<PAGE> 1
UNITED STATES 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, 1998
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 AESTHETICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2300486
State of Incorporation I.R.S. Employer Identification No.
1850 Embarcadero Road, Palo Alto, California 94303
Telephone: (650) 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, 1999, Registrant had outstanding 8,533,106 shares of common
stock, exclusive of 2,451,800 shares held by the Registrant as treasury stock.
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COLLAGEN AESTHETICS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information Page No.
- ------- --------------------- --------
<S> <C>
Condensed Consolidated Balance Sheets -
December 31, 1998 and June 30, 1998 3
Condensed Consolidated Statements of Operations -
Three and six months ended December 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -
Six months ended December 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-17
PART II. Other Information
- -------- -----------------
Other Information 18-19
Signatures 20
</TABLE>
2
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COLLAGEN AESTHETICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1998*
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,238 $ 7,916
Short-term investments 3,590 8,011
Accounts receivable, net 15,697 13,764
Inventories, net 11,090 12,101
Inventories of discontinued operations, net -- 417
Other current assets, net 10,547 11,016
-------- --------
Total current assets 50,162 53,225
Property and equipment, net 12,413 14,448
Intangible assets and goodwill, net 5,950 6,861
Investment in Boston Scientific Corporation -- 73,979
Other investments and assets, net 3,796 17,826
-------- --------
$ 72,321 $166,339
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,171 $ 3,561
Accrued compensation 2,973 4,749
Accrued liabilities and other 7,695 14,020
Income taxes payable 11,335 10,606
Liabilities of discontinued operations, net -- 781
-------- --------
Total current liabilities 27,174 33,717
Long-term liabilities:
Deferred income taxes -- 30,589
Other long-term liabilities 1,279 1,393
-------- --------
Total long-term liabilities 1,279 31,982
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: 10,984,906 shares at December 31, 1998
(10,937,830 shares at June 30, 1998), outstanding:
8,577,506 shares at December 31, 1998 (8,864,930 shares
at June 30, 1998) 110 109
Additional paid-in capital 55,315 69,619
Retained earnings 36,390 32,128
Accumulated other comprehensive income:
Cumulative translation adjustment (1,560) (2,030)
Unrealized gains on available-for-sale investments -- 43,833
Treasury stock, 2,407,400 shares at December 31, 1998
(2,072,900 shares at June 30, 1998) (46,387) (43,019)
-------- --------
Total stockholders' equity 43,868 100,640
-------- --------
$ 72,321 $166,339
======== ========
</TABLE>
*Amounts derived from audited financial statements at the date indicated which
include Cohesion Technologies, Inc.
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
3
<PAGE> 4
COLLAGEN AESTHETICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------- -----------------------
1998 1997* 1998* 1997*
------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product sales $22,682 $ 21,511 $41,099 $ 40,808
Costs and expenses:
Cost of sales 6,357 6,516 11,343 12,003
Selling, general and administrative 10,993 9,958 21,158 19,705
Research and development 1,744 5,177 5,065 10,212
Acquired in-process research and
development -- 10,530 -- 10,530
------- -------- ------- --------
Total operating costs and expenses 19,094 32,181 37,566 52,450
------- -------- ------- --------
Income (loss) from operations 3,588 (10,670) 3,533 (11,642)
Other income (expense):
Net gain on investments, principally
Boston Scientific Corporation through
August 18, 1998 315 2,843 3,721 8,775
Equity in losses of affiliates, net -- (76) (35) (149)
Interest income 146 237 330 538
Interest expense (7) (10) (56) (35)
------- -------- ------- --------
Income (loss) before income taxes, minority
interest and discontinued operations 4,042 (7,676) 7,493 (2,513)
Provision (benefit) for income taxes 1,738 (364) 3,231 1,833
Minority interest -- 1 1 (27)
------- -------- ------- --------
Income (loss) from continuing operations 2,304 (7,313) 4,261 (4,319)
Discontinued operations:
Loss from operations -- (1,597) -- (3,019)
Benefit for income taxes -- 493 -- 931
------- -------- ------- --------
-- (1,104) -- (2,088)
------- -------- ------- --------
Net income (loss) $ 2,304 $ (8,417) $ 4,261 $ (6,407)
======= ======== ======= ========
Net income (loss) per share - Basic
Continuing operations $ 0.27 $ (0.82) $ 0.49 $ (0.49)
Discontinued operations -- (0.13) -- (0.23)
------- -------- ------- --------
Net income (loss) per share -
Basic $ 0.27 $ (0.95) $ 0.49 $ (0.72)
======= ======== ======= ========
Net income (loss) per share - Diluted
Continuing operations $ 0.27 $ (0.82) $ 0.49 $ (0.49)
Discontinued operations -- (0.13) -- (0.23)
------- -------- ------- --------
Net income (loss) per share -
Diluted $ 0.27 $ (0.95) $ 0.49 $ (0.72)
======= ======== ======= ========
Shares used in calculating net income (loss)
per share - Basic 8,669 8,895 8,744 8,857
======= ======== ======= ========
Shares used in calculating net income (loss)
per share - Diluted 8,669 8,895 8,747 8,857
======= ======== ======= ========
</TABLE>
*Includes results of operations of Cohesion Technologies, Inc. through August
18, 1998.
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
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COLLAGEN AESTHETICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
---------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,261 $ (6,407)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Acquired in-process research and development -- 10,530
Depreciation and amortization 2,510 2,465
Equity in losses of affiliates 35 149
Gain on investments, net of taxes paid of $1.6 million
and $0 in 1998 and 1997, respectively (2,121) (8,775)
Net changes in assets and liabilities of discontinued operations -- 458
Other adjustments related to changes in assets and liabilities (3,657) (4,692)
-------- --------
Net cash provided by (used in) operating activities 1,028 (6,272)
-------- --------
Cash flows from investing activities:
Net proceeds from sales of Boston Scientific Corp. stock, net of taxes paid 2,065 9,362
Net proceeds from sale of other affiliate stock, net of taxes paid 508 704
Proceeds from sales and maturities of short-term investments 8,726 6,823
Purchases of short-term investments (5,321) (5,324)
Expenditures for property and equipment (1,612) (2,242)
Increase in intangible and other assets (855) --
Equity investments and loans to affiliates -- (475)
Acquisition of Cohesion Corporation -- (10,530)
-------- --------
Net cash provided by (used in) investing activities 3,511 (1,682)
-------- --------
Cash flows from financing activities:
Repurchase of common stock (3,368) --
Net proceeds from issuance of common stock 501 1,457
Cash dividends paid (896) (881)
Cohesion Technologies, Inc. Spinoff 546 --
Repayments of bank loans -- (2,031)
-------- --------
Net cash used in financing activities (3,217) (1,455)
-------- --------
Net increase (decrease) in cash and cash equivalents 1,322 (9,409)
Cash and cash equivalents at beginning of period 7,916 18,381
-------- --------
Cash and cash equivalents at end of period $ 9,238 $ 8,972
======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
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COLLAGEN AESTHETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Collagen
Aesthetics, Inc. (formerly Collagen Corporation) ("Collagen" or 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 and aesthetic
products.
The condensed consolidated balance sheet as of December 31, 1998, the
condensed consolidated statements of operations for the three and six months
ended December 31, 1998 and 1997, and the condensed consolidated statements
of cash flows for the six months ended December 31, 1998 and 1997, have been
prepared by the Company and are unaudited. 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, 1998 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, 1998 has been derived from the
audited consolidated financial statements at that date.
On August 18, 1998, the Company spun off, in a one-for-one distribution
("the Distribution") of common stock to the Company's stockholders (the
"Spinoff"), Cohesion Technologies, Inc. ("Cohesion"), which prior to the
Spinoff was a wholly-owned subsidiary of the Company. The transaction
resulted in the distribution of 100% of the outstanding shares of Cohesion.
In accordance with a ruling from the Internal Revenue Service ("IRS"), the
Spinoff did not result in recognition of taxable income or loss to the
Company or the Company's stockholders for U.S. Federal income tax purposes.
Subsequent to the distribution, Cohesion has been traded on the NASDAQ
National Market under the ticker symbol of CSON.
For the first six months of fiscal year 1999 the Company included Cohesion's
operating results through August 18, 1998 (approximately six weeks) compared
to the inclusion of six months of Cohesion's operating results in fiscal
year 1998.
Net sales for the current quarter and for the six months ended December 31,
1998 reflect a reduction of $1.1 million and $2.3 million, respectively, in
sales related to the repurchase of product inventory per the terms of an
agreement with Lederle, the Company's former distributor in Japan.
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 included in the Company's Annual
Report on Form 10-K for the year ended June 30, 1998.
New Accounting Standards
As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("Statement 130"), "Reporting Comprehensive Income".
Statement 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
Statement had
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no impact on the Company's net income or stockholders' equity. Statement 130
requires unrealized gains or losses on the Company's available-for-sale
securities and foreign currency translation adjustments, which prior to
adoption were reported separately in stockholders' equity, to be included in
other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement 130.
During the three months ended December 31, 1998 and 1997, total
comprehensive income amounted to $2.6 million and a loss of $14.1 million,
respectively, and a loss of $39.1 million and $17.0 million for the six
months ended December 31, 1998 and 1997, respectively. The components of
comprehensive income, net of related tax, for the three and six month
periods ended December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
---------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ 2,304 $ (8,417) $ 4,261 $ (6,407)
Change in unrealized losses on securities -- (5,640) (43,833) (10,279)
Foreign currency translation adjustments 262 (15) 470 (300)
-------- -------- -------- --------
Comprehensive income (loss) $ 2,566 $(14,072) $(39,102) $(16,986)
======== ========= ========= =========
</TABLE>
The movement in unrealized losses on securities in the six months ended
December 31, 1998, relates to the investments in Boston Scientific
Corporation ("Boston Scientific") and Innovasive Devices Inc. ("Innovasive
Devices") which were retained by Cohesion following the Spinoff from the
Company.
2. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------ --------
<S> <C> <C>
Raw materials $ 1,327 $ 1,765
Work-in-process 3,424 3,948
Finished goods 6,339 6,388
------- -------
$11,090 $12,101
======= =======
</TABLE>
3. Income Taxes
The provision for income taxes for the six months ended December 31, 1998,
and 1997, was computed by applying the estimated annual income tax rate to
income before taxes. The estimated annual effective income tax rate
considers non-deductible items such as goodwill amortization and excludes
losses from certain foreign subsidiaries.
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<PAGE> 8
4. Sale of LipoMatrix, Inc.
On November 9, 1998, the Company announced the sale of its LipoMatrix, Inc.
("LipoMatrix") subsidiary, manufacturer of the Trilucent(R) breast implant
("Trilucent implant"), to Sierra Medical Technologies of Carson City,
Nevada.
Consideration to the Company included a cash payment and the right to
receive royalties on future worldwide breast implant sales. Sierra Medical
Technologies also was granted the right to purchase the U.S. Trilucent
implant patent portfolio and marketing rights for additional cash
consideration. The Company has accounted for LipoMatrix as a discontinued
operation in fiscal year 1998 and this transaction is expected to have no
material impact on the Company's fiscal year 1999 business, operating
results or financial condition. In connection with the operations of
LipoMatrix through the date of sale and in connection with the recording of
the sale transaction, there were no material adjustments to the provision
for discontinued operations that had been established in the quarter ended
June 30, 1998.
5. Restructuring of Collagen International, Inc.
In June 1998, the Company recorded a pre-tax restructuring charge of $1.5
million to cover the direct cost of restructuring its domestic and
international operations to improve its operational efficiency by reducing
costs and facilitating a product refocus. The international effort included
moving the Company's European headquarters from Switzerland to the United
Kingdom and terminating the employment of eleven employees. The domestic
effort was substantially smaller and included the reorganization of the
North American sales force and termination of one employee. The Company
began implementation of its restructuring plan in the fourth quarter of
fiscal 1998 and has substantially completed the implementation at December
31, 1998. The major aspects of the restructuring plan and remaining amounts
in accrued liabilities are discussed below.
The components of the restructuring charge, charges against the reserve
during the six months ended December 31, 1998 and remaining accrued
restructuring expense as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Remaining
Incurred to Accrual at
Restructuring December 31, December 31,
Accrual 1998 Transfers 1998
-------------- ------------ ----------- -------------
<S> <C> <C> <C>
Severance $ 734,449 $ (811,903) $ 77,454 $ --
Move costs and other 280,791 (262,799) -- 17,992
Lease commitments 450,714 (305,283) (77,454) 67,977
Other 74,989 -- -- 74,989
----------- ----------- ----------- -----------
$ 1,540,943 $(1,379,985) -- $ 160,958
=========== =========== =========== ===========
</TABLE>
As of December 31, 1998, the European headquarters relocation was
substantially complete.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information contained herein, the matters discussed in
this report are forward-looking statements, the accuracy of which is necessarily
subject to risks and uncertainties. These risks include, among others, the
timing of product introductions, receipt of regulatory approvals, clinical
efficacy of and market demand for products, product development cycles, results
of clinical studies, development and rate growth of new markets, potential
unfavorable publicity regarding Collagen Aesthetics, Inc. (the "Company") or
their products, among other matters discussed in this report. Actual results are
subject to risks and uncertainties and actual events and results may differ
significantly from the discussion of such matters in the forward-looking
statements. Such differences may be based upon factors within the Company's
control, such as strategic planning decisions by management and reallocation of
internal resources, or on factors outside of the Company's control, such as
scientific advances by third parties, introduction of competitive products and
delays by regulatory and tax authorities, as well as those factors under the
heading "Factors That May Affect Future Results of Operations" set forth below,
those in the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1998, and those in the Company's Form 10-Q for the quarter ended September
30, 1998.
The Company
The Company designs, develops, manufactures and markets on a worldwide basis
biomedical devices for the treatment of defective, diseased, traumatized or
aging human tissues. The Company's core products are used principally in facial
aesthetic applications and the treatment of stress urinary incontinence. The
Company markets its facial aesthetic products directly and through a network of
international distributors and its stress urinary incontinence product through a
marketing partner.
Spinoff
On August 18, 1998, the Company spun off, in a one-for-one distribution (the
"Distribution") of common stock to the Company's stockholders (the "Spinoff"),
Cohesion Technologies, Inc. ("Cohesion"), which prior to the Spinoff was a
wholly-owned subsidiary of the Company. The transaction resulted in the
distribution of 100% of the outstanding shares of Cohesion. In accordance with
a ruling from the Internal Revenue Service ("IRS"), the Spinoff did not result
in recognition of taxable income or loss to the Company or the Company's
stockholders for U.S. Federal income tax purposes. Subsequent to the
distribution, Cohesion has been traded on the NASDAQ National Market under the
ticker symbol of CSON.
For the first six months of fiscal year 1999 the Company included Cohesion's
operating results through August 18, 1998 (approximately six weeks) compared to
the inclusion of six months of Cohesion's operating results in fiscal year 1998.
Sale of LipoMatrix, Inc.
On November 9, 1998, the Company announced the sale of its LipoMatrix, Inc.
("LipoMatrix") subsidiary, manufacturer of the Trilucent(R) breast implant
("Trilucent implant"), to Sierra Medical Technologies of Carson City, Nevada.
Consideration to the Company include a cash payment and the right to receive
royalties on future worldwide breast implant sales. Sierra Medical Technologies
was also granted the right to purchase the U.S. Trilucent implant patent
portfolio and marketing rights for additional cash consideration.
U.S. Launch of Refinity(TM) Medical Skin Solutions
During the period ended December 31, 1998, the Company began marketing the
Refinity Medical Skin Solutions ("Refinity skin solution products") line of
high-performance alphahydroxy acid ("AHA") skin care products to U.S.
dermatologists and plastic surgeons. The Refinity Medical Skin Solutions line
contains a novel and patented anti-irritant, Cosmederm-7(TM), which enables
Refinity to deliver an unprecendented combination of comfort and efficacy. The
Refinity products are available only through physician offices, and include an
in-office peel
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<PAGE> 10
containing glycolic acid and home-use products containing lactic acid. Both the
in-office and home-use products diminish the appearance of fine lines and
wrinkles, and improve skin texture and tone.
Results of Operations
The following table shows for the periods indicated the percentage relationship
to product sales of certain items in the Condensed Consolidated Statements of
Operations.
<TABLE>
<CAPTION>
PERCENT OF PRODUCT SALES PERCENT OF PRODUCT SALES
Three Months Ended Six Months Ended
December 31, December 31,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Product sales 100% 100% 100% 100%
Costs and expenses:
Cost of sales 28% 30% 28% 29%
Selling, general and administrative 48% 46% 51% 48%
Research and development 8% 24% 12% 25%
Acquired in-process R&D -- 49% -- 26%
</TABLE>
Product sales. Product sales of $22.7 million in the three months ended December
31, 1998, increased approximately $1.2 million or 5% compared to product sales
of $21.5 million for the same prior year period. Product sales of $41.1 million
in the six months ended December 31, 1998, increased approximately $0.3 million
or 1% compared to product sales of $40.8 million for the same prior year period.
The increase in sales for the three months ended December 31, 1998, compared
with the same period in the prior year, primarily was due to increased sales of
injectable collagen products and Hylaform(R) viscoelastic gel ("Hylaform gel"),
partially offset by a $1.1 million reduction in sales by the Company related to
the repurchase of inventory from the Company's former Japanese distributor and
lower SoftForm(R) facial implant ("SoftForm implant") sales in the U.S. The
increase in sales for the six months ended December 31, 1998, compared with the
same period in the prior year, primarily was due to increased U.S. sales of
collagen injectable products and increased international sales of Hylaform gel,
partially offset by a $2.3 million reduction in sales by the Company related to
the repurchase of inventory from the Company's former Japanese distributor and
the inclusion of approximately six weeks of Cohesion's product sales in fiscal
1999 compared to six months in the same prior year period.
Worldwide sales of facial aesthetic products for the three and six months ended
December 31, 1998 were $18.5 million and $32.6 million, respectively, compared
to $17.2 million and $31.4 million for the same periods in the prior year. The
increase in worldwide sales for the three and six months ended December 31,
1998, primarily was due to an increase in international sales of Hylaform gel
and an increase in U.S. sales of injectable collagen products, partially offset
by the reduction in sales by the Company related to the repurchase of inventory
from the Company's
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<PAGE> 11
former Japanese distributor. The Company anticipates dollar growth in worldwide
product sales of facial aesthetic products during fiscal year 1999.
During the three and six months ended December 31, 1998, pursuant to the
Company's sales agreement with C.R. Bard ("Bard"), the Company recorded revenue
of $1.6 million and $3.8 million, respectively, from Bard based on Bard's direct
sales of Bard Contigen(R) implant ("Contigen implant") to physician customers,
compared to revenue of $1.9 million and $3.5 million, respectively, in the same
periods in the prior year. In addition, the Company recorded $2.4 million and
$4.2 million, respectively, of revenue from shipments of Contigen implant to
Bard in the three and six months ended December 31, 1998, compared to $1.9
million and $4.6 million, respectively, for the same periods in the prior year.
The Company expects that revenues from Contigen implant sales in fiscal year
1999 will be similar to sales in fiscal year 1998.
A number of uncertainties exist surrounding the marketing and distribution of
Contigen implant. The Company's primary means of distribution for this product
is through a third party firm, Bard. The Company's business and financial
results could be adversely affected in the event that this party is unable to
market the product effectively, anticipate customer demand accurately, or
effectively manage industry-wide pricing and cost containment pressures in
health care.
Sales of Collagraft(R) bone graft matrix and Collagraft(R) bone graft matrix
strip ("Collagraft bone graft products") to Cohesion's marketing partner,
Zimmer, Inc. ("Zimmer"), were $45,000 for the six months ended December 31,
1998, compared to $1,000,000 for the same prior year period. The decrease in
sales resulted from recording approximately six weeks of sales for the six
months ended December 31, 1998, due to the Spinoff of Cohesion on August 18,
1998, compared to six months of recorded sales in the same prior year period.
Cost of sales. Cost of sales as a percentage of product sales was 28% for the
three and six months ended December 31, 1998, compared with 30% and 29%,
respectively, for the same prior year periods. The lower cost of sales as a
percentage of product sales in the three and six months ended December 31, 1998,
primarily was due to recording approximately six weeks of cost of sales for
Cohesion products, which have lower margins, compared to three and six months of
cost of sales for Cohesion products in the same prior year periods. For the
three months ended December 31, 1998, the decrease was also due to selling more
collagen based injectable products rather than in-licensed products which have
higher costs per unit. The Company anticipates that cost of sales as a
percentage of sales may increase slightly as a result of introducing additional
product line extensions, having higher costs per unit, partially offset by lower
manufacturing costs per unit for collagen-based injectable products and the
Spinoff.
SG&A. Selling, general, and administrative ("SG&A") expenses were $11.0 million
for the three months ended December 31, 1998, an increase of 10% over $10.0
million for the same prior year period. SG&A expenses were $21.2 million for the
six months ended December 31, 1998, an increase of 7% over $19.7 million for the
same prior year period. SG&A expenses as a percentage of product sales were 48%
and 51% for the three and six months ended December 31, 1998, compared to 46%
and 48% for the same prior year periods. The increase in SG&A expenses in the
three and six months ended December 31, 1998, primarily resulted from expenses
related to the U.S. launch of Refinity skin solution products, costs related to
the international launches of SoftForm implant and Hylaform gel and increased
spending in Japan, partially offset by lower SG&A expenses included for Cohesion
as a result of recording approximately six weeks of Cohesion SG&A expenses
compared to a full quarter and six
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<PAGE> 12
months in the same prior year periods. The Company expects SG&A expenses in
fiscal year 1999 as a percentage of product sales to be at levels lower than
those of fiscal year 1998.
R&D. Research and development ("R&D") expenses, which include expenditures for
regulatory compliance, were $1.7 million and $5.1 million (8% and 12% of product
sales) for the three and six months ended December 31, 1998, a decrease of 66%
and 50% over $5.2 million and $10.2 million (24% and 25% of product sales), for
the same prior year periods. The decrease in R&D spending in the three and six
months ended December 31, 1998, primarily was attributable to the inclusion of
approximately six weeks of Cohesion R&D expenses, compared to three and six
months in fiscal year 1998, respectively, partially offset by an increase in
recombinant program expenses. The Company expects R&D spending in fiscal year
1999 to be at levels lower than fiscal year 1998 as a result of the Spinoff.
Acquired in-process research and development. The charge for the acquired
in-process research and development ("in-process R&D") of $10.5 million in the
three and six months ended December 31, 1997, was a non-recurring charge related
to the purchase of substantially all of the remaining shares of Cohesion
Corporation, including the purchase of certain vested employee stock options.
Income (loss) from operations. Income from operations was $3.6 million for the
three months ended December 31, 1998, compared with loss from operations of
$10.7 million for the same prior year period. The Company's consolidated
operating income was $3.5 million for the six months ended December 31, 1998,
compared with a $11.6 million loss from operations for the same prior year
period. The increase in income in the three months ended December 31, 1998,
primarily was due to the acquired in-process R&D charges in the fiscal 1998
period, recording approximately six weeks of Cohesion R&D expenses compared to a
full quarter for the same prior year period, increased revenues primarily
resulting from U.S. sales of injectable collagen products and international
sales of Hylaform gel, partially offset by increased SG&A expenses. The increase
in income in the six months ended December 31, 1998, primarily was due to the
acquired in-process R&D charges in the fiscal 1998 period, recording
approximately six weeks of Cohesion R&D expenses for the six months ended
December 31, 1998, compared to six months of expenses in the same prior year
period, increased revenues primarily resulting from U.S. sales of injectable
collagen products and international sales of Hylaform gel, partially offset by
increased SG&A expenses and lower sales in Japan resulting from the $2.3 million
reduction in sales in fiscal 1999.
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 $114,000 on an equivalent local currency basis, resulting from
a decrease of approximately $200,000 in operating expenses, partially offset by
an increase of approximately $86,000 in revenue. Compared with foreign exchange
rates for the same prior year period, the impact of foreign exchange rates in
the current fiscal year to date on operating income was a net increase of
$140,000 on an equivalent local currency basis, resulting from a decrease of
approximately $172,000 in operating expenses, partially offset by an increase of
approximately $32,000 in revenue. Until December 1994, the Company's policy was
to hedge material foreign currency transaction exposures. At December 31, 1998
and June 30, 1998, no foreign currency transaction exposures were hedged.
Unhedged net foreign assets were $6.9 million and $6.5 million at December 31,
1998 and June 30, 1998, respectively.
Net gain on investments, principally Boston Scientific Corporation. In the six
months ended December 31, 1998, the Company recorded a pre-tax gain on
investments of $3.7 million primarily resulting from the sale of approximately
50,000 shares of Boston Scientific
12
<PAGE> 13
Corporation ("Boston Scientific") common stock compared to $8.8 million,
primarily resulting from the sale of approximately 157,340 shares of Boston
Scientific common stock in the six months ended December 31, 1997. The Company's
investment in Boston Scientific common stock was transferred to Cohesion in
connection with the Spinoff.
Equity in losses of affiliates, net. In the three months ended December 31,
1998, the Company did not record any equity in losses of affiliate companies,
compared to equity in losses of affiliates of approximately $76,000 recorded in
the same prior year period. For the six months ended December 31, 1998, equity
in losses of affiliate companies was $35,000 compared with losses of $149,000
for the same prior year period.
Interest income. Interest income was $146,000 and $330,000 for the three and six
months ended December 31, 1998, respectively, compared to $237,000 and $538,000
for the same periods in the prior year. The decrease in the three and six months
ended December 31, 1998, was due to lower average monthly balances of cash, cash
equivalents and short-term investments.
Provision for income taxes. The provision for income taxes was approximately 43%
for the three and six months ended December 31, 1998, as well as for the
corresponding period in 1997 excluding the tax effect of the loss from
discontinued operations of LipoMatrix and the non-deductible charge for
in-process R&D.
Liquidity and Capital Resources
At December 31, 1998, the Company's cash, cash equivalents and short-term
investments were $12.8 million compared to $15.9 million at June 30, 1998. Net
cash provided by operating activities was approximately $1.0 million in the six
months ended December 31, 1998, compared to approximately $6.3 million of net
cash used in operating activities for the same prior year period.
The $1.0 million of net cash provided by operating activities in the six months
ended December 31, 1998, primarily was attributable to: net income of $4.7
million adjusted for gain on investments (net of taxes paid), depreciation and
amortization expense and equity in losses of affiliates, partially offset by a
net $3.7 million increase related to changes in assets and liabilities.
The $0.3 million of net cash provided by investing and financing activities in
the six months ended December 31, 1998, primarily was due to proceeds of $8.7
million received from the sale of short-term investments, proceeds of $2.1
million (net of taxes paid) from the sale of 50,000 shares of common stock of
Boston Scientific by the Company, proceeds of $0.5 million resulting from the
Spinoff of Cohesion Technologies, Inc., proceeds of $0.5 million from the
issuance of 47,076 shares of the Company's common stock, proceeds of $0.5
million from the sale of other affiliate stock (net of taxes paid), partially
offset by payments of $5.3 million to purchase short-term investments, payments
of approximately $3.4 million to repurchase 322,000 shares of the Company's
common stock, capital expenditures of approximately $1.6 million, payments of
cash dividends of approximately $0.9 million to the Company's stockholders in
July 1998, and an increase in intangible and other assets of $0.9 million.
The Company anticipates capital expenditures, equity investments in, and loans
to affiliate companies to be approximately $5.2 million in fiscal year 1999. As
of December 31, 1998, the Company's capital expenditures, equity investments in,
and loans to affiliate companies totaled approximately $1.6 million. In August
1998, 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 284,500 shares as of December 31, 1998. At December 31,
1998, 215,500 shares remain to be repurchased according to the Board of
Directors' authorization.
The Company's principal sources of liquidity include cash generated from
operations and its cash, cash equivalents, and short-term investments.
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.
13
<PAGE> 14
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 results of
operations could be significantly affected by fluctuations in foreign currency
exchange rates or disruptions in shipments.
Sales of the Company's collagen-based injectable products, Zyderm(R) and
Zyplast(R) collagen implants ("Zyderm implants" and "Zyplast implants"),
SoftForm implant as well as Contigen implant, accounted for approximately 89% of
consolidated product sales for the quarter ended December 31, 1998 and 90% of
consolidated product sales for the six months ended December 31, 1998. The
Company's product sales may continue to consist primarily of sales of these
principal products. Factors such as adverse rulings by regulatory authorities,
product liability lawsuits, the introduction of competitive products by third
parties, other loss of market acceptance or other adverse publicity for these
principal products may significantly and adversely affect the Company's sales of
these products and, as a result, also adversely affect the Company's business,
financial condition or results of operations.
The Company's quarterly operating results may vary significantly in the future
depending upon factors such as the timing of significant orders and shipments,
changes in pricing policies by the Company and its competitors, increased
competition, demand for the Company's products, the number, timing and
significance of new product and product enhancement announcements by the Company
and its competitors, the ability of the Company to develop, introduce and market
new and enhanced versions of the Company's products on a timely basis, the mix
of direct and indirect sales, the timing of investments in affiliate companies
and general economic factors, among others. If revenue levels are below
expectations, operating results are likely to be materially adversely affected.
In particular, because only a small portion of the Company's expenses varies
with revenue in the short term, net income may be disproportionately affected by
a reduction in revenue.
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 is located in one primary facility with the Company currently
maintaining only limited amounts of finished product inventory. While the
Company has some limited protection in the form of disaster recovery programs
and basic insurance coverage, the Company's business, financial condition or
operating results would be materially adversely affected in the event of a major
earthquake, fire or other similar calamity, affecting its manufacturing or other
facilities.
The Company is involved in various legal actions arising in the course of
business, some of which involve product liability 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 business, financial condition or results of operations.
14
<PAGE> 15
The Company has been, and may in the future, be 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. 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 business 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 Food and Drug
Administration ("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 United States, 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 United States could adversely
affect the Company's business financial condition or results of operations.
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.
Year 2000. The information provided herein related to the Year 2000 risks
constitutes a "Year 2000 Readiness Disclosure" for purposes of the Year 2000
Readiness Disclosure Act. The "Year 2000" issue results from the use in computer
hardware and software of two digits rather than four digits to define the
applicable year. When computer systems must process dates both before and after
January 1, 2000, two-digit year "fields" may create processing ambiguities that
can cause errors and system failures. The results of these errors may range from
minor undetected errors to complete shutdown of an affected system. These errors
or failures may have limited effects, or the effects may be widespread,
depending on the computer chip, system or software, and its location and
function. The effects of the Year 2000 problem are exacerbated because of the
interdependence of computer and telecommunications systems in the United States
and throughout the world. Because of this interdependence, the failure of one
system may lead to the failure of many other systems even though the other
systems are themselves "Year 2000 compliant."
The Company has reviewed the Year 2000 issue as it may affect the Company's
business activity. The Company has implemented a Year 2000 plan (the "Plan")
which is designed to cover the Company's business-critical activities, which
will be codified as circumstances change. Under the Plan, the Company is using a
five-phase methodology for addressing the issue. The phases are Awareness,
Assessment, Renovation, Validation and Implementation. A heightened emphasis on
completion will continue through the next quarter.
Awareness consists of defining the Year 2000 problem and gaining executive level
support and sponsorship. A Year 2000 program team has been established and an
overall strategy created. During Assessment, business-critical internal systems,
products and supply chain partners are
15
<PAGE> 16
inventoried and prioritized for renovation. The Company believes it has
completed a majority of the Awareness and Assessment phases, however, ongoing
work will be required in these areas as the Company completes its assessment of
existing supply chain partners and enters into new supply chain relationships in
the ordinary course of business.
Renovation consists of converting, replacing, upgrading or eliminating systems
that have Year 2000 problems. Renovation has begun on business-critical systems
and is targeted for completion by June 1999. Validation involves ensuring that
hardware and software fixes will work properly in 1999 and beyond and can occur
both before and after implementation. Validation began in the second quarter of
fiscal year 1999 and will continue through June 1999 to allow for thorough
testing before the Year 2000. Implementation is the installation of hardware and
software components in a live environment. The Company is in the early stages of
the Implementation phase.
The Impact of Year 2000 issues on the Company will depend not only on corrective
actions that the Company takes, but also on the way in which Year 2000 issues
are addressed by governmental agencies, business and other third parties that
provide services or data to, or receive services or data from, the Company, or
whose financial condition or operational capability is important to the Company.
To reduce this exposure, the Company has an ongoing process of identifying and
contacting business-critical third party vendors and other significant third
parties to determine their Year 2000 plans and target dates. Risks associated
with any such third parties located outside the United States may be higher
insofar as it is generally believed that non-U.S. businesses may not be
addressing their Year 2000 issues on as timely a basis as U.S. businesses.
Notwithstanding the Company's efforts, there can be no assurance that the
Company, business-critical third party vendors or other significant third
parties will adequately address their Year 2000 issues.
The Company is developing contingency plans for implementation in the event that
the Company, business-critical third party vendors or other significant third
parties fail to adequately address Year 2000 issues. Such plans principally
involve identifying alternative vendors or internal remediation. There can be no
assurance that any such plans will fully mitigate any such failures or problems.
Furthermore, there may be certain business-critical third parties, such as
utilities, telecommunication companies, or material vendors where alternative
arrangements or sources are limited or unavailable.
Although it is difficult to estimate the total costs of implementing the Plan,
through June 1999 and beyond, the Company's preliminary estimate is that such
costs will total approximately $600,000. However, although management believes
its estimates are reasonable, there can be no assurance, for the reasons stated
in the next paragraph, that the actual costs of implementing the Plan will not
differ materially from the estimated costs. The Company has incurred
approximately $400,000 through December 31, 1998 on this project, which does not
include the costs to redeploy existing staff. The Company does not believe that
the redeployment of existing staff will have a material adverse effect on it
business, results of operations or financial position. Incremental expense
related to the Year 2000 project are not expected to materially impact operating
results in any one period.
The extent and magnitude of the Year 2000 Problem as it will affect the Company,
both before and for some period after January 1, 2000, are difficult to predict
or quantify for a number of reasons. Among the most important are lack of
control over systems that are used by third parties who are critical to the
Company's operation, dependence on third party software vendors to deliver Year
2000 upgrades in a timely manner, complexity of testing inter-connected networks
and applications that depend on third party networks and the uncertainty
16
<PAGE> 17
surrounding how others will deal with liability issues raised by Year 2000
related failures. There can be no assurance for example, that systems used by
third parties will be adequately remediated so that they are Year 2000 ready by
January 1, 2000, or by some earlier date, so as not to create a material
disruption to the Company's business. Moreover, the estimated costs of
implementing the Plan do not take into account the costs, if any, that might be
incurred as a result of Year 2000 related failures that occur despite the
Company's implementation of the Plan.
Although the Company is not aware of any material operational issues associated
with preparing its internal systems for the Year 2000, or material issues with
respect to the adequacy of mission-critical third party systems, there can be no
assurance that the Company will not experience material unanticipated negative
consequences and/or material costs caused by undetected errors or defects in
such systems or by the Company's failure to adequately prepare for the results
of such errors or defects, including costs of related litigation, if any. The
impact of such consequences could have a material adverse effect on the
Company's business, financial condition or results of operations.
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, 1998,
and those set forth in the Form 10-Q for the quarter ended September 30, 1998.
17
<PAGE> 18
PART II. OTHER INFORMATION
COLLAGEN AESTHETICS, INC.
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On October 28, 1998, the Annual Meeting of Stockholders of Collagen
Aesthetics, Inc. was held in Menlo Park, California.
The matters voted upon and approved at the meeting, and the number of
affirmative and negative votes cast with respect to each matter were as
follows:
1. 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 Non-
Name of Nominee For Against Withheld Abstained Votes
--------------- ------ ------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
Anne L. Bakar 8,050 0 156 0 0
Fulton Collins 8,117 0 89 0 0
William G. Davis 8,051 0 155 0 0
Gerald S. Lazarus, M.D. 8,117 0 89 0 0
Gary S. Petersmeyer 8,032 0 174 0 0
</TABLE>
2. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ended June 30, 1999.
(8,169,926 votes in favor, 25,624 opposed, 10,587 abstaining)
3. To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
Item 5. Other Information
None
18
<PAGE> 19
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 10.106* Stock purchase agreement between Registrant, Sierra
Medical Technologies, Inc. and LipoMatrix, Inc. (a
wholly-owned subsidiary of Collagen Aesthetics, Inc.)
dated November 6, 1998
Exhibit 27 Financial Data Schedule
B. Reports on Form 8-K
None
*Confidential treatment requested.
19
<PAGE> 20
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 AESTHETICS, INC.
Date: February 11, 1999 /s/ GARY S. PETERSMEYER
------------------ ------------------------------------
Gary S. Petersmeyer
President and Chief Executive
Officer
Date: February 11, 1999 /s/ MICHAEL A. BATES
----------------- ------------------------------------
Michael A. Bates
Vice President Finance and Chief
Financial Officer
20
<PAGE> 21
COLLAGEN AESTHETICS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
Exhibit 10.106* Stock purchase agreement between Registrant, Sierra
Medical Technologies, Inc. and LipoMatrix, Inc. (a
wholly-owned subsidiary of Collagen Aesthetics, Inc.)
dated November 6, 1998
Exhibit 27 Financial Data Schedule
</TABLE>
*Confidential treatment requested.
21
<PAGE> 1
EXHIBIT 10.106
================================================================================
STOCK PURCHASE AGREEMENT
dated as of
November 6, 1998
by and among
SIERRA MEDICAL TECHNOLOGIES, INC.,
COLLAGEN AESTHETICS, INC.,
and
LIPOMATRIX, INC., a wholly-owned
subsidiary of Collagen Aesthetics, Inc.
================================================================================
<PAGE> 2
Applications for an order granting confidential treatment
pursuant to Rule 24b-2 of the Securities and Exchange
Act of 1934 has been or will be timely made. Confidential
portions of this document have been redacted and marked
with an (*) and have been filed with the Securities and
Exchange Commission separately with such application.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 6th day of November, 1998 by and among Sierra Medical
Technologies, Inc., a Delaware corporation (the "Purchaser"), Collagen
Aesthetics, Inc., a Delaware corporation (the "Stockholder"), and LipoMatrix,
Inc., a British Virgin Islands corporation and wholly-owned subsidiary of the
Stockholder (the "Company").
RECITALS
The Company is in the business of developing and supplying breast
implant products with unique safety and other attributes. The Stockholder is the
sole owner of all of the Company's outstanding capital stock. Purchaser wishes
to purchase from the Stockholder, and the Stockholder wishes to sell to
Purchaser, all of the outstanding capital stock of the Company on the terms and
conditions set forth herein (the "Purchase").
AGREEMENT
In consideration of the mutual promises, agreements, warranties and
provisions contained in this Agreement, the parties agree as follows:
SECTION 1
PURCHASE AND SALE OF STOCK
1. PURCHASE AND SALE OF STOCK. Subject to the terms and conditions of
this Agreement, the Purchaser agrees to purchase at the Closing (as defined
below) and the Stockholder agrees to sell to the Purchaser at the Closing, all
of the shares of capital stock of the Company outstanding as of the Closing (the
"Shares") for an aggregate purchase price (the "Purchase Price") of:
(a) (*) in immediately available funds;
(b) a payment of (*) for each unit of triglyceride-filled breast
implant product (collectively, the "Products") sold by the Company following the
Closing with respect to the first (*) units of Products so sold; and
(c) running royalties equal to (*) of the Net Revenue (as defined below)
from worldwide sales of the Products from the date of Closing by the Company or
its successors and assigns. Purchaser's obligations to pay royalties pursuant to
this Section 1(c) shall terminate on (*), with respect to Products sold outside
of the United States, and on (*), with respect to Products sold within the
United States. "Net Revenue" shall mean the amounts received by the Company, or
its successors and assigns, from the sale, licensing or other disposition of the
Product after deduction of arms-length (a) refunds, replacements and credits for
return actually made, (b) trade, quantity or cash discounts actually
*Confidential treatment has been or will be timely requested
for a portion of this document.
<PAGE> 3
given, (c) costs of shipping containers and packaging and freight and
transportation charges actually paid, including shipping insurance
premiums actually incurred and (d) sales, use and value-added taxes
actually paid.
SECTION 2
CLOSING
2. CLOSING.
2.1 CLOSING DATE. The closing of the Purchase (the "Closing")
shall be held at the offices of Collagen Aesthetics, Inc., 1850 Embarcadero
Road, Palo Alto, California U.S.A. 94303 at 2:30 p.m. local time on November 6,
1998, or at such other time and place upon which the parties shall agree orally
or in writing, such time and date being referred to herein as the "Closing
Date."
2.2 ACTIONS AT THE CLOSING. At the Closing, the Company, the
Stockholder and Purchaser shall take such actions and execute and deliver such
agreements and other instruments and documents as necessary or appropriate to
effect the transactions contemplated by this Agreement in accordance with its
terms, including, without limitation, the following:
(a) The Stockholder will deliver to Purchaser a
certificate or certificates representing all of Stockholder's Shares, together
with stock powers duly endorsed in blank for transfer of such Shares to
Purchaser, and the Stockholder shall deliver all other documents required of the
Stockholder pursuant to the Agreement; and
(b) Purchaser will deliver all cash portions of the
Purchase Price to the Stockholder by certified check payable to the Stockholder
and deliver all other documents required of Purchaser pursuant to this
Agreement.
(c) The Stockholder and the Company will execute the
notification letters in the form attached hereto as Exhibit 2.2(c) and shall
deliver such executed letters to the proper authorities in Europe as necessary
to permit the Company to continue sales of the Products after the Closing Date.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity means any material event,
change, condition or effect related to the condition, properties, assets,
liabilities, business, operations or results of operations of such entity. In
this Agreement, any reference to a "Material Adverse Effect" with respect to any
entity means any event, change or effect that, when taken individually or
together with all other adverse changes and effects, is or is reasonably likely
to be materially adverse to the condition, properties, assets, liabilities,
business, operations, or results of such entity and its
-2-
<PAGE> 4
subsidiaries, taken as a whole, or to prevent or materially delay consummation
of the transactions contemplated under this Agreement or otherwise to prevent
such entity and its subsidiaries from performing their obligations under this
Agreement.
In this Agreement, any reference to a party's "knowledge" means such
party's actual knowledge after due inquiry of its officers reasonably believed
to have knowledge of such matters.
Except as disclosed in a document of the same date as this Agreement and
delivered by the Company to Purchaser prior to the execution and delivery of
this Agreement and referring to the representations and warranties in this
Section 3 (the "Company Disclosure Schedule"), the Company represents and
warrants to Purchaser as follows:
3.1 ORGANIZATION STANDING AND POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. The Company has the requisite corporate power and
authority and all necessary government approvals to own, lease and operate its
properties and to carry on its business as now being conducted and as proposed
to be conducted, except where the failure to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. The Company does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, limited liability company, joint venture or other
business association or entity.
3.2 CHARTER DOCUMENTS AND BYLAWS. The Company has made available a true
and correct copy of the charter documents and Bylaws, stock records and Board
and stockholder actions and consents, as applicable, of the Company, each as
amended to date, to Purchaser. The Company is not in violation of any of the
provisions of its charter documents or Bylaws or equivalent organizational
documents.
3.3 CAPITAL STRUCTURE. The authorized capital stock of the Company
consists of 16,000,000 shares of Common Stock and 12,040,818 shares of Preferred
Stock, of which 4,040,818 shares have been designated Series A Preferred Stock
(the "Series A Preferred") and 8,000,000 shares have been designated Series B
Preferred Stock (the "Series B Preferred"). There were issued and outstanding as
of the close of business on October 30, 1998, 800,000 shares of Common Stock,
4,040,818 shares of Series A Preferred and 1,980,000 shares of Series B
Preferred. Stockholder is, and will be as of the Closing Date, the sole
shareholder of the Company. There is no (i) outstanding option, warrant or other
right to acquire any shares of the capital stock or other securities of the
Company, (ii) outstanding security, instrument or obligation that is or may
become convertible into or exchangeable for any shares of capital stock or other
securities of the Company, or (iii) agreement or understanding under which the
Company is or may become obligated to sell or otherwise issue any shares of its
capital stock or any other securities. All outstanding shares of the Company
Capital Stock are duly authorized, validly issued, fully paid and non-assessable
and are free of any liens or encumbrances other than any liens or encumbrances
created by or imposed upon the holders thereof, and are not subject to
-3-
<PAGE> 5
preemptive rights or rights of first refusal created by statute, the Certificate
of Incorporation or Bylaws of the Company or any agreement to which the Company
is a party or by which it is bound.
3.4 AUTHORITY. The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company. This Agreement has
been duly executed and delivered by the Company and assuming due authorization,
execution and delivery by Purchaser, constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms.
3.5 NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by the Company
does not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under, or give rise to
a right of termination, cancellation or acceleration of any obligation or loss
of any benefit under (i) any provision of the Certificate of Incorporation or
Bylaws of the Company, as amended, or (ii) any material mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its properties or assets.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to the Company in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) any filings as may be required under
applicable U.S. state securities laws and the securities laws of any other
country; and (ii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on the Company and would not prevent, or materially alter or delay, any
of the transactions contemplated by this Agreement.
3.6 FINANCIAL STATEMENTS. Section 3.6 of the Company Disclosure Schedule
includes a true, correct and complete copy of the Company's unaudited financial
statements for the fiscal year ended June 30, 1998, and its financial statements
(balance sheet, statement of operations and statement of cash flows) on a
consolidated basis as at, and for the three-month period ended September 30,
1998 (collectively, the "Financial Statements"). The Financial Statements are
unaudited but have been prepared in accordance with U.S. generally accepted
accounting principles ("GAAP") (except that they do not have notes thereto)
applied on a consistent basis throughout the periods indicated. The Financial
Statements accurately set out and describe the financial condition and operating
results of the Company as of the dates, and for the periods, indicated therein,
subject to normal year-end audit adjustments, which adjustments are not expected
to be material The Company maintains and will continue to maintain a standard
system of accounting established and administered in accordance with GAAP.
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3.7 ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet for the period ended September 30, 1998 (the "Company Balance
Sheet"), (ii) those incurred in the ordinary course of business, consistent with
past practice, and not required to be set forth in the Company Balance Sheet
under GAAP, (iii) those incurred in the ordinary course of business since the
Company Balance Sheet Date and consistent with past practice, which liabilities
individually and in the aggregate are of a character and magnitude consistent
with the ordinary course of business consistent with past practice, and (iv)
those incurred in connection with the execution of this Agreement.
3.8 ABSENCE OF CERTAIN CHANGES. Since September 30, 1998 (the "Company
Balance Sheet Date"), there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Certificate of Incorporation or
Bylaws of the Company;
(c) capital expenditure or commitment by the Company, in any
individual amount exceeding (*), or in the aggregate, exceeding (*);
(d) destruction of, damage to, or loss of any assets (including,
without limitation, intangible assets), business or customer of the Company
(whether or not covered by insurance) which would constitute a Material Adverse
Effect;
(e) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates, or any change in
policies in making or reversing accruals) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside, or payment of a dividend or other
distribution in respect to the capital stock of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
capital stock;
(i) increase in the salary or other compensation payable or to
become payable by the Company to any officers, directors, employees or
consultants of the Company, except in the ordinary course of business consistent
with past practice, or the declaration, payment, or commitment or obligation of
any kind for the payment by the Company of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement, the establishment of any bonus, insurance, deferred compensation,
pension, retirement, profit sharing, stock option (including without limitation,
the granting of stock
*Confidential treatment has been or will be timely requested
for a portion of this document.
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<PAGE> 7
options, stock appreciation rights, performance awards), stock purchase or other
employee benefit plan;
(j) sale, lease, license or other disposition of any of the
assets or properties of the Company, except in the ordinary course of business
and not in excess of (*) either individually or in the aggregate;
(k) termination or material amendment of any material contract,
agreement or license (including any distribution agreement) to which the Company
is a party or by which it is bound;
(l) loan by the Company to any person or entity, or guaranty by
the Company of any loan, except for (i) travel or similar advances made to
employees in connection with their employment duties in the ordinary course of
business, consistent with past practices and (ii) trade payables not in excess
of (*) either individually or in the aggregate and in the ordinary course of
business, consistent with past practices;
(m) waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company, in excess of (*) either individually or in the aggregate;
(n) commencement or notice or threat of commencement of any
lawsuit or proceeding against or, to the Company's or the Company's officers' or
directors' knowledge, investigation of the Company or its affairs;
(o) notice of any claim of ownership by a third party of the
Company's Intellectual Property (as defined in Section 3.12 below) or of
infringement by the Company of any third party's Intellectual Property rights;
(p) issuance or sale by the Company of any of its shares of
capital stock, or securities exchangeable, convertible or exercisable therefor,
or of any other of its securities;
(q) change in pricing or royalties set or charged by the Company
to its customers or licensees or in pricing or royalties set or charged by
persons who have licensed Intellectual Property to the Company;
(r) any event or condition of any character that has or could
reasonably be expected to have a Material Adverse Effect on the Company;
(s) agreement by the Company, or any officer or employee of the
Company on behalf of the Company to do any of the things described in the
preceding clauses (a) through (r) (other than negotiations with Purchaser and
its representatives regarding the transactions contemplated by this Agreement);
or
(t) any event, or combination of events, described under
subsections (c), (j), (l) and (m) above, which, either individually or in the
aggregate, exceeds (*).
*Confidential treatment has been or will be timely requested
for a portion of this document.
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<PAGE> 8
3.9 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the Company's knowledge, threatened
against the Company or any of its properties or any of its officers or directors
(in their capacities as such) that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on the Company. There
is no judgment, decree or order against the Company or, to the Company's
knowledge, any of its directors or officers (in their capacities as such), that
could prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to have a
Material Adverse Effect on the Company. All litigation to which the Company is a
party (or, to the knowledge of the Company, threatened to become a party) is
disclosed in the Company Disclosure Schedule.
3.10 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon the Company which has or
could reasonably be expected to have the effect of prohibiting or materially
impairing any current or future business practice of the Company, any
acquisition of property by the Company or the overall conduct of business by the
Company as currently conducted or as proposed to be conducted by the Company.
The Company has not entered into any agreement under which the Company is
restricted from selling, licensing or otherwise distributing any of its products
to any class of customers, in any geographic area, during any period of time or
in any segment of the market.
3.11 PERMITS; COMPANY PRODUCTS; REGULATION.
(a) The Company is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions, consents,
certificates, approvals and orders necessary for the Company, to own, lease and
operate its properties or to carry on its business as it is now being conducted
(the "Company Authorizations") and no suspension or cancellation of any Company
Authorization is pending or, to the Company's knowledge, threatened, except
where the failure to have, or the suspension or cancellation of, any Company
Authorization would not have a Material Adverse Effect on the Company. The
Company is not in conflict with, or in default or violation of, (i) any laws
applicable to the Company or by which any property or asset of the Company is
bound or affected, (ii) any Company Authorization or (iii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company is a party or by which the
Company or any property or asset of the Company is bound or affected, except for
any such conflict, default or violation that would not, individually or in the
aggregate have a Material Adverse Effect on the Company.
(b) Since September 30, 1998, there have been no written notices,
citations or decisions by any governmental or regulatory body that any product
produced, manufactured, marketed or distributed at any time by the Company is
defective or fails to meet any applicable standards promulgated by any such
governmental or regulatory body. To the knowledge of the Company, the Company
has complied in all material respects with the laws, regulations, policies,
procedures and specifications with respect to the design, manufacture, labeling,
testing and inspection of the Company's products. There have been no recalls,
field notifications or seizures
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<PAGE> 9
ordered or, to the Company's knowledge, threatened by any such governmental or
regulatory body with respect to any of the Products.
(c) The Company has obtained, in all countries where either the
Company is marketing or has marketed its Products, all applicable licenses,
registrations, approvals, clearances and authorizations required by local, state
or federal agencies in such countries regulating the safety, effectiveness and
market clearance of the Products currently or previously marketed by the Company
in such countries, except for any such failures as would not, individually or in
the aggregate, have a Material Adverse Effect on the Company. The Company has
identified and made available for examination by Purchaser all information
relating to regulation of its Products, including licenses, registrations,
approvals, permits, device listing, inspections, the Company's recalls and
product actions, audits and the Company's ongoing clinical studies and trials.
The Company has identified in writing to Purchaser all international locations
where regulatory information and documents are kept.
(d) To the Company's knowledge, the Company has at all times
conducted, and is presently conducting, its operations so as to comply with all
laws, statutes, ordinances, rules and regulations applicable to the conduct or
operation of its business or the ownership or use of its assets, except where
failure to do so would not have a Material Adverse Effect.
3.12 INTELLECTUAL PROPERTY.
Section 3.12 of the Company Disclosure Schedule lists (i) all patents
and patent applications and all registered and unregistered trademarks, trade
names and service marks, registered and unregistered copyrights, and mask work
rights, including the jurisdictions in which each such intellectual property
right has been issued or registered or in which any application for such
issuance and registration has been filed (collectively, the "Intellectual
Property"), (ii) all licenses, sublicenses and other agreements to which the
Company is a party and pursuant to which any person is authorized to use any
Intellectual Property, and (iii) all licenses, sublicenses and other agreements
as to which the Company is a party and pursuant to which the Company is
authorized to use any third party patents, trademarks or copyrights, including
software ("Third Party Intellectual Property Rights") which are incorporated in,
are, or form a part of any products of the Company that are, individually or in
the aggregate, material to the business of the Company. The execution and
delivery of this Agreement by the Company and the consummation of the
transactions contemplated hereby, will neither cause the Company to be in
violation or default under any such license, sublicense or agreement, nor
entitle any other party to any such license, sublicense or agreement to
terminate or modify such license, sublicense or agreement.
3.13 TAXES.
(a) All tax returns required to be filed by or on behalf of the
Company have been duly filed on a timely basis and such returns are true,
complete and correct. All taxes shown to be payable on such returns or on
subsequent assessments with respect thereto, and all payments of estimated taxes
required to be made by or on behalf of the Company have been paid in full on a
timely basis, and no other taxes are payable by the Company with respect to
items or
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<PAGE> 10
periods covered by such returns (whether or not shown on or reportable
on such returns).
(b) To the Company's knowledge, no audit of the returns of or
including the Company by a government or taxing authority is in process or
threatened. No deficiencies exist or have been asserted or are expected to be
asserted with respect to taxes of the Company, and the Company has not received
notice that it has not filed a tax return or paid taxes required to be filed or
paid.
3.14 EMPLOYEE MATTERS. The Company is in compliance in all material
respects with all currently applicable laws and regulations respecting
employment, wages, hours and occupational safety and health and employment
practices, and is not engaged in any unfair labor practice. There are no pending
claims against the Company under any workers compensation plan or policy or for
long term disability. There are no controversies pending or, to the Company's
knowledge, threatened, between the Company and any of its employees, which
controversies have or could reasonably be expected to have a Material Adverse
Effect on the Company. The Company is not a party to any collective bargaining
agreement or other labor unions contract nor is the Company aware of any
activities or proceedings of any labor union or organize any such employees.
3.15 MATERIAL CONTRACTS.
Section 3.15 of the Company Disclosure Schedule contains a list
of all contracts and agreements to which the Company is a party and that are
material to the business, results of operations, or condition (financial or
otherwise), of the Company taken as a whole (the "Material Contracts").
Stockholder has not been notified of any alleged present material breach or
violation by the Stockholder or the Company of any Material Contract.
3.16 BROKERS' AND FINDERS' FEES. The Company has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.17 ACCOUNTS RECEIVABLE.
(a) The Company has made available to Purchaser a list of all
accounts receivable of the Company reflected on the Financial Statements
("Accounts Receivable") along with a range of days elapsed since invoice.
(b) All Accounts Receivable of the Company arose in the ordinary
course of business. No person has any lien on any of such Accounts Receivable
and no request or agreement for deduction or discount has been made with respect
to any of such Accounts Receivable.
3.18 INVENTORY. All of the inventories of the Company reflected
in the Financial Statements and the Company's books and records on the date
hereof were purchased, acquired or produced in the ordinary and regular course
of business.
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<PAGE> 11
3.19 INTERCOMPANY TRANSFERS AND AGREEMENTS. All agreements and
obligations (other than those set forth in this Agreement) between the Company
and the Stockholder (and any subsidiaries or divisions thereof) shall terminate
as soon as reasonably practical following the Closing Date. As of the Closing
Date, all liabilities and obligations (other than those set forth in this
Agreement) of the Company owed to the Stockholder (and any subsidiary or
division thereof) shall have been satisfied in full.
3.20 TITLE TO ASSETS. The Company owns and has good, valid,
marketable title to all assets purported to be owned by it, including (i) all
assets reflected on the Company Balance Sheet, (ii) all assets acquired by the
Company since the Company Balance Sheet Date, (iii) all rights of the Company
under the Material Contracts and (iv) all other assets reflected in the books
and records of the Company as being owned by the Company. All of said assets are
owned free and clear of any liens or other encumbrances.
3.21 CASH BALANCE. Stockholder has provided to the Purchaser a
statement setting forth accurately the cash balance of all Company accounts as
of September 30, 1998 and has made available to the Purchaser the documentation
used in determining such amount.
3.22 FULL DISCLOSURE. None of this Agreement, the schedules and
exhibits attached hereto, and all other documents delivered by the Company to
the Purchaser contains or will contain any untrue statement of fact, and none of
such documents omits to state any fact necessary to make any of the
representations, warranties or other statements or information contained therein
not misleading.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
Except as disclosed in a document of the same date as this Agreement and
delivered by the Stockholder to Purchaser prior to the execution and delivery of
this Agreement and referring to the representations and warranties in this
Section 4 (the "Stockholder Disclosure Schedule"), the Stockholder hereby
represents and warrants to Purchaser, as to itself, as follows:
4.1 POWER, AUTHORIZATION AND VALIDITY. The Stockholder has all
requisite legal and corporate power and authority to enter into and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
approved and authorized by all necessary action, including, corporate action, by
or on behalf of the Stockholder. This Agreement has been duly executed and
delivered by the Stockholder and constitutes a valid and binding obligation of
the Stockholder. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to the Stockholder in connection with the execution and
delivery of this Agreement by the Stockholder or the consummation by the
Stockholder of the transactions contemplated hereby.
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<PAGE> 12
4.2 TITLE TO STOCK. The Stockholder is the sole owner of the
Shares and has or will have, as of the Closing, valid title to such Stock free
and clear of all restrictions, claims, liens, charges, encumbrances and equities
whatsoever. The Stockholder represents that it has or will have, as of the
Closing, full right, power and authority to sell, transfer and deliver such
Stock to Purchaser, and, upon delivery of the certificate or certificates
therefor duly endorsed for transfer to Purchaser and Purchaser's payment for and
acceptance thereof, will transfer to Purchaser valid title thereto free and
clear of any restriction, claim, lien, charge, encumbrance or equity whatsoever.
The Stockholder is not party to any voting trust, agreement or arrangement
affecting the exercise of the voting rights of the Shares. There is no action,
proceeding, claim or, to the Stockholder's knowledge, investigation against the
Stockholder or the Stockholder's assets, properties or, as applicable, any of
the Stockholder's officers or directors, pending or, to the Stockholder's
knowledge, threatened, at law or in equity, or before any court, arbitrator or
other tribunal, or before any administrative law judge, hearing officer or
administrative agency relating to or in any other manner impacting upon the
Shares held by such Stockholder.
4.3 NO VIOLATION. The execution, delivery and performance of this
Agreement, and the consummation of the Purchase and the other transactions
contemplated by this Agreement do not and will not conflict with or result in a
violation of the Certificate of Incorporation, Bylaws or other applicable
charter document of the Stockholder, or conflict with, or (with or without
notice or lapse of time, or both) result in a termination, breach, impairment or
violation of, or constitute a default or result in the creation or imposition of
any lien, charge or encumbrance upon any of the Stockholder's Stock under, (a)
any instrument, indenture, lease, mortgage or other agreement or contract to
which the Stockholder is a party or to which such Stockholder or any of such
Stockholder's assets or properties may be subject or (b) any federal, state,
local or foreign judgment, writ, decree, order, ordinance, statute, rule or
regulation applicable to the Stockholder or the Stockholder's assets or
properties. The consummation of the Purchase and the other transactions
contemplated by this Agreement will not require the consent of any third person
with respect to the rights, licenses, franchises, leases or agreements of the
Stockholder.
4.4 ENVIRONMENTAL MATTERS. To the Stockholder's knowledge, there
are presently no substances released by the Company in quantities or
concentrations that could give rise to obligations, responsibilities or
liabilities of the Company under any federal, provincial or state law relating
to the protection of the environment from actual or potential exposure to any
regulated substance.
4.5 ACKNOWLEDGMENT. The Stockholder hereby acknowledges that the
Stockholder has read this Agreement and the other documents to be delivered in
connection with the consummation of the transactions contemplated hereby and has
made an independent examination of the transactions contemplated hereby
(including the tax consequences thereof). The Stockholder acknowledges that the
Stockholder has had an opportunity to consult with and has relied solely upon
the advice, if any, of the Stockholder's legal counsel, financial advisors, or
accountants with respect to the transactions contemplated hereby to the extent
the Stockholder has deemed necessary, and has not been advised or directed by
Purchaser, the Company or its
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legal counsel or other advisors in respect of any such matters and has not
relied on any such parties in connection with this Agreement and the
transactions contemplated hereby.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Except as disclosed in a document of even date herewith and delivered by
Purchaser to the Company and the Stockholder prior to the execution and delivery
of this Agreement (the "Purchaser Disclosure Schedule"), Purchaser hereby
represents and warrants to the Company and the Stockholder as follows:
5.1 ORGANIZATION, STANDING AND POWER. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Purchaser has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect on Purchaser.
5.2 AUTHORITY. Purchaser has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Purchaser. This Agreement has been duly executed
and delivered by Purchaser and constitutes the valid and binding obligation of
Purchaser enforceable against the Purchaser in accordance with its terms.
5.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a benefit
under (i) any provision of the Charter document or Bylaws of Purchaser, as
amended, or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Purchaser or its properties or assets.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Purchaser in connection with the execution and delivery of
this Agreement by Purchaser or the consummation by Purchaser of the transactions
contemplated hereby, except for (i) any filings as may be required under
applicable U.S. state securities laws and the securities laws of any other
country, and (ii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Purchaser and would not prevent, materially alter or delay, any the
transactions contemplated by this Agreement.
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<PAGE> 14
5.4 GOVERNMENTAL AUTHORIZATION. Purchaser has obtained each governmental
consent, license, permit, grant, or other authorization of a Governmental Entity
that is required for the operation of Purchaser's or business ("Purchaser
Authorizations"), and all of such Purchaser Authorizations are in full force and
effect, except where the failure to obtain or have any of such Purchaser
Authorizations could not reasonably be expected to have a Material Adverse
Effect on Purchaser.
5.5 BROKER'S AND FINDERS' FEES. Purchaser has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
5.6 DISCLOSURE OF INFORMATION. The Purchaser believes that it, or its
representatives, have received all information as Purchaser considers necessary
for evaluating the risks and merits of acquiring the Shares and has had the
opportunity to make further inquiries of the Company and Stockholder and their
representatives for additional information. The foregoing, however, does not
limit or modify the representations and warranties of the Company in Section 3
of this Agreement.
SECTION 6
INDEMNIFICATION; TRANSFER OF LIABILITIES
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All covenants to be
performed prior to the Closing Date, and all representations and warranties in
this Agreement or in any instrument delivered pursuant to this Agreement shall
survive the consummation of the Purchase and continue until one year after
consummation of Purchase (the "Termination DATE"); provided that if any claims
for indemnification have been asserted with respect to any such representations
and warranties prior to the Termination Date, the representations and warranties
on which any such claims are based shall continue in effect until final
resolution of any claims. All covenants to be performed after the Closing Date
shall continue indefinitely.
6.2 INDEMNIFICATION.
(a) INDEMNIFIED DAMAGES. Subject to the limitations set forth in
this Section 6, from and after the Closing Date, the Stockholder shall indemnify
Purchaser and its affiliates, officers, directors, employees, representatives
and agents (each an "Indemnified Person" and collectively "Indemnified Persons")
from and against any and all losses, costs, damages, liabilities, fees
(including without limitation attorneys' fees) and expenses (collectively, the
"Damages"), that any of the Indemnified Persons incurs by reason of or in
connection with any claim, demand, action or cause of action alleging
misrepresentation, breach of, or default in connection with, any of the
representations, warranties, covenants or agreements of the Stockholder, or
representations or warranties made by the Company at or prior to the Closing or
covenants or agreements to be performed in full at or prior to the Closing,
contained in this Agreement, including any exhibits or schedules attached
hereto, which becomes known to
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<PAGE> 15
Purchaser prior to the Termination Date. Damages in each case shall be net of
the amount of any insurance proceeds, tax benefit or indemnity and contribution
actually recovered by Purchaser.
(b) EXCLUSIVE CONTRACTUAL REMEDY AND LIMITATIONS. Purchaser,
Stockholder and Company each acknowledge that Damages, if any, would relate to
unresolved contingencies existing at the Closing Date, which if resolved at the
Closing Date would have led to a reduction in the total consideration Purchaser
would have agreed to pay in connection with the Purchase, except as provided in
Sections 6.3, 6.4 and 6.5 herein. The maximum liability of Stockholder for any
breach of a representation, warranty or covenant of the Company shall be limited
to the Purchase Price.
(c) INDEMNITY BY PURCHASER. Subsequent to the Closing Date,
Purchaser agrees to indemnify and hold harmless the Stockholder and its
affiliates, officers, directors, employees, representatives and agents
(collectively, the "Stockholder Indemnitees") from and against any Damages based
upon, arising out of or otherwise in respect of any material breach of any
representation, warranty or covenant of Purchaser contained herein or in any
certificate delivered pursuant hereto, which breach becomes known to Stockholder
and is asserted in writing to Purchaser on or before the Termination Date, at
which date this indemnification provision shall terminate.
6.3 PRODUCTS LIABILITY.
(a) PURCHASER PRODUCTS LIABILITY. Subject to the terms and
conditions of this Agreement, effective as of the Closing Date, Purchaser and
Company shall be jointly and severally liable for, and hereby indemnifies and
holds harmless the Stockholder Indemnitees against, all losses, costs, damages,
liabilities, fees (including, without limitation, attorneys' fees) and expenses
of all products liability claims and actions of any nature whatsoever arising
under or related to the Company's products sold on or after the Closing Date,
regardless whether such claims are based on product design, manufacturing,
labeling or otherwise; provided, however, that (i) Stockholder (A) provides
written notice to the Purchaser of any such claim or action relating to products
liability claims which Stockholder receives within ten (10) business days of
Stockholder's receipt thereof, and (B) provides reasonable assistance (at the
Purchaser's expense) in the defense or settlement of such claim or action, and
(ii) the indemnity provided in this Section 6.3(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Purchaser (which consent shall
not be unreasonably withheld).
(b) COMPANY PRODUCTS LIABILITY. Subject to the terms and
conditions of this Agreement, Purchaser shall not be liable for, and the
Stockholder shall remain solely liable for, and hereby indemnify and hold
harmless the Indemnified Persons against, all losses, costs, damages,
liabilities, fees (including, without limitation, attorneys' fees) and expenses
of all products liability claims and actions of any nature whatsoever arising
under or related to the Company's products sold prior to the Closing Date,
regardless whether such claims are based on product design, manufacturing,
labeling or otherwise; provided, however, that (i) Purchaser (A) provides
written notice to Stockholder of any such claim or action relating to products
liability
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<PAGE> 16
claims within ten (10) business days of Purchaser's receipt thereof, and (B)
provides reasonable assistance (at Stockholder's expense) in the defense or
settlement of such claim or action, and (ii) the indemnity provided in this
Section 6.3(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of Stockholder (which consent shall not be unreasonably withheld).
(c) INDEMNIFICATION GENERALLY. The indemnifying party under
Section 6.3(a) or 6.3(b) above shall have the right to assume the defense of any
such claim and any litigation or other proceeding resulting from such claim with
counsel mutually acceptable to the parties (which acceptance shall not be
unreasonably withheld); provided, however, that an indemnified party shall have
the right to retain its own separate counsel, with the reasonable fees and
expenses to be paid by such indemnified party. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if materially prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the indemnified party
under this 6.3, but the omission so to deliver written notice to the
indemnifying party or any third party will not relieve it of any liability that
it may have to any indemnified party otherwise than under this Section 6.3. The
indemnifying party shall not, in the defense of such claim or any litigation
resulting therefrom, consent to entry of any judgment (other than a judgment of
dismissal on the merits without costs) or enter into any settlement, except with
the written consent, which consent shall not be unreasonably withheld, of the
indemnified party, which does not include as an unconditional term thereof the
giving by the claimant or the plaintiff to the indemnified party a release from
all liability in respect of such claim or litigation.
(d) PRODUCTS LIABILITY INSURANCE. Purchaser and Stockholder shall
include the other as an additional named insured on its breast implant product
liability insurance policies, and shall maintain minimum primary coverage of
(*) and a minimum excess liability coverage of (*).
6.4 ASSUMPTION OF LEASES. The Company shall retain all rights,
liabilities and obligations under all leases (including subleases, if any) to
which the Company is a party, provided, however, that the Stockholder shall
assume all responsibility with respect to the three leases to which the Company
is a party which pertain to the third floor south and third floor north, and the
unused portion of the ground floor warehouse, of the premises located at
Puits-Godet 24, Neuchatel, Switzerland.
6.5 CLAIMS BY FORMER EMPLOYEES. Subject to the terms and conditions of
this Agreement, Purchaser shall not be liable for, and the Stockholder shall
remain liable for, and hereby indemnifies and holds harmless the Indemnified
Persons against, all losses, costs, damages, liabilities, fees (including,
without limitation, attorneys' fees) and expenses of all claims and causes of
action initiated by former employees of the Company; provided, however that (i)
such claims are solely related to the former employee's employment by the
Company and (ii) such former employee's employment by the Company was terminated
prior to the Closing Date.
*Confidential treatment has been or will be timely requested
for a portion of this document.
-15-
<PAGE> 17
SECTION 7
COVENANTS AND OTHER AGREEMENTS
7.1 COVENANTS OF COMPANY AND THE STOCKHOLDER.
(a) SALE AND RETURN OF EXISTING INVENTORY. Subject to appropriate
notification of the Company's notified body in Europe as provided in Section
2.2(c) above, Purchaser will sell all existing product inventory (the "Existing
Inventory") after the Closing Date. The Stockholder's subsidiaries will return
all Existing Inventory to the Company's premises at Neuchatel, Switzerland
within two weeks of the Closing Date. The Stockholder's name (or its prior
corporate name) on all packaging, labeling, promotional brochures and other
materials disseminated to the public in connection with the sale of the Existing
Inventory will be changed to or "over-labeled" with the Purchaser's name (to the
extent such labeling does not compromise sterility of the Product) and with a
reasonably prominent notice that the Company is no longer affiliated with the
Stockholder. The Company covenants to maintain data and records on manufacturing
lots and unique product identifiers on the Existing Inventory shipped and/or
sold.
(b) EXISTING CLINICAL TRIALS. The Stockholder shall continue to
monitor and maintain responsibility for the Company's clinical trials which are
existing on the Closing Date. The Stockholder shall solely own all right, title
and interest in and to the information and data generated from such trials.
(c) COMPLAINT HANDLING AND EXPLANT ANALYSIS. The Stockholder
shall perform all complaint handling and explant analysis with respect to all of
the Company's products sold prior to the Closing Date, including, but not
limited to, the product currently known as the Trilucent implant.
(d) WARRANTY REIMBURSEMENT. Notwithstanding Section 8.2(c) below,
with respect to the Company's products sold prior to the Closing Date,
Stockholder shall reimburse Purchaser for the cost of each replacement implant,
if any, provided under warranty by Purchaser at the lower of (i) (*) per
replacement implant or (ii) Purchaser's actual manufacturing costs of such
replacement implant. The Stockholder shall only reimburse Purchaser for costs of
the actual implant, and not for any related costs (including without limitation
surgical or other medical costs), and Stockholder's reimbursement obligations,
and the Company's obligation to supply the replacement implants at the price
provided in the preceding sentence, under this Section 8.1(d) shall terminate
five (5) years following the Closing Date.
(e) FURTHER ACTS. After the Closing Date, each party hereto, at
the request of and without any further cost or expense to the other parties will
take any further actions necessary or desirable to carry out the purposes of
this Agreement and to vest in Purchaser full title to all properties, assets and
rights of the Company. In addition, without in any way limiting the generality
of the foregoing, the Company and, to the extent required, the Stockholder
hereby agree to take any and all further actions necessary or desirable to carry
out the assignment to Purchaser of all Intellectual Property.
*Confidential treatment has been or will be timely requested
for a portion of this document.
-16-
<PAGE> 18
(f) ACCESS TO INFORMATION. After the Closing Date, Stockholder,
the Company and the Purchaser each agree to provide the other parties with
reasonable access to information concerning the Products, customer inquiries
concerning the Product, complaint handling and explant analysis relating to the
Product (collected pursuant to Section 7.1(c) above). In addition, after the
Closing Date, each of the Stockholder, the Company and the Purchaser agrees to
provide the other parties with information and data related to existing clinical
trials (collected pursuant to Section 7.1(b) above) to the extent that such
other party or parties is required to disclose such information and data to
regulatory or governmental authorities, and to the extent such information and
data is reasonably necessary for such other party or parties to conduct a
defense against any personal injury or products liability claims related to the
Products.
7.2 COVENANTS OF THE PURCHASER.
(a) COMPLAINT HANDLING AND EXPLANT ANALYSIS. The Purchaser shall
perform all complaint handling and explant analysis with respect to all of the
Company's products sold on or after the Closing Date, including, but not limited
to, the product currently known as the Trilucent implant.
(b) ATTRIBUTION. The Purchaser shall, for a period of twelve (12)
months after the Closing Date, include a notice in all public announcements,
press releases and marketing materials, and on all of the Company's product
labeling and packaging, to attribute ownership of the Company and the Company's
products to Purchaser.
(c) PRODUCT WARRANTIES. Subject to the reimbursement provisions
of Section 7.1(d), the Purchaser shall maintain and service all product
warranties with respect to the Company's products sold prior to and after the
Closing Date.
(d) ROYALTY PAYMENTS. All Product royalties payable by Purchaser
pursuant to Section 1(c) above shall be payable in U.S. dollars and shall be due
and payable on a quarterly basis within thirty (30) days after the end of each
calendar quarter. If the Products are sold or otherwise disposed of for monies
other than U.S. dollars, the Net Revenue shall first be determined in the
official currency of the country in which such Products were sold or disposed of
and then converted into equivalent U.S. dollars at the exchange rate for such
currency of such country. This rate shall be equal to the rate published by The
Wall Street Journal for the last business day of each calendar quarter. Each
quarterly payment shall include a report setting forth the total number of
Products made during the preceding calendar quarter, the Net Revenues therefor
and the calculation of the royalties due.
(e) ROYALTY REPORTS. The Company shall keep accurate records in
sufficient detail to enable the royalties payable to Stockholder hereunder to be
determined, and agrees to permit said records to be examined during the term of
this Agreement by an independent Certified Public Accountant appointed by
Stockholder, provided that such inspections are conducted (i) at Stockholder's
sole expense, (ii) not more than once per calendar year, (iii) during normal
business hours, and (iv) only to the extent necessary to verify the reports and
payments required hereunder. If an examination of such records discloses that
the royalties actually paid with respect to any payment period are less than 95%
of the royalties due and owing, the
-17-
<PAGE> 19
Company shall promptly pay to Stockholder (i) the royalties still due and owed
to Stockholder, and (ii) the reasonable and documented cost to Stockholder of
such examination.
7.3 EMPLOYEE MATTERS.
(a) Purchaser shall have notified the Stockholder prior to the
Closing Date which of the present employees of the Company it desires to retain
on and after the Closing Date, and such employees are listed on Exhibit 7.3. The
Stockholder will assume responsibility for the termination and severance
benefits of the employees whom Purchaser does not desire to retain with the
Company's business.
(b) Purchaser acknowledges that it has identified those employees
of Stockholder whom it desires to recruit for employment at the Company or
Purchaser that are related to the business of the Company. Any hiring of these
employees (if any) shall be completed within ten (10) days after the Closing
Date and thereafter the provisions of Section 8.1 shall apply with respect to
any other employees of Stockholder.
7.4 PATENT MATTERS.
(a) U.S. PATENT ASSIGNMENT. On or prior to the Closing, the
Company shall have transferred and assigned to Stockholder all right, title and
interest to all U.S. patents and patent applications held by the Company as
specified in Exhibit 7.5(a)-1, including, but not limited to, U.S. Patent
Numbers 4,995,882 and 5,300,120 (collectively, the "Assigned Patents"), pursuant
to the form of Assignment Agreement attached hereto as Exhibit 7.5. The
Stockholder agrees that it shall maintain the issued Patents set forth on
Exhibit 7.5(a)-2 (collectively, the "Maintained Patents." The Stockholder shall
not, on or before four (4) years after the Closing Date, make, have made, use or
sell any products under the Patents, or license any third party to do any of the
foregoing consistent with the principles set forth in Section 8.2 below.
(b) STOCKHOLDER OPTION TO DISTRIBUTE. The Company hereby grants
to Stockholder an exclusive option (the "Stockholder Option") to acquire the
exclusive right to market and distribute, to the exclusion of the Company and
the Purchaser and any other third party, the Products under the Maintained
Patents in the United States and its territories and possessions on terms no
less favorable than those received by any other distributor of the Company's
Products outside of the United States. This Stockholder Option does not obligate
the Company to supply units of the Products to the Stockholder. This Stockholder
Option and any rights granted upon exercise of the Stockholder Option shall
terminate upon the earlier of (i) (*) or (ii) exercise of the
Purchaser Option (as defined below).
(c) COMPANY OPTION TO PURCHASE. On or before (*), the Company may
elect to both purchase the Maintained Patents from Stockholder, and Stockholder
shall transfer and assign all right, title and interest to certain of the
Maintained Patents to the Company, and to buy out and thereby cancel the
Stockholder Option upon payment to Stockholder of (*) in immediately available
funds (the "Purchaser Option"). The obligation of the Purchaser to pay running
royalties pursuant to Section 1(c) herein shall remain
*Confidential treatment has been or will be timely requested
for a portion of this document.
-18-
<PAGE> 20
in effect pursuant to its terms and shall not be affected by the exercise or
expiration of the Purchaser Option.
(d) LIMITED LICENSE TO CONDUCT CLINICAL TRIALS. Stockholder
hereby grants to the Company a limited right, with right to sublicense, solely
to conduct clinical trials under the Maintained Patents within the United
States, provided, however, that such limited right shall terminate upon the
earlier of (i) (*) or (ii) exercise of the Purchaser Option.
SECTION 8
NON-COMPETITION
8.1 PURCHASER NONCOMPETE.
(a) In consideration of the Stockholder entering into this
Agreement, Purchaser undertakes that for (*) after the Closing Date neither it
nor any affiliate of it will:
(i) participate, assist or otherwise be directly or
indirectly involved or concerned, financially or otherwise, as a member,
shareholder, unitholder, director, consultant, adviser, contractor, principal,
agent, manager, beneficiary, partner, associate, trustee, financier or otherwise
in any business or activity which is the same as or substantially similar to the
soft tissue reconstruction and augmentation, skin care or stress urinary
incontinence business or any material parts of it (excluding the Company's
business as it exists as of the Closing and excluding reconstructive products
for hard and cartilagenous tissue overlay sold to the facial plastic surgery
market) or any material part of it (the "Purchaser Restricted Business");
(ii) solicit, canvass, induce or encourage directly or
indirectly any employee of Stockholder to leave the employment of Stockholder;
(iii) solicit, canvass, approach or accept any offer from
any person or entity who was at any time during the twenty-four (24) months
immediately preceding the Closing Date a customer or supplier of Stockholder
with a view to establishing a relationship with or obtaining the patronage of
that person or entity in the Purchaser Restricted Business;
(iv) interfere or seek to interfere, directly or
indirectly, with any relationship between Stockholder and any client, customer,
employee or supplier of the Purchaser Restricted Business.
(b) If any of the separate and independent covenants and
restraints referred to in clause (a) of this Section 8.1 are or become invalid
or unenforceable for any reason then that invalidity or unenforceability will
not affect the validity or enforceability of any other separate and independent
covenants and restraints.
(c) If any prohibition or restriction contained in clause (a) of
this Section 8.1 is judged to go beyond what is reasonable in the circumstances,
but would be judged reasonable
*Confidential treatment has been or will be timely requested
for a portion of this document.
-19-
<PAGE> 21
if that activity was deleted or that period or area was reduced, then the
prohibitions or restrictions apply with that activity deleted or period or area
reduced by the minimum amount necessary.
(d) Purchaser acknowledges that:
(i) the prohibitions and restrictions contained in clause
(a) of this Section 8.1 are reasonable and necessary; and
(ii) Purchaser has received valuable consideration for
agreeing to the covenants in clause (a) of this Section 8.1.
(e) Purchaser acknowledges and agrees that it will be difficult
to compute the amount of damage or loss to Stockholder if Purchaser violated any
of its agreements under this Section 8.2, that Stockholder will be without an
adequate legal remedy if Purchaser violated the provisions of this Section 8.1,
and that any such violation may cause substantial irreparable injury and damage
to Stockholder not fully compensable by monetary damages. Therefore, Purchaser
and Stockholder agree that in the event of any violation by Purchaser of this
Section 8.2, Stockholder shall be entitled (i) to recover from Purchaser
monetary damages, (ii) to obtain specific performance, injunctive or other
equitable relief, of either a preliminary or permanent type, and (iii) to seek
any other available rights or remedies at law or in equity which may be
exercised concurrently with the rights granted hereunder.
8.2 STOCKHOLDER NONCOMPETE.
(a) In consideration of the Purchaser entering into this
Agreement, Stockholder undertakes that for (*) after the Closing Date neither it
nor any affiliate of it will:
(i) participate, assist or otherwise be directly or
indirectly involved or concerned, financially or otherwise, as a member,
shareholder, unitholder, director, consultant, adviser, contractor, principal,
agent, manager, beneficiary, partner, associate, trustee, financier or otherwise
in any business or activity which is the same as or substantially similar to the
breast implant business or any material part of it (the "Stockholder Restricted
Business");
(ii) solicit, canvass, induce or encourage directly or
indirectly any employee of Purchaser or the Company to leave the employment of
Purchaser or the Company;
(iii) solicit, canvass, approach or accept any offer from
any person or entity who was at any time during the 24 months immediately
preceding the Closing Date a customer or supplier of Purchaser or the Company
with a view to establishing a relationship with or obtaining the patronage of
that person or entity in the Stockholder Restricted Business;
(iv) interfere or seek to interfere, directly or
indirectly, with any relationship between Purchaser or the Company and any
client, customer, employee or supplier of the Stockholder Restricted Business.
*Confidential treatment has been or will be timely requested
for a portion of this document.
-20-
<PAGE> 22
(b) If any of the separate and independent covenants and
restraints referred to in clause (a) of this Section 8.2 are or become invalid
or unenforceable for any reason then that invalidity or unenforceability will
not affect the validity or enforceability of any other separate and independent
covenants and restraints.
(c) If any prohibition or restriction contained in clause (a) of
this Section 8.2 is judged to go beyond what is reasonable in the circumstances,
but would be judged reasonable if that activity was deleted or that period or
area was reduced, then the prohibitions or restrictions apply with that activity
deleted or period or area reduced by the minimum amount necessary.
(d) Stockholder acknowledges that:
(i) the prohibitions and restrictions contained in clause
(a) of this Section 8.2 are reasonable and necessary; and
(ii) Stockholder has received valuable consideration for
agreeing to the covenants in clause (a) of this Section 8.2.
(e) Stockholder and Purchaser acknowledge and agree that it will
be difficult to compute the amount of damage or loss to Purchaser or the Company
if Stockholder violated any of its agreements under this Section 8.2, that
Purchaser or the Company will be without an adequate legal remedy if Stockholder
violated the provisions of this Section 8.2, and that any such violation may
cause substantial irreparable injury and damage to Purchaser or the Company not
fully compensable by monetary damages. Therefore, Stockholder, the Company and
Purchaser agree that in the event of any violation by Stockholder of this
Section 8.2, the Company shall be entitled (i) to recover from Stockholder
monetary damages, (ii) to obtain specific performance, injunctive or other
equitable relief, of either a preliminary or permanent type, and (iii) to seek
any other available rights or remedies at law or in equity which may be
exercised concurrently with the rights granted hereunder.
SECTION 9
MISCELLANEOUS
9.1 NOTICES. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the regular mail as certified or
registered mail (airmail or international courier (e.g. DHL) if sent
internationally) with postage prepaid, if such notice is addressed to the party
to be notified at such party's address or facsimile number as set forth below,
or as subsequently modified by written notice,
-21-
<PAGE> 23
(a) if to Purchaser, to:
Sierra Medical Technologies, Inc.
3817 South Carson Street
Suite 247
Carson City, NV 89701
Attention: President
Telephone No.: (702) 884-2265
with a copy to:
Cooley Godward LLP
2595 Canyon Boulevard
Suite 250
Boulder, CO 80302
Attention: James C.T. Linfield
Facsimile No.: (303) 546-4099
Telephone No.: (303) 546-4000
(b) if to the Company, to:
LipoMatrix, Inc.
Rue des Puits Godet 20
CH-2000 Neuchatel
Switzerland
Attention: President
Facsimile No.: 011-41-32-721-2034
Telephone No.: 011-41-32-723-8100
with a copy to:
William C. Miller
3516 Villanova Avenue
San Diego, CA 92122-2313
Facsimile No.: (619) 587-2608
Telephone No.: (619) 587-2608
(c) if to the Stockholder, to:
Collagen Aesthetics, Inc.
1850 Embarcadero Road
Palo Alto, CA 94303
United States of America
Attention: President
Facsimile No.: (650) 354-4751
-22-
<PAGE> 24
Telephone No.: (650) 856-0200
with a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
United States of America
Attention: Elias J. Blawie
Facsimile No.: (650) 233-8386
Telephone No.: (650) 854-4488
9.2 INTERPRETATION. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
9.4 ENTIRE AGREEMENT; NONASSIGNABILITY; PARTIES IN INTEREST. This
Agreement is the product of all of the parties hereto, and constitutes the
entire agreement between such parties pertaining to the subject matter hereof,
and merges all prior negotiations and drafts of the parties with regard to the
transactions contemplated herein. Any and all other written or oral agreements
existing between the parties hereto regarding such transactions: (a) are
expressly canceled except for the Confidentiality Agreement, which shall
continue in full force and effect, and shall survive any termination of this
Agreement or the Closing, in accordance with its terms; (b) are not intended to
confer upon any other person any rights or remedies hereunder; and (c) shall not
be assigned by operation of law or otherwise except as otherwise specifically
provided.
9.5 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith, in order to maintain the economic position enjoyed by
each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall be
excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
9.6 REMEDIES CUMULATIVE. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party in this Agreement will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy.
-23-
<PAGE> 25
9.7 GOVERNING LAW. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of
California, United States of America, without giving effect to principles of
conflicts of law.
9.8 ARBITRATION. Any dispute or claim arising out of or in connection
with this Agreement will be finally settled by binding arbitration in New York,
New York, USA in accordance with the then-current Commercial Arbitration Rules
of the American Arbitration Association by one arbitrator appointed in
accordance with said rules. The arbitrator shall apply California law, without
reference to rules of conflicts of law or rules of statutory arbitration, to the
resolution of any dispute. Judgment on the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. Notwithstanding the
foregoing, the parties may apply to any court of competent jurisdiction for
preliminary or interim equitable relief, or to compel arbitration in accordance
with this paragraph, without breach of this arbitration provision. The
arbitration proceedings and all pleadings and written evidence shall be in the
English language. Any written evidence originally in a language other than
English shall be submitted in English translation accompanied by the original or
a true copy thereof.
9.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
9.10 WAIVER OF RESTRICTIONS. The Company hereby consents to the
transfers of the Shares that are the subject of this Agreement and waives any
restrictions on transfer applicable to the Shares with respect to the transfers
contemplated by this Agreement.
9.11 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
or waived only with the written consent of the parties or their respective
successors and assigns. Any amendment or waiver effected in accordance with this
Section 9.11 shall be binding upon the parties and their respective successors
and assigns.
9.12 PUBLIC ANNOUNCEMENTS. Each party hereto agrees that the Purchaser,
the Company and the Stockholder shall mutually agree upon any press release or
publication with respect to the existence of this Agreement or the transactions
contemplated hereby and further agree to cooperate in good faith with respect to
any such press release or public statement, and, except as may be required by
law, further agree not to issue any press release or public statement with
respect to the existence of this Agreement or the transactions contemplated
hereby without the prior written consent of the others. Purchaser also agrees,
for a period of (*) after the Closing Date, that it will make
clear the association between the Purchaser and the Company in its press
releases and that the Purchaser's name will be displayed prominently on all
public releases, marketing materials, labeling, packaging and other materials
pertaining to the subject matter hereof or the products produced by the Company.
(Signature Page Follows)
*Confidential treatment has been or will be timely requested
for a portion of this document.
-24-
<PAGE> 26
The parties have duly executed this Stock Purchase Agreement as
of the date first above written.
"COMPANY"
LIPOMATRIX, INC.
By: /s/ GARY S. PETERSMEYER
-----------------------------
Name: Gary S. Petersmeyer
Title: President
"PURCHASER"
SIERRA MEDICAL TECHNOLOGIES, INC.
By: /s/ WINSTON A. ANDREWS
-----------------------------
Name: Winston A. Andrews
Title: President
"STOCKHOLDER"
COLLAGEN AESTHETICS, INC.
By: /s/ CHARLENE A. FRIEDMAN
-----------------------------
Name: Charlene A. Friedman
Title: V.P., Legal & Regulatory Affairs
-25-
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<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,238
<SECURITIES> 0
<RECEIVABLES> 15,697
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<COMMON> 110
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<TOTAL-LIABILITY-AND-EQUITY> 72,321
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<OTHER-EXPENSES> 26,223
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