<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1995
REGISTRATION NO. 33-62223
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LIFECORE BIOMEDICAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MINNESOTA 41-0948334
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
3515 LYMAN BOULEVARD
CHASKA, MINNESOTA 55318-3051
(612) 368-4300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JAMES W. BRACKE
PRESIDENT
LIFECORE BIOMEDICAL, INC.
3515 LYMAN BOULEVARD
CHASKA, MINNESOTA 55318-3051
(612) 368-4300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MARTIN R. ROSENBAUM MARK S. WEITZ
Lindquist & Vennum P.L.L.P. Leonard, Street and Deinard
4200 IDS Center Professional Association
80 South Eighth Street 150 South Fifth Street
Minneapolis, Minnesota 55402-2205 Suite 2300
(612) 371-3211 Minneapolis, Minnesota 55402
(612) 335-1517
</TABLE>
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
LIFECORE BIOMEDICAL, INC.
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF PART I OF FORM S-2
<TABLE>
<CAPTION>
ITEM NO. AND CAPTION LOCATION IN PROSPECTUS
- -------------------------------------------------------------- --------------------------------------------------
<C> <S> <C>
Item 1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover Page
Item 2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front and Outside Back Cover Pages;
Available Information; Incorporation of Certain
Documents by Reference
Item 3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors
Item 4. Use of Proceeds................................... Use of Proceeds
Item 5. Determination of Offering Price................... Not Applicable
Item 6. Dilution.......................................... Risk Factors; Dilution
Item 7. Selling Security Holders.......................... Not Applicable
Item 8. Plan of Distribution.............................. Outside Front Cover Page; Sale of Shares to
Purchasing Shareholder; Underwriting
Item 9. Description of Securities to be Registered........ Outside Front Cover Page; Prospectus Summary; Risk
Factors; Dividend Policy; Capitalization;
Description of Common Stock
Item 10. Interests of Named Experts and Counsel............ Not Applicable
Item 11. Information with Respect to the Registrant........ Prospectus Summary; Price Range of Common Stock;
Dividend Policy; Selected Consolidated Financial
Information; Management's Discussion and Analysis
of Results of Operations and Financial Condition;
Business; Management; Principal Shareholders;
Description of Common Stock; Consolidated
Financial Statements
Item 12. Incorporation of Certain Information by
Reference........................................ Incorporation of Certain Documents by Reference
Item 13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 10, 1995
PROSPECTUS
DATED , 1995
2,200,000 SHARES
[LOGO]
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by Lifecore
Biomedical, Inc. ("Lifecore" or the "Company"). The Company's Common Stock is
traded on the Nasdaq National Market under the symbol "LCBM." On October 6,
1995, the last sale price of the Common Stock on the Nasdaq National Market was
$12.875 per share. See "Price Range of Common Stock."
Of the 2,200,000 shares of Common Stock offered hereby, the Company intends to
sell a certain number of shares of Common Stock having an aggregate purchase
price of $2,000,000 to Johnson & Johnson Development Corporation (the
"Purchasing Shareholder"). The price per share of the Common Stock to be sold to
the Purchasing Shareholder is the same as the Price to Public. See "Sale of
Shares to Purchasing Shareholder."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................ $ $ $
Total(3)................................. $ $ $
<FN>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. No
underwriting discount will apply to the shares of Common Stock being sold
to the Purchasing Shareholder. See "Sale of Shares to Purchasing
Shareholder" and "Underwriting."
(2) Before deducting offering expenses payable by the Company estimated at
$225,000.
(3) The Underwriters have been granted a 30-day over-allotment option to
purchase up to 330,000 additional shares of Common Stock solely to cover
over-allotments, if any, at the Price to Public less underwriting discount.
If the Underwriters exercise this option in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
</TABLE>
The shares of Common Stock are being offered by the several Underwriters subject
to prior sale when, as and if delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the certificates representing the shares of Common Stock will be
made at the offices of Piper Jaffray Inc. in Minneapolis, Minnesota on or about
, 1995.
PIPER JAFFRAY INC. NEEDHAM & COMPANY, INC.
<PAGE>
AVAILABLE INFORMATION
Lifecore Biomedical, Inc. is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices located at
Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can also be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
The Company has filed with the Commission a Registration Statement on Form
S-2 with respect to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement as
permitted by the rules and regulations of the Commission. For further
information pertaining to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits thereto, copies
of which may be inspected without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies thereof may be obtained from the Commission upon payment of the
prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1995 is incorporated by reference in this Prospectus. All other reports filed by
the Company pursuant to Section 13(a) or 15(d) of the Exchange Act since the end
of the fiscal year covered by the above-referenced Annual Report are
incorporated by reference in this Prospectus. Statements contained in the
foregoing documents incorporated by reference herein shall be deemed to be
modified or superseded for purposes hereof to the extent that statements
contained herein modify or supersede such statements. Any statements so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, on the written or oral
request of such person, a copy of any or all of the other documents referred to
above which have been incorporated by reference in this Prospectus, other than
exhibits to such documents. Requests for such copies should be directed to James
W. Bracke, President and Chief Executive Officer, Lifecore Biomedical, Inc.,
3515 Lyman Boulevard, Chaska, Minnesota 55318, telephone number (612) 368-4300.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMPANY'S COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE
10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
------------------------
Capset-TM- Calcium Sulfate Bone Graft Barrier, Hapset-Registered Trademark-
Hydroxylapatite Bone Graft Plaster, Lifecore-Registered Trademark-,
Lurocoat-Registered Trademark- Ophthalmic Solution,
Orthomatrix-Registered Trademark- Non-resorbable Hydroxylapatite Bone Graft
Substitute, Restore-Registered Trademark- Dental Implant System,
Sustain-Registered Trademark- Dental Implant System, and
Tenalure-Registered Trademark- Sodium Hyaluronate are trademarks of the Company.
Amvisc-Registered Trademark- Ophthalmic Solution, Amvisc
Plus-Registered Trademark- Ophthalmic Solution, Caprogel-TM- Topical
Aminocaproic Acid, Cystistat-TM- Urological Irrigation Solution,
Lubricoat-Registered Trademark- 0.5% Ferric Hyaluronate Gel, MAP-5-TM- Embryo
Cryopreservation Solution, Provisc-Registered Trademark- (Sodium Hyaluronate)
Viscoelastic Material, and Viscoat-Registered Trademark- Ophthalmic Viscoelastic
Solution are trademarks of certain other companies.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION.
THE COMPANY
Lifecore Biomedical, Inc. develops, manufactures and markets
surgically-implantable materials and devices through its two divisions, the
Hyaluronate Division and the Oral Restorative Division.
The Company's Hyaluronate Division is principally involved in the
development and manufacture of products utilizing hyaluronate, a
naturally-occurring carbohydrate which moisturizes or lubricates the soft
tissues of the body. Due to its widespread presence in body tissues and its high
degree of biocompatibility, the Company believes that hyaluronate can be used
for a wide variety of medical applications. The Company produces hyaluronate
synthetically through a proprietary fermentation process. Currently, the primary
commercial use for the Company's hyaluronate is as a component in ophthalmic
surgical solutions for cataract surgery. Lifecore is pursuing the development of
several other synthesized versions of hyaluronate through strategic alliances
with a number of corporate partners for a variety of general surgery,
veterinary, drug delivery, wound care and urology applications. The Company also
leverages its specialized hyaluronate manufacturing skills to produce
non-hyaluronate products for medical applications.
The Hyaluronate Division's primary development project involves
Lubricoat-Registered Trademark- 0.5% Ferric Hyaluronate Gel ("Lubricoat Gel"),
the Company's second generation product for potential application in reducing
the incidence of post-surgical adhesions. The Company has been working on this
project with its corporate partner, Ethicon, Inc., a wholly-owned subsidiary of
Johnson & Johnson ("Ethicon"), since 1989. In August 1994, the Company acquired
development responsibility for this project from Ethicon in exchange for
granting exclusive world-wide marketing rights to Ethicon for adhesion
prevention and orthopedic applications. An Investigational Device Exemption for
Lubricoat Gel has been approved by the U.S. Food and Drug Administration, and
the first phase of human clinical trials commenced in May 1995. This phase is
expected to be completed in late 1995.
Lubricoat Gel is intended to reduce the incidence of fibrous tissue
adhesions, which commonly form as part of the body's natural healing process
when tissues or organs are traumatized during surgery. Particularly with respect
to abdominal, cardiovascular, orthopedic, reproductive tract, and thoracic
surgeries, these adhesions may cause internal complications that often require
costly follow-up surgical intervention. Of the approximately 20 million surgical
procedures estimated by government sources to be performed annually in the
United States, the Company believes there are at least eight million procedures
in which patients could benefit from the use of an anti-adhesion product.
The Company's Oral Restorative Division designs and markets a comprehensive
line of titanium-based dental implants for the replacement of lost or extracted
teeth. In May 1992, the Company acquired the Sustain-Registered Trademark-
Dental Implant System from Bio-Interfaces, Inc. and subsequently, in July 1993,
acquired Implant Support Systems, Inc. ("ISS"), the manufacturer of the
Restore-Registered Trademark- Dental Implant System and the ISS line of
compatible components. The Company has enhanced and expanded these product lines
since their acquisition. The Oral Restorative Division also manufactures and
markets synthetic bone graft substitute products for the restoration of bone
tissue deterioration resulting from periodontal disease and tooth loss. This
Division's products are marketed in the United States through the Company's
direct sales force, in Italy through the Company's subsidiary, Lifecore
Biomedical SpA, and in other countries through distributors.
Lifecore Biomedical, Inc. was incorporated in Minnesota in 1965. As used
herein, "Lifecore" or the "Company" refers to Lifecore Biomedical, Inc. and its
wholly-owned subsidiaries. The Company's executive offices are located at 3515
Lyman Boulevard, Chaska, Minnesota 55318-3051 and its telephone number is
(612)368-4300.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby.................. 2,200,000 shares
Common Stock to be outstanding after the
offering.................................... 10,185,292 shares(1)
Use of proceeds.............................. To finance capital expenditures relating to
production scale-up; research and
development, including clinical trials;
repayment of indebtedness; and general
working capital purposes.
Nasdaq National Market symbol................ LCBM
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share amounts)
The following table sets forth summary consolidated financial data of the
Company and should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto and other financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................................................... $ 7,485 $ 10,430 $ 10,018
Cost of goods sold.......................................................... 3,767 6,004 7,900
Gross profit................................................................ 3,718 4,426 2,118
Operating expenses.......................................................... 7,999 5,817 6,801
Other income (expense)...................................................... 554 (1,406) (532)
Net loss.................................................................... (3,727) (2,797) (5,215)
Net loss per common share................................................... $ (.53) $ (.39) $ (.66)
Weighted average shares outstanding......................................... 7,048 7,176 7,880
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
-------------------------
ACTUAL AS ADJUSTED(2)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................................... $ 3,987
Total assets........................................................................ 25,522
Long-term obligations............................................................... 7,888
Shareholders' equity................................................................ 10,188
<FN>
- ------------
(1) Excludes 645,919 shares of Common Stock issuable upon exercise of options
outstanding as of August 28, 1995 under the Company's 1987 Stock Plan and
1990 Stock Plan, as amended, which have an average exercise price of $7.09
per share, and an additional 373,964 shares reserved for future issuance
under such Plans. See Note H to Consolidated Financial Statements.
(2) Adjusted to reflect the sale by the Company of 2,200,000 shares of Common
Stock offered by the Company and the application of the net proceeds
therefrom.
</TABLE>
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK BEING OFFERED HEREBY INVOLVES A
HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS,
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY.
LACK OF PROFITABILITY; POSSIBLE NEED FOR FUTURE FINANCING
The Company has experienced losses since 1990 and incurred a loss of $5.2
million in fiscal 1995. The Company projects a loss for fiscal 1996. These
losses are attributable to the significant costs incurred in validating and
operating the Company's facilities, research and development, and marketing. As
a result of these continuing losses, and insufficient cash on hand at June 30,
1995 to fund projected losses and fixed obligations through June 30, 1996, the
report of the Company's independent auditors on the Company's Consolidated
Financial Statements contains an explanatory paragraph expressing substantial
doubt about the Company's ability to continue as a going concern without
additional financing. Management believes that the net proceeds of this offering
and its capital resources will be sufficient to meet its needs through fiscal
1997. Due to the uncertainties involved in development, regulatory approval, and
market acceptance of its new products, and adequate growth in its existing
products, no assurance can be given that the net proceeds of this offering will
be sufficient to allow the Company to attain and maintain positive cash flow. If
the Company exhausts the net proceeds of this offering prior to achieving and
maintaining positive cash flow, additional financing will be necessary. Further,
the Company has received waivers through fiscal 1996 with respect to certain
covenants in the industrial development revenue bonds used to finance its
facility. The Company anticipates that it will be required to obtain further
waivers. There can be no assurance that these waivers will continue to be
granted to the Company. If not, and such bonds are required to be redeemed
before maturity, the Company may have to raise additional funds to fulfill that
obligation. If additional financing is needed, no assurance can be given that
such financing will be available and, if available, will be on terms favorable
to the Company and its shareholders. See "Use of Proceeds," "Management's
Discussion and Analysis of Results of Operations and Financial Condition," and
the Company's Consolidated Financial Statements and related Notes included
elsewhere in this Prospectus.
UNCERTAINTY OF SUCCESSFUL DEVELOPMENT OF NEW HYALURONATE PRODUCTS
The Company is pursuing the development of a variety of new product
applications for hyaluronate through a number of corporate alliances. A
significant amount of the Company's anticipated growth is dependent on its
ability to develop, manufacture and market these hyaluronate formulations. Such
formulations must be developed, tested and, in most cases, approved for use by
appropriate government agencies. Once approved as products, they must be
manufactured in commercial quantities and marketed successfully. Each of these
steps involves significant amounts of time and expense. There can be no
assurance that any of these products, if and when fully developed and tested,
will perform in accordance with the Company's expectations, that necessary
regulatory approvals will be obtained in a timely manner, if at all, or that
these products can be successfully and profitably produced and marketed. See
"Business."
The Company has made a significant investment in the development of a
hyaluronate product to reduce the incidence of post-surgical adhesions. Clinical
testing of the first generation of this product indicated a need for further
development. Additional work led to an Investigational Device Exemption ("IDE")
application which was approved in April 1995 by the United States Food and Drug
Administration (the "FDA") to begin Phase I human clinical trials on a second
generation product, Lubricoat Gel. Those clinical trials commenced in May 1995.
The Company's ability to make commercial sales of Lubricoat Gel in the United
States is dependent upon its receipt of Pre-Market Approval ("PMA") from the
FDA. There can be no assurance that the results of the Company's clinical trials
will be positive or that the PMA will be received within the Company's
timetable, or at all. Furthermore, even if Lubricoat Gel is successfully
developed and the Company receives a PMA, there can be no assurance that it will
receive market acceptance. Failure to achieve significant sales of Lubricoat Gel
could have a material adverse effect on future prospects for the Company's
operations. See "Business -- Hyaluronate Division."
5
<PAGE>
RELIANCE ON MARKETING AND DEVELOPMENT SUPPORT FROM CORPORATE PARTNERS
The Company has historically developed, manufactured, and marketed its
Hyaluronate Division products through long-term strategic alliances with
corporate partners. In the case of such relationships, the speed and other
aspects of the development project are sometimes outside of the Company's
control, as the other party to the relationship often has priorities that differ
from those of the Company. Thus, the timing of commercialization of the
Company's products under development may be subject to unanticipated delays.
Further, the Company currently has no direct sales capabilities in the
Hyaluronate Division and relies upon its corporate partners for marketing and
distribution to end-users. The market success of the Company's hyaluronate
products generally will depend upon the size and skill of the marketing
organizations of the Company's corporate partners, as well as the level of
priority assigned to the marketing of the Company's products by these entities,
which may differ from the Company's. Should one or more of the Company's
strategic alliances fail to develop or market products as planned, the Company's
business may be adversely affected. No assurance can be given that the Company
will be able to negotiate acceptable strategic alliances in the future.
The development contracts that the Company enters into with corporate
partners are long-term agreements that are subject to development milestones,
product specifications, and other terms. Consequently, future agreement is
required regarding the course and nature of continued development activities.
Contractual issues requiring resolution between the parties have arisen in the
past and are expected to arise in the ordinary course of the Company's future
development activities. There can be no assurance that all such issues will be
successfully resolved.
LIMITED DIRECT SALES AND MARKETING EXPERIENCE
The Oral Restorative Division markets its products through a direct sales
force. Although the Division's salespersons have experience in the dental
implant market, and many of the Company's foreign distributors are also
experienced, the Division's sales force and distribution network is relatively
new. Continued growth of the Company's revenues from oral restorative products
will depend on the ability of this sales and distribution network to increase
the Company's market share by convincing practitioners to use the Company's
products over competing established products. No assurance can be given that the
sales and distribution network will be successful in increasing or maintaining
the Company's market share or sales levels. Failure to increase the market share
of these products would adversely affect the Company's results of operations and
financial condition. See "Business -- Sales and Marketing."
COMPETITION
Lifecore is engaged in very competitive segments of the human health care
products industry. Competitors of the Hyaluronate and Oral Restorative Divisions
in the United States and elsewhere are numerous and include major chemical,
dental, medical, and pharmaceutical companies, as well as smaller specialized
firms. Many of these competitors have substantially greater capital resources,
marketing experience, and research and development resources than the Company.
These companies may succeed in developing products that are more effective than
any that have been or may be developed by Lifecore and may also prove to be more
successful than Lifecore in producing and marketing these products. In addition,
the Oral Restorative Division is competing against a number of established
competitors with dominant market shares. In order to increase sales, the
Division must gain market share from its competitors. There can be no assurance
that Lifecore will be able to compete successfully against these competitors.
The Company's primary development project involves Lubricoat Gel for its
potential application in reducing the incidence of post-surgical adhesions. A
competitor, Genzyme Corporation, also is developing hyaluronate based
formulations for anti-adhesion applications, which would directly compete with
the Company's Lubricoat Gel product, if and when approved for marketing by the
FDA. Genzyme has received export approval to market its products in certain
European countries. If Genzyme receives PMA approval for this product and the
product obtains commercial acceptance, this may adversely affect the Company's
6
<PAGE>
prospects for Lubricoat Gel, if and when approved. Genzyme also sells an
ophthalmic hyaluronate component to Alcon Laboratories, Inc. ("Alcon"), the
Company's largest customer. A number of other companies are attempting to
develop anti-adhesion products, and a number of companies, including Genzyme,
produce a hyaluronate product for cataract surgery.
There can be no assurance that product introductions by present or future
competitors or future technological or health care innovations will not render
Lifecore's products and processes obsolete. See "Business -- Competition."
PROTECTION OF PROPRIETARY TECHNOLOGY
Lifecore's success depends, to a large extent, on its ability to maintain a
competitive technological position in its product areas. While certain of
Lifecore's patents have been allowed or issued, there can be no assurance that
any additional patents will be allowed or that, to the extent issued, the
Company's patents will effectively protect its proprietary technology. If other
manufacturers were to infringe on its patents, there can be no assurance that
the Company would be successful in challenging, or would have adequate resources
to challenge, such infringement. Lifecore also relies upon trade secrets,
proprietary know-how and continuing technological innovation to develop and
maintain its competitive position. There can be no assurance that others will
not independently develop such know-how or otherwise obtain access to the
Company's technology. While Lifecore's employees, temporary staff, consultants
and corporate partners with access to proprietary information are required to
enter into confidentiality agreements, there can be no assurance that these
agreements will provide the Company with adequate protection from loss of
proprietary technology or know-how.
Under current law, patent applications in the United States are maintained
in secrecy until patents are issued, and patent applications in foreign
countries are maintained in secrecy for a period after filing. The right to a
device patent in the United States is attributable to the first to invent the
device, not the first to file a patent application. Accordingly, the Company
cannot be sure that its products or technologies do not infringe patents that
may be granted in the future pursuant to pending patent applications. The
Company has not received any notices alleging, and is not aware of, any
infringement by the Company of any other entity's patents. There can be no
assurance, however, that its products do not infringe any patents or proprietary
rights of third parties. In the event that any relevant claims of third-party
patents are upheld as valid and enforceable, the Company could be prevented from
selling its products or could be required to obtain licenses from the owners of
such patents or be required to redesign its products or processes to avoid
infringement. There can be no assurance that such licenses would be available
or, if available, would be on terms acceptable to the Company or that the
Company would be successful in any attempt to redesign its products or processes
to avoid infringement. The Company's failure to obtain these licenses or to
redesign its products or processes would have a material adverse effect on the
Company's business, financial condition, and results of operations. See
"Business -- Patents and Proprietary Rights."
LACK OF REGULATORY APPROVALS; REGULATION OF EXISTING PRODUCTS
The Company's products under development are considered to be medical
devices and, therefore, they require clearance or approval by the FDA before
commercial sales can be made in the United States. The products also require
approvals of foreign government agencies before sales may be made in many other
countries. The process of obtaining these clearances or approvals varies
according to the nature and use of the product and can involve lengthy and
detailed laboratory and clinical testing, sampling activities and other costly
and time-consuming procedures. There can be no assurance that any of the
required clearances or approvals will be granted on a timely basis, if at all.
In addition, most of the existing products being sold by the Company and its
customers are subject to continued regulation by the FDA, various state agencies
and foreign regulatory agencies which regulate manufacturing, labeling and
record keeping procedures for such products. Marketing clearances or approvals
by these agencies can be withdrawn due to failure to comply with regulatory
standards or the occurrence of unforeseen problems following initial approval.
These agencies can also limit or prevent the manufacture
7
<PAGE>
or distribution of the Company's products. A determination that the Company is
in violation of such regulations could lead to the imposition of civil
penalties, including fines, product recalls or product seizures, injunctions,
and, in extreme cases, criminal sanctions. See "Business -- Government
Regulation."
POSSIBLE LIMITATIONS ON ABILITY TO MANUFACTURE PRODUCTS
The Company has designed its facility to produce certain forms of
hyaluronate products at levels far exceeding current levels of production. In
the event of a sudden increase in demand for the Company's hyaluronate products,
the Company will be required to scale-up operations, including the acquisition
and validation of additional proprietary packaging equipment and training of
additional qualified personnel. No assurance can be given that the Company will
be able to adequately meet any such demands on a timely basis. See "Business --
Manufacturing."
RISK OF INTERRUPTION OF MANUFACTURING
The Company's manufacturing requires extensive specialized equipment. In
addition, the Company manufactures all of its hyaluronate products at one
facility. Although the Company has contingency plans in effect for certain
natural disasters, as well as other unforeseen events which could damage the
Company's facilities or equipment, no assurance can be given that any such
events will not materially interrupt the Company's business. In the event of
such an occurrence, the Company has business interruption insurance to cover
lost revenues. However, such insurance would not compensate the Company for the
loss of opportunity and potential adverse impact on relations with existing
customers created by an inability to produce its products.
DEPENDENCE ON MANAGEMENT
The Company's success depends in large part upon the services of its Chief
Executive Officer, Dr. James W. Bracke. Dr. Bracke's employment agreement with
the Company extends through June 1998. Although the Company is the owner and
beneficiary of a life insurance policy covering Dr. Bracke, there can be no
assurance that the proceeds of such policy will be sufficient to compensate the
Company for the loss of his services. See "Management."
EXPOSURE TO PRODUCT LIABILITY CLAIMS
The manufacture and sale of the Company's products entails a risk of product
liability claims. In addition to product liability exposure for its own
products, the Company may be subject to claims for products of its customers
which incorporate Lifecore's materials. The Company maintains product liability
insurance coverage of $1.0 million per claim with an aggregate maximum of $2.0
million for all of its products. The Company also carries a $2.0 million
umbrella insurance policy which also covers product liability claims. Lifecore
Biomedical SpA also carries product liability insurance in the amount of $1.0
million per claim with an aggregate maximum of $2.0 million. However, there can
be no assurance that the Company will have sufficient resources if claims exceed
available insurance coverage. While the Company has not experienced any product
liability claims to date, a product liability claim, or other claim with respect
to uninsured liabilities or in excess of insured liabilities, could have a
material adverse effect on the business, financial condition and results of
operations of the Company. In addition, there can be no assurance that insurance
will continue to be available to the Company and that, if available, the
insurance will continue to be on commercially acceptable terms. See "Business --
Product Liability."
POSSIBLE VOLATILITY OF SHARE PRICE
Market prices for securities of medical technology companies can be highly
volatile and, following this offering, the trading price of the Company's Common
Stock could be subject to significant fluctuations in response to quarterly
variations in operating results, announcements of the status or results of
development projects or technological innovations by the Company or its
competitors, government regulation and other
8
<PAGE>
events or factors. The volatility in market prices may be unrelated to the
operating performance of particular companies. These market fluctuations have in
the past materially adversely affected the market price of the Company's Common
Stock, and may have such an effect in the future. See "Price Range of Common
Stock."
DILUTION AND ABSENCE OF DIVIDENDS
The purchasers of the Common Stock offered hereby will experience
substantial dilution in the net tangible book value of their Common Stock. The
Company has not paid any cash dividends since its inception and does not
anticipate paying cash dividends in the foreseeable future. See "Dilution" and
"Dividend Policy."
ANTI-TAKEOVER CONSIDERATIONS
The Board of Directors of the Company has the authority, without any action
by the stockholders, to fix the rights and preferences of any shares of the
Company's Preferred Stock to be issued from time to time. Pursuant to the
Company's Articles of Incorporation, the Board of Directors is divided into
three classes of directors, with each director serving a three-year term. Each
year only one class of directors is subject to a shareholder vote, and
approximately one-third of the directors belongs to each class. A shareholder
desiring to control the Board of Directors must participate in two elections of
directors to obtain majority representation on the Board of Directors. In
addition, as a Minnesota corporation, the Company is subject to certain
anti-takeover provisions of the Minnesota Business Corporation Act. All of these
factors could have the effect of delaying, deferring or preventing a change in
control of the Company, may discourage bids for the Company's Common Stock at a
premium over the then prevailing market price of the Common Stock, and may
adversely affect the market price of, and the voting and other rights of the
holders of, Common Stock. See "Description of Common Stock."
SALE OF SHARES TO PURCHASING SHAREHOLDER
As part of this offering, the Company intends to sell at the Price to Public
shares of Common Stock having an aggregate purchase price of $2,000,000
directly to Johnson & Johnson Development Corporation, a wholly-owned subsidiary
of Johnson & Johnson ("JJDC" or the "Purchasing Shareholder"). No underwriting
discount will be paid with respect to these shares. JJDC currently owns
approximately 9.5% of the Company's outstanding Common Stock. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition --
Liquidity and Capital Resources," "Principal Shareholders," and "Underwriting."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be $ ($ if the Underwriters' over-allotment
option is exercised in full), after deducting the underwriting discount and
offering expenses.
The Company intends to use approximately $5.0 million through fiscal 1997
for capital expenditures relating to production scale-up, including finished
packaging and labeling equipment and certain facilities enhancements for the
Hyaluronate Division. Approximately $5.3 million will be used for research and
development activities through fiscal 1997, including the funding of clinical
trials. In addition, the Company intends to use approximately $3.6 million for
scheduled lease payments through fiscal 1997 on the Company's equipment lease
from Johnson & Johnson Finance Corporation ("JJFC") and $1.5 million for sinking
fund payments to fund principal and interest payments due through fiscal 1997 on
the Company's industrial revenue bonds. These bonds bear interest at 10.25% and
are due in 2021. Up to $1.3 million will be used to pay the remaining principal
balance on the 5% promissory note issued in connection with the acquisition of
ISS in 1993. The Company intends to use the remaining funds for general working
capital purposes.
Pending use of the net proceeds for the purposes mentioned above, the
Company will invest the net proceeds from the sale of the Common Stock described
herein in short-term, interest-bearing securities.
9
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "LCBM." The following table sets forth for each quarter since the
beginning of fiscal 1994 the range of high and low closing sale prices of the
Common Stock on the Nasdaq National Market. These prices represent prices
between dealers and do not include retail mark-ups, markdowns or commissions and
may not represent actual transactions.
<TABLE>
<CAPTION>
FISCAL YEAR LOW HIGH
- ------------------------------ ------- -------
<S> <C> <C>
1994
First Quarter............... $ 6 1/4 $ 8 1/2
Second Quarter.............. 7 1/4 10 7/8
Third Quarter............... 6 5/8 10 1/8
Fourth Quarter.............. 3 7/8 7 7/8
1995
First Quarter............... $ 4 3/4 $ 6
Second Quarter.............. 3 3/8 5 1/2
Third Quarter............... 3 3/4 6 3/8
Fourth Quarter.............. 4 7/8 8 7/8
1996
First Quarter............... 7 3/8 13 1/2
Second Quarter (through
October 6, 1995)........... 12 1/2 12 7/8
</TABLE>
On October 6, 1995, the last sale price of the Common Stock on the Nasdaq
National Market was $12.875.
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock and does not
plan to pay cash dividends in the near future. In addition to being subject to a
loan agreement which restricts its ability to pay dividends, the Company expects
to retain any future earnings to finance its business.
DILUTION
As of June 30, 1995 the Company's net tangible book value was $5,438,000, or
$0.68 per share. Net tangible book value per share represents the amount of the
Company's total tangible assets less the Company's total liabilities, divided by
the number of shares of Common Stock outstanding. Without taking into account
any other changes in such net tangible book value after June 30, 1995, other
than to give effect to the sale of 2,200,000 shares offered by the Company
hereby (after deduction of estimated underwriting discounts and commissions and
estimated offering expenses), the net tangible book value of the Company as of
June 30, 1995 would have been $ , or $ per share. This represents an
immediate increase in the net tangible book value of $ per share to the
existing stockholders, and an immediate dilution in net tangible book value of
$ per share to purchasers of Common Stock in this offering. The foregoing
assumes no exercise of outstanding stock options. As of June 30, 1995, the
Company had 629,419 shares of Common Stock reserved for issuance upon the
exercise of stock options outstanding under the Company's 1987 Stock Plan and
the 1990 Stock Plan, as amended, which have an average exercise price of $7.00
per share, and an additional 403,589 shares reserved for future issuance under
such Plans. See Note H to the Company's Consolidated Financial Statements.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1995, and as adjusted to give effect to the issuance and sale by the Company
of the 2,200,000 shares of Common Stock offered hereby and the application of
the net proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations, excluding current maturities.................................... $ 7,888 $ 7,888
Shareholders' equity (1)
Preferred stock, $1.00 stated value; no shares outstanding........................... -- --
Common stock, $.01 stated value; 7,972,167 shares outstanding; 10,172,167 shares as
adjusted............................................................................ 80 102
Additional paid-in capital........................................................... 37,216
Accumulated deficit.................................................................. (27,108) (27,108)
---------- -----------
Total shareholders' equity..................................................... 10,188
---------- -----------
Total capitalization........................................................... $ 18,076 $
---------- -----------
---------- -----------
<FN>
- ------------
(1) Shares outstanding as of June 30, 1995 excludes 629,419 shares of Common
Stock issuable upon exercise of outstanding options under the Company's
1987 Stock Plan and 1990 Stock Plan, as amended, which have an average
exercise price of $7.00 per share, and an additional 403,589 shares
reserved for future issuance under such Plans. See Note H to the Company's
Consolidated Financial Statements.
</TABLE>
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share amounts)
The following sets forth selected historical financial data with respect to
the Company and its subsidiaries. The data given below as of and for the five
years ended June 30, 1995 has been derived from the Company's Consolidated
Financial Statements audited by Grant Thornton LLP, independent certified public
accountants. Such data should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Results of Operations
and Financial Condition."
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.................................................. $ 5,884 $ 4,482 $ 7,485 $ 10,430 $ 10,018
Costs of goods sold........................................ 3,401 3,267 3,767 6,004 7,900
--------- --------- --------- --------- ---------
Gross profit............................................... 2,483 1,215 3,718 4,426 2,118
Operating expenses
Research and development................................. 622 1,555 1,706 1,072 1,381
Marketing and sales...................................... 1,853 2,579 2,764 2,645 3,038
General and administrative............................... 1,411 1,715 2,198 2,100 2,382
Write-down of building and equipment..................... 1,200 -- -- -- --
Manufacturing relocation................................. -- 714 1,331 -- --
--------- --------- --------- --------- ---------
5,086 6,563 7,999 5,817 6,801
--------- --------- --------- --------- ---------
Loss from operations....................................... (2,603) (5,348) (4,281) (1,391) (4,683)
Other income (expense)..................................... 34 45 554 (1,406) (532)
--------- --------- --------- --------- ---------
Net loss................................................... $ (2,569) $ (5,303) $ (3,727) $ (2,797) $ (5,215)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net loss per common share.................................. $ (.49) $ (.81) $ (.53) $ (.39) $ (.66)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding........................ 5,227 6,539 7,048 7,176 7,880
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
AS OF JUNE 30,
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................ $ 2,203 $ 9,568 $ 7,756 $ 3,618 $ 3,987
Total assets............................................... 15,744 27,807 23,786 24,063 25,522
Long-term obligations...................................... 7,748 8,136 7,398 9,051 7,888
Shareholders' equity....................................... 4,500 15,029 13,453 11,328 10,188
</TABLE>
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The Company develops, manufactures and markets surgically implantable
materials and devices through its two divisions, the Hyaluronate Division and
the Oral Restorative Division.
The Company has a number of relationships with corporate partners relating
to the development and marketing of hyaluronate based products for a variety of
medical applications, as well as certain non-hyaluronate based applications that
utilize the Company's specialized manufacturing capabilities. Currently, the
primary commercial application for the Company's hyaluronate is as a component
in an ophthalmic surgical product marketed by Alcon for cataract surgery. Sales
to Alcon are made under a supply agreement which, as most recently renewed in
November 1994, has a term through December 31, 1998. The agreement contains
minimum purchase requirements totalling $10.4 million, consisting of $3.2
million in calendar year 1995 and $2.4 million in each of calendar years 1996
through 1998. At the time the agreement was renewed, the Company received a $6.3
million cash advance from Alcon against future purchases. This advance covers
Alcon's payment for $3.2 million in hyaluronate shipments ordered for calendar
1995 and will be applied to shipments subsequent to calendar 1995 until fully
utilized. See "Liquidity and Capital Resources" and Note E to the Consolidated
Financial Statements.
The Company's Oral Restorative Division designs and markets a comprehensive
line of titanium-based dental implants for the replacement of lost or extracted
teeth. In May 1992, the Company acquired the Sustain System from Bio-Interfaces,
Inc. ("BII") and subsequently, in July 1993, acquired ISS, the manufacturer of
the Restore System and the ISS line of compatible components. The Company has
enhanced and expanded these product lines since their acquisition. The Oral
Restorative Division also manufactures and markets synthetic bone graft
substitute products for the restoration of bone tissue deterioration resulting
from periodontal disease and tooth loss. This Division's products are marketed
in the United States through the Company's direct sales force, in Italy through
the Company's subsidiary, Lifecore Biomedical SpA, and in other countries
through distributors.
RESULTS OF OPERATIONS
NET SALES. Net sales decreased $412,000 or 4% in fiscal 1995 from fiscal
1994, due to a $1,680,000 decrease in sales of hyaluronate products, partially
offset by a $1,268,000 increase in sales of oral restorative products.
Hyaluronate sales decreased to $5,223,000 in fiscal 1995 from $6,903,000 in
fiscal 1994 due to a decrease in sales to Alcon in fiscal 1995. Sales to Alcon
were $3,182,000, $5,996,000 and $5,094,000 for fiscal years 1995, 1994 and 1993.
Sales to Alcon in late fiscal 1993 and early fiscal 1994 were favorably impacted
when the Company was required to produce large quantities of hyaluronate to
validate its Chaska facility. Alcon agreed to purchase a majority of the
hyaluronate inventory produced as a result of this validation process. The
Company believes that these purchases exceeded Alcon's inventory requirements in
these periods. Thus, sales to Alcon since late fiscal 1994 have been at contract
minimums. The required minimum purchase under the Alcon agreement for the last
six months of calendar 1995 is $1,580,000, and the required contract minimum for
calendar 1996 is $2,418,000; as a result, sales to Alcon are expected to decline
further in fiscal 1996. Net sales to other hyaluronate customers increased
$1,134,000 or 125% in fiscal 1995 from fiscal 1994.
Oral restorative product sales increased 36% to $4,795,000 in fiscal 1995
from $3,527,000 in fiscal 1994. The increase in oral restorative product sales
reflected the expanding product lines and the effect of increased marketing and
sales activities.
Net sales increased $2,945,000 or 39% in fiscal 1994 from fiscal 1993. The
sales increase was due to a $1,319,000 increase in sales of hyaluronate products
and a $1,626,000 increase in sales of oral restorative products. The increase in
sales of hyaluronate products was primarily attributable to a $900,000 increase
in
13
<PAGE>
the quantity of hyaluronate sold to Alcon, principally in the first two quarters
of fiscal 1994. Oral restorative product sales increased 86% to $3,527,000 in
fiscal 1994 from $1,901,000 in fiscal 1993, reflecting the broader product line
resulting from the July 1993 ISS acquisition and an increase in unit sales of
the Sustain System.
COST OF GOODS SOLD. Cost of goods sold, as a percentage of net sales,
increased to 79% for fiscal 1995 from 58% for fiscal 1994 and 50% for fiscal
1993. The increases resulted principally from direct charges for idle capacity
relating to hyaluronate products, resulting from the lower utilization of the
Company's manufacturing facility in the second half of fiscal 1994 and
throughout fiscal 1995. In the fourth quarter of fiscal 1993 and the first two
quarters of fiscal 1994, the Company had produced hyaluronate in large
quantities to validate its facility, resulting in higher levels of inventory in
fiscal 1994 and leading to lower production levels in the second half of fiscal
1994 and throughout fiscal 1995. The anticipated level of utilization of the
Company's manufacturing capacity will continue to cause direct charges for idle
capacity through at least fiscal 1996. Cost of goods sold, as a percentage of
net sales for oral restorative products, decreased to 49% in fiscal 1995 from
68% in fiscal 1994 and 75% in fiscal 1993. The decreases resulted principally
from spreading fixed expenses over increased oral restorative product sales in
fiscal 1994 and 1995, as well as from lower material costs.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$309,000 or 29% in fiscal 1995 from fiscal 1994 and decreased $634,000 or 37% in
fiscal 1994 from fiscal 1993. The increase in fiscal 1995 reflected the
assumption by the Company in August 1994 of the research and development of
Lubricoat Gel, which was previously the responsibility of Ethicon. Research and
development expenses decreased in fiscal 1994 principally because of higher
costs in fiscal 1993 connected with initial human clinical trials on the Sustain
Dental Implant System. Research and development expenses are expected to
increase in 1996 due principally to the funding of human clinical trials for
Lubricoat Gel.
MARKETING AND SALES. Marketing and sales expenses are primarily costs
incurred by the Company in support of its Oral Restorative Division. Marketing
and sales expenses increased $393,000 or 15% in fiscal 1995 from fiscal 1994 and
decreased $119,000 or 4% in fiscal 1994 from fiscal 1993. The major components
of the increase in fiscal 1995 were $281,000 related to compensation costs,
primarily associated with additional sales personnel, and $40,000 related to
increased advertising and sales literature costs. The decrease in marketing and
sales expenses in fiscal 1994 resulted principally from a decrease of $105,000
in advertising and sales literature costs. The timing of advertising and sales
literature costs can be expected to cause marketing and sales expenses to
fluctuate from period to period. Marketing and sales expenses are expected to
increase in fiscal 1996 due principally to the further addition of sales
personnel, costs associated with updated sales literature, and a full year of
expenses related to the direct sales force at Lifecore Biomedical SpA, which has
been in operation since April 1995.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$282,000 or 13% in fiscal 1995 from fiscal 1994 and decreased $98,000 or 4% in
fiscal 1994 from fiscal 1993. These fluctuations principally resulted from a
litigation expense accrual recorded in fiscal 1993 and reversed in fiscal 1994.
In fiscal 1993, a class action lawsuit was filed in which allegations of
securities law violations were made against the Company. At that time, an
accrual for legal expenses was recorded in anticipation of the defense of the
lawsuit. In early fiscal 1994, the lawsuit was dismissed, and the accrual was
reversed, reducing general and administrative expense significantly in fiscal
1994. As a result, general and administrative expenses were lower in fiscal 1994
than in fiscal 1993 or 1995. The increase in fiscal 1995 also resulted from an
increase in bad debt expense relating to the account of a single customer.
Without the fluctuations resulting from the litigation expense accrual and the
increased bad debt expense, general and administrative expenses would have been
relatively unchanged over these periods.
MANUFACTURING RELOCATION. Manufacturing relocation costs in fiscal 1993
reflect the expenses, principally related to the installation and validation of
new equipment, incurred by the Company to relocate its manufacturing capability
to its newly constructed Chaska, Minnesota facility.
14
<PAGE>
OTHER INCOME (EXPENSE). In December 1993, the Company sold the building
which served as a manufacturing facility prior to the present Chaska location.
The sale resulted in a gain of $274,000 in fiscal 1994.
During fiscal 1994, the Company invested its excess cash in a fund rated AAA
by Standard and Poors. The fund invested in various bonds and other obligations
issued or guaranteed as to payment of principal and interest by the U.S.
government. Included in the investments of the fund were mortgage-related
securities and their derivatives, such as interest-only and principal-only
securities and inverse floating rate securities. During the first quarter of
calendar 1994, the fund's value declined and, in April 1994, the Company sold
its investment and realized a loss of $1,047,000. Prior to fiscal 1994, the
Company's investment in the same fund had yielded gains in excess of the fiscal
1994 loss.
Interest expense increased in fiscal 1995 from fiscal 1994 and in fiscal
1994 from fiscal 1993 due to the debt related to the acquisition of the ISS
dental implant business. Interest income increased in fiscal 1995 from fiscal
1994 and decreased in fiscal 1994 from fiscal 1993. The increase in interest
income in fiscal 1995 reflected the additional cash available to invest from the
August 1994 sale of stock to Johnson & Johnson Development Corporation and the
November 1994 cash advance received from Alcon. The decrease in fiscal 1994
interest income reflected lower levels of cash available to invest.
LIQUIDITY AND CAPITAL RESOURCES
Inventories consist mainly of finished hyaluronate and oral restorative
products and related raw materials. The portion of finished hyaluronate
inventory that is not expected to be consumed within the next twelve months is
classified as long-term. The finished hyaluronate inventory is maintained in a
frozen state and has a shelf life in excess of five years. Total inventory
increased $862,000 or 16% in fiscal 1995 from fiscal 1994 principally due to
expansion of the oral restorative product inventory.
The Company incurred losses in each of the three years in the period ended
June 30, 1995, reflecting the significant costs incurred in validating and
operating the Company's facilities, research and development and marketing.
Historically, the Company has financed its operations with debt and lease
obligations and the sale of its Common Stock. In August 1994, the Company
received $2,600,000 in cash as part of the consideration for its Common Stock
sold to Johnson & Johnson Development Corporation. The Company has conserved its
cash resources by negotiating amendments to certain of its financial
obligations. Beginning in 1991, the Company and Johnson & Johnson Finance
Corporation entered into an operating lease agreement (the "JJFC Lease") for
$7,900,000 of equipment. Under the terms of the agreement and subsequent
amendments, lease payments were deferred until April 1994. In addition, in
October 1992, the Company issued its Common Stock as the form of payment to
satisfy $2,050,000 in notes payable in connection with the Company's acquisition
of BII's Sustain Dental Implant System. In connection with the terms of the
agreements with the note holder, the Company satisfied the $2,050,000 obligation
and received $521,000 in cash as settlement of the value assigned to the Common
Stock. The loan agreement between the Company and the holder of the industrial
development revenue bonds utilized to finance the Company's Chaska facility was
amended in July 1995 to waive the fixed charge coverage ratio, the cash flow
coverage ratio, the minimum current ratio and the maximum debt to net worth
limitation through June 30, 1996. With respect to certain of these covenants,
the Company anticipates that it will be required to obtain further waivers in
fiscal 1997. There can be no assurance that future waivers will be available. If
waivers cannot be obtained and these obligations are accelerated, the Company
may require additional financing. See Note D to the Consolidated Financial
Statements.
The Company has had significant operating cash flow deficits for the last
three fiscal years, and it continues to have significant fixed obligations in
future periods. Obligations under the JJFC Lease and other leases, the
industrial development revenue bonds and the ISS note total $3,016,000 for
fiscal 1996 and $2,445,000 for fiscal 1997. In addition, the Company received a
$6.3 million advance on product purchases from Alcon in November 1994, which the
Company used for working capital in fiscal 1995. In fiscal 1995, the Company
shipped $1.6 million of products due under this advance to Alcon. Accordingly,
the remaining $4.7 million of product shipments due to Alcon in fiscal 1996 and
1997 will not generate additional cash. The
15
<PAGE>
Company from time to time has obtained other cash advances and has also obtained
permission from its corporate partners to defer scheduled payments for cash
management purposes. While the Company expects to make such requests in the
future, there can be no assurance that its requests will be granted.
Due to the Company's fixed obligations and anticipated operating cash flow
deficits through fiscal 1997, the Company expects its cash requirements to
significantly exceed the cash generated from anticipated operations. In light of
its losses and the level of cash on hand and outstanding obligations at June 30,
1995, the Company's independent auditors have issued an opinion, indicating that
there is substantial doubt about the Company's ability to fund its projected
losses and fixed obligations and, therefore, to continue as a going concern
without additional financing. Management believes that the net proceeds of this
offering and its capital resources will be sufficient to meet its needs through
fiscal 1997. Due to the uncertainties involved in development, regulatory
approval and market acceptance of its new products and adequate growth in its
existing products, no assurance can be given that these resources will be
sufficient to allow the Company to attain and maintain positive cash flow. If
the Company exhausts the net proceeds of this offering prior to achieving and
maintaining positive cash flow, additional financing will be necessary. If
additional financing is needed, no assurance can be given that such financing
will be available and, if available, will be on terms favorable to the Company
and its shareholders.
The Company's ability to generate positive cash flow from operations and
achieve profitability is dependent upon the continued expansion of revenue from
its hyaluronate and oral restorative businesses. In the Hyaluronate Division,
future revenue growth is unpredictable due to the complex governmental
regulatory environment for new medical products and the early stage of certain
of these markets. Similarly, expansion of the Company's Oral Restorative
Division revenues is also dependent on increased revenue from new and existing
customers, as well as successfully attending to market competition issues
commensurate with that more mature field. Current or future regulatory approval
requirements also affect the timing of future new products in the Oral
Restorative Division. As a result of these factors, the Company does not
currently anticipate commercial sales sufficient to generate positive cash flow
through fiscal 1997.
16
<PAGE>
BUSINESS
GENERAL
Lifecore develops, manufactures and markets surgically-implantable materials
and devices through its two divisions, the Hyaluronate Division and the Oral
Restorative Division.
The Company's Hyaluronate Division is principally involved in the
development and manufacture of products utilizing hyaluronate, a
naturally-occurring carbohydrate which moisturizes or lubricates the soft
tissues of the body. Due to its widespread presence in body tissues and its high
degree of biocompatibility, the Company believes that hyaluronate can be used
for a wide variety of medical applications. The Company produces hyaluronate
synthetically through a proprietary fermentation process. Currently, the primary
commercial use for the Company's hyaluronate is as a component in ophthalmic
surgical solutions for cataract surgery. The Company is involved in a major
development project with Ethicon for a product to reduce the incidence of
post-surgical adhesions. Lifecore is pursuing the development of several other
synthesized versions of hyaluronate through its strategic alliances with a
number of corporate partners for a variety of veterinary, drug delivery, wound
care and urology applications. The Company also leverages its specialized
hyaluronate manufacturing skills to produce non-hyaluronate products for medical
applications.
The Company's Oral Restorative Division designs and markets a comprehensive
line of titanium-based dental implants for the replacement of lost or extracted
teeth. In May 1992, the Company acquired the Sustain Dental Implant System from
BII and subsequently, in July 1993, acquired ISS, the manufacturer of the
Restore Dental Implant System and the ISS line of compatible components. The
Company has enhanced and expanded these product lines since their acquisition.
The Oral Restorative Division also manufactures and markets synthetic bone graft
substitute products for the restoration of bone tissue deterioration resulting
from periodontal disease and tooth loss. This Division's products are marketed
in the United States through the Company's direct sales force, in Italy through
the Company's subsidiary, Lifecore Biomedical SpA, and in other countries
through distributors.
HYALURONATE DIVISION
BACKGROUND
Hyaluronate is a critical, naturally-occurring carbohydrate component of the
physiological fluids that lubricate, moisturize or otherwise protect the body's
soft tissues. Due to its widespread presence in tissues and its high degree of
biocompatibility, the Company believes that hyaluronate can be used for a wide
variety of medical applications.
Hyaluronate (also referred to as hyaluronan, hyaluronic acid and sodium
hyaluronate) was first demonstrated to have commercial medical utility as a
viscoelastic (elastic yet fluid) solution in cataract surgery. In this
application, its use for coating and lubricating during the implantation of
intraocular lenses dramatically improved then existing surgical success rates.
An ophthalmic hyaluronate product, produced by extraction from rooster comb
tissue, initially became commercially available in the United States in 1981.
Hyaluronate-based products, produced both by rooster comb extraction and by
fermentation processes such as the Company's, have since gained widespread
acceptance among ophthalmologists and are currently used in the majority of
cataract procedures in the United States.
Other hyaluronate applications currently being investigated by Lifecore or
its partners include general surgery (prevention of post-surgical adhesions),
cardiovascular (coating of catheters), drug delivery (as a vehicle to carry
antibiotics and wound healing agents), orthopedic (treatment of traumatic
arthritis), urology (treatment of interstitial cystitis) and veterinary (storage
of fertilized embryos; orthopedics). The Company believes that the use of
hyaluronate for post-surgical adhesion prevention currently represents the most
significant potential application for hyaluronate.
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STRATEGY
The Company intends to use its proprietary large scale fermentation process
to be a leader in the development of hyaluronate based products for multiple
applications. Elements of the Company's strategy include the following:
- ESTABLISH STRATEGIC ALLIANCES WITH MARKET LEADERS. The Company will
continue to develop applications for products with partners which have
strong marketing, sales and distribution capabilities to end-user markets.
The Company currently has established relationships with Alcon, Ethicon,
Chiron Vision, Inc. and Storz Ophthalmics, Inc., market leaders in the
ophthalmics and surgical products fields.
- EXPAND MEDICAL APPLICATIONS FOR HYALURONATE. The Company is currently
pursuing a broad range of applications in general surgery, veterinary,
drug delivery, wound care and urology. Due to the growing knowledge of the
unique characteristics of hyaluronate, the Company intends to continue to
identify and pursue further uses for hyaluronate in medical applications.
- MAINTAIN FLEXIBILITY IN PRODUCT DEVELOPMENT AND SUPPLY RELATIONSHIPS. The
Company's vertically integrated development and manufacturing capabilities
enable it to establish a variety of relationships with large corporate
partners. The Company's role in these relationships extends from supplier
of raw materials to manufacturer of aseptically packaged finished
products. In addition, the Company may develop its own proprietary
finished products.
- LEVERAGE SPECIALIZED HYALURONATE MANUFACTURING SKILLS. The Company uses
its viscous fluid handling and aseptic packaging expertise gained in
producing hyaluronate to manufacture non-hyaluronate products for new
customers.
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HYALURONATE DIVISION PRODUCTS
The following chart summarizes the principal products and development
projects of the Hyaluronate Division, along with their applications and the
companies with which the Company has related strategic alliances:
<TABLE>
<CAPTION>
APPLICATION STRATEGIC ALLIANCE MARKET STATUS*
<S> <C> <C> <C>
GENERAL SURGERY
- ----------------------------
Lubricoat-Registered Trademark- Lifecore's proprietary product Adhesion Human clinical trials
0.5% Ferric Hyaluronate Gel under development; Ethicon has prevention commenced in May 1995
exclusive marketing rights
OPHTHALMIC
- ----------------------------
Viscoat-Registered Trademark- Lifecore supplies proprietary Cataract surgery Commercial sales since
Ophthalmic Viscoelastic hyaluronate powder for 1983
Solution inclusion in Alcon
Laboratories' Viscoat
viscoelastic solution
Amvisc-Registered Trademark- Lifecore supplies viscoelastic Cataract surgery Lifecore export
and Amvisc solution syringes to Chiron shipments to commence
Plus-Registered Trademark- Vision, Inc., which owns in fourth quarter 1995;
Ophthalmic Solutions rights to, and markets, Chiron's PMA supplement
products in progress
Lurocoat-Registered Trademark- Lifecore's proprietary Cataract surgery IDE approved
Ophthalmic Solution viscoelastic solution
syringes; negotiating private
label relationships
Ophthalmic gel Lifecore supplies syringes of Refractive surgery Storz preparing IDE
non-hyaluronate gel to Storz application
Ophthalmics, Inc., which owns
rights to, and will market,
product
Caprogel-TM- Topical Lifecore to supply syringes of Ocular bleeding Orphan Medical's human
Aminocaproic Acid aminocaproic acid to Orphan (hyphema) clinical trials
Medical, Inc., which owns commenced in 1994
rights to, and will market,
product
OTHER APPLICATIONS
- ----------------------------
MAP-5-TM- Embryo Lifecore supplies hyaluronate Veterinary Commercial sales since
Cryopreservation Solution solution in vials to cryopreservation 1994
Vetrepharm, Inc., which owns
rights to, and markets,
product
Cystistat-TM- Urological Lifecore supplies proprietary Urological Bioniche's human
Irrigation Solution hyaluronate powder for irrigation clinical trials
inclusion in Bioniche's commenced in Canada in
Cystistat product 1995
</TABLE>
* For many of the products or projects listed above, government regulatory
approvals and significant development work are required before commercial
sales can commence in the United States or elsewhere. See "Government
Regulation." No assurance can been given that such products will be
successfully developed or marketed. See "Risk Factors."
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ADHESION PREVENTION DEVELOPMENT PROJECT WITH ETHICON
The Company is developing a hyaluronate product, Lubricoat Gel, for
potential application in reducing the incidence of post-surgical adhesions.
Ethicon has world-wide, exclusive distribution rights for Lubricoat Gel.
Following surgical procedures, fibrous tissue, or adhesions, commonly form
as part of the body's natural healing process resulting from trauma to tissues
or organs during surgery. Particularly with respect to abdominal,
cardiovascular, orthopedic, reproductive tract, and thoracic surgeries, these
adhesions may cause internal complications that can require costly follow-up
surgical intervention. For example, adhesions following reproductive tract
surgery can cause infertility, while adhesions following abdominal surgery can
cause life threatening bowel obstructions.
Of the approximately 20 million surgical procedures estimated by government
sources to be performed annually in the United States, the Company believes that
there are at least eight million procedures where patients could benefit from
the use of an anti-adhesion product. The Company believes an equal or greater
number of surgical procedures are performed outside the United States. The
Company is initially focusing on the development of Lubricoat Gel for use in
abdominal surgeries, due to the frequency and severity of resulting adhesions.
Industry sources indicate that 5.7 million abdominal procedures are performed in
the United States each year. The reported incidence of resulting adhesions
ranges from 35 to 90 percent.
In 1989, the Company began working with Ethicon on anti-adhesion products
being developed by Ethicon using the Company's Tenalure-TM- Sodium Hyaluronate
formulation. Starting in 1990, Ethicon conducted a series of human clinical
studies with Tenalure hyaluronate, designed to demonstrate the effectiveness of
a hyaluronate solution in the reduction of post-surgical adhesions. These
double-blinded, placebo-controlled, multi-center studies involved over 300
patients. In these clinical studies, Tenalure hyaluronate demonstrated the
ability to reduce the incidence of adhesions, but the degree of adhesion
reduction fell short of Ethicon's efficacy goals. Tenalure hyaluronate was
observed to have a greater effect in areas where the hyaluronate pooled after
the completion of surgery. With that knowledge, the companies re-formulated
Tenalure hyaluronate into a second generation product, Lubricoat Gel, designed
to coat and remain in contact with tissues for a longer time after surgery. This
reformulation involved the ionic cross-linking of hyaluronate with an iron
compound to enhance coating properties. The companies then tested Lubricoat Gel
in animal models designed to pose a greater adhesion challenge by employing a
more severe surgical wound than the studies using Tenalure hyaluronate. The
results of the animal trials using Lubricoat Gel showed significant improvement
over those of Tenalure hyaluronate.
In order to accelerate development of the anti-adhesion project, the
companies, at that time, decided to shift responsibility for completion of this
project to Lifecore. Lifecore subsequently completed the preclinical studies and
submitted an application to the FDA for an IDE to begin human clinical trials to
evaluate the safety and efficacy of Lubricoat Gel. In April 1995, the FDA
approved the IDE. The first phase of human clinical trials, involving
approximately 25 patients, commenced in May 1995 and is expected to be completed
by late 1995. Assuming successful completion of the first phase, and following
consultation with the FDA regarding the design of the subsequent pivotal trial,
the Company expects to begin the pivotal trial in late 1995 or early 1996. The
pivotal phase is expected to involve up to 200 patients in a blinded study at
multiple clinical sites. If the pivotal trial is successful, a PMA will be
required from the FDA prior to commercialization. There can be no assurance that
the results of these clinical trials will be positive or that a PMA will be
obtained. See "Government Regulation."
To carry out the shift of responsibility for development of this project to
Lifecore, the Company and Ethicon entered into a Conveyance, License,
Development and Supply Agreement (the "Ethicon Agreement") in August 1994. The
Ethicon Agreement transferred to the Company the intellectual property developed
to date from the anti-adhesion project, including pending patent rights and data
from research, product development, clinical safety and efficacy, and marketing
evaluations. The Company assumed responsibility for continuing the development
project, including conducting human clinical trials with
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Lubricoat Gel. Furthermore, the Company granted Ethicon exclusive world-wide
marketing rights to Lubricoat Gel for post-surgical adhesion prevention and
orthopedic applications in return for an exclusive supply contract through 2008
with provisions for renewal. The Company currently receives certain technical
support from Ethicon for a specified annual fee under the provisions of an
associated consulting agreement. Under this agreement, the primary Ethicon
scientist responsible for supervising the anti-adhesion project since its
inception dedicates 100% of his time to the project as a consultant and reports
directly to Lifecore management.
Concurrently with the execution of the Ethicon Agreement, JJDC, an affiliate
of Ethicon, purchased 757,396 unregistered shares of the Company's Common Stock
for $4 million in total consideration, including $2.6 million in cash and $1.4
million in conversion of previous product advances. In addition, another
affiliate of Johnson & Johnson has provided lease financing for certain of the
Company's equipment, which is primarily related to the Lubricoat Gel project.
See "Sale of Shares to Purchasing Shareholder," "Management's Discussion and
Analysis of Results of Operations and Financial Condition," "Principal
Shareholders," and "Description of Common Stock."
OPHTHALMIC APPLICATIONS
CATARACT SURGERY. Currently, the primary commercial application for the
Company's hyaluronate is in cataract surgery. During the process of cataract
surgery, hyaluronate in a viscoelastic solution is used to coat and lubricate
the anterior chamber of the eye during the implantation of an intraocular lens.
These solutions have been shown to reduce surgical trauma and thereby contribute
to more rapid recovery with fewer complications than were experienced prior to
the use of viscoelastics. The Company currently sells hyaluronate for this
application to two customers, Alcon and Chiron Vision, Inc., a subsidiary of
Chiron Corporation ("Chiron Vision"). Lifecore also is developing its own
proprietary product, Lurocoat-Registered Trademark- Ophthalmic Solution, for
this application. The Company believes Alcon and Chiron Vision are the two
leading producers of ophthalmic surgical products in the world, and are two of
the three leading producers of viscoelastic solutions in the world.
Hyaluronate based products are used in the majority of cataract surgeries in
the United States. The Company estimates that the world-wide market for
hyaluronate for cataract surgery, on a patient cost basis, is approximately $160
million per year and is relatively stable. However, the market share of products
using fermented hyaluronate has increased relative to the market share of
products using hyaluronate extracted from rooster combs.
Alcon purchases the Company's hyaluronate for inclusion in
Viscoat-Registered Trademark- Ophthalmic Viscoelastic Solution, which is used
during cataract surgery. The Company's relationship with Alcon and its
predecessors commenced in 1983, when the Company's hyaluronate was specified as
a raw material component of the Viscoat product, which the FDA approved in 1986.
Until 1990, Alcon's predecessors had the exclusive rights to purchase the
Company's hyaluronate for ophthalmic applications. In 1990, the arrangement with
Alcon became non-exclusive. Since that time, sales of hyaluronate to Alcon have
continued to be made pursuant to supply agreements. The current Alcon supply
agreement, as renewed in November 1994, is for a term of four years through
December 31, 1998. The agreement contains minimum purchase requirements
totalling $10.4 million, consisting of $3.2 million in calendar year 1995 and
$2.4 million in each of calendar years 1996 through 1998. At the time the
agreement was renewed, the Company received a $6.3 million cash advance from
Alcon against future purchases. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
In December 1994, the Company entered into a supply agreement with Chiron
Vision. Under the agreement, the Company has been selling its hyaluronate to
Chiron Vision in packaged syringes in connection with two of Chiron Vision's
ophthalmic viscoelastic surgical products, Amvisc-Registered Trademark- and
Amvisc Plus-Registered Trademark- Ophthalmic Solutions. The Company has
validated its manufacturing facility to produce these products, and Chiron
Vision is in the process of supplementing its FDA filings to seek approval of
the Company's facility for these products. The sale by Chiron Vision in the
United States of Amvisc and Amvisc Plus syringes supplied by the Company is
dependent upon such FDA approval. In August 1995, the Company received
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orders from Chiron Vision for shipments of finished products to Europe
commencing in fourth quarter 1995. The Company had not anticipated commercial
sales of these products until 1997. The Company believes this acceleration was
due to Chiron Vision's strategic acceleration of plans for these products and
the Company's receipt of ISO 9001 certification. See "Manufacturing."
The Company is in the process of independently developing its own
viscoelastic solution, Lurocoat Solution, and has received an IDE from the FDA
to clinically evaluate that product for ophthalmic surgical use. The Company is
currently negotiating private label agreements with potential distributors
outside the United States. Clinical evaluation is not expected to begin until
private label agreements have been completed.
NON-HYALURONATE OPHTHALMIC APPLICATIONS
In its work with hyaluronate, the Company developed specialized skills in
filling syringes and vials with materials that, due to their perishable nature
or complex viscous handling properties, often could not be sterilized and
required rigorous aseptic manufacturing and packaging protocols. The Company is
leveraging these skills to initiate development projects for the manufacture of
non-hyaluronate products in the areas of refractive surgery and hyphema.
REFRACTIVE SURGERY. The Company is developing a manufacturing process with
Storz Ophthalmics, Inc., a subsidiary of American Home Products, Inc. ("Storz"),
to produce a non-hyaluronate gel product currently under development for use in
refractive surgery for myopia (near-sightedness). Industry sources estimate that
the current world-wide refractive surgery market, on a patient cost basis,
exceeds $900 million.
The current refractive surgery procedure for correcting myopia involves a
surgical incision of the cornea which weakens and relaxes the outer curvature
and achieves a corresponding correction of the eye's focusing mechanism. This
approach permanently weakens the eye, reduces long-term visual acuity due to
corneal scarring, has limited effectiveness with astigmatism, and can be
painful. Storz is developing a gel to be injected into the peripheral region of
the cornea, between the inner and outer layers, thereby changing the corneal
curvature to achieve vision correction without weakening the eye's structure.
Other potential advantages of this approach are the opportunity for reversing
the procedure, as well as using repeat injections to adjust the vision
correction over the patient's lifetime. In June 1995, the Company began
providing process development, manufacturing scale-up, validation and clinical
trial samples to Storz for the gel product. Storz must successfully complete
clinical trials and receive a PMA from the FDA prior to commercial sales of its
product in the United States. If successfully developed, the Company expects to
continue to provide manufacturing services to Storz.
TREATMENT OF OCULAR HYPHEMA. In January 1995, the Company signed an
agreement with Orphan Medical, Inc. ("OMI") to provide OMI's Caprogel-TM-
Topical Aminocaproic Acid in aseptically packaged syringes. Caprogel is a
non-hyaluronate product for the topical treatment of ocular hyphema (internal
bleeding of the eye), which can lead to retinal damage and blindness.
Aminocaproic acid has been administered in other areas of the body to alleviate
the side effects of bleeding, but has not been successfully developed for the
eye. OMI received orphan drug status from the FDA in 1994 and is proceeding with
its development. Orphan drug status entitles a manufacturer to exclusive
marketing rights for certain products that serve a limited patient population.
The Company is providing contract product development and aseptic packaging for
Caprogel and expects that a subsequent commercial supply phase with a three-year
term will commence upon OMI's commercial introduction of Caprogel. The Company
believes that the world-wide market for ocular hyphema applications, on a
patient cost basis, is approximately $125 million.
OTHER APPLICATIONS
The Hyaluronate Division undertakes its own product development activities
for both hyaluronate based and non-hyaluronate based applications, as well as on
a contract basis with certain clients. The majority of outside projects are
initiated by a client to demonstrate that the Company's hyaluronate is
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suitable for a particular medical application. Suitability is often measured by
detailed specifications for product characteristics such as purity, stability,
viscosity, and molecular weight, as well as efficacy for a particular medical
application.
The Company currently manufactures Vetrepharm, Inc.'s MAP-5-TM- Embryo
Cryopreservation Solution, an aseptically packaged hyaluronate solution, for the
cryopreservation of fertilized animal embryos. MAP-5 Solution is used to
preserve the embryos for transportation to local veterinarians. Sales to
Vetrepharm, Inc. have been made since 1994 pursuant to annual purchase orders
which specify the quantity and unit price.
One current area of development involves the use of hyaluronate for
urological irrigation applications. Hyaluronate is being investigated for its
ability to treat an intermittent urination disorder, interstitial cystitis.
Bioniche, Inc., a Canadian medical company, commenced human clinical trials in
1995 for regulatory approval in Canada for Cystistat-TM- Urological Irrigation
Solution, a solution containing the Company's hyaluronate. This product would
require FDA approval prior to commercialization in the United States.
Another area of development activity involves the potential use of
hyaluronate in various drug delivery vehicles. Independent studies conducted by
organizations other than the Company have yielded animal and human data that
indicate hyaluronate has the potential to enhance the delivery of antibiotics,
pain killers, chemotherapeutic agents, and other drugs. For example, a drug
delivery project is being conducted by Johnson & Johnson Medical, Inc., a
subsidiary of Johnson & Johnson, to evaluate Lifecore's hyaluronate as a drug
delivery vehicle to enhance topical wound healing.
There can be no assurance that products which are currently under
development by the Company or others will be successfully developed or, if so
developed, will be successfully and profitably marketed. See "Risk Factors."
ORAL RESTORATIVE DIVISION
BACKGROUND
Dental implants are increasingly used to replace missing or extracted teeth
and to serve as supports for dentures, crowns, and bridges. In comparison to
conventional restorative procedures, dental implants are surgically placed
directly into the jawbone in a manner simulating the anchoring of a tooth by its
root. This better maintains underlying bone structure and provides superior
fixation of restorations, minimizing loosening of fixtures against surrounding
teeth and gingiva. Typically constructed of titanium in a cylindrical or
flattened shape, dental implants generally are categorized by shape and method
of implantation. For example, the threaded cylinder implant is screwed into the
jawbone, while an alternate form, the press-fit cylinder, is placed into a
precision-drilled hole with a friction fit. Additionally, various implant styles
may be spray-coated with hydroxylapatite or metal to enhance bone fixation. The
Company believes the current dental implant market is approximately $110 million
in the United States and $275 million world-wide.
Bone graft substitute products are used for the restoration of bone
deterioration resulting from periodontal disease and tooth loss. Historically,
when bone was needed to fill holes or restore bone loss in a patient, the only
available sources have been bone from cadavers, live donor bone or autologous
bone (from another part of the patient's body). These sources have limitations
related to quality and convenience. The Company has developed a patented process
for the synthetic production of hydroxylapatite, the major inorganic constitute
of natural bone. The Company's hydroxylapatite products provide surgeons with a
readily available synthetic bone substitute of consistent quality at a
competitive cost for periodontal and oral surgery applications. While the
current market for these products is limited (approximately $5 million annually
in the United States), the market is expected to expand with the development of
new products, such as the Company's Capset-TM- Calcium Sulfate Bone Graft
Barrier, for additional applications.
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STRATEGY
The Company intends to be a leader in the oral restorative surgical products
industry. The Company's strategies for achieving this goal are as follows:
- Acquire, enhance, and expand a broad line of dental implants and related
support products.
- Employ aggressive quality control and materials resource planning
techniques to achieve higher efficiencies, resulting in cost-competitive
products.
- Establish an advanced direct sales and marketing network, emphasizing the
integration of information systems technology with superior customer
service.
ORAL RESTORATIVE DIVISION PRODUCTS
The following chart summarizes the principal products of the Company's Oral
Restorative Division:
<TABLE>
<S> <C> <C>
PRODUCT MARKET STATUS
Sustain-Registered Trademark- Replacement of lost or Commercial sales
and extracted teeth
Restore-Registered Trademark-
Dental Implant Systems
Implant Support Systems Precision oral restorative Commercial sales
components compatible with
implants
Repair of jawbone structure Commercial sales
Orthomatrix-Registered Trademark-
Non-resorbable Hydroxylapatite
Bone
Graft Substitute
Hapset-Registered Trademark- Repair of jawbone structure Commercial sales
Hydroxylapatite Bone Graft
Plaster
Capset-TM- Calcium Sulfate Bone Cap for bone graft materials 510(k) granted
Graft Barrier
</TABLE>
IMPLANT PRODUCTS
The Company offers two dental implant systems, the Restore Close Tolerance
Dental Implant System and the Sustain Dental Implant System. The Restore System
is based on a classic threaded titanium implant design that pioneered the
commercialization of these devices in general oral restorative surgery. In July
1993, the Company acquired this system in connection with its acquisition of
Implant Support Systems, Inc., a manufacturer of dental implant products. The
Company has since enhanced and expanded the original ISS line into a broad range
of implant options, marketed under the Restore System brand. Included in the ISS
acquisition was a line of dental implant prosthetic components that the Company
continues to market under the Implant Support Systems brand. These components
are compatible and interchangeable with several other dental implant
manufacturers' systems, as well as miscellaneous dental implant support
products, permitting the Company to market its products to dental offices that
currently use competitors' implant systems.
The Sustain System is based on a newer innovative design that embraces a
press-fit cylinder format with an added "bone-like" hydroxylapatite coating. In
May 1992, the Company acquired the Sustain System from Bio-Interfaces, Inc.
after serving as an exclusive distributor for the Sustain System since 1990. The
Sustain System is complemented by a proprietary drilling system and a complete
line of prosthetic components.
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Lifecore has enhanced and expanded both of these lines, creating new
products with a combination of innovative features from both systems. This gives
the Company one of the broadest lines in the oral restorative industry, offering
practitioners maximum flexibility in choice of treatment modalities with over
900 products.
BONE GRAFT SUBSTITUTE PRODUCTS
The Company offers three bone graft substitute materials which address
varying degrees of resorbability. The Company's
Orthomatrix-Registered Trademark- Non-resorbable Hydroxylapatite Bone Graft
Substitute is a non-resorbable bone graft substitute used in jawbone repair.
Hapset-Registered Trademark- Hydroxylapatite Bone Graft Plaster is a moldable,
partially resorbable form of hydroxylapatite that can be contoured into
desirable shapes prior to or during implantation. Hapset Plaster is a
combination of the Company's hydroxylapatite and a proprietary form of calcium
sulfate which has been patented by United States Gypsum Company ("USG"). Under a
license agreement with USG, the Company pays a royalty to USG based on certain
sales of Hapset Plaster. The Company has also entered into a supply agreement
under which USG furnishes its calcium sulfate to the Company for world-wide use
in Hapset Plaster.
The Company recently obtained FDA 510(k) clearance of Capset Barrier, a bone
graft barrier that is fully resorbable and also made from proprietary calcium
sulfate supplied by USG. Capset Barrier serves as a cap placed over the site of
a bone defect to inhibit the migration of bone graft materials used in the
underlying repair.
PRODUCT DEVELOPMENT
The Oral Restorative Division is also involved in product development
activities to improve existing components and packaging and to add new
components to the dental implant systems. These development activities enhance
the suitability and ease of use of the products for specific surgical
applications and reflect changing trends in dental implant technology. In
addition, the Division hopes to expand the market for its family of bone graft
substitutes. There can be no assurance, however, that products which are
currently under development by the Company will be successfully developed, or if
so developed, will be successfully and profitably marketed.
SALES AND MARKETING
HYALURONATE DIVISION PRODUCTS
The Company generally markets and distributes its hyaluronate products to
end-users through corporate partners. The Company sells hyaluronate to these
partners in a variety of forms, including powders, gels and solutions which are
packaged either in bulk jars, vials, or syringes. The Company sells its
ophthalmic grade hyaluronate powder to Alcon for Alcon's Viscoat solution and
has commenced the supply of Chiron Vision's Amvisc and Amvisc Plus products with
purchase orders that call for shipments to Europe beginning in fourth quarter
1995. In addition, the Company manufactures and packages a non-hyaluronate
ophthalmic gel for Storz pursuant to a development agreement and anticipates
entering into a supply relationship upon the completion of successful clinical
testing. The Company also sells vials of hyaluronate solution for embryo
cryopreservation to Vetrepharm, Inc.
The Company has an agreement with Ethicon for exclusive distribution of
Lubricoat Gel. The Company believes that Ethicon is the worldwide market leader
in the area of surgical products and has one of the largest marketing and sales
forces in the industry. Commercialization of Lubricoat Gel is dependent on
completion of clinical trials, receipt of FDA marketing approval, successful
manufacturing of commercial quantities, and the efforts of Ethicon to develop
the market for the product. No assurance can be given that any or all of these
conditions will be met. See "Hyaluronate Division Products."
The Company also sells various forms of medical grade hyaluronate directly
to third parties for development and evaluation of new applications to be
marketed and distributed through those companies' distribution systems or a
jointly developed distribution system.
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ORAL RESTORATIVE DIVISION PRODUCTS
The Company is focused on expanding its product line in the Oral Restorative
Division, improving product quality, and developing an appropriate
infrastructure to support sales growth. Management of the Company believes that
the dental implant market is highly specialized and that its sales force must
have extensive knowledge about the products. The products are marketed to oral
surgeons, periodontists, implantologists, prosthodontists, general dental
practitioners, and dental laboratories. Accordingly, the Company believes that
for proper distribution of these products, it must maintain a direct sales force
in major markets in the United States. The Company believes that its sales force
offers better customer service and a higher level of quality and regulatory
control than could be achieved through an independent distributor network in the
United States. The Company employs thirteen direct salespersons in the United
States and four U.S.-based salespersons dedicated to international sales. The
Oral Restorative Division products are marketed internationally through 18
distributors. In addition, the products are marketed in Italy through its
subsidiary, Lifecore Biomedical SpA, which currently utilizes five sales agents.
The Company's marketing activities are designed to support its direct sales
force and include advertising and product publicity in trade journals, direct
mail catalogs, newsletters, continuing education programs, telemarketing, and
attendance at trade shows and professional association meetings.
MANUFACTURING
The commercial production of hyaluronate by the Company requires
fermentation, separation and purification capabilities, and aseptic packaging of
product in a variety of formats. In addition, the production of the Lubricoat
Gel formulation requires high volume precision mixing of viscous fluids.
The Company produces its hyaluronate through a proprietary process of
fermentation. Until the introduction of the Company's medical grade hyaluronate,
the only commercial source for medical hyaluronate was through an animal
rendering process of extraction from rooster combs. The Company believed that
the rooster comb extraction method would not be capable of producing large
quantities of hyaluronate in an efficient manner if the use of medical grade
hyaluronate greatly increased. Consequently, the Company developed its
proprietary fermentation process for hyaluronate using existing knowledge of
other successful fermentation manufacturing processes. The Company believes that
the fermentation manufacturing approach is superior to rooster comb extraction
because of greater efficiency, flexibility, and better economies of scale in
producing large commercial quantities.
The Company has invested approximately $9 million in the construction of a
66,000 square foot facility primarily for the Company's proprietary hyaluronate
manufacturing process. The Company currently uses only a fraction of its
fermentation manufacturing capacity. The Company has purposely built excess
capacity because it believes that the potential applications for hyaluronate, if
substantiated, could require significant volumes of product. In addition,
several corporate partners have required that the Company validate its
manufacturing capability to fulfill forecasted production requirements by
creating additional capacity and periodically operating at higher capacity
levels. Lifecore believes its flexible, expandable capacity has been a critical
factor in attracting strategic relationships.
The Company's modular facility provides versatility in the simultaneous
manufacturing of various types of finished products. Currently the Company
supplies several different formulations of hyaluronate (e.g., varied molecular
weight fractions) in powders, solutions and gels, and in a variety of finished
packages, including bulk jars, vials and syringes. The Hyaluronate Division is
continuously conducting development work relating to the techniques utilized in
hyaluronate manufacturing. Such development activity is designed to improve
production efficiencies and expand the Company's capabilities to achieve a wider
range of hyaluronate product specifications. The Company's specialized fluid
handling and aseptic packaging capabilities also provide the opportunity for the
Company to offer contract packaging for other technically challenging
non-hyaluronate fluids.
26
<PAGE>
The Company's facility was designed to meet applicable regulatory
requirements and has been approved by the FDA for the manufacture of both drug
and device products. The FDA periodically inspects the Company's manufacturing
systems, and requires conformance to the FDA's Good Manufacturing Practices
("GMP") regulations. In addition, the Company's corporate partners are required
by the FDA to conduct intensive regulatory audits of its facilities. The Company
also regularly contracts with independent regulatory consultants to conduct
audits of the Company's operations. The Company has received certification of
conformance to ISO 9001 Standards and Medical Device Directives, as well as the
COMMISSION EUROPEEN (CE) Mark of Conformity from TUV Product Services of Munich,
Germany. These approvals represent international symbols of quality system
assurance and compliance with applicable European Medical Device Directives,
which greatly assist in the marketing of the Company's products in the European
Union.
The Company uses outside metal finishing vendors to produce its finished
dental implant devices and related components. The Company conducts its own
inspection of vendors and quality assurance functions related to the implant
devices and components and performs its own finished packaging.
The Company purchases materials for its production of hyaluronate and
hydroxylapatite from outside vendors. While these materials are available from a
variety of sources, the Company principally uses limited sources for some of its
key materials to better monitor quality and achieve cost efficiencies. Raw
materials for the Company's bone graft products are supplied exclusively by
United States Gypsum Company, and the Company believes such supplier is able to
provide adequate amounts of the raw materials for such product.
COMPETITION
The competitors of the Company include major chemical, dental, medical, and
pharmaceutical companies, as well as smaller specialized firms. Many of these
companies have significantly greater financial, manufacturing, marketing, and
research and development resources than the Company.
HYALURONATE PRODUCTS
A number of companies produce hyaluronate products and thus directly or
indirectly compete with Lifecore or its corporate partners. Genzyme Corporation
currently sells a high molecular weight hyaluronate which is manufactured
through a fermentation process to the Company's ophthalmic customer, Alcon, for
use in its Provisc-Registered Trademark- solution. Genzyme is developing several
hyaluronate based formulations for surgical anti-adhesion applications and has
received export approval to market an anti-adhesion product in certain European
countries. If Genzyme receives a PMA and the product obtains commercial
acceptance, the Company's prospects for Lubricoat Gel, if and when approved, may
be adversely affected. In addition, there are other companies working on the
development of competitive anti-adhesion products.
In addition to Genzyme, several companies produce hyaluronate through a
fermentation process, including Bio-Technology General Corporation, Kyowa Hakko,
Nippon, and Miles Laboratories. The Company believes that it and Genzyme are the
only fermentation manufacturers with the current capability to produce large
commercial quantities of medical grade hyaluronate under GMP conditions. In
addition, several companies manufacture hyaluronate by using rooster comb
extraction methods. These companies primarily include Anika Research, Inc.,
Biomatrix, Inc., Chesapeake Biological Labs, Fidia SpA, and Kabi Pharmacia AB.
The Company believes that its patented fermentation process may offer production
and regulatory advantages over the traditional rooster comb extraction method.
The Company's competitors have filed or obtained patents covering aspects of
fermentation production or uses of hyaluronate. These patents may cover the same
applications as the Company's. Although there can be no assurance, the Company
believes that it does not infringe the patents of its competitors. See "Patents
and Proprietary Rights."
The Company believes that competition in the ophthalmic and medical grade
hyaluronate market is primarily based on product performance and manufacturing
capacity, as well as product development
27
<PAGE>
capabilities. Future competition may be based on the existence of established
supply relationships, regulatory approvals, intellectual property, and product
price. After a manufacturer has taken a product through the FDA marketing
approval process, a change in suppliers can involve significant cost and delay
because significant manufacturing issues may be encountered and supplemental FDA
review may be required.
ORAL RESTORATIVE PRODUCTS
The dental implant market is also highly competitive. Major market
competitors include Calcitek, Inc. (a subsidiary of Intermedics, Inc.),
Dentsply, Inc., Implant Innovations, Inc., Interpore, Inc., Nobelpharma AB and
Steri-Oss (a Bausch & Lomb Company). A number of these competitors are
established companies with dominant market shares. The Company believes that
competition in the dental implant market is primarily based on product
performance, supply of a broad product line, field sales support, customer
service, innovation and price.
The Company believes that its primary advantage is in an expanding product
line of over 900 products centered around the Restore and Sustain Systems that
address the breadth of current and developing dental implant treatment
modalities. In addition, to ensure quality, the Company distinguishes itself
from its competitors by inspecting all critical tolerances on every implant.
Also, the FDA has in recent years increased its scrutiny of dental implant
products. The Company believes its internal regulatory capabilities enhance its
ability to deal with the regulatory process, which may give the Company a
competitive advantage. No assurance can be given, however, that the Company can
effectively compete with manufacturers of dental implant systems having larger,
established distribution networks.
The market for the Company's bone graft substitute products is also
competitive. The major competitors include synthetic product manufacturers such
as Calcitek, Inc., Interpore, Inc., Ceramed Corporation and Miter, Inc., as well
as natural bone tissue banks, such as Pacific Coast Tissue Bank. The Company
believes that competition in this market is primarily based on product
performance and price.
PATENTS AND PROPRIETARY RIGHTS
The Company pursues a policy of obtaining patent protection for patentable
subject matter in its proprietary technology. In May 1985, the Company received
a United States patent covering certain aspects of its hyaluronate fermentation
process. The Company has also licensed a 1991 patent for the recombinant DNA
encoding of hyaluronate synthase, exclusively in the United States and
non-exclusively outside the United States. In August 1994, in connection with
the Ethicon Agreement, the Company was assigned a pending patent covering the
composition of Lubricoat Gel, with applications filed in the United States,
Australia, Brazil, Canada, Europe, Greece, and Japan. The patent has issued in
Australia. The Company also has a United States patent covering the processes
used in the manufacture of hydroxylapatite and a second patent covering the
hydroxylapatite product produced by that process. The Company also licenses
patented technology used in the production of hydroxylapatite from USG.
The Company believes that patent protection is significant to its business.
However, if other manufacturers were to infringe on its patents, there can be no
assurance that the Company would be successful in challenging, or would have
adequate resources to challenge, such infringement. The Company also relies upon
trade secrets, proprietary know-how and continuing technological innovation to
develop and maintain its competitive position. There can be no assurance that
others will not obtain or independently develop technologies which are the same
as or similar to the Company's technologies. The Company pursues a policy of
requiring employees, temporary staff, consultants and customers (which have
access to some of its proprietary information) to sign confidentiality
agreements. There can be no assurance that the Company will be able to
adequately protect its proprietary technology through patents or other means.
The Company is aware that one or more of its competitors have obtained, or
are attempting to obtain, patents covering fermentation and other processes for
producing hyaluronate. Other patents have been, or may be, issued in the future
in product areas of interest to the Company. Although the Company is not aware
of any claims that its products infringe on patents held by others, no assurance
can be given that there will
28
<PAGE>
not be an infringement claim against the Company in the future. The costs of any
Company involvement in legal proceedings could be substantial, both in terms of
legal costs and the time spent by management of the Company in connection with
such proceedings. It is also possible that the Company, to manufacture and
market some of its products, may be required to obtain additional licenses,
which may require the payment of initial fees, minimum annual royalty fees and
ongoing royalties on net sales. There can be no assurance that the Company would
be able to license technology developed by others, on favorable terms or at all,
that may be necessary for the manufacture and marketing of its products.
GOVERNMENT REGULATION
Government regulation in the United States and other countries is a
significant factor in the marketing of the Company's products and in the
Company's ongoing research and development activities. The Company's products
are subject to extensive and rigorous regulation by the FDA, which regulates the
products as medical devices and which, in some cases, requires a PMA, and by
foreign countries, which regulate the products as medical devices or drugs.
Under the Federal Food, Drug, and Cosmetic Act ("FDC Act"), the FDA regulates
clinical testing, manufacturing, labeling, distribution, sale, and promotion of
medical devices in the United States.
Following the enactment of the Medical Device Amendments of 1976 to the FDC
Act, the FDA classified medical devices in commercial distribution at the time
of enactment ("old devices") into one of three classes -- Class I, II, or III.
This classification is based on the controls necessary to reasonably ensure the
safety and effectiveness of medical devices. Class I devices are those whose
safety and effectiveness can reasonably be ensured through general controls,
such as labeling, premarket notification (the "510(k) Notification"), and
adherence to FDA-mandated current GMP requirements for devices. Class II devices
are those whose safety and effectiveness can reasonably be ensured through the
use of special controls, such as performance standards, post-market
surveillance, patient registries, and FDA guidelines. Class III devices are
devices that must receive a PMA from the FDA to ensure their safety and
effectiveness. Ordinarily, a PMA requires the performance of at least two
independent, statistically significant clinical trials that demonstrate the
device's safety and effectiveness. Class III devices are generally
life-sustaining, life-supporting, or implantable devices, and also include most
devices that were not on the market before May 28, 1976 ("new devices") and for
which the FDA has not made a finding of substantial equivalence based upon a
510(k) Notification. An old Class III device does not require a PMA unless and
until the FDA issues a regulation requiring submission of a PMA application for
the device.
The FDA invariably requires clinical data for a PMA application and has the
authority to require such data for a 510(k) Notification. If clinical data are
necessary, the manufacturer or distributor is ordinarily required to obtain an
IDE authorizing the conduct of human studies. Once in effect, an IDE permits
evaluation of devices under controlled clinical conditions. After a clinical
evaluation process, the resulting data may be included in a PMA application or a
510(k) Notification. The PMA may be approved, or the 510(k) Notification cleared
by the FDA, only after a review process which may include requests for
additional data, sometimes requiring further studies.
If a manufacturer or distributor of medical devices can establish to the
FDA's satisfaction that a new device is substantially equivalent to what is
called a "predicate device," i.e., a legally marketed Class I or Class II
medical device or a legally marketed Class III device for which the FDA has not
required a PMA, the manufacturer or distributor may market the new device. In
the 510(k) Notification, a manufacturer or distributor makes a claim of
substantial equivalence, which the FDA may require to be supported by various
types of information, including data from clinical studies, showing that the new
device is as safe and effective for its intended use as the predicate device.
Following submission of the 510(k) Notification, the manufacturer or
distributor may not place the new device into commercial distribution until an
order is issued by the FDA finding the new device to be substantially
equivalent. The FDA has no specific time limit by which it must respond to a
510(k) Notification. The 510(k) Notification process can take up to eighteen
months or more. The FDA may agree with the
29
<PAGE>
manufacturer or distributor that the new device is substantially equivalent to a
predicate device, and allow the new device to be marketed in the United States.
The FDA may, however, determine that the new device is not substantially
equivalent and require the manufacturer or distributor to submit a PMA or
require further information, such as additional test data, including data from
clinical studies, before it is able to make a determination regarding
substantial equivalence. Although the PMA process is significantly more complex,
time-consuming, and expensive than the 510(k) Notification process, the latter
process can also be expensive and substantially delay the market introduction of
a product.
Hyaluronate products are generally Class III devices. In cases where the
Company is supplying hyaluronate to a corporate partner as a raw material or
producing a finished product under a license for the partner, the corporate
partner will be responsible for obtaining the appropriate FDA clearance or
approval. Export of the Company's hyaluronate products requires FDA's
permission, in the form of an export permit, and the approval of the importing
country.
The Sustain System and the Restore System, along with other dental implants,
are categorized as old Class III devices and are eligible for marketing through
510(k) Notifications. The FDA, however, has proposed to require PMAs for dental
implants, and by law must confirm such implants as Class III devices and require
PMAs for them or reclassify them into Class II or Class I. The FDA is expected
to make this decision by December 1, 1995. The Company began clinical trials of
its Sustain System under an IDE in 1990 in anticipation of the possibility that
the FDA would require submission of PMAs for dental implants. The Company's bone
graft products are Class II devices.
Other regulatory requirements are placed on a medical device's manufacture
and the quality control procedures in place, such as the FDA's device GMP
regulations. Manufacturing facilities are subject to periodic inspections by the
FDA to ensure compliance with device GMP requirements. The Company's facility is
subject to inspections as both a device and a drug manufacturing operation.
Other applicable FDA requirements include the medical device reporting
regulation, which requires that the Company provide information to the FDA on
deaths or serious injuries alleged to have been associated with the use of its
devices, as well as product malfunctions that would likely cause or contribute
to death or serious injury if the malfunction were to recur.
If the Company is not in compliance with FDA requirements, the FDA or the
federal government can order a recall, detain the Company's devices, withdraw or
limit 510(k) Notification clearances or PMA approvals, institute proceedings to
seize the Company's devices, prohibit marketing and sales of the Company's
devices, and assess civil money penalties and impose criminal sanctions against
the Company, its officers, or its employees.
There can be no assurance that any of the Company's clinical studies will
show safety or effectiveness; that 510(k) Notifications or PMA applications will
be submitted or, if submitted, accepted for filing; that any of the Company's
products that require clearance of a 510(k) Notification or approval of a PMA
application will obtain such clearance or approval on a timely basis, on terms
acceptable to the Company for the purpose of actually marketing the products, or
at all; or that following any such clearance or approval previously unknown
problems will not result in restrictions on the marketing of the products or
withdrawal of clearance or approval.
PRODUCT LIABILITY
Product liability claims may be asserted with respect to the Company's
products. In addition, the Company may be subject to claims for products of its
customers which incorporate Lifecore's materials. The Company maintains product
liability insurance coverage of $1.0 million per claim, with an aggregate
maximum of $2.0 million. The Company also carries a $2.0 million umbrella
insurance policy which also covers product liability claims. Lifecore Biomedical
SpA also carries product liability insurance in the
30
<PAGE>
amount of $1.0 million per claim with an aggregate maximum of $2.0 million. The
Company carries product liability insurance for all of its products. However,
there can be no assurance that the Company will have sufficient resources to
satisfy product claims if they exceed available insurance coverage.
EMPLOYEES
As of July 31, 1995, the Company employed 114 persons on a full-time basis,
one part-time employee and 13 temporary employees. None of the Company's
employees is represented by a labor organization, and the Company has never
experienced a work stoppage or interruption due to labor disputes. Management
believes its relations with employees are good.
FACILITIES
The Company's operations are all conducted in its 66,000 square foot
building in Chaska, Minnesota. The facility was financed primarily from the
proceeds of the sale of $7 million in industrial development revenue bonds
issued by the City of Chaska. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
31
<PAGE>
MANAGEMENT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ------------------------- --- ---------------------------------------------
<S> <C> <C>
James W. Bracke, Ph.D.... 48 President, Chief Executive Officer, Secretary
and Director
Brian J. Kane............ 42 Vice President of New Business Development
Mark J. McKoskey......... 44 Vice President and General Manager, Oral
Restorative Division
Colleen M. Olson......... 42 Vice President of Corporate Administrative
Operations
Nancy J. Teasdale........ 39 Vice President and General Manager,
Hyaluronate Division
Orwin L. Carter.......... 53 Director
Joan L. Gardner.......... 50 Director
John C. Heinmiller....... 41 Director
Robert P. Hickey......... 49 Director
Donald W. Larson......... 66 Director
Richard W. Perkins....... 64 Director
</TABLE>
JAMES W. BRACKE, PH.D. Dr. Bracke was appointed President and Chief
Executive Officer and a director in August 1983 and Secretary in March 1995. He
joined the Company in February 1981 as Senior Research Scientist. The Company
has an employment agreement with Dr. Bracke that extends through June 1998. Dr.
Bracke's employment agreement prohibits him from competing with the Company for
three years after termination of employment. In the event of termination upon a
change in control of the Company, the employment agreement provides that Dr.
Bracke will receive a sum equal to 300% of his base salary.
BRIAN J. KANE. Mr. Kane has been Vice President of New Business Development
for the Company since July 1991. He joined the Company as Vice President of
Marketing in June 1986.
MARK J. MCKOSKEY. Mr. McKoskey has been Vice President and General Manager
of the Oral Restorative Division since July 1994. He became Vice President of
Operations in June 1990. He joined the Company in June 1985 as engineering
manager.
COLLEEN M. OLSON. Ms. Olson has been Vice President of Corporate
Administrative Operations of the Company since May 1991. Prior to that time, she
was Vice President of Human Resources and Administration from June 1990 to May
1991, and Director of Human Resources and Administration from October 1984 to
June 1990. She joined the Company in January 1980 as Office Manager.
NANCY J. TEASDALE. Ms. Teasdale has been Vice President and General Manager
of the Hyaluronate Division since September 1994. She joined the Company in
August 1991 as Manager of Quality Assurance. From January 1989 through July
1991, she was Manager of Quality Assurance and Technical Support for Michael
Foods, Inc., a diversified food processor.
ORWIN L. CARTER. Dr. Carter is currently a private consultant to the
diagnostic device industry. From December 1989 through September 1994, he served
as President and Chief Executive Officer of INCSTAR Corporation. He then served
as Chairman until March 1995. INCSTAR Corporation manufactures and markets test
kits and related products used by major hospitals, clinical reference
laboratories and researchers involved in diagnosing and treating immunological
conditions. He has been a director of the Company since 1989 and is also a
director of Theragenics Corporation.
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<PAGE>
JOAN L. GARDNER. Ms. Gardner has had a career in community service. She is
currently serving on the Board of Children's Health Care, the newly merged
entity of Saint Paul Children's Hospital and Minneapolis Children's Medical
Center, and chairs its Quality Committee. She formerly chaired the Boards of
Trustees of the Biomedical Research Institute and The Children's Hospital
Incorporated and served on the board of the National Association of Children's
Hospitals and Related Institutes and chaired its Education Council. Ms. Gardner
joined the Company's Board in November 1992.
JOHN C. HEINMILLER. Mr. Heinmiller is currently Vice President of Finance
and Administration and a director of Daig Corporation, which designs,
manufactures and markets medical devices for cardiovascular applications. He was
Vice President of Finance and Chief Financial Officer of the Company from
October 1991 to February 1995. Prior to October 1991, Mr. Heinmiller was an
employee of Grant Thornton LLP, a national CPA firm and he was a partner of that
firm from 1986 to 1991. He became a director of the Company in November 1994.
ROBERT P. HICKEY. Mr. Hickey has been President of Roberts Healthcare
Resources, a consulting firm focused on management support to small companies
and venture funds, since 1994. From 1975 to 1994, he was with Johnson & Johnson
Companies in various capacities, most recently as Vice President of Marketing
and a director of Ethicon, Inc. He has been a director of Lifecore since January
1995.
DONALD W. LARSON. Mr. Larson is a self-employed business publisher and
editor. He has been editor and publisher of BUSINESS NEWSLETTER since 1980.
Prior to 1980, he was editor and publisher of the magazine CORPORATE REPORT
MINNESOTA. He has been a director of the Company since 1983.
RICHARD W. PERKINS. Mr. Perkins is President, Chief Executive Officer and a
director of Perkins Capital Management, Inc., Wayzata, Minnesota, where he has
held those positions since January 1985. Mr. Perkins is a director of the
following public companies: Bio-Vascular, Inc., Celox Corporation, Children's
Broadcasting Corporation, CNS, Inc., Discus Acquisition Corporation, Eagle
Pacific Industries, Inc., Garment Graphics, Inc., Nortech Systems, Inc., and
Quantech Ltd. He has been a director of Lifecore since 1983.
33
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth as of August 28, 1995, and as adjusted to
reflect the sale to the public of the shares of Common Stock being offered
hereby, the number and percentage of outstanding shares of Common Stock
beneficially owned by: (i) each person who is known by the Company to be the
beneficial owner of more than 5% of its outstanding Common Stock, (ii) each
director of the Company, and (iii) all directors and officers of the Company as
a group.
<TABLE>
<CAPTION>
PERCENT PERCENT
NAME AND ADDRESS OF NUMBER OF BEFORE THE AFTER THE
BENEFICIAL OWNER SHARES OFFERING(1) OFFERING(1)
- --------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Johnson & Johnson Development Corporation
One Johnson & Johnson Plaza
New Brunswick, NJ 08933.................... 757,396(2) 9.5% %
Perkins Capital Management, Inc.
730 East Lake Street
Wayzata, MN 55391.......................... 588,760(3) 7.4 5.8
James W. Bracke, Ph.D........................ 195,280(4) 2.4 1.9
Orwin L. Carter, Ph.D........................ 23,666(5) * *
Joan L. Gardner.............................. 14,750(6) * *
John C. Heinmiller........................... 2,000 * *
Robert P. Hickey............................. -- -- --
Donald W. Larson............................. 29,966(7) * *
Richard W. Perkins........................... 70,666(8) * *
Directors and officers as a group (11
persons)................................... 473,332(9) 5.8 4.5
<FN>
- ------------
* Indicates less than one percent.
(1) Based on 7,985,292 shares outstanding before the offering and 10,185,292
shares outstanding after the offering. The percentage indicated for JJDC
after the offering reflects the Company's intention to sell shares
offered hereby directly to JJDC at the Price to Public. See "Sale of Shares
to Purchasing Shareholder."
(2) Based upon the content of a statement filed as of August 8, 1994 pursuant
to Section 13(g) of the Exchange Act.
(3) Based upon the content of a statement filed as of July 31, 1995 pursuant to
Section 13(g) of the Securities Exchange Act of 1934. Excludes shares
beneficially owned by Richard W. Perkins, the controlling shareholder of
Perkins Capital Management, Inc. and a director of the Company.
(4) Includes 61,391 shares held by Dr. Bracke's wife, 50,056 shares held
jointly by Dr. Bracke and his wife, 7,000 shares held by Dr. Bracke's
children and 76,833 shares which Dr. Bracke has the right to purchase
pursuant to stock options which are or will become exercisable within sixty
days of the date hereof.
(5) Includes 22,666 shares which Dr. Carter has the right to purchase pursuant
to stock options which are or will become exercisable within sixty days of
the date hereof.
(6) Includes 4,250 shares held by a partnership in which Ms. Gardner is a
partner and 10,000 shares which Ms. Gardner has the right to purchase
pursuant to stock options which are or will become exercisable within sixty
days of the date hereof.
(7) Includes 19,666 shares which Mr. Larson has the right to purchase pursuant
to stock options which are or will become exercisable within sixty days of
the date hereof.
(8) Includes 45,000 shares held by various trusts of which Mr. Perkins is the
sole trustee, 6,000 shares held by a foundation created by Mr. Perkins and
19,666 shares which Mr. Perkins has the right to purchase pursuant to stock
options which are or will become exercisable within sixty days of the date
hereof. Excludes 588,760 shares held for the accounts of clients of Perkins
Capital Management, Inc. ("PCM"), a registered investment advisor of which
Mr. Perkins is the controlling shareholder. PCM has the right to sell the
shares but does not have voting power over the shares. Mr. Perkins and PCM
disclaim beneficial interest in the shares held for the account of PCM
clients.
(9) Includes 251,783 shares which certain directors and officers have the right
to purchase pursuant to stock options which are or will become exercisable
within sixty days of the date hereof.
</TABLE>
34
<PAGE>
DESCRIPTION OF COMMON STOCK
GENERAL
The Company is authorized to issue 25,000,000 shares of Common Stock, $.01
stated value, and 25,000,000 shares of Preferred Stock, $1.00 stated value. At
August 28, 1995, the Company had outstanding 7,985,292 shares of Common Stock,
held by 886 holders of record. No shares of Preferred Stock were outstanding.
All shares of Common Stock presently outstanding are, and all shares of Common
Stock being sold in this offering will be, legally issued, fully paid and
nonassessable.
The Board of Directors may establish any classes or series of Common Stock
with such rights and priorities as it deems appropriate and fix the dividend
rate, redemption price, liquidation price, conversion rights and sinking or
purchase fund rights. Holders of Common Stock are entitled to one vote for each
share on all matters voted upon by shareholders. Shareholders have no preemptive
or other rights to subscribe for additional securities of the Company. Subject
to the prior rights of holders of any outstanding shares of Preferred Stock,
holders of shares of Common Stock presently outstanding are, and holders of all
shares of Common Stock purchased in this offering will be, entitled to receive
such dividends as may be declared by the Board of Directors from funds legally
available therefor and to share pro rata, upon liquidation, in the remaining
assets available for distribution to shareholders after payment of any
preferential claims.
Shares of authorized but unissued or unreserved stock could be used in an
effort to dilute the stock ownership and voting power of persons seeking to
obtain control of the Company or could be issued to another person who would
support the Board of Directors in resisting such change in control. The
Company's directors are divided into three classes with staggered elections and
terms of three years. A shareholder desiring to control the Board of Directors
must participate in two elections of directors to obtain majority representation
on the Board of Directors. Directors may be removed only for cause by the vote
of two-thirds of the voting shares. No shareholder may cumulate votes in
connection with elections of directors. Therefore, holders of a majority of the
Company's shares may elect all the directors if they choose to do so. The
Company's Bylaws also provide a procedure and timetable for shareholders who
wish to bring nominations of candidates for the Board of Directors or other
business before a shareholders meeting.
REGISTRATION RIGHTS
In August 1994, the Company and JJDC entered into a stock purchase agreement
which covers the purchase of 757,396 unregistered shares of Lifecore Common
Stock for $4 million in total consideration. Under the stock purchase agreement,
Lifecore granted JJDC certain registration rights including demand registration
rights on or after June 30, 1995, covering one half of the shares, and on or
after June 30, 1996 with respect to the remaining shares. JJDC also received
"piggyback registration" rights with respect to one-half of such shares
commencing on June 30, 1995 and one-half of such shares commencing on June 30,
1996. JJDC has waived its piggyback rights in connection with this offering and
agreed that it will not exercise its demand rights for at least 90 days after
the effective date of this offering.
In connection with the acquisition of ISS in July 1993, the Company has the
option to make principal payments under a $1,300,000 note payable in the form of
cash or the Company's Common Stock. If the Company delivers stock, ISS would be
entitled to certain incidental registration rights with respect to those shares.
PREFERRED STOCK
The Company's Articles of Incorporation permit the Board of Directors to
determine, without any further action by the holders of the Company's Common
Stock, the voting rights, dividend rights and other rights and preferences of
any series of Preferred Stock. The rights of the holders of Preferred Stock will
be prior to and may limit the rights of holders of Common Stock.
MISCELLANEOUS
Norwest Bank Minnesota, N.A., Minneapolis, Minnesota, is the Transfer Agent
and Registrar for the Company's Common Stock.
35
<PAGE>
UNDERWRITING
The Company has entered into a Purchase Agreement (the "Purchase Agreement")
with the Underwriters listed in the table below. Subject to the terms and
conditions set forth in the Purchase Agreement, the Company has agreed to sell
shares of Common Stock to the Underwriters, and each of the
Underwriters has severally agreed to purchase, the number of shares of Common
Stock set forth opposite each Underwriter's name in the table below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------------------------------------- -----------
<S> <C>
Piper Jaffray Inc................................................
Needham & Company, Inc...........................................
-----------
Total........................................................
-----------
-----------
</TABLE>
Subject to the terms and conditions of the Purchase Agreement, the
Underwriters have agreed to purchase all of the Common Stock being sold pursuant
to the Purchase Agreement if any is purchased (excluding shares covered by the
over-allotment option granted therein and excluding the shares being sold
directly by the Company to the Purchasing Shareholder). The aggregate number of
shares sold by the Company to the Underwriters pursuant to the Purchase
Agreement will be shares.
The Underwriters have advised the Company that the Underwriters propose to
offer the Common Stock directly to the public initially at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not more than $. per share. Additionally,
the Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other dealers. After the public offering,
the public offering price and other selling terms may be changed by the
Underwriters.
In connection with this offering, the Underwriters may engage in passive
market making transactions in the Common Stock on the Nasdaq National Market
immediately prior to the commencement of sales in this offering, in accordance
with Rule 10b-6A under the Exchange Act. Passive market making consists of
displaying bids on the Nasdaq National Market limited by the bid prices of
independent market makers and purchases limited by such prices. Net purchases by
a passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the Common Stock during a
specified prior period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.
The Company has granted to the Underwriters an option, exercisable by the
Underwriters within 30 days from the date of this Prospectus, to purchase up to
an additional 330,000 shares of Common Stock at the same price per share to be
paid by the Underwriters for the other shares offered hereby. If the
Underwriters purchase any of such additional shares pursuant to this option,
each Underwriter will be committed to purchase such additional shares in the
same proportion as set forth in the table above. The Underwriters may exercise
the option only for the purpose of covering over-allotments, if any, made in
connection with the distribution of the Common Stock offered hereby.
The Company, its officers, directors, and certain other stockholders of the
Company have agreed that they will not sell, offer to sell, issue, distribute or
otherwise dispose of any shares of Common Stock for a period of 90 days after
commencement of this offering without the prior written consent of Piper Jaffray
Inc.
The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments the Underwriters may be required to make in
respect thereof.
36
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Lindquist & Vennum P.L.L.P., Minneapolis, Minnesota.
Leonard, Street and Deinard Professional Association, Minneapolis, Minnesota, is
acting as counsel for the Underwriters in connection with certain legal matters
relating to the shares of Common Stock offered hereby.
EXPERTS
The Consolidated Financial Statements and schedule of Lifecore Biomedical,
Inc. included or incorporated by reference in this Registration Statement have
been audited by Grant Thornton LLP, independent certified public accountants, to
the extent and for the periods indicated in their reports appearing elsewhere or
incorporated by reference in the Registration Statement of which this Prospectus
is a part. Such Consolidated Financial Statements and schedule are included or
incorporated by reference in the Registration Statement in reliance upon the
reports of such firm and upon their authority as experts in accounting and
auditing.
37
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Lifecore Biomedical, Inc.
We have audited the accompanying consolidated balance sheets of Lifecore
Biomedical, Inc. (a Minnesota corporation) and Subsidiaries as of June 30, 1995
and 1994, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended June 30,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Lifecore
Biomedical, Inc. and Subsidiaries as of June 30, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended June 30, 1995, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Notes B and O to the consolidated financial statements, the Company has incurred
annual operating losses, and cash on hand at June 30, 1995 is not sufficient to
allow the Company to fund its projected losses from operations and fixed debt
and lease obligations through June 30, 1996. These factors raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Notes B and O. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
GRANT THORNTON LLP
Minneapolis, Minnesota
July 31, 1995 (except for Note O, as to
which the date is August 30, 1995)
F-1
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30,
ASSETS
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (note A2).............................................. $ 2,275,000 $ 2,726,000
Accounts receivable, less allowances (notes A3 and A9)........................... 1,382,000 1,598,000
Inventories (note A4)............................................................ 3,383,000 4,753,000
Prepaid expenses................................................................. 262,000 404,000
------------- -------------
Total current assets........................................................... 7,302,000 9,481,000
PROPERTY, PLANT AND EQUIPMENT -- AT COST (notes A5 and D)
Land............................................................................. 249,000 249,000
Building......................................................................... 6,711,000 6,711,000
Equipment........................................................................ 3,969,000 4,418,000
Land and building improvements................................................... 1,406,000 1,406,000
------------- -------------
12,335,000 12,784,000
Less accumulated depreciation.................................................... (4,088,000) (4,642,000)
------------- -------------
8,247,000 8,142,000
OTHER ASSETS
Intangibles (notes A6 and C)..................................................... 4,997,000 4,634,000
Security deposits (note D)....................................................... 925,000 1,022,000
Inventories (note A4)............................................................ 1,913,000 1,405,000
Other (note A7).................................................................. 679,000 838,000
------------- -------------
8,514,000 7,899,000
------------- -------------
$ 24,063,000 $ 25,522,000
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations (note D)............................. $ 969,000 $ 1,139,000
Accounts payable................................................................. 575,000 746,000
Accrued compensation............................................................. 314,000 417,000
Accrued expenses................................................................. 406,000 404,000
Customers' deposits (notes E and M).............................................. 1,420,000 2,788,000
------------- -------------
Total current liabilities...................................................... 3,684,000 5,494,000
LONG-TERM OBLIGATIONS (note D)..................................................... 9,051,000 7,888,000
CUSTOMERS' DEPOSITS (notes E and M)................................................ -- 1,952,000
COMMITMENTS AND CONTINGENCIES (notes E, F, J and M)................................ -- --
SHAREHOLDERS' EQUITY (notes C, H, I and M)
Preferred stock -- authorized, 25,000,000 shares of $1.00 stated value; none
issued.......................................................................... -- --
Common stock -- authorized, 25,000,000 shares of $.01 stated value; issued and
outstanding, 7,195,689 and 7,972,167 shares at June 30, 1994 and 1995,
respectively.................................................................... 72,000 80,000
Additional paid-in capital....................................................... 33,149,000 37,216,000
Accumulated deficit.............................................................. (21,893,000) (27,108,000)
------------- -------------
11,328,000 10,188,000
------------- -------------
$ 24,063,000 $ 25,522,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net sales (notes A9 and L).......................................... $ 7,485,000 $ 10,430,000 $ 10,018,000
Cost of goods sold.................................................. 3,767,000 6,004,000 7,900,000
------------- ------------- -------------
Gross profit.................................................... 3,718,000 4,426,000 2,118,000
Operating expenses
Research and development.......................................... 1,706,000 1,072,000 1,381,000
Marketing and sales............................................... 2,764,000 2,645,000 3,038,000
General and administrative........................................ 2,198,000 2,100,000 2,382,000
Manufacturing relocation.......................................... 1,331,000 -- --
------------- ------------- -------------
7,999,000 5,817,000 6,801,000
------------- ------------- -------------
Loss from operations............................................ (4,281,000) (1,391,000) (4,683,000)
Other income (expense)
Gain on sale of building.......................................... -- 274,000 --
Gain (loss) on sale of short-term investments..................... 838,000 (1,047,000) --
Interest expense.................................................. (805,000) (835,000) (854,000)
Interest income................................................... 521,000 202,000 322,000
------------- ------------- -------------
554,000 (1,406,000) (532,000)
------------- ------------- -------------
NET LOSS........................................................ $ (3,727,000) $ (2,797,000) $ (5,215,000)
------------- ------------- -------------
------------- ------------- -------------
Net loss per common share (note A10)............................ $ (.53) $ (.39) $ (.66)
------------- ------------- -------------
------------- ------------- -------------
Weighted average shares outstanding................................. 7,048,474 7,175,674 7,879,538
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................................................. $(3,727,000) $(2,797,000) $(5,215,000)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization........................................................... 874,000 943,000 939,000
Allowance for doubtful accounts......................................................... 11,000 23,000 141,000
Loss (gain) on short-term investments................................................... (838,000) 1,047,000 --
Gain on sale of building................................................................ -- (274,000) --
Deferred rent........................................................................... -- 966,000 --
Changes in operating assets and liabilities
Accounts receivable................................................................... 206,000 (669,000) (357,000)
Inventories........................................................................... (553,000) (2,408,000) (862,000)
Prepaid expenses...................................................................... (69,000) (87,000) (142,000)
Other assets.......................................................................... (673,000) -- --
Accounts payable...................................................................... 1,000 163,000 171,000
Accrued liabilities................................................................... 696,000 (146,000) 101,000
Customers' deposits................................................................... -- (106,000) 3,320,000
----------- ----------- -----------
Total adjustments................................................................... (345,000) (548,000) 3,311,000
----------- ----------- -----------
Net cash used in operating activities....................................................... (4,072,000) (3,345,000) (1,904,000)
Cash flows from investing activities:
Proceeds from sale of building............................................................ -- 435,000 --
Purchases of property, plant and equipment................................................ (261,000) (395,000) (449,000)
Purchases of intangibles.................................................................. (182,000) (44,000) (51,000)
Purchases of short-term investments....................................................... (541,000) (5,063,000) --
Sales of short-term investments........................................................... 9,863,000 4,016,000 --
Increase in security deposits............................................................. (10,000) (10,000) (97,000)
Business acquisition, net of cash acquired................................................ -- (754,000) --
Decrease (increase) in other assets....................................................... 67,000 47,000 (130,000)
----------- ----------- -----------
Net cash provided by (used in) investing activities......................................... 8,936,000 (1,768,000) (727,000)
Cash flows from financing activities:
Payments of long-term obligations......................................................... (405,000) (176,000) (993,000)
Proceeds from issuance of common stock.................................................... -- -- 3,985,000
Proceeds from stock options exercised..................................................... 101,000 151,000 90,000
Excess value received from common stock issued for payment of debt........................ -- 521,000 --
----------- ----------- -----------
Net cash provided by (used in) financing activities......................................... (304,000) 496,000 3,082,000
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents........................................ 4,560,000 (4,617,000) 451,000
Cash and cash equivalents at beginning of year.............................................. 2,332,000 6,892,000 2,275,000
----------- ----------- -----------
Cash and cash equivalents at end of year.................................................... $ 6,892,000 $ 2,275,000 $ 2,726,000
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest................................................................................ $ 805,000 $ 810,000 $ 835,000
Liabilities assumed in business acquisition............................................. -- 219,000 --
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
During 1993, the Company issued 330,000 shares of its common stock as
payment of certain notes payable (see note I).
During 1994, the Company issued a $2,000,000 note payable relating to the
acquisition of Implant Support Systems, Inc. (see note C).
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL
SHARES PAID-IN ACCUMULATED
ISSUED AMOUNT CAPITAL DEFICIT
---------- --------- ------------- --------------
<S> <C> <C> <C> <C>
Balances at July 1, 1992.................................. 6,805,572 $ 68,000 $ 30,330,000 $ (15,369,000)
Exercise of stock options and employee stock purchase
savings plan........................................... 19,166 -- 101,000 --
Issuance of common stock as payment of debt (note I).... 330,000 4,000 2,046,000 --
Net loss for the year ended June 30, 1993............... -- -- -- (3,727,000)
---------- --------- ------------- --------------
Balances at June 30, 1993................................. 7,154,738 72,000 32,477,000 (19,096,000)
Exercise of stock options and employee stock purchase
savings plan, net of 5,888 shares surrendered in
payment................................................ 40,951 -- 151,000 --
Excess value received from common stock issued for
payment of debt (note I)............................... -- -- 521,000 --
Net loss for the year ended June 30, 1994............... -- -- -- (2,797,000)
---------- --------- ------------- --------------
Balances at June 30, 1994................................. 7,195,689 72,000 33,149,000 (21,893,000)
Exercise of stock options and employee stock purchase
savings plan........................................... 19,082 -- 90,000 --
Proceeds from sale of common stock...................... 757,396 8,000 3,977,000 --
Net loss for the year ended June 30, 1995............... -- -- -- (5,215,000)
---------- --------- ------------- --------------
Balances at June 30, 1995................................. 7,972,167 $ 80,000 $ 37,216,000 $ (27,108,000)
---------- --------- ------------- --------------
---------- --------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Lifecore Biomedical, Inc. ("the Company"), develops, manufactures, or
markets sterile medical products for a variety of surgical and pharmaceutical
applications through direct sales, OEM or contract manufacturing alliances. The
Company's products currently have applications in the fields of dentistry,
ophthalmology, veterinary and wound care management. In April 1995, the Company
began direct sales operations in Italy through a newly formed subsidiary,
Lifecore Biomedical SpA, in Verona, Italy.
A summary of significant accounting policies applied in the preparation of
the financial statements follows:
1. CONSOLIDATION POLICY
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Implant Support Systems, Inc. and Lifecore
Biomedical SpA. All intercompany balances and transactions have been eliminated
in consolidation.
2. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid temporary investments with original
maturities of three months or less to be cash equivalents. At June 30, 1995 and
1994, principally all of the Company's cash and cash equivalents are invested in
a money market fund.
The Company implemented Financial Accounting Standards Board (FASB)
Statement of Financial Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" effective July 1, 1993. The effect of adopting this
statement did not have a material impact on the consolidated financial
statements.
3. ACCOUNTS RECEIVABLE
The Company grants credit to customers in the normal course of business, but
generally does not require collateral or any other security to support amounts
due. The Company's customers are located primarily throughout the United States
and Europe. Management performs on-going credit evaluations of its customers.
The Company maintains allowances for potential credit losses which were $78,000
and $219,000 at June 30, 1994 and 1995.
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. The Company's reserve for obsolescence and rework was $332,000 and
$307,000 at June 30, 1994 and 1995. Inventory not expected to be consumed within
one year is classified as a long-term asset. Inventories consist of the
following:
<TABLE>
<CAPTION>
AS OF JUNE 30,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Raw materials..................................... $1,235,000 $1,551,000
Work-in-process................................... 100,000 95,000
Finished goods.................................... 3,961,000 4,512,000
---------- ----------
$5,296,000 $6,158,000
---------- ----------
---------- ----------
</TABLE>
F-6
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5. DEPRECIATION
Depreciation is provided in amounts sufficient to charge the cost of
depreciable assets to operations over their estimated service lives principally
on a straight-line method for financial reporting purposes and on straight-line
and accelerated methods for income tax reporting purposes. Lives used in
straight-line depreciation for financial reporting purposes are as follows:
<TABLE>
<CAPTION>
NUMBER OF
YEARS
---------
<S> <C>
Building.......................................... 18-25
Equipment......................................... 3-15
Land and building improvements.................... 18
</TABLE>
6. INTANGIBLES
Intangibles consist primarily of the cost of the technology and regulatory
rights related to the Sustain Dental Implant System product line acquired in May
1992 and the goodwill related to the July 1993 acquisition of Implant Support
Systems, Inc.
On an ongoing basis, the Company reviews the valuation and amortization of
intangibles to determine possible impairment by comparing the carrying value to
projected undiscounted future cash flows of the related assets. The cost of the
technology and regulatory rights and the goodwill are being amortized on the
straight-line method over 15 years, their estimated useful lives. Accumulated
amortization of intangibles was $527,000 and $891,000 at June 30, 1994 and 1995.
7. OTHER ASSETS
Included within other assets are costs incurred to register patents and
trademarks which are capitalized as incurred. Amortization of these costs
commences when the related patent or trademark is granted. The costs are
amortized over the estimated useful life of the patent or trademark, not to
exceed 17 years. Patents and trademarks consist of the following:
<TABLE>
<CAPTION>
AS OF JUNE 30,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Patents............................................................... $ 104,000 $ 134,000
Trademarks............................................................ 32,000 53,000
---------- ----------
136,000 187,000
Less amortization..................................................... (60,000) (71,000)
---------- ----------
$ 76,000 $ 116,000
---------- ----------
---------- ----------
</TABLE>
8. INCOME TAXES
The Company follows the liability method of computing deferred taxes. The
liability method provides that deferred tax assets and liabilities are recorded
based on the difference between the tax basis of assets and liabilities and
their carrying amounts for financial reporting purposes.
9. REVENUE RECOGNITION AND PRODUCT WARRANTY
The Company recognizes revenue when product is shipped or otherwise accepted
by the customer. Under the terms of a contract covering sales of ophthalmic
hyaluronate, the Company's product is under warranty against non-compliance with
product specifications. A provision is made for the estimated cost of replacing
or re-working any product not complying with the warranted product
specifications.
10. NET LOSS PER COMMON SHARE
Net loss per common share is based upon the weighted average outstanding
common shares.
F-7
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
11. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Statement No. 107
"Disclosures about Fair Value of Financial Instruments." The FASB has also
issued Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of." The adoption of these standards is not
expected to have a material effect on the consolidated financial statements of
the Company.
NOTE B -- GOING CONCERN
Cash on hand at June 30, 1995 is not sufficient to allow the Company to fund
its anticipated losses from operations and fixed debt and lease obligations
through June 30, 1996. Therefore, the Company will require additional financing.
Management plans to raise a substantial amount of equity through a proposed
public offering of the Company's common stock which is expected to be completed
in late 1995 (see Note O). In the event the proposed offering is not completed,
management believes it would have alternative sources of financing available and
believes the Company will be successful in obtaining the necessary funds to
continue the operations of the business through June 30, 1996.
NOTE C -- ACQUISITION OF IMPLANT SUPPORT SYSTEMS, INC.
On July 28, 1993, the Company acquired all of the outstanding shares of
common stock of Implant Support Systems, Inc. ("ISS"). The Company paid $682,000
in cash, issued a $2,000,000 note payable and assumed certain liabilities. The
payment terms of the note payable were amended in September 1994. This note as
amended bears interest at 5% payable quarterly beginning October 15, 1993 with
principal payments of $700,000 paid during fiscal 1995, $850,000 due October 15,
1995 and $450,000 due December 15, 1996. The principal payments may be made in
cash or the Company's common stock at the Company's option. If the Company
chooses its common stock as the form of payment, the note holder has certain
registration rights. The note is secured by the assets of ISS. The acquired
goodwill of approximately $2,754,000 is being amortized on a straight-line basis
over 15 years.
At the time of the acquisition, the Company also entered into a six-month
consulting agreement and a three-year non-compete agreement with the former
owner of ISS and entered into a six-month consulting agreement and an
eighteen-month non-compete agreement with one of ISS' employees. These
agreements provide for aggregate compensation of $125,000 in fiscal 1995 and
$120,000 in fiscal 1996.
Consolidated results of operations on a pro forma basis, as if the
acquisition of ISS had occurred on July 1, 1993, would not be materially
different than the reported consolidated results for the year ended June 30,
1994.
NOTE D -- LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
AS OF JUNE 30,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
Industrial development revenue bonds............................ $ 6,954,000 $ 6,895,000
Note payable.................................................... 2,000,000 1,300,000
Real estate special assessments................................. 399,000 294,000
Deferred lease payments......................................... 667,000 538,000
------------- -------------
10,020,000 9,027,000
Less current maturities......................................... (969,000) (1,139,000)
------------- -------------
$ 9,051,000 $ 7,888,000
------------- -------------
------------- -------------
</TABLE>
F-8
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- LONG-TERM OBLIGATIONS (CONTINUED)
INDUSTRIAL DEVELOPMENT REVENUE BONDS
On September 28, 1990, the Company completed a $7,000,000 transaction to
finance its manufacturing and administrative facility through the issuance of
30-year industrial development revenue bonds by the municipality where the
facility is located. The bonds are collateralized by a first mortgage on the
facility and bear interest at 10.25%. The Company is required to make debt
service payments on the bonds of approximately $775,000 per year for fiscal
years 1995 through 2021. The payments are required to be made monthly to a
sinking fund. At June 30, 1995, the Company has approximately $700,000 on
deposit with the bond trustee to cover the reserve fund requirement.
The terms of the loan agreement require the Company to comply with various
financial covenants including minimum current ratio, fixed charges coverage and
cash flow coverage requirements and maximum debt to net worth limitation. These
covenants have been waived by the bondholder through fiscal 1996. The debt to
net worth ratio covenant has the effect of restricting the payment of cash
dividends or repurchases of common stock.
NOTE PAYABLE
In July 1993, the Company issued its promissory note payable as part of the
consideration paid to the seller of Implant Support Systems, Inc. (see Note C).
REAL ESTATE SPECIAL ASSESSMENTS
In connection with special land improvements added during and after the
construction of the Company's manufacturing and administrative facility the
property has been assessed a total of $869,000 in special assessments. The
special assessments bear interest at 8.5% with principal and interest payments
due semi-annually. Approximately $164,000 of the total is due over a five year
term with the balance due over a ten year term.
DEFERRED RENT
The Company has recorded deferred rent to reflect the expense on a
straight-line basis for rent due under its equipment leases (see Note F).
At June 30, 1995, aggregate minimum annual principal payments of long-term
obligations for the years ending June 30 are as follows:
<TABLE>
<S> <C>
1996................................................ $1,139,000
1997................................................ 698,000
1998................................................ 253,000
1999................................................ 263,000
2000................................................ 165,000
Thereafter.......................................... 6,509,000
----------
$9,027,000
----------
----------
</TABLE>
NOTE E -- CUSTOMERS' DEPOSITS
In November 1994, Lifecore renewed its current supply contract with Alcon
Laboratories, Inc., an indirect subsidiary of Nestle S.A. ("Alcon") through
December of 1998. The agreement contains minimum annual purchase requirements
totalling $10,400,000 for calendar years 1995 through 1998. Lifecore received a
$6,300,000 cash advance from Alcon against future contract purchases.
Approximately $1,952,000 of the cash advance is classified as long-term as it is
expected to be realized during the fiscal year ended June 30, 1997.
F-9
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- CUSTOMERS' DEPOSITS (CONTINUED)
As security for the cash advance, the Company granted Alcon a right to
accelerate delivery of certain finished hyaluronate inventory. The amount of
inventory that is subject to acceleration is limited to the amount purchasable
by the outstanding cash advance based upon the contract price.
NOTE F -- OPERATING LEASES
In May 1991, the Company entered into an operating lease agreement with
Johnson & Johnson Finance Corporation ("JJFC"), an affiliate of the Company's
customers, Ethicon, Inc. and Johnson & Johnson Medical, Inc. JJFC is also an
affiliate of Johnson & Johnson Development Corporation, a shareholder of the
Company (see Note M). From May 1991 to March 1993 equipment subject to the lease
was installed and validated at the Company's Chaska facility. The Company began
recording operating lease expense on a straight line basis in April 1993.
Minimum monthly lease payments of $152,000 commenced in April 1994 for a term of
66 months. At the end of this initial lease term, the Company has the option to
either renew for an additional 18 month period or purchase the leased equipment
at a predetermined fair value. Additionally, the Company has entered into 60
month operating leases with a financial institution for approximately $900,000
of furniture and fixtures. Operating lease expense was approximately $572,000,
$1,774,000 and $1,911,000 for the years ended June 30, 1993, 1994 and 1995. At
June 30, 1995, the future aggregate minimum annual lease payments due under
these operating leases for the years ending June 30 are as follows:
<TABLE>
<S> <C>
1996................................................ $2,007,000
1997................................................ 1,877,000
1998................................................ 1,824,000
1999................................................ 1,820,000
2000................................................ 304,000
----------
$7,832,000
----------
----------
</TABLE>
F-10
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- INCOME TAXES
The Company implemented Financial Accounting Standards Board Statement of
Financial Standards No. 109, "Accounting for Income Taxes" effective July 1,
1993. Under the new standard, deferred tax assets and liabilities represent the
tax effects, based on current tax law, of future deductible or taxable amounts
attributable to events that have been recognized in the financial statements. In
connection with this implementation, the Company recorded a net deferred tax
asset of $6,604,000 and a valuation allowance of $6,604,000 as of July 1, 1993.
Deferred tax assets (liabilities) consist of the following at June 30:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward............................... $ 6,762,000 $ 8,064,000
Capital loss carryforward..................................... 377,000 377,000
Tax credit carryforward....................................... 248,000 253,000
Inventories................................................... 798,000 1,200,000
Other......................................................... 107,000 178,000
------------- -------------
Total deferred tax assets..................................... 8,292,000 10,072,000
Deferred tax liabilities
Deferred lease payments....................................... (720,000) (572,000)
Depreciation.................................................. (430,000) (528,000)
------------- -------------
Total deferred tax liability.................................. (1,150,000) (1,100,000)
------------- -------------
Net deferred tax asset before valuation allowance............... 7,142,000 8,972,000
Valuation allowance............................................. (7,142,000) (8,972,000)
------------- -------------
Net deferred tax asset.......................................... $ -- $ --
------------- -------------
------------- -------------
</TABLE>
The deferred tax asset valuation allowance increased $1,830,000 during 1995,
since these benefits may not be realized.
At June 30, 1995, the Company had approximately $22,800,000 of net operating
loss carryforwards for tax reporting purposes, which expire in 1999 through 2010
and income tax credit carryforwards of approximately $253,000 which expire in
1996 through 2007.
NOTE H -- STOCK OPTIONS
STOCK OPTION PLANS
In November 1987, the shareholders adopted the 1987 Stock Plan (the "1987
Plan") to provide for options to be granted to certain eligible salaried
employees and non-employee members of the Board of Directors. A total of 300,000
shares of common stock are reserved for issuance under the Plan. All outstanding
options under two prior plans were exchanged for options under the 1987 Plan.
All future options granted under the 1987 Plan will be granted at an exercise
price equal to the fair market value of the common stock at the date of grant.
Each grant awarded specifies the period for which the options are exercisable
and provides that the options shall expire at the end of such period.
F-11
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- STOCK OPTIONS (CONTINUED)
Option transactions under the 1987 Plan during the three years ended June
30, 1995 are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF
1987 PLAN SHARES OPTION PRICE RANGE
- ------------------------------------------------------------------------ ----------- ------------------
<S> <C> <C>
Outstanding at July 1, 1992............................................. 90,650 $3.13 - 4.50
Exercised............................................................. (12,850) 3.13 - 4.50
-----------
Outstanding at June 30, 1993............................................ 77,800 3.13 - 4.50
Exercised............................................................. (11,475) 3.13 - 4.50
Cancelled............................................................. (4,100) 4.50
-----------
Outstanding at June 30, 1994............................................ 62,225 3.13 - 4.50
Exercised............................................................. (7,223) 3.13 - 4.50
Cancelled............................................................. (500) 4.50
-----------
Outstanding at June 30, 1995............................................ 54,502 $ 3.13 - 3.81
-----------
-----------
</TABLE>
Under the 1987 Plan, options to purchase an aggregate of 54,502 shares were
exercisable at June 30, 1995.
In November 1990, the shareholders adopted the 1990 Stock Plan (the "1990
Plan") to provide for options to be granted to certain eligible employees,
non-employee members of the Board of Directors and other non-employee persons as
defined in the Plan. In November 1993, the 1990 Plan was amended to provide a
total of 1,000,000 shares of common stock reserved for issuance under the 1990
Plan. Options will be granted under the 1990 Plan at exercise prices which are
determined by a committee as appointed by the Board of Directors. Options
granted to date under the 1990 Plan have been at fair market value. Each grant
awarded specifies the period for which the options are exercisable and provides
that the options shall expire at the end of such period.
Option transactions under the 1990 Plan during the three years ended June
30, 1995 are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF
1990 PLAN SHARES OPTION PRICE RANGE
- ------------------------------------------------------------------------ ----------- ------------------
<S> <C> <C>
Outstanding at July 1, 1992............................................. 285,000 $ 2.63 - 19.00
Granted............................................................... 151,000 3.75 - 17.25
Exercised............................................................. (4,200) 9.88
Cancelled............................................................. (10,750) 9.50 - 9.88
-----------
Outstanding at June 30, 1993............................................ 421,050 2.63 - 19.00
Granted............................................................... 145,000 4.25 - 10.88
Exercised............................................................. (18,208) 2.63 - 7.38
Cancelled............................................................. (47,550) 5.00 - 11.25
-----------
Outstanding at June 30, 1994............................................ 500,292 2.63 - 19.00
Granted............................................................... 164,500 3.63 - 8.25
Exercised............................................................. (1,250) 5.75
Cancelled............................................................. (88,625) 3.88 - 16.88
-----------
Outstanding at June 30, 1995............................................ 574,917 $ 2.63 - 19.00
-----------
-----------
</TABLE>
F-12
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- STOCK OPTIONS (CONTINUED)
Under the 1990 Plan, options to purchase an aggregate of 283,316 shares were
exercisable at June 30, 1995.
EMPLOYEE STOCK PURCHASE SAVINGS PLAN
The 1990 Employee Stock Purchase Savings Plan ("ESPSP") provides for the
purchase by eligible employees of Company common stock at a price equal to 85%
of the market price on either the anniversary date of such plan's commencement
or the termination date of the plan, whichever is lower. Participants may
authorize payroll deductions up to 10% of their base salary during the plan year
to purchase the stock. During the three years ended June 30, 1995 a total of
29,881 shares had been issued, including 2,116 shares for approximately $12,000
in 1993, 17,156 shares for approximately $103,000 in 1994 and 10,609 shares for
approximately $54,000 during 1995. At June 30, 1995, the Company had
approximately 93,000 shares reserved for future issuance under the ESPSP.
NOTE I -- SETTLEMENT OF COMMON STOCK VALUATION
In October 1992, the Company issued a total of 330,000 shares of its common
stock to satisfy certain notes payable. Pursuant to the agreement with the note
holder, the valuation of the 330,000 shares of common stock in excess of the
outstanding principal balances was to be returned to Lifecore provided such
value was realized from sales of the common stock. In October 1993, the
remaining shares were sold and $521,000 of cash was returned to Lifecore.
NOTE J -- COMMITMENTS AND CONTINGENCIES
ROYALTY AGREEMENTS
The Company has entered into an agreement which provides for royalty
payments based on a percentage of net sales of certain products of its Oral
Restorative Division. Total royalty expense under these agreements for the three
years ended June 30, 1995 has not been material.
SEVERANCE AGREEMENTS
The Company has employment agreements with certain officers that provide
severance pay benefits if there is a change in control of the Company (as
defined) and the officer is involuntarily terminated (as defined). The maximum
contingent liability under these agreements at June 30, 1995 is approximately
$918,000.
NOTE K -- EMPLOYEE BENEFIT PLAN
Effective October 1, 1988, the Company established a 401(k) profit sharing
plan for eligible employees not covered by collective bargaining agreements.
Contributions by the Company are determined by the Board of Directors. There
have been no Company contributions since the inception of the plan.
NOTE L -- SEGMENT INFORMATION
The Company's two business segments are the manufacturing, marketing and
selling of products containing hyaluronate (the "Hyaluronate Division") and oral
restorative products (the "Oral Restorative Division").
Currently, products containing hyaluronate are sold primarily to OEM
customers pursuant to supply agreements between the Company and its customers.
Currently, Alcon is a major customer of the Company. Sales to Alcon were 68%,
57% and 32% of total sales in 1993, 1994 and 1995. Accounts receivable from
Alcon represented 44% of receivables at June 30, 1994 (see Note E).
F-13
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- SEGMENT INFORMATION (CONTINUED)
The Company's Oral Restorative Division markets products throughout the
United States directly to clinicians through a direct sales force and primarily
through distributorship arrangements in foreign locations.
Sales to customers located principally in Europe accounted for 10%, 16% and
20% of total Company sales during the years ended June 30, 1993, 1994 and 1995.
As of, and for, the period from inception to June 30, 1995, the operations of
the Company's Italian subsidiary, Lifecore Biomedical SpA, have not been
material to the consolidated financial statements.
Segment information for the Company is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net sales
Hyaluronate products.................................... $ 5,584,000 $ 6,903,000 $ 5,223,000
Oral restorative products............................... 1,901,000 3,527,000 4,795,000
------------- ------------- -------------
$ 7,485,000 $ 10,430,000 $ 10,018,000
------------- ------------- -------------
------------- ------------- -------------
Profit (loss) from operations
Hyaluronate products.................................... $ (699,000) $ 960,000 $ (3,309,000)
Oral restorative products............................... (3,582,000) (2,351,000) (1,374,000)
------------- ------------- -------------
$ (4,281,000) $ (1,391,000) $ (4,683,000)
------------- ------------- -------------
------------- ------------- -------------
Capital expenditures
Hyaluronate products.................................... $ 261,000 $ 360,000 $ 395,000
Oral restorative products............................... -- 35,000 54,000
------------- ------------- -------------
$ 261,000 $ 395,000 $ 449,000
------------- ------------- -------------
------------- ------------- -------------
Depreciation and amortization expense
Hyaluronate products.................................... $ 676,000 $ 588,000 $ 554,000
Oral restorative products............................... 198,000 355,000 385,000
------------- ------------- -------------
$ 874,000 $ 943,000 $ 939,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
Identifiable assets
Hyaluronate products................................................... $ 16,542,000 $ 16,404,000
Oral restorative products.............................................. 7,521,000 9,118,000
------------- -------------
$ 24,063,000 $ 25,522,000
------------- -------------
------------- -------------
</TABLE>
NOTE M -- AGREEMENTS
On August 8, 1994, Lifecore and Ethicon entered into a Conveyance, License,
Development and Supply Agreement (the "Ethicon Agreement"). At the same time,
Lifecore, Ethicon and Johnson & Johnson Development Corporation ("JJDC"), a
subsidiary of Johnson & Johnson, entered into a Stock Purchase Agreement.
Under the terms of the Ethicon Agreement, Ethicon transferred to Lifecore
its ownership in certain technology related to research and development
previously conducted on the Company's sodium hyaluronate material. The
technology transferred to Lifecore includes written technical documents related
to Ethicon's research and development of a product to inhibit the formation of
surgical adhesions. These
F-14
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- AGREEMENTS (CONTINUED)
documents include product specifications, methods and techniques, technology,
know-how and certain patent applications. Lifecore has assumed responsibility
for continuing the anti-adhesion development project including conducting human
clinical trials on a second generation hyaluronate based product. Lifecore has
granted Ethicon exclusive world-wide marketing rights through 2008 to the
products developed by Lifecore within defined fields of use.
Under the terms of the Stock Purchase Agreement, JJDC purchased 757,396
unregistered shares of Lifecore common stock for total consideration of $4
million consisting of $2.6 million cash and $1.4 million conversion of a
customer deposit from Ethicon held by Lifecore. Lifecore granted JJDC certain
registration rights which provide JJDC the option of having up to one half of
the shares registered on, or after, June 30, 1995 and the remaining shares
registered on, or after, June 30, 1996.
NOTE N -- LEGAL PROCEEDINGS
The Company is subject to various legal proceedings in the normal course of
business. Management believes that these proceedings will not have a material
adverse effect on the consolidated financial statements.
NOTE O -- SUBSEQUENT EVENT
On August 30, 1995, the Company filed a registration statement with the
Securities and Exchange Commission to register 2,200,000 shares of Common Stock,
excluding up to 330,000 shares pursuant to the underwriters' over-allotment
option. These shares are expected to be offered to the public in an offering
which is planned for completion in the fourth quarter of calendar 1995. If
completed, management believes that the proceeds from this public offering will
enable the Company to meet its financial obligations and continue as a going
concern during fiscal 1996.
NOTE P -- RECLASSIFICATIONS
Certain reclassifications have been made to the 1993 and 1994 financial
statements to conform to the 1995 presentation.
F-15
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representations in connection with this offering
other than those contained in this Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or by the Underwriters. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of these securities in
any state to any person to whom it is unlawful to make such offer or
solicitation in such state. Neither the delivery of this Prospectus nor any sale
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information herein is correct as of any time subsequent to its date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information....................................... 2
Incorporation of Certain Documents by Reference............. 2
Prospectus Summary.......................................... 3
Risk Factors................................................ 5
Sale of Shares to Purchasing Shareholder.................... 9
Use of Proceeds............................................. 9
Price Range of Common Stock................................. 10
Dividend Policy............................................. 10
Dilution.................................................... 10
Capitalization.............................................. 11
Selected Consolidated Financial Data........................ 12
Management's Discussion and Analysis of Results of
Operations and Financial Condition......................... 13
Business.................................................... 17
Management.................................................. 32
Principal Shareholders...................................... 34
Description of Common Stock................................. 35
Underwriting................................................ 36
Legal Matters............................................... 37
Experts..................................................... 37
Consolidated Financial Statements........................... F-1
</TABLE>
2,200,000 SHARES
[LOGO]
COMMON STOCK
--------------------
P R O S P E C T U S
--------------------
PIPER JAFFRAY INC.
NEEDHAM &
COMPANY, INC.
, 1995
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The table below sets forth estimated expenses in connection with the
issuance and distribution of the Common Stock being offered hereby. All of such
expenses are estimates, except for the SEC registration fee and the NASD fee.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 9,597
NASD fee.......................................................... 3,283
Accounting fees and expenses...................................... 50,000
Legal fees and expenses........................................... 95,000
Printing expenses................................................. 35,000
Blue Sky fees and expenses........................................ 5,000
Transfer agent's and registrar's fees............................. 3,000
Miscellaneous..................................................... 24,120
---------
Total......................................................... $ 225,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Bylaws provide that the Registrant may indemnify each
director or officer, whether or not then in office (and such person's heirs,
executors, and administrators), against reasonable costs and expenses incurred
in connection with any action, suit or proceeding to which such person may be
made a party by reason of such person's being or having been a director or
officer, except in relation to any actions, suits, or proceedings in which such
person has been adjudged liable because of willful malfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
person's office. The bylaws further provide that such rights and indemnification
shall not be exclusive of any other rights to which the officers and directors
may be entitled according to law.
Section 302A.521 of the Minnesota Business Corporation Act provides that a
corporation shall indemnify any person who was or is made or is threatened to be
made a party to any proceeding, by reason of the former or present official
capacity of such person, against judgments, penalties and fines including,
without limitation, excise taxes assessed against such person with respect to an
employee benefit plan, settlements, and reasonable expenses, including
attorneys' fees and disbursements, incurred by such person in connection with
the proceeding if, with respect to the acts or omissions of such person
complained of in the proceeding, such person (i) has not been indemnified by
another organization or employee benefit plan for the same expenses with respect
to the same acts or omissions; (ii) acted in good faith; (iii) received no
improper personal benefit and Section 302A.255 (regarding conflicts of
interest), if applicable, has been satisfied; (iv) in the case of a criminal
proceeding, has no reasonable cause to believe the conduct was unlawful; and (v)
in the case of acts or omissions by persons in their official capacity for the
corporation, reasonably believed that the conduct was in the best interests of
the corporation, or in the case of acts or omissions by persons in their
capacity for other organizations, reasonably believed that the conduct was not
opposed to the best interests of the corporation.
In addition, the Registrant has entered into indemnification agreements with
each of its directors and officers, which agreements provide for indemnification
to the full extent permitted by Minnesota law.
Reference is made to Section 6 of the Underwriting Agreement (Exhibit 1)
which provides certain indemnification rights to the directors and officers of
the Registrant.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Purchase Agreement, filed herewith
1.2 Form of Purchase Agreement between Lifecore Biomedical, Inc. and Johnson & Johnson Development
Corporation, filed herewith
2.1 Stock Purchase Agreement between ISS and Lifecore dated July 28, 1993 (includes $2 million 5% Promissory
Note dated July 28, 1993 as Exhibit A and Security Agreement as Exhibit B) (Pursuant to Rule 24b-2,
certain portions of this Exhibit have been deleted and filed separately with the Commission)
(incorporated by reference to Exhibit 2.1 to Form 8-K dated July 8, 1993)
4.1 Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 19(a) to Amendment
No. 1 on Form 8, dated July 13, 1988, to Form 10-Q Report for the quarter ended December 31, 1987)
4.2 Amended Bylaws (incorporated by reference to Exhibit 3.2 to the Form 10-K for the fiscal year ended June
30, 1995)
4.3 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to 1987 S-2 Registration
Statement [File No. 33-12970])
5.1 Opinion of Company Counsel*
10.1 Loan Agreement dated as of September 1, 1990 between the City of Chaska and the Company (incorporated by
reference from Exhibit 4.2 to the Registrant's Form 10-K for the year ended June 30, 1990, as amended
on Form 8 dated October 12, 1990) as amended on June 10, 1991 and July 24, 1991 (incorporated by
reference from Exhibit 10.2 to the Registrant's Amendment No. 1 to Form 1991 S-2 Registration Statement
[File No. 33-41291]) as amended on August 3, 1992 (incorporated by reference to Exhibit 10.1 to Form
10-K for the year ended June 30, 1992) as amended on July 28, 1994 (incorporated by reference to
Exhibit 10.1 to Form 10-K for the fiscal year ended June 30, 1994), as amended on July 27, 1995
(incorporated by reference to Exhibit 10.1 to Form 10-K for the fiscal year ended June 30, 1995)
10.2 Trust Indenture dated as of September 1, 1990 from the City of Chaska to Norwest Bank Minnesota, N.A.,
as Trustee (incorporated by reference from Exhibit 4.3 to the Registrant's Form 10-K for the year ended
June 30, 1990, as amended on Form 8 dated October 12, 1990)
10.3 Combination Mortgage, Security Agreement and Fixture Financing Statement dated as of September 1, 1990
from the Company to Norwest Bank Minnesota, N.A., as Trustee (incorporated by reference from Exhibit
4.4 to the Registrant's Form 10-K for the year ended June 30, 1990, as amended on Form 8 dated October
12, 1990)
10.4 Contract for Private Redevelopment dated as of September 1, 1990 between the Company and Chaska Economic
Development Authority (incorporated by reference from Exhibit 4.5 to the Registrant's Form 10-K for the
year ended June 30, 1990, as amended on Form 8 dated October 12, 1990)
10.5 Hyaluronate Purchase Agreement dated March 28, 1990 between the Company and Alcon (Incorporated by
reference to Exhibit 10 to Form 8-K dated April 10, 1990, as amended on Form 8 dated May 23, 1990) as
amended on July 17, 1992, (Certain information has been deleted from this exhibit and filed separately
with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule
24b-2) (incorporated by reference to Exhibit 10.5 to Form 10-K for the year ended June 30, 1992)
10.6 Employment Agreement dated June 10, 1991 with James W. Bracke (incorporated by reference to Exhibit
10.11 to 1991 S-2 Registration Statement [File No. 33-41291]), as amended by letter agreement dated
August 14, 1995 (incorporated by reference to Exhibit 10.6 to Form 10-K for the year ended June 30,
1995)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.7 Form of Indemnification Agreement entered into between the Company and directors and officers
(incorporated by reference to Exhibit 10.7 to Form 10-K for year ended June 30, 1995)
10.8 1987 Stock Option Plan (incorporated by reference to Exhibit 4(a) to S-8 Registration Statement [File
No. 33-26065])
10.9 1987 Employee Stock Purchase Savings Plan (incorporated by reference to Exhibit 4(a) to S-8 Registration
Statement [File No. 33-19288])
10.10 1990 Employee Stock Purchase Savings Plan (incorporated by reference to Exhibit 4(a) to S-8 Registration
Statement [File No. 33-32984])
10.11 1990 Stock Plan (incorporated by reference to Exhibit 4(a) to S-8 Registration Statement [File No.
33-38914]) as amended by Amendment No. 1 (incorporated by reference to Exhibit 10.13 to Form 10-K
report for year ended June 30, 1994)
10.12 Conveyance, License, Development and Supply Agreement dated August 8, 1994 between Lifecore Biomedical,
Inc. and Ethicon, Inc. (pursuant to Rule 24b-2, certain portions of this Exhibit have been omitted and
filed separately with the Commission), (incorporated by reference to Exhibit 10.14 to Form 10-K for the
year ended June 30, 1994)
10.13 Equipment Lease dated May 28, 1991 between the Registrant and Johnson & Johnson Finance Corporation
(incorporated herein by reference from Exhibit 10.20 to 1991 S-2 Registration Statement [File No.
33-12970]) as amended in May 1992 (incorporated by reference to Exhibit 10.15 to Form 10-K for the year
ended June 30, 1992) as amended in January 1993 (incorporated by reference to Exhibit 10.15 to Form
10-K for the year ended June 30, 1993) as amended in January 1994 and March 1994 (incorporated by
reference to Exhibit 10.15 to Form 10-Q for the quarter ended March 31, 1994)
10.14 Master Lease, Supplement to Master Lease and Assignment of Time/Savings Account between Norwest
Equipment Finance, Inc., and the Registrant dated June 28, 1991 (incorporated by reference to Exhibit
10.21 to Form 10-K for the year ended June 30, 1991)
10.15 Amendment No. 2 to Hyaluronate Purchase Agreement dated December 4, 1992 between Lifecore Biomedical,
Inc. and Alcon Surgical, Inc. (pursuant to Rule 24b-2, certain portions of this Exhibit have been
omitted and filed separately with the Commission) (incorporated by reference to Exhibit 28 to Form 8-K
dated December 4, 1992)
10.16 Amendment No. 3 to Hyaluronate Purchase Agreement dated May 12, 1993 between Lifecore Biomedical, Inc.
and Alcon Surgical, Inc., (pursuant to Rule 24b-2, certain portions of this Exhibit have been omitted
and filed separately with the Commission) (incorporated by reference to Exhibit 10.18 to Form 10-K for
the year ended June 30, 1993 as amended on Form 10-K/A dated December 15, 1994)
10.17 Letter Agreement dated October 28, 1992 between the Company and Bio-Interfaces (incorporated by
reference to Exhibit 28.1 to Form 8-K dated October 5, 1992)
10.18 Stock Purchase Agreement dated August 8, 1994 between Lifecore Biomedical, Inc. and Johnson and Johnson
Development Corporation, (incorporated by reference to Exhibit 10.20 to Form 10-K for the year ended
June 30, 1994)
10.19 Amendment No. 4 to Hyaluronate Purchase Agreement dated November 29, 1994 between Lifecore Biomedical,
Inc. and Alcon Laboratories, Inc. (pursuant to Rule 24b-2, certain portions of this Exhibit have been
omitted and filed separately with the Commission) (incorporated by reference to Exhibit 10.21 to Form
10-Q for the quarter ended December 31, 1994)
10.20 Supply Agreement dated as of December 7, 1994 between Lifecore Biomedical, Inc. and IOLAB Corporation
(pursuant to Rule 24b-2, certain portions of this Exhibit have been omitted and filed separately with
the Commission) (incorporated by reference to Exhibit 10.20 to the Form 10-K for the year ended June
30, 1995)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
23.1 Consent of Grant Thornton LLP*
23.2 Consent of Company Counsel*
24.1 Power of Attorney*
</TABLE>
- ------------
* Filed previously.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this Amendment
No. 1 to the Form S-2 Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 10th day of October, 1995.
LIFECORE BIOMEDICAL, INC.
By /s/ James W. Bracke
------------------------------------
James W. Bracke, Ph.D.,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on October 10, 1995.
<TABLE>
<C> <S> <C>
President and Chief Executive
/s/ James W. Officer
Bracke (principal executive and
- ------------------------------ principal financial officer)
James W. Bracke, Ph.D. and Secretary and Director
*
- ------------------------------
Director
Joan L. Gardner
*
- ------------------------------
Director
Donald W. Larson
*
- ------------------------------
Director
Richard W. Perkins
*
- ------------------------------
Director
Orwin L. Carter, Ph.D.
*
- ------------------------------
Director
John C. Heinmiller
*
- ------------------------------
Director
Robert P. Hickey
* Controller (principal
- ------------------------------
accounting officer)
Mark T. Sellnow
</TABLE>
*By /s/ James W. Bracke
---------------------------------------------
James W. Bracke, Ph.D.
Attorney-In-Fact
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------- --------------------------
<C> <S> <C>
1.1 Form of Purchase Agreement, filed herewith.................................. Electronic Transmission
1.2 Form of Purchase Agreement between Lifecore Biomedical, Inc. and Johnson &
Johnson Development Corporation, filed herewith............................ Electronic Transmission
</TABLE>
<PAGE>
Form Dated: 10/09/95
2,200,000 Shares(1)
Lifecore Biomedical, Inc.
Common Stock
PURCHASE AGREEMENT
October __, 1995
PIPER JAFFRAY INC.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, MN 55402
NEEDHAM & COMPANY, INC.
400 Park Avenue
New York, NY 10022
Gentlemen:
Lifecore Biomedical, Inc., a Minnesota corporation (the "Company"),
proposes to sell to Piper Jaffray Inc. and Needham & Company, Inc.
(individually, an "Underwriter" and collectively, the "Underwriters") in the
respective amounts listed on Schedule I hereto, a number of shares of Common
Stock, no par value per share (the "Common Stock"), of the Company equal to
2,200,000 less the number of shares sold to Johnson & Johnson Development
Corporation as contemplated by, and described in, the Prospectus (as defined
herein) (such resulting number of shares referred to herein as the "Firm
Shares"). The Firm Shares consist of authorized but unissued shares of Common
Stock to be issued and sold by the Company. The Company also grants to the
several Underwriters an option to purchase up to 330,000 additional shares of
Common Stock on the terms and for the purposes set forth in Section 3 hereof
(the "Option Shares"). The Firm Shares and any Option Shares purchased pursuant
to this Purchase Agreement are herein collectively called the "Securities."
The Company hereby confirms its agreement with respect to the sale of the
Securities to the several Underwriters.
1. REGISTRATION STATEMENT. A registration statement on Form S-2 (File
No. 33-62223) with respect to the Securities, including a preliminary form of
prospectus, has been prepared by the Company in conformity with the requirements
of the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations ("Rules and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder and has been filed with the
_________________________
(1)Less $2,000,000 of Common Stock to be sold to Johnson & Johnson
Development Corporation by the Company and plus an option to purchase up to
330,000 additional shares to cover over-allotments.
<PAGE>
Commission; one or more amendments to such registration statement have also been
so prepared and have been, or will be, so filed. Copies of such registration
statement and amendments and each related preliminary prospectus have been
delivered to you.
If the Company has elected not to rely upon Rule 430A of the Rules and
Regulations, the Company has prepared and will promptly file an amendment to the
registration statement and an amended prospectus. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, it will prepare and file a
prospectus pursuant to Rule 424(b) that discloses the information previously
omitted from the prospectus in reliance upon Rule 430A. Such registration
statement as amended at the time it is or was declared effective by the
Commission, and, in the event of any amendment thereto after the effective date
and prior to the First Closing Date (as hereinafter defined), such registration
statement as so amended (but only from and after the effectiveness of such
amendment), including the information deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A(b), if applicable,
is hereinafter called the "Registration Statement." The prospectus included in
the Registration Statement at the time it is or was declared effective by the
Commission is hereinafter called the "Prospectus," except that if any prospectus
filed by the Company with the Commission pursuant to Rule 424(b) of the Rules
and Regulations or any other prospectus provided to the Underwriters by the
Company for use in connection with the offering of the Securities (whether or
not required to be filed by the Company with the Commission pursuant to
Rule 424(b) of the Rules and Regulations) differs from the prospectus on file at
the time the Registration Statement is or was declared effective by the
Commission, the term "Prospectus" shall refer to such differing prospectus from
and after the time such prospectus is filed with the Commission or transmitted
to the Commission for filing pursuant to such Rule 424(b) or from and after the
time it is first provided to the Underwriters by the Company for such use. The
term "Preliminary Prospectus" as used herein means any preliminary prospectus
included in the Registration Statement prior to the time it becomes or became
effective under the Act and any prospectus subject to completion as described in
Rule 430A of the Rules and Regulations.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) The Company represents and warrants to, and agrees with, the
several Underwriters as follows:
(i) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission and each Preliminary
Prospectus, at the time of filing thereof, did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; except
that the foregoing shall not apply to statements in or omissions from any
Preliminary Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by you specifically for use in the
preparation thereof.
(ii) As of the time the Registration Statement (or any post-effective
amendment thereto) is or was declared effective by the Commission, upon the
filing or first delivery to the Underwriters of the Prospectus (or any
supplement to the Prospectus) and at the First Closing Date and Second
Closing Date (as hereinafter defined), (A) the Registration Statement and
Prospectus (in each case, as so amended and/or supplemented) will conform
or conformed in all material respects to the requirements of the Act and
the
2
<PAGE>
Rules and Regulations, (B) the Registration Statement (as so amended) will
not or did not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (C) the Prospectus (as so
supplemented) will not or did not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they are or were made, not misleading; except that the foregoing
shall not apply to statements in or omissions from any such document in
reliance upon, and in conformity with, written information furnished to the
Company by you specifically for use in the preparation thereof. If the
Registration Statement has been declared effective by the Commission, no
stop order suspending the effectiveness of the Registration Statement has
been issued, and no proceeding for that purpose has been initiated or, to
the Company's knowledge, threatened by the Commission.
(iii) The financial statements of the Company, together with the
notes thereto, set forth in the Registration Statement and Prospectus
comply in all material respects with the requirements of the Act and fairly
present the financial condition of the Company as of the dates indicated
and the results of operations and changes in cash flows for the periods
therein specified in conformity with generally accepted accounting
principles consistently applied throughout the periods involved (except as
otherwise stated therein) and the supporting schedules included or
incorporated by reference in the Registration Statement present fairly the
information required to be stated therein. No other financial statements
or schedules are required to be included in the Registration Statement or
Prospectus. Grant Thornton LLP, which has expressed its opinion with
respect to the financial statements and schedules filed as a part of the
Registration Statement and included in the Registration Statement and
Prospectus, are independent public accountants as required by the Act and
the Rules and Regulations.
(iv) All reports, proxy statements and other information filed by the
Company with the Commission, including the reports incorporated by
reference into the Prospectus, as of the date each was filed, did not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading.
(v) Each of the Company and its subsidiaries has been duly organized
and is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation. Each of the Company and its subsidiaries
has full corporate power and authority to own its properties and conduct
its business as currently being carried on and as described in the
Registration Statement and Prospectus, and is duly qualified to do business
as a foreign corporation in good standing in each jurisdiction in which it
owns or leases real property or in which the conduct of its business makes
such qualification necessary and in which the failure to so qualify would
have a material adverse effect upon the business, condition (financial or
otherwise) or properties of the Company and its subsidiaries, taken as a
whole.
3
<PAGE>
(vi) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, neither the Company
nor any of its subsidiaries has incurred any liabilities or obligations,
direct or contingent, or entered into any transactions that in either event
are material to the Company and its subsidiaries, taken as a whole, nor has
the Company declared or paid any dividends or made any distribution of any
kind with respect to its capital stock; and there has not been any change
in the capital stock (other than a change in the number of outstanding
shares of Common Stock due to the issuance of shares upon the exercise of
outstanding options or warrants), or any material change in the short-term
or long-term debt, or any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock, of the Company or
any of its subsidiaries, or any material adverse change, or any development
involving a prospective material adverse change, in the general affairs,
condition (financial or otherwise), business, key personnel, property,
prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole.
(vii) Except as set forth in the Prospectus, there is not pending or,
to the knowledge of the Company, threatened or contemplated, any action,
suit or proceeding to which the Company or any of its subsidiaries is a
party before or by any court or governmental agency, authority or body, or
any arbitrator, which might result in any material adverse change in the
condition (financial or otherwise), business, prospects, net worth or
results of operations of the Company and its subsidiaries, taken as a
whole.
(viii) There are no contracts or documents of the Company or any of
its subsidiaries that are required to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations that have
not been so filed.
(ix) This Agreement has been duly authorized, executed and delivered
by the Company, and constitutes a valid, legal and binding obligation of
the Company, enforceable in accordance with its terms, except as rights to
indemnity hereunder may be limited by federal or state securities laws and
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the rights of creditors generally
and subject to general principles of equity. The execution, delivery and
performance of this Agreement and the consummation of the transactions
herein contemplated will not result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any statute, any
agreement or instrument to which the Company is a party or by which it is
bound or to which any of its property is subject, the Company's charter or
by-laws, or any order, rule, regulation or decree of any court or
governmental agency or body having jurisdiction over the Company or any of
its properties; no consent, approval, authorization or order of, or filing
with, any court or governmental agency or body is required for the
execution, delivery and performance of this Agreement or for the
consummation of the transactions contemplated hereby, including the
issuance or sale of the Securities by the Company, except such as may be
required under the Act or state securities or blue sky laws; and the
Company has full
4
<PAGE>
power and authority to enter into this Agreement and to authorize, issue
and sell the Securities as contemplated by this Agreement.
(x) All of the issued and outstanding shares of capital stock of the
Company, including the outstanding shares of Common Stock, are duly
authorized and validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights
to subscribe for or purchase securities, and the holders thereof are not
subject to personal liability by reason of being such holders; the
Securities which may be sold hereunder by the Company have been duly
authorized and, when issued, delivered and paid for in accordance with the
terms hereof, will have been validly issued and will be fully paid and
nonassessable, and the holders thereof will not be subject to personal
liability by reason of being such holders; and the capital stock of the
Company, including the Common Stock, conforms to the description thereof in
the Registration Statement and Prospectus. Except as otherwise stated in
the Registration Statement and Prospectus, there are no preemptive rights
or other rights to subscribe for or to purchase, or any restriction upon
the voting or transfer of, any shares of Common Stock pursuant to the
Company's charter, by-laws or any agreement or other instrument to which
the Company is a party or by which the Company is bound. Neither the
filing of the Registration Statement nor the offering or sale of the
Securities as contemplated by this Agreement gives rise to any rights for
or relating to the registration of any shares of Common Stock or other
securities of the Company. All of the issued and outstanding shares of
capital stock of each of the Company's subsidiaries have been duly and
validly authorized and issued and are fully paid and nonassessable, and the
Company owns of record and beneficially, free and clear of any security
interests, claims, liens, proxies, equities or other encumbrances, all of
the issued and outstanding shares of such stock, except that the Company
owns 95% of the issued and outstanding capital stock of Lifecore Biomedical
SpA. Except as described in the Registration Statement and the Prospectus,
there are no options, warrants, agreements, contracts or other rights in
existence to purchase or acquire from the Company or any subsidiary of the
Company any shares of the capital stock of the Company or any subsidiary of
the Company. The Company has an authorized and outstanding capitalization
as set forth in the Registration Statement and the Prospectus.
(xi) Except where the failure to comply, lack of possession or
invalidity would not have a material adverse effect on the condition
(financial or otherwise), business, results of operations or prospects of
the Company and its subsidiaries taken as a whole, the Company and each of
its subsidiaries holds, and is operating in compliance with, all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates and orders of any governmental or self-regulatory body
required for the conduct of its business and all such franchises, grants,
authorizations, licenses, permits, easements, consents, certifications and
orders are valid and in full force and effect; and the Company and each of
its subsidiaries is in compliance with all applicable federal, state, local
and foreign laws, regulations, orders and decrees.
5
<PAGE>
(xii) The Company and its subsidiaries have good and marketable title
to all property described in the Registration Statement and Prospectus as
being owned by them, in each case free and clear of all liens, claims,
security interests or other encumbrances except such as are described in
the Registration Statement and the Prospectus or which do not interfere in
any material respect with the conduct of the business of the Company or its
subsidiaries; the property held under lease by the Company and its
subsidiaries is held by them under valid, subsisting and enforceable leases
with only such exceptions with respect to any particular lease as do not
interfere in any material respect with the conduct of the business of the
Company or its subsidiaries; except as set forth in the Registration
Statement and Prospectus, the Company and each of its subsidiaries owns or
possesses all patents, patent applications, trademarks, service marks,
tradenames, trademark registrations, service mark registrations,
copyrights, licenses, inventions, trade secrets and rights necessary for
the conduct of the business of the Company and its subsidiaries as
currently carried on and as described in the Registration Statement and
Prospectus; except as stated in the Registration Statement and Prospectus,
no name which the Company or any of its subsidiaries uses and no other
aspect of the business of the Company or any of its subsidiaries will
involve or give rise to any infringement of, or license or similar fees
for, any patents, patent applications, trademarks, service marks,
tradenames, trademark registrations, service mark registrations,
copyrights, licenses, inventions, trade secrets or other similar rights of
others and neither the Company nor any of its subsidiaries has received any
notice alleging any such infringement or fee.
(xiii) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or in breach of or otherwise
in default in the performance of any material obligation, agreement or
condition contained in any bond, debenture, note, indenture, loan agreement
or any other material contract, lease or other instrument to which it is
subject or by which any of them may be bound, or to which any of the
material property or assets of the Company or any of its subsidiaries is
subject.
(xiv) The Company and its subsidiaries have filed all federal, state,
local and foreign income and franchise tax returns required to be filed and
are not in default in the payment of any taxes which were payable pursuant
to said returns or any assessments with respect thereto, other than any
which the Company or any of its subsidiaries is contesting in good faith.
(xv) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and
sale of the Securities other than any Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed by the
Company.
(xvi) The Securities have been approved for listing on the NASDAQ
National Market System.
6
<PAGE>
(xvii) Other than its subsidiaries, Implant Support Systems, Inc. and
Lifecore Biomedical SpA, the Company owns no capital stock or other equity
or ownership or proprietary interest in any corporation, partnership,
association, trust or other entity.
(xviii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(xix) Other than as contemplated by this Agreement, the Company has
not incurred any liability for any finder's or broker's fee or agent's
commission in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.
(xx) Neither the Company nor any of its affiliates is presently doing
business with the government of Cuba or with any person or affiliate
located in Cuba.
(xxi) Neither the Company or any of its subsidiaries is an
investment company, as defined in the Investment Company Act of 1940, as
amended, or a company controlled by such an investment company.
(xxii) Neither the Company nor any of its subsidiaries is involved
in any labor dispute which, either individually or in the aggregate, could
have a material adverse effect on the business, operations, properties,
condition (financial or otherwise), income, earnings or business prospects
of the Company and its subsidiaries (taken as a whole), nor, to the best of
the Company's knowledge, is any such dispute threatened.
(xxiii) Neither the Company nor any of its subsidiaries has violated
any federal, state or local environmental, safety or similar law (including
rules and regulations of occupational safety and health agencies)
applicable to its or their business, nor any federal, state or local law
relating to discrimination in the hiring, promotion or pay of employees,
nor any applicable federal, state or local wages and hours laws, nor any
provisions of the Internal Revenue Code of 1986, as amended, or the
Employee Retirement Income Security Act, or the rules and regulations
promulgated thereunder, which in each case might result in any material
adverse change in the business, operations, properties, condition
(financial or otherwise), income, earnings or business prospects of the
Company and its subsidiaries, taken as a whole.
7
<PAGE>
(b) Any certificate signed by any officer of the Company and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.
3. PURCHASE, SALE AND DELIVERY OF SECURITIES.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company agrees to issue and sell the Firm Shares to the several Underwriters,
and each Underwriter agrees, severally and not jointly, to purchase from the
Company the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto. The purchase price for each Firm Share shall
be $____ per share. In making this Agreement, each Underwriter is contracting
severally and not jointly; except as provided in paragraph (c) of this Section 3
and in Section 8 hereof, the agreement of each Underwriter is to purchase only
the respective number of Firm Shares specified in Schedule I.
The Firm Shares will be delivered by the Company to you for the
accounts of the several Underwriters against payment of the purchase price
therefor by certified or official bank check or other next day funds payable to
the order of the Company at the offices of Piper Jaffray Inc., Piper Jaffray
Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other location as
may be mutually acceptable, at 9:00 a.m., Minneapolis time, on the third full
business day following the date hereof, or at such other time as you and the
Company determine, such time and date of delivery being herein referred to as
the "First Closing Date." The Firm Shares, in definitive form and in such
denominations and registered in such names as you may request upon at least one
business day prior notice to the Company will be made available for checking and
packaging at the offices of Piper Jaffray Inc., Piper Jaffray Tower, 222 South
Ninth Street, Minneapolis, Minnesota, or such other location as may be mutually
acceptable, at least one business day prior to the First Closing Date.
(b) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters an option to purchase all or
any portion of the Option Shares at the same purchase price as the Firm Shares,
for use solely in covering any over-allotments made by the Underwriters in the
sale and distribution of the Firm Shares. The option granted hereunder may be
exercised at any time (but not more than once) within 30 days after the
effective date of this Agreement upon notice (confirmed in writing) by the
Underwriters to the Company setting forth the aggregate number of Option Shares
as to which the several Underwriters are exercising the option, the names and
denominations in which the certificates for the Option Shares are to be
registered and the date and time, as determined by you, when the Option Shares
are to be delivered, such time and date being herein referred to as the "Second
Closing" and "Second Closing Date", respectively; provided, however, that the
Second Closing Date shall not be earlier than the First Closing Date nor earlier
than the second business day after the date on which the option shall have been
exercised. The number of Option Shares to be purchased by each Underwriter
shall be the same percentage of the total number of Option
8
<PAGE>
Shares to be purchased by the several Underwriters as the number of Firm Shares
to be purchased by such Underwriter is of the total number of Firm Shares to be
purchased by the several Underwriters, as adjusted by the Underwriters in such
manner as the Underwriters deem advisable to avoid fractional shares. No Option
Shares shall be sold and delivered unless the Firm Shares previously have been,
or simultaneously are, sold and delivered.
The Option Shares will be delivered by the Company to you for the
accounts of the several Underwriters against payment of the purchase price
therefor by certified or official bank check or other next day funds payable to
the order of the Company at the offices of Piper Jaffray Inc., Piper Jaffray
Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other location as
may be mutually acceptable at 9:00 a.m., Minneapolis time, on the Second Closing
Date. The Option Shares in definitive form and in such denominations and
registered in such names as you have set forth in your notice of option
exercise, will be made available for checking and packaging at the office of
Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis,
Minnesota, or such other location as may be mutually acceptable, at least one
business day prior to the Second Closing Date.
(c) It is understood that either of you may (but shall not be
obligated to) make payment to the Company, on behalf of the other Underwriter
for the Securities to be purchased by such Underwriter. Any such payment by you
shall not relieve the other Underwriter of any of its obligations hereunder.
Nothing herein contained shall constitute any of the Underwriters an
unincorporated association or partner with the Company.
4. COVENANTS.
(a) The Company covenants and agrees with the several Underwriters as
follows:
(i) If the Registration Statement has not already been declared
effective by the Commission, the Company will use its best efforts to cause
the Registration Statement and any post-effective amendments thereto to
become effective as promptly as possible; the Company will notify you
promptly of the time when the Registration Statement or any post-effective
amendment to the Registration Statement has become effective or any
supplement to the Prospectus has been filed and of any request by the
Commission for any amendment or supplement to the Registration Statement or
Prospectus or additional information; if the Company has elected to rely on
Rule 430A of the Rules and Regulations, the Company will file a Prospectus
containing the information omitted therefrom pursuant to such Rule 430A
with the Commission within the time period required by, and otherwise in
accordance with the provisions of, Rules 424(b) and 430A of the Rules and
Regulations; the Company will prepare and file with the Commission,
promptly upon your request, any amendments or supplements to the
Registration Statement or Prospectus that, in your opinion, may be
necessary or advisable in connection with the distribution of the
Securities by the Underwriters; and the Company will not file any amendment
or supplement to the Registration Statement or Prospectus
9
<PAGE>
to which you shall reasonably object by notice to the Company after having
been furnished a copy a reasonable time prior to the filing.
(ii) The Company will advise you, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement,
of the suspension of the qualification of the Securities for offering or
sale in any jurisdiction, or of the initiation or threatening of any
proceeding for any such purpose; and the Company will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such a stop order should be issued.
(iii) Within the time during which a prospectus relating to the
Securities is required to be delivered under the Act, the Company will
comply with all requirements imposed upon it by the Act, as now and
hereafter amended, and by the Rules and Regulations, as from time to time
in force, so far as necessary to permit the continuance of sales of or
dealings in the Securities as contemplated by the provisions hereof and the
Prospectus. If during such period any event occurs as a result of which
the Prospectus would include an untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in the
light of the circumstances then existing, not misleading, or if during such
period it is necessary to amend the Registration Statement or supplement
the Prospectus to comply with the Act, the Company will promptly notify you
and will amend the Registration Statement or supplement the Prospectus (at
the expense of the Company) so as to correct such statement or omission or
effect such compliance.
(iv) The Company will use its best efforts to qualify the Securities
for sale under the securities laws of such jurisdictions as you reasonably
designate and to continue such qualifications in effect so long as required
for the distribution of the Securities, except that the Company shall not
be required in connection therewith to qualify as a foreign corporation or
to execute a general consent to service of process in any state.
(v) The Company will furnish to the Underwriters copies of the
Registration Statement (three of which will be signed and will include all
exhibits), each Preliminary Prospectus, the Prospectus, and all amendments
and supplements to such documents, in each case as soon as available and in
such quantities as you may from time to time reasonably request.
(vi) During a period of five years commencing with the date hereof,
the Company will furnish to each Underwriter, copies of all periodic and
special reports furnished to the stockholders of the Company and all
information, documents and reports filed with the Commission, the National
Association of Securities Dealers, Inc., NASDAQ or any securities exchange.
10
<PAGE>
(vii) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than 15 months
after the end of the Company's current fiscal quarter, an earnings
statement (which need not be audited) covering a 12-month period beginning
after the effective date of the Registration Statement that shall satisfy
the provisions of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations.
(viii) The Company, whether or not the transactions contemplated
hereunder are consummated or this Agreement is prevented from becoming
effective under the provisions of Section 9(a) hereof or is terminated,
will pay or cause to be paid (A) all expenses (including transfer taxes
allocated to the respective transferees) incurred in connection with the
delivery to the Underwriters of the Securities, (B) all expenses and fees
(including, without limitation, fees and expenses of the Company's
accountants and counsel but, except as otherwise provided below, not
including fees of the Underwriters' counsel) in connection with the
preparation, printing, filing, delivery, and shipping of the Registration
Statement (including the financial statements therein and all amendments,
schedules, and exhibits thereto), the Securities, each Preliminary
Prospectus, the Prospectus, and any amendment thereof or supplement
thereto, and the printing, delivery, and shipping of this Agreement and
other underwriting documents, including Blue Sky Memoranda, (C) all filing
fees and fees and disbursements of the Underwriters' counsel incurred in
connection with the qualification of the Securities for offering and sale
by the Underwriters or by dealers under the securities or blue sky laws of
the states and other jurisdictions which you shall designate in accordance
with Section 4(d) hereof, (D) the fees and expenses of any transfer agent
or registrar, (E) the filing fees incident to any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale
of the Securities, (F) listing fees, if any, and (G) all other costs and
expenses incident to the performance of its obligations hereunder that are
not otherwise specifically provided for herein. If the sale of the
Securities provided for herein is not consummated by reason of action by
the Company pursuant to Section 9(a) hereof which prevents this Agreement
from becoming effective, or by reason of any failure, refusal or inability
on the part of the Company to perform any agreement on its or their part to
be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled by the Company is not
fulfilled, the Company will reimburse the several Underwriters for all
out-of-pocket disbursements (including fees and disbursements of counsel)
incurred by the Underwriters in connection with their investigation,
preparing to market and marketing the Securities or in contemplation of
performing their obligations hereunder. The Company shall not in any event
be liable to any of the Underwriters for loss of anticipated profits from
the transactions covered by this Agreement.
(ix) The Company will apply the net proceeds from the sale of the
Securities to be sold by it hereunder for the purposes set forth in the
Prospectus.
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(x) The Company will not, without your prior written consent, offer
for sale, sell, contract to sell, grant any option for the sale of or
otherwise issue or dispose of any Common Stock or any securities
convertible into or exchangeable for, or any options or rights to purchase
or acquire, Common Stock, except (i) to the Underwriters pursuant to this
Agreement or (ii) pursuant to existing stock option plans or employee stock
purchase plans, for a period of 90 days after the commencement of the
public offering of the Securities by the Underwriters.
(xi) The Company either has caused to be delivered to you or will
cause to be delivered to you prior to the effective date of the
Registration Statement a letter from each of the Company's directors and
officers stating that such person agrees that he or she will not, without
your prior written consent, offer for sale, sell, contract to sell or
otherwise dispose of any shares of Common Stock or rights to purchase
Common Stock, except to the Underwriters pursuant to this Agreement, for a
period of 90 days after commencement of the public offering of the
Securities by the Underwriters.
(xii) The Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted, the stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities.
(xiii) The Company will not incur any liability for any finder's or
broker's fee or agent's commission in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(xiv) The Company will inform the Florida Department of Banking and
Finance at any time prior to the consummation of the distribution of the
Securities by the Underwriters if it commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba.
Such information will be provided within 90 days after the commencement
thereof or after a change occurs with respect to previously reported
information.
(xv) The Company will comply with all registration, filing and
reporting requirements of the Exchange Act and the NASDAQ National Market
System.
5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters hereunder are subject to the accuracy, as of the date
hereof and at each of the First Closing Date and the Second Closing Date (as if
made at such Closing Date), of and compliance with all representations,
warranties and agreements of the Company contained herein, to the performance by
the Company of its obligations hereunder and to the following additional
conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m., Minneapolis time, on the date of this Agreement, or such later
time and date as you
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shall approve and all filings required by Rule 424 and Rule 430A of the Rules
and Regulations shall have been timely made; no stop order suspending the
effectiveness of the Registration Statement or any amendment thereof shall have
been issued; no proceedings for the issuance of such an order shall have been
initiated or threatened; and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to your satisfaction.
(b) No Underwriter shall have advised the Company that the
Registration Statement or the Prospectus, or any amendment thereof or supplement
thereto, contains an untrue statement of fact which, in your opinion, is
material, or omits to state a fact which, in your opinion, is material and is
required to be stated therein or necessary to make the statements therein not
misleading.
(c) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, neither the Company nor any of its subsidiaries shall have
incurred any material liabilities or obligations, direct or contingent, or
entered into any material transactions, or declared or paid any dividends or
made any distribution of any kind with respect to its capital stock; and there
shall not have been any change in the capital stock (other than a change in the
number of outstanding shares of Common Stock due to the issuance of shares upon
the exercise of outstanding options or warrants), or any material change in the
short-term or long-term debt of the Company, or any issuance of options,
warrants, convertible securities or other rights to purchase the capital stock
of the Company or any of its subsidiaries, or any material adverse change or any
development involving a prospective material adverse change (whether or not
arising in the ordinary course of business), in the general affairs, condition
(financial or otherwise), business, key personnel, property, prospects, net
worth or results of operations of the Company and its subsidiaries, taken as a
whole, that, in your judgment, makes it impractical or inadvisable to offer or
deliver the Securities on the terms and in the manner contemplated in the
Prospectus.
(d) On each Closing Date, there shall have been furnished to you the
opinion of Lindquist & Vennum P.L.L.P., counsel for the Company, dated such
Closing Date and addressed to you, to the effect that:
(i) Each of the Company and its subsidiaries has been duly organized
and is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation. Each of the Company and its
subsidiaries has full corporate power and authority to own its properties
and conduct its business as currently being carried on and as described in
the Registration Statement and Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction in which it owns or leases real property or in which the
conduct of its business makes such qualification necessary and in which the
failure to so qualify would have a material adverse effect upon the
business, condition (financial or otherwise) or properties of the Company
and its subsidiaries, taken as a whole.
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(ii) The capital stock of the Company conforms as to legal matters to
the description thereof contained in the Prospectus under the caption
"Description of Capital Stock." All of the issued and outstanding shares
of the capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, and the holders thereof are
not subject to personal liability by reason of being such holders. The
Securities to be issued and sold by the Company hereunder have been duly
authorized and, when issued, delivered and paid for in accordance with the
terms of this Agreement, will have been validly issued and will be fully
paid and nonassessable, and the holders thereof will not be subject to
personal liability by reason of being such holders. Except as otherwise
stated in the Registration Statement and Prospectus, there are no
preemptive rights or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any shares of Common Stock
pursuant to the Company's charter, by-laws or any agreement or other
instrument known to such counsel to which the Company is a party or by
which the Company is bound. To the best of such counsel's knowledge,
neither the filing of the Registration Statement nor the offering or sale
of the Securities as contemplated by this Agreement gives rise to any
rights for or relating to the registration of any shares of Common Stock or
other securities of the Company, except such rights as have been satisfied,
waived or terminated.
(iii) All of the issued and outstanding shares of capital stock of
each of the Company's subsidiaries have been duly and validly authorized
and issued and are fully paid and nonassessable, and, to the best of such
counsel's knowledge, the Company owns of record and beneficially, free and
clear of any security interests, claims, liens, proxies, equities or other
encumbrances, all of the issued and outstanding shares of such stock,
except that the Company owns, to the best of such counsel's knowledge, 95%
of the issued and outstanding shares of the capital stock of Lifecore
Biomedical SpA. To the best of such counsel's knowledge, except as
described in the Registration Statement and Prospectus, there are no
options, warrants, agreements, contracts or other rights in existence to
purchase or acquire from the Company or any subsidiary any shares of the
capital stock of the Company or any subsidiary of the Company.
(iv) The Registration Statement has become effective under the Act
and, to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceeding for that purpose has been instituted or, to the knowledge of
such counsel, threatened by the Commission.
(v) Except with respect to the requirements of the Federal Food, Drug
and Cosmetics Act and the regulations of the Food and Drug Administration,
as to which such counsel need express no opinion, (A) the descriptions in
the Registration Statement and Prospectus of statutes, legal and
governmental proceedings, contracts and other documents are accurate and
fairly present the information required to be shown, and (B) such counsel
does not know of any statutes or legal or governmental proceedings required
to be described in the Prospectus that are not described as required, or of
any contracts or documents of a character required to be described in the
Registration Statement or
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Prospectus or included as exhibits to the Registration Statement that are
not described or included as required.
(vi) The Company has full corporate power and authority to enter into
this Agreement, and this Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid, legal and binding
obligation of the Company enforceable in accordance with its terms (except
as rights to indemnity hereunder may be limited by federal or state
securities laws and except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting the rights
of creditors generally and subject to general principles of equity); the
execution, delivery and performance of this Agreement and the consummation
of the transactions herein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under any material agreement or instrument known to such counsel to which
the Company is a party or by which it is bound or to which any of its
property is subject, the Company's charter or by-laws, or any statute,
rule, regulation, order or decree known to such counsel to be applicable to
the Company of any court or governmental agency or body having jurisdiction
over the Company or any of its respective properties; and no consent,
approval, authorization or order of, or filing with, any court or
governmental agency or body is required for the execution, delivery and
performance of this Agreement or for the consummation of the transactions
contemplated hereby, including the issuance or sale of the Securities by
the Company, except such as may be required under the Act or state
securities laws.
(vii) To the best of such counsel's knowledge, the Company and each
of its subsidiaries holds, and is operating in compliance in all material
respects with, all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates and orders of any governmental or
self-regulatory body required for the conduct of its business and all such
franchises, grants, authorizations, licenses, permits, easements, consents,
certifications and orders are valid and in full force and effect.
(viii) To the best of such counsel's knowledge, neither the Company
nor any of its subsidiaries is in violation of its respective charter or
by-laws. To the best of such counsel's knowledge, neither the Company nor
any of its subsidiaries is in breach of or otherwise in default in the
performance of any material obligation, agreement or condition contained in
any bond, debenture, note, indenture, loan agreement or any other material
contract, lease or other instrument to which it is subject or by which any
of them may be bound, or to which any of the material property or assets of
the Company or any of its subsidiaries is subject, which breach or default
would have a material adverse effect on the condition (financial or
otherwise), business, results of operations or prospects of the Company and
its subsidiaries taken as a whole.
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<PAGE>
(ix) Neither the Company nor any of its subsidiaries is an investment
company, as defined in the Investment Company Act of 1940, as amended, or a
company controlled by such an investment company.
(x) To the best of such counsel's knowledge, neither the Company nor
any of its subsidiaries has violated any federal or state environmental,
safety or similar law (including rules and regulations of occupational
safety and health agencies thereunder) applicable to its or their business,
nor any federal or state law relating to the discrimination in the hiring,
promotion or pay of employees, nor any applicable federal or state wages
and hours laws, nor any provisions of the Internal Revenue Code of 1986, as
amended, or the Employee Retirement Income Security Act, or the rules and
regulations of any agency thereunder, which in each case might result in
any material adverse change in the business, operations, properties,
condition (financial or otherwise), income, earnings or business prospects
of the Company and its subsidiaries, taken as a whole.
(xi) All documents incorporated by reference in the Prospectus, when
they were filed with the Commission, complied as to form in all material
respects with the requirements of the Exchange Act; and, although such
counsel cannot guarantee, and does not assume responsibility for, the
accuracy, completeness or fairness of the statements contained in such
documents and has not independently verified the accuracy or completeness
of the statements contained in such documents, such counsel have no reason
to believe that any of such documents, when they were so filed, contained
an untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made when such documents were so filed,
not misleading; such counsel need express no opinion as to the financial
statements or other financial or statistical data contained in any such
document.
(xii) The Registration Statement and the Prospectus, and any
amendment thereof or supplement thereto, comply as to form in all material
respects with the requirements of the Act and the Rules and Regulations;
and on the basis of conferences with officers of the Company, examination
of documents referred to in the Registration Statement and Prospectus and
such other procedures as such counsel deemed appropriate, nothing has come
to the attention of such counsel that causes such counsel to believe that
the Registration Statement or any amendment thereof, at the time the
Registration Statement became effective and as of such Closing Date,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus (as of its date
and as of such Closing Date), as amended or supplemented, includes any
untrue statement of material fact or omits to state a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not
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misleading; it being understood that such counsel need express no opinion
as to the financial statements or other financial data included in any of
the documents mentioned in this clause.
(xii) Such other matters as you may reasonably request.
In rendering such opinion such counsel may rely (i) as to matters of
law other than Minnesota and federal law, upon the opinion or opinions of local
counsel provided that the extent of such reliance is specified in such opinion
and that such counsel shall state that such opinion or opinions of local counsel
are satisfactory to them and that they believe they and you are justified in
relying thereon and (ii) as to matters of fact, to the extent such counsel deems
reasonable upon certificates of officers of the Company and its subsidiaries
provided that the extent of such reliance is specified in such opinion. Counsel
may also rely on opinions of special patent counsel and special regulatory
counsel to the Company in rendering its opinion.
(e) On each Closing Date, there shall have been furnished to you the
opinion of Vidas, Arrett & Steinkraus, P.A., patent counsel for the Company,
dated such Closing Date and addressed to you, to the effect that such counsel
has examined the Registration Statement and Prospectus descriptions of the
intellectual property of the Company and that nothing has come to such counsel's
attention that causes such counsel to believe that the Registration Statement or
Prospectus or any amendment thereof, at the time the Registration Statement
became effective and as of such Closing Date, contained any untrue statement of
a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
(f) On each Closing Date, there shall have been furnished to you such
opinion or opinions from Leonard, Street and Deinard Professional Association,
counsel for the several Underwriters, dated such Closing Date and addressed to
you, with respect to the formation of the Company, the validity of the
Securities, the Registration Statement, the Prospectus and other related matters
as you reasonably may request, and such counsel shall have received such papers
and information as they request to enable them to pass upon such matters.
(g) On each Closing Date you shall have received a letter of Grant
Thornton, LLP, dated such Closing Date and addressed to you, confirming that
they are independent public accountants within the meaning of the Act and are in
compliance with the applicable requirements relating to the qualifications of
accountants under Rule 2-01 of Regulation S-X of the Commission, and stating, as
of the date of such letter (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more than five days
prior to the date of such letter), the conclusions and findings of said firm
with respect to the financial information and other matters covered by its
letter delivered to you concurrently with the execution of this Agreement, and
the effect of the letter so to be delivered on such Closing Date shall be to
confirm the conclusions and findings set forth in such prior letter.
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(h) On each Closing Date, there shall have been furnished to you a
certificate, dated such Closing Date and addressed to you, signed by the chief
executive officer and by the chief financial officer of the Company, to the
effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, in all material respects, as if made at and
as of such Closing Date, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to such Closing Date;
(ii) No stop order or other order suspending the effectiveness of the
Registration Statement or any amendment thereof or the qualification of the
Securities for offering or sale has been issued, and no proceeding for that
purpose has been instituted or, to the best of their knowledge, is
contemplated by the Commission or any state or regulatory body; and
(iii) The signers of said certificate have carefully examined the
Registration Statement and the Prospectus, and any amendments thereof or
supplements thereto, and (A) such documents contain all statements and
information required to be included therein, the Registration Statement, or
any amendment thereof, does not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and the
Prospectus, as amended or supplemented, does not include any untrue
statement of material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, (B) since the effective date of the Registration
Statement there has occurred no event required to be set forth in an
amended or supplemented prospectus which has not been so set forth, (C)
subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, neither the Company nor any of
its subsidiaries has incurred any material liabilities or obligations,
direct or contingent, or entered into any material transactions, not in the
ordinary course of business, or declared or paid any dividends or made any
distribution of any kind with respect to its capital stock, and except as
disclosed in the Prospectus, there has not been any change in the capital
stock (other than a change in the number of outstanding shares of Common
Stock due to the issuance of shares upon the exercise of outstanding
options or warrants), or any material change in the short-term or long-term
debt, or any issuance of options, warrants, convertible securities or other
rights to purchase the capital stock, of the Company, or any of its
subsidiaries, or any material adverse change or any development involving a
prospective material adverse change (whether or not arising in the ordinary
course of business), in the general affairs, condition (financial or
otherwise), business, key personnel, property, prospects, net worth or
results of operations of the Company and its subsidiaries, taken as a
whole, and (D) except as stated in the Registration Statement and the
Prospectus, there is not pending, or, to the knowledge of the Company,
threatened or contemplated, any action, suit or proceeding to which the
Company or any of its subsidiaries is a party before or by any court or
governmental agency, authority or body, or any arbitrator, which might
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result in any material adverse change in the condition (financial or
otherwise), business, prospects or results of operations of the Company and
its subsidiaries, taken as a whole.
(i) On each Closing Date, there shall have been furnished to you the
opinion of Fenwick & West, special regulatory counsel to the Company, dated
such Closing Date and addressed to you, to the effect that such counsel has
examined the Registration Statement and the Prospectus and that (i) the
descriptions in the Registration Statement and Prospectus with respect to the
requirements of the Federal Food, Drug and Cosmetics Act and the regulations
of the Food and Drug Administration are accurate, and (ii) the descriptions
in the Registration Statement and the Prospectus of the regulatory status of
the Company and its products and facilities and that nothing has come to such
counsel's attention that causes such counsel to believe that the Registration
Statement or Prospectus or an amendment thereof, at the time the Registration
Statement became effective and as of such Closing date, contained any untrue
statement of a material fact or omitted to state any material fact required
to be stated therein or necessary to make the statements therein ont
misleading
(j) The Company shall have furnished to you and counsel for the
Underwriters such additional documents, certificates and evidence as you or they
may have reasonably requested.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are satisfactory in form
and substance to you and counsel for the Underwriters. The Company will furnish
you with such conformed copies of such opinions, certificates, letters and other
documents as you shall reasonably request.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise (including in settlement of any litigation if such settlement is
effected with the written consent of the Company) insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, including the information deemed
to be a part of the Registration Statement at the time of effectiveness pursuant
to Rule 430A, if applicable, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending against such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
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such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by you specifically for use in the
preparation thereof.
In addition to its other obligations under this Section 6(a), the
Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
this Section 6(a), it will reimburse each Underwriter on a monthly basis for all
reasonable legal fees or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Underwriter that received such payment shall promptly return it to
the Company together with interest, compounded daily, determined on the basis of
the prime rate (or other commercial lending rate for borrowers of the highest
credit standing) announced from time to time by ____________________ (the "Prime
Rate"). Any such interim reimbursement payments which are not made to an
Underwriter within 30 days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request. This indemnity agreement shall be
in addition to any liabilities which the Company may otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by you specifically for use in the preparation thereof,
and will reimburse the Company for any legal or other expenses reasonably
incurred by the Company in connection with investigating or defending against
any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
that it may have to any indemnified party. In case any such action shall be
brought against any indemnified
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party, and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in, and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of the indemnifying party's election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that if, in the sole
judgment of the Underwriters, it is advisable for the Underwriters to be
represented as a group by separate counsel, the Underwriters shall have the
right to employ a single counsel to represent them, in which event the
reasonable fees and expenses of such separate counsel shall be borne by the
indemnifying party or parties and reimbursed to the Underwriters as incurred (in
accordance with the provisions of the second paragraph in subsection (a) above).
An indemnifying party shall not be obligated under any settlement agreement
relating to any action under this Section 6 to which it has not agreed in
writing.
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above,
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other from
the offering of the Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the Underwriters on
the other in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relevant intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
subsection (d) were to be determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the first sentence of this subsection (d). The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending against any action or claim
which is the subject of this subsection (d). Notwithstanding the provisions of
this subsection (d), no
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Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 6 shall be in addition to any liability that the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company (including any person who, with
his consent, is named in the Registration Statement as about to become a
director of the Company), to each officer of the Company who has signed the
Registration Statement and to each person, if any, who controls the Company
within the meaning of the Act.
7. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, and agreements of the Company herein or in
certificates delivered pursuant hereto, and the agreements of the several
Underwriters and the Company contained in Section 6 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter or any controlling person thereof, or the
Company or any of its officers, directors, or controlling persons, and shall
survive delivery of, and payment for, the Securities to and by the Underwriters
hereunder.
8. SUBSTITUTION OF UNDERWRITERS.
(a) If any Underwriter shall fail to take up and pay for the amount
of Firm Shares agreed by such Underwriter to be purchased hereunder and this
Agreement is then terminated, the Company shall not be liable to any Underwriter
(except to the extent provided in Section 4(a)(viii) and Section 6 hereof) nor
shall any Underwriter (other than an Underwriter who shall have failed,
otherwise than for some reason permitted under this Agreement, to purchase the
amount of Firm Shares agreed by such Underwriter to be purchased hereunder) be
under any liability to the Company (except to the extent provided in Section 6
hereof).
(b) If Firm Shares to which a default relates are to be purchased by
the non-defaulting Underwriter or by any other party or parties, the Company
shall have the right to postpone the First Closing Date for not more than seven
business days in order that the necessary changes in the Registration Statement,
Prospectus and any other documents, as well as any other arrangements, may be
effected. As used herein, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 8.
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<PAGE>
9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at 10:00 a.m., Minneapolis
time, on the first full business day following the effective date of the
Registration Statement, or at such earlier time after the effective time of the
Registration Statement as you in your discretion shall first release the
Securities for sale to the public; provided, that if the Registration Statement
is effective at the time this Agreement is executed, this Agreement shall become
effective at such time as you in your discretion shall first release the
Securities for sale to the public. For the purpose of this Section, the
Securities shall be deemed to have been released for sale to the public upon
release by you of the publication of a newspaper advertisement relating thereto
or upon release by you of telexes offering the Securities for sale to securities
dealers, whichever shall first occur. By giving notice as hereinafter specified
before the time this Agreement becomes effective, you or the Company may prevent
this Agreement from becoming effective without liability of any party to any
other party, except that the provisions of Section 4(a)(viii) and Section 6
hereof shall at all times be effective.
(b) You shall have the right to terminate this Agreement by giving
notice as hereinafter specified at any time at or prior to the First Closing
Date, and the option referred to in Section 3(b), if exercised, may be cancelled
at any time prior to the Second Closing Date, if (i) the Company shall have
failed, refused or been unable, at or prior to such Closing Date, to perform any
agreement on its part to be performed hereunder, (ii) any other condition of the
Underwriters' obligations hereunder is not fulfilled, (iii) trading on the New
York Stock Exchange or the American Stock Exchange shall have been wholly
suspended, (iv) minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required, on the New
York Stock Exchange or the American Stock Exchange, by such Exchange or by order
of the Commission or any other governmental authority having jurisdiction, (v) a
banking moratorium shall have been declared by Federal, New York or Minnesota
authorities, or (vi) there has occurred any material adverse change in the
financial markets in the United States or an outbreak of major hostilities (or
an escalation thereof) in which the United States is involved, a declaration of
war by Congress, any other substantial national or international calamity or any
other event or occurrence of a similar character shall have occurred since the
execution of this Agreement that, in your judgment, makes it impractical or
inadvisable to proceed with the completion of the sale of and payment for the
Securities. Any such termination shall be without liability of any party to any
other party except that the provisions of Section 4(a)(viii) and Section 6
hereof shall at all times be effective.
(c) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section, the Company shall be
notified promptly by you by telephone, telegram or a facsimile transmission,
confirmed by letter. If the Company elects to prevent this Agreement from
becoming effective, you shall be notified by the Company by telephone, telegram
or a facsimile transmission, confirmed by letter.
10. INFORMATION FURNISHED BY UNDERWRITERS. The statements set forth in
the last paragraph of the cover page and under the caption "Underwriting" in any
Preliminary Prospectus
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<PAGE>
and in the Prospectus constitute the written information furnished by or on
behalf of the Underwriters referred to in Section 2 and Section 6 hereof.
11. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Piper Jaffray Tower, 222 South Ninth
Street, Minneapolis, Minnesota 55402, and to Needham & Company, Inc., 400 Park
Avenue, New York, NY 10022, and if to the Company, shall be mailed, telegraphed
or delivered to it at 3515 Lyman Boulevard, Chaska, MN 55318, Attention: James
W. Bracke, or in each case to such other address as the person to be notified
may have requested in writing. All notices given by telegram or facsimile
transmission shall be promptly confirmed by letter. Any party to this Agreement
may change such address for notices by sending to the parties to this Agreement
written notice of a new address for such purpose.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and assigns and the controlling persons, officers and directors
referred to in Section 6. Nothing in this Agreement is intended or shall be
construed to give to any other person, firm or corporation any legal or
equitable remedy or claim under or in respect of this Agreement or any provision
herein contained. The term "successors and assigns" as herein used shall not
include any purchaser, as such purchaser, of any of the Securities from any of
the several Underwriters.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota.
24
<PAGE>
Please sign and return to each of the Underwriters the enclosed
duplicates of this letter whereupon this letter will become a binding agreement
between the Company and the several Underwriters in accordance with its terms.
Very truly yours,
LIFECORE BIOMEDICAL, INC.
By:
----------------------------------
James W. Bracke
Its: President
Confirmed as of the date
first above mentioned.
PIPER JAFFRAY INC. NEEDHAM & COMPANY, INC.
By By
----------------------- ---------------------------------
Its Managing Director Its Managing Director
25
<PAGE>
SCHEDULE I
Number of
Underwriter Firm Shares(2)
- ----------- -----------
Piper Jaffray Inc.
Needham & Company, Inc.
_________
Total. . . . . . . . . . . . . . . . . . . .(2)
_________________________
(2)Equal to 2,200,000 shares less $2,000,000 of Common Stock to be sold
to Johnson & Johnson Development Corporation. The Underwriters may
purchase up to an additional 330,000 Option Shares, to the extent the option
described in Section 3 of the Agreement is exercised, in the proportions and
in the manner described in the Agreement.
26
<PAGE>
Exhibit 1.2
________________ Shares
Lifecore Biomedical, Inc.
Common Stock
PURCHASE AGREEMENT
October ___, 1995
JOHNSON & JOHNSON DEVELOPMENT
CORPORATION
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
Ladies and Gentlemen:
Lifecore Biomedical, Inc., a Minnesota corporation (the "Company"),
proposes to sell to Johnson & Johnson Development Corporation ("J&J" or "you")
an aggregate of _______________ shares of Common Stock, $.01 stated value per
share (the "Common Stock"), of the Company (the "Shares") with an aggregate
purchase price of $2,000,000. The Shares consist of ______________ authorized
but unissued shares of Common Stock to be issued and sold by the Company.
Concurrently with the sale of the Shares to J&J, the Company intends to sell
________ shares of the Company's Common Stock (plus up to an additional
_________ shares to cover over-allotments) to the several underwriters listed in
Schedule I to that certain Purchase Agreement among the Company and such
underwriters dated of even date herewith (the "Purchase Agreement"). For
purposes of this Agreement, the term "Firm Shares" shall mean the _________
shares which the underwriters have committed to purchase and the term
"Underwritten Shares" shall mean the entire amount of shares purchased by the
underwriters under the Purchase Agreement, including under the over-allotment
option.
The Company hereby confirms its agreement with respect to the sale of the
Shares to J&J.
1. REGISTRATION STATEMENT. A registration statement on Form S-2 (File No.
33-62223) with respect to the Shares and the Underwritten Shares, including a
preliminary form of prospectus, has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations ("Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission and delivered to J&J; one or more amendments to such registration
statement have also been so prepared and have been, or will be, so filed.
<PAGE>
The Company will prepare and file a prospectus pursuant to Rule 424(b) that
discloses the information previously omitted from the prospectus in reliance
upon Rule 430A. Such registration statement as amended at the time it is or was
declared effective by the Commission, and, in the event of any amendment thereto
after the effective date and prior to the Closing Date (as hereinafter defined),
such registration statement as so amended (but only from and after the
effectiveness of such amendment), including the information deemed to be part of
the registration statement at the time of effectiveness pursuant to
Rule 430A(b), if applicable, is hereinafter called the "Registration Statement."
The prospectus included in the Registration Statement at the time it is or was
declared effective by the Commission is hereinafter called the "Prospectus,"
except that if any prospectus filed by the Company with the Commission pursuant
to Rule 424(b) of the Rules and Regulations or any other prospectus provided to
the Underwriters by the Company for use in connection with the offering of the
Securities (whether or not required to be filed by the Company with the
Commission pursuant to Rule 424(b) of the Rules and Regulations) differs from
the prospectus on file at the time the Registration Statement is or was declared
effective by the Commission, the term "Prospectus" shall refer to such differing
prospectus from and after the time such prospectus is filed with the Commission
or transmitted to the Commission for filing pursuant to such Rule 424(b) or from
and after the time it is first provided to the Underwriters by the Company for
such use. The term "Preliminary Prospectus" as used herein means any
preliminary prospectus included in the Registration Statement prior to the time
it becomes or became effective under the Act and any prospectus subject to
completion as described in Rule 430A of the Rules and Regulations.
2.REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with J&J as follows:
(i) As of the time the Registration Statement (or any
post-effective amendment thereto) is or was declared effective by the
Commission, upon the filing or first delivery to J&J of the Prospectus (or
any supplement to the Prospectus) and at the Closing Date (as hereinafter
defined), (A) the Registration Statement and Prospectus (in each case, as
so amended and/or supplemented) will conform or conformed in all material
respects to the requirements of the Act and the Rules and Regulations,
(B) the Registration Statement (as so amended) will not or did not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (C) the Prospectus (as so supplemented) will not or did
not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they are or were
made, not misleading. If the Registration Statement has been declared
effective by the Commission, no stop order suspending the effectiveness of
the Registration Statement has been issued, and no proceeding for that
purpose has been initiated or, to the Company's knowledge, threatened by
the Commission.
(ii) The financial statements of the Company, together with the
notes thereto, set forth in the Registration Statement and Prospectus
comply in all material respects with the requirements of the Act and fairly
present the financial condition of the Company as of the dates indicated
and the results of operations and changes in cash flows for the periods
therein specified in conformity with generally accepted accounting
principles consistently applied
2
<PAGE>
throughout the periods involved (except as otherwise stated therein), and
the supporting schedules included or incorporated by reference in the
Registration Statement present fairly the information required to be stated
therein. No other financial statements or schedules are required to be
included in the Registration Statement or Prospectus. Grant Thornton LLP,
which has expressed its opinion with respect to the financial statements
and schedules filed as a part of the Registration Statement and included in
the Registration Statement and Prospectus, are independent public
accountants as required by the Act and the Rules and Regulations.
(iii) All reports, proxy statements and other information filed by
the Company with the Commission and incorporated by reference into the
Prospectus, as of the date each was filed, did not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading.
(iv) Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation. Each of the Company and its
subsidiaries has full corporate power and authority to own its properties
and conduct its business as currently being carried on and as described in
the Registration Statement and Prospectus, and is duly qualified to do
business as a foreign corporation in good standing in each jurisdiction in
which it owns or leases real property or in which the conduct of its
business makes such qualification necessary and in which the failure to so
qualify would have a material adverse effect upon the business, condition
(financial or otherwise) or properties of the Company and its subsidiaries,
taken as a whole.
(v) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, neither the Company
nor any of its subsidiaries has incurred any liabilities or obligations,
direct or contingent, or entered into any transactions that in either event
are material to the Company and its subsidiaries, taken as a whole, nor has
the Company declared or paid any dividends or made any distribution of any
kind with respect to its capital stock; and there has not been any change
in the capital stock (other than a change in the number of outstanding
shares of Common Stock due to the issuance of shares upon the exercise of
outstanding options or warrants), or any material change in the short-term
or long-term debt, or any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock, of the Company or
any of its subsidiaries, or any material adverse change, or any development
involving a prospective material adverse change, in the general affairs,
condition (financial or otherwise), business, key personnel, property,
prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole.
(vi) Except as set forth in the Prospectus, there is not pending
or, to the knowledge of the Company, threatened or contemplated, any
action, suit or proceeding to which the Company or any of its subsidiaries
is a party before or by any court or governmental agency, authority or
body, or any arbitrator, which might result in any material
3
<PAGE>
adverse change in the condition (financial or otherwise), business,
prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole.
(vii) There are no contracts or documents of the Company or any of
its subsidiaries that are required to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations that have
not been so filed.
(viii) This Agreement has been duly authorized, executed and
delivered by the Company, and constitutes a valid, legal and binding
obligation of the Company, enforceable in accordance with its terms, except
as rights to indemnity hereunder may be limited by federal or state
securities laws and except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting the rights
of creditors generally and subject to general principles of equity. The
execution, delivery and performance of this Agreement and the consummation
of the transactions herein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any agreement or instrument to which the Company is a
party or by which it is bound or to which any of its property is subject,
the Company's charter or by-laws, or any order, rule, regulation or decree
of any court or governmental agency or body having jurisdiction over the
Company or any of its properties; no consent, approval, authorization or
order of, or filing with, any court or governmental agency or body is
required for the execution, delivery and performance of this Agreement or
for the consummation of the transactions contemplated hereby, including the
issuance or sale of the Shares by the Company, except such as may be
required under the Act or state securities or blue sky laws; and the
Company has full power and authority to enter into this Agreement and to
authorize, issue and sell the Shares as contemplated by this Agreement.
(ix) All of the issued and outstanding shares of capital stock of
the Company, including the outstanding shares of Common Stock, are duly
authorized and validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights
to subscribe for or purchase securities, and the holders thereof are not
subject to personal liability by reason of being such holders; the Shares
which may be sold hereunder by the Company have been duly authorized and,
when issued, delivered and paid for in accordance with the terms hereof,
will have been validly issued and will be fully paid and nonassessable, and
the holders thereof will not be subject to personal liability by reason of
being such holders; and the capital stock of the Company, including the
Common Stock, conforms to the description thereof in the Registration
Statement and Prospectus. Except as otherwise stated in the Registration
Statement and Prospectus, there are no preemptive rights or other rights to
subscribe for or to purchase, or any restriction upon the voting or
transfer of, any shares of Common Stock pursuant to the Company's charter,
by-laws or any agreement or other instrument to which the Company is a
party or by which the Company is bound. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights for or relating to
the registration of any shares of Common Stock or other securities of the
Company, except as such rights have been satisfied, waived or terminated.
All of the issued and outstanding shares of capital
4
<PAGE>
stock of each of the Company's subsidiaries have been duly and validly
authorized and issued and are fully paid and nonassessable, and the Company
owns of record and beneficially, free and clear of any security interests,
claims, liens, proxies, equities or other encumbrances, all of the issued
and outstanding shares of such stock, except that the Company owns 95% of
the outstanding common stock of Lifecore Biomedical SpA. Except as
described in the Registration Statement and the Prospectus, there are no
options, warrants, agreements, contracts or other rights in existence to
purchase or acquire from the Company or any subsidiary of the Company any
shares of the capital stock of the Company or any subsidiary of the
Company. The Company has an authorized and outstanding capitalization as
set forth in the Registration Statement and the Prospectus.
(x) Except when the failure to comply, lack of possession or
invalidity would not have a material adverse effect on the condition
(financial or otherwise), business, results of operations or prospects of
the Company and its subsidiaries taken as a whole, the Company and each of
its subsidiaries holds, and is operating in compliance with, all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates and orders of any governmental or self-regulatory body
required for the conduct of its business and all such franchises, grants,
authorizations, licenses, permits, easements, consents, certifications and
orders are valid and in full force and effect; and the Company and each of
its subsidiaries is in compliance with all applicable federal, state, local
and foreign laws, regulations, orders and decrees.
(xi) The Company and its subsidiaries have good and marketable
title to all property described in the Registration Statement and
Prospectus as being owned by them, in each case free and clear of all
liens, claims, security interests or other encumbrances except such as are
described in the Registration Statement and the Prospectus or which do not
interfere in any material respect with the conduct of the business of the
Company or its subsidiaries; the property held under lease by the Company
and its subsidiaries is held by them under valid, subsisting and
enforceable leases with only such exceptions with respect to any particular
lease as do not interfere in any material respect with the conduct of the
business of the Company or its subsidiaries; except as set forth in the
Registration Statement and Prospectus, the Company and each of its
subsidiaries owns or possesses all patents, patent applications,
trademarks, service marks, tradenames, trademark registrations, service
mark registrations, copyrights, licenses, inventions, trade secrets and
rights necessary for the conduct of the business of the Company and its
subsidiaries as currently carried on and as described in the Registration
Statement and Prospectus; except as stated in the Registration Statement
and Prospectus, no name which the Company or any of its subsidiaries uses
and no other aspect of the business of the Company or any of its
subsidiaries will involve or give rise to any infringement of, or license
or similar fees for, any patents, patent applications, trademarks, service
marks, tradenames, trademark registrations, service mark registrations,
copyrights, licenses, inventions, trade secrets or other similar rights of
others and neither the Company nor any of its subsidiaries has received any
notice alleging any such infringement or fee.
5
<PAGE>
(xii) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or in breach of or otherwise
in default in the performance of any material obligation, agreement or
condition contained in any bond, debenture, note, indenture, loan agreement
or any other material contract, lease or other instrument to which it is
subject or by which any of them may be bound, or to which any of the
material property or assets of the Company or any of its subsidiaries is
subject.
(xiii) The Company and its subsidiaries have filed all federal,
state, local and foreign income and franchise tax returns required to be
filed and are not in default in the payment of any taxes which were payable
pursuant to said returns or any assessments with respect thereto, other
than any which the Company or any of its subsidiaries is contesting in good
faith.
(xiv) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and
sale of the Shares other than any Preliminary Prospectus or the Prospectus
or other materials permitted by the Act to be distributed by the Company.
(xv) The Shares have been approved for listing on the Nasdaq
National Market System.
(xvi) Other than its subsidiaries, Implant Support Systems, Inc.
and Lifecore Biomedical SpA, the Company owns no capital stock or other
equity or ownership or proprietary interest in any corporation,
partnership, association, trust or other entity.
(xvii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(xviii) The Company has not incurred any liability for any finder's
or broker's fee or agent's commission in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(xix) Neither the Company nor any of its affiliates is presently
doing business with the government of Cuba or with any person or affiliate
located in Cuba.
(xx) Neither the Company or any of its subsidiaries is an investment
company, as defined in the Investment Company Act of 1940, as amended, or a
company controlled by such an investment company.
6
<PAGE>
(xxi) Neither the Company nor any of its subsidiaries is involved
in any labor dispute which, either individually or in the aggregate, could
have a material adverse effect on the business, operations, properties,
condition (financial or otherwise), income, earnings or business prospects
of the Company and its subsidiaries (taken as a whole), nor, to the best of
the Company's knowledge, is any such dispute threatened.
(xxii) Neither the Company nor any of its subsidiaries has violated
any federal, state or local environmental, safety or similar law (including
rules and regulations of occupational safety and health agencies)
applicable to its or their business, nor any federal, state or local law
relating to discrimination in the hiring, promotion or pay of employees,
nor any applicable federal, state or local wages and hours laws, nor any
provisions of the Internal Revenue Code of 1986, as amended, or the
Employee Retirement Income Security Act, or the rules and regulations
promulgated thereunder, which in each case might result in any material
adverse change in the business, operations, properties, condition
(financial or otherwise), income, earnings or business prospects of the
Company and its subsidiaries, taken as a whole.
(xxiii) Upon issuance of the Shares to J&J, J&J will be entitled
(upon the expiration of any agreement of J&J not to sell or transfer the
Shares) to resell the Shares without restriction (including, but not
limited to, any requirement to register the Shares or to maintain the
effectiveness of the Registration Statement) under the Securities Act
of 1933, as amended (the "1933 Act"); provided, however, that if J&J is
considered to be an "affiliate" of the Company under the 1933 Act at the
time of any resale, then J&J will be subject to the provisions of Rule 144
under the 1933 Act (without a holding period).
(b) Any certificate signed by any officer of the Company and
delivered to J&J shall be deemed a representation and warranty by the
Company to J&J as to the matters covered thereby.
3. PURCHASE, SALE AND DELIVERY OF THE SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to issue and sell the
Shares to J&J, and J&J agrees to purchase the Shares from the Company. The
purchase price for each Share shall be $____ per share.
The Shares will be delivered by the Company to you against payment of the
purchase price therefor by wire transfer of same day funds payable to the order
of the Company at the offices of Piper Jaffray Inc., Piper Jaffray Tower,
222 South Ninth Street, Minneapolis, Minnesota, or such other location as may be
mutually acceptable, at 9:00 a.m., Minneapolis time, on the third full business
day following the date hereof, or at such other time as you and the Company
determine, such time and date of delivery being herein referred to as the
"Closing Date."
4. COVENANTS. The Company covenants and agrees with J&J as follows:
(a) The Company will advise you, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement,
of the suspension of the qualification of the
7
<PAGE>
Shares for offering or sale in any jurisdiction, or of the initiation or
threatening of any proceeding for any such purpose.
(b) The Company will use its best efforts to qualify the Shares for
sale under the securities laws of such jurisdictions as in which the Firm
Shares are qualified pursuant to the Purchase Agreement and to continue
such qualifications in effect so long as the Firm Shares are so qualified,
except that the Company shall not be required in connection therewith to
qualify as a foreign corporation or to execute a general consent to service
of process in any state.
(c) During a period of five years commencing with the date hereof,
the Company will furnish to J&J copies of all periodic and special reports
furnished to the stockholders of the Company and all information, documents
and reports filed with the Commission, the National Association of
Securities Dealers, Inc., Nasdaq or any securities exchange.
(d) The Company will make generally available to its security holders
as soon as practicable, but in any event not later than 15 months after the
end of the Company's current fiscal quarter, an earnings statement (which
need not be audited) covering a 12-month period beginning after the
effective date of the Registration Statement that shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations.
(e) The Company, whether or not the transactions contemplated
hereunder are consummated or this Agreement is terminated, will pay or
cause to be paid (A) all expenses (including transfer taxes allocated to
the respective transferees) incurred in connection with the delivery to J&J
of the Shares and (B) all other costs and expenses incident to the
performance of its obligations hereunder that are not otherwise
specifically provided for herein.
(f) The Company will not, without your prior written consent, offer
for sale, sell, contract to sell, grant any option for the sale of or
otherwise issue or dispose of any Common Stock or any securities
convertible into or exchangeable for, or any options or rights to purchase
or acquire, Common Stock, except (i) to the Underwriters pursuant to the
Purchase Agreement or (ii) pursuant to existing stock option plans or
employee stock purchase plans, for a period of 90 days after the
commencement of the public offering of the Securities by the Underwriters.
(g) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder for the purposes set forth in the
Prospectus.
(h) The Company will comply with all registration, filing and
reporting requirements of the Exchange Act and the Nasdaq National Market
System.
5. CONDITIONS OF J&J'S OBLIGATIONS. The obligations of J&J hereunder are
subject to the accuracy, as of the date hereof and at the Closing Date (as if
made at such Closing Date), of and compliance with all representations,
warranties and agreements of the Company contained herein, to
8
<PAGE>
the performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective under the
Act, and no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall
have been instituted or threatened by the Commission.
(b) The First Closing of the sale of the Firm Shares by the Company
to the several underwriters listed in Schedule I to the Purchase Agreement
shall have occurred.
(c) All of the legal opinions and accountant's letters delivered
pursuant to Section 5 of the Purchase Agreement shall be addressed to J&J
and shall be satisfactory to J&J, and J&J shall be entitled to rely on such
opinions and letters.
(d) In addition, the opinion of Lindquist & Vennum P.L.L.P. delivered
to J&J or a separate opinion of such counsel shall contain an opinion to
the effect that, upon issuance of the Shares to J&J, J&J will be entitled
(upon the expiration of any agreement of J&J not to sell or transfer the
Shares) to resell the Shares without restriction (including, but not
limited to, any requirement to register the Shares or to maintain the
effectiveness of the Registration Statement) under the Securities Act
of 1933, as amended, and applicable state securities laws; provided,
however, that if J&J is considered to be an "affiliate" of the Company
under the 1933 Act at the time of any resale, then J&J will be subject to
the provisions of Rule 144 under the 1933 Act (without a holding period).
(e) The closing certificate delivered in accordance with Section 5(h)
of the Purchase Agreement also shall be addressed to J&J.
All such opinions, certificates and other documents will be in compliance
with the provisions hereof only if they are satisfactory in form and substance
to you. The Company will furnish you with such conformed copies of such
opinions, certificates, letters and other documents as you shall reasonably
request.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless J&J against any
losses, claims, damages or liabilities, joint or several, to which J&J may
become subject, under the Act or otherwise (including in settlement of any
litigation if such settlement is effected with the written consent of the
Company) insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, including the information deemed to be a part of the
Registration Statement at the time of effectiveness pursuant to Rule 430A,
if applicable, any Preliminary Prospectus, the Prospectus, or any amendment
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse J&J for any legal or other expenses
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reasonably incurred by it in connection with investigating or defending
against such loss, claim, damage, liability or action. This indemnity
agreement shall be in addition to any liabilities which the Company may
otherwise have.
(b) Promptly after receipt by an indemnified party under subsection
(a) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof, but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any
liability that it may have to any indemnified party. In case any such
action shall be brought against any indemnified party, and it shall notify
the indemnifying party of the commencement hereof, the indemnifying party
shall be entitled to participate in, and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of the
indemnifying party's election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation. An indemnifying party shall not be
obligated under any settlement agreement relating to any action under this
Section 6 to which it has not agreed in writing.
(c) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls J&J within the meaning of the Act.
7. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, and agreements of the Company herein or in
certificates delivered pursuant hereto, shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of J&J or the
Company, and shall survive delivery of, and payment for, the Shares to and by
J&J hereunder.
8. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the time it is executed.
(b) J&J shall have the right to terminate this Agreement by giving
notice as hereinafter specified at any time at or prior to the Closing Date if
the Underwriters terminate the Purchase Agreement as provided therein. Any such
termination of this Agreement shall be without liability of either party to the
other party, except that the provisions of Section 4(a)(viii) and Section 6
hereof shall at all times be effective.
(c) If J&J elects to terminate this Agreement as provided in this
Section, the Company shall be notified promptly by J&J by telephone, telegram or
a facsimile transmission, confirmed by letter.
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9. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to J&J, shall be mailed,
telegraphed or delivered to Johnson & Johnson Development Corporation, One
Johnson & Johnson Plaza, New Brunswick, New Jersey 08933, Attention: Dr. Brad
Vale, with a copy to the General Counsel at the same address, and if to the
Company, shall be mailed, telegraphed or delivered to it at 3515 Lyman
Boulevard, Chaska, MN 55318, Attention: James W. Bracke, or in each case to
such other address as the person to be notified may have requested in writing.
All notices given by telegram or facsimile transmission shall be promptly
confirmed by letter. Any party to this Agreement may change such address for
notices by sending to the parties to this Agreement written notice of a new
address for such purpose.
10. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and assigns. Nothing in this Agreement is intended or shall be
construed to give to any other person, firm or corporation any legal or
equitable remedy or claim under or in respect of this Agreement or any provision
herein contained.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota.
Please sign and return to the enclosed duplicates of this letter whereupon
this letter, will become a binding agreement between the Company and J&J in
accordance with its terms.
Very truly yours,
LIFECORE BIOMEDICAL, INC.
By:
--------------------------------------
James W. Bracke
Its: President
Confirmed as of the date first above mentioned:
JOHNSON & JOHNSON DEVELOPMENT
CORPORATION
By:
-----------------------------------------
Its:
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