<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarter period ended December 31, 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)
Delaware 94-2300486
State of Incorporation I.R.S. Employer Identification No.
2500 Faber Place, Palo Alto, California 94303
Telephone: (415) 856-0200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of January 31, 1996, Registrant had outstanding 8,882,026 shares of common
stock, exclusive of 1,675,000 shares held by the Registrant as treasury stock.
<PAGE> 2
COLLAGEN CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information Page No.
--------
<S> <C>
Condensed Consolidated Balance Sheets -
December 31, 1995 and June 30, 1995.................................. 3
Condensed Consolidated Statements of Income -
Three and six months ended December 31, 1995 and 1994................. 4
Condensed Consolidated Statements of Cash Flows -
Six months ended December 31, 1995 and 1994........................... 5
Notes to Condensed Consolidated Financial Statements.................. 6-11
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................... 12-20
PART II. Other Information
Other Information..................................................... 21-24
Signatures............................................................ 25
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
COLLAGEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
------------ --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,545 $ 6,155
Short-term investments 1,422 3,229
Accounts receivable, net 12,104 13,402
Inventories, net 7,570 5,056
Other current assets, net 6,010 5,568
-------- --------
Total current assets 55,651 33,410
Property and equipment, net 16,357 16,506
Intangible assets and goodwill, net 11,066 2,727
Investment in Target Therapeutics, Inc. 12,489 17,570
Other investments & assets, net 6,696 6,693
-------- --------
$102,259 $ 76,906
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,926 $ 2,250
Accrued purchase consideration for LipoMatrix, Incorporated 20,990 --
Other accrued liabilities 10,643 10,862
Income taxes payable 10,160 5,902
-------- --------
Total current liabilities 45,719 19,014
Long-term liabilities:
Deferred income taxes 8,478 8,478
Other long-term liabilities 2,888 1,494
Stockholders' equity:
Preferred stock, $.01 par value, authorized
5,000,000 shares; none issued and outstanding -- --
Common stock, $.01 par value, authorized: 28,950,000
shares, issued: 10,557,026 shares at December 31, 1995
(10,519,632 shares at June 30, 1995), outstanding: 8,882,026
shares at December 31, 1995 (9,019,632 shares at June 30, 1995) 106 106
Additional paid-in capital 63,896 63,855
Retained earnings 17,533 17,273
Cumulative translation adjustment (617) (604)
Treasury stock, at cost, 1,675,000 shares at December 31, 1995
(1,500,000 shares at June 30, 1995) (35,744) (32,710)
-------- --------
Total stockholders' equity 45,174 47,920
-------- --------
$102,259 $ 76,906
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
COLLAGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------- ---------------------
1995 1994 1995 1994
------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues:
Product sales $18,883 $18,870 $ 33,823 $34,302
Other -- -- 2,000 1,000
------- ------- -------- -------
18,883 18,870 35,823 35,302
------- ------- -------- -------
Costs and expenses:
Cost of sales 5,074 4,810 9,071 9,216
Selling, general & administrative 10,467 8,107 18,769 15,331
Research & development 2,925 2,504 5,504 5,038
Acquired in-process research and development -- -- 14,800 --
------- ------- -------- -------
18,466 15,421 48,144 29,585
------- ------- -------- -------
Income (loss) from operations 417 3,449 (12,321) 5,717
Other income (expense):
Net gain on investments, principally Therapeutics, Inc. 20,921 775 31,387 775
Equity in earnings (losses) of affiliates, net 415 (240) (93) (369)
Interest income 297 85 451 215
Interest expense (40) (40) (52) (55)
------- ------- -------- -------
Income before income taxes 22,010 4,029 19,372 6,283
Provision for income taxes 12,540 1,784 18,453 2,731
------- ------- -------- -------
Net income $ 9,470 $ 2,245 $ 919 $ 3,552
======= ======= ======== =======
Net income per share $ 1.05 $ .24 $ .10 $ .37
======= ======= ======== =======
Shares used in calculating per share information 9,059 9,465 9,087 9,517
======= ======= ======== =======
</TABLE>
See accompanying notes.
4
<PAGE> 5
COLLAGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
--------------------
1995 1994
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 919 $ 3,552
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Acquired in-process research and development 14,800 --
Depreciation and amortization 2,968 1,954
Gain on investments, net (31,387) (775)
Changes in assets and liabilities:
Income taxes payable 4,258 1,028
Other (1,378) (927)
-------- -------
Net cash provided by (used in) operating activities (9,820) 4,832
-------- -------
Cash flows from investing activities:
Net proceeds from sale of stock of Target Therapeutics, Inc. 42,073 1,102
Proceeds from sales and maturities of short-term investments 3,123 4,903
Purchase of short-term investments (1,318) --
Expenditures for property and equipment (1,332) (1,383)
Increase in intangible and other assets (458) (653)
Expenditures for investments in and loans to affiliates (6,198) (2,217)
Acquisition of LipoMatrix, Incorporated, net of cash balances (22,608) --
Accrued purchase consideration and other costs of
acquisition of LipoMatrix 22,527 --
-------- -------
Net cash provided by investing activities 35,809 1,752
-------- -------
Cash flows from financing activities:
Repurchase of common stock (3,034) (5,543)
Net proceeds from issuance of common stock 41 1,666
Dividends paid (676) (943)
Proceeds from bank borrowings 70 --
-------- -------
Net cash used in financing activities (3,599) (4,820)
-------- -------
Net increase in cash and cash equivalents 22,390 1,764
Cash and cash equivalents at beginning of period 6,155 5,369
-------- -------
Cash and cash equivalents at end of period $ 28,545 $ 7,133
======== =======
</TABLE>
See accompanying notes.
5
<PAGE> 6
COLLAGEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements include the accounts of
Collagen Corporation ("the Company"), a Delaware corporation, and its
wholly-owned and majority-owned subsidiaries. The financial statements
include the accounts of LipoMatrix, Incorporated ("LipoMatrix"), of
Neuchatel, Switzerland subsequent to August 22, 1995 when the Company
entered into a stock purchase agreement with certain of the stockholders of
LipoMatrix to purchase approximately 50% of the outstanding securities of
LipoMatrix on a fully diluted basis. Subsequently, the Company entered into
an agreement with certain of LipoMatrix's management and employees to
purchase the remaining 10% of the outstanding securities on a fully diluted
basis. This purchase increased the Company's ownership interest in
LipoMatrix from approximately 40% to approximately 100% of the outstanding
securities on a fully diluted basis and was closed in January 1996. Prior
to August 22, 1995, LipoMatrix was accounted for under the equity method of
accounting. 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).
The condensed consolidated balance sheet as of December 31, 1995, the
condensed consolidated statements of income for the three and six months
ended December 31, 1995 and 1994, and the condensed consolidated statements
of cash flows for the six months ended December 31, 1995 and 1994, have
been prepared by the Company, without audit. In the opinion of management,
all necessary adjustments (which include only normal recurring adjustments)
have been made to present fairly the financial position, results of
operations and cash flows at December 31, 1995 and for all periods
presented. Interim results are not necessarily indicative of results for a
full fiscal year. The condensed consolidated balance sheet as of June 30,
1995 has been derived from the audited consolidated financial statements at
that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended June
30, 1995 included in the Company's 1995 Annual Report on Form 10-K.
6
<PAGE> 7
Cash, 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. Short-term
investments consist principally of bankers acceptances, commercial paper
and master notes and have maturities greater than ninety days, but not
exceeding one year.
The Company's investment securities are classified as available-for-sale
and their carrying value approximates fair value because of the short
maturity of these investments. The Company determines the appropriate
classification of investment securities at the time of purchase and
reevaluates such designation as of each balance sheet date. Realized and
unrealized gains and losses were immaterial for the three and six months
ended December 31, 1995 and 1994.
Intangible assets and goodwill
The cost of identified intangible assets (customer lists, purchased
developed technology, etc.) is generally amortized on a straight-line basis
over periods from 2 to 7 years. The excess cost over the fair value of net
assets acquired (goodwill) is generally amortized on a straight-line basis
over periods generally not exceeding 7 years. The carrying value of
intangible assets and goodwill is reviewed on a regular basis for the
existence of facts or circumstances both internally and externally that may
suggest impairment. To date no such impairment has been indicated.
2. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1995
----------------- -------------
<S> <C> <C>
Raw materials $ 786 $ 684
Work-in-process 3,405 1,845
Finished goods 3,379 2,527
----------------- -------------
$ 7,570 $ 5,056
================= =============
</TABLE>
3. Investment in Target Therapeutics, Inc.
During the quarter ended December 31, 1995, the Company sold 800,000 shares
(adjusted for a two-for-one stock split) of Target Therapeutics, Inc.
("Target") common stock for a pre-tax gain of approximately $24.0 million.
The Company also recorded an investment reserve of $3.1 million in the
quarter ended December 31, 1995 to write-down the carrying value of certain
equity investments due to a decline in value determined to be other than
temporary.
7
<PAGE> 8
Condensed Statement of Income information for Target is shown below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------- -------------------
(in thousands) 1995 1994 1995 1994
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 18,980 $12,479 $34,721 $24,022
Cost of Revenues 5,560 3,891 10,607 7,642
Expenses 8,674 6,316 16,125 12,002
Interest and other income 427 610 1,033 1,221
-------- ------- ------- -------
Income before income taxes 5,173 2,882 9,022 5,559
Provision for income taxes (1,552) (984) (2,701) (1,990)
-------- ------- ------- -------
Net income $ 3,621 $ 1,898 $ 6,321 $ 3,609
======== ======= ======= =======
</TABLE>
Target's common stock is quoted on The Nasdaq Stock Market. The closing
price of Target's stock at December 29, 1995 was $42.75 per share. During
January 1996, the Company sold an additional 110,000 shares of its Target
common stock at an average selling price of approximately $54 per share for
net pre-tax proceeds of approximately $5.9 million. As of January 31, 1996,
the Company's ownership position in Target was approximately 18%. During
December, 1995, the Company's interest in Target fell below 20%. Subsequent
to that date, given that the Company does not have the ability to exercise
significant influence, it will account for the investment on the cost
basis.
4. Acquisition of LipoMatrix
LipoMatrix is the developer and manufacturer of the Trilucent(TM) breast
implant, which is the first commercially available triglyceride-filled
mammary implant in the world. The Company recently introduced the
Trilucent(TM) implant in Europe and plans to introduce it in most countries
of Western Europe over the remainder of the current fiscal year.
On August 22, 1995, as part of the Company's strategy to expand in its
marketing franchise in cosmetic medicine, the Company entered into a stock
purchase agreement ("Agreement") with certain of the stockholders of
LipoMatrix to purchase approximately 50% of its outstanding securities on a
fully diluted basis. Subsequently, the Company entered into discussions
with certain of LipoMatrix's management and employees to purchase the
remaining 10% of the outstanding securities of LipoMatrix on a fully
diluted basis. This purchase increased the Company's ownership interest in
LipoMatrix from approximately 40% to approximately 100% of the outstanding
securities on a fully diluted basis. In connection with the Agreement,
certain LipoMatrix's shareholders granted to the Company an irrevocable
proxy covering the voting rights of approximately 50% of the outstanding
securities.
8
<PAGE> 9
The acquisition of LipoMatrix, which was accounted for as a purchase, had
an aggregate purchase price of approximately $23.7 million, which was
determined as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Payable to LipoMatrix's shareholders $ 20,990
Assumption of LipoMatrix's liabilities in excess
of LipoMatrix's assets 926
Balance of the Company's investment in
LipoMatrix prior to date of acquisition 909
Direct acquisition costs 830
--------
$ 23,655
========
</TABLE>
The Company completed the closing of the aforementioned acquisition of
LipoMatrix in January 1996 at which time aggregate cash payments of
approximately $20 million were made by the Company to the selling
LipoMatrix stockholders, as well as certain of LipoMatrix's current and
former employees.
The assets and liabilities assumed by the Company were recorded based on
their independently appraised fair values at the date of the acquisition,
which are subject to final adjustments which the Company believes will not
be significant. Of the purchase price of $23.7 million, $14.8 million was
allocated to in-process research and development, $3.8 million to
intangible assets and $5.1 million to goodwill. The amount allocated to
in-process research and development was expensed in the six months ended
December 31, 1995. The Company's results of operations for the six months
ended December 31, 1995 include LipoMatrix's results from August 22, 1995
through December 31, 1995.
The unaudited pro forma results of operations of the Company for the six
months ended December 31, 1995 and 1994, respectively, assuming the
acquisition of LipoMatrix occurred on July 1, 1994, on the bases described
above with all material intercompany transactions eliminated, are as
follows:
<TABLE>
<CAPTION>
Six months ended December 31, 1995 1994
--------------------------------------------------------------------------
(in thousands, except income per share)
<S> <C> <C>
Total revenues $35,838 $35,302
Net income 14,703 178
Net income per share 1.62 .02
</TABLE>
9
<PAGE> 10
The unaudited pro forma net income and per share amounts above do not
include a charge for in-process research and development of $14.8 million
arising from the acquisition of LipoMatrix. The pro forma results reflect
amortization of acquired goodwill and other intangible assets.
The unaudited pro forma information is not necessarily indicative of the
actual results of operations had the transaction occurred at the beginning
of the periods indicated, nor should it be used to project the Company's
results of operations for any future dates or periods.
5. Stock Repurchase Program
In February 1993, the Company's Board of Directors authorized a stock
repurchase program. During the three months ended December 31, 1995, the
Company repurchased 125,000 shares of its common stock at an average
acquisition price of approximately $18 per share. Since the inception of
the stock repurchase program in February 1993, the Company has repurchased
1,675,000 shares of its common stock at an average acquisition price of
approximately $21 per share. As of December 31, 1995 the Company is
authorized to repurchase an additional 125,000 shares under the program.
The Company currently plans to keep the repurchased shares as treasury
stock and may use this stock in various company stock benefit plans.
6. Income Taxes
The provision for income taxes for the six months ended December 31, 1995
and 1994 was computed by applying the estimated annual income tax rates of
approximately 54% (excluding the impact of the acquired in-process research
and development charge for which no tax benefit is available) and 43%,
respectively, to income before income taxes. The higher effective tax rate
in the current fiscal quarter and year to date period was primarily due to
consolidated losses in foreign subsidiaries for which no tax benefit is
available, increased equity losses of certain affiliates, and increased
write-downs of certain equity investments.
7. Per Share Information
Income per share for the three and six months ended December 31, 1995 and
1994 have been computed based upon the weighted average number of common
stock and dilutive common stock equivalent shares outstanding. Shares used
in the per share computations are as follows (in thousands):
10
<PAGE> 11
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary:
Common stock 8,916 9,278 8,954 9,336
Stock options 143 187 133 181
----- ----- ----- -----
Weighted average number of
common stock and dilutive
common stock equivalent
shares outstanding 9,059 9,465 9,087 9,517
===== ===== ===== =====
</TABLE>
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company
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 are derived primarily from the sale of products
principally used in reconstructive and cosmetic applications, 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.
On August 22, 1995, as part of the Company's strategy to expand in its marketing
franchise in cosmetic medicine, the Company entered into a stock purchase
agreement ("Agreement") with certain of the stockholders of LipoMatrix,
Incorporated ("LipoMatrix"), a developer and manufacturer of the Trilucent(TM)
breast implant ("Trilucent(TM) Implant"), to purchase approximately 50% of the
outstanding securities of LipoMatrix on a fully diluted basis. Subsequently, the
Company entered into an agreement with certain of LipoMatrix's management
and employees to purchase the remaining 10% of the outstanding securities on a
fully diluted basis. This purchase increased the Company's ownership interest in
LipoMatrix from approximately 40% to approximately 100% of the outstanding
securities on a fully diluted basis. In connection with the Agreement, certain
LipoMatrix's shareholders granted to the Company an irrevocable proxy covering
the voting rights of approximately 50% of the outstanding securities.
The acquisition of LipoMatrix, which was accounted for as a purchase, had an
aggregate purchase price of approximately $23.7 million (See Note 4 to Condensed
Consolidated Financial Statements.). The Company completed the closing of the
aforementioned acquisition of LipoMatrix in January 1996 at which time aggregate
cash payments of approximately $20 million were made by the Company to the
selling LipoMatrix stockholders as well as certain of LipoMatrix's current and
former employees.
In addition to joint 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.
12
<PAGE> 13
Results of Operations
The following tables show for the periods indicated the percentage relationship
to product sales of certain items in the Consolidated Statements of Income.
PERCENT OF PRODUCT SALES
<TABLE>
<CAPTION>
3 Months 3 Months 6 Months 6 Months
Ended Ended Ended Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Product sales 100% 100% 100% 100%
Other revenues -- -- 6% 3%
Costs and expenses:
Cost of sales 27% 25% 27% 27%
Selling,
general and
administrative 55% 43% 56% 45%
Research and
development 16% 13% 16% 15%
</TABLE>
Product sales. Product sales in the three months ended December 31, 1995 were
$18.9 million, which were unchanged from the same prior-year quarter. Product
sales of $33.8 million in the six months ended December 31, 1995 decreased
approximately $500,000 or 1%, compared to product sales of $34.3 million for the
same prior-year period.
Worldwide sales of plastic surgery and dermatological products for the three and
six months ended December 31, 1995 were $16.1 million and $29.0 million,
respectively, up 15% and 19% from sales of $14.0 million and $24.3 million,
respectively, for the same periods in the prior year. Total unit sales increased
16% and 25% on a worldwide basis compared with the same periods in the prior
year. The Company believes the increase in sales in the current fiscal year
periods was a result of an increase in advertising and public relations
campaigns, an improvement in the overall environment for products in the
Company's sector of the health care industry, strong distributor sales,
especially in Japan, the launch of new syringe configurations and increased
physician interest in cosmetic procedures not reimbursed by third-party payers.
Additionally, the increase in sales was attributable in part to the launch of
the Trilucent(TM) breast implant (a new triglyceride-filled
13
<PAGE> 14
mammary implant) in Europe. International sales were favorably impacted by
foreign exchange rates by approximately $300,000 and $500,000, respectively, for
the three and six months ended December 31, 1995 compared with the same periods
in the prior year. (See "Operating Income " below.) The Company anticipates
continued growth in future worldwide demand for its plastic surgery and
dermatological products, but at rates lower than those achieved in the current
fiscal year periods.
During the three and six months ended December 31, 1995, pursuant to terms of an
agreement between the Company and C.R. Bard Inc. ("Bard"), the Company's
marketing partner for Contigen(R) Bard(R) Collagen Implant ("Contigen(R)
Implant"), the Company recorded income of $1.7 million and $2.7 million,
respectively, from Bard based on Bard's direct sales of Contigen(R) Implant to
physician customers. In June 1995, the Company announced that it expected to
ship little, if any, Contigen(R) Implant to Bard during fiscal year 1996 due to
excess inventory at Bard. The Company recorded minimal income from shipments of
Contigen(R) Implant to Bard in the six months ended December 31, 1995. In the
three and six months ended December 31, 1994, respectively, the Company recorded
income of $3.0 million and $6.6 million, respectively, from shipments of
Contigen(R) Implant to Bard. The Company also recorded income of $1.0 million
and $1.5 million, respectively, from Bard's direct sales of Contigen(R) Implant
to physician customers during the three and six months ended December 31, 1994,
respectively. Future income from Bard's direct sales of Contigen(R) Implant to
physician customers is expected to continue but may fluctuate significantly due
to market demand. As a result of the foregoing, total revenues from Contigen(R)
Implant during fiscal 1996 are expected to decline by more than 50 percent
compared with fiscal 1995.
For the three and six months ended December 31, 1995, sales of Collagraft(R)
Bone Graft Matrix ("Collagraft(R) Implant") and Collagraft(R) Bone Graft Matrix
Strip ("Collagraft(R) Strip") to the Company's marketing partner, Zimmer, Inc.
("Zimmer"), were approximately $844,000 and $1.8 million, respectively, compared
to combined sales of Collagraft(R) Implant and Collagraft(R) Strip of
approximately $605,000 and $1.6 million to Zimmer in the same periods in the
prior year. The Company expects sales of the Collagraft(R) Implant and
Collagraft(R) Strip for the remainder of the fiscal year to be at lower
levels than those reported in the six months ended December 31, 1995.
A number of uncertainties exist surrounding the marketing and distribution of
Contigen(R) Implant, Collagraft(R) Implant and Collagraft(R) Strip. The
Company's primary means of distribution for these products is through third
party firms, Bard, in the case of Contigen(R) Implant, and Zimmer, in the case
of Collagraft(R) Implant and Collagraft(R) 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 revenues. Other revenues in the six months ended December 31, 1995
consisted of a final milestone payment of $2 million from Bard in accordance
with an agreement between the Company and Bard. The Company recorded a milestone
payment of $1 million from Bard in the same prior-year period.
14
<PAGE> 15
Cost of sales. Cost of sales as a percentage of product sales was 27% for both
the three and six months ended December 31, 1995, compared with 25% and 27% for
the same periods in the prior year. The higher cost of sales as a percentage of
product sales in the current fiscal quarter was primarily due to the inclusion
of initial start up manufacturing costs of the Trilucent(TM) Implant, which is
currently being launched in Europe. Unit cost of sales for collagen-based
products was considerably higher in the current fiscal year due to decreased
production volumes, primarily of Contigen(R) 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(R) Implant. For
all products other than the Trilucent(TM) breast 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(R) Implant to 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.
SG&A. Selling, general and administrative ("SG&A") expenses were $10.5 million
and $18.8 million for the three and six months ended December 31, 1995,
respectively, an increase of 29% and 22% over $8.1 million and $15.3 million,
respectively, for the same periods in the prior year. SG&A expenses as a
percentage of product sales were 55% and 56% for the three and six months ended
December 31, 1995, compared to 43% and 45% for the same periods in the prior
year. The increase in SG&A expenses in the current fiscal year resulted
primarily from the inclusion of the operating results of LipoMatrix and
amortization expenses on purchased intangibles and goodwill resulting from the
acquisition of LipoMatrix and higher U.S. advertising and public relation
campaign expenses. Additionally, the increase was attributable to the costs of
launching the Trilucent(TM) Implant in Europe, higher international spending
related to an overall increase in sales, and an overall unfavorable impact of
foreign exchange rates, slightly offset by lower commission expense related to
international sales. The Company expects SG&A expenses this fiscal year, both in
absolute dollars and as a percentage of product sales, to be at levels higher
than those of the prior year primarily due to the inclusion of the operating
results of LipoMatrix, and the continued costs of launching the Trilucent(TM)
Implant in Europe.
R&D. Research and development ("R&D") expenses, which include expenditures for
regulatory compliance, were $2.9 million and $5.5 million (16% of product sales)
for the three and six months ended December 31, 1995, respectively, an increase
of 17% and 9% over $2.5 million and $5.0 million (13% and $15% of product
sales), respectively, for the same periods in the prior year. The increase in
R&D spending in the current fiscal year periods was primarily attributable to
R&D spending incurred by LipoMatrix, partially offset by completion of soft
tissue programs and lower expenses related to ISO 9000 certification. The
Company expects R&D spending for this fiscal year, both in absolute dollars and
as a percentage of product sales, to be at levels higher than those of the prior
year due to the inclusion of the operating results of LipoMatrix.
15
<PAGE> 16
Acquired in-process research and development. The charge for acquired in-process
research and development ("in-process R&D") of $14.8 million in the six months
ended December 31, 1995 was a non-recurring charge related to the acquisition of
LipoMatrix. The value attributed to the in-process R&D was determined by an
independent appraisal.
Operating income/loss. Operating income was approximately $417,000 for the three
months ended December 31, 1995, compared with $3.4 million from the same
prior-year period. The Company's consolidated operating loss was $12.3 million
for the six months ended December 31, 1995, compared with an operating income
$5.7 million from the same prior-year period. The loss in the current fiscal
year was primarily due to the acquisition-related, non-recurring, in-process R&D
charge of $14.8 million. Excluding this acquisition related, non-recurring R&D
charge, operating income would have been approximately $2.4 million, for the six
months ended December 31, 1995 as compared with operating income of $5.7 million
for the six months ended December 31, 1995. This decrease in the current fiscal
year was primarily due to inclusion of the operating results of LipoMatrix.
Compared with foreign exchange rates for the same prior-year quarter, the impact
of foreign exchange rates in the current fiscal quarter on operating income was
a net increase of $30,000, resulting from an increase of approximately $300,000
in revenue on equivalent local currency sales, partially offset by an increase
of approximately $270,000 in operating expenses. Compared with foreign exchange
rates for the same prior-year period, the impact of foreign exchange rates in
the six months ended December 31, 1995 on operating income was a net increase of
$50,000, resulting from an increase of approximately $500,000 in revenue on
equivalent local currency sales, partially offset by an increase of
approximately $450,000 in operating expenses.
Gain on investments, net. In the three months ended December 31, 1995, the
Company recorded a net gain on investments of $20.9 million, resulting from the
sale of 800,000 shares (adjusted for a two-for-one stock split) of Target
Therapeutics, Inc. ("Target") common stock for a pre-tax gain of approximately
$24.0 million, partially offset by the recording of an investment reserve of
$3.1 million to write-down the carrying value of certain equity investments due
to a decline in value determined to be other than temporary. In the six months
ended December 31, 1995, the Company recorded a net gain on investments of $31.4
million, resulting from the sale of 1,400,000 shares (adjusted for a two-for-one
stock split) of common stock of Target for a pre-tax gain of approximately $35.4
million, partially offset by the recording of investment reserves of an
aggregate of $4.0 million to write-down the carrying value of certain equity
investments due to a decline in value determined to be other than temporary.
Equity in earnings/losses of affiliate companies. Equity in earnings of
affiliate companies was $415,000 for the three months ended December 31, 1995,
compared to equity in losses of $240,000 for the same prior-year quarter. For
the six months ended December 31, 1995, equity in losses of affiliate companies
was $93,000, compared with losses of $369,000 in the same prior-year period. The
16
<PAGE> 17
earnings in the current fiscal quarter and the decrease in equity in losses of
affiliate companies in the six months period in the current fiscal year over the
same periods in the prior year were primarily due to increased equity in
earnings in Target and decreased equity in losses of LipoMatrix, which the
Company discontinued accounting for under the equity method after its
acquisition in August 1995, partially offset by increased losses recognized by
other affiliate companies. Net equity in earnings of affiliate companies in the
current fiscal quarter consisted of approximately $942,000 of earnings from
Target, partially offset by approximately $527,000 of losses from affiliate
companies other than Target. 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 results. Furthermore, there can be
no assurance that any investments in affiliates will result in any return nor as
to the timing of such return, or that the Company will not lose its entire
investment.
As of December, 1995, given the Company's recent sales of Target stock, the
Company has less than a 20% interest in Target and does not have the ability to
exercise significant influence. Therefore, in future quarters, the Company will
no longer account for Target under the equity method.
Interest income. Interest income was $297,000 and $451,000 for the three and six
months ended December 31, 1995, respectively, compared with $85,000 and $215,000
for the same periods in the prior year. The increase in the current fiscal year
was primarily due to higher average short-term investment balances resulting
primarily from the sale of Target stock and higher interest rates, partially
offset by the repurchase of 125,000 shares of the Company's common stock. The
Company expects it's cash balances to decline and may borrow additional funds
under the line of credit facility in connection with the purchase and funding of
LipoMatrix. Accordingly, the Company expects to record net interest expense
during fiscal year 1997 versus net interest income during fiscal year 1996.
Income tax. The provision for income taxes for the six months ended December 31,
1995 and 1994 was computed by applying the estimated annual income tax rates of
approximately 54% (excluding the impact of the acquired in-process R&D charge
for which no tax benefit is available) and 43%, respectively, to income before
income taxes. The higher effective tax rate in the current fiscal quarter and
year to date period was primarily due to consolidated losses in foreign
subsidiaries for which no tax benefit is available, increased equity losses of
certain affiliates, and increased write-downs of certain equity investments.
Liquidity and Capital Resources
At December 31, 1995, the Company's cash, cash equivalents and short-term
investments were $30 million compared to $9.4 million at June 30, 1995. Net cash
used in operating activities was approximately $9.8 million in the six months
ended December 31, 1995 compared to approximately $4.8 million of net cash
provided by
17
<PAGE> 18
operating activities for the same period in the prior year. The $9.8 million net
cash used in operating activities was mainly attributable to a $8.5 million
estimated tax payment made in December 1995, a significant portion of which was
related to estimated taxes due on the sales of Target stock. Net cash provided
by investing and financing activities of approximately $32.4 million was
primarily due to pre-tax proceeds of approximately $42.1 million from the sale
of 1,400,000 shares (adjusted for a two-for-one stock split) of common stock of
Target by the Company during the six months ended December 31, 1995, partially
offset by payments of approximately $6.2 million for additional investments in
and loans to affiliates, payments of approximately $3.0 million to repurchase
125,000 shares of the Company's common stock at an average acquisition price of
approximately $18.00 per share, and payments of an aggregate cash dividend of
approximately $676,000 to the Company's stockholders in July 1995.
The Company anticipates capital expenditures, equity investments in, and loans
to affiliate companies to be approximately $18.0 million in fiscal 1996. As of
December 31, 1995, the Company's capital expenditures, equity investments in,
and loans to affiliate companies totaled approximately $7.5 million. In November
1995, the Company's Board of Directors declared a cash dividend of 7.5 cents per
share to stockholders of record on December 15, 1995. This dividend totaled
approximately $676,000 and was paid to stockholders on January 15, 1996. The
Company anticipates that the Board of Directors will review the possibility of
declaring an additional dividend before the end of the current fiscal year.
Additionally, in January 1995 the Company was authorized by the Board of
Directors to repurchase an additional 300,000 shares of the Company's common
stock in the open market, pursuant to a stock repurchase program initiated in
February 1993 of which the Company is authorized to repurchase 125,000 shares as
of December 31, 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 then
of approximately 2.3 million shares of Target's common stock. Between July 1,
1994 and December 31, 1995, the Company sold an aggregate of 1,890,000 (adjusted
for a two-for-one stock spilt) shares of Target common stock for an aggregate
pre-tax gain of approximately $41.4 million. The pre-tax sales proceeds were
approximately $50.5 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, which was subsequently amended to $15.0 million in December 1995. As of
January 31, 1996 $10.0 million of this credit facility remained unused. 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
18
<PAGE> 19
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 for collagen products, 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 Company's manufacturing capacity for collagen-based
products and the Trilucent(TM) Implant are located in two primary facilities
(one for collagen-based products and one for the Trilucent(TM) Implant), 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, affecting its manufacturing
facilities.
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 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
products. The Company is confident of the safety and effectiveness of its
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.
19
<PAGE> 20
Due to the factors noted above, as well as other factors that may affect the
Company's operating results, the Company's future earnings and stock price may
be subject to significant volatility, particularly on a quarterly basis. Any
shortfall in revenue or earnings from levels expected by securities analysts
could have an immediate and significant adverse effect on the trading price of
the Company's common stock in any given period. Additionally, the Company may
not learn of, or be able to confirm, such shortfalls until late in the fiscal
quarter, or following the end of the quarter, which could result in an even more
immediate and adverse effect on the trading price of the Company's common stock.
Finally, the Company participates in a highly dynamic industry, which often
results in significant volatility of the Company's common stock.
20
<PAGE> 21
PART II. OTHER INFORMATION
COLLAGEN CORPORATION
Item 1. Legal Proceedings
On December 21, 1994, the Company filed suit 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 tortuous
interference. The Company alleges that Matrix, which uses collagen for
certain drug delivery applications, unlawfully obtained the Company's
confidential and proprietary information relating to Collagen's
products and operations by hiring ten former employees that the
Company alleges had access to or were knowledgeable about the
Company's proprietary information. On February 12, 1995, Matrix denied
the Company's allegations and filed a cross-complaint charging the
Company with, among other things, unfair competition, defamation and
restraint of trade. Matrix also has requested certain declamatory
relief. Howard Palefsky, the Company's Chairman of the Board and Chief
Executive Officer, was personally named as an additional defendant to
the Matrix defamation charge. In September, 1995, Collagen filed an
amended complaint naming two additional former employees, and alleging
the acquisition of additional proprietary information obtained
unlawfully. On November 3, 1995, those two additional former employees
filed a cross-complaint against the Company and Mr. Palefsky, claiming
damages for, among other things, libel, invasion of privacy and
intentional infliction of emotional distress.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
A. On October 25, 1995, the Registrant held its Annual Meeting of
Stockholders.
21
<PAGE> 22
B. As listed below, all of Management's nominees for directors were
elected at the meeting pursuant to proxies solicited pursuant to
Regulation 14 under the Securities and Exchange Act of 1934 (in
thousands).
<TABLE>
<CAPTION>
No. of No. of No. of No. of No. of
Votes Votes Votes Votes Broker
Name of Nominee For Against Withheld Abstained Non-Votes
--------------- ------ ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Anne L. Bakar 8,048 0 129 0 0
John R. Daniels, MD 8,054 0 123 0 0
William G. Davis 8,054 0 123 0 0
Reid W. Dennis 8,052 0 125 0 0
Craig W. Johnson 7,971 0 206 0 0
Terry R. Knapp, MD 8,050 0 127 0 0
Michael F. Mee 7,960 0 217 0 0
Howard D. Palefsky 8,052 0 125 0 0
Rodney Perkins, MD 7,956 0 221 0 0
Gary S. Petersmeyer 8,054 0 123 0 0
Roger H. Salquist 8,052 0 125 0 0
</TABLE>
C. The adoption of an amendment to the 1990 Directors' Stock Option
Plan to increase the number of shares of common stock reserved for
issuance thereunder by 100,000 shares was approved with 6,958,848
shares voting in favor, 1,147,918 shares voting against, and 70,193
shares abstaining.
D. The appointment of Ernst & Young LLP as independent auditors of
the Company for the fiscal year ending June 30, 1996 was ratified
with 8,125,013 shares voting in favor, 19,797 shares voting against
and 32,149 shares abstaining.
Item 5. Other Information
Subsequent to December 31, 1995, Becky Stirn was appointed Vice
President of Global Marketing Strategy and Pierre Comte as Vice
President and Chief Operating Officer of Trilucent(TM) Operations.
Effective January 31, 1996, Dr. Terry Knapp, the former President and
Chief Executive Officer of LipoMatrix and a member of the Company's
Board of Directors, resigned his positions at LipoMatrix and as a
member of the Collagen Board of Directors. The Company and Dr. Knapp
are currently discussing his future role.
22
<PAGE> 23
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 10.67 (a) - Second Amendment, Third Amendment, and Fourth
Amendment dated June 30, 1995, September 30, 1995, and December 26,
1995, respectively, to Credit Agreement dated November 15, 1994 by
and between the Bank of New York and the Registrant (such Credit
Agreement previously filed as Exhibit 10.67 with Registrant's
Quarterly Report on Form 10-Q for the quarter-ended December 31,
1994).
Exhibit 10.76 - Amended and Restated Secured Loan Agreement between
Ross R. Erickson and the Registrant dated December 31, 1995.
Exhibit 10.77 - Promissory Note between Howard D. Palefsky and the
Registrant dated December 11, 1995.
Exhibit 27 - Financial Data Schedule.
B. Reports on Form 8-K
The Company filed the following report on Form 8-K during the fiscal
quarter ended December 31, 1995, which related to the Company's
acquisition of LipoMatrix, Incorporated.
Form 8-K/A
Report Date: August 22, 1995
Filing Date: November 6, 1995
Item 7a - Financial Statements of Acquired Business
Item 7b - Pro Forma Financial Statements
Item 7c - Exhibits
23
<PAGE> 24
COLLAGEN CORPORATION
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
Exhibit 10.67 (a) Second Amendment, Third Amendment, and
Fourth Amendment dated June 30, 1995,
September 30, 1995, and December 26, 1995,
respectively, to Credit Agreement dated
November 15, 1994 by and between the Bank
of New York and the Registrant (such Credit
Agreement previously filed as Exhibit 10.67
with Registrant's Quarterly Report on Form
10-Q for the quarter-ended December 31,
1994).
Exhibit 10.76 Amended and Restated Secured Loan Agreement
between Ross R. Erickson and the Registrant
dated December 31, 1995.
Exhibit 10.77 Promissory Note between Howard D. Palefsky
and the Registrant dated December 11, 1995.
Exhibit 27 Financial Data Schedule.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLLAGEN CORPORATION
Date: February 14, 1996 /s/David Foster
------------------------------------
David Foster
Vice President and
Chief Financial Officer
(Principal Financial
and Accounting Officer)
25
<PAGE> 1
EXHIBIT 10.67(a)
SECOND AMENDMENT TO THE
CREDIT AGREEMENT
This SECOND AMENDMENT TO THE CREDIT AGREEMENT (this "Amendment") is dated
as of June 30, 1995 and entered into by and among Collagen Corporation, a
Delaware corporation (the "Borrower"), and The Bank of New York (the "Bank"),
and is made with reference to that certain Credit Agreement dated as of November
15, 1994 (the "Credit Agreement") by and among the Borrower and the Bank.
Capitalized terms used herein without definition shall have the same meanings
herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, the Borrower and the Bank desire to amend the Credit Agreement to
(i) adjust certain of the financial covenants set forth therein and (ii) make
certain other amendments as set forth below;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Amendment to Section 5.12
Section 5.12 of the Credit Agreement is hereby amended by deleting the
section entitled "Aggregate Amount" and the section entitled "Fiscal Year End"
and inserting in its place and stead the following:
<TABLE>
<CAPTION>
AGGREGATE FISCAL
AMOUNT YEAR END
------------------------------------------------- ---------
<S> <C>
$10,000,000...................................... 6/30/96
</TABLE>
1.2 Amendment to Section 5.14
Section 5.14 of the Credit Agreement is hereby deleted in its entirety and
in its place and stead shall appear the following:
Section 5.14 Minimum Tangible Net Worth
Permit the Tangible Net Worth of the Borrower and its Consolidated
Subsidiaries at any time to be less than $48,550,000, plus (i) 80% of the
cumulative Net Income (but not net loss) of the Borrower and its Consolidated
Subsidiaries for each fiscal quarter of the Borrower and its Consolidated
Subsidiaries ending after the June 30, 1994, and (ii) less the aggregate amount
paid by the Borrower after June 30, 1994 for the purchase by it in one or more
arm's-length transactions of its common shares and held by it as treasury shares
(but not more than $16,383,000 in the aggregate with respect to all such
purchases).
1.3 Amendment to Section 5.15
Section 5.15 of the Credit Agreement is hereby deleted in its entirety and
in its place and stead shall appear the following:
Section 5.15. Interest Coverage Ratio
Permit the Interest Coverage Ratio to be less than (i) 8.5:1 as of June 30,
1995 and as of the first fiscal quarter of the Borrower of 1996 and (ii) 10:1
thereafter.
1.4 Addition of Section 5.21 to the Credit Agreement
A new subsection (o) is hereby added to Section 7.1 of the Credit Agreement
and shall appear as follows:
(o) if the value of the Pledged Stock is ever less than the sum of
$21,000,000. For purposes of computing the foregoing, the "value" of the Pledged
Stock shall be based on the last available per-share price of Target stock in
trading of Target stock on the NASDAQ Stock Exchange.
<PAGE> 2
1.5 Definition of "Net Income"
The definition of "Net Income" appearing on page 70 of the Credit Agreement
is hereby deleted in its entirety and in its place and stead shall appear the
following:
"Net Income" means, with respect to a Person, net income of such person as
determined in accordance with Generally Accepted Accounting Principles.
1.6 Definition of "Interest Coverage Ratio"
A definition of "Interest Coverage Ratio" shall be added to Section 9.1,
Defined Terms, on page 67 before "Interest Expense" and shall appear as follows:
"Interest Coverage Ratio" means on any date of determination, the ratio of
(i) Operating Income of the Borrower and its Consolidated Subsidiaries for the
immediately preceding fiscal quarter of the Borrower to (ii) Interest Expense of
the Borrower and its Consolidated Subsidiaries, for the immediately preceding
fiscal quarter of the Borrower.
1.7 Definition of "Operating Income"
A definition of "Operating Income" shall be added to Section 9.1, Defined
Terms, on page 70 after "Note" and before "Operating Lease" and shall appear as
follows:
"Operating Income" means as of the date of any determination thereof, with
respect to any Person, operating income of such person as determined in
accordance with Generally Accepted Accounting Principles and consistent with the
Borrower's financial statements.
SECTION 2. BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Amendment and to amend the
Credit Agreement in the manner provided herein, the Borrower represents and
warrants to the Bank that the following statements are true, correct and
complete:
A. CORPORATE POWER AND AUTHORITY. The Borrower has all requisite corporate
power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement.
B. AUTHORIZATION OF AGREEMENTS. The execution, delivery and performance of
this Amendment, and the performance of the Credit Agreement have been duly
authorized by all necessary corporate action by the Borrower.
C. NO CONFLICT. The execution, delivery and performance by the Borrower of
this Amendment and the performance by the Borrower of the Credit Agreement do
not and will not (i) violate any provision of any law, rule or regulation
applicable to the Borrower or any of its Subsidiaries, the Certificate of
Incorporation or Bylaws of the Borrower or any of its Subsidiaries or any order,
judgment or decree of any court or other agency of the government binding on the
Borrower or any of its Subsidiaries, (ii) conflict with, result in a breach of
or constitute (with due notice or lapse of time or both) a default under any
Contract of the Borrower or any of its Subsidiaries, (iii) result in or require
the creation or imposition of any Lien upon any of their properties or assets,
or (iv) require any approval of stockholders or any approval or consent of any
Person under any Contract of the Borrower or any of its Subsidiaries except for
such approvals or consents which have been obtained on or before the date hereof
and disclosed in writing to the Bank.
D. GOVERNMENTAL CONSENTS. The execution and delivery by the Borrower of
this Amendment and the performance by the Borrower of the Credit Agreement do
not and will not require any registration with, consent or approval of, or
notice to, or other action to, with or by, any Federal, state or other
governmental authority or regulatory body or other Person.
E. BINDING OBLIGATION. This Amendment and the Credit Agreement when
executed and delivered, will be the legally valid and binding obligations of the
Borrower, enforceable against it in accordance with their
2
<PAGE> 3
respective terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
limiting creditors' rights generally or by equitable principles relating to
enforceability.
F. INCORPORATION OR REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Article 4 of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the date hereof to the same extent as though made on and
as of that date, except to the extent that such representations and warranties
specifically relate to an earlier date, in which case they are true, correct and
complete in all material respects as of such earlier date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing or will
result from the execution of this Amendment which would constitute and Event of
Default or a Potential Event of Default.
SECTION 3. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
(i) On and after the date hereof, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof ", "herein" or words of
like import referring in the other Loan Documents to the "Credit
Agreement", "thereunder", "thereof " or words of like import referring to
the Credit Agreement shall mean and be a reference to the Credit Agreement
as amended by this Amendment.
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment shall
not, constitute a waiver of any provision of, or operate as a waiver of any
right, power or remedy of the Bank under, the Credit Agreement or any of
the other Loan Documents.
B. FEES AND EXPENSES. Borrower acknowledges that all costs, fees and
expenses as described in Section 8.2 of the Credit Agreement incurred by the
Bank and its counsel with respect to this Amendment and the documents and
transactions contemplated hereby shall be for the account of the Borrower.
C. EXECUTION IN COUNTERPARTS; EFFECTIVENESS. This Amendment may be
executed in any number of counterparts, and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts taken together shall constitute
but one and the same instrument.
D. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
apart of this Amendment for any other purpose or be given any substantive
effect.
E. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written by their respective officers
thereunto duly authorized.
COLLAGEN CORPORATION
By: /s/ DAVID FOSTER
------------------------------------
Name: David Foster
Title: Vice President
THE BANK OF NEW YORK
By: /s/ ELIZABETH T. YING
------------------------------------
Name: Elizabeth T. Ying
Title: Assistant Vice President
4
<PAGE> 5
THIRD AMENDMENT TO THE
CREDIT AGREEMENT
This THIRD AMENDMENT TO THE CREDIT AGREEMENT (this "Third Amendment") is
dated as of September 30, 1995 and entered into by and among Collagen
Corporation, a Delaware corporation (the "Borrower"), and The Bank of New York
(the "Bank"), and is made with reference to that certain Credit Agreement dated
as of November 15, 1994 (the "Credit Agreement") by and among the Borrower and
the Bank, as previously amended. Capitalized terms used herein without
definition shall have the same meanings herein as set forth in the Credit
Agreement.
RECITALS
WHEREAS, as of the date hereof, the Borrower has acquired certain
Securities (as such term is defined in the Stock Purchase Agreement, hereinafter
defined) of LipoMatrix, Incorporated, a British Virgin Islands ("LipoMatrix")
pursuant to that certain Stock Purchase Agreement, dated as of August 22, 1995,
among the Borrower, LipoMatrix and the Sellers identified therein (the "Stock
Purchase Agreement"; and
WHEREAS, after giving effect to the purchase of the Securities, the
Borrower will own 90% of the issued and outstanding shares of the common stock
of LipoMatrix; and
WHEREAS, the Borrower intends to purchase the remaining 10% of the issued
and outstanding shares of LipoMatrix as of the date hereof pursuant to separate
agreements (the "Additional Securities"); and
WHEREAS, LipoMatrix is the borrower under a line of credit agreement, dated
August 9, 1995, made by Credit Suisse to LipoMatrix (the "Credit Suisse Loan
Agreement"); and
WHEREAS, the Borrower has requested that the Bank (i) consent to the
Borrower's acquisition of the Securities, and (i) agree to amend certain
covenants set forth in the Credit Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
SECTION 1. CONSENT TO ACQUISITION OF THE SECURITIES.
Notwithstanding anything in Section 5.11(a) or 5.12(a)(i) to the contrary,
the Bank hereby consents to the Borrower's acquisition of the Securities and the
Additional Securities pursuant to the Stock Purchase Agreement, provided that
the total cost of the Borrower's acquisition of (i) the Securities pursuant to
the Stock Purchase Agreement, and (ii) the Additional Securities shall not
exceed U.S. $23,000,000.
SECTION 2. AMENDMENTS TO THE CREDIT AGREEMENT
2.1. Amendments to Section 9.1(a) (Definitions)
The following definitions are hereby added to Section 9.1(a), each to be
inserted in appropriate alphabetical order:
"Credit Suisse Loan Agreement" has the meaning ascribed to such term
in the Recitals of the Third Amendment.
"LipoMatrix" has the meaning ascribed to such term in the Recitals of
the Third Amendment.
"Securities" has the meaning ascribed to such term in the Stock
Purchase Agreement.
"Stock Purchase Agreement" has the meaning ascribed to such term in
the Recitals of the Third Amendment.
"Third Amendment" means that certain Third Amendment to Credit
Agreement, dated as of September 30, 1995, between the Borrower and the
Bank.
<PAGE> 6
2.2. Amendment to Section 5.11 (Indebtedness and Leases)
Subsection (a) of Section 5.11 of the Credit Agreement is hereby amended by
deleting the word "and" prior to clause (iii) of said subsection and adding the
following new clause (iv) at the end of said subsection (a):
and (iv) Debt of LipoMatrix pursuant to the Credit Suisse Loan
Agreement;
2.3. Amendments to Section 5.14 (Minimum Tangible Net Worth), Section 5.15
(Interest Coverage Ratio and Section 5.19 (Dividends)
Sections 5.14, 5.15 and 5.19 of the Credit Agreement are hereby amended by
adding the following sentence at the end of each of said Sections:
The foregoing computations for the fiscal quarter ending September 30,
1995 (and no other period) shall be made without giving effect to the
Borrower's acquisition of the Securities pursuant to the Stock Purchase
Agreement.
SECTION 3. BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Third Amendment and to amend
the Credit Agreement in the manner provided herein, the Borrower represents and
warrants to the Bank that the following statements are true, correct and
complete:
A. CORPORATE POWER AND AUTHORITY. The Borrower has all requisite corporate
power and authority to enter into this Third Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended hereby.
B. AUTHORIZATION OF AGREEMENTS. The execution, delivery and performance of
this Third Amendment, and the performance of the Credit Agreement as amended
hereby have been duly authorized by all necessary corporate action by the
Borrower.
C. NO CONFLICT. The execution, delivery and performance by the Borrower of
this Third Amendment and the performance by the Borrower of the Credit Agreement
as amended hereby do not and will not (i) violate any provision of any law, rule
or regulation applicable to the Borrower or any of its Subsidiaries, the
Certificate of Incorporation or Bylaws of the Borrower or any of its
Subsidiaries or any order, judgment or decree of any court or other agency of
the government binding on the Borrower or any of its Subsidiaries, (ii) conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any Contract of the Borrower or any of its Subsidiaries,
(iii) result in or require the creation or imposition of any Lien upon any of
their properties or assets, or (iv) require any approval of stockholders or any
approval or consent of any Person under any Contract of the Borrower or any of
its Subsidiaries except for such approvals or consents which have been obtained
on or before the date hereof and disclosed in writing to the Bank.
D. GOVERNMENTAL CONSENTS. The execution and delivery by the Borrower of
this Third Amendment and the performance by the Borrower of the Credit Agreement
do not and will not require any registration with, consent or approval of, or
notice to, or other action to, with or by, any Federal, state or other
governmental authority or regulatory body or other Person.
E. BINDING OBLIGATION. This Third Amendment and the Credit Agreement when
executed and delivered, will be the legally valid and binding obligations of the
Borrower, enforceable against it in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or limiting creditors' rights
generally or by equitable principles relating to enforceability.
F. INCORPORATION OR REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Article 4 of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the date hereof to the same extent as though made on and
as of that date, except
-2-
<PAGE> 7
to the extent that such representations and warranties specifically relate to an
earlier date, in which case they are true, correct and complete in all material
respects as of such earlier date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing or will
result from the execution of this Third Amendment which would constitute and
Event of Default or a Potential Event of Default.
H. STOCK PURCHASE AGREEMENT. The Stock Purchase Agreement is in full force
and effect and has not been amended. A true and correct copy of the Stock
Purchase Agreement has been delivered to the Bank. The execution, delivery and
performance of the Stock Purchase Agreement (i) has been duly authorized by all
necessary corporate action by the Borrower, and (ii) does not and will not
require any registration with, consent or approval of, or notice to, or other
action to, with or by, any Federal, state or other governmental authority or
regulatory body or other Person. No party to the Stock Purchase Agreement is in
default of his, her or its obligations thereunder.
I. CREDIT SUISSE LOAN AGREEMENT. The Credit Suisse Loan Agreement and the
Assignment of Claims (Receivables) and the General Deed of Pledge delivered by
LipoMatrix in connection therewith represent all of the documents evidencing and
securing the obligations of LipoMatrix to Credit Suisse (the "LipoMatrix
Obligations"). LipoMatrix has no Debt (contingent or otherwise) other than the
LipoMatrix Obligations, and no Liens on any of its Property other than such
Liens securing the LipoMatrix Obligations. The Borrower neither has nor will it
incur any legal obligation to pay any of the LipoMatrix Obligations.
SECTION 4. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
(i) On and after the date hereof, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof ", "herein" or words of
like import referring in the other Loan Documents to the "Credit
Agreement", "thereunder", "thereof " or words of like import referring to
the Credit Agreement shall mean and be a reference to the Credit Agreement
as amended by this Third Amendment.
(ii) Except as specifically amended by this Third Amendment, the
Credit Agreement and the other Loan Documents shall remain in full force
and effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Third Amendment
shall not, constitute a waiver of any provision of, or operate as a waiver
of any right, power or remedy of the Bank under, the Credit Agreement or
any of the other Loan Documents.
B. FEES AND EXPENSES. Borrower acknowledges that all costs, fees and
expenses as described in Section 8.2 of the Credit Agreement incurred by the
Bank and its counsel with respect to this Third Amendment and the documents and
transactions contemplated hereby shall be for the account of the Borrower.
C. EXECUTION IN COUNTERPARTS; EFFECTIVENESS. This Third Amendment may be
executed in any number of counterparts, and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts taken together shall constitute
but one and the same instrument. This Third Amendment shall not be effective
until the receipt by the Bank of a counterpart of this Third Amendment signed by
all parties hereto is received by the Bank.
D. HEADINGS. Section and subsection headings in this Third Amendment are
included herein for convenience of reference only and shall not constitute a
apart of this Third Amendment for any other purpose or be given any substantive
effect.
E. APPLICABLE LAW. THIS THIRD AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HERETO AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
-3-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be executed as of the date first above written by their respective officers
thereunto duly authorized.
COLLAGEN CORPORATION
By: /s/ DAVID FOSTER
Name: David Foster
Title: Vice President
THE BANK OF NEW YORK
By: /s/ ELIZABETH T. YING
Name: Elizabeth T. Ying
Title: Assistant Vice President
-4-
<PAGE> 9
FOURTH AMENDMENT TO THE
CREDIT AGREEMENT
This FOURTH AMENDMENT TO THE CREDIT AGREEMENT (this "Amendment") is dated
as of December 26, 1995 and entered into by and among Collagen Corporation, a
Delaware corporation (the "Borrower"), and The Bank of New York (the "Bank"),
and is made with reference to that certain Credit Agreement dated as of November
15, 1994 (the "Credit Agreement") by and among the Borrower and the Bank.
Capitalized terms used herein without definition shall have the same meanings
herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, the Borrower and the Bank desire to amend the Credit Agreement to
(i) increase the Commitment Amount and extend the Expiry Date, (ii) adjust
certain of the financial covenants set forth therein and (iii) make certain
other amendments as set forth below;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Definition of "Alternate LIBOR Applicable Margin"
The definition of "Alternate LIBOR Applicable Margin" appearing on page 56
of the Credit Agreement is hereby deleted in its entirety and in its place and
stead shall appear the following:
"Alternate LIBOR Applicable Margin" means 0.50%, provided that such
alternate applicable margin shall apply only to Eurodollar Rate Loans and only
to the extent that throughout the applicable Interest Period (i) the Borrower
maintains at the Bank Eligible Cash Equivalents having a Collateral Value of not
less than $15,000,000, which account, and all such Eligible Cash Equivalents,
are security for any Other Loans and are subject to no Liens other than the Lien
in favor of the Bank, and (ii) no Event of Default has occurred and remains
uncured hereunder or under any other Loan Document. At any time any of the
conditions in this definition do not apply, the Alternate LIBOR Applicable
Margin shall cease to be in effect.
1.2 Definition of "Applicable Margin"
The definition of "Applicable Margin" appearing on page 57 of the Credit
Agreement is hereby deleted in its entirety and in its place and stead shall
appear the following:
"Applicable Margin" means (i) with respect to the unpaid principal amount
of Base Rate Loans, the applicable percentage set forth below next to the words
"Base Rate" and (ii) with respect to the unpaid principal amount of Eurodollar
Rate Loans, the applicable percentage set forth below next to the words
"Eurodollar Rate":
<TABLE>
<CAPTION>
RATE APPLICABLE MARGIN
------------------------------------------------------------- --------------------------
<S> <C>
Base Rate.................................................... 0.50%
Eurodollar Rate.............................................. the lesser of (i) 1.25%,
or (ii), if applicable,
the Alternate LIBOR
Applicable Margin
</TABLE>
1.3 Definition of "Commitment Amount"
The definition of "Commitment Amount" appearing on page 60 of the Credit
Agreement is hereby deleted in its entirety and in its place and stead shall
appear the following:
"Commitment Amount" means the sum of $15,000,000, as that amount may be
reduced from time to time in accordance with Section 1.8.
<PAGE> 10
1.4 Definition of "Expiry Date"
The definition of "Expiry Date" appearing on page 65 of the Credit
Agreement is hereby deleted in its entirety and in its place and stead shall
appear the following:
"Expiry Date" means November 15, 1997.
1.5 Definition of "Debt/Operating Cash Flow Ratio"
The definition of "Debt/Operating Cash Flow Ratio" is hereby added to
Section 9.1(a) of the Credit Agreement to be inserted in the appropriate
alphabetical order:
"Debt/Operating Cash Flow Ratio": on any date of determination, the ratio
of (a) Debt of the Borrower and its consolidated subsidiaries (determined in the
manner hereinafter set forth), to (b) the Operating Cash Flow of the Borrower
and its consolidated subsidiaries (determined in the manner hereinafter set
forth). In determining the Debt/Operating Cash Flow Ratio on any date, both
"Debt of Borrower and its consolidated subsidiaries" and "Operating Cash Flow of
the Borrower and its consolidated subsidiaries" shall be those amounts,
respectively, for the four fiscal quarters of the Borrower immediately preceding
such date of determination of such ratio (or, in the event that the date of
determination is a fiscal quarter ending date, the fiscal quarter then ended and
the immediately preceding three fiscal quarters). For purposes of computing the
Debt/Operating Cash Flow Ratio, the Borrower will be permitted to include in
Operating Cash Flow for the first fiscal quarter of the Borrower in 1996 up to
$14,800,000 of "In Process Research and Development".
1.6 Definition of "Operating Cash Flow"
The definition of "Operating Cash Flow" is hereby added to Section 9.1(a)
of the Credit Agreement to be inserted in the appropriate alphabetical order:
"Operating Cash Flow" means at any time of determination, in respect of any
Person, for any period, Operating Income plus the sum of (i) depreciation and
(ii) amortization.
1.7 Definition of "Interest Coverage Ratio"
The definition of "Interest Coverage Ratio" appearing on page 67 of the
Credit Agreement is hereby deleted in its entirety and in its place and stead
shall appear the following:
"Interest Coverage Ratio" means on any date of determination, the ratio of
(i) Operating Income of the Borrower and its Consolidated Subsidiaries
(determined in the manner hereinafter set forth), to (ii) Interest Expense of
the Borrower and its Consolidated Subsidiaries (determined in the manner
hereinafter set forth). In determining the Interest Coverage Ratio on any date,
both "Operating Income of the Borrower and its consolidated subsidiaries" and
"Interest Expense of the Borrower and its consolidated subsidiaries" shall be
those amounts, respectively for the four fiscal quarters of the Borrower
immediately preceding such date of determination of such ratio (or, in the event
that the date of determination is a fiscal quarter ending date, the fiscal
quarter then ended and the immediately preceding three fiscal quarters). For
purposes of computing the Interest Coverage Ratio, the Borrower will be
permitted to include in Operating Income for the first fiscal quarter of the
Borrower in 1996 up to $14,800,000 of "In Process Research and Development".
1.8 Definition of "Note"
The definition of "Note" appearing on page 70 of the Credit Agreement is
hereby deleted in its entirety and in its place and stead shall appear the
following:
"Note" means the Amended and Restated Margin Loan Note in the form attached
hereto as Exhibit C-1, or the Amended and Restated Other Loan Note in the form
attached hereto as Exhibit C-2, as the case may be; "Notes" means, collectively,
the Amended and Restated Margin Loan Note and the Amended and Restated Other
Loan Note.
-2-
<PAGE> 11
1.9 Amendment to Section 1.8 (b)
Section 1.8(b) of the Credit Agreement are hereby deleted in their entirety
and in their place and stead shall appear the following:
SECTION 1.8 FEES; REDUCTION OF COMMITMENT.
(b) Commitment Fee. The Borrower shall pay to the Bank a fee based on
telephonic or written notification from the Bank on the daily Unused Commitment
for each day from the Effective Date through the Expiry Date at a rate per annum
of .325 of 1%, payable on successive Interest Payment Dates, on the Expiry Date
and on the date of any reduction of the Commitments (to the extent accrued and
unpaid on the amount of the reduction).
1.10 Amendment to Section 5.6
Section 5.6 of the Credit Agreement is hereby deleted in its entirety and
in its place and stead shall appear the following:
SECTION 5.6 GUARANTIES
Become or remain liable with respect to any Guaranty of any Debt or
liability of any other Person, except upon the prior written approval of the
Bank. Notwithstanding the above, the Borrower's letter of December 4, 1995 in
support of the obligations of LipoMatrix to Credit Suisse shall not be a
violation of this Section 5.6 (the foregoing exception shall apply only to this
Section 5.6).
1.11 Amendment to Section 5.12(b) and (c)
Section 5.12(b) and (c) of the Credit Agreement are hereby deleted in their
entirety and in their place and stead shall appear the following:
SECTION 5.12 INVESTMENTS, ACQUISITIONS AND ADVANCES
(b) permit aggregate expenditures for research and development by the
Borrower and its Consolidated Subsidiaries to exceed in any fiscal year of the
Borrower and its Consolidated Subsidiaries 20% of the Product Sales of the
Borrower and its Consolidated Subsidiaries in such fiscal year; or
(c) purchase or otherwise acquire, hold or invest in the stock of, or other
interest in, any Person, or make any loan or advance to, or enter into any
arrangement for the purpose of providing funds or credit to, or make any other
investment, whether by way of capital contribution, time, deposit or otherwise,
in any Person, in an amount (after giving effect to all such contributions,
loans, credit arrangements, deposits or other investments) exceeding in the
aggregate, as of the end of the following fiscal years of the Borrower, the
following amounts:
<TABLE>
<CAPTION>
AGGREGATE FISCAL
AMOUNT YEAR END
-------------------------------------------------- -----------
<S> <C>
$12,000,000....................................... 6/30/96
$ 6,000,000....................................... 6/30/97
</TABLE>
1.12 Amendment to Section 5.14
Section 5.14 of the Credit Agreement is hereby deleted in its entirety and
in its place and stead shall appear the following:
SECTION 5.14. DEBT/OPERATING CASH FLOW RATIO
Permit the Debt/Operating Cash Flow Ratio not to exceed 1.5:1 as of the end
of any fiscal quarter of the Borrower.
-3-
<PAGE> 12
1.13 Amendment to Section 5.15
Section 5.15 of the Credit Agreement is hereby deleted in its entirety and
in its place and stead shall appear the following:
SECTION 5.15 INTEREST COVERAGE RATIO
Permit the Interest Coverage Ratio to be less than 3.0:1 as of the end of
any fiscal quarter of the Borrower.
1.14 Amendment to Section 5.16
Section 5.16 of the Credit Agreement is hereby deleted in its entirety and
in its place and stead shall appear the following:
SECTION 5.16 CAPITAL EXPENDITURES
Permit Capital Expenditures of the Borrower and its Consolidated
Subsidiaries to exceed as of the end of the following fiscal years of the
Borrower and its Consolidated Subsidiaries the following amounts;
<TABLE>
<CAPTION>
AGGREGATE
FISCAL AMOUNT
YEAR END -
-------------------------------------------------
<S> <C>
6/30/96.......................................... $4,500,000
6/30/97.......................................... $7,000,000
</TABLE>
1.15 Amendment to Section 7.1(o)
Section 7.1(o) of the Credit Agreement is hereby deleted in its entirety
and in its place and stead shall appear the following:
(o) if the value of the Pledged Stock is ever less than the sum of
$45,000,000. For purposes of computing the foregoing, the "value" of the Pledged
Stock shall be based on the last available per-share price of Target stock in
trading of Target stock on the NASDAQ Stock Exchange.
1.16 Addition of Section 7.1(p)
Section 7.1(p) is hereby added to the Credit Agreement and shall appear as
follows:
(p) if the Borrower has not delivered to the Bank within thirty (30) days
from the date hereof the stock certificates appurtenant to 928,000 shares of
Target stock.
1.17 Amendment to Section 8.1(ii)
Section 8.1(ii) of the Credit Agreement is hereby deleted in its entirety
and in its place and stead shall appear the following:
SECTION 8.1 NOTICE
(ii) if to the Bank, to it at:
THE BANK OF NEW YORK
One Wall Street
17th Floor
New York, NY 10015
Telecopier No.: (212) 635-6399
Telephone No.: (212) 635-6737
Attention: Lorna Alleyne
-4-
<PAGE> 13
with a copy to:
The Bank of New York
Representative Office
10990 Wilshire Boulevard
Suite 1125
Los Angeles, California 90024
Telecopier No.: (310) 996-8667
Telephone No.: (310) 996-8661
Attention: Ms. Liz Ying,
Vice President
SECTION 2. BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Amendment and to amend the
Credit Agreement in the manner provided herein, the Borrower represents and
warrants to the Bank that the following statements are true, correct and
complete:
A. CORPORATE POWER AND AUTHORITY. The Borrower has all requisite corporate
power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement.
B. AUTHORIZATION OF AGREEMENTS. The execution, delivery and performance of
this Amendment, and the performance of the Credit Agreement have been duly
authorized by all necessary corporate action by the Borrower.
C. NO CONFLICT. The execution, delivery and performance by the Borrower of
this Amendment and the performance by the Borrower of the Credit Agreement do
not and will not (i) violate any provision of any law, rule or regulation
applicable to the Borrower or any of its Subsidiaries, the Certificate of
Incorporation or Bylaws of the Borrower or any of its Subsidiaries or any order,
judgment or decree of any court or other agency of the government binding on the
Borrower or any of its Subsidiaries, (ii) conflict with, result in a breach of
or constitute (with due notice or lapse of time or both) a default under any
Contract of the Borrower or any of its Subsidiaries, (iii) result in or require
the creation or imposition of any Lien upon any of their properties or assets,
or (iv) require any approval of stockholders or any approval or consent of any
Person under any Contract of the Borrower or any of its Subsidiaries except for
such approvals or consents which have been obtained on or before the date hereof
and disclosed in writing to the Bank.
D. GOVERNMENTAL CONSENTS. The execution and delivery by the Borrower of
this Amendment and the performance by the Borrower of the Credit Agreement do
not and will not require any registration with, consent or approval of, or
notice to, or other action to, with or by, any Federal, state or other
governmental authority or regulatory body or other Person.
E. BINDING OBLIGATION. This Amendment and the Credit Agreement when
executed and delivered, will be the legally valid and binding obligations of the
Borrower, enforceable against it in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or limiting creditors' rights
generally or by equitable principles relating to enforceability.
F. INCORPORATION OR REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Article 4 of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the date hereof to the same extent as though made on and
as of that date, except to the extent that such representations and warranties
specifically relate to an earlier date, in which case they are true, correct and
complete in all material respects as of such earlier date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing or will
result from the execution of this Amendment which would constitute and Event of
Default or a Potential Event of Default.
-5-
<PAGE> 14
SECTION 3. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
(i) On and after the date hereof, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of
like import referring in the other Loan Documents to the "Credit
Agreement", "thereunder", "thereof" or words of like import referring to
the Credit Agreement shall mean and be a reference to the Credit Agreement
as amended by this Amendment.
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment shall
not, constitute a waiver of any provision of, or operate as a waiver of any
right, power or remedy of the Bank under, the Credit Agreement or any of
the other Loan Documents.
B. FEES AND EXPENSES. Borrower acknowledges that all costs, fees and
expenses as described in Section 8.2 of the Credit Agreement incurred by the
Bank and its counsel with respect to this Amendment and the documents and
transactions contemplated hereby shall be for the account of the Borrower.
C. EXECUTION IN COUNTERPARTS; EFFECTIVENESS. This Amendment may be
executed in any number of counterparts, and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts taken together shall constitute
but one and the same instrument.
D. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
apart of this Amendment for any other purpose or be given any substantive
effect.
E. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written by their respective officers
thereunto duly authorized.
COLLAGEN CORPORATION
By: /s/ DAVID FOSTER
Name: David Foster
Title: Vice President
THE BANK OF NEW YORK
By:
Name:
Title:
-6-
<PAGE> 15
AMENDED AND RESTATED MARGIN LOAN NOTE
$15,000,000 as of December 26, 1995
New York, New York
FOR VALUE RECEIVED, on the Maturity Date, COLLAGEN CORPORATION, a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of THE BANK OF
NEW YORK (the "Lender"), at its located at One Wall Street, New York, New York
or at such other place as the Lender may specify from time to time, in lawful
money of the United States of America, the principal sum of FIFTEEN MILLION and
NO/100 ($15,000,000), or such lesser unpaid principal balance as shall be
outstanding hereunder, together with interest from the date hereof, on the
unpaid principal balance hereof, payable at the rate or rates and at the time or
times provided for in the Credit Agreement, dated as of November 15, 1994,
between the Borrower and the Lender (as the same may be amended, modified or
supplemented from time to time, the "Agreement"). Capitalized terms used herein
that are defined in the Agreement shall have the meanings therein defined. In no
event shall interest payable hereon exceed the Highest Lawful Rate.
This Note is the Margin Loan Note referred to in the Agreement and is
entitled to the benefits of, and is subject to the terms set forth in, the
Agreement. The principal of this Note is payable in the amounts and under the
circumstances, and its maturity is subject to acceleration upon the terms, set
forth in the Agreement. Except as otherwise provided in the Agreement, if any
payment on this Note becomes due and payable on a day which is not a Business
Day, the maturity thereof shall be extended to the next Business Day and
interest shall be payable at the applicable rate or rates specified in the
Agreement during such extension period.
The (i) date and amount of each Loan made by the Lender, (ii) its character
as a Base Rate Loan or a Eurodollar Rate Loan, or a combination thereof, and
(iii) each payment and prepayment of the principal thereof, shall be recorded by
the Lender on its books and, prior to any transfer of this Note, indorsed by the
Lender on the schedule attached hereto and any continuation thereof, provided
that the failure of the Lender to make any such recordation or indorsement shall
not affect the obligations of the Borrower to make payment when due of any
amount owing hereunder.
Presentment for payment, demand, protest, notice of protest and notice of
dishonor and all other demands and notices in connection with the delivery,
performance and enforcement of this Note are hereby waived, except as
specifically otherwise provided in the Agreement.
This Note is being delivered in, is intended to be performed in, shall be
construed and interpreted in accordance with, and be governed by the internal
laws of, the State of New York, without regard to principles of conflicts of
law.
This Note may only be amended by an instrument in writing executed pursuant
to the provisions of Section 8.5 of the Agreement.
This Note is given in substitution for and shall constitute the amendment
and restatement in its entirety of the Margin Loan Note dated November 15, 1994
made by the Borrower to the Lender and shall constitute the evidence of
Borrower's indebtedness to the Lender in the principal sum equal to $15,000,000.
This Note is one of the Notes referred to in the Agreement as the "Note", and is
subject to the terms and conditions set forth in the Agreement, and its maturity
is subject to acceleration in accordance therewith. It is expressly understood
and agreed that in the event of any conflict between the terms of this Note and
the terms of the Margin Loan Note, then terms of this Note shall control.
COLLAGEN CORPORATION
By: /s/ DAVID FOSTER
Name: David Foster
Title: Vice President
<PAGE> 16
SCHEDULE TO NOTE
<TABLE>
<CAPTION>
INTEREST
RATE ON
EURODOLLAR
TYPE OF RATE LOANS INTEREST
OTHER LOAN AMOUNT OF WITHOUT PERIOD (IF
(BASE RATE OR PRINCIPAL REGARD TO EURODOLLAR
EURODOLLAR AMOUNT OF PAID OR APPLICABLE RATE NOTATION
DATE RATE) LOAN PREPAID MARGIN) LOANS) MADE BY
- ----------------- -------------- --------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 17
AMENDED AND RESTATED OTHER LOAN NOTE
$15,000,000 as of December 26, 1995
New York, New York
FOR VALUE RECEIVED, on the Maturity Date, COLLAGEN CORPORATION, a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of THE BANK OF
NEW YORK (the "Lender"), at its located at One Wall Street, New York, New York
or at such other place as the Lender may specify from time to time, in lawful
money of the United States of America, the principal sum of FIFTEEN MILLION and
NO/100 ($15,000,000), or such lesser unpaid principal balance as shall be
outstanding hereunder, together with interest from the date hereof, on the
unpaid principal balance hereof, payable at the rate or rates and at the time or
times provided for in the Credit Agreement, dated as of November 15, 1994,
between the Borrower and the Lender (as the same may be amended, modified or
supplemented from time to time, the "Agreement"). Capitalized terms used herein
that are defined in the Agreement shall have the meanings therein defined. In no
event shall interest payable hereon exceed the Highest Lawful Rate.
This Note is the Other Loan Note referred to in the Agreement and is
entitled to the benefits of, and is subject to the terms set forth in, the
Agreement. The principal of this Note is payable in the amounts and under the
circumstances, and its maturity is subject to acceleration upon the terms, set
forth in the Agreement. Except as otherwise provided in the Agreement, if any
payment on this Note becomes due and payable on a day which is not a Business
Day, the maturity thereof shall be extended to the next Business Day and
interest shall be payable at the applicable rate or rates specified in the
Agreement during such extension period.
The (i) date and amount of each Loan made by the Lender, (ii) its character
as a Base Rate Loan or a Eurodollar Rate Loan, or a combination thereof, and
(iii) each payment and prepayment of the principal thereof, shall be recorded by
the Lender on its books and, prior to any transfer of this Note, indorsed by the
Lender on the schedule attached hereto and any continuation thereof, provided
that the failure of the Lender to make any such recordation or indorsement shall
not affect the obligations of the Borrower to make payment when due of any
amount owing hereunder.
Presentment for payment, demand, protest, notice of protest and notice of
dishonor and all other demands and notices in connection with the delivery,
performance and enforcement of this Note are hereby waived, except as
specifically otherwise provided in the Agreement.
This Note is being delivered in, is intended to be performed in, shall be
construed and interpreted in accordance with, and be governed by the internal
laws of, the State of New York, without regard to principles of conflicts of
law.
This Note may only be amended by an instrument in writing executed pursuant
to the provisions of Section 8.5 of the Agreement.
This Note is given in substitution for and shall constitute the amendment
and restatement in its entirety of the Other Loan Note dated November 15, 1994
made by the Borrower to the Lender and shall constitute the evidence of
Borrower's indebtedness to the Lender in the principal sum equal to $15,000,000.
This Note is one of the Notes referred to in the Agreement as the "Note", and is
subject to the terms and conditions set forth in the Agreement, and its maturity
is subject to acceleration in accordance therewith. It is expressly understood
and agreed that in the event of any conflict between the terms of this Note and
the terms of the Other Loan Note, then terms of this Note shall control.
COLLAGEN CORPORATION
By: /s/ DAVID FOSTER
Name: David Foster
Title: Vice President and Chief
Financial Officer
<PAGE> 18
SCHEDULE TO NOTE
<TABLE>
<CAPTION>
INTEREST
RATE ON
EURODOLLAR
TYPE OF RATE LOANS INTEREST
OTHER LOAN AMOUNT OF WITHOUT PERIOD (IF
(BASE RATE OR PRINCIPAL REGARD TO EURODOLLAR
EURODOLLAR AMOUNT OF PAID OR APPLICABLE RATE NOTATION
DATE RATE) LOAN PREPAID MARGIN) LOANS) MADE BY
- ----------------- -------------- --------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 10.76
COLLAGEN CORPORATION
AMENDED AND RESTATED SECURED LOAN AGREEMENT
This Amended and Restated Secured Loan Agreement is made as of December 31,
1995 by and between Collagen Corporation, a Delaware corporation (the "COMPANY")
and Ross R. Erickson ("BORROWER").
RECITALS
A. The Company and the Borrower are parties to a Secured Loan Agreement
dated October 5, 1995 (the "LOAN AGREEMENT").
B. Borrower has borrowed, and the Company has lent to Borrower $120,000.00
(the "BORROWED AMOUNT"). The parties desire that such loan shall be secured on
the terms and conditions contained herein by (a) certain real property owned or
being acquired by Borrower (the "PROPERTY") and (b) all shares of the Company's
capital stock issued to Borrower upon exercise of stock options currently held
or hereafter acquired by Borrower while the Borrowed Amount is oustanding (the
"SHARES").
C. Section 6 of the Loan Agreement provides that such Agreement may be
amended by a written instrument signed by the Company and the Borrower.
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto agree that the Loan Agreement is
hereby amended to read in full as follows:
1. Agreement to Lend. Subject to the terms and conditions contained
herein and upon execution of this Agreement, the Company agrees to issue to
Borrower a check or other readily available funds in the Borrowed Amount on the
date of this Agreement.
2. Promissory Note. In consideration of the Company's delivery of the
Borrowed Amount, Borrower will execute the secured promissory note attached
hereto as Exhibit A (the "Note"), in the principal amount of the Borrowed Amount
and bearing interest at the applicable adjusted federal rate, compounded
semiannually.
3. Security Agreement. Borrower will additionally execute the Security
Agreement attached hereto as Exhibit B (the "SECURITY AGREEMENT") as security
for Borrower's obligation to repay the Borrowed Amount, and will deliver, or
cause to be delivered, all certificates representing the Shares to the Company
or its designee as pledgeholder of the Shares, together with such other
documents of assignment and other documents as may be reasonably requested by
the Company to perfect its security interest in and to the Shares and the
Property, including, without limitation, a Deed of Trust in form and substance
reasonably satisfactory to the Company. The Shares will be held by the Company
or its designee as pledgeholder and shall be released according to the terms of
the Security Agreement.
4. Successors or Assigns. Borrower and the Company agree that all of the
terms of this Agreement shall be binding on their successors and assigns, and
that the term "Borrower" and the term "Company " as used herein shall be deemed
to include as to each party, for all purposes, the designees, successors,
assigns, heirs, executors and administrators of such party.
5. Governing Law. This Agreement shall be interpreted and governed under
the laws of the State of California.
6. Amendment. This Agreement may be amended only by a written instrument
signed by each party hereto.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Secured Loan Agreement as of the day and year first above written.
"BORROWER" ROSS R. ERICKSON
/s/ ROSS ERICKSON
(Signature)
Address: 1758 Carleton Court
Redwood City, CA 94061
"COMPANY" COLLAGEN CORPORATION
By: /s/ DAVID FOSTER
TITLE: VICE PRESIDENT
-2-
<PAGE> 3
EXHIBIT A
AMENDED AND RESTATED SECURED PROMISSORY NOTE
$120,000.00 as of December 31, 1995
Palo Alto, California
FOR VALUE RECEIVED, ROSS R. ERICKSON promises to pay to Collagen
Corporation, a California corporation (the "COMPANY"), the principal sum of ONE
HUNDRED TWENTY THOUSAND DOLLARS ($120,000.00), together with interest on the
unpaid principal hereof to be accrued quarterly from October 5, 1995 at the
prime rate of interest as of the last day of the calendar quarter, as reported
in the Wall Street Journal. Accrued interest will be paid annually commencing
October 5, 1996 for so long as there is a principal balance outstanding.
All principal and accrued interest shall be due and payable in full on the
earliest of (a) the date seven (7) years from the date of this Note, or (b)
termination of the undersigned's employment with the Company for any reason (or
for no reason). Payments of principal and interest shall be made in lawful money
of the United States of America and shall be credited first to the accrued
interest, with the remainder applied to principal. One-half of the gross amount
of Borrower's cash bonus for the prior fiscal year will be applied against the
principal of this Note commencing with the cash bonus received for the fiscal
year ended June 30, 1997.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of an Amended and Restated Secured Loan
Agreement of even date herewith, by and between the Company and the undersigned,
and is secured by a Deed of Trust with respect to real property as well as by a
pledge of the certain of the capital stock of the Company, each under the terms
of a Security Agreement of even date herewith and is subject to all the
provisions thereof. This Note replaces that certain Secured Promissory Note
dated October 5, 1995, payable by the undersigned to the Company, which is
deemed cancelled upon delivery hereof.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
The holder of this Note shall have full recourse against the maker, and
shall not be required to proceed against the collateral securing this Note in
the event of default.
/s/ ROSS ERICKSON
--------------------------------------
ROSS R. ERICKSON
A-1
<PAGE> 4
EXHIBIT B
AMENDED AND RESTATED SECURITY AGREEMENT
This Amended and Restated Security Agreement is made as of December 31,
1995, between Collagen Corporation, a Delaware corporation ("PLEDGEE"), and Ross
R. Erickson ("PLEDGOR").
RECITALS
Pledgee has loaned or will loan to Pledgor, and Pledgor has borrowed or
will borrow from Pledgee, $120,000.00, which loan is or shall be evidenced by a
promissory note (the "NOTE") and is to be secured by (a) certain real property
owned or to be acquired by Pledgor located at 1758 Carleton Court, Redwood City,
California (the "PROPERTY") and (b) shares of Pledgee's capital stock issued
upon exercise of stock options currently held or hereafter acquired by Pledgor
while the Borrowed Amount is outstanding (the "SHARES" and collectively with the
Property, the "COLLATERAL"). The Note and the obligations thereunder are as set
forth in Exhibit A to the Amended and Restated Secured Loan Agreement between
Pledgor and Pledgee, dated the date hereof.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest; Transferability; Escrow.
(a) In consideration of the loan to Pledgor under the Amended and
Restated Secured Loan Agreement, Pledgor, pursuant to the Commercial Code
of the State of California, hereby (i) grants to the Pledgee a
first-priority security interest in the Property (subordinate only to any
purchase-money indebtedness incurred with respect thereto) and (ii) pledges
the Shares represented by the certificates therefor, duly endorsed in blank
or with executed stock powers, and herewith delivers such certificates
existing as of the date hereof, and agrees to deliver such certificates as
Pledgor may acquire in the future, to the Secretary of Pledgee (the
"PLEDGEHOLDER"), who shall hold said certificates subject to the terms and
conditions of this Amended and Restated Security Agreement.
(b) The pledged stock (together with an executed blank stock
assignment for use in transferring all or a portion of the Shares to
Pledgee if, as and when required pursuant to this Amended and Restated
Security Agreement) shall be held by the Pledgeholder as security for the
repayment of the Note, and any extensions or renewals thereof, to be
executed by Pledgor pursuant to the terms of the Amended and Restated
Secured Loan Agreement.
(c) Except as required to enable Pledgee to exercise its rights as a
secured party, none of the Shares pledged under this Section 1 may be sold,
transferred, pledged, hypothecated or otherwise disposed of by Pledgor.
(d) To ensure the ability of Pledgee to exercise its rights as a
secured party hereunder, Pledgor shall, upon execution of this Agreement,
deliver and deposit with the Transfer Agent of Pledgee, or such other
person designated by Pledgee, the share certificates representing the
Shares currently held by Pledgor, and to do the same in the future at such
time as Pledgor may acquire additional certificates, together with a stock
power, duly endorsed in blank, in the form attached hereto as Exhibit B-1.
The Shares and stock power(s) shall be held by Pledgee in escrow, until
such time as the Note shall have been paid in full. As a further inducement
to Pledgee to loan to Pledgor the funds represented by the Note, the spouse
of Pledgor, if any, shall execute and deliver to Pledgee the Consent of
Spouse attached hereto as Exhibit B-2.
(e) The Property shall be secured pursuant to a deed of trust made by
Pledgor in form and substance satisfactory to Pledgee (the "DEED OF
TRUST"), encumbering the Property, which Pledgor occupies as his principal
place of residence.
B-1
<PAGE> 5
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
into this Amended and Restated Security Agreement, Pledgor represents and
covenants to Pledgee, its successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum of
the Note secured hereby, together with interest thereon, at the time and in
the manner provided in the Note.
(b) Encumbrances. All Collateral now or hereafter pledged under this
Agreement are and shall be free of all other encumbrances, defenses and
liens, other than purchase money indebtedness, and Pledgor will not further
encumber the Collateral without the prior written consent of Pledgee.
3. Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge any
stock dividend, reclassification, readjustment or other changes declared or made
in the capital structure of Pledgee, all new, substituted and additional shares
or other securities issued by reason of any such change shall be delivered to
and held by the Pledgeholder under the terms of this Amended and Restated
Security Agreement in the same manner as the Shares originally pledged
hereunder. In the event of substitution of such securities, Pledgor, Pledgee and
Pledgeholder shall cooperate and execute such documents as are reasonable so as
to provide for the substitution of such Collateral and, upon such substitution,
references to "Shares" in this Amended and Restated Security Agreement shall
include the substituted shares of capital stock of Pledgee held by Pledgor as a
result thereof.
5. Warrants and Rights. In the event that, during the term of this
pledge, subscription warrants or other rights or options shall be issued in
connection with the pledged Shares, such rights, warrants and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Amended and Restated Security Agreement in the same manner as
the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
this Amended and Restated Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants contained in this
Amended and Restated Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of default, as set forth above, Pledgee shall have
the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
8. Term. The pledge of Shares and the Deed of Trust shall continue until
the payment of all indebtedness secured hereby, at which time the remaining
pledged stock shall be promptly delivered to Pledgor and the Deed of Trust shall
be removed.
9. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against Pledgor, or if a receiver is appointed
for the property of Pledgor, or if Pledgor makes an assignment for the benefit
of creditors, the entire amount unpaid on the Note shall become immediately due
and payable, and Pledgee may proceed as provided in the case of default.
10. Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
B-2
<PAGE> 6
11. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
the unenforceability or invalidity of any provision or provisions of this
Amended and Restated Security Agreement shall not render any other provision or
provisions herein contained unenforceable or invalid.
12. Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Amended and Restated Security Agreement shall be binding on their
respective successors and assigns, and that the term "Pledgor" and the term
"Pledgee" as used herein shall be deemed to include, for all purposes, the
respective designees, successors, assigns, heirs, executors and administrators.
13. Governing Law. This Amended and Restated Security Agreement shall be
interpreted and governed under the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Security Agreement as of the day and year first above written.
"PLEDGOR" ROSS R. ERICKSON
/s/ ROSS ERICKSON
(Signature)
Address: 1758 Carleton Court
Redwood City, CA 94061
"PLEDGEE" COLLAGEN CORPORATION
By: /s/ DAVID FOSTER
Title: Vice President
B-3
<PAGE> 7
EXHIBIT B-1
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I hereby sell, assign and transfer unto
( ) shares of the capital stock of
Collagen Corporation, a Delaware corporation, standing in my name on the books
of said corporation and represented by Certificates No. herewith and do hereby
irrevocably constitute and appoint to
transfer said stock on the books of the within-named corporation with full power
of substitution in the premises.
Dated:
Signature:
/s/ ROSS ERICKSON
Ross R. Erickson
This Assignment Separate from Certificate was executed in conjunction with
the terms of an Amended and Restated Security Agreement between the above
assignor and Collagen Corporation dated , 1995. ACCORDINGLY, PLEASE
EXECUTE THIS ASSIGNMENT IN BLANK WITHOUT COMPLETING ANY OTHER INFORMATION CALLED
FOR (INCLUDING THE DATE).
B-1-1
<PAGE> 8
EXHIBIT B-2
CONSENT OF SPOUSE
I, LAURA ERICKSON, spouse of Ross R. Erickson, have read and approved the
foregoing Amended and Restated Secured Loan Agreement and the exhibits thereto
(the "AGREEMENT"). In consideration of granting of the right to my spouse to
borrow funds as set forth in the Agreement, I hereby appoint my spouse as my
attorney-in-fact in respect to the exercise of any rights under the Agreement
and agree to be bound by the provisions of the Agreement insofar as I may have
any rights under such Agreement or in any shares of Collagen Corporation serving
as collateral pursuant thereto under the community property laws of the State of
California or similar laws relating to marital property in effect in the state
of our residence as of the date of the signing of the Agreement.
Dated: December 31, 1995
/s/ LAURA ERICKSON
(Signature)
B-2-1
<PAGE> 1
EXHIBIT 10.77
PROMISSORY NOTE
$25,000 Palo Alto, California
December 6, 1995
FOR VALUE RECEIVED, the undersigned, Howard 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 time designate in writing, the sum of twenty-five thousand dollars ($25
,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.
<TABLE>
<S> <C>
/s/ REID W. DENNIS /s/ HOWARD PALELSKY
Acknowledged and accepted by:
Reid W. Dennis December 11, 1995
Chairman of Emeritus
Chairman of Executive Committee
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COLLAGEN CORPORATION INCLUDED IN FORM 10-Q
QUARTERLY REPORT FOR THE QUARTER ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT FOR THE QUARTER ENDED
DECEMBER 31, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 29,967
<SECURITIES> 0
<RECEIVABLES> 12,468
<ALLOWANCES> 364
<INVENTORY> 7,570
<CURRENT-ASSETS> 55,651
<PP&E> 36,968
<DEPRECIATION> 20,611
<TOTAL-ASSETS> 102,259
<CURRENT-LIABILITIES> 45,719
<BONDS> 11,366
106
0
<COMMON> 0
<OTHER-SE> 45,068
<TOTAL-LIABILITY-AND-EQUITY> 102,259
<SALES> 18,883
<TOTAL-REVENUES> 18,883
<CGS> 5,074
<TOTAL-COSTS> 5,074
<OTHER-EXPENSES> 13,392
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> 22,010
<INCOME-TAX> 12,540
<INCOME-CONTINUING> 9,470
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,470
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
