrator shall be selected by the first two
arbitrators. The place of arbitration shall be San Francisco, California. The
arbitrator's decision shall be final conclusive, and binding and judgment and
any arbitration award or decision may be entered in any court of competent
jurisdiction. Expenses and fees of such arbitration shall be borne by the
non-prevailing party in such arbitration (see Section 7(f) below).
(c) Entire Agreement. This Agreement sets forth the
entire Agreement and understanding of the parties relating to its subject
matter and merges all prior discussions and agreements between them, including
without limitation any non-disclosure or confidentiality agreement prior to the
date hereof. No modification or amendment to this Agreement, nor any waiver of
any rights under this Agreement, will be effective unless in writing signed by
both parties.
(d) Severability. If any provision of this Agreement is
found invalid or unenforceable, that provision will be enforced to the maximum
extent permissible under applicable law, and the remaining provisions of this
Agreement will stay in force. In addition, the parties agree to negotiate in
good faith a provision to replace the provision found invalid or unenforceable
that will have, to the extent possible, the same economic effect.
(e) Notices. All notices required or to be given
pursuant to this Agreement shall be in writing, shall be effective upon receipt
and shall be delivered in person or by first class mail, postage prepaid, and
if to Collagen, to the following address, and if to a Stockholder, to such
Stockholder's address as provided in LipoMatrix's records.
Collagen Corporation
1850 Embarcadero Road
Palo Alto, California, U.S.A. 94303
Attention: President
(f) Attorney's Fees. If a dispute arises pursuant to
this Agreement, the prevailing party shall be entitled to receive its
attorney's fees and costs in connection with such dispute, as determined by the
arbitrator or court.
(g) Force Majeure. Each of the parties shall be excused
from the performance of its obligations hereunder in the event such performance
is prevented by force majeure, and such excuse shall continue so long as the
condition constituting such force majeure continues plus thirty days after the
termination of such condition. For the purposes of this Agreement, force
majeure is
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<PAGE> 35
defined to include causes beyond the control of LipoMatrix or Collagen,
including without limitation acts of God, acts, regulations or laws of any
government, war, civil commotion, destruction of production facilities or
materials by fire, earthquake or storm, labor disturbances, epidemic and
failure of public utilities or common carriers.
(h) Titles and Subtitles. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(i) Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original and all of
which together shall constitute one instrument.
(j) Specific Performance. Each of the parties agrees
that the others shall have the right, in addition to any other rights which it
may have, to specific performance and equitable injunctive relief if any party
shall fail or threaten to fail to perform any of its obligations under this
Agreement.
(k) Waiver of Conflict. EACH PARTY TO THIS AGREEMENT
THAT HAS BEEN OR CONTINUES TO BE REPRESENTED BY VENTURE LAW GROUP ("VLG")
HEREBY ACKNOWLEDGES THAT RULE 3-310 OF THE RULES OF PROFESSIONAL CONDUCT
PROMULGATED BY THE STATE BAR OF CALIFORNIA REQUIRES AN ATTORNEY TO AVOID
REPRESENTATIONS IN WHICH THE ATTORNEY HAS OR HAD A RELATIONSHIP WITH ANOTHER
PARTY INTERESTED IN THE REPRESENTATION WITHOUT THE INFORMED WRITTEN CONSENT OF
ALL PARTIES AFFECTED. BY EXECUTING THIS AGREEMENT, EACH SUCH PARTY GIVES HIS
OR ITS INFORMED WRITTEN CONSENT TO THE REPRESENTATION OF LIPOMATRIX BY VLG IN
CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.
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<PAGE> 36
IN WITNESS WHEREOF, Collagen and Stockholders have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
COLLAGEN CORPORATION
By:_________________________________
Title:______________________________
STOCKHOLDERS
____________________________________
(Print or Type Name)
____________________________________
(Signature)
____________________________________
(Title)
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<PAGE> 37
CONSENT OF SPOUSE
Each of the undersigned, being the spouse of the above-named
Stockholder, does hereby acknowledge that she has read and is familiar with the
provisions of the above Agreement, and she hereby agrees thereto and joins
therein to the extent, if any, that her agreement and joinder may be necessary.
STOCKHOLDERS: SPOUSE:
____________________________________ ____________________________________
(Print or Type Name) (Print or Type Name)
____________________________________ ____________________________________
(Signature) (Signature)
____________________________________ ____________________________________
(Title) (Title)
<PAGE> 38
EXHIBIT A
<TABLE>
Stockholder Optioned Shares
----------- ---------------
<S> <C>
</TABLE>
<PAGE> 1
EXHIBIT 10.72
LipoMatrix Contract Number LMI 046
DISTRIBUTOR AGREEMENT
BETWEEN
LIPOMATRIX, INCORPORATED
AND
COLLAGEN CORPORATION
Confidential treatment is requested for a portion of this document.
<PAGE> 2
LipoMatrix Contract Number LMI 046
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. APPOINTMENT AS EXCLUSIVE DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . 2
III. SPECIFIC RESPONSIBILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
IV. TERMS AND CONDITIONS OF SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
V. ACQUISITION AND USE OF DEMONSTRATION PRODUCT AND
TRANSPONDER READERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
VI. TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
VII. PATENT INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
VIII. PRODUCT LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
IX. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
X. NO RIGHT TO MANUFACTURE OR COPY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
XI. INTELLECTUAL PROPERTY RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
XII. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Risk Management Program*
Exhibit B Risk Management Support Documents*
</TABLE>
* Confidential treatment requested for this exhibit.
<PAGE> 3
LipoMatrix Contract Number LMI 046
DISTRIBUTOR AGREEMENT
This Distributor Agreement (the "Agreement") is entered into as of
March 24, 1995, (the "Effective Date") between LIPOMATRIX, INCORPORATED
("LIPOMATRIX"), a corporation organized under the laws of the British Virgin
Islands with an office located at Puits Godet 24, CH-2000 Neuchatel,
Switzerland and COLLAGEN CORPORATION ("DISTRIBUTOR"), a Delaware corporation
with an office located at 2500 Faber Place, Palo Alto, CA 94303.
IN CONSIDERATION OF THE MUTUAL PROMISES HEREIN CONTAINED, THE PARTIES
AGREE AS FOLLOWS:
I. DEFINITIONS
A. "PRODUCTS" shall mean LipoMatrix's present and future (subject
to Section II.A) breast implant products and other products intended for use in
cosmetic or reconstructive breast surgery. Products may be changed, abandoned
or added by LipoMatrix, at its sole discretion, after reasonable prior written
notice (which shall not be less than ninety (90) days) is given to Distributor,
or in any other manner necessary in order to comply with applicable laws.
LipoMatrix shall be under no obligation to continue the production of any
Product, except as provided herein.
B. "TERRITORY" shall mean the United States of America.
C. "TECHNICAL DATA" shall mean all information belonging to
LipoMatrix in written, graphic or tangible form relating to design,
programming, operation or service of the Products, including all information
that exists as of the Effective Date of this Agreement, or is developed by
LipoMatrix during the term hereof.
D. "INTELLECTUAL PROPERTY RIGHTS" shall mean all of LipoMatrix's
worldwide patents, trademarks, trade names, inventions, copyrights, regulatory
approvals, know-how, trade secrets, and all other intellectual property rights,
in existence as of the Effective Date of this Agreement or hereafter developed
or acquired by LipoMatrix, relating to the design, manufacture, or marketing of
the Products.
E. "TRADE SECRETS" shall mean any formula, pattern, device, or
compilation of information which is used in LipoMatrix's business and which
provides competitive advantage to LipoMatrix and which is not known or used by
LipoMatrix's competitors. This term includes, but is not limited to, formulas,
compounds, manufacturing processes, methods for treating or preserving
materials, patterns for the design or operation of devices, materials filed
with governmental agencies in connection with regulatory approval of
LipoMatrix's products, and information relating to marketing of LipoMatrix
products and services.
F. "LIPOMATRIX TRADEMARKS" shall mean those trademarks, trade
names, service marks, slogans, designs, distinct advertising, labels, logos and
other trade-identifying symbols as are or have been developed and used by
LipoMatrix and/or any of its subsidiaries or affiliate companies anywhere in
the world.
G. "GOVERNMENT AGENCY" shall include all local, national and
supranational bodies with the legal authority to establish rules, regulations,
standards and guidelines, (or to issue certificates of compliance with these),
covering the design, manufacturing and marketing of the
<PAGE> 4
Products in the Territory. This will include without limitation the United
States Food and Drug Administration.
H. COMMERCIAL SALE. The sale of a Product by Distributor, other
than for clinical use required to obtain governmental approvals to market such
Product.
I. ORDERING YEAR. The twelve-month period commencing on the
first Commercial Sale and each subsequent twelve-month period commencing on the
anniversary of such date.
II. APPOINTMENT AS EXCLUSIVE DISTRIBUTOR
A. Subject to the terms and conditions set forth herein
LipoMatrix hereby appoints Distributor, and Distributor hereby accepts such
appointment, as LipoMatrix's exclusive distributor for the Products in the
Territory. As a result, LipoMatrix will not sell the Products in the Territory,
other than through Distributor. The mechanism for sales of Products for
clinical trials in the Territory shall be determined by mutual agreement. Any
future Product developed by LipoMatrix shall be deemed a Product hereunder. If
Distributor does not initiate commercial sales of such future Product within
ninety (90) days of regulatory clearance, then all rights to such product will
revert to LipoMatrix.
B. Distributor shall not represent or sell competitive products
in the Territory which, in LipoMatrix's opinion, are likely to conflict with
Distributor's obligation to use its reasonable commercial efforts to represent
and sell Products in the Territory.
C. Distributor shall not, directly or indirectly, solicit sales
of the Products outside the Territory. Distributor shall forward to LipoMatrix
all unsolicited inquiries relating to the Products or potential customers
outside of both the Territory and the territory, if any, covered by affiliates
of Distributor that are authorized to distribute Products.
D. The relationship of LipoMatrix and Distributor established by
this Agreement is that of independent contractors, and nothing contained in
this Agreement shall be construed to give either party the power to direct or
control the day-to-day activities of the other or allow one party to create or
assume any obligation on behalf of the other for any purpose whatsoever.
III. SPECIFIC RESPONSIBILITIES
A. MARKETING.
1. MARKETING EFFORTS. During the term of the Agreement,
Distributor shall use its reasonable commercial efforts to develop and exploit
the market and to sell the Products throughout the Territory.
2. MARKETING PLAN. Distributor shall complete, as soon
as practicable (but no later than ninety (90) days prior to the scheduled
commencement of sales), and thereafter, annually on or before March 31, a
comprehensive marketing plan for each country within the Territory.
3. PRINTED MATERIALS.
a. Packaging. LipoMatrix will provide at its
expense all materials in and on the Product packages.
- 2 -
<PAGE> 5
b. Risk Management Support Documents. The text
of the risk management documents, including the Patient Advisory and Consent
and the Supply Agreement, as of the date of this Agreement in the form attached
as Exhibit B hereto, will be provided by LipoMatrix, but printing and
distribution expenses will be borne by Distributor.
c. Sales and Promotional Literature.
Distributor will produce all sales and promotional literature, obtaining
LipoMatrix's prior approval of scientific and regulatory matters contained
therein. Distributor and LipoMatrix will cooperate on the development of such
materials.
4. TRADE SHOWS. Distributor shall use its reasonable
commercial efforts to attend major national and regional (i.e. regions in or
encompassing the Territory) trade shows and educational forums where similar or
competitive products are displayed and to present the Products fairly at such
shows and workshops.
5. CLINICAL REFERENCE ACCOUNTS. Distributor shall
endeavor to develop key clinical reference accounts with plastic surgeons who
are key opinion leaders within the Territory. This includes those leaders as
reasonably selected by LipoMatrix.
6. MARKETING AND SALES SUPPORT. In LipoMatrix's sole
determination, LipoMatrix personnel shall make periodic visits to the Territory
during the period of this Agreement, as necessary in order to monitor
administration, marketing and sales related to the Products. LipoMatrix shall
pay all transportation, meal, lodging, salary and related expenses for its
personnel in this regard. LipoMatrix shall use commercially reasonable efforts
to assist Distributor in locating and obtaining appropriate clinical expertise
at Distributor's reasonable request, for purposes of supporting Distributor's
marketing effort. The parties will mutually agree in advance on the amount and
duration of clinical education and the allocation of costs associated with such
clinical education.
B. PURCHASE QUOTAS, ORGANIZATION AND FORECASTS.
1. PURCHASE QUOTAS. The purchase quota for the first
Ordering Year shall be mutually agreed between the parties prior to first
Commercial Sale. Such purchase quota will be eighty percent (80%) of the
anticipated sales for the first Ordering Year. The purchase quota for the
second Ordering Year shall equal Distributor's actual purchases (in units) in
the first Ordering Year. The purchase quota for the third Ordering Year shall
equal Distributor's actual purchases (in units) in the second Ordering Year.
Quotas for subsequent Ordering Years shall equal the higher of actual purchases
(in units) or purchase quotas in the prior Ordering Year. Distributor agrees
to use reasonable commercial efforts to meet or exceed the purchase quotas as
set forth in this paragraph. In the event Distributor fails to meet or exceed,
on an aggregate basis, the purchase quotas for two (2) consecutive Ordering
Years beginning on or after the third Ordering Year, LipoMatrix may terminate
this Agreement for cause as provided in Section VI.C, provided, however, that
this termination option must be exercised within sixty (60) days of the
commencement of the next Ordering Year. Purchase quotas will be adjusted if
LipoMatrix is unable to supply Products due to regulatory constraints or
significant manufacturing delays.
2. SALES ORGANIZATION AND TRAINING. Distributor shall
use reasonable commercial efforts to develop a sales organization that is
knowledgeable concerning the features of the Products and the relationship of
those features to the clinical benefits to potential customers within the
Territory. In connection with the sale of Products, at LipoMatrix's request,
Distributor shall make available an individual reasonably satisfactory to
LipoMatrix ("Distributor's Trainer")
- 3 -
<PAGE> 6
for sales training of Distributor's other representatives. Training for
Distributor's Trainer shall be provided, at LipoMatrix's election, either in
Switzerland or in the Territory, and will occur before commencement of
Commercial Sales, with training updates to be held as needed. LipoMatrix shall
pay the costs of the training (including the transportation, meals, lodging,
salary and related expenses of LipoMatrix employees), and Distributor shall be
responsible for all transportation, meals, lodging, salary and related expenses
of Distributor employees attending such training.
3. QUARTERLY SALES INFORMATION AND FORECASTS. On a
quarterly basis, Distributor shall provide within ten (10) days after the end
of each calendar quarter a reasonably detailed quarterly sales and promotional
report to LipoMatrix.
On a monthly basis, within the first ten (10) days of
every month, Distributor shall provide LipoMatrix with a six (6) month (during
the first Ordering Year) and fifteen (15) month (thereafter) rolling forecast.
4. SALES LAUNCH SCHEDULE. Distributor shall commence
Commercial Sales of the Products in the Territory as soon as practicable after
obtaining regulatory clearance. Clinical or marketing trials may commence at
any time by mutual agreement of the parties and will not constitute a
Commercial Sale.
C. LIPOMATRIX VISITS AND MARKETING REPRESENTATIVE. Upon
reasonable notice, Distributor shall permit and facilitate visits by LipoMatrix
personnel to Distributor's facilities to review compliance with specific
requirements of this Agreement, and to customer sites and to travel with
Distributor's sales personnel for training purposes.
Distributor shall permit the placement within Distributor's
organization of a part-time or full-time Product specialist by LipoMatrix, at
LipoMatrix's sole option and expense, for purposes of providing marketing and
risk management support. Office space will be provided for such individual by
Distributor. This requirement is waived as long as Distributor and its
affiliates collectively own at least twenty percent (20%) of the Common Stock
of LipoMatrix (on an as-converted basis) and the management of Distributor or
any of its affiliates is represented on the board of directors of LipoMatrix.
D. REGULATORY APPROVALS AND COMPLIANCE. LipoMatrix shall obtain
and own all regulatory approvals, certificates, registrations, licenses, and
permits related to the Products unless prohibited by local law. In the event
that necessary approvals, certificates, registrations, licenses and permits
required to sell and distribute the Products in the Territory are required by
local law to be owned by, or held in the name of Distributor, Distributor
agrees that upon termination of this Agreement for any reason, Distributor
shall immediately take all steps necessary to promptly transfer the ownership,
registration or entitlement of such registrations, certificates, licenses and
permits to LipoMatrix or its designee.
Distributor shall provide reasonable assistance to LipoMatrix
in order to obtain any and all applicable regulatory approvals required by
Governmental Agencies under the laws and/or regulations of any jurisdiction in
order to market the Products within Territory, including but not necessarily
limited to, meeting relevant standards and guidelines, preclinical, clinical
and safety approvals required by Government Agencies. LipoMatrix shall
reimburse Distributor for reasonable out-of-pocket expenses incurred by
Distributor in connection with such assistance provided such expenses are
approved in advance.
- 4 -
<PAGE> 7
LipoMatrix shall have the primary responsibility for
manufacturing compliance and Distributor for any distribution compliance
regarding any reporting or compliance matters in the Territory required of
distributors by Government Agency rules and regulations, including but not
limited to, recalls of the Products and reporting of adverse events involving
the Products. The parties shall share information to allow each party to
fulfill its compliance obligations hereunder.
Each party shall promptly inform the other of any changes in
regulatory or compliance status that might significantly affect the marketing
of the Products in the Territory. Each party shall inform the other within two
(2) working days of any actions taken by such party that could reasonably be
expected to affect the regulatory or compliance status of LipoMatrix or the
Products.
Distributor shall make all reasonable efforts to comply with
appropriate standards for review and approval of orders from its customers.
E. IMPORT LICENSES. Distributor shall obtain import and reexport
licenses and permits and take all other actions required in connection with the
import or reexport of Products purchased hereunder.
F. CUSTOMER FEEDBACK AND POST-MARKETING SURVEILLANCE.
Distributor shall use its commercially reasonable efforts to provide LipoMatrix
with assessments of customer requirements for Product modifications and
improvements. These assessments will focus on the quality, design, functional
capability and other features of the Products, with a view to maximizing the
potential market for such Products within the Territory.
Distributor will promptly furnish LipoMatrix with copies of
any written communications from its customers with respect to the use of its
Products, suggestions for modifications or improvement to the Products,
reliability of Products, performance of the Products, compliance with
specifications, and other pertinent information.
G. REGISTRY INFORMATION. On a monthly basis, Distributor will
provide to LipoMatrix a report which will provide such information defined by
LipoMatrix as necessary for maintenance of a registry of implants, including
but not limited to, the transponder numbers for those Products shipped to
customers or otherwise disposed of, including the transponder number and the
customer number of the physician, clinic or hospital to whom the Product was
sold. Distributor will provide LipoMatrix with an inventory reconciliation as
requested by LipoMatrix from time to time.
H. INVENTORY. Distributor agrees to maintain an inventory of
Products equivalent to three (3) months of forecast sales provided the Products
have a stated shelf life of at least twenty-four (24) months.
Distributor will maintain its inventory of Products in a
clean, secure and well organized facility. In addition, such storage space
will comply with environmental requirements, including temperature or other
requirements, set forth on the labeling of the Products, or other reasonable
requirements notified from time to time by LipoMatrix to Distributor.
Distributor will maintain records of the Products to enable
traceability of Products. Distributor will use an effective materials
management system for tracking its inventory and shipments of Products to its
customers.
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<PAGE> 8
I. RISK MANAGEMENT PROGRAM. Distributor recognizes that
LipoMatrix maintains an active program of risk management as set out in
Exhibits A and B attached to this Agreement (the "Risk Management Program").
The Risk Management Program may be changed by mutual agreement. Distributor
agrees to comply with the Risk Management Program and to use its best efforts
to assure compliance by Distributor's customers.
J. HEALTH AND SAFETY LAWS AND REGULATIONS. Distributor shall
comply fully with any and all applicable health and safety laws and regulations
of the Territory.
K. REPRESENTATIONS. Neither Distributor nor LipoMatrix shall
make any false or misleading representations to customers or others regarding
LipoMatrix or the Products. Distributor and its employees and agents shall not
make any representations, warranties or guarantees with respect to the
specifications, features or capabilities of the Products that are not
consistent with LipoMatrix's documentation accompanying the Products or
LipoMatrix's literature describing the Products, including LipoMatrix's
standard warranty and disclaimers. Distributor shall not make any commitments
or comments to its customers about possible future Product enhancements or
future Products without the written authorization of LipoMatrix.
L. WARRANTY. LipoMatrix warrants that each Product sold to
Distributor hereunder will (i) have any required regulatory clearance for
commercial sale in the Territory, (ii) be free from defects in materials and
workmanship, (iii) be designed in compliance with ISO 9001 design standards,
(iv) be manufactured, packaged, and labeled in accordance with the then
prevailing specifications, and (v) have a remaining shelf life at the date of
shipment of twenty-one (21) months when the stated shelf life from date of
manufacture is twenty-four (24) months (the "Warranty Period"). If Distributor
provides notice to LipoMatrix during the Warranty Period that a Product
breaches this warranty, Distributor shall, if requested by LipoMatrix, return
such Product to LipoMatrix for evaluation, or if not so requested, dispose of
such Product in accordance with LipoMatrix's instructions, and, if such Product
does breach this warranty, LipoMatrix will, in its sole discretion, either
repair or replace same, and reimburse Distributor for its reasonable return
freight incurred therefor, if any, or refund the purchase price.
This warranty does not cover defects or damage caused by
Distributor's misuse, abuse, alterations or failure to properly maintain,
handle and store any Products.
M. EXTENDED WARRANTY. In addition, an extended warranty will be
provided by LipoMatrix as set out in the Risk Management Program. All claims
pursuant to the extended warranty shall be made in a writing (including a
telecopy) stating (1) the name and address of the site at which the Product was
implanted, (2) the name and telephone number of the contact person at the site,
(3) the transponder number of the allegedly nonconforming Product, (4) the date
the Product was delivered to the site by Distributor, and (5) a reasonably
detailed description of the alleged nonconformity. The allegedly
non-conforming Product must be returned to LipoMatrix for evaluation.
LipoMatrix shall promptly advise Distributor of any changes in its extended
warranty.
N. THE WARRANTY SET FORTH IN SECTIONS III.L AND III.M ABOVE IS
EXCLUSIVE AND NO OTHER WARRANTY, WHETHER WRITTEN, ORAL OR IN ANY COMMUNICATION
WITH DISTRIBUTOR, IS EXPRESSED OR IMPLIED. LIPOMATRIX MAKES NO WARRANTIES OR
REPRESENTATIONS AS TO PERFORMANCE OF THE PRODUCT TO DISTRIBUTOR OR TO ANY OTHER
PERSONS, EXCEPT AS SET FORTH HEREIN. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT
TO THE CONTRARY, LIPOMATRIX RESERVES THE RIGHT TO MODIFY THE EXTENDED WAR-
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<PAGE> 9
RANTY POLICY AND OBLIGATIONS SET FORTH HEREIN UPON NOTICE TO DISTRIBUTOR FROM
TIME TO TIME AS TO PRODUCTS ORDERED BY DISTRIBUTOR AFTER THE DATE OF SUCH
NOTICE. ALL IMPLIED WARRANTIES INCLUDING BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
NON-INFRINGEMENT (EXCEPT AS SET FORTH IN SECTION VII) ARE HEREBY EXCLUDED. THE
FOREGOING DISCLAIMERS SHALL NOT AFFECT LIPOMATRIX'S OBLIGATIONS AS SET FORTH IN
SECTIONS VII AND VIII.
IV. TERMS AND CONDITIONS OF SALE
A. PRICES. Distributor and LipoMatrix shall, prior to launch in
the Territory, mutually agree on list prices for Distributor's sales of
Products to its customers. Prices charged by LipoMatrix to Distributor will
reflect a discount of fifty-five percent (55%) from the agreed upon list price
for the first Ordering Year and a discount of fifty percent (50%) thereafter.
Prices to Distributor for all Products shall be F.O.B. Swiss
manufacturing facility of LipoMatrix and shall exclude freight, taxes
(including, without limitation, export, import and local excise, sales, use,
property and other taxes, but excluding taxes imposed on LipoMatrix's net
income), insurance, duties and other governmental charges levied with respect
to the Products sold hereunder, all of which shall be paid by Distributor.
Prices may be changed at any time during the term of this Agreement, or any
extension or renewal thereof, by mutual agreement.
B. RESEARCH AND DEVELOPMENT FUND. While Distributor markets the
Products, Distributor shall pay to LipoMatrix an amount equal to five percent
(5%) of Distributor's net sales revenue from sales of Products, such payments
to be made for each month by the fifteenth day of the following month. Such
payments shall commence in respect of sales for the month of April 1997. The
payments, and the interest earned on them until expenditure, are intended to be
expended on mutually agreed research, development, clinical and manufacturing
programs for breast implant products and other products intended for use in
cosmetic or reconstructive breast surgery, and if such funding is not expended,
the funds shall revert to Distributor. LipoMatrix shall have full ownership of
the results of such programs; provided, however, if Distributor and its
affiliates beneficially own less than twenty percent (20%) of LipoMatrix,
LipoMatrix will pay Distributor a mutually agreed upon royalty for sales of
products incorporating the results of such programs outside the Territory and
other territories where Distributor and its affiliates are selling Products.
Distributor shall have the exclusive right to market in the Territory all
products developed with any use of such funds and any such product shall be
deemed a Product hereunder. If Distributor does not initiate commercial sales
of such Product within ninety (90) days of regulatory clearance, then all
rights to such product will revert to LipoMatrix.
C. PAYMENT TERMS
1. LipoMatrix agrees to grant Distributor credit terms
for sales. Distributor agrees to pay to LipoMatrix the full amount of all
invoices net sixty (60) days from the invoice date. In the event that
Distributor does not promptly pay all invoices in accordance with this Section,
then the payment terms will revert to payment by irrevocable letter of credit
(or equivalent satisfactory to LipoMatrix) payable against shipping documents.
Accounts past due will be subject to a monthly service charge of one and
one-half percent (1.5%) of unpaid sum, but in no event to exceed the maximum
allowable by law.
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<PAGE> 10
2. All payments shall be in the local currency of the
Territory.
3. Distributor must give LipoMatrix written notice of
any discrepancies among the purchase order, the invoice, and Products received,
within thirty (30) days after receipt of Products or the invoice, whichever
occurs later.
4. If Distributor fails to make payment when due,
LipoMatrix may also decline to make further shipments until all above
indebtedness is paid, and/or alternatively may decline to make further
deliveries except for cash in advance of shipment or letter of credit
acceptable to LipoMatrix.
D. PRODUCT ORDERS. All orders for Products submitted hereunder
shall be initiated by purchase orders sent by regular mail, hand delivery,
airmail, courier mail, e-mail, or facsimile to LipoMatrix. LipoMatrix shall
respond to such orders by air mail, courier mail, e-mail, or facsimile within
reasonable time, not to exceed ten (10) days after receipt thereof. All
purchase orders submitted by Distributor to LipoMatrix shall identify the
Products ordered by Product number and quantity and the desired shipment date.
E. ORDER ACCEPTANCE. All purchase orders are subject to
acceptance by LipoMatrix at its Neuchatel office. LipoMatrix shall have no
obligation or liability to Distributor with respect to purchase orders which
are not accepted; however LipoMatrix shall not unreasonably reject any purchase
order. LipoMatrix shall use reasonable efforts to deliver Products covered by
accepted purchase orders at the times specified in the corresponding quotation
or written acceptance of Distributor's purchase order.
Any orders in the ordinary course of business, consistent with
normal ordering practices, that are rejected by LipoMatrix shall be deducted
from the purchase quota for such Ordering Year as set forth in Section III.B.1.
Distributor's purchase orders hereunder shall be governed by
the terms and conditions of this Agreement. Nothing contained in any purchase
order shall in any way modify or add any terms or conditions of sale.
F. CANCELLATION/RESCHEDULING. Distributor may, at its option and
subject to the provisions of this Section, either reschedule delivery of any
Products or cancel any order or portion thereof, upon written notice to
LipoMatrix. A "reschedule" is defined as changing all or any portion of those
Products scheduled for shipment on any ship date by moving the ship date later
in time. Distributor shall have a right to cancel or reschedule any order for
later shipment provided such request is received by LipoMatrix at least thirty
(30) days in advance of the original ship date. Rescheduling or cancellation
requests made Distributor within thirty (30) days of the original ship date are
subject to LipoMatrix's approval.
G. COUNTRY SHIPMENTS. Products sold to Distributor in the
Territory will not be transferred by Distributor outside the Territory without
the written notification to LipoMatrix and an appropriate billing adjustment to
reflect any difference in prices between countries. Such transfers out of the
Territory will only be permitted to countries in a territory covered by a
distributor that is an affiliated company of Distributor.
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<PAGE> 11
V. ACQUISITION AND USE OF DEMONSTRATION PRODUCT AND TRANSPONDER READERS
A. Products will be provided without charge to Distributor for
Distributor's exclusive use in selling and marketing of Products within the
Territory, in such limited quantities as are determined by mutual agreement.
B. Transponder readers will be loaned to Distributor for use in
tracking inventory and for demonstration use with customers, in such limited
quantities as are determined by mutual agreement.
VI. TERM AND TERMINATION
A. TERM. This Agreement shall commence upon the Effective Date
and shall expire ten (10) years after first Commercial Sale, unless renewed or
terminated as provided below.
B. RENEWAL. Unless terminated in the manner provided below, the
term of this Agreement shall be extended automatically for successive one (1)
year periods, unless either party elects not to renew by written notice to the
other party at least ninety (90) days prior to the conclusion of the initial
term hereof or any such renewal period, as the case may be. Either party may
elect not to renew this Agreement for any or no reason.
C. TERMINATION FOR CAUSE. Either party shall have the right to
terminate this Agreement at any time effective upon written notice, in the
event of (1) breach by the other party of any of the terms and conditions
hereof and failure to correct the breach within the thirty (30) days of written
notice thereof; (2) the other party becoming generally unable to obtain
necessary licenses; or (3) Force Majeure which suspends or delays performance
of this Agreement for more than ninety (90) days from the beginning of such
event.
It is recognized by the parties that the Risk Management
Program (see Section III.A.3.b) is an essential element of this Agreement.
Failure by either party to adhere to its provisions or to use best efforts to
implement it, may be used as grounds for termination of this Agreement for
cause under this Section.
In the event of a substantial change in ownership of
Distributor, or the continued failure by Distributor to meet the purchase
quotas as specified in Section III.B.1, LipoMatrix shall have the right to
terminate this Agreement upon thirty (30) days written notice.
In the event that LipoMatrix is acquired by a third party,
LipoMatrix shall have the right to terminate this Agreement upon thirty (30)
days written notice.
Either party shall have the right to terminate this Agreement,
by written notice taking immediate effect, if the other party becomes
insolvent, or if there are instituted by or against the other party proceedings
in bankruptcy or under insolvency similar laws or for reorganization,
receivership or dissolution. Any such termination shall not relieve either
party from any payment obligation which accrued prior to such termination.
D. CANCELLATION AND REPURCHASE OPTIONS. Upon expiration or
termination of this Agreement, any or all unfilled orders shall be cancelled.
LipoMatrix reserves the right at its sole option to repurchase from Distributor
any or all Products unsold by Distributor, at a mutually agreed upon price,
which in any case shall not exceed the landed price Distributor paid LipoMatrix
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<PAGE> 12
for Products to be repurchased. In the event LipoMatrix fails to repurchase
such Products, Distributor shall have the right to continue to sell its
existing inventory of such Products for a reasonable period following such
expiration or termination.
E. RETURN OF MATERIALS. Upon expiration or termination of this
Agreement, Distributor shall return to LipoMatrix, at LipoMatrix's expense, all
sales promotional materials and aids and any tools or equipment loaned or
furnished to Distributor pursuant to this Agreement.
F. EFFECT OF TERMINATION. In the event of termination by either
party in accordance with any of the provisions this Agreement, or expiration of
this Agreement, neither party shall be liable to the other, because of such
termination or expiration, for compensation, reimbursement or damages on
account of the loss of prospective profits or anticipated sales or on account
of expenditures, inventory, investments, leases, or commitments in connection
with the business or goodwill of LipoMatrix or Distributor, occurring as a
result of such termination or expiration, or incurred in anticipation of
renewal.
VII. PATENT INDEMNITY
LipoMatrix will defend any suit brought against Distributor based on a
claim that the Product furnished under this Agreement infringes any patent or
trademark, and will pay all damages and costs that a court awards against
Distributor as a result of such claim and any payments made in settlement of
such claim, provided that Distributor gives LipoMatrix: (a) prompt written
notice of such suit; (b) full control over the defense or settlement thereof;
and (c) all reasonable information and assistance (at LipoMatrix's expense
excluding time spent by employees or consultants of the Distributor) to handle
the defense and settlement thereof.
If the Products, or any part thereof, are, or in the opinion of
LipoMatrix may become, the subject of any claim, suit or proceeding for
infringement of any patent or trademark, or in the event of any adjudication
that the Products, or any part thereof, infringe any patent or trademark, or if
the sale or use of Products, or any part thereof, is enjoined, LipoMatrix may,
at its option and expense: (a) procure for Distributor and its customers the
right under such patent or trademark to use or sell as appropriate the Products
or such part thereof; or (b) replace the Products, or part thereof, with other
suitable Products or parts; or (c) suitably modify the Products or part
thereof, or (d) if none of the foregoing are commercially practicable, refund
the amounts paid therefore by Distributor, and recover possession of such
Products. LipoMatrix shall not be liable for any costs or expenses incurred
without its prior written authorization.
Notwithstanding the provisions of the preceding paragraphs, LipoMatrix
shall not be liable to Distributor or its customers for: (a) infringement of
patent claims covering the usage of LipoMatrix Products in a manner not
intended under this Agreement; (b) any trademark infringements involving any
marking or branding applied by LipoMatrix or involving any marking or branding
applied at the request of Distributor, except if such marking or branding is
owned by LipoMatrix; (c) the modification of Products, or any part thereof,
unless such modification was made by LipoMatrix; or (d) the combination,
operation or use of the Product with other products not furnished by LipoMatrix
to the extent such claim would not have arisen had such combination, operation
or use not occurred.
THE FOREGOING PROVISIONS OF THIS SECTION VII STATE THE ENTIRE
LIABILITY AND OBLIGATIONS OF LIPOMATRIX, AND THE EXCLUSIVE REMEDIES OF
DISTRIBUTOR AND ITS CUSTOMERS WITH RESPECT TO ANY ALLEGED IN-
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<PAGE> 13
FRINGEMENT OF PATENTS, COPYRIGHTS, TRADEMARKS, OR OTHER INTELLECTUAL PROPERTY
RIGHTS, BY THE PRODUCTS OR ANY PART THEREOF.
VIII. PRODUCT LIABILITY
A. INDEMNITY BY DISTRIBUTOR. Distributor shall indemnify and
hold LipoMatrix harmless from and against any and all liability, damage, loss,
cost, expense (including reasonable attorney's fees), regulatory penalties and
enforcement actions resulting from any claims made or suits brought against
LipoMatrix, its employees, directors and customers which arise or result solely
from Distributor's marketing, distribution, handling and shipping of the
LipoMatrix Products, or from Distributor's negligence or willful misconduct.
LipoMatrix shall promptly notify Distributor of any such claim or suit and
shall permit Distributor at Distributor's cost and expense, to handle and
control such claim or suit.
B. INDEMNITY BY LIPOMATRIX. LipoMatrix shall indemnify and hold
Distributor harmless from and against any and all liability, damage, loss, cost
or expense (including reasonable attorney's fees) resulting from any claims
made or suits brought against Distributor, its employees, directors and
customers which arise or result solely from LipoMatrix's design, handling and
shipping of the LipoMatrix Products, or failure to manufacture the LipoMatrix
Products in accordance with agreed upon specifications, FDA Good Manufacturing
Practices or other applicable standards for medical device manufacturers, or
from negligence or willful misconduct. Distributor shall promptly notify
LipoMatrix of any such claim or suit and shall permit LipoMatrix at
LipoMatrix's cost and expense, to handle and control such claim or suit.
C. APPORTIONMENT OF DAMAGES. In the event that any liability,
damage, loss, cost or expense (including reasonable attorney's fees) as
aforesaid cannot be established (with respect to final judgments of a court of
competent jurisdiction from which no appeal is or can be taken as well as
settlements made prior to, during or following termination of litigation to
which the parties have expressly agreed in writing) to have resulted solely
from the actions or failures to act of LipoMatrix or Distributor or their
affiliates, responsibility for payment of such liability, damage, loss, cost or
expense (including reasonable attorney's fees) will be apportioned between
LipoMatrix and Distributor according to the contribution of either party to the
damage; and if such allocation is not mutually agreed, then it will be
determined by mandatory binding arbitration.
D. PRODUCT LIABILITY INSURANCE. LipoMatrix shall use its
reasonable commercial efforts to secure product liability insurance in the
amount of five million dollars ($5,000,000), to the extent this is available on
commercially reasonable terms. LipoMatrix shall have Distributor named as an
additional insured on its product liability insurance policy. If LipoMatrix is
unable to secure or maintain such insurance, Distributor may terminate this
Agreement. The parties agree to review the possibility of increasing the
amount of such insurance if increases in sales so warrant.
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<PAGE> 14
IX. LIMITATION OF LIABILITY
IN NO EVENT, WHETHER THE CAUSE OF ACTION BE BASED IN CONTRACT OR TORT
(INCLUDING NEGLIGENCE) OR ANY OTHER LEGAL OR EQUITABLE THEORY SHALL EITHER
PARTY BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, INDIRECT, SPECIAL OR PUNITIVE
DAMAGE OF ANY KIND, OR FOR LOSS OF REVENUE, LOSS OF BUSINESS OR OTHER FINANCIAL
LOSS ARISING OUT OF OR IN CONNECTION WITH THE SALE, USE, PERFORMANCE, FAILURE
OR INTERRUPTIONS OF ITS PRODUCTS. NOTWITHSTANDING ANY OTHER PROVISION OF THIS
AGREEMENT, LIPOMATRIX'S MAXIMUM LIABILITY FOR DAMAGES HEREUNDER SHALL NOT
EXCEED THE PURCHASE PRICE OF THE PRODUCTS PURCHASED DURING THE TERM OF THIS
AGREEMENT. THE FOREGOING LIMITATIONS SHALL NOT AFFECT EITHER PARTY'S DUTY TO
INDEMNIFY THE OTHER PARTY FOR THIRD-PARTY SUITS FOR SUCH DAMAGES, AS SET FORTH
IN SECTIONS VII AND VIII.
THE DISCLAIMER OF LIABILITY FOR DAMAGES WILL NOT BE AFFECTED IF ANY
REMEDY PROVIDED HEREUNDER SHALL FAIL OF ITS ESSENTIAL PURPOSE. DISTRIBUTOR HAS
ACCEPTED THE DISCLAIMER OF LIABILITY FOR DAMAGES AS PART OF A BARGAIN TO LOWER
THE PRICE OF THE PRODUCTS AND UNDERSTANDS THAT THE PRICE OF THE PRODUCTS WOULD
BE HIGHER IF LIPOMATRIX WERE REQUIRED TO BEAR ADDITIONAL LIABILITY FOR DAMAGES.
X. NO RIGHT TO MANUFACTURE OR COPY
The Products are offered for sale and are sold by LipoMatrix subject
in every case to the condition that such sale does not convey or license to
Distributor, expressly or by implication, the right to manufacture, duplicate
or otherwise copy or reproduce any of the Products. Distributor shall take
appropriate steps with customers, as mutually agreed, to inform them of, and
both parties shall, as mutually agreed, assist each other in assuring
compliance with, the restrictions contained in this Section.
XI. INTELLECTUAL PROPERTY RIGHTS
A. SOLE PROPERTY OF LIPOMATRIX. Distributor agrees that
Intellectual Property Rights are and shall remain sole property of LipoMatrix
and that LipoMatrix owns all right, title and interest in the product lines
which include the Products now or hereafter subject to this Agreement. The use
by Distributor of any Intellectual Property Rights, including, but not limited
to any patent, invention, trademark, trade name, trade secret or copyrighted
material, is authorized only for the purposes herein set forth. Upon
termination of this Agreement for any reason, authorization shall cease.
Distributor agrees that the Products contain a device
identification system (including software) which is proprietary to LipoMatrix.
LipoMatrix at all times retains ownership of and title to the device
identification system supplied with the Product, and to the trade secrets
embodied in such technology.
Subject to Distributor's acceptance of the obligations
contained in this Section, and to the fulfillment of these obligations,
LipoMatrix grants Distributor a non-exclusive license to use the device
identification system included with the Products solely in the form and on the
medium in which program is delivered for the purposes of operating the Product
in accordance with the instructions set forth in the Instructions for Use
supplied with the Product, and for no other purposes
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<PAGE> 15
whatsoever. Distributor may not decompile, reverse engineer or reverse
assemble such technology, nor may it make a copy of such program or apply any
techniques to derive the trade secrets embodied therein.
B. USE OF LIPOMATRIX NAME AND TRADEMARKS. During the term of
this Agreement, Distributor shall have the right to indicate to the public that
Distributor is an authorized distributor of LipoMatrix's Products and to
advertise within the Territory such Products under the LipoMatrix Trademarks.
Distributor shall not alter or remove any LipoMatrix Trademark applied to the
Products at the factory. At no time during or after the term of this Agreement
shall Distributor challenge or assist others to challenge the LipoMatrix
Trademarks or registration thereof or attempt to register any trademarks, marks
or tradenames confusingly similar to those of LipoMatrix.
C. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Distributor and
LipoMatrix acknowledge that by reason of their relationship hereunder they will
have access to certain information and materials concerning each other's
business, plans, customers and products (including Trade Secrets and Technical
Data provided to Distributor) which are confidential and of substantial value
to Distributor and LipoMatrix, which value would be impaired if such
information were disclosed to third parties.
Each party agrees that it shall not use in any way for its own
account or the account of any third party, nor disclose to any third party, any
such confidential information which is revealed to it by the other party. The
receiving party shall take every reasonable precaution to protect the
confidentiality of such information, which in no event shall be less than the
efforts exercised by such party with respect to its own confidential business
information. Distributor and LipoMatrix shall advise each other in the event
that either party considers particular information or materials to be
confidential. Distributor shall not publish any technical description of the
Products beyond the description published by LipoMatrix.
In the event of expiration or earlier termination of this
Agreement, there shall be no use or disclosure by Distributor or LipoMatrix of
any confidential information, and Distributor shall not manufacture, or have
manufactured, devices, components or assemblies utilizing any of LipoMatrix's
Intellectual Property Rights.
XII. GENERAL
A. COUNTERPARTS AND GOVERNING LAW. This Agreement may be
executed in counterparts. This Agreement shall be construed in accordance
with, and all the rights, powers and liabilities of the parties hereunder shall
be governed by, the internal laws of the State of California, without reference
to choice of law principles thereof.
B. COMPLETE AGREEMENT. This Agreement is intended as the
complete, final and exclusive statement of the terms of agreement between the
parties and supersedes any and all agreements between them relating to the
subject matter hereof. No modification, change or amendment to this Agreement,
nor any waiver of any rights in respect hereto, shall be effective unless in
writing and signed by the party to be charged, unless explicitly permitted by
the terms of this contract. The waiver of breach or default hereunder shall not
constitute the waiver of subsequent breach or default.
C. FORCE MAJEURE. Notwithstanding anything in this Agreement to
the contrary, other than the obligation to pay money, the obligations of either
party under this Agreement, including purchase quotas, shall be excused during
any continuing event which is beyond the reasonable
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<PAGE> 16
control of such party, including without limitation, strike, fire, war,
rebellion, natural disasters/Acts of God, embargo, governmental order or
restriction, or inability for any other reason to supply or deliver Products
due to unnatural or commercially impractical circumstances.
D. NOTICE. Any notice or report required or permitted under this
Agreement shall be deemed given if delivered personally or if sent by either
party to the other by registered or certified mail, postage prepaid, or
internationally recognized courier, for overnight delivery, addressed to the
other party at its address first set forth above or at such other address to
which such party shall give notice hereunder. If by mail, delivery shall
effective five (5) days after deposit with postal authorities.
E. ASSIGNMENT. Distributor shall not assign this Agreement
nor any rights hereunder without the prior written consent of LipoMatrix,
granted in LipoMatrix's sole discretion. Subject to the foregoing, this
Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. LipoMatrix shall be entitled to assign its
interest in this Agreement in connection with a merger or other business
combination in which LipoMatrix is not the surviving entity.
F. SEVERABILITY. In the event any provision of this Agreement is
found to be invalid, illegal or unenforceable, the validity, legality and
enforceability of any of the remaining provisions shall not in any way be
affected or impaired thereby.
G. SURVIVAL. The obligations and duties listed in the Sections
titled "Warranty", "Patent Indemnity", "Limitation of Liability", "No Right to
Manufacture or Copy", "Product Liability" and "Intellectual Property Rights"
shall survive any termination or expiration of this Agreement and shall remain
in effect for a period of ten (10) years thereafter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
LIPOMATRIX, INCORPORATED COLLAGEN CORPORATION
("LIPOMATRIX") ("DISTRIBUTOR")
By:___________________________________ By:________________________________
(signature) (signature)
Printed Name: Terry R. Knapp, M.D. Printed Name: Howard Palefsky
------------------------- ----------------------
Title: President & CEO Title: Chief Executive Officer
-------------------------------- -----------------------------
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<PAGE> 17
LipoMatrix Contract Number LMI 046
EXHIBIT A
RISK MANAGEMENT PROGRAM
Confidential treatment requested for this exhibit.
<PAGE> 18
LipoMatrix Contract Number LMI 046
EXHIBIT B
RISK MANAGEMENT SUPPORT DOCUMENTS
Confidential treatment requested for this exhibit.
<PAGE> 1
LipoMatrix Contract Number LMI 047
EXHIBIT 10.73
COORDINATION AGREEMENT*
This Coordination Agreement (the "Agreement") is entered into as of
March 24, 1995, between LipoMatrix, Incorporated ("LipoMatrix"), a corporation
organized under the law of the British Virgin Islands with an office located at
Puits Godets 24, CH-2000 Neuchatel, Switzerland and Collagen International
Incorporated ("Collagen International"), a corporation organized under the law
of the State of Delaware, United States of America with an office located at 2,
Avenue Gratta-Paille, CH-1000 Lausanne 30 Grey, Switzerland.
IN CONSIDERATION OF THE MUTUAL PROMISES HEREIN CONTAINED, THE PARTIES
AGREE AS FOLLOWS:
1. DISTRIBUTOR APPOINTMENTS.
1.1 LipoMatrix desires to appoint certain Collagen
International subsidiaries ("CI Subsidiaries") as distributors of LipoMatrix's
present and future breast implant products and other products intended for use
in cosmetic or reconstructive breast surgery ("Products"), and those CI
Subsidiaries have expressed interest in distributing Products in the countries
of their respective incorporation (collectively, the "Territory"), pursuant to
separate distribution agreements (each, a "Distributor Agreement") containing
terms and conditions as set forth in the form agreement attached hereto as
Exhibit A.
1.2 Those CI Subsidiaries that have expressed an interest
in distributing Products are listed in Exhibit B. Collagen International has
no objection to any CI Subsidiary entering into a separate Distributor
Agreement on terms acceptable to such CI Subsidiary.
1.3 If Collagen International subsequently establishes a
majority-owned affiliate in a country not designated as part of the Territory,
LipoMatrix and Collagen International agree to enter into negotiations in good
faith with regard to the possibility of including such country in the
Territory, provided however, that this Section will not require LipoMatrix to
cancel or modify pre-existing distribution agreements with third parties.
Notwithstanding the foregoing, if Collagen International and LipoMatrix have
not entered into an agreement within ninety (90) days of Collagen International
notifying LipoMatrix of the establishment of its affiliate and the desire to
enter negotiations for distribution rights, then LipoMatrix shall be free, in
its sole discretion, to distribute, market and sell the Products in such
country on its own or in conjunction with third parties.
1.4 If Collagen International or one of its subsidiaries
has an interest in distributing the Products in a country where it does not
have a subsidiary, but does have a third-party distributor, it may notify
LipoMatrix of its desire to distribute the Products in such country. The
parties will negotiate in good faith to arrive at a mutually acceptable
distribution agreement. In addition, prior to entering into an agreement with
a third party for distribution of Products, LipoMatrix will notify Collagen
International of its intentions and, if Collagen International desires,
negotiate in good faith to arrive at a mutually acceptable distribution
agreement. In either of these cases, if agreement cannot be reached within
ninety (90) days of initiation of discussions, LipoMatrix will be free to
negotiate distribution rights with other parties. This section will not apply
to Spain, Portugal or Latin America.
- -------------
*Confidential treatment is requested for a portion of this agreement.
<PAGE> 2
1.5 The parties recognize that it would facilitate the
administration of certain aspects of the Distributor Agreements if Collagen
International would agree to coordinate and perform certain functions on behalf
of the CI Subsidiaries collectively, and Collagen International has agreed to
serve in the limited capacity set forth herein.
2. RESEARCH AND DEVELOPMENT FUND.
2.1 The Distributor Agreements provide for the
establishment of a research and development fund (the "Fund") to be created by
certain payments equal to five percent (5%) of each distributor's net sales
revenue from sales of Products beginning in April 1997.
2.2 LipoMatrix has agreed to collect and deposit these
payments in a separate interest bearing account, and to provide quarterly
statements of the Fund balance to Collagen International, and to use them on
research, development, clinical and manufacturing programs for breast implant
products and other products intended for use in cosmetic or reconstructive
breast surgery, as mutually agreed with each CI Subsidiary.
2.3 LipoMatrix, Collagen International and the CI
Subsidiaries recognize that it would be cumbersome for LipoMatrix to have to
reach and coordinate agreement on the use of the Fund with each CI Subsidiary,
and therefore, with the support of each CI Subsidiary, Collagen International
and LipoMatrix have agreed that Collagen International will perform this
coordination function on the CI Subsidiaries' collective behalf. As a result,
a decision on the use of the Fund for specific projects by Collagen
International will be deemed as binding for each CI Subsidiary.
3. RESOLUTION OF DISPUTES.
3.1 The parties wish to attempt to resolve any disputes
or disagreements that might arise under any Distributor Agreement that cannot
be resolved by LipoMatrix and the management of the relevant CI Subsidiary
without resort to formal arbitration or litigation wherever possible.
3.2 Wherever a dispute has arisen that cannot be
resolved, as described in Section 3.1, the chief executive officers of
LipoMatrix and Collagen International will meet to attempt to resolve it.
3.3 In the event the dispute cannot be resolved under
Section 3.2, the chief executive officers of LipoMatrix and Collagen
International will refer the dispute to a panel of three arbitrators, one
appointed by each party, and the third by the two appointed arbitrators,
convened under the rules of the International Chamber of Commerce in Geneva,
Switzerland.
3.4 The decision of the chief executive officers under
Section 3.2 or, when necessary, of the arbitrators under Section 3.3, shall be
final and conclusive and binding on LipoMatrix and the relevant CI Subsidiary
with respect to the matter in dispute.
3.5 Collagen International represents that each CI
Subsidiary that has signed a Distributor Agreement has agreed to this mechanism
for resolving any disputes that may arise.
4. MOST FAVORED DISTRIBUTOR.
- 2 -
<PAGE> 3
4.1 LipoMatrix agrees that the prices offered to its
distributors in the European Union ("E.U.") will be not less than the lowest
price ("the Lowest Price") at which Products are sold to subsidiaries of
Collagen International in the E.U. (currently Collagen (UK) Ltd.) as of the
date of this Agreement. In addition, LipoMatrix agrees that the prices at
which Products are sold to its Latin American distributors will be not less
than eighty-five percent (85%) of such Lowest Price.
4.2 LipoMatrix agrees that prior to entering a
distribution agreement with a third party for Israel, Poland or Hungary, that
it will discuss pricing for that agreement with Collagen International in an
attempt to arrive at a mutually acceptable arrangement.
4.3 LipoMatrix agrees that three (3) years after the date
of this Agreement, the payment terms granted to subsidiaries of Collagen
International will be reviewed to ensure that those subsidiaries are treated
fairly in comparison to other LipoMatrix distributors.
5. TARGET LAUNCH DATES.
5.1 Assuming the appropriate regulatory clearances are
obtained, the target launch dates for each of the CI Subsidiaries listed in
Exhibit B are as follows:
<TABLE>
<CAPTION>
CI Subsidiary Target Launch Date
------------- ------------------
<S> <C>
United Kingdom April 1995
Germany September 1995
France October or November 1995
Switzerland, Austria, Belgium, as soon as practical but no later than
Luxembourg, The Netherlands March 31, 1996
Italy first quarter 1996
Australia, Canada second quarter 1996
</TABLE>
In the event that any launch is delayed due to regulatory considerations, such
launch will take place as soon as practicable after regulatory considerations
permit, and the remaining target launch dates will be adjusted, if necessary,
to assure that no two (2) launches will be required to occur at an interval of
less than four (4) weeks, and that a launch will not be required to take place
in a month that would not be appropriate due to holiday or seasonal
considerations.
6. TERM; TERMINATION.
6.1 This Agreement shall be effective as of the date
first set forth above and shall continue in effect until all Distributor
Agreements with CI Subsidiaries have expired or been terminated, unless earlier
terminated pursuant to the provisions of this Section 6.
6.2 Either party shall have the right to terminate this
Agreement at any time effective upon written notice, in the event of breach by
the other party of any of the terms and conditions hereof and failure to
correct the breach within thirty (30) days of written notice thereof.
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<PAGE> 4
6.3 In the event that Collagen Corporation accepts the
LipoMatrix Offer (as defined in the License, Supply and Option Agreement
between LipoMatrix and Collagen Corporation dated as of March 24, 1995) or the
U.S. Distributor Agreement between LipoMatrix and Collagen Corporation is
terminated, LipoMatrix shall have the right to terminate each of the
Distributor Agreements and this Agreement. Collagen International represents
that each CI Subsidiary that has signed a Distributor Agreement has agreed to
this provision, and Collagen International agrees to use its best efforts to
enforce this provision.
7. MISCELLANEOUS.
7.1 Counterparts and Governing Law. This Agreement may
be executed in counterparts, and shall be governed by the laws of Switzerland
without regard to conflicts of law. Each party hereby agrees to submit to the
jurisdiction of an appropriate court within Vaud, Switzerland, and agrees that
service of documents commencing any legal action may be made on such party in
the manner provided for giving notice hereunder.
7.2 Complete Agreement. This Agreement is intended as
the complete, final and exclusive statement of the terms of agreement between
the parties and supersedes any and all agreements between them relating to the
subject matter hereof. No modification, change or amendment to this Agreement,
nor any waiver of any rights in respect hereto, shall be effective unless in
writing and signed by the party to be charged, unless explicitly permitted by
the terms of this contract. The waiver of breach or default hereunder shall not
constitute the waiver of subsequent breach or default.
7.3 Notices. All notices required or to be given
pursuant to this Agreement shall be in writing, shall be effective upon receipt
and shall be delivered in person or by first class mail, postage prepaid to the
following addresses, with a copy of such notice to be sent simultaneously by
telex, facsimile copier or similar device to the party receiving such notice.
To Collagen International: Collagen International Incorporated
2, Avenue Gratta-Paille
CH-1000 Lausanne 30 Grey,
Switzerland
Attention: President
To LipoMatrix: LipoMatrix, Incorporated
24 Puits Godet, CH-2000 Neuchatel,
Switzerland
Attention: President
7.4 Assignment. Collagen International shall not assign
this Agreement nor any rights hereunder without the prior written consent of
LipoMatrix, granted in LipoMatrix's sole discretion. Subject to the foregoing,
this Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. LipoMatrix shall be entitled to assign its
interest in this Agreement in connection with a merger or other business
combination in which LipoMatrix is not the surviving entity.
7.5 English as Language of Agreement. The original of
this Agreement has been written in English. Each party waives right it may
have under the law of its country to have this Agreement written in any
language other than English.
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<PAGE> 5
7.6 Severability. In the event any provision of this
Agreement is found to be invalid, illegal or unenforceable, the validity,
legality and enforceability of any of the remaining provisions shall not in any
way be affected or impaired thereby.
7.7 Waiver of Conflict. EACH PARTY TO THIS AGREEMENT
THAT HAS BEEN OR CONTINUES TO BE REPRESENTED BY VENTURE LAW GROUP ("VLG")
HEREBY ACKNOWLEDGES THAT RULE 3-310 OF THE RULES OF PROFESSIONAL CONDUCT
PROMULGATED BY THE STATE BAR OF CALIFORNIA REQUIRES AN ATTORNEY TO AVOID
REPRESENTATIONS IN WHICH THE ATTORNEY HAS OR HAD A RELATIONSHIP WITH ANOTHER
PARTY INTERESTED IN THE REPRESENTATION WITHOUT THE INFORMED WRITTEN CONSENT OF
ALL PARTIES AFFECTED. BY EXECUTING THIS AGREEMENT, EACH SUCH PARTY GIVES ITS
INFORMED WRITTEN CONSENT TO THE REPRESENTATION OF LIPOMATRIX BY VLG IN
CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties have executed this Agreement through
the signatures of their duly authorized representatives set forth below.
COLLAGEN INTERNATIONAL LIPOMATRIX, INCORPORATED
INCORPORATED a British Virgin Islands corporation
a Delaware corporation
By: /s/ Neville Pelletier By: /s/ Terry R. Knapp, MD
--------------------------- ----------------------------
Title: President Title: Chairman & CEO
- 5 -
<PAGE> 6
LipoMatrix Contract Number LMI 047
EXHIBIT A
FORM OF DISTRIBUTOR AGREEMENT
<PAGE> 7
FORM OF DISTRIBUTOR AGREEMENT
BETWEEN
LIPOMATRIX, INCORPORATED
AND
CERTAIN SUBSIDIARIES OF COLLAGEN INTERNATIONAL, INC.
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. APPOINTMENT AS EXCLUSIVE DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
III. SPECIFIC RESPONSIBILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
IV. TERMS AND CONDITIONS OF SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
V. ACQUISITION AND USE OF DEMONSTRATION PRODUCT AND
TRANSPONDER READERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
VI. TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
VII. PATENT INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
VIII. PRODUCT LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
IX. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
X. NO RIGHT TO MANUFACTURE OR COPY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
XI. INTELLECTUAL PROPERTY RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
XII. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Risk Management Program*
Exhibit B Risk Management Support Documents*
</TABLE>
* Confidential treatment requested for this exhibit.
- 1 -
<PAGE> 9
DISTRIBUTOR AGREEMENT
This Distributor Agreement (the "Agreement") is entered into as of
March 24, 1995, (the "Effective Date") between LIPOMATRIX, INCORPORATED
("LIPOMATRIX"), a corporation organized under the laws of the British Virgin
Islands with an office located at Puits Godet 24, CH- 2000 Neuchatel,
Switzerland and COLLAGEN _______ ("DISTRIBUTOR") with an office located at
_________________________________.
IN CONSIDERATION OF THE MUTUAL PROMISES HEREIN CONTAINED, THE PARTIES
AGREE AS FOLLOWS:
I. DEFINITIONS
A. "PRODUCTS" shall mean LipoMatrix's present and future (subject
to Section II.A) breast implant products and other products intended for use in
cosmetic or reconstructive breast surgery. Products may be changed, abandoned
or added by LipoMatrix, at its sole discretion, after reasonable prior written
notice (which shall not be less than ninety (90) days) is given to Distributor,
or in any other manner necessary in order to comply with applicable laws.
LipoMatrix shall be under no obligation to continue the production of any
Product, except as provided herein.
B. "TERRITORY" shall mean _____________________________________.
C. "TECHNICAL DATA" shall mean all information belonging to
LipoMatrix in written, graphic or tangible form relating to design,
programming, operation or service of the Products, including all information
that exists as of the Effective Date of this Agreement, or is developed by
LipoMatrix during the term hereof.
D. "INTELLECTUAL PROPERTY RIGHTS" shall mean all of LipoMatrix's
worldwide patents, trademarks, trade names, inventions, copyrights, regulatory
approvals, know-how, trade secrets, and all other intellectual property rights,
in existence as of the Effective Date of this Agreement or hereafter developed
or acquired by LipoMatrix, relating to the design, manufacture, or marketing of
the Products.
E. "TRADE SECRETS" shall mean any formula, pattern, device, or
compilation of information which is used in LipoMatrix's business and which
provides competitive advantage to LipoMatrix and which is not known or used by
LipoMatrix's competitors. This term includes, but is not limited to, formulas,
compounds, manufacturing processes, methods for treating or preserving
materials, patterns for the design or operation of devices, materials filed
with governmental agencies in connection with regulatory approval of
LipoMatrix's products, and information relating to marketing of LipoMatrix
products and services.
F. "LIPOMATRIX TRADEMARKS" shall mean those trademarks, trade
names, service marks, slogans, designs, distinct advertising, labels, logos and
other trade-identifying symbols as are or have been developed and used by
LipoMatrix and/or any of its subsidiaries or affiliate companies anywhere in
the world.
G. "GOVERNMENT AGENCY" shall include all local, national and
supranational bodies with the legal authority to establish rules, regulations,
standards and guidelines, (or to issue certificates of compliance with these),
covering the design, manufacturing and marketing of the Products in the
Territory. Within the European Union, this will include Competent Authorities
- 1 -
<PAGE> 10
and Notified Bodies or similar agencies as a consequence of or related to the
Medical Device Directive (93/42/EEC), and/or where applicable, the Active
Implantable Medical Device Directive (93/385/EEC), as well as similar
directives established in the future.
H. COMMERCIAL SALE. The sale of a Product by Distributor, other
than for clinical use required to obtain governmental approvals to market such
Product.
I. ORDERING YEAR. The twelve-month period commencing on the
first Commercial Sale and each subsequent twelve-month period commencing on the
anniversary of such date.
II. APPOINTMENT AS EXCLUSIVE DISTRIBUTOR
A. Subject to the terms and conditions set forth herein
LipoMatrix hereby appoints Distributor, and Distributor hereby accepts such
appointment, as LipoMatrix's exclusive distributor for the Products in the
Territory. As a result, LipoMatrix will not sell the Products in the Territory,
other than through Distributor. The mechanism for sales of Products for
clinical trials in the Territory shall be determined by mutual agreement. Any
future Product developed by LipoMatrix shall be deemed a Product hereunder. If
Distributor does not initiate commercial sales of such future Product within
ninety (90) days of regulatory clearance, then all rights to such product will
revert to LipoMatrix.
B. Distributor shall not represent or sell competitive products
in the Territory which, in LipoMatrix's opinion, are likely to conflict with
Distributor's obligation to use its reasonable commercial efforts to represent
and sell Products in the Territory.
C. Distributor shall not, directly or indirectly, solicit sales
of the Products outside the Territory. Distributor shall forward to LipoMatrix
all unsolicited inquiries relating to the Products or potential customers
outside of both the Territory and the territory, if any, covered by affiliates
of Distributor that are authorized to distribute Products.
D. The relationship of LipoMatrix and Distributor established by
this Agreement is that of independent contractors, and nothing contained in
this Agreement shall be construed to give either party the power to direct or
control the day-to-day activities of the other or allow one party to create or
assume any obligation on behalf of the other for any purpose whatsoever.
III. SPECIFIC RESPONSIBILITIES
A. MARKETING.
1. MARKETING EFFORTS. During the term of the Agreement,
Distributor shall use its reasonable commercial efforts to develop and exploit
the market and to sell the Products throughout the Territory.
2. MARKETING PLAN. Distributor shall complete, as soon
as practicable (but no later than ninety (90) days prior to the scheduled
commencement of sales), and thereafter, annually on or before March 31, a
comprehensive marketing plan for each country within the Territory.
3. PRINTED MATERIALS.
- 2 -
<PAGE> 11
a. Packaging. LipoMatrix will provide at its
expense all materials in and on the Product packages.
b. Risk Management Support Documents. The text
of the risk management documents, including the Patient Advisory and Consent
and the Supply Agreement, as of the date of this Agreement in the form attached
as Exhibit B hereto, but in the local language of the Territory, will be
provided by LipoMatrix, but printing and distribution expenses will be borne by
Distributor.
c. Sales and Promotional Literature.
Distributor will produce all sales and promotional literature, obtaining
LipoMatrix's prior approval of scientific and regulatory matters contained
therein. Distributor and LipoMatrix will cooperate on the development of such
materials.
4. TRADE SHOWS. Distributor shall use its reasonable
commercial efforts to attend major national and regional (i.e. regions in or
encompassing the Territory) trade shows and educational forums where similar or
competitive products are displayed and to present the Products fairly at such
shows and workshops.
5. CLINICAL REFERENCE ACCOUNTS. Distributor shall
endeavor to develop key clinical reference accounts with plastic surgeons who
are key opinion leaders within the Territory. This includes those leaders as
reasonably selected by LipoMatrix.
6. MARKETING AND SALES SUPPORT. In LipoMatrix's sole
determination, LipoMatrix personnel shall make periodic visits to the Territory
during the period of this Agreement, as necessary in order to monitor
administration, marketing and sales related to the Products. LipoMatrix shall
pay all transportation, meal, lodging, salary and related expenses for its
personnel in this regard. LipoMatrix shall use commercially reasonable efforts
to assist Distributor in locating and obtaining appropriate clinical expertise
at Distributor's reasonable request, for purposes of supporting Distributor's
marketing effort. The parties will mutually agree in advance on the amount and
duration of clinical education and the allocation of costs associated with such
clinical education.
B. PURCHASE QUOTAS, ORGANIZATION AND FORECASTS.
1. PURCHASE QUOTAS. The purchase quota for the first
Ordering Year shall be mutually agreed between the parties prior to first
Commercial Sale. Such purchase quota will be eighty percent (80%) of the
anticipated sales for the first Ordering Year. The purchase quota for the
second Ordering Year shall equal Distributor's actual purchases (in units) in
the first Ordering Year. The purchase quota for the third Ordering Year shall
equal Distributor's actual purchases (in units) in the second Ordering Year.
Quotas for subsequent Ordering Years shall equal the higher of actual purchases
(in units) or purchase quotas in the prior Ordering Year. Distributor agrees
to use reasonable commercial efforts to meet or exceed the purchase quotas as
set forth in this paragraph. In the event Distributor fails to meet or exceed,
on an aggregate basis, the purchase quotas for two (2) consecutive Ordering
Years beginning on or after the third Ordering Year, LipoMatrix may terminate
this Agreement for cause as provided in Section VI.C, provided, however, that
this termination option must be exercised within sixty (60) days of the
commencement of the next Ordering Year. Purchase quotas will be adjusted if
LipoMatrix is unable to supply Products due to regulatory constraints or
significant manufacturing delays.
- 3 -
<PAGE> 12
2. SALES ORGANIZATION AND TRAINING. Distributor shall
use reasonable commercial efforts to develop a sales organization that is
knowledgeable concerning the features of the Products and the relationship of
those features to the clinical benefits to potential customers within the
Territory. In connection with the sale of Products, at LipoMatrix's request,
Distributor shall make available an individual reasonably satisfactory to
LipoMatrix ("Distributor's Trainer") for sales training of Distributor's other
representatives. Training for Distributor's Trainer shall be provided, at
LipoMatrix's election, either in Switzerland or in the Territory, and will
occur before commencement of Commercial Sales, with training updates to be held
as needed. LipoMatrix shall pay the costs of the training (including the
transportation, meals, lodging, salary and related expenses of LipoMatrix
employees), and Distributor shall be responsible for all transportation, meals,
lodging, salary and related expenses of Distributor employees attending such
training.
3. QUARTERLY SALES INFORMATION AND FORECASTS. On a
quarterly basis, Distributor shall provide within ten (10) days after the end
of each calendar quarter a reasonably detailed quarterly sales and promotional
report to LipoMatrix.
On a monthly basis, within the first ten (10) days of
every month, Distributor shall provide LipoMatrix with a six (6) month (during
the first Ordering Year) and fifteen (15) month (thereafter) rolling forecast.
4. SALES LAUNCH SCHEDULE. Distributor shall commence
Commercial Sales of the Products in the Territory on __________, 199_.
Clinical or marketing trials may commence at any time by mutual agreement of
the parties and will not constitute a Commercial Sale.
C. LIPOMATRIX VISITS AND MARKETING REPRESENTATIVE. Upon
reasonable notice, Distributor shall permit and facilitate visits by LipoMatrix
personnel to Distributor's facilities to review compliance with specific
requirements of this Agreement, and to customer sites and to travel with
Distributor's sales personnel for training purposes.
Distributor shall permit the placement within Distributor's
organization of a part-time or full-time Product specialist by LipoMatrix, at
LipoMatrix's sole option and expense, for purposes of providing marketing and
risk management support. Office space will be provided for such individual by
Distributor. This requirement is waived as long as Distributor and its
affiliates collectively own at least twenty percent (20%) of the Common Stock
of LipoMatrix (on an as-converted basis) and the management of Distributor or
any of its affiliates is represented on the board of directors of LipoMatrix.
D. REGULATORY APPROVALS AND COMPLIANCE. LipoMatrix shall obtain
and own all regulatory approvals, certificates, registrations, licenses, and
permits related to the Products unless prohibited by local law. In the event
that necessary approvals, certificates, registrations, licenses and permits
required to sell and distribute the Products in the Territory are required by
local law to be owned by, or held in the name of Distributor, Distributor
agrees that upon termination of this Agreement for any reason, Distributor
shall immediately take all steps necessary to promptly transfer the ownership,
registration or entitlement of such registrations, certificates, licenses and
permits to LipoMatrix or its designee.
Distributor shall provide reasonable assistance to LipoMatrix
in order to obtain any and all applicable regulatory approvals required by
Governmental Agencies under the laws and/or regulations of any jurisdiction in
order to market the Products within Territory, including but not necessarily
limited to, meeting relevant standards and guidelines, preclinical, clinical
and safety
- 4 -
<PAGE> 13
approvals required by Government Agencies. LipoMatrix shall reimburse
Distributor for reasonable out-of-pocket expenses incurred by Distributor in
connection with such assistance provided such expenses are approved in advance.
LipoMatrix shall have the primary responsibility for
manufacturing compliance and Distributor for any distribution compliance
regarding any reporting or compliance matters in the Territory required of
distributors by Government Agency rules and regulations, including but not
limited to, recalls of the Products and reporting of adverse events involving
the Products. The parties shall share information to allow each party to
fulfill its compliance obligations hereunder.
Each party shall promptly inform the other of any changes in
regulatory or compliance status that might significantly affect the marketing
of the Products in the Territory. Each party shall inform the other within two
(2) working days of any actions taken by such party that could reasonably be
expected to affect the regulatory or compliance status of LipoMatrix or the
Products.
Distributor shall make all reasonable efforts to comply with
"Good Distribution Practices", as defined by EUCOMED, and with other
appropriate standards for review and approval of orders from its customers.
E. IMPORT LICENSES. Distributor shall obtain import and reexport
licenses and permits and take all other actions required in connection with the
import or reexport of Products purchased hereunder.
F. CUSTOMER FEEDBACK AND POST-MARKETING SURVEILLANCE.
Distributor shall use its commercially reasonable efforts to provide LipoMatrix
with assessments of customer requirements for Product modifications and
improvements. These assessments will focus on the quality, design, functional
capability and other features of the Products, with a view to maximizing the
potential market for such Products within the Territory.
Distributor will promptly furnish LipoMatrix with copies of
any written communications from its customers with respect to the use of its
Products, suggestions for modifications or improvement to the Products,
reliability of Products, performance of the Products, compliance with
specifications, and other pertinent information.
G. REGISTRY INFORMATION. On a monthly basis, Distributor will
provide to LipoMatrix a report which will provide such information defined by
LipoMatrix as necessary for maintenance of a registry of implants, including
but not limited to, the transponder numbers for those Products shipped to
customers or otherwise disposed of, including the transponder number and the
customer number of the physician, clinic or hospital to whom the Product was
sold. Distributor will provide LipoMatrix with an inventory reconciliation as
requested by LipoMatrix from time to time.
H. INVENTORY. Distributor agrees to maintain an inventory of
Products equivalent to three (3) months of forecast sales provided the Products
have a stated shelf life of at least twenty-four (24) months.
Distributor will maintain its inventory of Products in a
clean, secure and well organized facility. In addition, such storage space
will comply with environmental requirements,
- 5 -
<PAGE> 14
including temperature or other requirements, set forth on the labeling of the
Products, or other reasonable requirements notified from time to time by
LipoMatrix to Distributor.
Distributor will maintain records of the Products to enable
traceability of Products. Distributor will use an effective materials
management system for tracking its inventory and shipments of Products to its
customers.
I. RISK MANAGEMENT PROGRAM. Distributor recognizes that
LipoMatrix maintains an active program of risk management as set out in
Exhibits A and B attached to this Agreement (the "Risk Management Program").
The Risk Management Program may be changed by mutual agreement. Distributor
agrees to comply with the Risk Management Program and to use its best efforts
to assure compliance by Distributor's customers.
J. HEALTH AND SAFETY LAWS AND REGULATIONS. Distributor shall
comply fully with any and all applicable health and safety laws and regulations
of the Territory.
K. REPRESENTATIONS. Neither Distributor nor LipoMatrix shall
make any false or misleading representations to customers or others regarding
LipoMatrix or the Products. Distributor and its employees and agents shall not
make any representations, warranties or guarantees with respect to the
specifications, features or capabilities of the Products that are not
consistent with LipoMatrix's documentation accompanying the Products or
LipoMatrix's literature describing the Products, including LipoMatrix's
standard warranty and disclaimers. Distributor shall not make any commitments
or comments to its customers about possible future Product enhancements or
future Products without the written authorization of LipoMatrix.
L. WARRANTY. LipoMatrix warrants that each Product sold to
Distributor hereunder will (i) have any required regulatory clearance for
commercial sale in the Territory, (ii) be free from defects in materials and
workmanship, (iii) be designed in compliance with ISO 9001 design standards,
(iv) be manufactured, packaged, and labeled in accordance with the then
prevailing specifications, and (v) have a remaining shelf life at the date of
shipment of twenty-one (21) months when the stated shelf life from date of
manufacture is twenty-four (24) months (the "Warranty Period"). If Distributor
provides notice to LipoMatrix during the Warranty Period that a Product
breaches this warranty, Distributor shall, if requested by LipoMatrix, return
such Product to LipoMatrix for evaluation, or if not so requested, dispose of
such Product in accordance with LipoMatrix's instructions, and, if such Product
does breach this warranty, LipoMatrix will, in its sole discretion, either
repair or replace same, and reimburse Distributor for its reasonable return
freight incurred therefor, if any, or refund the purchase price.
This warranty does not cover defects or damage caused by
Distributor's misuse, abuse, alterations or failure to properly maintain,
handle and store any Products.
M. EXTENDED WARRANTY. In addition, an extended warranty will be
provided by LipoMatrix as set out in the Risk Management Program. All claims
pursuant to the extended warranty shall be made in a writing (including a
telecopy) stating (1) the name and address of the site at which the Product was
implanted, (2) the name and telephone number of the contact person at the site,
(3) the transponder number of the allegedly nonconforming Product, (4) the date
the Product was delivered to the site by Distributor, and (5) a reasonably
detailed description of the alleged nonconformity. The allegedly
non-conforming Product must be returned to LipoMatrix for evaluation.
LipoMatrix shall promptly advise Distributor of any changes in its extended
warranty.
- 6 -
<PAGE> 15
N. THE WARRANTY SET FORTH IN SECTIONS III.L AND III.M ABOVE IS
EXCLUSIVE AND NO OTHER WARRANTY, WHETHER WRITTEN, ORAL OR IN ANY COMMUNICATION
WITH DISTRIBUTOR, IS EXPRESSED OR IMPLIED. LIPOMATRIX MAKES NO WARRANTIES OR
REPRESENTATIONS AS TO PERFORMANCE OF THE PRODUCT TO DISTRIBUTOR OR TO ANY OTHER
PERSONS, EXCEPT AS SET FORTH HEREIN. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT
TO THE CONTRARY, LIPOMATRIX RESERVES THE RIGHT TO MODIFY THE EXTENDED WARRANTY
POLICY AND OBLIGATIONS SET FORTH HEREIN UPON NOTICE TO DISTRIBUTOR FROM TIME TO
TIME AS TO PRODUCTS ORDERED BY DISTRIBUTOR AFTER THE DATE OF SUCH NOTICE. ALL
IMPLIED WARRANTIES INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT (EXCEPT
AS SET FORTH IN SECTION VII) ARE HEREBY EXCLUDED. THE FOREGOING DISCLAIMERS
SHALL NOT AFFECT LIPOMATRIX'S OBLIGATIONS AS SET FORTH IN SECTIONS VII AND
VIII.
IV. TERMS AND CONDITIONS OF SALE
A. PRICES. Distributor and LipoMatrix shall, prior to launch in
the Territory, mutually agree on list prices for Distributor's sales of
Products to its customers. Prices charged by LipoMatrix to Distributor will
reflect a discount of fifty-five percent (55%) from the agreed upon list price
for the first Ordering Year and a discount of fifty percent (50%) thereafter.
Prices to Distributor for all Products shall be F.O.B. Swiss
manufacturing facility of LipoMatrix and shall exclude freight, taxes
(including, without limitation, export, import and local excise, sales, use,
property and other taxes, but excluding taxes imposed on LipoMatrix's net
income), insurance, duties and other governmental charges levied with respect
to the Products sold hereunder, all of which shall be paid by Distributor.
Prices may be changed at any time during the term of this Agreement, or any
extension or renewal thereof, by mutual agreement.
B. RESEARCH AND DEVELOPMENT FUND. While Distributor markets the
Products, Distributor shall pay to LipoMatrix an amount equal to five percent
(5%) of Distributor's net sales revenue from sales of Products, such payments
to be made for each month by the fifteenth day of the following month. Such
payments shall commence in respect of sales for the month of April 1997. The
payments, and the interest earned on them until expenditure, are intended to be
expended on mutually agreed research, development, clinical and manufacturing
programs for breast implant products and other products intended for use in
cosmetic or reconstructive breast surgery, and if such funding is not expended,
the funds shall revert to Distributor. LipoMatrix shall have full ownership of
the results of such programs; provided, however, if Distributor and its
affiliates beneficially own less than twenty percent (20%) of LipoMatrix,
LipoMatrix will pay Distributor a mutually agreed upon royalty for sales of
products incorporating the results of such programs outside the Territory and
other territories where Distributor and its affiliates are selling Products.
Distributor shall have the exclusive right to market in the Territory all
products developed with any use of such funds and any such product shall be
deemed a Product hereunder. If Distributor does not initiate commercial sales
of such Product within ninety (90) days of regulatory clearance, then all
rights to such product will revert to LipoMatrix.
C. PAYMENT TERMS
- 7 -
<PAGE> 16
1. LipoMatrix agrees to grant Distributor credit terms
for sales. Distributor agrees to pay to LipoMatrix the full amount of all
invoices net sixty (60) days from the invoice date. In the event that
Distributor does not promptly pay all invoices in accordance with this Section,
then the payment terms will revert to payment by irrevocable letter of credit
(or equivalent satisfactory to LipoMatrix) payable against shipping documents.
Accounts past due will be subject to a monthly service charge of one and
one-half percent (1.5%) of unpaid sum, but in no event to exceed the maximum
allowable by law.
2. All payments shall be in the local currency of the
Territory.
3. Distributor must give LipoMatrix written notice of
any discrepancies among the purchase order, the invoice, and Products received,
within thirty (30) days after receipt of Products or the invoice, whichever
occurs later.
4. If Distributor fails to make payment when due,
LipoMatrix may also decline to make further shipments until all above
indebtedness is paid, and/or alternatively may decline to make further
deliveries except for cash in advance of shipment or letter of credit
acceptable to LipoMatrix.
D. PRODUCT ORDERS. All orders for Products submitted hereunder
shall be initiated by purchase orders sent by regular mail, hand delivery,
airmail, courier mail, e-mail, or facsimile to LipoMatrix. LipoMatrix shall
respond to such orders by air mail, courier mail, e-mail, or facsimile within
reasonable time, not to exceed ten (10) days after receipt thereof. All
purchase orders submitted by Distributor to LipoMatrix shall identify the
Products ordered by Product number and quantity and the desired shipment date.
E. ORDER ACCEPTANCE. All purchase orders are subject to
acceptance by LipoMatrix at its Neuchatel office. LipoMatrix shall have no
obligation or liability to Distributor with respect to purchase orders which
are not accepted; however LipoMatrix shall not unreasonably reject any purchase
order. LipoMatrix shall use reasonable efforts to deliver Products covered by
accepted purchase orders at the times specified in the corresponding quotation
or written acceptance of Distributor's purchase order.
Any orders in the ordinary course of business, consistent with
normal ordering practices, that are rejected by LipoMatrix shall be deducted
from the purchase quota for such Ordering Year as set forth in Section III.B.1.
Distributor's purchase orders hereunder shall be governed by
the terms and conditions of this Agreement. Nothing contained in any purchase
order shall in any way modify or add any terms or conditions of sale.
F. CANCELLATION/RESCHEDULING. Distributor may, at its option and
subject to the provisions of this Section, either reschedule delivery of any
Products or cancel any order or portion thereof, upon written notice to
LipoMatrix. A "reschedule" is defined as changing all or any portion of those
Products scheduled for shipment on any ship date by moving the ship date later
in time. Distributor shall have a right to cancel or reschedule any order for
later shipment provided such request is received by LipoMatrix at least thirty
(30) days in advance of the original ship date. Rescheduling or cancellation
requests made Distributor within thirty (30) days of the original ship date are
subject to LipoMatrix's approval.
- 8 -
<PAGE> 17
G. COUNTRY SHIPMENTS. Products sold to Distributor in the
Territory will not be transferred by Distributor outside the Territory without
the written notification to LipoMatrix and an appropriate billing adjustment to
reflect any difference in prices between countries. Such transfers out of the
Territory will only be permitted to countries in a territory covered by a
distributor that is an affiliated company of Distributor.
V. ACQUISITION AND USE OF DEMONSTRATION PRODUCT AND TRANSPONDER READERS
A. Products will be provided without charge to Distributor for
Distributor's exclusive use in selling and marketing of Products within the
Territory, in such limited quantities as are determined by mutual agreement.
B. Transponder readers will be loaned to Distributor for use in
tracking inventory and for demonstration use with customers, in such limited
quantities as are determined by mutual agreement.
VI. TERM AND TERMINATION
A. TERM. This Agreement shall commence upon the Effective Date
and shall expire ten (10) years after first Commercial Sale, unless renewed or
terminated as provided below.
B. RENEWAL. Unless terminated in the manner provided below, the
term of this Agreement shall be extended automatically for successive one (1)
year periods, unless either party elects not to renew by written notice to the
other party at least ninety (90) days prior to the conclusion of the initial
term hereof or any such renewal period, as the case may be. Either party may
elect not to renew this Agreement for any or no reason.
C. TERMINATION FOR CAUSE. Either party shall have the right to
terminate this Agreement at any time effective upon written notice, in the
event of (1) breach by the other party of any of the terms and conditions
hereof and failure to correct the breach within the thirty (30) days of written
notice thereof; (2) the other party becoming generally unable to obtain
necessary licenses; or (3) Force Majeure which suspends or delays performance
of this Agreement for more than ninety (90) days from the beginning of such
event.
It is recognized by the parties that the Risk Management
Program (see Section III.A.3.b) is an essential element of this Agreement.
Failure by either party to adhere to its provisions or to use best efforts to
implement it, may be used as grounds for termination of this Agreement for
cause under this Section.
In the event of a substantial change in ownership of
Distributor, or the continued failure by Distributor to meet the purchase
quotas as specified in Section III.B.1, LipoMatrix shall have the right to
terminate this Agreement upon thirty (30) days written notice.
In the event that LipoMatrix is acquired by a third party,
LipoMatrix shall have the right to terminate this Agreement upon thirty (30)
days written notice.
Either party shall have the right to terminate this Agreement,
by written notice taking immediate effect, if the other party becomes
insolvent, or if there are instituted by or against the other party proceedings
in bankruptcy or under insolvency similar laws or for reorganization,
- 9 -
<PAGE> 18
receivership or dissolution. Any such termination shall not relieve either
party from any payment obligation which accrued prior to such termination.
D. CANCELLATION AND REPURCHASE OPTIONS. Upon expiration or
termination of this Agreement, any or all unfilled orders shall be cancelled.
LipoMatrix reserves the right at its sole option to repurchase from Distributor
any or all Products unsold by Distributor, at a mutually agreed upon price,
which in any case shall not exceed the landed price Distributor paid LipoMatrix
for Products to be repurchased. In the event LipoMatrix fails to repurchase
such Products, Distributor shall have the right to continue to sell its
existing inventory of such Products for a reasonable period following such
expiration or termination.
E. RETURN OF MATERIALS. Upon expiration or termination of this
Agreement, Distributor shall return to LipoMatrix, at LipoMatrix's expense, all
sales promotional materials and aids and any tools or equipment loaned or
furnished to Distributor pursuant to this Agreement.
F. EFFECT OF TERMINATION. In the event of termination by either
party in accordance with any of the provisions this Agreement, or expiration of
this Agreement, neither party shall be liable to the other, because of such
termination or expiration, for compensation, reimbursement or damages on
account of the loss of prospective profits or anticipated sales or on account
of expenditures, inventory, investments, leases, or commitments in connection
with the business or goodwill of LipoMatrix or Distributor, occurring as a
result of such termination or expiration, or incurred in anticipation of
renewal.
VII. PATENT INDEMNITY
LipoMatrix will defend any suit brought against Distributor based on a
claim that the Product furnished under this Agreement infringes any patent or
trademark, and will pay all damages and costs that a court awards against
Distributor as a result of such claim and any payments made in settlement of
such claim, provided that Distributor gives LipoMatrix: (a) prompt written
notice of such suit; (b) full control over the defense or settlement thereof;
and (c) all reasonable information and assistance (at LipoMatrix's expense
excluding time spent by employees or consultants of the Distributor) to handle
the defense and settlement thereof.
If the Products, or any part thereof, are, or in the opinion of
LipoMatrix may become, the subject of any claim, suit or proceeding for
infringement of any patent or trademark, or in the event of any adjudication
that the Products, or any part thereof, infringe any patent or trademark, or if
the sale or use of Products, or any part thereof, is enjoined, LipoMatrix may,
at its option and expense: (a) procure for Distributor and its customers the
right under such patent or trademark to use or sell as appropriate the Products
or such part thereof; or (b) replace the Products, or part thereof, with other
suitable Products or parts; or (c) suitably modify the Products or part
thereof, or (d) if none of the foregoing are commercially practicable, refund
the amounts paid therefore by Distributor, and recover possession of such
Products. LipoMatrix shall not be liable for any costs or expenses incurred
without its prior written authorization.
Notwithstanding the provisions of the preceding paragraphs, LipoMatrix
shall not be liable to Distributor or its customers for: (a) infringement of
patent claims covering the usage of LipoMatrix Products in a manner not
intended under this Agreement; (b) any trademark infringements involving any
marking or branding applied by LipoMatrix or involving any marking or branding
applied at the request of Distributor, except if such marking or branding is
owned by LipoMatrix; (c) the modification of Products, or any part thereof,
unless such modification was
- 10 -
<PAGE> 19
made by LipoMatrix; or (d) the combination, operation or use of the Product
with other products not furnished by LipoMatrix to the extent such claim would
not have arisen had such combination, operation or use not occurred.
THE FOREGOING PROVISIONS OF THIS SECTION VII STATE THE ENTIRE
LIABILITY AND OBLIGATIONS OF LIPOMATRIX, AND THE EXCLUSIVE REMEDIES OF
DISTRIBUTOR AND ITS CUSTOMERS WITH RESPECT TO ANY ALLEGED INFRINGEMENT OF
PATENTS, COPYRIGHTS, TRADEMARKS, OR OTHER INTELLECTUAL PROPERTY RIGHTS, BY THE
PRODUCTS OR ANY PART THEREOF.
VIII. PRODUCT LIABILITY
A. INDEMNITY BY DISTRIBUTOR. Distributor shall indemnify and
hold LipoMatrix harmless from and against any and all liability, damage, loss,
cost, expense (including reasonable attorney's fees), regulatory penalties and
enforcement actions resulting from any claims made or suits brought against
LipoMatrix, its employees, directors and customers which arise or result solely
from Distributor's marketing, distribution, handling and shipping of the
LipoMatrix Products, or from Distributor's negligence or willful misconduct.
LipoMatrix shall promptly notify Distributor of any such claim or suit and
shall permit Distributor at Distributor's cost and expense, to handle and
control such claim or suit.
B. INDEMNITY BY LIPOMATRIX. LipoMatrix shall indemnify and hold
Distributor harmless from and against any and all liability, damage, loss, cost
or expense (including reasonable attorney's fees) resulting from any claims
made or suits brought against Distributor, its owners, employees, directors and
customers which arise or result solely from LipoMatrix's design, handling and
shipping of the LipoMatrix Products, or failure to manufacture the LipoMatrix
Products in accordance with agreed upon specifications, FDA Good Manufacturing
Practices or other applicable standards for medical device manufacturers, or
from negligence or willful misconduct. Distributor shall promptly notify
LipoMatrix of any such claim or suit and shall permit LipoMatrix at
LipoMatrix's cost and expense, to handle and control such claim or suit.
C. APPORTIONMENT OF DAMAGES. In the event that any liability,
damage, loss, cost or expense (including reasonable attorney's fees) as
aforesaid cannot be established (with respect to final judgments of a court of
competent jurisdiction from which no appeal is or can be taken as well as
settlements made prior to, during or following termination of litigation to
which the parties have expressly agreed in writing) to have resulted solely
from the actions or failures to act of LipoMatrix or Distributor or their
affiliates, responsibility for payment of such liability, damage, loss, cost or
expense (including reasonable attorney's fees) will be apportioned between
LipoMatrix and Distributor according to the contribution of either party to the
damage; and if such allocation is not mutually agreed, then it will be
determined by mandatory binding arbitration.
D. PRODUCT LIABILITY INSURANCE. LipoMatrix shall use its
reasonable commercial efforts to secure product liability insurance in the
amount of five million dollars ($5,000,000), to the extent this is available on
commercially reasonable terms. LipoMatrix shall have Distributor named as an
additional insured on its product liability insurance policy. If LipoMatrix is
unable to secure or maintain such insurance, Distributor may terminate this
Agreement. The parties agree to review the possibility of increasing the
amount of such insurance if increases in sales so warrant.
- 11 -
<PAGE> 20
IX. LIMITATION OF LIABILITY
IN NO EVENT, WHETHER THE CAUSE OF ACTION BE BASED IN CONTRACT OR TORT
(INCLUDING NEGLIGENCE) OR ANY OTHER LEGAL OR EQUITABLE THEORY SHALL EITHER
PARTY BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, INDIRECT, SPECIAL OR PUNITIVE
DAMAGE OF ANY KIND, OR FOR LOSS OF REVENUE, LOSS OF BUSINESS OR OTHER FINANCIAL
LOSS ARISING OUT OF OR IN CONNECTION WITH THE SALE, USE, PERFORMANCE, FAILURE
OR INTERRUPTIONS OF ITS PRODUCTS. NOTWITHSTANDING ANY OTHER PROVISION OF THIS
AGREEMENT, LIPOMATRIX'S MAXIMUM LIABILITY FOR DAMAGES HEREUNDER SHALL NOT
EXCEED THE PURCHASE PRICE OF THE PRODUCTS PURCHASED DURING THE TERM OF THIS
AGREEMENT. THE FOREGOING LIMITATIONS SHALL NOT AFFECT EITHER PARTY'S DUTY TO
INDEMNIFY THE OTHER PARTY FOR THIRD-PARTY SUITS FOR SUCH DAMAGES, AS SET FORTH
IN SECTIONS VII AND VIII.
THE DISCLAIMER OF LIABILITY FOR DAMAGES WILL NOT BE AFFECTED IF ANY
REMEDY PROVIDED HEREUNDER SHALL FAIL OF ITS ESSENTIAL PURPOSE. DISTRIBUTOR HAS
ACCEPTED THE DISCLAIMER OF LIABILITY FOR DAMAGES AS PART OF A BARGAIN TO LOWER
THE PRICE OF THE PRODUCTS AND UNDERSTANDS THAT THE PRICE OF THE PRODUCTS WOULD
BE HIGHER IF LIPOMATRIX WERE REQUIRED TO BEAR ADDITIONAL LIABILITY FOR DAMAGES.
X. NO RIGHT TO MANUFACTURE OR COPY
The Products are offered for sale and are sold by LipoMatrix subject
in every case to the condition that such sale does not convey or license to
Distributor, expressly or by implication, the right to manufacture, duplicate
or otherwise copy or reproduce any of the Products. Distributor shall take
appropriate steps with customers, as mutually agreed, to inform them of, and
both parties shall, as mutually agreed, assist each other in assuring
compliance with, the restrictions contained in this Section.
XI. INTELLECTUAL PROPERTY RIGHTS
A. SOLE PROPERTY OF LIPOMATRIX. Distributor agrees that
Intellectual Property Rights are and shall remain sole property of LipoMatrix
and that LipoMatrix owns all right, title and interest in the product lines
which include the Products now or hereafter subject to this Agreement. The use
by Distributor of any Intellectual Property Rights, including, but not limited
to any patent, invention, trademark, trade name, trade secret or copyrighted
material, is authorized only for the purposes herein set forth. Upon
termination of this Agreement for any reason, authorization shall cease.
Distributor agrees that the Products contain a device
identification system (including software) which is proprietary to LipoMatrix.
LipoMatrix at all times retains ownership of and title to the device
identification system supplied with the Product, and to the trade secrets
embodied in such technology.
Subject to Distributor's acceptance of the obligations
contained in this Section, and to the fulfillment of these obligations,
LipoMatrix grants Distributor a non-exclusive license to use
- 12 -
<PAGE> 21
the device identification system included with the Products solely in the form
and on the medium in which program is delivered for the purposes of operating
the Product in accordance with the instructions set forth in the Instructions
for Use supplied with the Product, and for no other purposes whatsoever.
Distributor may not decompile, reverse engineer or reverse assemble such
technology, nor may it make a copy of such program or apply any techniques to
derive the trade secrets embodied therein.
B. USE OF LIPOMATRIX NAME AND TRADEMARKS. During the term of
this Agreement, Distributor shall have the right to indicate to the public that
Distributor is an authorized distributor of LipoMatrix's Products and to
advertise within the Territory such Products under the LipoMatrix Trademarks.
Distributor shall not alter or remove any LipoMatrix Trademark applied to the
Products at the factory. At no time during or after the term of this Agreement
shall Distributor challenge or assist others to challenge the LipoMatrix
Trademarks or registration thereof or attempt to register any trademarks, marks
or tradenames confusingly similar to those of LipoMatrix.
C. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Distributor and
LipoMatrix acknowledge that by reason of their relationship hereunder they will
have access to certain information and materials concerning each other's
business, plans, customers and products (including Trade Secrets and Technical
Data provided to Distributor) which are confidential and of substantial value
to Distributor and LipoMatrix, which value would be impaired if such
information were disclosed to third parties.
Each party agrees that it shall not use in any way for its own
account or the account of any third party, nor disclose to any third party, any
such confidential information which is revealed to it by the other party. The
receiving party shall take every reasonable precaution to protect the
confidentiality of such information, which in no event shall be less than the
efforts exercised by such party with respect to its own confidential business
information. Distributor and LipoMatrix shall advise each other in the event
that either party considers particular information or materials to be
confidential. Distributor shall not publish any technical description of the
Products beyond the description published by LipoMatrix.
In the event of expiration or earlier termination of this
Agreement, there shall be no use or disclosure by Distributor or LipoMatrix of
any confidential information, and Distributor shall not manufacture, or have
manufactured, devices, components or assemblies utilizing any of LipoMatrix's
Intellectual Property Rights.
XII. GENERAL
A. COUNTERPARTS AND GOVERNING LAW. This Agreement may be
executed in counterparts, and shall be governed by the laws of Switzerland,
without regard to conflicts of law. Distributor hereby agrees to submit to the
jurisdiction of an appropriate court within Vaud, Switzerland, and agrees that
service of documents commencing any legal action may be made on Distributor in
the manner provided for giving notice hereunder
B. COMPLETE AGREEMENT. This Agreement is intended as the
complete, final and exclusive statement of the terms of agreement between the
parties and supersedes any and all agreements between them relating to the
subject matter hereof. No modification, change or amendment to this Agreement,
nor any waiver of any rights in respect hereto, shall be effective unless in
writing and signed by the party to be charged, unless explicitly permitted by
the terms of
- 13 -
<PAGE> 22
this contract. The waiver of breach or default hereunder shall not constitute
the waiver of subsequent breach or default.
C. FORCE MAJEURE. Notwithstanding anything in this Agreement to
the contrary, other than the obligation to pay money, the obligations of either
party under this Agreement, including purchase quotas, shall be excused during
any continuing event which is beyond the reasonable control of such party,
including without limitation, strike, fire, war, rebellion, natural
disasters/Acts of God, embargo, governmental order or restriction, or inability
for any other reason to supply or deliver Products due to unnatural or
commercially impractical circumstances.
D. NOTICE. Any notice or report required or permitted under this
Agreement shall be deemed given if delivered personally or if sent by either
party to the other by registered or certified mail, postage prepaid, or
internationally recognized courier, for overnight delivery, addressed to the
other party at its address first set forth above or at such other address to
which such party shall give notice hereunder. If by mail, delivery shall
effective five (5) days after deposit with postal authorities.
E. ASSIGNMENT. Distributor shall not assign this Agreement
nor any rights hereunder without the prior written consent of LipoMatrix,
granted in LipoMatrix's sole discretion. Subject to the foregoing, this
Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. LipoMatrix shall be entitled to assign its
interest in this Agreement in connection with a merger or other business
combination in which LipoMatrix is not the surviving entity.
F. ENGLISH AS LANGUAGE OF AGREEMENT. The original of this
Agreement has been written in English. Distributor waives right it may have
under the law of Distributor's country to have this Agreement written in any
language other than English.
G. SEVERABILITY. In the event any provision of this Agreement is
found to be invalid, illegal or unenforceable, the validity, legality and
enforceability of any of the remaining provisions shall not in any way be
affected or impaired thereby.
H. SURVIVAL. The obligations and duties listed in the Sections
titled "Warranty", "Patent Indemnity", "Limitation of Liability", "No Right to
Manufacture or Copy", "Product Liability" and "Intellectual Property Rights"
shall survive any termination or expiration of this Agreement and shall remain
in effect for a period of ten (10) years thereafter.
- 14 -
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
LIPOMATRIX, INCORPORATED COLLAGEN _____________________________
("LIPOMATRIX") ("DISTRIBUTOR")
By:__________________________________ By:___________________________________
(signature) (signature)
Printed Name: Terry R. Knapp, M.D. Printed Name: Neville Pelletier
Title: President & CEO Title: Director
- 15 -
<PAGE> 24
EXHIBIT A
RISK MANAGEMENT PROGRAM
Confidential treatment requested for this exhibit.
<PAGE> 25
EXHIBIT B
RISK MANAGEMENT SUPPORT DOCUMENTS
* Confidential treatment requested for this exhibit.
<PAGE> 26
EXHIBIT B
CI SUBSIDIARIES
<TABLE>
<CAPTION>
TERRITORY COMPANY/ADDRESS
- -------------------------------------------------- -------------------------------------------
<S> <C>
Australia/New Zealand Collagen Biomedical Pty. Ltd.
Unit 1, Chullora Central
Corner Brunker Rd & Anza St.
Chullora NSW 2190
Austria Collagen Vertriebe biomedizinischer
Produkte GmbH
Schloss Essling
Esslinger Hauptrasse 81-87
1228 Wien
Belgium/Luxembourg Collagen S.A.
Avenue Winston Churchill 22
1180 Brussels
Canada Collagen Canada Ltd.
1235 Bay Street
Suite 500
Toronto, Ontario M5R 3K4
France Collagen France S.a.r.l.
113 rue Victor Hugo
92300 Levallois-Perret
Germany Collagen GmbH
Oskar-Messter-Strasse 22
85737 Ismaning
Italy Collagen S.r.l.
Via Ripamonti, 66
20141 Milan
Netherlands Collagen BV
Marksingel 2C
NL-4811 NV Breda
Switzerland/Lichtenstein Collagen S.A.
Avenue Gratta Paille 2
1000 Lausanne 30 Grey
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
TERRITORY COMPANY/ADDRESS
- -------------------------------------------------- -------------------------------------------
<S> <C>
United Kingdom/Ireland Collagen (UK) Ltd.
The Business Centre
6, Bertie Road
Thame OX 9 3FR - Oxon
</TABLE> - 2 -
<PAGE> 1
EXHIBIT 10.74
PROMISSORY NOTE
$150,000 Palo Alto, California
June 5, 1995
FOR VALUE RECEIVED, the undersigned, Howard D. Palefsky
("Borrower"), promises to pay to Collagen Corporation, a Delaware corporation
("Lender"), or order, at 2500 Faber Place, Palo Alto, CA 94303, or at such
other place as Lender may from time to tome designate in writing, the sum of
one hundred and fifty thousand dollars ($150,000).
Interest will be accrued quarterly on the outstanding principal
balance at the lower of: Ten percent (10%) per annum, or the prime rate as of
the last day of the calendar quarter, as reported in the Wall Street Journal.
All accrued interest will be paid annually, on September 1 of each year.
Fifty percent (50%) of each performance bonus (e.g., the MBR bonus)
awarded to the undersigned will be retained by the Company and deducted from
the loan balance for the next five years, until the loan is paid in full; and
upon the fifth anniversary date of the note, the entire balance of principal
and interest if any, will be due and payable.
If Borrower's employment with the Lender terminates for any reason,
the then outstanding principal balance of this Note, and interest accrued
thereon shall become due and payable immediately. Borrower hereby acknowledges
that the amounts of principal reduced hereunder and any interest imputed to
Borrower under the Internal Revenue Code of 1986, as amended, will be taxable
income to Borrower and, as such will be subject to all applicable federal state
and local tax withholding requirements.
As security for the payment of the principal and accrued interest on
this Note and any renewal, extension or modification thereof, Borrower hereby
grants to Lender a first priority security interest in any and all shares of
Lender's capital stock currently held or hereafter acquired by or on behalf of
Borrower ("Pledged Shares"). Borrower covenants and agrees to promptly deliver
all certificates or other evidences of Pledged Shares to Lender and to take
such further actions and execute such further documents as may be necessary for
Lender to perfect its security interest in the Pledged Shares.
Amounts due under this Note shall be payable in lawful money of the
United States of America and in immediately available funds. All payments
under this Note shall be applied first to any accrued and unpaid interest and
then to principal. Borrower shall have the right to pay, without penalty or
premium, all or any portion of the outstanding principal amount of this Note at
any time.
Borrower waives presentment, protest and demand, and notice of
protest, demand, dishonor and nonpayment of this Note and diligence in taking
any action to collect any amounts owing under this Note by proceeding against
any of the rights securing the payment of this Note. If action is instituted
on this Note, Borrower agrees to pay such reasonable sum as attorney's fees as
the court may fix and award in such action.
This Note shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, Borrower has executed this Note as of the date
first written above.
/s/ REID W. DENNIS /s/ HOWARD D. PALEFSKY
- ------------------------------------- -------------------------------------
Acknowledged and accepted by:
Reid W. Dennis -------------------------------------
Chairman Emeritus
Chairman of Executive Committee
<PAGE> 1
EXHIBIT 10.75
July 10, 1995
Benson F. Smith
Executive V.P. & Chief Operating Officer
C.R. Bard, Inc.
730 Central Avenue
Murray Hill, NJ 07974
Dear Benson:
When accepted on behalf of C.R. Bard, Inc. ("BARD") and returned to Collagen
Corporation ("COLLAGEN"), this letter will constitute a formal agreement between
our companies concerning the subject matter of this letter agreement.
BARD and COLLAGEN, the "parties" to this agreement, agree as follows:
1. DEFINITIONS. Terms which are capitalized but not defined in this letter will
have the meaning given such terms in the Amended and Restated Development and
Distribution Agreement between BARD and COLLAGEN, as amended August 4, 1989 (the
"1989 AGREEMENT"), or in the INITIAL PRODUCT AGREEMENT between BARD and
COLLAGEN, as amended and restated August 4, 1989 (the "INITIAL PRODUCT
AGREEMENT") as applicable.
2. PURCHASE COMMITMENT AND REPLACEMENT. After June 30, 1995, BARD shall have no
obligation to make minimum purchases of Product from COLLAGEN. The obligation of
COLLAGEN under paragraph 5 of the October 7, 1994, letter agreement between the
parties (the "October 7th Letter Agreement") to replace expired units shall
apply only to purchases of Product by BARD between July 1, 1994, and June 30,
1995, subject to BARD maintaining appropriate "first in first out inventory"
(FIFO) management at all times for Product purchased from COLLAGEN.
3. INVENTORY CARRYING COSTS. The obligation in paragraph 3 of the October 7th
Letter Agreement providing for COLLAGEN to reimburse BARD's inventory carrying
costs shall remain in effect, but only for Product purchased by BARD through
June 30, 1995. For purchases of Product by BARD between July 1, 1994, and June
30, 1995, the payment terms shall remain net ninety (90) days. For purchases of
Product by BARD from and
** Confidential treatment requested for a portion of this document.
Page 1
<PAGE> 2
after July 1, 1995, payment terms shall revert to net thirty (30) days. The
credit for the net ninety (90) day terms on purchases of Product between July 1,
1994 and June 30, 1995 shall continue to apply to reducing the amount of the
inventory carrying costs pursuant to paragraph 3 of the October 7th Letter
Agreement. After June 30, 1995, COLLAGEN shall reimburse BARD for the inventory
carrying costs for Products purchased from July 1, 1994 through June 30, 1995,
in accordance with the October 7th Letter Agreement, but shall reimburse BARD in
cash net thirty (30) days following receipt of notice from BARD, due to the
dissolution of the R&D FUND as set forth in paragraph 4 below.
4. R&D FUND DISSOLUTION AND DISTRIBUTIONS. Section 8 (c)(ii)(aa) and (bb) of the
1989 AGREEMENT currently provides for an R&D FUND into which BARD is obligated
to deposit an amount equal to four percent (4%) of the NET SALES PRICE of
PRODUCT sold during the previous calendar quarter if and for so long as the
balance in the R&D FUND is less than $5,000,000. The parties hereby agree that
effective as of the close of business on June 30, 1995 (the "Dissolution Date"),
BARD's obligations to make contributions into the R&D FUND shall cease to
accrue, and the R&D FUND shall be dissolved; provided that this shall not
relieve BARD of the obligation to contribute all amounts owing to the R&D FUND
as a result of Product sales on or before the Dissolution Date. The balance of
the R&D FUND on the Dissolution Date, as adjusted by virtue of deposits into the
R&D FUND by BARD based on Product sales through the Dissolution Date, shall be
adjusted by adding thereto the total of BARD's Product inventory carrying costs
(as described in the October 7th Letter Agreement) which COLLAGEN has elected to
have deducted from R&D FUND contributions which, but for the October 7th Letter
Agreement between the parties, BARD would have been required to make (the
"Adjusted R&D FUND"). Fifty percent (50%) of the Adjusted R&D FUND will be
distributed to BARD within thirty (30) days of the Dissolution Date. The balance
remaining in the R&D FUND, after such distribution to BARD, will be distributed
to COLLAGEN within thirty (30) days of the Dissolution Date. After the
Dissolution Date, neither party shall have any further obligations to the other
party with respect to the R&D FUND, and the provisions of Section 8
(c)(ii)(aa)(bb)(cc) and (dd) of the 1989 AGREEMENT shall be deemed terminated,
effective as of the close of business on the Dissolution Date.
5. INCREASE OF ROYALTY TO COLLAGEN. In consideration of the dissolution of the
R&D FUND as described in paragraph 4 above, COLLAGEN's royalty as set forth in
Section 3 (c) of the INITIAL PRODUCT AGREEMENT shall be permanently increased by
** over the rates stated in such section, such increase to be effective with
respect to sales of Product on and
** Confidential treatment requested for a portion of this document.
Page 2
<PAGE> 3
after July 1, 1995. Accordingly, effective as of July 1, 1995, Sections 3
(c)(iii) and 3 (c)(iv) of the INITIAL PRODUCT AGREEMENT are hereby amended to
read as follows:
Section 3 (c)(iii) For COMMERCIAL SALES of the Product by BARD
during the second twelve months after the date of PMA Approval, the
royalty shall be the difference (if any) between (A) ** of the NET
SALES PRICE of the Product and (B) the price paid by BARD for the
Product pursuant to Section 3 (a) above;
Section 3 (c)(iv) For COMMERCIAL SALES of the Product by BARD
during the third twelve months after the date of PMA Approval and
thereafter, the royalty shall be the difference (if any) between (A) **
of the NET SALES PRICE of the Product and (B) the price paid by BARD
for the Product pursuant to Section 3 (a) above;
6. AMENDMENT TO OCTOBER 12, 1994, LETTER AGREEMENT. In order to reflect the
latest financial calculations, the letter agreement between the parties dated
October 12, 1994, reflecting certain royalty adjustments is restated as follows:
ALLOCATION OF VARIABLE OVERHEAD, LABOR, AND MATERIAL COSTS. Subject to
the terms of this amendment, BARD and COLLAGEN hereby agree that
effective January 1, 1995, BARD shall have the right to deduct the sum
of ** from the NET SALES PRICE of Product sold in packages of six (6)
syringes prior to calculating the royalty payable pursuant to Section
3(c) of the INITIAL PRODUCT AGREEMENT. The parties hereby acknowledge
that: (a) BARD's current net selling price of Product sold in packages
of six (6) syringes is $1,800, and (b) at the time of sale of Product,
BARD furnishes purchasers with a periurethral delivery device as
described in BARD order number 651010 (hereinafter the "periurethral
delivery device") or a transurethral delivery device, as described in
BARD order number 651015 (hereinafter the "transurethral delivery
device"), and (c) BARD's current cost for the periurethral device is
**, which cost is comprised of ** for variable overhead and ** for
direct labor and material costs, and (d) BARD's current cost for the
transurethral delivery device is **, which cost is comprised of ** for
variable overhead and **for direct labor and material costs, and (e)
the deduction of ** from the NET SALES PRICE of Product sold in
packages of six (6) syringes has been arrived at based upon
** Confidential treatment requested for a portion of this document.
Page 3
<PAGE> 4
COLLAGEN hereby agreeing to bear ** of the average of BARD's variable
overhead, direct labor, and material costs for the periurethral
delivery device and transurethral delivery device.
AUDIT. BARD hereby grants COLLAGEN the right, at COLLAGEN's expense, to
have Ernst & Young, or at COLLAGEN's option, an alternate accounting
firm chosen by COLLAGEN and reasonably acceptable to BARD, or COLLAGEN'
internal auditors, audit BARD's records relating to its variable
overhead, direct labor, and material costs relating to the periurethral
delivery device and transurethral delivery device.
FUTURE ADJUSTMENTS. Notwithstanding the above provisions of this
Paragraph 6, if the result arrived at by adding BARD's future variable
overhead, direct labor, and material costs for the periurethral
delivery device and BARD's future variable overhead, direct labor, and
material costs for the transurethral delivery device, dividing such sum
by two (2) and multiplying the result by .5 is less than **, BARD shall
deduct such result from the NET SALES PRICE of Product sold in packages
of six (6) syringes prior to calculating the royalty due to COLLAGEN
pursuant to Section 3(c) of the INITIAL PRODUCT AGREEMENT in lieu of
deducting **. In the event, after COLLAGEN's acceptance of this
amendment, BARD's average variable overhead, direct labor, and material
costs for the periurethral device and transurethral device exceed **,
BARD shall so notify COLLAGEN and shall include in its notice
documentation supporting such increase(s). In the event BARD issues a
notice to COLLAGEN pursuant to the preceding sentence, the parties
hereby agree to negotiate in good faith an increase, based upon the
documentation provided to COLLAGEN, in the deduction from the NET SALES
PRICE which BARD is then permitted to take hereunder prior to the
calculation of the royalty payable pursuant to Section 3(c) of the
INITIAL PRODUCT AGREEMENT. Notwithstanding the preceding sentence, in
the event the parties are unable to reach an agreement on any such
increase within a reasonable time following BARD's notice, then at
BARD's option, either (a) the treatment of NET SALES PRICE of Product
shall revert to the original terms of the INITIAL PRODUCT AGREEMENT or
(b) the treatment of NET SALES PRICE of Product shall revert to a **
deduction per six (6) syringe package of Product. The provisions
contained herein shall not apply to any other delivery device unless
the parties expressly agree otherwise.
** Confidential treatment requested for a portion of this document.
Page 4
<PAGE> 5
All provisions of the 1989 AGREEMENT, the INITIAL PRODUCT AGREEMENT, the October
7th Letter Agreement, and the October 12, 1994, letter agreement between the
parties which are not inconsistent with this letter agreement shall remain in
full force and effect. If the above terms reflect our agreement on this subject,
would you please sign on behalf of COLLAGEN in the space provided below and
return a fully-executed copy to me for our records.
Nothing contained herein is intended, nor shall anything contained herein be
deemed or construed as modifying the exclusivity in Section 5(a) of the 1989
AGREEMENT with respect to Product specified in Section 1 of the INITIAL PRODUCT
AGREEMENT or otherwise.
Sincerely,
COLLAGEN CORPORATION
/s/ William C. Miller
William C. Miller
Vice President and General Counsel
Accepted on behalf of C.R. Bard, Inc.:
By: /s/ Benson F. Smith
---------------------------------------------
Title: Executive Vice-President & Chief Operating Officer
--------------------------------------------------
** Confidential treatment requested for a portion of this document.
Page 5
<PAGE> 1
EXHIBIT 11.1
COLLAGEN CORPORATION
Statement Regarding Weighted Average Common
and Common Equivalent Shares Used in
Computation of Per Share Income
<TABLE>
<CAPTION>
Years Ended June 30, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net income $8,760 $4,920 $ 8,743
=============================================
Primary
- -------
Common Stock 9,270 9,592 9,957
Stock Options (treasury stock method) 190 304 310
---------------------------------------------
Weighted average number of common and common equivalent
shares outstanding 9,460 9,896 10,267
=============================================
Earnings per share - primary $.93 $.50 $.85
=============================================
Fully Diluted
- -------------
Common Stock 9,270 9,586 9,957
Stock Options (treasury stock method) 211 321 321
---------------------------------------------
Weighted average number of common and common equivalent
shares outstanding 9,481 9,907 10,278
=============================================
Earnings per share - fully diluted NA* NA* NA*
=============================================
</TABLE>
__________________________________
* Not applicable - dilution less than 3%.
<PAGE> 1
EXHIBIT 21.1
COLLAGEN CORPORATION
Subsidiaries* of Collagen Corporation
The Registrant owns the following percentages of the outstanding voting
securities of the following corporations, which are included in the
Registrant's consolidated financial statements (other than Target Therapeutics,
Inc. which is accounted for under the equity method in years ended June 30,
1995, 1994, and 1993).
<TABLE>
<CAPTION>
Percent Ownership
of Outstanding
Voting Securities
@ September 1,
1995**
Name Jurisdiction of Incorporation
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Target Therapeutics, Inc. 24% Delaware
Collagen International, Inc. 100% Delaware
Collagen Biomedical Pty., Limited 100% Australia
Collagen Vertrieb biomedizischer Produkte Ges m.b.H. 100% Austria
Collagen SA 100% Belgium
Collagen Canada Ltd. 100% Canada
Collagen SARL 100% France
Collagen GmbH 100% Germany
Collagen S.r.l. 100% Italy
Collagen Luxembourg S.A. 100% Luxembourg
Collagen B.V. 100% Netherlands
Collagen AG 100% United Kingdom
Collagen International Sales Corporation 100% Virgin Islands
</TABLE>
__________________________________
* Excludes certain subsidiaries, which, considered in the aggregate as a
single subsidiary, did not constitute a significant subsidiary as of June 30,
1995.
** Excludes LipoMatrix, Incorporated, in which Registrant agreed to increase
its ownership from 40% to 90%, on a fully-diluted basis, on August 22, 1995.
<PAGE> 1
EXHIBIT 23.1
Consent of Ernst & Young LLP,
Independent Auditors
We consent to the use of our report dated August 1, 1995, with respect to the
consolidated financial statements of Collagen Corporation included in this
Annual Report (Form 10-K) of Collagen Corporation for the year ended June 30,
1995.
Our audits also included the financial statement schedule of Collagen
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth herein.
We also consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 2-93777, 33-21252, 33-39684, 33-73674 and
33-80038), pertaining to the 1984 Incentive Stock Option Plan, 1985 Employee
Stock Purchase Plan, 1990 Directors' Stock Option Plan and 1994 Stock Option
Plan of Collagen Corporation of our report dated August 1, 1995, with respect
to the consolidated financial statements and our report included in the
preceding paragraph with respect to the consolidated financial statement
schedule included in this Annual Report (Form 10-K) of Collagen Corporation.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
Palo Alto, California
September 26, 1995
<PAGE> 1
EXHIBIT 23.2
Consent of Ernst & Young LLP, Independent Auditors
With respect to
The Consolidated Financial Statements of Target Therapeutics, Inc.
for the fiscal years ended March 31, 1995, 1994, & 1993
We consent to the use of our report dated April 26, 1995 with respect to the
consolidated financial statements of Target Therapeutics, Inc. included as
Exhibit 99.1 to this Annual Report (form 10-K) of Collagen Corporation for the
year ended June 30, 1995.
Our audits also included the financial statement schedule of Target
Therapeutics, Inc. listed in Item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects the information set forth therein.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
Palo Alto, California
April 26, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED FINANCIAL STATEMENTS OF COLLAGEN CORPORATION INCLUDED IN FORM 10-K
ANNUAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-K, ANNUAL REPORT FOR THE YEAR ENDED
JUNE 30, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 9,384
<SECURITIES> 0
<RECEIVABLES> 13,785
<ALLOWANCES> 383
<INVENTORY> 5,056
<CURRENT-ASSETS> 33,410
<PP&E> 37,032
<DEPRECIATION> 19,526
<TOTAL-ASSETS> 76,906
<CURRENT-LIABILITIES> 19,014
<BONDS> 9,972
<COMMON> 106
0
0
<OTHER-SE> 47,814
<TOTAL-LIABILITY-AND-EQUITY> 76,906
<SALES> 71,560
<TOTAL-REVENUES> 72,560
<CGS> 18,584
<TOTAL-COSTS> 18,584
<OTHER-EXPENSES> 42,122
<LOSS-PROVISION> 46
<INTEREST-EXPENSE> 91
<INCOME-PRETAX> 16,200
<INCOME-TAX> 7,440
<INCOME-CONTINUING> 8,760
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,760
<EPS-PRIMARY> .93
<EPS-DILUTED> .93
</TABLE>
<PAGE> 1
EXHIBIT 99.1
TARGET THERAPEUTICS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
WITH
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
<PAGE> 2
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Target Therapeutics, Inc.
We have audited the accompanying consolidated balance sheets of Target
Therapeutics, Inc. as of March 31, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended March 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Target
Therapeutics, Inc. at March 31, 1995 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
Palo Alto, California
April 26, 1995
2
<PAGE> 3
TARGET THERAPEUTICS, INC.
----------------
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
------
<TABLE>
<CAPTION>
March 31,
-------------------------
1995 1994
------- -------
<S> <C> <C>
Current assets:
Cash, cash equivalents and short-term investments $38,070 $37,673
Accounts receivable 9,442 6,426
Inventories 5,423 2,987
Deferred tax assets 4,014 2,094
Other current assets 424 289
------- -------
Total current assets 57,373 49,469
Property and equipment, net 6,502 4,688
Other assets 6,524 2,973
------- -------
$70,399 $57,130
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 1,646 $ 1,454
Accrued compensation 3,361 2,152
Taxes payable 1,480 672
Accrued product replacement costs 1,030 1,141
Other accrued liabilities 3,506 1,925
Deferred tax liabilities 1,398 598
------- -------
Total current liabilities 12,421 7,942
Long-term obligations 115 124
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value (shares authorized: 2,000,000;
issued and outstanding: none) --- ---
Common stock, $.0025 par value (shares authorized: 25,000,000;
issued and outstanding: 7,098,619 and 7,024,619 at March 31,
1995 and 1994, respectively) 18 18
Additional paid-in capital 41,857 40,593
Deferred compensation --- (124)
Retained earnings 15,986 8,608
Accumulated translation adjustments 35 ---
Notes receivable from stockholders (33) (31)
------- -------
Total stockholders' equity 57,863 49,064
------- -------
$70,399 $57,130
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
TARGET THERAPEUTICS, INC.
----------------
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Product sales $47,508 $35,353 $28,117
Costs and expenses:
Cost of sales 15,151 13,368 9,657
Research and development 10,336 7,624 6,496
Selling, general and administrative 13,556 9,245 7,543
------- ------- -------
Total costs and expenses 39,043 30,237 23,696
------- ------- -------
Income from operations 8,465 5,116 4,421
Interest income, net 1,271 954 890
Other income 792 515 16
------- ------- -------
Income before income taxes and cumulative effect of
change in method of accounting for income taxes 10,528 6,585 5,327
Provision for income taxes 3,150 2,265 1,747
------- ------- -------
Income before cumulative effect of accounting change 7,378 4,320 3,580
Cumulative effect of change in method of accounting
for income taxes --- 631 ---
------- ------- -------
Net income $ 7,378 $ 4,951 $ 3,580
======= ======= =======
Income per share:
Income before cumulative effect of accounting change $ 1.02 $ .61 $ .51
Cumulative effect of change in method of accounting
for income taxes --- .09 ---
------- ------- -------
Net income per share $ 1.02 $ .70 $ .51
======= ======= =======
Shares used in calculating per share information 7,233 7,103 7,075
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
TARGET THERAPEUTICS, INC.
----------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Notes
Accumulated Receivable Total
Additional Deferred translation from stock-
Common paid-in compen- Retained adjust- stock- holders'
stock capital sation earnings ments holders equity
------ ---------- -------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1992 $17 $38,253 $(340) $ 77 $--- $(24) $37,983
Exercise of common stock
options (190,195 shares), net
of notes receivable --- 101 --- --- --- 24 125
Amortization of deferred
compensation --- --- 108 --- --- --- 108
Income tax benefit of
disqualifying dispositions --- 666 --- --- --- --- 666
Net income --- --- --- 3,580 --- --- 3,580
--- ------- ----- ------- ---- ---- -------
Balances at March 31, 1993 17 39,020 (232) 3,657 --- --- 42,462
Exercise of common stock
options and issuance under
stock purchase plan (268,264
shares), net of notes
receivable 1 687 --- --- --- (31) 657
Amortization of deferred
compensation --- --- 108 --- --- --- 108
Income tax benefit of
disqualifying dispositions --- 886 --- --- --- --- 886
Net income --- --- --- 4,951 --- --- 4,951
--- ------- ----- ------- ---- ---- -------
Balances at March 31, 1994 18 40,593 (124) 8,608 --- (31) 49,064
Exercise of common stock
options and issuance under
stock purchase plan (74,000
shares), net of notes
receivable --- 1,038 --- --- --- (2) 1,036
Amortization of deferred
compensation --- --- 124 --- --- --- 124
Income tax benefit of
disqualifying dispositions --- 226 --- --- --- --- 226
Translation adjustments --- --- --- --- 35 --- 35
Net income --- --- --- 7,378 --- --- 7,378
--- ------- ----- ------- ---- ---- -------
Balances at March 31, 1995 $18 $41,857 $ --- $15,986 $ 35 $(33) $57,863
=== ======= ===== ======= ==== ==== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
TARGET THERAPEUTICS, INC.
----------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,378 $ 4,951 $ 3,580
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 2,393 1,524 1,135
Changes in assets and liabilities:
Accounts receivable (2,882) (501) (1,826)
Inventories (2,432) 606 (1,247)
Deferred tax assets (1,920) (2,094) ---
Other current assets (135) 289 117
Accounts payable 194 584 (188)
Accrued compensation 1,210 381 567
Taxes payable 815 661 544
Accrued product replacement costs (111) 1,141 ---
Other accrued liabilities 1,630 384 (158)
Deferred tax liabilities 800 598 ---
Payable to Collagen Corporation --- --- (180)
Accrued facility lease costs --- --- (330)
Income tax benefit of disqualifying dispositions 226 886 666
-------- -------- --------
Total adjustments (212) 4,459 (900)
-------- -------- --------
Net cash provided by operating activities 7,166 9,410 2,680
-------- -------- --------
Cash flows used in investing activities:
Capital expenditures, net (3,624) (1,938) (2,205)
Purchase of securities available-for-sale (68,967) (65,266) (95,371)
Maturities of securities available-for-sale 66,615 62,782 81,831
Increase in other assets (4,010) (1,895) (515)
-------- -------- --------
Net cash used in investing activities (9,986) (6,317) (16,260)
-------- -------- --------
Cash flows from financing activities:
Issuance of common stock for cash 1,036 657 101
Principal payments under capital leases (56) (48) (42)
Decrease in notes receivable from stockholders --- --- 24
-------- -------- --------
Net cash provided by financing activities 980 609 83
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (1,840) 3,702 (13,497)
Cash and cash equivalents, beginning of year 8,679 4,977 18,474
-------- -------- --------
Cash and cash equivalents, end of year $ 6,839 $ 8,679 $ 4,977
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
TARGET THERAPEUTICS, INC.
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business Target Therapeutics, Inc. (the "Company" or
"Target") was incorporated in California in June 1985 and
reincorporated in the State of Delaware in January 1992. The Company
is in the business of developing, manufacturing and marketing
disposable medical devices used in minimally invasive procedures to
treat vascular diseases of the brain associated with stroke and other
diseases accessible through small vessels of the circulatory system.
Principles of consolidation The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries.
All significant intercompany accounts and transactions have been
eliminated. Investments in jointly owned companies and other
investments in which the Company has a 20 to 50 percent interest are
accounted for on the equity method.
Translation of foreign currencies All assets and liabilities of
the Company's foreign subsidiary are translated at exchange rates in
effect on reporting dates and differences due to changing translation
rates are charged or credited to "cumulative translation adjustment"
in stockholders' equity. Income and expenses are translated at rates
which approximate those in effect during the respective periods.
Cash equivalents and short-term investments Cash equivalents
consist of highly liquid investments, primarily money market accounts,
with maturities at the date of purchase of 90 days or less. Short-term
investments consist primarily of government debt securities and money
auction preferred stock.
Effective April 1, 1994, the Company adopted Financial Accounting
Standards Board ("FASB") Statement 115, "Accounting for Certain
Investments in Debt and Equity Securities." Short-term investments
are classified as available-for-sale and are stated at fair market
value. In accordance with Statement 115 prior period financial
statements have not been restated to reflect the change in accounting
principle. The impact of adopting the Statement was not material. The
Company has no unrealized gains or losses to be recorded as a separate
component of stockholders' equity and includes in current period
earnings any decline in fair value below cost that is deemed other
than temporary.
Concentration of credit risk The Company sells its products
primarily to hospitals in North America and to medical device
distributors in Europe and Asia. The Company performs ongoing credit
evaluations of its customers and generally does not require
collateral. The Company maintains reserves for potential credit
losses. See Note 8 for discussion of export sales and major customers.
The Company invests its excess cash in deposits, government debt
securities and corporate debt securities. These securities typically
mature within 365 days and, therefore, bear minimal risk. The Company
has not experienced any material losses on its investments.
Inventories Inventories are stated at the lower of cost or market.
Cost is determined using standard costs, which approximate actual
costs, under the first-in, first-out method.
Property and equipment Property and equipment are stated at cost,
net of accumulated depreciation and amortization. Depreciation and
amortization are provided using the straight-line method over the
estimated useful lives of the respective assets, ranging from three to
five years. Leasehold improvements are amortized on a straight-line
basis over five years or the remaining lease term, whichever is
shorter.
7
<PAGE> 8
Patents and trademarks Patents and trademarks are stated at cost,
net of accumulated amortization. Amortization is provided using the
straight-line method over an estimated seven-year useful life
beginning with the effective dates or over the remainder of such
periods from the dates acquired.
Revenue recognition Product sales are recognized upon shipment.
8
<PAGE> 9
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes Effective April 1, 1993, the Company adopted FASB
Statement 109, "Accounting for Income Taxes," under which the
liability method is used in accounting for income taxes. As permitted
by Statement 109, the Company elected to report the cumulative effect
of the change in the year adopted rather than restate the financial
statements of prior years. The cumulative positive effect of the
change in method of accounting for income taxes increased net income
by $631,000, or $.09 per share, for the year ended March 31, 1994.
Net income per share Net income per share is computed using the
weighted average number of common and dilutive common equivalent
shares outstanding.
2. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
(In thousands) March 31,
------------------------
1995 1994
------- -------
<S> <C> <C>
Cash, cash equivalents and short-term investments:
Cash and cash equivalents $ 6,839 $ 8,679
Short-term investments 31,231 28,994
------- -------
$38,070 $37,673
======= =======
Accounts receivable:
Trade receivables $ 9,990 $ 6,840
Less allowance for doubtful accounts (548) (414)
------- -------
$ 9,442 $ 6,426
======= =======
Inventories:
Raw materials $ 781 $ 531
Work-in-process 1,037 1,152
Finished goods 3,605 1,304
------- -------
$ 5,423 $ 2,987
======= =======
Property and equipment:
Machinery and equipment $ 7,159 $ 5,275
Office equipment 3,795 2,495
Leasehold improvements 935 495
------- -------
11,889 8,265
Less accumulated depreciation and amortization (5,387) (3,577)
------- -------
$ 6,502 $ 4,688
======= =======
Other assets:
Cost in excess of net assets acquired, net $ 2,009 $ ---
Patents and trademarks, net 1,846 1,152
Investments in entities accounted for on the equity method 1,508 952
Other 1,161 869
------- -------
$ 6,524 $ 2,973
======= =======
</TABLE>
9
<PAGE> 10
3. SHORT-TERM INVESTMENTS
The following is a summary of available-for-sale securities as of
March 31, 1995 (in thousands):
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized Estimated
Cost gains losses fair value
------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Money auction preferred stock $ 7,700 $ -- $ -- $ 7,700
Government debt securities 23,640 16 (131) 23,525
------- ---- ----- -------
Total debt securities 31,340 16 (131) 31,225
Equity securities 6 -- -- 6
------- ---- ----- -------
$31,346 $16 $(131) $31,231
======= ==== ===== =======
</TABLE>
The gross realized gains, gross realized losses and the net
adjustment to unrealized holding gains (losses) on maturities of
available-for-sale securities were not significant. The amortized
cost and estimated fair value of debt and marketable equity
securities at March 31, 1995, are shown below (in thousands).
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
--------- ----------
<S> <C> <C>
Due in one year or less $27,840 $27,766
Due after one year through three years 3,500 3,459
------- -------
31,340 31,225
Equity securities 6 6
------- -------
$31,346 $31,231
======= =======
</TABLE>
4. COMMITMENTS
Line of credit arrangement
The Company maintains a $3.0 million bank line of credit which expires
in July 1996. Borrowings under the line of credit bear interest at the
bank's prime rate, are unsecured and are subject to certain covenants
related to financial ratios and profits. There were no amounts
outstanding under this line at March 31, 1995.
Lease obligations
The Company leases its facilities and certain equipment under
operating leases. The Company recognizes rent expense on a straight-
line basis over the lease term. The future minimum lease commitments
by fiscal year as of March 31, 1995 are as follows (in thousands):
<TABLE>
<S> <C>
1996 $ 873
1997 873
1998 877
1999 872
2000 868
Thereafter 1,592
------
$5,955
======
</TABLE>
10
<PAGE> 11
The following schedule shows the composition of net rental expense for
all operating leases (in thousands):
<TABLE>
<CAPTION>
Year ended March 31,
---------------------------------------
1995 1994 1993
---- ---- ------
<S> <C> <C> <C>
Rent expense $848 $914 $1,146
Less sublease rental income -- (77) (88)
---- ---- ------
$848 $837 $1,058
==== ==== ======
</TABLE>
11
<PAGE> 12
5. STOCKHOLDERS' EQUITY
Stock option and purchase plan
The 1988 Stock Option Plan (the "Plan") is an incentive and
nonstatutory option plan providing for the issuance of common stock to
employees, officers, directors and consultants of the Company. At
March 31, 1995 the Company had reserved 2,200,000 shares of common
stock for issuance under the Plan. Options granted generally become
exercisable over a 48-month period. Under the Plan, the exercise price
of incentive stock options may not be less than 100 percent of the
fair market value at the date of grant, and the exercise price of
nonstatutory options must be at least 85 percent of the fair market
value at the date of grant. In the case of an option holder who owns
more than ten percent of the voting power of all outstanding stock,
the incentive option exercise price must be at least 110 percent of
fair market value and the option must be exercised, if at all, within
five years of the grant date.
The Company recorded deferred compensation expense for the difference
between the grant price and the deemed fair value for financial
statement presentation purposes of the Company's common stock for
certain options granted in fiscal 1992. Amortization of deferred
compensation was $124,000 in the year ended March 31, 1995 and
$108,000 in each of the years ended March 31, 1994 and 1993. The
deferred compensation amount was amortized over a four-year period.
Information with respect to the 1988 Stock Option Plan is summarized
as follows:
<TABLE>
<CAPTION>
Options outstanding
Shares --------------------------------------------
available Number Aggregate Price
for grant of shares price per share
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Balances at March 31, 1992 261,685 551,819 $945,492 $.13-11.50
Additional shares reserved 500,000 --- --- ---
Options granted (111,160) 111,160 2,227,063 17.75-26.75
Options exercised --- (190,195) (100,566) .13-17.75
Options canceled 14,673 (14,673) (134,309) .13-26.00
-------- -------- -----------
Balances at March 31, 1993 665,198 458,111 2,937,680 .13-26.75
Options granted (302,875) 302,875 6,035,300 17.25-24.25
Options exercised --- (252,113) (416,980) .13-25.63
Options canceled 28,514 (28,514) (425,976) .33-26.00
-------- -------- -----------
Balances at March 31, 1994 390,837 480,359 8,130,024 .13-26.75
Additional shares reserved 500,000 --- --- ---
Options granted (413,715) 413,715 10,084,991 21.44-36.25
Options exercised --- (57,062) (741,206) .13-26.75
Options canceled 29,727 (29,727) (601,990) .13-26.00
-------- -------- -----------
Balances at March 31, 1995 506,849 807,285 $16,871,819 $.13-36.25
======== ======== ===========
</TABLE>
As of March 31, 1995, options for 232,738 shares were exercisable.
During fiscal 1995 the Company granted options to purchase up to
101,600 shares under the Plan that vest after six years or upon the
Company's achievement of certain market valuation criteria.
In December 1991, the Company's Board of Directors (the "Board")
adopted the 1991 Director Option Plan ("Director Option Plan"). A
total of 100,000 shares of common stock have been reserved for
issuance under the Director Option Plan which provides for the grant
of nonstatutory options to non employee directors of the Company. As
of March 31, 1995, options to purchase up to 42,000 shares under this
plan were outstanding and become exercisable over a three year period
from the grant date. As of March 31, 1995, options for 6,667 shares
were exercisable. No options under the Director Option Plan have been
exercised.
12
<PAGE> 13
The Board also adopted the 1991 Employee Stock Purchase Plan (the
"Purchase Plan") in December 1991. The Purchase Plan allows for the
issuance of up to 100,000 shares of common stock to employees of the
Company. During the years ended March 31, 1995 and 1994, 16,938 shares
and 16,151 shares, respectively, were issued at prices of $15.09 and
$20.83 per share and $15.09 and $18.70 per share, respectively, under
the Purchase Plan.
13
<PAGE> 14
6. INCOME TAXES
The Company's provision for income taxes for the years ended March 31,
1995 and 1994 (under the liability method) and 1993 (under the
deferred method) consists of the following (in thousands):
<TABLE>
<CAPTION>
Year ended March 31,
-----------------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Current:
Federal $3,613 $2,353 $1,374
State 657 674 466
------ ------ ------
Total current 4,270 3,027 1,840
Deferred:
Federal (992) (614) (101)
State (128) (148) 8
------ ------ ------
Total deferred (1,120) (762) (93)
------ ------ ------
Total provision $3,150 $2,265 $1,747
====== ====== ======
</TABLE>
At March 31, 1995, the Company had available net operating loss
carryforwards for tax purposes of approximately $1.1 million which
expire in the year 2001. Because of the "change in ownership"
provisions of the Tax Reform Act of 1986, the loss carryforwards will
be subject to an annual limitation regarding their utilization against
future taxable income.
The Company realizes tax benefits as a result of the exercise and
subsequent sale of certain employee stock options (disqualifying
dispositions). For financial reporting purposes, any reduction in
income tax obligations as a result of these tax benefits, $226,000,
$886,000 and $666,000 in fiscal 1995, 1994 and 1993, respectively, is
credited to additional paid-in capital.
The provision for income taxes for the years ended March 31, 1995,
1994 and 1993 differs from the amount computed by applying the
statutory federal income tax rate to income before taxes. The
reconciliation between the federal statutory rate and the effective
tax rate is as follows:
<TABLE>
<CAPTION>
Year ended March 31,
---------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
Foreign tax credits (5.7) --- ---
Unrealized losses on investments accounted
for on the equity method 3.6 1.5 ---
Foreign sales corporation tax benefit (3.5) (3.7) (3.3)
State income taxes 3.7 5.3 5.9
Tax exempt interest (3.0) (2.6) (2.9)
Other 0.8 (0.1) (0.9)
---- ---- ----
Provision for income taxes 29.9% 34.4% 32.8%
==== ==== ====
</TABLE>
14
<PAGE> 15
6. INCOME TAXES (continued)
Deferred taxes for the years ended March 31, 1995 and 1994 reflect the
net tax effects of loss carryforwards and temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant amounts of the Company's deferred tax assets and
liabilities as of March 31, 1995 and 1994 are as follows (in
thousands):
<TABLE>
<CAPTION>
March 31,
------------------------
1995 1994
------ ------
<S> <C> <C>
Deferred tax assets:
Inventory valuation accounts $ 461 $ 382
Reserves and accruals not currently tax deductible 1,152 861
Foreign tax credits 1,605 ---
Benefit of net operating loss carryforwards 490 546
Accrued cost of exchanging GDC inventory 414 578
State income taxes 174 159
Other 152 58
------ ------
4,448 2,584
Valuation allowance (434) (490)
------ ------
$4,014 $2,094
====== ======
Deferred tax liabilities:
Patent costs $ 580 $ 328
Depreciation and amortization 64 128
Unrealized gains and dividend income related to investments
accounted for on the equity method 700 142
Other 54 --
------ ------
$1,398 $ 598
====== ======
</TABLE>
The valuation allowance decreased by $56,000 from March 31, 1994 to
March 31, 1995. The components of the credit for deferred income taxes
for the year ended March 31, 1993 under the deferred method are as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended March 31,
--------------------
1993
-----
<S> <C>
Depreciation $ 98
Accounts receivable and sales return reserves (51)
Patent expenses 132
Accrued vacation and commissions (44)
State income taxes (129)
Inventory valuation (80)
Accrued expenses (49)
Other 30
-----
Total deferred provision $ (93)
=====
</TABLE>
7. JOINT VENTURE AND AFFILIATE COMPANIES
In September 1991, the Company entered into a joint venture agreement
with Century Medical Inc. ("CMI"), a Japanese corporation, to
distribute the Company's products in Japan. The Company accounts for
this 50 percent-owned investment on the equity method and includes its
share of joint venture net income in "Other income" in the
Consolidated Statements of Income. These amounts were $1.6 million and
$520,000 in fiscal 1995 and 1994, respectively. In conjunction with
establishing the joint venture, the Company also entered into a
distribution agreement with CMI, and CMI entered into a
subdistribution agreement with the joint venture.
15
<PAGE> 16
The Company entered into an agreement with the joint venture,
effective in January 1994, in which the Company is obligated to
provide certain management services, assist in marketing, development
and planning activities and provide certain literature to the joint
venture. In consideration for the Company providing such services, the
joint venture has agreed to reimburse costs incurred by the Company,
of which $318,000 and $445,000 have been included in "Other income"
for the years ended March 31, 1995 and 1994, respectively.
Summarized information for the joint venture is as follows (in
thousands):
<TABLE>
<CAPTION>
March 31,
-------------------------
1995 1994
------- ------
<S> <C> <C>
Current assets $18,540 $8,932
Non current assets 755 262
Current liabilities 13,604 7,528
Non current liabilities --- ---
</TABLE>
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------
1995 1994
------- -------
<S> <C> <C>
Net sales $37,349 $22,894
Gross profit 15,243 8,896
Income from operations 6,837 2,876
Net income 3,213 1,038
</TABLE>
The Company's other investments accounted for on the equity method,
comprised of cash investments and the granting of technology licenses,
are Cardima, Inc., Prograft Medical, Inc. and Conceptus, Inc. for
which the Company's ownership interest is approximately 30 percent, 20
percent and 20 percent, respectively. The equity losses for these
investments were $1.1 million and $292,000 for fiscal 1995 and 1994,
respectively.
8. EXPORT SALES AND MAJOR CUSTOMERS
The Company markets its products both domestically and
internationally. Export product sales are as follows (in thousands):
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Europe $12,708 $ 8,651 $ 7,883
Asia 17,699 11,019 8,275
Other 2,152 1,469 1,086
------- ------- -------
$32,559 $21,139 $17,244
======= ======= =======
</TABLE>
One customer accounted for approximately 35 percent, 29 percent and 27
percent of the Company's product sales for the years ended March 31,
1995, 1994 and 1993, respectively.
9. FORMATION OF GERMAN SUBSIDIARY
In October 1994, the Company and Target Therapeutics International
(Deutschland) GmbH ("Target GmbH") entered into an Asset Purchase
Agreement (the "Agreement") with Rehaforum Medical GmbH ("Rehaforum"),
a distributor of the Company's products in Germany. The Company and
Target GmbH acquired certain of the assets of Rehaforum attributable
to the Target portion of Rehaforum's business, including inventory of
Target products, property and equipment and assumed certain
liabilities. Pursuant to the terms of the Agreement, Rehaforum no
longer has distribution rights to the Company's products and is
limited as to sales of competitive products for a two year period.
The purchase price in excess of the fair value of net tangible assets
acquired is being amortized over a five year period.
16
<PAGE> 17
10. EXPECTED COSTS OF PRODUCT REPLACEMENT
In October 1993, the Company announced that it was pursuing certain
changes to a product currently sold under an investigational device
exemption ("IDE") by the U.S. Food and Drug Administration ("FDA").
Pursuant to a supplement to the IDE which was approved by the FDA in
March 1994, limited FDA clinical trials of the modified product were
commenced in April 1994. As treatment sites were converted to the
modified product, the Company exchanged such modified product for any
original product that customers still had in their inventory. The
Company provided $1.5 million, which was included in cost of sales in
fiscal 1994, for the estimated costs of such exchange including the
disposition of the Company's inventory of such product.
11. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
(In thousands) Year ended March 31,
-----------------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $3,785 $1,573 $1,195
Cash paid during the period for interest 24 17 19
Supplemental schedule of non cash investing and
financing activities:
Acquisition of assets under capital lease $ --- $ --- $ 32
Issuance of common stock options in exchange for a
note receivable --- 31 ---
</TABLE>
12. RELATED PARTY TRANSACTIONS
In December 1993, the Company entered into a lease line agreement as
lessor with a less than 50 percent-owned affiliate. The maximum
available lease line of $1.0 million expired March 31, 1995 and
requires monthly payments to be made on the outstanding balance over
36 or 48 months with interest at approximately 8.5 percent per year.
As of March 31, 1995 and 1994 there was $521,000 and $143,000
outstanding, respectively, under this agreement.
In March 1994, the Company loaned approximately $200,000 to a less
than 50 percent-owned affiliate in exchange for promissory notes
bearing interest at 8.5 percent per year. Monthly payments are
required over 36 and 48 months. The Company also entered into a lease
line agreement as lessor with this affiliate in March 1994. The
maximum available lease line of $300,000 expired March 1, 1995 and
requires monthly payments to be made on the outstanding balance over
36 or 48 months with interest at approximately 8.5 percent per year.
At March 31, 1995 there was $288,000 outstanding under this agreement.
There were no amounts outstanding under this agreement at March 31,
1994.
13. LEGAL MATTERS
The Company is involved in legal actions, including product liability
claims and the protection of the Company's proprietary assets, arising
in the ordinary course of business. While the outcome of such matters
is currently not determinable, it is management's opinion that these
matters, both individually or in the aggregate, will not have a
material adverse effect on the Company's consolidated financial
position, results of its operations or cash flows.
17
<PAGE> 1
EXHIBIT 99.2
TARGET THERAPEUTICS, INC.
----------------
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
SCHEDULE II
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance
beginning costs and at end
of period expenses Deductions of period
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended March 31, 1993
Allowance for doubtful accounts $270 $127 $ --- $397
Year ended March 31, 1994
Allowance for doubtful accounts 397 357 (340) 414
Year ended March 31, 1995
Allowance for doubtful accounts 414 150 (17) 548
</TABLE>
