<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 September 30, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from to
Commission File 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 October 31, 1996, Registrant had outstanding 8,690,210 shares of common
stock, exclusive of 1,947,900 shares held by the Registrant as treasury stock.
<PAGE> 2
COLLAGEN CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information Page No.
--------
<S> <C>
Consolidated Balance Sheets -
September 30, 1996 and June 30, 1996..........................3
Consolidated Statements of Operations -
Three months ended September 30, 1996 and 1995.................4
Consolidated Statements of Cash Flows -
Three months ended September 30, 1996 and 1995.................5
Notes to Consolidated Financial Statements...................6-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................9-15
</TABLE>
PART II. Other Information
<TABLE>
<S> <C>
Other Information..........................................16-19
Signatures....................................................20
</TABLE>
2
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COLLAGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996 *
------------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,380 $ 21,676
Short-term investments 6,056 3,691
Accounts receivable, net 10,190 9,508
Inventories, net 10,893 9,563
Other current assets, net 8,967 11,496
-------- --------
Total current assets 56,486 55,934
Property and equipment, net 15,678 15,147
Intangible assets and goodwill, net 14,421 14,824
Investment in Target Therapeutics, Inc. 58,819 65,841
Other investments & assets, net 12,448 11,261
======== ========
$157,852 $163,007
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,962 $ 3,824
Other accrued liabilities 11,610 11,869
Income taxes payable 9,087 7,588
Notes payable 5,083 5,079
-------- --------
Total current liabilities 28,742 28,360
Long-term liabilities:
Deferred income taxes 25,240 27,674
Other long-term liabilities 3,535 3,444
Minority interest 487 528
-------- --------
Total long-term liabilities 29,262 31,646
Commitments and contingencies
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: 10,638,010 shares at September 30, 1996 (10,575,614
shares at June 30, 1996), outstanding: 8,690,110 shares at
September 30, 1996 (8,775,614 shares at June 30, 1996) 107 106
Additional paid-in capital 65,367 64,844
Retained earnings 44,685 42,378
Cumulative translation adjustment (570) (656)
Unrealized gain on available-for-sale investments 31,025 34,549
Treasury stock, at cost, 1,947,900 shares at September 30, 1996
(1,800,000 shares at June 30, 1996) (40,766) (38,220)
-------- --------
Total stockholders' equity 99,848 103,001
======== ========
$157,852 $163,007
======== ========
</TABLE>
* Amounts derived from audited financial statements for the period indicated.
3
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COLLAGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues:
Product Sales $16,785 $ 14,940
Other --- 2,000
------- --------
16,785 16,940
------- --------
Costs and expenses:
Cost of sales 5,145 3,997
Selling, general & administrative 8,848 8,302
Research & development 4,162 2,579
Acquired in-process research and development --- 14,800
------- --------
18,155 29,678
------- --------
Loss from operations (1,370) (12,738)
Other income (expense):
Net gain on investments, principally Target Therapeutics, Inc. 6,184 10,466
Equity in losses of affiliates, net (474) (508)
Interest income 354 154
Interest expense (85) (12)
------- --------
Income (loss) before income taxes and minority interest 4,609 (2,638)
Provision for income taxes 2,443 5,913
Minority interest (141) ---
------- --------
Net income (loss) $ 2,307 $ (8,551)
======= ========
Net income (loss) per share $ .25 $ (.95)
======= ========
Shares used in calculating per share information 9,086 8,992
======= ========
</TABLE>
4
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COLLAGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------
1996 1995
---------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,307 $ (8,551)
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 1,617 1,210
Equity in losses (earnings) of affiliates 474 508
Gain on investments, net of taxes paid of $3.5 million and (2,702) (4,651)
$5.8 million, respectively
Other adjustments related to changes in
assets and liabilities 1,560 3,719
-------- --------
Net cash provided by (used in) operating activities 3,256 7,035
-------- --------
Cash flows from investing activities:
Proceeds from sale of Target Therapeutics, Inc. stock, net of taxes paid 3,767 8,521
Proceeds from sales and maturities of short-term investments 500 1,144
Purchases of short-term investments (2,865) (101)
Expenditures for property and equipment (1,704) (592)
Increase in intangible and other assets (46) (163)
Expenditures for investments in and loans to affiliates (1,255) (1,775)
Acquisition of LipoMatrix, Incorporated, net of cash balances -- (22,608)
Accrued purchase consideration and other costs of
acquisition of LipoMatrix -- 22,729
-------- --------
Net cash provided by investing activities (1,603) 7,155
-------- --------
Cash flows from financing activities:
Repurchase of common stock (2,547) (804)
Net proceeds from issuance of common stock 524 39
Cash dividends paid (885) (676)
Net borrowing (repayment) under bank loans (41) 70
-------- --------
Net cash used in financing activities (2,949) (1,371)
-------- --------
Net increase (decrease) in cash and cash equivalents (1,296) 12,819
Cash and cash equivalents at beginning of period 21,676 6,155
-------- --------
Cash and cash equivalents at end of period $ 20,380 $ 18,974
======== ========
</TABLE>
5
<PAGE> 6
COLLAGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Collagen
Corporation (the "Company"), a Delaware corporation, and its wholly-owned
and majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The Company operates in one industry
segment focusing on the development, manufacturing and sale of medical
devices. 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. Investments in companies in which the Company has less than 20%
interest with no readily determinable fair value are carried at cost or
estimated realizable value, if less, and those with a readily determinable
fair value are carried at market value.
The consolidated balance sheet as of September 30, 1996, the consolidated
statements of operations for the three months ended September 30, 1996 and
1995, and the consolidated statements of cash flows for the three months
ended September 30, 1996 and 1995, 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
September 30, 1996 and for all periods presented. Interim results are not
necessarily indicative of results for a full fiscal year. The consolidated
balance sheet as of June 30, 1996 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 consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended June 30, 1996
included in the Company's Annual Report on Form 10-K for the year ended
June 30, 1996.
New Accounting Standard
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS#123"), which establishes a fair value method of
accounting for stock options and other equity instruments. The Company
adopted SFAS#123 beginning in fiscal year 1997 and will use the disclosure
method as described in the statement. The required disclosure will be
included in the Company's Annual Report on Form 10-K for the year ended
June 30, 1997.
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<PAGE> 7
2. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------- -------
<S> <C> <C>
Raw materials $ 829 $ 1,148
Work-in-process 4,104 3,630
Finished goods 5,960 4,785
-------
-------
$10,893 $ 9,563
======= =======
</TABLE>
3. Investment in Target Therapeutics, Inc.
The Company accounts for its investment in Target Therapeutics ("Target")
under the cost method as an available-for-sale equity security and
accordingly is carried at market value. During the quarter ended September
30, 1996, the Company sold 230,000 shares of Target common stock for a
pre-tax gain of approximately $6.2 million. Target's common stock is quoted
on The Nasdaq Stock Market. The closing price of Target's stock at
September 30, 1996 was $42.75 per share. At September 30, 1996, the Company
held 1,375,888 shares of Target's common stock, or approximately a 9%
ownership position in Target.
At June 30, 1996, the Company's shares of Target common stock were recorded
at the estimated fair value of $58.8 million. The $52.4 million unrealized
gain ($58.8 million estimated fair value less $6.4 million cost) on these
available-for-sale securities has been reported as a separate component of
stockholders' equity, net of tax.
4. Stock Repurchase Program
In February 1993, the Company's Board of Directors authorized a stock
repurchase program. Since the inception of the stock repurchase program in
February 1993, the Company has repurchased 1,947,900 shares of its common
stock at an average acquisition price of approximately $21 per share.
During the quarter ended September 30, 1996, 147,900 shares were
repurchased and as of such date, the Company is authorized to repurchase an
additional 352,100 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.
7
<PAGE> 8
5. Income Taxes
The provision for income taxes for the three months ended September 30,
1996 and 1995 was computed by applying the estimated annual income tax
rates of approximately 53% and 49% (excluding the impact of the acquired
in-process R&D charge for which no tax benefit was available),
respectively, to income before income taxes. The higher effective tax rate
in the current year was primarily due to consolidated losses in foreign
subsidiaries for which no tax benefit is available.
6. Per Share Information
Net income (loss) per share for the three months ended September 30, 1996
and 1995 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):
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
----- -----
<S> <C> <C>
Primary:
Common stock 8,963 8,992
Stock options 123 ---
----- -----
Weighted average number of common stock
and dilutive common stock equivalent shares
outstanding 9,086 8,992
===== =====
</TABLE>
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, the matters discussed in
this report are forward-looking statements that involve certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Potential risks and uncertainties include,
without limitation, those mentioned in this report and, in particular the
factors described below under "Factors That May Affect Future Results of
Operations" as well as those under the same heading in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996.
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 for the face, the
treatment of stress urinary incontinence, and in bone repair. The Company
markets its reconstructive and cosmetic products directly and through a network
of international distributors and its stress urinary incontinence and bone
repair products through marketing partners.
In addition to internal research and development ("R&D") and joint product
development arrangements, the Company has an active program for developing new
products through affiliated companies in which the Company makes equity and debt
investments. The Company believes the formation of new companies allows each to
focus its technology on select market segments to bring products to market
efficiently and to expand its proprietary knowledge.
Results of Operations
The following tables show for the periods indicated the percentage relationship
to product sales of certain items in the Consolidated Statements of Operations.
9
<PAGE> 10
<TABLE>
<CAPTION>
PERCENT OF PRODUCT SALES
Three Months Ended
September 30,
1996 1995
---- ----
<S> <C> <C>
Product sales 100% 100%
Other revenues -- 13%
Costs and expenses:
Cost of sales 31% 27%
Selling, general and administrative 53% 56%
Research and development 25% 17%
</TABLE>
Product sales. Product sales of $16.8 million in the three months ended
September 30, 1996 increased approximately $1.8 million, or 12%, over the same
prior-year quarter. The increase in sales was primarily due to the increase in
international sales of plastic surgery and dermatological products and an
increase in income from Bard's direct sales of Contigen(R) implant ("Contigen")
to physician customers for the three months ended September 30, 1996 compared
with the same period in the prior year. (See "Operating income/loss" below.)
Worldwide sales of plastic surgery and dermatological products for the three
months ended September 30, 1996 were $14.2 million, up 10% from sales of $12.8
million for the same period in the prior year. The increase in sales was mainly
attributable to the continued launch of the Trilucent(TM) breast implant
("Trilucent"), a triglyceride-filled mammary implant, in Europe and strong
international sales of its plastic surgery and dermatological products in
general. The Company believes the increase in injectable collagen sales in the
current fiscal quarter was a result of strong distributor sales, especially in
Japan and increased physician interest in cosmetic procedures not reimbursed by
third-party payors. The Company anticipates continued dollar growth in future
worldwide product sales in these markets.
Worldwide unit sales of plastic surgery and dermatological products for the
three months ended September 30, 1996 increased approximately 13% over the same
period in the prior year. Domestically, implementation of United States
marketing programs designed to increase average treatment volume per patient and
to attract and retain new and existing patients, have favorably impacted overall
unit sales.
During the three months ended September 30, 1996, pursuant to terms of an
agreement between the Company and C.R. Bard Inc. ("Bard"), the Company's
marketing partner for Contigen, the Company recorded income of $1.6 million from
Bard based on Bard's direct sales of Contigen to physician customers. In June
1995, the Company announced that it expected to ship little, if any, Contigen to
Bard due to excess inventory at Bard. The Company recorded minimal income from
shipments of Contigen to Bard in the three months ended September 30, 1996 and
no income for the same period in the prior year.
10
<PAGE> 11
Future income from shipments of Contigen to Bard is expected to resume in the
fourth quarter of fiscal 1997.
For the three months ended September 30, 1996, sales of Collagraft(R) bone graft
matrix and Collagraft(R) bone graft matrix strip ("Collagraft bone graft
products") to the Company's marketing partner, Zimmer, Inc. ("Zimmer"), were
approximately $739,000 compared to $966,000 in the same period in the prior
year. The decrease in sales in the current fiscal year period was due to the
timing of shipments. The Company expects sales of Collagraft bone graft products
in the second quarter of fiscal 1997 to be less than the sales recorded in the
same period in fiscal 1996.
A number of uncertainties exist surrounding the marketing and distribution of
Contigen and Collagraft bone graft products. The Company's primary means of
distribution for these products is through third party firms, Bard in the case
of Contigen and Zimmer in the case of Collagraft bone graft products. The
Company's business and financial results could be adversely affected in the
event that either or both of these parties are unable to market the products
effectively, anticipate customer demand accurately, or effectively manage
industry-wide pricing and cost containment pressures in health care.
Other revenues. Other revenues in the three months ended September 30, 1995
consisted of a final milestone payment of $2 million from Bard in accordance
with an agreement between the Company and Bard.
Cost of sales. Cost of sales as a percentage of product sales was 31% for the
three months ended September 30, 1996, compared with 27% for the same period 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 three months of
manufacturing costs of Trilucent compared to one month for the same period in
the prior year, as well as costs incurred to increase the manufacturing capacity
for Trilucent. Due to the high fixed costs of the Company's Fremont, California
manufacturing facility, unit cost of manufacturing is expected to remain highly
dependent on the level of output at the Company's manufacturing facility, which
is dependent on incremental production of Contigen. The Company anticipates that
overall unit costs will be lower in fiscal 1997 compared to fiscal 1996 as a
result of the expected resumption of Contigen shipments to Bard beginning in the
fourth quarter of fiscal 1997 and the increased production volumes of Trilucent.
SG&A. Selling, general and administrative ("SG&A") expenses were $8.8 million
for the three months ended September 30, 1996, an increase of 7% over $8.3
million for the same period in the prior year. SG&A expenses as a percentage of
product sales were 53% for the three months ended September 30, 1996, compared
to 54% for the same period in the prior year. The increase in SG&A expenses in
the current fiscal year resulted primarily from the inclusion of three months of
SG&A expenses of LipoMatrix and amortization expenses on purchased intangibles
and goodwill resulting from the acquisition of LipoMatrix compared to one month
for the same period in the prior year, and marketing costs related to the launch
of Trilucent.
R&D. Research and development ("R&D") expenses, which include expenditures for
regulatory compliance, were $4.2 million (25% of product sales) for the three
months
11
<PAGE> 12
ended September 30, 1996, an increase of 61% over $2.6 million (17% of
product sales), for the same period in the prior year. The increase in R&D
spending in the current fiscal year period was primarily attributable to the
inclusion of three months of LipoMatrix R&D expenses compared to one month for
the same period in the prior year, the inclusion of R&D expenses for Cohesion
Corporation as a result of the Company increasing its ownership percentage to
81% in June 1996 and the costs for the commencement of Trilucent clinical trials
in the United States and Europe. The Company expects internal R&D spending in
fiscal 1997 to be at levels higher than fiscal 1996 due to the inclusion of
expenses of Cohesion Corporation and a full year of expenses for LipoMatrix.
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 three months
ended September 30, 1995 was a non-recurring charge related to the acquisition
of LipoMatrix. The value attributed to in-process R&D was determined by an
independent appraisal.
Operating income/loss. Operating loss was $1.4 million for the three months
ended September 30, 1996, compared with an operating loss of $12.7 million from
the same prior-year period. The loss in the current fiscal year was primarily
due to the inclusion of three months of LipoMatrix operating expenses compared
to one month for the same period in the prior year, the inclusion of the
operating results of Cohesion Corporation, the costs for commencing Trilucent
clinical trials in the United States and Europe and costs incurred to increase
the manufacturing capacity for Trilucent implant.
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 $26,000 on equivalent local currency basis, resulting from a
decrease of approximately $72,000 in operating expenses, partially offset by a
decrease of approximately $46,000 in revenue.
Gain on investments, net. In the three months ended September 30, 1996, the
Company recorded a gain on investments of $6.2 million ($2.7 million after taxes
of $3.5 million), resulting from the sale of 230,000 shares of Target
Therapeutics, Inc. ("Target") common stock.
Equity in earnings/losses of affiliate companies. Equity in losses of affiliate
companies was approximately $474,000 for the three months ended September 30,
1996, compared to equity in losses of approximately $508,000 for the same
prior-year quarter.
The Company intends to continue to expand its new product development activities
through more equity investments in or loans to affiliate companies during fiscal
year 1997. These affiliate companies typically are in an early stage of
development and may be expected to incur substantial losses which in turn will
have an adverse effect on the Company's operating results. There can be no
assurance that these investments will result in positive returns nor can there
be any assurance on the timing of any return on investment, or that the Company
will not lose its entire investment.
Interest income. Interest income was $354,000 for the three months ended
September 30, 1996, compared to $138,000 for the same period in the prior year.
The increase in
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<PAGE> 13
the current fiscal year was primarily due to higher average short-term
investment balances resulting primarily from the sale of Target stock.
Income tax. The provision for income taxes for the three months ended September
30, 1996 and 1995 was computed by applying the estimated annual income tax rates
of approximately 53% and 49% (excluding the impact of the acquired in-process
R&D charge for which no tax benefit was available), respectively, to income
before income taxes. The higher effective tax rate in the current year was
primarily due to consolidated losses in foreign subsidiaries for which no tax
benefit is available.
Liquidity and Capital Resources
At September 30, 1996, the Company's cash, cash equivalents and short-term
investments were $26.4 million compared to $25.4 million at June 30, 1996. Net
cash provided by operating activities was approximately $3.3 million in the
three months ended September 30, 1996, compared to approximately $1.2 million of
net cash provided by operating activities for the same prior-year period.
The $3.3 million of net cash provided by operating activities was mainly
attributable to $1.7 million of net income after adjusting for depreciation and
amortization expense, equity in losses (earnings) and gain on investments ( net
of taxes paid), a $1.9 million decrease in miscellaneous receivables related to
the sale of Target stock, an increase of $1.5 million in income taxes payable
which was also related to the sales of Target stock, partially offset by an
increase in inventory of $1.3 million and an increase in accounts receivable of
$.7 million..
Net cash used in investing and financing activities of approximately $4.6
million was primarily due to payments of $2.9 million to purchase short-term
investments, payments of approximately $2.5 million to repurchase 147,900 shares
of the Company's common stock at an average acquisition price of approximately
$17.00 per share, capital expenditures of approximately $1.7 million, payments
of approximately $1.3 million for additional investments in affiliates, and
payment of cash dividends of approximately $.9 million to the Company's
stockholders in July 1996, partially offset by proceeds of $3.8 million net of
taxes paid ($7.3 million proceeds less taxes paid of $3.5 million ) from the
sale of 230,000 shares of common stock of Target by the Company during the
quarter, $.5 million from the issuance of approximately 62,000 shares of the
Company's common stock, and $.5 million proceeds received from the sale of
short-term investments.
The Company anticipates capital expenditures, equity investments in, and loans
to affiliate companies to be approximately $16 million in fiscal 1997. As of
September 30, 1996, the Company's capital expenditures, equity investments in,
and loans to affiliate companies totaled approximately $3.0 million. In June
1996, the Board of Directors authorized the Company to repurchase an additional
500,000 shares of the Company's common stock in the open market, of which the
Company has repurchased 147,900 shares as of September 30, 1996.
The Company's principal sources of liquidity include cash generated from
operations, sales of Target stock, and its cash, cash equivalents and short-term
investments. During the fiscal quarter ended September 30, 1994, the Company's
Board of Directors
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<PAGE> 14
authorized the Company to sell portions of its holdings of Target's common
stock. Between July 1, 1994 and September 30, 1996, the Company sold an
aggregate of 3,212,500 shares of Target common stock (adjusted for a two-for-one
stock spilt in December 1995) for an aggregate pre-tax gain of approximately
$98.0 million ($113.1 million proceeds less cost basis of $15.1 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 increased to $15.0 million
in December 1995. As of September 30, 1996, $10.0 million of this credit
facility remained unused. Additionally, the Company has a $3.4 million (4.1
million Swiss Francs) credit facility that was established by LipoMatrix prior
to the Company's acquisition of LipoMatrix, of which $1.5 million (1.8 million
Swiss Francs) remained unused as of September 30, 1996.
The Company believes that the above sources of liquidity should be adequate to
fund its anticipated cash needs through at least the next twelve months.
Factors That May Affect Future Results of Operations
A large portion of the Company's revenues in recent years has come from its
international operations. As a result, the Company's operations and financial
results could be significantly affected by international factors, including
numerous regulatory agencies, changes in foreign currency exchange rates and
foreign economic and political conditions generally. The Company's operating
strategy takes into account changes in these factors over time; however, the
Company's results of operations could be significantly affected in the short
term by fluctuations in foreign currency exchange rates or disruptions to
shipments.
All of the Company's manufacturing capacity 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 Trilucent are located in two primary facilities (one for
collagen-based products and one for Trilucent), 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 coverage, 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.
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<PAGE> 15
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.
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.
For a more complete discussion of risks and uncertainties involving the
Company's business, please see the risks factors described under the heading
"Factors That May Affect Future Results of Operations" set forth in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996
15
<PAGE> 16
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 tortious
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. On September 24, 1996, a Demurrer and Motion to
Strike Matrix's third amended complaint was sustained in Collagen's
favor, dismissing Matrix's anti-trust and common law restraint of trade
claims. A trial date has not yet been scheduled. Collagen and Matrix
currently are engaged in discovery.
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 30, 1996, the Registrant held its Annual Meeting of
Stockholders.
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).
16
<PAGE> 17
<TABLE>
<CAPTION>
No. of No. of No of No of No of
Votes Votes Votes Votes Broker Non-
Name of Nominee For Against Withheld Abstained Votes
--------------- ------ ------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
Reid W. Dennis 7,697 0 492 0 0
Howard D. Palefsky 7,692 0 497 0 0
Anne L. Bakar 7,697 0 492 0 0
John R. Daniels, MD 7,679 0 510 0 0
William G. Davis 7,698 0 491 0 0
Craig W. Johnson 7,697 0 492 0 0
Rodney Perkins, MD 7,678 0 511 0 0
Gary S. Petersmeyer 7,675 0 514 0 0
Roger H. Salquist 7,694 0 495 0 0
</TABLE>
C. The adoption of an amendment to the 1994 Stock Option Plan to
increase the number of shares of common stock reserved for
issuance thereunder by 400,000 shares was approved with
5,096,210 shares voting in favor, 2,948,817 shares voting
against and 55,520 shares abstaining.
D. The appointment of Ernst & Young LLP as independent auditors of
the Company for the fiscal year ending June 30, 1997 was
ratified with 8,118,886 shares voting in favor, 57,820 voting
against and 12,543 shares abstaining.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 10.62 - 1994 Stock Option Plan as amended
Exhibit 10.67 (d) - Seventh Amendment, dated September 30, 1996, to
Credit Agreement dated November 15, 1994 by and between the Bank of
New York and the Registrant
Exhibit 10.85 - Repaid Promissory Note from Reid W. Dennis to the
Registrant, dated July 22,
1996
Exhibit 27 - Financial Data Schedule
17
<PAGE> 18
B. Reports on Form 8-K
None
18
<PAGE> 19
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: November 11, 1996 /s/David Foster
----------------- -----------------------
David Foster
Vice President and
Chief Financial Officer
(Principal Financial
and Accounting Officer)
19
<PAGE> 20
COLLAGEN CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit Number Description
- -------------- -----------
Exhibit 10.62 1994 Stock Option Plan, as amended
Exhibit 10.67(d) Seventh Amendment, dated September 30, 1996, to
Credit Agreement dated November 15, 1994 by and
between the Bank of New York and the Registrant
Exhibit 10.85 Repaid Promissory Note from Reid W. Dennis to the
Registrant, dated July 22, 1996
Exhibit 27 Financial Data Schedule
</TABLE>
20
<PAGE> 1
EXHIBIT 10.62
COLLAGEN CORPORATION
1994 STOCK OPTION PLAN
(AS AMENDED AUGUST 9, 1996)
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock
Options (as defined under Section 422 of the Code) or Nonstatutory Stock
Options, at the discretion of the Board and as reflected in the terms of the
written option agreement. Stock purchase rights may also be granted under the
Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the Board or any of its
Committees appointed pursuant to Section 4 of the Plan.
(b) "Applicable Laws" shall have the meaning set forth in
Section 4(a) below.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "Committee" shall mean the Committee appointed by the
Board of Directors in accordance with paragraph (a) of Section 4 of the Plan, if
one is appointed.
(f) "Common Stock" shall mean the Common Stock of the Company.
(g) "Company" shall mean Collagen Corporation, a Delaware
corporation.
(h) "Consultant" shall mean any person who is engaged by the
Company or any Parent or Subsidiary to render consulting services and is
compensated for such consulting services, and any director of the Company
whether compensated for such services or not; provided that the term Consultant
shall not include directors who are not compensated for their services or are
paid only a director's fee by the Company.
(i) "Continuous Status as an Employee or Consultant" shall
mean the absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Administrator; provided that such leave is
for a period of not more than 90 days or reemployment upon the expiration of
such leave is
-1-
<PAGE> 2
guaranteed by contract or statute. For purposes of this Plan, a
change in status from an Employee to a Consultant or from a Consultant to an
Employee will not constitute a termination of employment.
(j) "Director" shall mean a member of the Board.
(k) "Employee" shall mean any person, including Named
Executives, Officers and Directors, employed by the Company or any Parent or
Subsidiary of the Company. The payment of a director's fee by the Company shall
not be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(m) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock as quoted on such system on the date of
determination (if for a given day no sales were reported, the closing sales
price for the last trading day immediately preceding the date of determination
shall be used), as such price is reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the bid and asked prices for the Common
Stock or;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(n) "Incentive Stock Option" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(o) "Named Executive" shall mean any individual who, on the
last day of the Company's fiscal year, is the chief executive officer of the
Company (or is acting in that capacity) or among the four highest compensated
officers of the Company (other than the chief executive officer). Such officer
status shall be determined pursuant to the executive compensation disclosure
rules under the Exchange Act.
(p) "Nonstatutory Stock Option" shall mean an Option not
intended to qualify as an Incentive Stock Option.
-2-
<PAGE> 3
(q) "Officer" shall mean a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" shall mean a stock option granted pursuant to the
Plan.
(s) "Optioned Stock" shall mean the Common Stock subject to an
Option or a Stock Purchase Right.
(t) "Optionee" shall mean an Employee or Consultant who
receives an Option.
(u) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(v) "Plan" shall mean this 1994 Stock Option Plan.
(w) "Restricted Stock" shall mean shares of Common Stock
acquired pursuant to a grant of a Stock Purchase Right under Section 11 below.
(x) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the
Exchange Act as the same may be amended from time to time, or any successor
provision.
(y) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 15 of the Plan.
(z) "Stock Purchase Right" shall mean the right to purchase
Common Stock pursuant to Section 11 below.
(aa) "Subsidiary" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of
Section 15 of the Plan, the maximum aggregate number of shares that may be
optioned and sold under the Plan is 1,150,000 shares of Common Stock. The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares that were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan.
Notwithstanding any other provision of the Plan, shares issued under the Plan
and later repurchased by the Company shall not become available for future grant
or sale under the Plan.
-3-
<PAGE> 4
4. Administration of the Plan.
(a) Composition of Administrator.
(i) Multiple Administrative Bodies. If permitted by
Rule 16b-3 and by the legal requirements relating to the administration of
incentive stock option plans, if any, of applicable securities laws and the Code
(collectively, the "Applicable Laws"), the Plan may (but need not) be
administered by different administrative bodies with respect to directors,
officers who are not directors and Employees who are neither directors nor
officers.
(ii) Administration with respect to Directors and
Officers. With respect to grants of Options or Stock Purchase Rights to
Employees or Consultants who are also officers or directors of the Company, the
Plan shall be administered by (A) the Board, if the Board may administer the
Plan in compliance with Rule 16b-3 as it applies to a plan intended to qualify
thereunder as a discretionary plan, or (B) a Committee designated by the Board
to administer the Plan, which Committee shall be constituted (I) in such a
manner as to permit the Plan to comply with Rule 16b-3 as it applies to a plan
intended to qualify thereunder as a discretionary plan, (II) in such a manner as
to qualify grants of Options to Named Executives as performance-based
compensation under Section 162(m) of the Code and (III) in such a manner as to
satisfy the Applicable Laws.
(iii) Administration with respect to Other Persons.
With respect to grants of Options or Stock Purchase Rights to Employees or
Consultants who are neither directors nor officers of the Company, the Plan
shall be administered by (A) the Board or (B) a Committee designated by the
Board, which Committee shall be constituted in such a manner as to satisfy the
Applicable Laws.
(iv) General. Once a Committee has been appointed
pursuant to subsection (ii) or (iii) of this Section 4(a), such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of any Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies (however caused)
and remove all members of a Committee and thereafter directly administer the
Plan, all to the extent permitted by the Applicable Laws and, in the case of a
Committee appointed under subsection (ii), to the extent permitted by Rule 16b-3
as it applies to a plan intended to qualify thereunder as a discretionary plan,
and to the extent required under Section 162(m) of the Code to qualify grants of
Options to Named Executives as performance-based compensation.
(b) Powers of the Administrator. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the
Common Stock, in accordance with Section 2(m) of the Plan;
-4-
<PAGE> 5
(ii) to select the Employees and Consultants to whom
Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options
and Stock Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder
(including, but not limited to, the share price and any restriction or
limitation, or any vesting acceleration or waiver of forfeiture restrictions
regarding any Option or Stock Purchase Right and/or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator shall
determine, in its sole discretion);
(vii) to determine whether, to what extent and under
what circumstances Common Stock and other amounts payable with respect to an
award under this Plan shall be deferred either automatically or at the election
of the participant (including providing for and determining the amount, if any,
of any deemed earnings on any deferred amount during any deferral period);
(viii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted; and
(ix) to determine the terms and restrictions
applicable to Stock Purchase Rights and the Restricted Stock purchased by
exercising such Stock Purchase Rights.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all holders of Options or Stock Purchase Rights.
5. Eligibility.
(a) Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Right may, if he or she is otherwise eligible, be granted
additional Options or Stock Purchase Rights.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Stock Options are exercisable for the first time by an
Optionee during any calendar year (under all plans of the Company or any
-5-
<PAGE> 6
Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options
shall be taken into account in the order in which they were granted, and the
Fair Market Value of the Shares shall be determined as of the time the Option
with respect to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 21 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 17 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Limitation on Grants to Employees. Subject to adjustment as provided
in this Plan, the maximum number of Shares which may be granted under options to
any Employee under this Plan for any fiscal year of the Company shall be
150,000.
9. Option Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time
of the grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant;
(B) granted to any Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
-6-
<PAGE> 7
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of
the grant of such Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of the grant;
(B) granted to a person who, at the time of
the grant of such Option, is a Named Executive of the Company, the per share
Exercise Price shall be no less than 100% of the Fair Market Value on the date
of grant;
(C) granted to any person other than a Named
Executive, the per Share exercise price shall be no less than 85% of the Fair
Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares that (x) in the case of Shares
acquired upon exercise of an Option either have been owned by the Optionee for
more than six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (5) authorization from the Company to retain from the
total number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised, (6) delivery
of a properly executed exercise notice together with irrevocable instructions to
a broker to deliver promptly to the Company the amount of sale or loan proceeds
required to pay the exercise price, (7) delivery of an irrevocable subscription
agreement for the Shares that irrevocably obligates the option holder to take
and pay for the Shares not more than twelve months after the date of delivery of
the subscription agreement, (8) any combination of the foregoing methods of
payment, or (9) such other consideration and method of payment for the issuance
of Shares to the extent permitted under Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
-7-
<PAGE> 8
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may, as authorized by the Administrator, consist of
any consideration and method of payment allowable under Section 9(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 15 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee or Consultant. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant, such Optionee may, but only within thirty (30) days (or such other
period of time, not exceeding three (3) months in the case of an Incentive Stock
Option or six (6) months in the case of a Nonstatutory Stock Option, as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) after the
date of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement), exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. To the extent that the Optionee was not entitled to
exercise the Option at the date of such termination, or if the optionee does not
exercise such Option (which he or she was entitled to exercise) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 10(b) above, in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of his or her total and
permanent disability (as defined in Section 22(e)(3) of the Code), he or she
may, but only within six (6) months (or such other period of time not exceeding
twelve (12) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) from the date of such termination (but in no event later
than the date of expiration of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent he or she was
entitled to exercise it at the date of such termination. To the extent that he
or she was not entitled to exercise the Option at the date of termination, or if
he or she does not exercise such Option (which he or she was entitled to
exercise) within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an
Optionee:
-8-
<PAGE> 9
(i) during the term of the Option who is at the time
of his or her death an Employee or Consultant of the Company and who shall have
been in Continuous Status as an Employee or Consultant since the date of grant
of the Option, the Option may be exercised, at any time within six (6) months
(or such other period of time, not exceeding twelve (12) months, as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) following
the date of death (but in no event later than the date of expiration of the term
of such Option as set forth in the Option Agreement), by the Optionee's estate
or by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had accrued at
the date of termination; or
(ii) within thirty (30) days (or such other period of
time not exceeding three (3) months as is determined by the Administrator, with
such determination in the case of an Incentive Stock Option being made at the
time of grant of the Option) after the termination of Continuous Status as an
Employee or Consultant, the Option may be exercised, at any time within six (6)
months following the date of death (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement), by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the date of termination.
(e) Rule 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock Purchase Agreement in the form determined by the
Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right
shall be referred to herein as "Restricted Stock."
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the higher of either the original
purchase price or the Fair Market Value on the date of the repurchase.
-9-
<PAGE> 10
(c) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 15
of the Plan.
12. Withholding Taxes. As a condition to the exercise of Options and
Stock Purchase Rights granted hereunder, the Optionee shall make such
arrangements as the Administrator may require for the satisfaction of any
federal, state, local or foreign withholding tax obligations that may arise in
connection with the exercise, receipt or vesting of such Option. The Company
shall not be required to issue any Shares under the Plan until such obligations
are satisfied.
13. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (a) by cash payment, (b) out of Optionee's current
compensation, (c) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender, and (ii) have a fair market value on the date
of surrender equal to or less than Optionee's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option that number of Shares having
a fair market value equal to the amount required to be withheld. For this
purpose, the fair market value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined (the "Tax
Date").
Any surrender by an Officer or Director of previously
owned Shares to satisfy tax withholding obligations arising upon exercise of
this Option must comply with the applicable provisions of Rule 16b-3 and shall
be subject to such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
All elections by an Optionee to have Shares withheld
to satisfy tax withholding obligations shall be made in writing in a form
acceptable to the Administrator and shall be subject to the following
restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
-10-
<PAGE> 11
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or
disapproval of the Administrator;
(d) if the Optionee is an Officer or Director, the election
must comply with the applicable provisions of Rule 16b-3 and shall be subject to
such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
In the event the election to have Shares withheld is
made by an Optionee and the Tax Date is deferred under Section 83 of the Code
because no election is filed under Section 83(b) of the Code, the Optionee shall
receive the full number of Shares with respect to which the Option is exercised
but such Optionee shall be unconditionally obligated to tender back to the
Company the proper number of Shares on the Tax Date.
14. Non-Transferability of Options, Stock Purchase Rights and
Restricted Stock. Options, Stock Purchase Rights and Restricted Stock may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution. The designation of
a beneficiary by an Optionee, Stock Purchase Rights Holder or Restricted Stock
Purchaser will not constitute a transfer. An Option or Stock Purchase Right may
be exercised, during the lifetime of the Optionee, Stock Purchase Rights Holder
or Restricted Stock Purchaser, only by the Optionee, Stock Purchase Rights
Holder or Restricted Stock Purchaser or a transferee permitted by this Section
14.
15. Adjustments Upon Changes in Capitalization or Merger. Subject to
any required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option or Stock Purchase Right, the
number of shares of Common Stock that have been authorized for issuance under
the Plan but as to which no Options or Stock Purchase Right have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option or Stock Purchase Right, the maximum number of shares of Common
Stock for which Options may be granted to any Employee under Section 8 of the
Plan and the price per share of Common Stock covered by each such outstanding
Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option
or Stock Purchase Right.
-11-
<PAGE> 12
In the event of the proposed dissolution or liquidation of the Company,
the Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Administrator. The Administrator may, in the exercise of its sole discretion in
such instances, declare that any Option or Stock Purchase Right shall terminate
as of a date fixed by the Administrator and give each Optionee or Stock Purchase
Right holder the right to exercise his or her Option or Stock Purchase Right as
to all or any part of the Optioned Stock or Restricted Stock, including Shares
as to which the Option or Stock Purchase Right would not otherwise be
exercisable. In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, the Option or Stock Purchase Right shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee or Stock Purchase Right holder
shall have the right to exercise the Option or Stock Purchase Right as to some
or all of the Optioned Stock or Restricted Stock, including Shares as to which
the Option or Stock Purchase Right would not otherwise be exercisable, or that
Restricted Stock held by a purchaser shall be released from the Company's
repurchase option. If the Administrator makes an Option or Stock Purchase Right
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee or Stock Purchase
Right holder that the Option or Stock Purchase Right shall be exercisable for a
period of thirty (30) days from the date of such notice, and the Option or Stock
Purchase Right will terminate upon the expiration of such period.
16. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.
17. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, the following revisions or amendments shall require
approval of the shareholders of the Company in the manner described in Section
21 of the Plan:
(i) any increase in the number of Shares subject to
the Plan, other than in connection with an adjustment under
Section 15 of the Plan;
(ii) any change in the designation of the class of
persons eligible to be granted Options or Stock Purchase
Rights;
(iii) any change in the limitation on grants to
Employees as described in Section 8 of the Plan or other
changes which would require shareholder approval
-12-
<PAGE> 13
to qualify options granted hereunder as performance-based
compensation under Section 162(m) of the Code; or
(iv) if the Company has a class of equity securities
registered under Section 12 of the Exchange Act at the time of
such revision or amendment, any material increase in the
benefits accruing to participants under the Plan.
(b) Shareholder Approval. If any amendment requiring
shareholder approval under Section 17(a) of the Plan is made subsequent to the
first registration of any class of equity securities by the Company under
Section 12 of the Exchange Act, such shareholder approval shall be solicited as
described in Section 21 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted and such Options or Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee or Stock Purchase Right Holder
and the Board, which agreement must be in writing and signed by the Optionee or
Stock Purchase Right Holder and the Company.
18. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option or Stock Purchase
Right, the Company may require the person exercising such Option or Stock
Purchase Right to represent and warrant at the time of any such exercise that
the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
19. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
-13-
<PAGE> 14
20. Agreements. Options and Stock Purchase Rights shall be evidenced by
written option agreements in such form as the Board shall approve from time to
time.
21. Shareholder Approval.
(a) Continuance of the Plan shall be subject to approval by
the shareholders of the Company within twelve (12) months before or after the
date the Plan is adopted.
(b) If such shareholder approval is obtained at a duly held
shareholders' meeting, it must be obtained by the affirmative vote of the
holders of a majority of the outstanding shares of the Company, or if such
shareholder approval is obtained by written consent, it must be obtained by the
unanimous written consent of all shareholders of the Company; provided, however,
that approval at a meeting or by written consent may be obtained by a lesser
degree of shareholder approval if the Board determines, in its discretion after
consultation with the Company's legal counsel, that such a lesser degree of
shareholder approval will comply with all applicable laws and will not adversely
affect the qualification of the Plan under Section 422 of the Code.
(c) In the event that the Company registers any class of
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the shareholders of the Company obtained after such registration
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
(d) If any required approval by the shareholders of the Plan
itself or of any amendment thereto is solicited at any time otherwise than in
the manner described in Section 21(c) hereof, then the Company shall, at or
prior to the first annual meeting of shareholders held subsequent to the later
of (1) the first registration of any class of equity securities of the Company
under Section 12 of the Exchange Act or (2) the granting of an Option or Stock
Purchase Right hereunder to an officer or director after such registration, do
the following:
(i) furnish in writing to the holders entitled to
vote for the Plan substantially the same information that would be required (if
proxies to be voted with respect to approval or disapproval of the Plan or
amendment were then being solicited) by the rules and regulations in effect
under Section 14(a) of the Exchange Act at the time such information is
furnished; and
(ii) file with, or mail for filing to, the Securities
and Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is first
sent or given to shareholders.
22. Information to Optionees and Purchasers. The Company shall provide
to each Optionee and Stock Purchase Right holder, during the period for which
such Optionee or holder has one or more Options or Stock Purchase Rights
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company.
-14-
<PAGE> 1
EXHIBIT 10.67(D)
SEVENTH AMENDMENT TO THE
CREDIT AGREEMENT
This SEVENTH AMENDMENT TO THE CREDIT AGREEMENT (this "Amendment") is
dated as of September 30, 1996 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, by and among the Borrower and the Bank, as amended (the
"Credit Agreement"). 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 suspend the application of certain of the financial covenants set forth
therein for the fiscal quarter of the Borrower ending September 30, 1996; and
WHEREAS, the Bank is willing to agree to the requested amendments,
subject to the terms of this Amendment.
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 5.14 (DEBT/OPERATING CASH FLOW
RATIO)
Subject to Section 2 hereof, the Bank hereby suspends the
applicability of Sections 5.14 of the Credit Agreement (Debt/Operating Cash Flow
Ratio) for the fiscal quarter of the Borrower ending September 30, 1996.
1.2. AMENDMENT TO SECTION 5.15 (INTEREST COVERAGE RATIO)
Subject to Section 2 hereof, the Bank hereby suspends the
applicability of Section 5.15 of the Credit Agreement (Interest Coverage Ratio)
for the fiscal quarter of the Borrower ending September 30, 1996.
SECTION 2. EFFECTIVENESS OF PARTICULAR SUSPENSIONS.
2.1. EFFECTIVENESS OF THE SUSPENSION OF THE DEBT/OPERATING
CASH FLOW RATIO COVENANT.
The suspension of Section 5.14 of the Credit Agreement set
forth in Section 1.1 hereof shall not be effective if as of September 30, 1996
the Debt/Operating Cash Flow Ratio for the fiscal quarter of the Borrower ending
September 30, 1996 is greater than 3.0:1.
2.2. EFFECTIVENESS OF THE SUSPENSION OF THE INTEREST
COVERAGE RATIO COVENANT.
The suspension of Section 5.15 of the Credit Agreement set
forth in Section 1.2 hereof shall not be effective if as of September 30, 1996
the Operating Income of the Borrower for the fiscal quarter of the Borrower
ending September 30, 1996 is a loss greater than $4,500,000.
<PAGE> 2
2.3. EFFECTIVENESS OF THE SUSPENSIONS GENERALLY.
Each suspension of the financial covenants set forth in
Sections 1.1 and 1.2 above is effective only with respect to the fiscal quarter
of the Borrower ending September 30, 1996. Each of Sections 5.14 and 5.15 shall
be applicable for each fiscal quarter of the Borrower ending after September 30,
1996.
SECTION 3. EFFECTIVENESS OF THIS AMENDMENT
This Amendment shall be effective upon the Bank's receipt of a
duly executed counterpart of this Amendment.
SECTION 4. 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:
4.1. 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.
4.2. 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.
4.3. 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.
4.4. 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.
4.5. BINDING OBLIGATION. This Amendment, when executed and
delivered, will be, and the Credit Agreement is, 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.
4.6. 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
<PAGE> 3
date.
4.7. ABSENCE OF DEFAULT. No event has occurred and is
continuing or will result from the execution of this Amendment which would
constitute an Event of Default or a Potential Event of Default.
SECTION 5. MISCELLANEOUS
5.1. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE
OTHER LOAN DOCUMENTS.
(a) 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.
(b) Except as specifically amended by this Amendment,
the Credit Agreement, Pledge Agreement and the other Loan Documents
shall remain in full force and effect and are hereby ratified and
confirmed.
(c) 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, the Pledge Agreement or any of the other Loan
Documents except as may be expressly provided for herein.
5.2. 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.
5.3. EXECUTION IN COUNTERPART. 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.
5.4. 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.
5.5. 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.
<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 and Chief
------------------------
Financial Officer
-----------------
THE BANK OF NEW YORK
By: /s/ Elizabeth Ying
------------------
Name: Elizabeth Ying
--------------
Title: Vice President
--------------
<PAGE> 1
EXHIBIT 10.85
***REPAID***
PROMISSORY NOTE
$1,000,000 Palo Alto, California
July 22, 1996
FOR VALUE RECEIVED, the undersigned, Reid W. Dennis ("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 one million
dollars ($1,000,000).
Interest will be accrued on the outstanding principal balance on a
daily basis at the rate of 8.25% per annum based on a 365-day year. The
outstanding balance of principal and accrued interest of this Note shall be due
and payable on September 29, 1996, at which time all accrued interest shall be
compounded and thereafter all accrued interest shall be compounded annually on
each anniversary of the date hereof until the outstanding balance of this Note
is paid in full.
If Borrower's relationship 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. Repayment of this Note shall
be unsecured but the holder hereof shall have full recourse against Borrower.
Amounts due under this Note shall be payable in lawful money of the
United States of America and in immediately available funds. All payments under
this Note shall be applied first to any accrued and unpaid interest and then to
principal. Borrower shall have the right to pay, without penalty or premium, all
or any portion of the outstanding principal amount of this Note at any time.
Borrower waives presentment, protest and demand, and notice of protest,
demand, dishonor and nonpayment of this Note and diligence in taking any action
to collect any amounts owing under this Note by proceeding against any of the
rights securing the payment of this Note. If action is instituted on this Note,
Borrower agrees to pay such reasonable sum as attorney's fees as the court may
fix and award in such action.
This Note shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, Borrower has executed this Note as of the date
first written above.
/s/ Reid W. Dennis
_____________________________________
Reid W. Dennis
/s/ William G. Davis
__________________________________
Acknowledged and accepted by:
William G. Davis
Chairman, Human Resource Committee
of the Board of Directors
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000021686
<NAME> COLLAGEN CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 20,380
<SECURITIES> 0
<RECEIVABLES> 10,190
<ALLOWANCES> 0
<INVENTORY> 10,893
<CURRENT-ASSETS> 56,486
<PP&E> 15,678
<DEPRECIATION> 0
<TOTAL-ASSETS> 157,852
<CURRENT-LIABILITIES> 28,742
<BONDS> 0
0
0
<COMMON> 107
<OTHER-SE> 99,741
<TOTAL-LIABILITY-AND-EQUITY> 157,852
<SALES> 16,785
<TOTAL-REVENUES> 16,785
<CGS> 5,145
<TOTAL-COSTS> 5,145
<OTHER-EXPENSES> 13,010
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> 4,609
<INCOME-TAX> 2,443
<INCOME-CONTINUING> 2,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,307
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
