<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1997
REGISTRATION NUMBER 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LIFECELL CORPORATION
(Exact name of registrant as specified in its charter)
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<CAPTION>
<C> <C>
DELAWARE 76-0172936
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
J. DONALD PAYNE
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
LIFECELL CORPORATION
3606 RESEARCH FOREST DRIVE 3606 RESEARCH FOREST DRIVE
THE WOODLANDS, TEXAS 77381 THE WOODLANDS, TEXAS 77381
281/367-5368 281/367-5368
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of registrant's telephone number, including area
principal executive offices) code, of agent for service)
</TABLE>
Copies to:
<TABLE>
<C> <C>
ROBERT E. WILSON RODD M. SCHREIBER
FULBRIGHT & JAWORSKI L.L.P. SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
1301 MCKINNEY, SUITE 5100 333 WEST WACKER DRIVE
HOUSTON, TEXAS 77010-3095 CHICAGO, ILLINOIS 60606
713/651-5151 312/407-0700
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(i)
of this Form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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=========================================================================================================================
NUMBER OF SHARES PROPOSED MAXIMIUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value
per share..................... 5,175,000 shares $8.00 $41,400,000 $12,546
========================================================================================================================
</TABLE>
(1) Includes 675,000 shares of Common Stock subject to the Underwriters'
over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) of the Securities Act of 1933, as amended, on
the basis of the average of the high and low prices of the Common Stock as
reported by The Nasdaq Stock Market on September 30, 1997.
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
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.
SUBJECT TO COMPLETION, DATED OCTOBER 3, 1997
PROSPECTUS
4,500,000 SHARES
LIFECELL CORPORATION
COMMON STOCK
Of the 4,500,000 shares of Common Stock offered hereby, 4,000,000 shares
are being sold by LifeCell Corporation ("LifeCell" or the "Company") and 500,000
shares are being sold by certain selling stockholders of the Company (the
"Selling Stockholders"). The Company will not receive any of the proceeds from
the sale of shares of Common Stock by the Selling Stockholders. See "Security
Ownership of Certain Beneficial Owners, Management and Selling Stockholders."
The Company's Common Stock is quoted on the Nasdaq SmallCap Market under
the symbol "LIFC." The Company intends to apply for quotation of the Common
Stock on the Nasdaq National Market under the symbol "LIFC." On October 2, 1997,
the last reported sale price of the Common Stock on the Nasdaq SmallCap Market
was $7.81 per share. See "Price Range of Common Stock."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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==================================================================================================================
UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3)................... $ $ $ $
==================================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $500,000.
(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to an aggregate of 675,000 additional shares of
Common Stock on the same terms and conditions set forth above, solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Stockholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
---------------------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that delivery of such shares will be made at the
offices of the agent of Vector Securities International, Inc., in New York, New
York, on or about , 1997.
---------------------
Vector Securities International, Inc. Gruntal & Co., L.L.C.
, 1997
<PAGE> 3
[Anatomical human figure with schematic drawings of applications of products and
products under development]
---------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE
COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ SMALLCAP MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING".
LifeCell(R) and AlloDerm(R) are registered trademarks of the Company.
ThromboSol(TM) and XenoDerm(TM) are trademarks of the Company.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus, including information under "Risk Factors". Except as
otherwise noted, the information contained in this Prospectus, including
financial information, share and per share data, assumes no exercise of the
Underwriters' over-allotment option. See "Underwriting". Prospective investors
should consider carefully the information set forth under the heading "Risk
Factors". Special Note: Certain statements set forth below constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. See "Special Note Regarding Forward-Looking Statements".
THE COMPANY
LifeCell Corporation ("LifeCell" or the "Company") is a bio-engineering
company engaged in the development and commercialization of tissue regeneration
and cell preservation products. The Company's patented tissue processing and
cell preservation technologies serve as platforms for a broad range of potential
products addressing significant clinical needs in multiple markets. The
Company's first commercial product is AlloDerm(R) acellular dermal graft
("AlloDerm"), a tissue graft consisting of an extracellular tissue matrix that
retains the essential biochemical and structural composition of human dermis.
The Company believes that AlloDerm is the only commercial tissue transplant
product that promotes normal human soft tissue regeneration. AlloDerm currently
is being marketed in the United States and internationally for use in
reconstructive plastic, dental and burn surgery and has been successfully
transplanted in over 20,000 patients. LifeCell also is developing several
additional products, including injectable AlloDerm, composite skin grafts, heart
valves, vascular grafts and ThromboSol(TM) platelet storage solution
("ThromboSol").
The Company's product development programs have been generated from the
following proprietary technologies: (i) a method for producing an extracellular
tissue matrix by removing antigenic cellular elements while stabilizing the
matrix against damage; (ii) a method for cell preservation that protects cells
during prolonged storage; and (iii) a method for freeze-drying biological cells
and tissues without the damaging effects of ice crystals. LifeCell's tissue
processing technology removes cells that would be the target of rejection upon
transplantation while preserving the essential biochemical and structural
composition of the extracellular tissue matrix. The processed tissue is not
rejected by the body and functions as a natural template or scaffold into which
a patient's own cells will migrate following transplantation, resulting in
normal soft tissue regeneration. The Company believes its tissue processing
technology offers a number of other key benefits, including multiple product
applications, safety, prolonged shelf-life and high compatibility with other
technologies.
AlloDerm is an extracellular matrix tissue graft processed from donated
human skin. Following transplant, the AlloDerm graft becomes repopulated with
the patient's own cells and is revascularized (i.e., blood supply is restored),
becoming engrafted into the patient. As a result of its ability to promote the
regeneration of normal human soft tissue, AlloDerm has multiple product
applications. AlloDerm currently is used in reconstructive plastic, dental and
burn surgery. The Company estimates, based on the most recently published
industry data, that each year in the United States there are approximately
500,000 reconstructive plastic surgery procedures, 480,000 dental soft tissue
grafts, 230,000 dental bone-related grafts and 20,000 burn patients requiring
skin grafts.
LifeCell markets AlloDerm to hospital-based surgeons in domestic and
selected international markets. In the United States, LifeCell utilizes its own
direct sales force, supplemented with a network of regional specialty
distributors. In addition, in June 1997, LifeCell entered into an agreement with
Lifecore Biomedical, Inc. ("Lifecore") for the exclusive distribution of
AlloDerm for dental applications in the United States. LifeCell also is
developing an international network of distributors to market AlloDerm for
multiple applications in markets outside the United States.
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<PAGE> 5
The Company currently is evaluating the use of AlloDerm in additional
applications and is developing new products based on its technology platforms.
LifeCell is conducting research on the use of AlloDerm in urological disorders,
neurosurgery, orthopedic surgery and general surgery. In addition, LifeCell is
developing an injectable form of AlloDerm for use in multiple potential
applications, including urological, dermatological and reconstructive surgery.
If successfully developed, an injectable form of AlloDerm would allow for
delivery of the product through the use of a syringe, rather than a surgical
incision, thereby creating additional market opportunities. LifeCell also is
conducting research on the use of its technologies in other product
opportunities, including composite skin grafts, heart valves, vascular grafts,
venous valves, nerve connective tissue and ThromboSol.
LifeCell was incorporated in January 1992 under Delaware law for the
purpose of merging with its predecessor, a Delaware corporation incorporated in
January 1986. The merger of the two corporations occurred in January 1992.
LifeCell's executive offices, production facilities and research facilities are
located at 3606 Research Forest Drive, The Woodlands, Texas 77381, and its
telephone number is 281/367-5368.
4
<PAGE> 6
THE OFFERING
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<S> <C>
Common Stock offered by:
The Company..................................... 4,000,000 shares
The Selling Stockholders........................ 500,000 shares
Common Stock to be outstanding after the 14,985,078 shares(1)(2)
Offering........................................
Use of proceeds by the Company.................... To fund further development, sales and marketing
of AlloDerm; to fund new product research and
development; and for working capital and general
corporate purposes.
Nasdaq SmallCap Market symbol..................... LIFC
</TABLE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales................................ $ -- $ 21 $ 94 $ 742 $ 2,012 $ 850 $ 1,829
Research funded by others.................... 239 377 723 1,065 934 404 555
------- ------- ------- ------- ------- ------- -------
Total revenues........................... 239 398 817 1,807 2,946 1,254 2,384
------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Cost of goods sold........................... -- 207 516 925 1,281 544 1,010
Research and development..................... 1,594 2,096 2,086 2,170 1,589 736 1,115
Selling, general and administrative.......... 1,371 1,748 2,109 2,898 4,301 1,875 3,718
------- ------- ------- ------- ------- ------- -------
Total costs and expenses................. 2,965 4,051 4,711 5,993 7,171 3,155 5,843
------- ------- ------- ------- ------- ------- -------
Loss from operations........................... (2,726) (3,653) (3,894) (4,186) (4,225) (1,901) (3,459)
Interest income and other.................... 162 224 167 281 135 43 236
------- ------- ------- ------- ------- ------- -------
Net loss....................................... $(2,564) $(3,429) $(3,727) $(3,905) $(4,090) $(1,858) (3,223)
======= ======= ======= ======= ======= ======= =======
Loss per common share(3)....................... $ (0.70) $ (0.80) $ (0.90) $ (1.10) $ (1.14) $ (0.49) $ (0.64)
======= ======= ======= ======= ======= ======= =======
Shares used in computing loss per common
share........................................ 3,643 4,277 4,294 4,313 4,543 4,404 5,981
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30, 1997
---------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(4)
-------- -------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-
term investments............... $ 6,528 $ 3,443 $ 7,032 $ 3,015 $ 10,748 $ 7,290 $ 35,853
Working capital.................. 6,770 3,433 6,613 2,888 10,885 7,459 36,022
Total assets..................... 7,413 4,260 7,997 4,376 12,890 10,305 38,868
Deferred credit.................. -- -- 1,500 1,500 1,500 1,500 1,500
Accumulated deficit.............. (13,189) (16,619) (20,678) (24,775) (29,311) (33,129) (33,129)
Total stockholders' equity....... 7,152 4,046 5,743 2,094 10,197 7,105 35,668
</TABLE>
- ---------------
(1) Includes approximately 4,011,612 shares of Common Stock issuable upon
conversion of the Company's Series B Preferred Stock, par value $.001 per
share (the "Series B Preferred Stock"), outstanding at September 30, 1997.
The shares of Series B Preferred Stock will remain outstanding after the
Offering, but may be converted at any time at the option of the holders
thereof and automatically under certain circumstances. See "Description of
Capital Stock -- Series B Preferred Stock".
(2) Based upon shares outstanding at September 30, 1997. Excludes (i) an
aggregate of 1,377,820 shares reserved for issuance upon exercise of stock
options outstanding at September 30, 1997 with a weighted average exercise
price of $3.74 per share; (ii) an aggregate of 3,196,507 shares reserved for
issuance upon exercise of warrants outstanding at September 30, 1997 with a
weighted average exercise price of $4.26 per share; (iii) 192,000 shares
(estimated using a market price of $7.81 per share) issuable upon conversion
of a $1.5 million licensing fee by Medtronic, Inc. under certain conditions
and subject to certain limitations, at the then-current market price; and
(iv) an aggregate of 1,036,731 shares reserved for issuance upon exercise of
options available for future grant under the Company's Amended and Restated
1992 Stock Option Plan and Second Amended and Restated 1993 Non-Employee
Director Stock Option Plan, as amended. See "Description of Capital Stock".
(3) Includes effect of accounting treatment of preferred stock and warrant
exercise inducement of $(0.03), $(0.19) and $(0.24) for the years ended
December 31, 1994, 1995 and 1996, and $(0.07) and $(0.10) for the six months
ended June 30, 1996 and 1997, respectively.
(4) As adjusted to reflect the receipt of the net proceeds from the sale of the
4,000,000 shares of Common Stock offered by the Company hereby. See "Use of
Proceeds" and "Description of Capital Stock".
5
<PAGE> 7
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY BY POTENTIAL INVESTORS IN EVALUATING AN
INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY. SPECIAL NOTE: CERTAIN
STATEMENTS SET FORTH BELOW CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS".
HISTORY OF OPERATING LOSSES. Since its inception in 1986, the Company has
generated only limited revenues from product sales and has incurred substantial
losses, including losses of approximately $3.7 million, $3.9 million and $4.1
million for the years ended December 31, 1994, 1995, and 1996, respectively, and
$3.2 million for the six months ended June 30, 1997. At June 30, 1997, the
Company had an accumulated deficit of approximately $33.1 million. The Company
expects to incur additional operating losses as well as negative cash flow from
operations at least into 1998 as it continues to use substantial resources to
expand its marketing efforts with respect to AlloDerm and to expand its product
development programs. There can be no assurance that the Company will ever
become profitable. The Company's ability to increase revenues and achieve
profitability and positive cash flows from operations will depend on increased
market acceptance and sales of AlloDerm and commercialization of products under
development. There can be no assurance that the Company will be successful in
expanding AlloDerm sales or that the Company's development efforts will result
in commercially available products, that the Company will obtain required
regulatory clearances or approvals for any new products in a timely manner, or
at all, that the Company will be successful in introducing any new products or
that any new products will achieve a significant level of market acceptance. The
development and commercialization of new products will require additional
development, sales and marketing, manufacturing and other expenditures. The
required level and timing of such expenditures will affect the Company's ability
to achieve profitability and positive cash flows from operations. There can be
no assurance that the Company will ever achieve higher levels of revenues or a
profitable level of operations or that profitability, if achieved, can be
sustained on an ongoing basis. See "-- No Assurance of Additional Necessary
Capital", "-- Uncertainty of Market Acceptance" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
NO ASSURANCE OF ADDITIONAL NECESSARY CAPITAL. The Company intends to expend
substantial funds for product research and development, expansion of sales and
marketing activities, expansion of manufacturing capacity, product education
efforts, and other working capital and general corporate purposes. Although the
Company believes that the net proceeds of the Offering, together with its
existing resources and anticipated cash flows from operations, will be
sufficient to satisfy its capital needs for at least 24 months following the
Offering, there can be no assurance that the Company will not require additional
financing before that time. The Company's actual liquidity and capital
requirements will depend upon numerous factors, including the costs and progress
of the Company's research and development efforts; the number and types of
product development programs undertaken; the costs and timing of expansion of
sales and marketing activities; the costs and timing of expansion of
manufacturing capacity; the amount of revenues from sales of the Company's
existing and new products; changes in, termination of, and the success of,
existing and new distribution arrangements; the cost of maintaining, enforcing
and defending patents and other intellectual property rights; competing
technological and market developments; developments related to regulatory and
third party reimbursement matters; and other factors. In the event that
additional financing is needed, the Company may seek to raise additional funds
through public or private financing, collaborative relationships or other
arrangements. Any additional equity financing may be dilutive to stockholders,
and debt financing, if available, may involve significant restrictive covenants.
Collaborative arrangements, if necessary to raise additional funds, may require
the Company to relinquish its rights to certain of its technologies, products or
marketing territories. Failure to raise capital when needed could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that such financing, if
required, will be available on terms satisfactory to the Company, if at all. If
adequate funds are not available, the Company expects it will be required to
6
<PAGE> 8
delay, scale back or eliminate one or more of its product development programs.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
GOVERNMENT REGULATION -- ALLODERM. In July 1997, the United States Food and
Drug Administration (the "FDA") published a final rule, to become effective in
January 1998, regulating "human tissue". The rule clarifies and modifies an
earlier interim rule and defines human tissue as any tissue derived from a human
body which is (i) intended for administration to another human for the
diagnosis, cure, mitigation, treatment or prevention of any condition or disease
and (ii) recovered, processed, stored or distributed by methods not intended to
change tissue function or characteristics. The FDA definition excludes, among
other things, tissue that currently is regulated as a human drug, biological
product or medical device and kidney, liver, heart, lung, pancreas or any other
vascularized human organ. Unlike certain drugs, biologicals and medical devices,
human tissue is not subject to premarket notification or approval by the FDA.
In September 1996, the Company received a letter from the FDA to the effect
that AlloDerm intended for use for replacement or repair of damaged or
inadequate integumental tissue is human tissue within the meaning of the interim
final rule. This FDA position reversed the preliminary agency determination that
AlloDerm should be regulated under the medical device authorities. The
provisions of the interim rule relied upon by the FDA in the September 1996
letter were unchanged in the final rule. Consequently, AlloDerm is not subject
to premarket notification or approval by the FDA and the Company may promote and
sell AlloDerm for use in the treatment of wounds, such as third-degree burns, in
periodontal surgical procedures, such as free-gingival grafting and guided
tissue regeneration, and in plastic and reconstructive surgery procedures, such
as contracture release grafting and scar revision. The agency also informed the
Company that this decision applies only to AlloDerm when it is intended for use
in transplantation, and the regulatory status of the product when it is promoted
for other uses, such as a void filler for soft tissue, for cosmetic augmentation
or as a wound healing agent (the "Additional Indications"), would need to be
determined by the FDA on a case-by-case basis.
While the Company's marketing efforts had not previously focused on the
Additional Indications, as a follow-up to its September 1996 letter, the FDA
informed the Company that indications for Additional Indications would have to
be formally presented to the FDA to determine if, with these indications,
AlloDerm would continue to fall within the scope of the interim rule for human
tissue and thus not require premarket clearance as a medical device. The Company
was asked to indicate what changes in advertisement and promotion it would make
for AlloDerm. The Company responded to the FDA letter in October 1996, and
informed the agency that the Company believes that the distinctions drawn
regarding the definition of transplantation and human tissue and between
integumental tissue and all other tissue in the September 1996 letter were
fairly novel and ones for which the Company would require clarification from the
FDA as it goes forward. The Company believes that AlloDerm, when used for
cosmetic augmentation and as a void filler, may still qualify as human tissue.
Similarly, the Company advised the FDA that since almost every replacement or
repair of damaged or inadequate tissue involves a cosmetic aspect, the Company
believes that many cosmetic uses of AlloDerm are within the purview of human
tissue.
Nevertheless, the Company informed the FDA that it intends to follow the
agency's decision and, until this matter is clarified on a case-by-case basis,
will not promote AlloDerm for the Additional Indications. There can be no
assurance that the FDA will not finally conclude that use of AlloDerm for the
Additional Indications should be regulated as a medical device and require a
510(k) premarket notification or premarket approval application for AlloDerm for
such indications. If the FDA were to conclude definitively that the Company is
required to obtain agency clearance of a 510(k) notification or approval of a
premarket approval application for AlloDerm for the Additional Indications, the
FDA may require the Company to conduct laboratory testing and preclinical and
clinical studies of AlloDerm to support a marketing application. Testing,
preparation of necessary applications and processing of those applications by
the FDA is expensive and any required laboratory testing or preclinical or
clinical studies that the Company were required to conduct could take several
years to complete. There can be no assurance that any required testing could be
completed successfully, or that
7
<PAGE> 9
if successfully completed, would provide sufficient data and information to
enable the FDA to determine, on a timely basis, if at all, that when AlloDerm is
used for the Additional Indications, it is substantially equivalent to a legally
marketed predicate device or is safe and effective for the Additional
Indications and permit the product to be marketed for such uses. Failure of the
Company to receive any required FDA clearance or approval of AlloDerm for the
Additional Indications on a timely basis would preclude promotion of AlloDerm
for the Additional Indications and could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"-- Government Regulation -- Proposed Products" and "Business -- Government
Regulation".
In February 1997, the FDA issued a comprehensive "proposed approach" to the
regulation of cellular and tissue-based products, other than human tissue for
transplantation. The FDA proposal sets forth a tiered approach to cell and
tissue regulation that ranges from no regulatory requirements for cells or
tissue that are removed and transplanted into the same patient in a single
surgical procedure to full premarket approval requirements for biologics and
medical devices that raise potential health, safety or efficacy concerns.
Although the FDA has notified the Company that AlloDerm is not now subject to
premarket notification or approval, there can be no assurance that the FDA will
not impose additional or different regulatory requirements on AlloDerm after the
agency finalizes its approach to the regulation of cellular and tissue-based
products.
Human tissue is regulated by the FDA in a manner the agency has deemed
necessary to protect the public health from the transmission of various
infectious diseases, including human immunodeficiency virus ("HIV") infection,
syphilis and hepatitis infection through transplantation of tissue from donors
with or at risk of these diseases. Under the FDA regulations, all facilities
engaged in the procurement, processing, storage or distribution of human tissue
intended for transplant are required to assure that certain infectious disease
testing and donor screening is performed and that records documenting such
testing for each tissue are available for inspection by the FDA. The regulations
also provide authority for the FDA to conduct inspections of banked human tissue
facilities and to detain, recall or destroy tissue for which appropriate
documentation is not available. Although the Company believes that it conducts
its operations in compliance in all material respects with such requirements, no
assurances may be given in such regard. Non-compliance with applicable
requirements can result in fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, refusal of the
government to authorize the marketing of new products or to allow the Company to
enter into supply contracts and criminal prosecution.
The National Organ Transplant Act ("NOTA") prohibits the acquisition,
receipt or transfer of certain human organs, including skin, for "valuable
consideration". NOTA permits the payment of reasonable expenses associated with
the removal, transportation, processing, preservation, quality control and
storage of human tissue and skin. NOTA may be interpreted to limit the prices
that LifeCell may charge for processing and transporting its human tissue
products. This could result in limited revenues which could adversely affect
LifeCell's business, financial condition and results of operations. See
"Business -- Government Regulation".
GOVERNMENT REGULATION -- PROPOSED PRODUCTS. Many if not all of LifeCell's
products under development will require regulatory approval or clearance prior
to commercialization. Human therapeutic products are subject to rigorous
preclinical and clinical testing as a condition of approval by the FDA and by
similar regulatory authorities in foreign countries. The lengthy process of
obtaining these approvals and clearances and the ongoing process of compliance
with applicable federal statutes and regulations will require the expenditure of
substantial resources, and there can be no assurance that the FDA or foreign
approvals will be obtained for any of the Company's proposed products.
LifeCell's proposed xenograft heart valve and other xenograft tissue
transplantation products will be subject to regulation as medical devices. The
Company's proposed blood cell preservation products will be subject to
regulation as biologics. Such products require FDA premarket clearance or
approval prior to commercialization in the United States. To obtain FDA approval
for these products, the Company must submit proof of their safety and efficacy.
Testing, preparation of necessary applications
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and processing of those applications by the FDA is expensive and time consuming.
There can be no assurance that the FDA will act favorably or quickly in making
such reviews, and significant difficulties or costs may be encountered by the
Company in its efforts to obtain FDA clearances that could delay or preclude the
Company from marketing any product it may develop. The FDA may also place
conditions on clearances that could restrict commercial applications of such
products. Product marketing approvals or clearances may be withdrawn if
compliance with regulatory standards is not maintained or if problems occur
following initial marketing. Delays imposed by the governmental clearance
process may materially reduce the period during which the Company has the
exclusive right to commercialize patented products.
Products marketed by LifeCell pursuant to FDA or foreign approval will be
subject to pervasive and continuing regulation. In the United States, devices
and biologics must be manufactured in registered establishments and must be
produced in accordance with the FDA's "Quality System" regulation for medical
devices or "Good Manufacturing Practices" ("GMP") regulations for biologics.
Manufacturing facilities and processes are subject to periodic FDA inspection.
Labeling and promotional activities are also subject to scrutiny by the FDA and,
in certain instances, by the Federal Trade Commission. The export of devices and
biologics is also subject to regulation and may require FDA approval. From time
to time, the FDA may modify such requirements, imposing additional or different
requirements. Failure to comply with any applicable FDA requirements could
result in civil and criminal enforcement actions and other penalties. In
addition, there can be no assurance that the various states in which LifeCell's
products are sold will not impose additional regulatory requirements or
marketing impediments.
In addition to skin, NOTA also prohibits the acquisition, receipt or
transfer of certain human organs, including heart valves and vascular grafts for
"valuable consideration", and could affect the commercialization of certain of
the Company's proposed human tissue products. See "-- Government -- AlloDerm"
and "Business Government Regulation".
FOREIGN REGULATORY STATUS OF ALLODERM. The regulation of AlloDerm outside
the United States varies by country. Certain countries regulate AlloDerm as a
pharmaceutical product, requiring extensive filings and regulatory approvals to
market the product. Certain countries classify AlloDerm as a transplant tissue
but may restrict its import or sale. Other countries have no applicable
regulations regarding the import or sale of products similar to AlloDerm,
creating uncertainty regarding the import or sale of the product. The inability
to classify AlloDerm as a medical device has restricted LifeCell's ability to
obtain an appropriate regulatory designation for the product for Western Europe,
which would provide a clearer marketing path in the European Union. There can be
no assurance that the various foreign countries in which LifeCell's products are
sold will not impose additional regulatory requirements.
AlloDerm currently is being marketed in certain foreign countries, and
LifeCell is pursuing clearance to market AlloDerm in additional countries. There
can be no assurance that the uncertainty of regulations in each country will not
delay or impede the marketing of AlloDerm or impede the ability of LifeCell to
negotiate distribution arrangements on favorable terms.
Certain foreign countries have laws similar to NOTA. These laws may
restrict the amount that the Company can charge for AlloDerm and may restrict
the importation or distribution of AlloDerm to licensed not-for-profit
organizations.
UNCERTAINTY OF MARKET ACCEPTANCE. Much of the Company's ability to increase
revenues and to achieve profitability and positive cash flow will depend on
expanding the use and market penetration of its AlloDerm product and the
successful introduction of its products in development. Products based on the
Company's technologies represent new methods of treatment. Physicians will not
use the Company's products unless they determine that the clinical benefits to
the patient are greater than those available from competing products or
therapies. Even if the advantage of the Company's products is established as
clinically significant, physicians may not elect to use such products for any
number of reasons. As such, there can be no assurance that any of the Company's
AlloDerm products
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or products under development will gain any significant degree of market
acceptance among physicians, health care payors and patients. Broad market
acceptance of the Company's products may require the training of numerous
physicians and clinicians, as well as conducting or sponsoring clinical studies
to demonstrate the benefits of its products. The amount of time required to
complete such training and studies could result in a delay or dampening of such
market acceptance. Moreover, health care payors' approval of reimbursement for
the Company's products in development will be an important factor in
establishing market acceptance. See "-- Limited Third-Party Reimbursement".
DELAYED OR UNSUCCESSFUL PRODUCT DEVELOPMENT. The Company's growth and
profitability will depend, in part, upon its ability to complete development of
and successfully introduce new products. The Company may be required to
undertake time-consuming and costly development activities and seek regulatory
clearance or approval for new products. Although the Company has conducted
animal studies on many of its products under development which indicate that the
product may be feasible for a particular application, there can be no assurance
that the results obtained from expanded studies will be consistent with earlier
trial results or be sufficient for the Company to obtain any required regulatory
approvals or clearances. There can be no assurance that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of new products, that regulatory clearance or
approval of these or any new products will be granted on a timely basis, if
ever, or that the new products will adequately meet the requirements of the
applicable market or achieve market acceptance. The completion of the
development of any of the Company's products under development remains subject
to all the risks associated with the commercialization of new products based on
innovative technologies, including unanticipated technical or other problems,
manufacturing difficulties and the possible insufficiency of the funds allocated
for the completion of such development, which could result in a change in the
design, delay in the development or the abandonment of such products.
Consequently, there can be no assurance that any of the Company's products under
development will be successfully developed or manufactured or, if developed and
manufactured, that such products will meet price or performance objectives, be
developed on a timely basis or prove to be as effective as competing products.
The inability to complete successfully development of a product or application,
or a determination by the Company, for financial, technical or other reasons,
not to complete development of any product or application, particularly in
instances in which the Company has made significant capital expenditures, could
have a material adverse effect on the Company's business, financial condition
and results of operation.
DEPENDENCE ON KEY MANAGEMENT AND PERSONNEL. The success of LifeCell will be
dependent largely on the efforts of Paul M. Frison, Chairman of the Board,
President and Chief Executive Officer of the Company, and Stephen A. Livesey,
M.D., Ph.D., Executive Vice President, Chief Science Officer and a director of
the Company. The loss of either person's services would have a material adverse
effect on LifeCell's business, financial condition and results of operations.
LifeCell has obtained "keyman" life insurance on Mr. Frison and Dr. Livesey of
$1.0 million and $3.0 million, respectively. Dr. Livesey, a citizen of
Australia, has applied for permanent residence status in the United States.
There can be no assurance that he will be able to obtain such status. Further,
the success of LifeCell is also dependent upon its ability to hire and retain
qualified operating, marketing and technical personnel. The competition for
qualified personnel in the biomedical industry is intense and, accordingly,
there can be no assurance that LifeCell will be able to hire or retain such
personnel. See "Management".
DEPENDENCE ON CORPORATE COLLABORATORS. The Company expects to rely in the
future on corporate collaborative partners for the development and
commercialization of certain products and to conduct certain clinical trials,
obtain regulatory approvals and manufacture and market any resulting products.
Although the Company believes that any such collaborative partners would have an
economic motivation to commercialize any products that might result from such
arrangements, the amount and timing of resources devoted to these activities by
such parties could depend on the achievement of technical and research goals by
the Company and generally would be controlled by such partners. Moreover,
collaborative arrangements generally provide that they may be terminated by the
collaborator prior to their expiration under circumstances that also may be
outside the control of the
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Company. Any eventual sale of products may depend further on the successful
completion of arrangements with other partners, licensees or distributors in
each territory. There can be no assurance that the Company will be successful in
establishing any such collaborative arrangements on acceptable terms, if at all,
or that any such future collaborator would be successful in commercializing any
resulting products. In 1994, LifeCell entered into a license and development
agreement with Medtronic, Inc. ("Medtronic") to develop jointly the Company's
heart valve products. Pursuant to the agreement, Medtronic paid LifeCell an
initial $1.5 million license fee, funds costs of research and development under
a mutually agreed upon budget, including clinical trials, if any, and will pay
royalties of up to an aggregate of $25.0 million on sales of products covered by
the agreement. There can be no assurance that Medtronic will perform its
obligations under the agreement, will not reduce committed funding for the
Company's heart valve development program, will not terminate the agreement,
that Medtronic or LifeCell will successfully develop or market any products
under the agreement or that LifeCell will ever receive royalties under the
agreement. Furthermore, there can be no assurance that Medtronic or future
collaborators will not pursue existing or alternative technologies in preference
to potential products being developed in collaboration with the Company. See
"Business -- Corporate Alliance".
DEPENDENCE ON DISTRIBUTOR SALES. Sales to distributors constitute a
significant portion of the Company's revenues. The Company has only recently
entered into certain of its current distribution arrangements. The Company may
be required to enter into additional distribution arrangements to achieve broad
distribution of AlloDerm or any future products. There can be no assurance that
the Company will be able to maintain its current distributor arrangements or, in
the event of termination of any of these arrangements, that a new distributor
will be found, or that the Company will be able to enter into and maintain
arrangements with additional distributors on acceptable terms, or on a timely
basis, if ever. There can be no assurance that these distributors will devote
the resources necessary to provide effective sales and marketing support to the
Company or market the Company's products at prices that can achieve market
acceptance. In addition, the Company's distributors may give higher priority to
the products of other medical suppliers or their own products, thus reducing
their efforts to sell the Company's products. If any of the Company's
distributors becomes unwilling or unable to promote, market and sell its
products, the Company's business, financial condition and results of operations
could be materially adversely affected. The Company has engaged Lifecore as the
exclusive distributor for AlloDerm dental applications in the United States, and
other distributors also may be granted exclusive distribution rights. To the
extent any exclusive distributor fails adequately to promote, market and sell
the Company's products, the Company may not be able to secure a replacement
distributor until after the term of the distribution contract is complete or
until such contract can otherwise be terminated. See "Business -- Marketing".
DEPENDENCE ON CERTAIN SOURCES OF MATERIALS. The Company's business will be
dependent on the availability of donated human skin, cardiovascular tissue and
other tissues. A finite supply of donated skin is available. Although the
Company has established what it believes to be adequate sources of donated human
skin to satisfy the expected demand for AlloDerm, there can be no assurance that
the availability of donated human skin and cardiovascular tissue will be
sufficient to meet LifeCell's demand for such materials. Any significant
interruption in supply of such tissue would likely have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Sources of Materials".
The Company acquires donated human skin from various non-profit
organizations which procure skin and other donated human tissue. The procurement
of skin generally constitutes a small portion of the operating funds for such
non-profit organizations. The development of products that replace the need for
donated tissue, such as the development of synthetic bone substitutes to replace
allograft bone procured by the organizations could threaten the existence of the
non-profit organizations and, therefore, adversely affect the supply of donated
human skin to LifeCell or increase the required payments from LifeCell.
The Company has performed limited activities to develop products using
porcine dermis and other animal tissues as a substitute for donated human skin.
If successfully developed, animal tissue could
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replace the need for human tissue as a raw material. There can be no assurance
that such animal tissue products can be successfully developed, that such
development and required regulatory approvals could result in timely replacement
of human tissue used by LifeCell in the event of a reduced supply of human
tissue or that the cost of such animal tissue would not materially adversely
affect the business, financial condition and results of operations of the
Company.
Donors of organs and tissues, including donated human skin, have various
motivations. Although LifeCell does not promote the use of AlloDerm for cosmetic
applications, AlloDerm has been used by surgeons in a variety of applications
that may be considered "cosmetic". Knowledge of such use by potential donors
could impact their willingness to donate skin for such uses. See "-- Product
Liability and Insurance" and "Business -- Sources of Materials".
TECHNOLOGICAL CHANGE AND COMPETITION. The biomedical field is undergoing
rapid and significant technological change. LifeCell's success depends upon its
ability to develop and commercialize efficient and effective products based on
its technology. There are many companies and academic institutions that are
capable of developing products based on similar technology, and that have
developed and are capable of developing products based on other technologies,
which are or may be competitive with LifeCell's products. Many of these
companies and academic institutions are well-established, have substantially
greater financial and other resources, research and development capabilities and
more experience in conducting clinical trials, obtaining regulatory approvals,
manufacturing and marketing than LifeCell. These companies and academic
institutions may succeed in developing competing products that are more
effective than LifeCell's products, or that receive government approvals more
quickly than LifeCell's products that may render the Company's products or
technology uncompetitive, uneconomical or obsolete. See
"Business -- Competition".
LIMITED THIRD-PARTY REIMBURSEMENT. Generally, hospitals, physicians and
other health care providers purchase products, such as the products being sold
or developed by LifeCell, for use in providing care to their patients. These
parties typically rely on third-party payors, including Medicare, Medicaid,
private health insurance and managed care plans, to reimburse all or part of the
costs of acquiring those products and costs associated with the medical
procedures performed with those products. Cost control measures adopted by
third-party payors in recent years have had and may continue to have a
significant effect on the purchasing practices of many health care providers,
generally causing them to be more selective in the purchase of medical products.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products. The Company believes that certain third-party payors
provide reimbursement for medical procedures at a specified rate without
additional reimbursement for products, such as those being sold or developed by
LifeCell, used in such procedures. There can be no assurance that adequate
third-party payor reimbursement will be available for the Company to maintain
price levels sufficient for realization of an appropriate return on its
investment in developing new products. In addition, government and other
third-party payors continue to refuse, in some cases, to provide any coverage
for uses of approved products for indications for which the FDA has not granted
marketing approval. Many uses of AlloDerm have not been granted such marketing
approval and there can be no assurance that any such uses will be approved.
Further, certain of the Company's products are used in medical procedures that
typically are not covered by third-party payors, such as "cosmetic" procedures,
or for which patients sometimes do not obtain coverage, such as dental
procedures. These and future changes in third-party payor reimbursement
practices regarding the procedures performed with LifeCell's products could
adversely affect the market acceptance of LifeCell's products. See
"Business -- Government Regulation".
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS. LifeCell's ability to compete
effectively with other companies is materially dependent upon the proprietary
nature of its technologies. LifeCell relies primarily on patents and trade
secrets to protect its technologies. LifeCell currently licenses the exclusive
right to nine United States patents and related foreign patents and
non-exclusive rights to one patent. In addition, LifeCell has been issued three
United States utility patents, one United States design patent and has five
pending United States patent applications. There can be no assurance that
LifeCell will obtain any additional patents or other protection, that the
patents currently applied for will be granted, that, if the patents currently
applied for are granted, the claims allowed will be
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sufficient to protect LifeCell's technology, or that existing patents or
proprietary rights owned by or licensed to LifeCell will provide significant
commercial benefits. Further, there can be no assurance that any patents or
proprietary rights owned by or licensed to LifeCell will not be challenged,
invalidated, circumvented, or rendered unenforceable based on, among other
things, subsequently discovered prior art, lack of entitlement to the priority
of an earlier, related application or failure to comply with the written
description, best mode, enablement or other applicable requirements. The
invalidation, circumvention or unenforceability of key patents or proprietary
rights owned by or licensed to LifeCell could have a material adverse effect on
LifeCell and on its business, financial condition and results of operations.
LifeCell's success will depend in part on its ability to maintain and
obtain patent protection for its technology both in the United States and other
countries. Other companies and research and academic institutions may have
developed technologies, filed patent applications or received patents on various
technologies that may be related to LifeCell's business. Some of these patent
applications, patents or technologies may conflict with LifeCell's patent
applications, patents or technologies. Any such conflict could invalidate or
limit the scope of LifeCell's patents or could result in denial of LifeCell's
patent applications. In addition, if patents that cover LifeCell's activities
are issued to other companies, there can be no assurance that LifeCell would be
able to obtain licenses to such patents at a reasonable cost, if at all, or be
able to develop or obtain alternative technology. Any of the foregoing matters
could have a material adverse effect on LifeCell and on its business prospects.
No assurances may be given, however, that the Company's existing or
proposed products or processes may not be the subject of an infringement claim.
Any successful patent infringement claim relating to any patent could have a
material adverse effect on the Company.
There can be no assurance that LifeCell will not be required to resort to
litigation to protect its patented technologies or other proprietary rights or
that the Company will not be the subject of patent litigation to defend its
existing or proposed products or processes against claims of patent infringement
or other intellectual property claims. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, financial condition and results of operations.
LifeCell has also applied for patent protection in several foreign
countries. Because of the differences in patent laws and laws concerning
proprietary rights, the extent of protection provided by United States patents
or proprietary rights owned by or licensed to LifeCell may differ from that of
their foreign counterparts.
LifeCell may decide for business reasons to retain certain knowledge that
it considers proprietary as confidential and elect to protect such information
as a trade secret, as business confidential information, or as know-how. In that
event, LifeCell must rely upon trade secrets, know-how and continuing
technological innovation to maintain its competitive position. There can be no
assurance that others will not independently develop substantially equivalent
proprietary information or otherwise gain access to or disclose such
information. The independent development or disclosure of LifeCell's trade
secrets could have a material adverse effect on LifeCell and on its business
prospects.
PRODUCT LIABILITY AND INSURANCE. The Company's business exposes it to
potential product liability risks which are inherent in the testing,
manufacturing and marketing of medical products. Although the Company has
product liability insurance coverage with an aggregate limit of $5.0 million and
a per occurrence limit of $3.0 million, there can be no assurance that such
insurance will provide adequate coverage against potential liabilities or that
adequate product liability insurance will continue to be available in the future
or that it can be maintained on acceptable terms. The obligation to pay any
product liability claim in excess of whatever insurance the Company is able to
acquire could have a material adverse effect on the business, financial
condition and results of operations of the Company.
The Company uses donated human skin as the raw material for AlloDerm. The
non-profit organizations that supply such skin are required to follow FDA
regulations and guidelines published by the American Association of Tissue Banks
to screen donors for potential disease transmission. Such procedures include
donor testing for certain viruses, including HIV. The Company's manufacturing
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process also has been demonstrated to inactivate concentrated suspensions of HIV
in tissue. While the Company believes such procedures are adequate to reduce the
threat of disease transmission, there can be no assurance that its AlloDerm
product will not be associated with transmission of disease or that a patient
otherwise infected with disease would erroneously assert a claim that the use of
AlloDerm resulted in the disease transmission. Any such transmission or alleged
transmission could have a material adverse effect on the Company's ability to
manufacture or market its products. See "-- Dependence on Certain Sources".
LIMITATION ON THE USE OF NET OPERATING LOSSES AND RESEARCH AND DEVELOPMENT
TAX CREDITS. As of December 31, 1996, LifeCell had accumulated net operating
loss ("NOL") carryforwards for federal income tax purposes of approximately
$26.1 million and research and development tax credits of approximately $385,000
since its inception, and may continue to incur NOL carryforwards. United States
tax laws provide for an annual limitation on the use of NOL carryforwards
following certain ownership changes and also limit the time during which NOL and
tax credit carryforwards may be applied against future taxable income and tax
liabilities. The sale of Common Stock in the Offering is expected to result in
an ownership change for federal income tax purposes. The Company estimates that
the amount of its NOL carryforwards and the credits available to offset taxable
income subsequent to the Offering will be approximately $4.0 million per year on
a cumulative basis. Accordingly, if LifeCell generates taxable income in any
year in excess of the then cumulative limitation, the Company may be required to
pay federal income taxes even though it has unexpired NOL carryforwards.
DISPOSAL OF HAZARDOUS MATERIALS. LifeCell's research and development and
processing techniques generate waste that is classified as hazardous by the
United States Environmental Protection Agency and the Texas Natural Resources
Commission. LifeCell segregates such waste and disposes of it through a licensed
hazardous waste transporter. Although LifeCell believes it is currently in
compliance in all material respects with applicable environmental regulations,
its failure to comply fully with any such regulations could result in the
imposition of penalties, fines or sanctions that could have a material adverse
effect on LifeCell's business, financial condition and results of operations.
See "Business -- Government Regulation".
MANAGEMENT DISCRETION IN USE OF PROCEEDS. Following the Offering, the
Company will have approximately $19.1 million of the net proceeds of the
Offering available for working capital and general corporate purposes. The
Company's management, subject to approval of the Board of Directors, will have
broad discretion with respect to the use of such proceeds. As a result of such
discretion, the Company's management could allocate the net proceeds to the
Company of the Offering for uses that the stockholders may not deem desirable.
In addition, there can be no assurance that the proceeds can or will be invested
to yield an acceptable return. See "Use of Proceeds".
SHARES AVAILABLE FOR FUTURE SALE. Sales of shares of Common Stock in the
public market following the Offering or the perception that such sales could
occur could have an adverse effect on the market price of the Common Stock and
could impair the Company's ability to raise capital through the sale of its
equity securities. Upon completion of the Offering, the Company will have
10,973,466 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option). In addition to the 4,000,000 shares of
Common Stock to be sold by the Company in the Offering, shares are
available for immediate sale in the public market pursuant to effective
registration statements or exemptions from registration under the Securities Act
of 1933, as amended (the "Securities Act"), subject in the case of certain
holders to the limitations applicable to affiliates pursuant to Rule 144 under
the Securities Act. There are also outstanding stock options and warrants to
purchase an aggregate of 4,574,327 shares of Common Stock at various exercise
prices per share. In addition, in the event that Medtronic terminates funding of
the heart valve program, Medtronic may convert its $1.5 million license fee into
newly issued shares of the Company's Common Stock at the then-current market
price (192,000 shares, assuming a market price of $7.81 per share), subject to
certain limitations and conditions. The Company's officers and directors and
certain stockholders, including the Selling Stockholders, who immediately after
the Offering will hold in the aggregate
of the remaining outstanding shares of Common Stock and options or warrants to
purchase an aggregate of shares of Common Stock, have agreed not to
transfer, sell, contract to sell or
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grant any option, right or warrant to purchase or otherwise dispose of any of
such shares of Common Stock or any securities exchangeable for shares of Common
Stock for 90 days after the date of this Prospectus without the prior written
consent of Vector Securities International, Inc. Commencing 91 days from the
date of this Prospectus, all of the outstanding shares of Common Stock subject
to such agreements will be available for immediate sale in the public market,
subject to certain volume, manner of sale and other limitations under Rule 144
of the Securities Act. Vector Securities International, Inc. may, in its sole
discretion and at any time without notice, release all or any portion of the
shares subject to such lock-up agreements. The Company maintains the
effectiveness of two registration statements covering the public sale of shares
of Common Stock. One such registration statement covers the public sale of an
aggregate of 2,559,617 shares of Common Stock that were issued upon conversion
of and as dividends on shares of its Series A Preferred Stock, $.001 par value
per share (the "Series A Preferred Stock"), issued by the Company in a private
placement in 1994 and upon the exercise of warrants issued in connection
therewith. The other registration statement covers the public sale of an
aggregate of 8,775,644 shares of Common Stock issued or issuable upon conversion
of shares of its Series B Preferred issued by the Company in a private placement
in 1996, and upon the exercise of warrants issued in connection therewith and
upon conversion of shares of Series B Preferred Stock issuable as dividends on
the Series B Preferred Stock. All of such shares are subject either to the
lock-up agreements described above or to substantially similar restrictions
contained in existing agreements with the Company. Following the expiration of
the applicable lock-up periods, such shares will be available for immediate sale
in the public market without limitation. Following the closing of the Offering,
the holders of shares of Common Stock (as well as shares issuable upon
exercise of outstanding warrants) will be entitled to certain rights with
respect to registration of such shares for sale in the public market. See
"Description of Capital Stock -- Registration Rights".
IMMEDIATE AND SUBSTANTIAL DILUTION; OUTSTANDING WARRANTS AND
OPTIONS. Because the offering price will be substantially higher than the book
value per share of the Common Stock, purchasers of shares of Common Stock in the
Offering will incur immediate and substantial dilution of $5.44 per share. In
addition, investors purchasing shares in the Offering will incur additional
dilution to the extent that outstanding stock options and warrants are
exercised. See "Dilution".
DIVIDENDS. LifeCell has not paid a cash dividend to the holders of its
Common Stock and does not anticipate paying cash dividends to the holders of its
Common Stock in the foreseeable future. Under the General Corporation Law of the
State of Delaware, a company's board of directors may declare and pay dividends
only out of surplus or current net profits.
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the shares of
Common Stock, like that of the common stock of many other medical products and
high technology companies, has in the past been, and is likely in the future to
continue to be, highly volatile. Factors such as fluctuations in the Company's
operating results, announcements of technological innovations or new commercial
products by the Company or competitors, government regulation, developments in
or disputes regarding patent or other proprietary rights, economic and other
external factors and general market conditions may have a significant effect on
the market price of the Common Stock. Moreover, the stock market has from time
to time experienced extreme price and volume fluctuations which have
particularly affected the market prices for medical products and high technology
companies and which have often been unrelated to the operating performance of
such companies. These broad market fluctuations, as well as general economic,
political and market conditions, may adversely affect the market price of Common
Stock.
NO ASSURANCE OF NASDAQ LISTING. The Common Stock currently is listed on The
Nasdaq SmallCap Market, and the Company intends to apply for listing of the
Common Stock on The Nasdaq National Market to be effective upon the closing of
the Offering. No assurances may be given that The Nasdaq Stock Market, Inc.
("Nasdaq") will approve the Company's application. The failure to obtain listing
of the Common Stock on the Nasdaq National Market could adversely affect the
liquidity of such shares and the amount that could be realized on a sale
thereof. In the event Nasdaq approves the Company's application, the Company
would be required to continue to meet certain minimum
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financial and capitalization thresholds in order to continue being listed on
that market. The Company currently is subject to similar continuing listing
requirements for the Nasdaq SmallCap Market. Prior to the closing of its private
placement of Series B Preferred Stock in November 1996, the Company failed to
meet certain minimum capital and surplus requirements necessary to qualify for
continued listing on the Nasdaq SmallCap Market. In connection with the closing
of the private placement, Nasdaq waived the Company's prior noncompliance with
that requirement. Although the Company believes it will be able to meet any
applicable maintenance requirements, no assurances may be given in this regard.
Any failure to maintain listing of the Common Stock on the Nasdaq National
Market or on the Nasdaq SmallCap Market would adversely affect the liquidity of
the shares of Common Stock.
POSSIBLE ANTI-TAKEOVER EFFECTS. Certain provisions of LifeCell's Restated
Certificate of Incorporation, as amended (the "Restated Certificate of
Incorporation") and Amended and Restated By-laws (the "By-laws") and Section 203
of the Delaware General Corporation Law may have the effect of deterring hostile
takeovers or delaying or preventing changes in control or management of the
Company, including transactions in which stockholders might otherwise receive a
premium for their shares over the current market prices. In addition, these
provisions may limit the ability of stockholders to approve transactions that
they may deem to be in their best interests. For example, provisions contained
in the Restated Certificate of Incorporation and By-laws include authorized
blank check preferred stock, the denial of cumulative voting, limitation of the
persons who may call a special meeting of the stockholders and advance notice
requirement for election to the Board of Directors. See "Description of Capital
Stock".
RIGHTS OF HOLDERS OF SERIES B PREFERRED STOCK. As of September 30, 1997,
there were 124,360 shares of Series B Preferred Stock outstanding. Such shares
are convertible at any time at the option of the holders thereof and
automatically under certain circumstances into approximately 4,011,612 shares of
Common Stock. On all matters submitted to a vote of the stockholders of the
Company, each share of Series B Preferred Stock entitles the holder thereof to
one vote for each share of Common Stock into which such share of Series B
Preferred Stock is then convertible. The holders of the shares of Series B
Preferred Stock have the right to elect up to three directors of the Company. In
the event of any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holders of shares of Series B Preferred Stock will
be entitled to receive out of the assets of the Company available for
distribution to stockholders, before any distribution of assets is made to
holders of Common Stock, an amount equal to $100.00 per share of Series B
Preferred Stock. After payment of the full amount of any liquidating
distribution to which they are entitled, the holders of shares of Series B
Preferred Stock will be entitled to share ratably (treating all then issued and
outstanding shares of Series B Preferred Stock as if such shares had been
converted into Common Stock) in any further distribution of assets by the
Company to the holders of Common Stock. Holders of the Series B Preferred Stock
are entitled to receive dividends through September 30, 2001. The Company may at
its option pay such dividends in additional shares of Series B Preferred Stock.
See "Description of Capital Stock -- Series B Preferred Stock".
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All statements other than statements
of historical facts included in this Prospectus, including, without limitation,
statements regarding the Company's financial position, business strategy,
products, products under development, markets, budgets and plans and objectives
of management for future operations, are forward-looking statements. Although
the Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements") are
disclosed under "Risk Factors" and elsewhere in this Prospectus, including,
without limitation, in conjunction with the forward-looking statements included
in this Prospectus. All subsequent written and oral forward-looking statements
attributable to the Company, or persons acting on its behalf, are expressly
qualified in their entirety by the Cautionary Statements.
16
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$28.6 million ($ million, if the Underwriters' over-allotment option is
exercised in full), based on an assumed public offering price of $7.81 per share
and after deducting the estimated underwriting discounts and commissions and
offering expenses payable by the Company. The Company will not receive any of
the proceeds from the sale of shares of Common Stock by the Selling
Stockholders.
The Company currently expects that approximately $5.0 million of the net
proceeds to the Company of the Offering will be used for expanding sales and
marketing of AlloDerm, including funding of additional clinical studies to
further demonstrate the benefits of AlloDerm over current therapies, increasing
domestic and international advertising and promotional programs to increase
surgeon awareness of AlloDerm, such as training workshops and educational
seminars on the uses of AlloDerm, hiring additional United States technical
sales representatives to market AlloDerm, and expanding international sales and
distribution activities. Additionally, the Company currently expects that
approximately $4.5 million of the net proceeds to the Company of the Offering
will be used for new product research and development, including funding animal
and clinical studies to expand the uses of AlloDerm into new applications, such
as neurosurgery and orthopedic surgery, funding the development of and animal
and clinical studies for injectable forms of AlloDerm and funding the
development of and animal and clinical studies for heart valves, vascular
grafts, venous valves, tendons, cartilage and nerve connective tissue products
and blood cell transfusion products. The remaining approximately $19.1 million
of net proceeds of the Offering to the Company will be used for working capital
and general corporate purposes. Pending such uses, the net proceeds to the
Company of the Offering will be invested in short-term, interest bearing,
investment grade securities.
The actual amount expended and timing of the use of net proceeds to the
Company of the Offering for each purpose may vary significantly depending upon
many factors, including the number and type of products the Company seeks to
develop, the success of these development efforts, the costs and timing of
expansion of sales and marketing activities, the extent to which the Company's
existing and new products gain market acceptance, costs involved in preparing,
filing, prosecuting, maintaining and enforcing patent claims and other
intellectual property rights, costs related to regulatory and third party
reimbursement matters and other factors. The Company's management will retain
broad discretion as to the allocation of a significant portion (approximately
67%) of the net proceeds of the Offering. See "Risk Factors -- Management
Discretion in Use of Proceeds".
17
<PAGE> 19
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is listed on the Nasdaq SmallCap Market under
the symbol "LIFC". On October 2, 1997, the last reported sale price for the
Company's Common Stock on the Nasdaq SmallCap Market was $7.81 per share. The
Company intends to apply for listing of the Common Stock on the Nasdaq National
Market under the symbol "LIFC". The following table sets forth the high and low
sales prices for the Company's Common Stock for the periods indicated, as
reported by The Nasdaq Stock Market.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1995
First Quarter............................................. $4.00 $1.63
Second Quarter............................................ 5.50 2.13
Third Quarter............................................. 4.75 3.38
Fourth Quarter............................................ 4.00 2.00
1996
First Quarter............................................. $6.00 $2.25
Second Quarter............................................ 5.00 3.75
Third Quarter............................................. 5.88 3.09
Fourth Quarter............................................ 4.25 2.88
1997
First Quarter............................................. $8.88 $3.06
Second Quarter............................................ 7.13 4.63
Third Quarter............................................. 8.38 4.81
Fourth Quarter (through October 2, 1997).................. 8.06 7.75
</TABLE>
As of September 30, 1997, there were approximately 250 holders of record of
shares of Common Stock and 52 holders of record of shares of Series B Preferred
Stock.
DIVIDEND POLICY
LifeCell has not paid a cash dividend to holders of shares of Common Stock
and does not anticipate paying cash dividends to the holders of its Common Stock
in the foreseeable future.
Pursuant to the terms of the Company's Series A Preferred Stock, on (i)
December 6, 1996, the Company paid a per share dividend of $1.60 in shares of
Common Stock to the holders of the Series A Preferred Stock; (ii) March 26,
1997, the Company paid a per share dividend of $0.50 in shares of Common Stock
to such security holders; and (iii) March 26, 1997, the Company paid a per share
dividend of $0.25 in cash to such security holders. Also on March 26, 1997, in
accordance with the terms of the Series A Preferred Stock, the Company redeemed
all of the outstanding shares of the Series A Preferred Stock through the
conversion of such shares into shares of Common Stock. Accordingly, no further
dividends are payable in respect of the Series A Preferred Stock.
On February 15, 1997, May 15, 1997 and August 15, 1997, the Company paid a
per share dividend in shares of its Series B Preferred Stock equivalent to
$1.17, $2.41 and $1.50, respectively, to the holders of shares of Series B
Preferred Stock. The Series B Preferred Stock bears dividends per share at the
annual rate of the greater of (i) $6.00 (subject to adjustment in certain
events) and (ii) the per annum rate of dividends per share paid, if applicable,
by the Company, on the Common Stock. The dividends may be paid, at the Company's
option, in cash or shares of Series B Preferred Stock or in a combination of
cash and shares of Series B Preferred Stock. Dividends accrue and are paid
quarterly.
Under the General Corporation Law of the State of Delaware, a corporation's
board of directors may declare and pay dividends only out of surplus, including
additional paid in capital, or current net profits.
18
<PAGE> 20
CAPITALIZATION
The following sets forth the actual capitalization of the Company as of
June 30, 1997 and such capitalization as adjusted to give effect to the issuance
and sale of the 4,000,000 shares of Common Stock offered by the Company hereby
and receipt of the net proceeds therefrom. This table should be read in
conjunction with the Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus. See also "Use of Proceeds".
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deferred credit(1).......................................... $ 1,500 $ 1,500
Stockholders' equity:
Series B Preferred Stock, $.001 par value; 182,205
authorized, 123,037 issued and outstanding, actual and
as adjusted; and accrued dividends of 1,794 shares..... -- --
Common Stock, $.001 par value; 25,000,000 shares
authorized; 6,911,932 shares issued and outstanding,
actual; 10,911,932 issued and outstanding, as
adjusted(2)............................................ 7 11
Warrants outstanding to purchase 3,231,925 shares of
Common Stock........................................... 421 421
Additional paid-in capital................................ 39,806 68,365
Accumulated deficit....................................... (33,129) (33,129)
-------- --------
Total stockholders' equity........................ 7,105 35,668
-------- --------
Total capitalization.............................. $ 8,605 $ 37,168
======== ========
</TABLE>
- ---------------------
(1) Represents a licensing fee paid by Medtronic for the development of heart
valve products. This fee will be recorded as revenue upon FDA approval of a
heart valve product. In the event of termination of the license and
development agreement between the Company and Medtronic, Medtronic may
convert the license fee into shares of Common Stock at the then-current
market price, subject to certain limitations and conditions. See
"Description of Capital Stock".
(2) Excludes (i) an aggregate of 3,968,935 shares of Common Stock issuable upon
conversion of shares of Series B Preferred Stock, outstanding at June 30,
1997; (ii) an aggregate of 1,394,995 shares reserved for issuance upon
exercise of stock options outstanding at June 30, 1997 with a weighted
average exercise price of $3.73 per share; (iii) an aggregate of 3,231,925
shares reserved for issuance upon exercise of warrants outstanding at June
30, 1997 with a weighted average exercise price of $4.26 per share; (iv)
192,000 shares (estimated using a market price of $7.81 per share) issuable
upon conversion of a $1.5 million licensing fee by Medtronic under certain
conditions and subject to certain limitations, at the then-current market
price; and (v) an aggregate of 1,030,481 shares reserved for issuance upon
exercise of options available for future grant under the Company's Amended
and Restated 1992 Stock Option Plan and Second Amended and Restated 1993
Non-Employee Director Stock Option Plan, as amended. See "Description of
Capital Stock".
19
<PAGE> 21
DILUTION
The net tangible book value of the Company at June 30, 1997 was
approximately $6.7 million, or $0.62 per share on a pro forma basis, assuming
conversion of the Series B Preferred Stock. Pro forma net tangible book value
per share is equal to the Company's net tangible assets (tangible assets of the
Company less total liabilities) divided by the number of shares of Common Stock
outstanding, assuming conversion of the Series B Preferred Stock. Without taking
into account any other changes in net tangible book value after June 30, 1997
other than to give effect to the sale of the 4,000,000 shares of Common Stock by
the Company in the Offering at an assumed offering price of $7.81 per share and
the receipt of the net proceeds therefrom, the pro forma net tangible book value
as of June 30, 1997 would have been approximately $35.3 million, or $2.37 per
share. This represents an immediate increase in pro forma net tangible book
value of $1.75 per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $5.44 per share to new investors. The
following table illustrates the pro forma per share dilution to new investors in
the Offering:
<TABLE>
<CAPTION>
<S> <C> <C>
Offering price per share.................................... $7.81
Pro forma net tangible book value per share at June 30,
1997................................................... $0.62
Increase attributable to new investors.................... 1.75
-----
Pro forma net tangible book value per share after the
Offering.................................................. 2.37
-----
Dilution per share to new investors......................... $5.44
=====
</TABLE>
The foregoing calculations assume the conversion of the Series B Preferred
Stock into 3,968,935 shares of Common Stock and exclude (i) an aggregate of
1,394,995 shares reserved for issuance upon exercise of stock options
outstanding at June 30, 1997 with a weighted average exercise price of $3.73 per
share; (ii) an aggregate of 3,231,925 shares reserved for issuance upon exercise
of warrants outstanding at June 30, 1997 with a weighted average exercise price
of $4.26 per share; (iii) 192,000 shares (estimated using a market price of
$7.81 per share) issuable upon conversion of a $1.5 million licensing fee by
Medtronic under certain conditions and subject to certain limitations, at the
then-current market price; and (iv) an aggregate of 1,030,481 shares reserved
for issuance upon exercise of options available for future grant under the
Company's Amended and Restated 1992 Stock Option Plan and Second Amended and
Restated 1993 Non-Employee Director Stock Option Plan, as amended. See
"Description of Capital Stock".
20
<PAGE> 22
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Financial Statements and Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus. The statement of operations data set forth below for the years
ended December 31, 1994, 1995 and 1996 and the balance sheet data as of December
31, 1995 and 1996 are derived from financial statements of the Company that have
been audited by Arthur Andersen LLP, independent public accountants, which are
included elsewhere in this Prospectus, and are qualified by reference to such
Financial Statements and Notes thereto. The statement of operations data for the
fiscal years ended December 31, 1992 and 1993 and the balance sheet data as of
December 31, 1992, 1993 and 1994 are derived from financial statements of the
Company that have been audited by Arthur Andersen LLP and are not included
herein. Also set forth below are certain selected financial data of LifeCell for
the six months ended June 30, 1996 and 1997, derived from the Company's
unaudited financial statements, which, in the opinion of management, include all
adjustments (consisting only of normal recurring entries) that the Company
considers necessary for a fair presentation of such data. Results for interim
periods are not necessarily indicative of the results that may be expected for
the full year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
) (IN THOUSANDS, EXCEPT PER SHARE DATA
STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales.................... $ -- $ 21 $ 94 $ 742 $ 2,012 $ 850 $ 1,829
Research funded by others........ 239 377 723 1,065 934 404 555
------- ------- ------- ------- ------- ------- -------
Total revenues.............. 239 398 817 1,807 2,946 1,254 2,384
------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Cost of goods sold............... -- 207 516 925 1,281 544 1,010
Funded research and development.. 239 377 723 1,065 934 404 555
Proprietary research and
development.................... 1,355 1,719 1,363 1,105 655 332 560
General and administrative....... 1,166 1,479 1,381 1,423 1,911 773 1,491
Selling and marketing............ 205 269 728 1,475 2,390 1,102 2,227
------- ------- ------- ------- ------- ------- -------
Total costs and expenses.... 2,965 4,051 4,711 5,993 7,171 3,155 5,843
------- ------- ------- ------- ------- ------- -------
Loss from operations............... (2,726) (3,653) (3,894) (4,186) (4,225) (1,901) (3,459)
Interest income and other........ 162 224 167 281 135 43 236
------- ------- ------- ------- ------- ------- -------
Net loss........................... $(2,564) $(3,429) $(3,727) $(3,905) $(4,090) $(1,858) $(3,223)
======= ======= ======= ======= ======= ======= =======
Loss per common share(1)........... $ (0.70) $ (0.80) $ (0.90) $ (1.10) $ (1.14) $ (0.49) $ (0.64)
======= ======= ======= ======= ======= ======= =======
Shares used in computing loss per
common share..................... 3,643 4,277 4,294 4,313 4,543 4,404 5,981
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------- AT JUNE 30,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
) (IN THOUSANDS
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 3,939 $ 426 $ 1,877 $ 3,015 $ 10,748 $ 7,290
Short-term investments............... 2,589 3,017 5,155 -- -- --
Working capital...................... 6,770 3,433 6,613 2,888 10,885 7,459
Total assets......................... 7,413 4,260 7,997 4,376 12,890 10,305
Deferred credit...................... -- -- 1,500 1,500 1,500 1,500
Accumulated deficit.................. (13,189) (16,619) (20,678) (24,775) (29,311) (33,129)
Total stockholders' equity........... 7,152 4,046 5,743 2,094 10,197 7,105
</TABLE>
- ---------------
(1) Includes effect of accounting treatment of preferred stock and warrant
exercise inducement of $(0.03), $(0.19) and $(0.24) for the years ended
December 31, 1994, 1995 and 1996, and $(0.07) and $(0.10) for the six months
ended June 30, 1996 and 1997, respectively.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of operations and financial condition of LifeCell
should be read in conjunction with the Financial Statements and Notes thereto
included elsewhere in this Prospectus. Special Note: Certain statements set
forth below constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. See
"Special Note Regarding Forward-Looking Statements".
GENERAL AND BACKGROUND
LifeCell is a bio-engineering company engaged in the development and
commercialization of tissue regeneration and cell preservation products. The
Company's patented tissue processing and cell preservation technologies serve as
platforms for a broad range of potential products addressing significant
clinical needs in multiple markets. The Company's first commercial product is
AlloDerm, a tissue graft consisting of an extracellular tissue matrix that
retains the essential biochemical and structural composition of human dermis.
The Company believes that AlloDerm is the only commercial tissue transplant
product that promotes normal human soft tissue regeneration. AlloDerm currently
is being marketed in the United States and internationally for use in
reconstructive plastic, dental and burn surgery and has been successfully
transplanted in over 20,000 patients. LifeCell also is developing several
additional products, including injectable AlloDerm, composite skin grafts, heart
valves, vascular grafts and ThromboSol.
LifeCell was organized in 1986 and, since inception, has been financed
through the public and private sale of equity securities, through product sales,
through a corporate alliance with Medtronic and through the receipt of
government grants and contracts.
LifeCell began the sale of AlloDerm grafts as a dermal replacement in the
grafting of third-degree burns in December 1993 and commenced commercial
activities in 1994. LifeCell commenced the sale of AlloDerm for periodontal
surgery in September 1995 and for reconstructive plastic surgery uses in
November 1995. To date, proceeds from the sale of AlloDerm products have not
been sufficient to fund in full the Company's operating activities.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 and 1996
The net loss for the six months ended June 30, 1997 increased 73% to
approximately $3.2 million compared to approximately $1.9 million for the same
period of 1996. The increase was principally attributable to higher costs
associated with the Company's increased marketing activities for its AlloDerm
products and the development of the infrastructure to administer its increased
activities. This investment in increased marketing activities was partially
offset by a rise in product sales as discussed further below.
Total revenues for the six months ended June 30, 1997 increased 90% to
approximately $2.4 million compared to approximately $1.3 million for the same
period of 1996. Approximately $979,000 of such increase was attributable to
increases in sales of products, which were the result of expanded sales and
marketing activities and increased distribution activities during the 1997
period. The remaining $151,000 increase in revenues was the result of increased
research activities under funding arrangements; amounts recognized as revenues
under such cost-reimbursement arrangements are for expenses incurred during the
periods.
Cost of goods sold for the six months ended June 30, 1997 was approximately
$1.0 million, with a gross margin of approximately 45%. The gross margin for the
six months ended June 30, 1996 was approximately 36%. The increase in gross
margin is principally attributable to the implementation of certain production
efficiencies as well as the allocation of fixed costs to higher volumes of
products produced in 1997.
22
<PAGE> 24
Research and development expenses for the six months ended June 30, 1997
increased 52% to approximately $1.1 million compared to approximately $736,000
for the comparable period in 1996. Of such increase, approximately $151,000 was
attributable to increased activities related to research funded by others. Such
activities increased in 1997 as a result of the receipt during 1996 of three
contracts with government agencies to fund research and development activities.
The remaining $229,000 increase in research and development expense is
attributable to increased production of products for clinical and research
activities.
General and administrative expenses during the six months ended June 30,
1997 increased 93% to approximately $1.5 million compared to approximately
$773,000 for the same period of 1996. Such increase is principally attributable
to increased staff levels, recruiting fees, and other professional fees related
to the Company's expansion of the infrastructure to support its increased sales
activities.
Selling and marketing expenses increased 102% to approximately $2.2 million
during the six months ended June 30, 1997 compared to approximately $1.1 million
for the same period of 1996. The increase was primarily attributable to
increased promotional activities as well as the addition of sales personnel
related to AlloDerm marketing.
Interest income and other, net increased 445% to approximately $236,000
during the six months ended June 30, 1997 compared to approximately $43,000 for
the same period of 1996. The increase was principally attributable to higher
funds available for investment during the current period as a result of the sale
of Series B Preferred Stock in November 1996.
Years Ended December 31, 1996 and 1995
Total revenues for 1996 increased 63% to approximately $2.9 million
compared to approximately $1.8 million for 1995. As a result of increased
marketing activities, expansion of distribution channels and expanded uses of
the Company's AlloDerm product, product sales for the year increased 171% to
$2.0 million from $742,000 for 1995. Revenues for research funded by others
decreased 12% from $1.1 million in 1995 to $934,000 in 1996 principally as a
result of certain non-recurring revenue received by LifeCell in the first
quarter of 1995 under the Medtronic agreement and the timing of planned
activities performed by LifeCell related to the progress of the project. The
corporate alliance revenue is recorded based on the costs of the work performed
under the agreement. During 1996, the Company recognized $387,000 in revenue
from its government grants and contracts, or an increase of $148,000 over 1995,
as a result of additional governmental awards received during 1996 for the
Company's ThromboSol and keratinocyte development programs.
Total costs and expenses for 1996 increased 20% to $7.2 million compared to
$6.0 million for the same period of the prior year principally as a result of
expanded sales and marketing activities for the Company's products and costs
related to such expanded activities. Cost of goods sold for 1996 increased 38%
to $1.3 million compared to $925,000 in the same period of 1995. This increase
was due to an increase in product sales and the shift from the development to
the processing of AlloDerm, consistent with taking a product to market.
Total research and development expenses decreased 27% to $1.6 million in
1996 from $2.2 million in 1995. The cost of funded research and development
declined 12% from $1.1 million in 1995 to $934,000 in 1996 as a result of the
timing of planned activities as well as the funding available, as such costs are
reimbursed by others. Other research and development expense decreased 41% to
$655,000 for 1996 from $1.1 million in 1995 primarily due to the shift in the
Company's focus from the development of AlloDerm to processing.
General and administrative expenses increased 34% to $1.9 million in 1996
from $1.4 million in 1995 principally as a result of expanded administrative
activities as the Company increased its product sales and marketing activities
as well as certain administrative expenses recognized in conjunction with its
1996 financing activities and non-cash charges related to the reissuance of
certain stock options. Selling and marketing expenses increased 62% to $2.4
million for 1996 from $1.5 million in 1995
23
<PAGE> 25
primarily due to the addition of sales personnel and promotional activities
related to AlloDerm marketing and expanded distribution activities.
Interest income and other, net decreased 52% to $135,000 for 1996 compared
to $281,000 for 1995 as a result of the decrease in funds available for
investment prior to the receipt of funds from the sale of Series B Preferred
Stock in November 1996, as well as lower interest rates in 1996.
Years Ended December 31, 1995 and 1994
Total revenues for 1995 increased 121% to $1.8 million compared to
approximately $817,000 for 1994. This increase was primarily due to increased
product sales and increased revenues from research funded by others. Product
sales increased 690% to $742,000 in 1995 from $94,000 in 1994, due to greater
market acceptance of AlloDerm and additional sales efforts. Revenues from
research funded by others increased 47% to $1.1 million in 1995 from $723,000 in
1994. Funding under the corporate alliance with Medtronic increased 130% to
$825,000 in 1995 from $358,000 in 1994 due to a full year of activity in 1995
and increased heart valve development activities. In 1995, revenues from
research funded by others included amounts recorded from one Small Business
Innovative Research ("SBIR") contract of approximately $239,000, compared to
$364,000 from two SBIR contracts in 1994. During 1995, research and development
contracts and grants revenue consisted of $239,000 pursuant to the second year
of a 1993 award of a Phase II $740,000 SBIR contract from the United States Army
for the prolonged storage of platelets.
Cost of goods sold for product sales increased 79% to $925,000 compared to
$516,000 for 1994 while product revenues increased $648,000 during 1995 as
compared to 1994. During 1994, the "start up" phase of manufacturing was still
underway and the Company had excess capacity. This resulted in higher amounts of
unabsorbed overhead costs in 1994 than in 1995.
Research and development expenses increased 4% to $2.2 million in 1995 from
$2.1 million in 1994 as a result of higher funding levels for research funded by
others partially offset by a decrease in AlloDerm-related expenses classified as
research and development. Proprietary research and development expenses
decreased 19% to $1.1 million in 1995 from $1.4 million in 1994 primarily as a
result of the transfer of certain AlloDerm related activities from proprietary
research and development to processing (cost of goods sold) in 1995. These costs
previously were recorded in research and development expenses.
General and administrative expenses remained relatively consistent with the
prior year increasing only 3% for 1995 as compared to 1994. Selling and
marketing expenses increased 103% to $1.5 million in 1995 from $728,000 in 1994
primarily due to the addition of sales personnel, increased promotional
activities related to AlloDerm and commercial introduction of the AlloDerm graft
in the periodontal surgery market.
Interest income and other, net increased 68% to $281,000 in 1995 from
$167,000 in 1994 due to an increase in average funds available for investment in
1995 as compared to 1994.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, LifeCell's principal sources of funds have been equity
offerings, product sales, external funding of research activities and interest
on investments. LifeCell has historically funded research and development
activities for products other than AlloDerm primarily with external funds from
its corporate alliance with Medtronic and government grants. In April 1996,
LifeCell was awarded a $613,000 contract from the U.S. Navy related to the
development of ThromboSol. In August 1996, LifeCell was awarded a two-year
$300,000 National Science Foundation Phase II grant related to its keratinocytes
program. In December 1996, LifeCell was awarded a two-year contract of
approximately $1.1 million from the U.S. Army to support the development of
vascular graft and other products.
In 1994, LifeCell entered into an agreement with Medtronic pursuant to
which Medtronic paid LifeCell a license fee of $1.5 million and agreed, subject
to certain rights to terminate at Medtronic's
24
<PAGE> 26
discretion, to fund the development of LifeCell's proprietary tissue processing
technology in the field of heart valves. Through June 30, 1997, LifeCell has
recognized approximately $1.8 million in revenues for development funding,
excluding the initial license fee, for this program.
LifeCell expects to incur substantial expenses in connection with its
efforts to expand sales and marketing of AlloDerm, develop expanded uses for
AlloDerm, conduct the Company's product development programs (including costs of
clinical studies), prepare and make any required regulatory filings, introduce
products, participate in technical seminars and support ongoing administrative
and research and development activities. The Company currently intends to fund
these activities from its existing cash resources, sales of products, and
research and development funding received from others and the net proceeds to
the Company of the Offering. While the Company believes that its existing
available funds, together with the net proceeds to the Company of the Offering,
will be sufficient to meet its present operating and capital requirements for
the next 24 months, there can be no assurance that such sources of funds will be
sufficient to meet these future expenses. If adequate funds are not available,
the Company expects it will be required to delay, scale back or eliminate one or
more of its product development programs. The Company's need for additional
financing will be principally dependent on the degree of market acceptance
achieved by the Company's products and the extent to which the Company can
achieve substantial growth in product sales during 1998 and 1999, as well as the
extent to which the Company may decide to expand its product development
efforts. There can be no assurance that the Company will be able to obtain any
such additional financing on acceptable terms, if at all.
LifeCell has had losses since inception and therefore has not been subject
to federal income taxes. As of December 31, 1996, LifeCell had net operating
loss (NOL) and research and development tax credit carryforwards for income tax
purposes of approximately $26.1 million and $385,000, respectively, available to
reduce future income tax and tax liabilities. Federal tax laws provide for a
limitation on the use of NOL and tax credit carryforwards following certain
ownership changes that could limit LifeCell's ability to use its NOL and tax
credit carryforwards. The sale of Common Stock in the Offering is expected to
result in an ownership change for federal income tax purposes. The Company
estimates that the amount of NOL carryforwards and the credits available to
offset taxable income subsequent to the Offering will be approximately $4.0
million per year on a cumulative basis. Accordingly, if LifeCell generates
taxable income in any year in excess of its then cumulative limitation, the
Company may be required to pay federal income taxes even though it has unexpired
NOL carryforwards.
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BUSINESS
GENERAL
LifeCell is a bio-engineering company engaged in the development and
commercialization of tissue regeneration and cell preservation products. The
Company's patented tissue processing and cell preservation technologies serve as
platforms for a broad range of potential products addressing significant
clinical needs in multiple markets. The Company's first commercial product is
AlloDerm(R), a tissue graft consisting of an extracellular tissue matrix that
retains the essential biochemical and structural composition of human dermis.
The Company believes that AlloDerm is the only commercial tissue transplant
product that promotes normal human soft tissue regeneration. AlloDerm currently
is being marketed in the United States and internationally for use in
reconstructive plastic, dental and burn surgery and has been successfully
transplanted in over 20,000 patients. LifeCell also is developing several
additional products, including injectable AlloDerm, composite skin grafts, heart
valves, vascular grafts and ThromboSol.
The Company's product development programs have been generated from the
following proprietary technologies: (i) a method for producing an extracellular
tissue matrix by removing antigenic cellular elements while stabilizing the
matrix against damage; (ii) a method for cell preservation that protects cells
during prolonged storage; and (iii) a method for freeze-drying biological cells
and tissues without the damaging effects of ice crystals. LifeCell's tissue
processing technology removes cells that would be the target of rejection upon
transplantation while preserving the essential biochemical and structural
composition of the extracellular tissue matrix. The processed tissue is not
rejected by the body and functions as a natural template or scaffold into which
a patient's own cells will migrate following transplantation, resulting in
normal soft tissue regeneration. The Company believes its tissue processing
technology offers a number of other key benefits, including multiple product
applications, safety, prolonged shelf-life and high compatibility with other
technologies.
AlloDerm is an extracellular matrix tissue graft processed from donated
human skin. Following transplant, the AlloDerm graft becomes repopulated with
the patient's own cells and is revascularized (i.e., blood supply is restored),
becoming engrafted into the patient. As a result of its ability to promote the
regeneration of normal human soft tissue, AlloDerm has multiple product
applications. AlloDerm currently is used in reconstructive plastic, dental and
burn surgery. The Company estimates, based on the most recently published
industry data from various sources, that each year in the United States there
are approximately 500,000 reconstructive plastic surgery procedures, 480,000
dental soft tissue grafts, 230,000 dental bone-related grafts and 20,000 burn
patients requiring skin grafts.
LifeCell markets AlloDerm to hospital-based surgeons in domestic and
selected international markets. In the United States, LifeCell utilizes its own
direct sales force, supplemented with a network of regional specialty
distributors. In addition, in June 1997, LifeCell entered into an agreement with
Lifecore for the exclusive distribution of AlloDerm for dental applications in
the United States. LifeCell also is developing an international network of
distributors to market AlloDerm for multiple applications in markets outside the
United States.
The Company currently is evaluating the use of AlloDerm in additional
applications and is developing new products based on its technology platforms.
LifeCell is conducting research on the use of AlloDerm in urological disorders,
neurosurgery, orthopedic surgery and general surgery. In addition, LifeCell is
developing an injectable form of AlloDerm for use in multiple potential
applications, including urological, dermatological and reconstructive surgery.
If successfully developed, an injectable form of AlloDerm would allow for
delivery of the product through the use of a syringe, rather than a surgical
incision, thereby creating additional market opportunities. LifeCell also is
conducting research on the use of its technologies in other product
opportunities, including composite skin grafts, heart valves, vascular grafts,
venous valves, nerve connective tissue and ThromboSol.
LifeCell markets AlloDerm for use in reconstructive plastic, dental and
burn surgeries to hospital-based surgeons in selected domestic and international
markets. In the United States, LifeCell utilizes its
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<PAGE> 28
own direct sales force, supplemented with a network of regional and specialty
distributors. In addition, in June 1997, LifeCell entered into a distribution
agreement with Lifecore Biomedical as the exclusive distributor of AlloDerm in
the United States for dental applications. LifeCell also is developing an
international network of distributors to market AlloDerm for multiple
applications outside the United States.
LifeCell's strategy is to be a leader in the research, development, sales
and marketing of tissue regeneration and cell preservation products. The primary
elements of the Company's business strategy include (i) increasing penetration
of AlloDerm into target markets, (ii) expanding the uses of AlloDerm into new
applications and (iii) leveraging the Company's technology platforms to develop
new products.
TECHNOLOGY
The Company's product development programs have been generated from the
following proprietary technologies: (i) a method for producing an extracellular
tissue matrix by removing antigenic cellular elements while stabilizing the
matrix against damage; (ii) a method for cell preservation by manipulating cells
through signal transduction (i.e., manipulation of cellular metabolism) to
protect cells during prolonged storage; and (iii) a method for freeze-drying
biological cells and tissues without the damaging effects of ice crystals.
Tissue Processing Technology
LifeCell's tissue processing technology removes antigenic cells from the
tissue matrix to eliminate the potential for rejection of the transplanted
tissue. The Company's tissue processing technology also stabilizes the tissue
matrix to preserve its natural structure and biochemical properties that promote
cell repopulation and freeze-dries the tissue matrix without ice crystal damage
to allow for extended storage.
Soft tissue contains a complex, three-dimensional skeletal structure
consisting of multiple forms of collagen, elastin, proteoglycans, other
proteins, growth factors and vascular channels (the "tissue matrix"). Together,
the tissue matrix and the cells that populate it form the soft tissues of the
body, such as dermis, heart valves, blood vessels and other tissue types. As
part of the body's natural remodeling process, certain cells actively break down
and replace the tissue matrix on a continual basis. The tissue matrix itself,
however, cannot be regenerated by the body in the event that a large portion of
it is destroyed or lost as a result of trauma or surgery. The only method of
replacing large sections of the tissue matrix is through transplantation.
Soft tissue transplants from one part of the patient's body to another
(autograft) generally are successful; however, the procedure results in the
creation of an additional wound site. Historically, the ability to transplant
tissue from one person to another (allograft) has been limited because the
donor's cells within the transplanted tissue may trigger an immune response,
resulting in rejection of the transplanted tissue. The Company believes that
previous attempts to remove cells from soft tissue grafts before performing an
allograft transplant have resulted in disruption or damage of the tissue matrix,
causing an inflammatory response and rejection of the tissue following
transplantation.
LifeCell believes its tissue processing technology may offer some or all of
the following important benefits, depending on the specific application:
Natural Tissue Regeneration. Tissue grafts produced with LifeCell's
tissue processing technology retain the structural and biochemical
properties that stimulate natural cell repopulation and normal soft tissue
regeneration. In addition, the Company's clinical studies with dermis and
preliminary animal studies with heart valve leaflets and vascular grafts
processed with the Company's technology indicate that such tissues are
remodeled by the recipient's own cells and may eventually become the
recipient's own tissue.
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<PAGE> 29
Multiple Potential Applications. The Company believes that its tissue
processing technologies may have the potential to generate additional
products with multiple applications. In addition to the current commercial
applications of AlloDerm (i.e., reconstructive plastic, dental and burn
surgery), the Company believes that AlloDerm may provide additional
benefits in neurosurgery, urological surgery and orthopedic surgery. The
Company also is evaluating the applicability of its technologies to other
tissues, including heart valves, blood vessels, nerves and tendons. The
Company currently is conducting animal studies with heart valves and
vascular grafts processed with the Company's technology. LifeCell has
conducted certain cross-species studies that indicate its tissue processing
technology also may allow for transplantation of animal tissues into
humans.
Safety. The Company's tissue processing technology is designed to
produce products that will revascularize and integrate into the body's own
tissues. The patient's immune cells also are able to penetrate into the
transplanted tissue and thus aid in preventing infections. In contrast,
certain synthetic implants do not allow penetration of the patient's immune
cells, thereby compromising the body's natural ability to fight infections.
Prolonged Shelf-Life. The Company's proprietary tissue processing
technology allows extended storage and ease of transportation of products.
For example, AlloDerm can be stored at refrigerated temperatures for up to
two years. In contrast, most traditional allograft tissues require special
methods of storage and transportation.
Compatibility with Other Technologies. Several types of tissues
processed with the Company's technology retain important biochemical sites
(proteoglycans) which bind growth factors that can stimulate tissue
regeneration. As a result, the Company believes it may be possible to
utilize its technology to develop tissue-based delivery vehicles for these
factors.
Cell Preservation Technology
Blood cells circulating within the body are exposed to multiple factors
which maintain their stability and prevent activation. When blood cells are
removed from the body for storage, these stabilizing influences are absent,
resulting in the destabilization and irreversible activation of the cells. These
damaging events currently limit the shelf-life of transfusable red blood cells
to 42 days under refrigeration and blood platelets to five days at room
temperature.
LifeCell's cell preservation technology mimics the stabilizing influences
that are present in the body through manipulation of signal transduction
mechanisms that control cellular metabolism, combined with either low
temperature storage or patented freeze-drying technology. If successfully
implemented, LifeCell's cell preservation technology could result in multiple
products for the preservation of directly transfusable blood cells with extended
shelf-life which could be stored in a manner consistent with current blood
banking practices.
STRATEGY
LifeCell's objective is to be a leader in the research, development, sales
and marketing of tissue regeneration and cell preservation products. The Company
currently is focusing primarily on the broad commercialization of its first
product, AlloDerm, which has been used to treat over 20,000 patients since its
commercial introduction in 1994. The Company's strategy includes the following
principal elements:
Expanding Penetration of AlloDerm into Current Target Markets
The Company intends to expand the penetration of its AlloDerm products into
certain target markets. The Company currently markets AlloDerm for use in
reconstructive plastic, dental and burn surgery in domestic and selected
international markets through its own sales force and through distributors. The
Company intends to increase the penetration of AlloDerm into these markets by
(i) conducting additional clinical studies to further demonstrate the benefits
of AlloDerm compared to other current therapies, (ii) facilitating the
publication by surgeons of additional papers in leading
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<PAGE> 30
scientific journals describing the uses and benefits of AlloDerm, (iii) hiring
additional sales and marketing personnel to call on a broader audience of
hospital-based surgeons, (iv) establishing additional distribution relationships
with leading suppliers of medical products, both for domestic and selected
international markets and (v) increasing direct mail and advertising campaigns,
sponsoring educational and training workshops on the use of AlloDerm and
participating in trade shows.
Expanding the Use of AlloDerm into New Applications
LifeCell intends to leverage its relationships with leading surgeons and
other physicians and its hospital-based sales force to identify and promote new
applications of AlloDerm. LifeCell intends to focus initially on new markets
that are synergistic with its current hospital surgeon-focused distribution
strategy, including neurosurgery, urological surgery, orthopedic surgery and
general surgery. The Company currently is planning or conducting research,
developmental and clinical activities to evaluate the use of AlloDerm in these
applications. The Company also is targeting leading surgeons in each of these
fields to conduct clinical studies with AlloDerm and to publish scientific and
clinical articles to generate awareness of the broad applications of the
product.
Leveraging Technology Platforms to Develop New Products
The Company plans to leverage its tissue processing and cell preservation
technology platforms to develop new products. The Company currently is
developing an injectable form of AlloDerm that it believes may be useful in the
treatment of urinary incontinence as well as in dermatological and
reconstructive applications. In addition, the Company intends to apply its
tissue processing technology in the development of products based on other
tissues, including heart valves, vascular grafts, tendons, cartilage and nerve
connective tissues. The Company also is utilizing its proprietary cell
preservation technology to extend the shelf-life of transfusable platelets and
red blood cells. LifeCell plans to establish collaborative out-licensing
arrangements with appropriate partners to fund the development and
commercialization of certain of these products.
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<PAGE> 31
PRODUCTS AND PRODUCT DEVELOPMENT ACTIVITIES
The following table sets forth information about AlloDerm and the Company's
products under development.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
CURRENT USES OF ALLODERM APPLICATIONS(1) STATUS(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reconstructive Plastic Surgery Soft tissue repair and replacement Commercial
Dental Surgery Gingival grafts Commercial
Burns Dermal grafts Commercial
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
POTENTIAL USES OF ALLODERM APPLICATIONS(1) STATUS(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Neurosurgery Duraplasty Development
Urological Surgery Bladder sling Development
Bladder wall extension
General Surgery Abdominal wall closure Development
Prevention of surgical adhesions
Orthopedic Surgery Capsular ligament reinforcement Development
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
POTENTIAL PRODUCTS APPLICATIONS(1) STATUS(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Injectable AlloDerm Urinary incontinence Preclinical
Revision of acne scars
Composite Skin Grafts Treatment of third-degree burns Preclinical
XenoDerm Soft tissue repair and augmentation Preclinical
ThromboSol Platelet storage solution Preclinical
Heart Valves Heart valve replacement Research
Vascular Grafts Coronary or below-knee peripheral Research
bypass
Vascular Valves Chronic venous insufficiency Research
Venous stasis ulcers
Nerve Connective Tissue Nerve regeneration Research
Red Blood Cell Preservation Extended storage of red blood cells Research
- ------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) LifeCell markets AlloDerm for the repair or replacement of damaged or
inadequate integumental tissue. LifeCell may not promote AlloDerm for
certain uses without the approval of the FDA. Products other than AlloDerm
may require separate filings with and approvals of the FDA. See
"-- Government Regulation".
(2) "Research" denotes a project in which proof-of-concept has not yet been
established. "Preclinical" denotes animal studies implemented or planned.
"Development" denotes a project in which proof-of-concept has been
established through in vitro or early-stage animal studies or post-market
clinical use and the Company is conducting or intends to conduct further
animal studies and clinical studies. "Commercial" indicates applications in
which surgeons currently are using the product. However, commercial does not
necessarily denote that all factors, such as long-term efficacy, have been
determined.
AlloDerm Products
AlloDerm is an extracellular tissue matrix graft processed from donated
human (cadaveric) skin. The Company believes that AlloDerm is the only
transplant tissue product on the market today that promotes the regeneration of
normal human soft tissue. Following transplant, the AlloDerm graft becomes
repopulated with the patient's own cells and is revascularized (i.e., blood
supply is restored), becoming engrafted into the patient. As a result of its
ability to promote the regeneration of normal human soft tissue, AlloDerm has
multiple surgical applications. AlloDerm currently is used in reconstructive
plastic, dental and burn surgery. The Company believes AlloDerm may be used in
additional applications and is conducting activities to extend the use of
AlloDerm to urological surgery, neurosurgery, orthopedic surgery and general
surgery.
LifeCell obtains donated human skin from unaffiliated tissue banks in the
United States. LifeCell requires that the tissue banks supplying the Company
with tissue comply with the FDA's human tissue
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<PAGE> 32
regulations. In addition, the Company requires supplying tissue banks to comply
with procedural guidelines outlined by the American Association of Tissue Banks
("AATB"). Microbiological and other quality assurance testing is conducted by
LifeCell before AlloDerm tissue products are released for shipment. See
"-- Government Regulation".
LifeCell has established what it believes to be adequate sources of donated
skin tissue at acceptable costs to satisfy the foreseeable demand for AlloDerm
tissue products. However, there can be no assurance that the future availability
of donated human skin will be sufficient to meet LifeCell's demand for such
materials. AlloDerm is shipped at ambient temperature by overnight delivery
services and has a two-year refrigerated shelf life. See "-- Sources of
Materials".
Reconstructive Plastic Surgery. In November 1995, LifeCell began marketing
AlloDerm to reconstructive plastic surgeons. Such surgeons currently use or
potentially may use AlloDerm generally as a soft tissue implant to repair or
replace tissue deficits, as an interpositional graft for tissue closure or
repair, as a graft or implant for scar revision, as a protective sheath covering
nerves and tendons and as a sling to support tissue following nerve or muscle
damage. Also, the Company believes that AlloDerm has additional uses in
reconstructive surgery related to oncological procedures.
Based on industry sources, the Company estimates that there are
approximately 500,000 reconstructive plastic surgical procedures performed
annually in the United States in which AlloDerm could be used. Competitive
products include synthetic materials, bovine collagen injections and autologous
tissue. The Company believes AlloDerm generally has advantages over synthetic
material because AlloDerm fully integrates into the patient and because certain
synthetic materials are susceptible to infection, mobility and occasional
extrusion. The Company also believes AlloDerm generally has advantages over
bovine collagen, which tends to be resorbed after two to 12 months, requiring
reapplication. The use of autologous tissue requires additional surgery,
creating a separate wound and trauma to the patient.
Dental Surgery. LifeCell began marketing AlloDerm to dental surgeons in
September 1995. The Company has an agreement, effective June 1997, with Lifecore
for the exclusive distribution in the United States of AlloDerm for use in
dental applications. Dental surgeons use AlloDerm tissue in free gingival
grafting and as a subepithelial connective tissue graft, procedures used to
increase the amount of attached gum tissue supporting the teeth. Until the
development of AlloDerm, these procedures could only be performed with
autologous tissue excised from the roof of the patient's mouth and then
transplanted to the gum or, to a limited extent, with freeze-dried allograft
skin. The Company believes that AlloDerm provides significant clinical benefits
for this procedure by eliminating the need for an autograft and by avoiding scar
formation often associated with freeze-dried allograft skin. In clinical case
studies performed by periodontists, AlloDerm grafts functioned comparably to
autografts, spared the patient the pain and discomfort associated with the
excision of the autograft and reduced surgical time.
AlloDerm tissue products also are used as barrier membranes in guided bone
regeneration. In this function, the AlloDerm tissue serves as a barrier over
allograft bone grafts, which are used to restore a degenerated jaw bone and
surrounding gingival tissue. AlloDerm tissue products also are used to repair
soft tissue defects of the gum.
According to the most recently published data from the American Dental
Association, there were approximately 480,000 soft tissue grafts and 230,000
bone-related grafts performed in 1990 in the United States. Competitive
procedures use autologous tissue as well as synthetic material. The Company
believes that AlloDerm has advantages over autologous tissue because of the
reduced trauma to the patient, and over certain non-resorbable synthetic
materials because it integrates into the patient and does not require a separate
procedure for removal.
Burns. During 1994, LifeCell began commercial sales of AlloDerm for use in
the treatment of third-degree and deep second-degree burns requiring skin
grafting. The Company estimates that approxi-
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<PAGE> 33
mately 75,000 people are hospitalized each year in the United States due to
burns and that approximately 20,000 of such patients are admitted with major
burns requiring skin grafts.
Skin is the body's largest organ and is the first line of defense against
invasion of foreign substances. It contains two functional layers, the upper
surface consisting primarily of cells (epidermis) and an underlying foundational
layer of extracellular matrix proteins and collagen (dermis). The epidermis
functions as a water barrier and maintains hydration. The dermis provides other
important skin properties including tensile strength, durability and elasticity.
Dermis, like many other tissues of the body, is not capable of regenerating
itself. Currently, third-degree and deep second-degree burns are treated with
split-thickness skin autografts taken from uninjured areas of the patient's
body. The use of AlloDerm with ultra-thin split-thickness skin autografts has
produced comparable results to normal autografts while reducing donor site
trauma.
Neurosurgery. During 1997, the use of AlloDerm as dura mater (the
protective lining between the brain and skull) replacement was developed by an
independent hospital through a clinical evaluation in approximately 50
neurosurgery patients. The Company currently is conducting animal studies for
the use of AlloDerm to repair or replace damaged dura mater.
Presently, surgeons primarily use autologous tissue, allograft dura mater
or bovine pericardium as a replacement for damaged dura. The use of bovine
products and allograft dura mater have declined because of concerns over disease
transmission. The Company believes that AlloDerm may be preferred over allograft
dura mater because certain neurological diseases, such as Creutzfeld Jacob
Disease, have not been documented to occur in dermis, the source material for
AlloDerm. The Company believes that AlloDerm also may be preferable to
autologous tissue because of the elimination of donor site trauma.
The FDA currently regulates allograft dura mater as a medical device and
the product is subject to premarket notification requirements. The Company
believes, however, that the use of AlloDerm as a dura mater replacement falls
within the FDA classification of "human tissue" intended for transplantation.
There can be no assurance that the FDA would agree that AlloDerm should be
regulated as human tissue (rather than as a medical device or biologic) when it
is used as a dura mater replacement. If the FDA were to decide that the product,
when intended for use as dura mater replacement, is a device, the Company would
attempt to obtain FDA clearance or approval to market AlloDerm for this intended
use. See "-- Government Regulation".
Other Potential Applications of AlloDerm. The Company believes that
AlloDerm may be used as a bladder or urethral sling to treat certain forms of
urinary incontinence and as a surgical material to expand bladder walls.
Currently, autologous tissue (fascia), allograft tissue and synthetic materials
are used for bladder sling procedures and autologous tissue is used to expand
bladder walls. If successfully developed, AlloDerm in such applications could
offer several advantages because of the product's ability to result in normal
soft tissue regeneration and to eliminate donor site trauma.
The Company has been advised by surgeons that AlloDerm also has been used
to reinforce the capsular ligament surrounding certain joints. Based on
preliminary results of these procedures reported to the Company by these
surgeons, the Company intends to explore the use of AlloDerm to repair several
defects associated with joints. These procedures may include capsular ligament
reinforcement, ligament repair, and articular and meniscal cartilage repair.
The Company also intends to evaluate the use of AlloDerm as a general
surgical material for additional uses such as abdominal wall closure in hernia
surgery, as a barrier to prevent surgical adhesions and as an alternative to
synthetic materials in certain endoscopic surgical procedures.
FDA Status of AlloDerm. The FDA has notified the Company that the use of
AlloDerm for replacement or repair of damaged or inadequate integumental tissue
is "human tissue" within the meaning of the human tissue for transplantation
regulations. However, it is unclear whether the FDA would agree that the
following indications for which AlloDerm has been used by physicians (and for
which the Company may want to promote AlloDerm in the future) is human tissue or
whether the FDA would regulate AlloDerm under its medical device authorities for
these indications: (i) graft for
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<PAGE> 34
guided bone regeneration; (ii) neurosurgery; (iii) oncological reconstruction;
(iv) urological applications; (v) certain orthopedic surgeries; and (vi) general
surgeries. In addition, further discussion with the FDA is required to determine
the level of regulation that may be applied with regard to the promotion and
marketing of injectable AlloDerm, vascular grafts, composite skin grafts, venous
valves and nerve connective tissue. There can be no assurance that the FDA will
not require the submission of premarket approval applications supported by
extensive clinical data for these products. See "-- Government Regulation".
Injectable AlloDerm
LifeCell currently is developing an injectable form of AlloDerm (AlloDerm
reduced to the size necessary for needle injection) for use in multiple
applications, including urological, dermatological and reconstructive
applications. The Company has conducted preliminary animal studies to evaluate
an injectable form of AlloDerm. Based on these studies, the Company intends to
conduct broader animal and clinical studies to further evaluate this potential
product. If successfully developed, an injectable form of AlloDerm would allow
for delivery of the product through the use of a syringe, rather than a surgical
incision, thereby creating additional market opportunities.
The Company believes that one of the principal urological uses of
injectable AlloDerm may be for the treatment of urethral sphincter deficiency, a
common cause of urinary incontinence. A variety of treatments exist for urethral
sphincter deficiency, including injecting bovine collagen to bulk the sphincter
muscle. Based on an independent market research report, the Company estimates
that there were approximately 118,000 injections of bovine collagen in 1996 to
treat urinary incontinence for 33,000 individuals in the United States.
Additionally, certain dermatological procedures, such as the revision of acne
scars, wrinkle filling and lip augmentation, use bovine collagen injections.
According to an independent research report, there were approximately 178,000
dermal implants of bovine collagen in 1996 in the United States. One of the
disadvantages of bovine collagen has been its limited persistence over time due
to resorbtion, generally requiring additional injections after two to 12 months.
The Company believes that AlloDerm may potentially persist longer then bovine
collagen, possibly reducing the requirement for patients to have multiple
injections.
The regulatory status of injectable forms of AlloDerm in the United States
is uncertain. Although the Company believes that this form of AlloDerm should be
classified as human tissue intended for transplantation, there can be no such
assurance. If the product is classified as a device by the FDA, extensive delays
may be encountered before the time, if ever, that the product may be
commercially distributed. See "-- Government Regulation".
Composite Skin Grafts
LifeCell currently is developing a method for constructing a composite,
bi-layered tissue product containing an AlloDerm dermal layer and an epidermis
consisting of keratinocytes (epidermal cells) isolated from the patient. If
successfully developed, a composite skin graft product would effectively
eliminate the requirement of taking an autologous skin graft from burn patients
and possibly may be useful in the treatment of chronic ulcers. Preliminary
animal studies conducted by the Company indicate the ability of the composite
skin product to achieve wound closure.
XenoDerm
LifeCell is developing XenoDerm(TM) processed porcine dermis, which is
processed in a manner similar to AlloDerm to remove the cells that are targets
for rejection and to preserve the dermal matrix. LifeCell believes that, if
successfully developed, XenoDerm tissue products would have the advantage of a
potentially increased raw material supply and could facilitate regulatory
approval in and distribution to certain international markets. See "-- Sources
of Materials" and "-- Government Regulation".
Preliminary animal studies conducted by LifeCell indicate that XenoDerm
tissue does not cause a significant immune response when transplanted
cross-species. Preliminary animal studies conducted by unaffiliated laboratories
have shown that XenoDerm tissue is potentially as effective as AlloDerm tissue
in treating full-thickness skin loss.
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<PAGE> 35
Non-viable animal to human transplants are classified by the FDA as
devices, requiring regulatory approval prior to commercialization. See
"-- Government Regulation".
Heart Valves
In 1994, LifeCell and Medtronic entered into a license and development
agreement for the development and potential commercialization of xenograft heart
valves processed with LifeCell's technology. See "-- Corporate Alliance". If
successfully developed, the porcine heart valve would be surgically implanted to
replace human heart valves that have become defective through disease or aging
and that may not otherwise be repaired.
Based on an independent market research report, there are approximately
80,000 heart valve replacement procedures performed each year in the United
States, of which 45,000 are mechanical heart valves, 30,000 are animal tissue
valves and 5,000 are human donor valves. Animal tissue heart valves on the
market today generally are subject to progressive calcification, which hardens
the valve and prevents it from functioning properly, requiring replacement seven
to 12 years after transplantation. Mechanical heart valves are more durable,
often lasting the lifetime of the patient, but lack the blood flow dynamics of
tissue valves and require the patient to remain on anticoagulants for life to
prevent strokes. Human donor valves are used in a limited number of the
procedures because of limited availability of donated valves suitable for
transplantation.
Based on early-stage research, the Company believes that it may be possible
to develop porcine heart valves based on the same patented technology that the
Company uses to produce AlloDerm tissue products. The Company would process
porcine heart valves to remove the cells that would be recognized by the body as
foreign while substantially maintaining the structure and biochemistry of the
valve matrix. By making the transplanted heart valves non-immunogenic, LifeCell
believes that such a valve could become less susceptible to calcification than
other tissue valves and could become part of the recipient's body.
Preliminary animal studies conducted by LifeCell have shown that the
LifeCell heart valve leaflets transplanted in the thoracic descending aorta
became repopulated with the recipient's own cells and were not rejected by the
recipient. Other animal studies conducted by LifeCell have shown that the valves
do not undergo significant calcification. An extensive FDA approval process
would be required for xenograft heart valves which could significantly delay or
prevent product entry into this market. See "-- Government Regulation".
Other Potential Tissue Products
LifeCell is conducting animal studies to evaluate small-diameter vascular
graft products for potential use in cardiovascular and vascular surgery. If
successfully developed, a vascular graft would potentially be used in coronary
artery bypass procedures or used to restore peripheral blood circulation in
patients with vascular insufficiency, such as below-knee bypass procedures.
Approximately 200,000 coronary artery bypass procedures are performed annually
in the United States, according to an independent market research report.
LifeCell currently is using allograft blood vessels for this development, but
may extend the technology to xenografts.
As part of the Company's agreement with Medtronic for the development of
heart valves, LifeCell granted Medtronic certain rights of first refusal to
evaluate technology and negotiate license and development agreements for
vascular graft products utilizing LifeCell's technology. See "-- Corporate
Alliance".
LifeCell also currently is conducting preliminary research to determine the
feasibility of developing venous valve products for the treatment of chronic
venous insufficiency and venous stasis ulcers. LifeCell expects such products to
be allograft venous valves developed using its patented technology. If
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successfully developed, such grafts would restore the normal function of certain
venous valves in the leg and provide a treatment for or reduce the development
of venous stasis ulcers. According to industry and government sources,
approximately 7.0 million people in the United States suffer from chronic venous
insufficiency and approximately 500,000 people in the United States are treated
annually for venous stasis ulcers.
LifeCell also is conducting research for the development of nerve matrix
grafts using the Company's proprietary technology. If successfully developed,
such products would provide the template for nerve regeneration following
trauma. The Company's research program will seek to determine whether nerve
tissue processed with the Company's technology to preserve significant
biochemical or other matrix-based characteristics will enhance or promote the
regeneration of nerves.
Blood Cell Preservation
LifeCell is developing ThromboSol platelet storage solution to extend the
shelf-life of transfusable platelets, and other methods to extend the shelf-life
of red blood cells, white blood cells and stem cells.
ThromboSol. LifeCell is developing ThromboSol, a proprietary biochemical
formulation designed to protect transfusable platelets from damage during
storage at low temperatures. The expected use of the product would be by blood
banks to extend the shelf-life of transfusable platelets, thereby increasing the
supply of available platelets, as well as to store autologous platelets in
advance for individuals expecting to undergo surgery or chemotherapy. There were
approximately 8.3 million platelet units transfused in the United States in
1992, according to an industry survey.
Platelets are blood cells that control clotting. Untreated platelets are
sensitive to storage at low temperatures and cannot be effectively refrigerated.
Presently, platelets are stored at room temperature and, due to the risk of
microbial contamination, have a limited shelf-life of three to five days.
LifeCell has shown in laboratory tests that the addition of ThromboSol solution
preserves the functional aspects of refrigerated platelets for up to 10 days and
frozen platelets for more than six months.
LifeCell initiated preliminary toxicity studies for ThromboSol platelet
storage solution in late 1994 and began preclinical animal studies in 1995. An
application for a physician-sponsored Investigational New Drug ("IND") to
conduct a pilot clinical study currently is pending with the FDA. LifeCell
intends to license this product to major pharmaceutical and other companies
after conducting initial feasibility clinical studies. Other companies are
developing products to inactivate bacterial or viral contaminants in donated
platelets. The successful development of such products could affect the demand
for products developed by LifeCell.
Red Blood Cells. LifeCell is conducting research to develop procedures to
freeze or freeze-dry red blood cells. Such technology would be used by blood
banks for long-term storage of donated units of red blood cells, extending the
available blood supply, and for storage of autologous red blood cells for
individuals expecting to require blood transfusions as part of planned surgery.
Approximately 14 million units of blood are donated each year in the United
States. Red blood cells currently may be stored up to 42 days under
refrigeration. Current procedures to freeze red blood cells require the use of
cryoprotectant solutions that are toxic to the recipient and must be removed by
washing the cells prior to transfusion. This removal procedure is
labor-intensive and requires the immediate transfusion of the thawed blood. The
Company believes that the successful development of non-toxic low temperature
methods of storage could simplify the use of frozen blood and potentially allow
widespread storage of autologous blood.
Numerous companies are attempting to develop blood substitute products and
others are developing technologies to inactivate bacterial or viral contaminants
in donated blood. Successful development of these products could affect the
demand for any products developed by LifeCell. Any product developed will
require extensive regulatory approvals, including approval of an IND by the FDA
to conduct clinical trials. See "-- Government Regulation".
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CORPORATE ALLIANCE
In 1994, LifeCell entered into a license and development agreement with
Medtronic to develop jointly the Company's heart valve products. Pursuant to the
agreement, Medtronic paid LifeCell an initial $1.5 million license fee. The
agreement also provides that Medtronic will fund certain costs of research and
development, including clinical trials, receive the exclusive right to market
any resulting commercial products and pay LifeCell royalties on sales of
products covered by the agreement. LifeCell's research and development funding
by Medtronic in 1994, 1995 and 1996 and for the six months ended June 30, 1997
was approximately $358,000, $825,000, $546,000 and $156,000, respectively. The
budgeted funding for the remainder of 1997 is approximately $40,000, which
represents approximately one-half of the expected research costs relating to
heart valves. Royalties payable to LifeCell under the agreement are limited to
an aggregate maximum of $25.0 million. Medtronic may terminate the agreement at
any time if in its sole business judgment it deems the development and
commercialization of products thereunder not to be in its best interests or
otherwise to be imprudent. In such event, and if the agreement is terminated
under certain other circumstances, Medtronic has the option to convert the $1.5
million license fee into shares of Common Stock, subject to certain limitations,
at the market price at the time of conversion. See "Description of Capital
Stock -- Medtronic Rights".
In 1994, Medtronic also invested $500,000 in LifeCell by purchasing
approximately 64,000 shares of Common Stock in exchange for rights of first
refusal to negotiate licenses for LifeCell's vascular graft products.
Medtronic's rights of first refusal expire on December 31, 1998.
MARKETING
The Company currently distributes AlloDerm in the United States for most
surgical applications through the Company's network of direct technical sales
representatives and regional specialty distributors. Dental applications of
AlloDerm in the United States are marketed through LifeCell's exclusive United
States distributor, Lifecore. The Company currently intends to develop and
commercialize additional tissue products processed from cardiovascular,
neurological and other tissues in conjunction with corporate partners.
LifeCell has a sales and marketing staff consisting of a vice president of
sales and marketing, a director of international sales and marketing, a director
of national accounts, a marketing manager, a dental sales manager, 12 field
technical sales representatives, a clinical specialist, two marketing
coordinators, and an international customer service assistant. The field
technical sales representatives and clinical specialist are responsible for
interacting with surgeons, primarily plastic surgeons and burn surgeons, and
educating them regarding the use and anticipated benefit of AlloDerm tissue
grafts. LifeCell also participates in national and international conferences and
trade shows, participates in or funds certain educational symposia or fellowship
programs, and advertises in industry trade publications.
The Company has 14 regional specialty distributors in the United States
with approximately 50 sales representatives.
The Company currently is seeking foreign regulatory approvals where
necessary to import AlloDerm into significant foreign markets and is developing
a network of country-based distributors. The Company currently has appointed
distributors in Canada, the United Kingdom, Italy, Sweden, The Netherlands,
Belgium and South Africa. The Company also has engaged distributors for Korea,
Taiwan, Brazil, Mexico, Spain and Switzerland, but formal approvals to import
products have not yet been received. The Company currently is seeking regulatory
approval in France to import AlloDerm, but has not yet engaged a distributor.
The Company expects to conduct clinical trials in Germany to seek approval to
import AlloDerm. See "Risk Factors -- Uncertainty of Foreign Regulatory Status
of AlloDerm".
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SOURCES OF MATERIALS
LifeCell pays a procurement fee to and obtains allograft skin and other
tissues from unaffiliated tissue banks in the United States. LifeCell is
expanding its current procurement of skin and other tissues to include any of
approximately 150 tissue banks, including approximately 36 skin banks.
Procurement of certain human organs and tissue for transplantation is subject to
the restrictions of NOTA, which prohibits purchase and sale of human organs and
related tissue for valuable consideration. See "-- Government Regulation".
Pursuant to contractual arrangements, LifeCell reimburses tissue banks for
recovering and shipping to LifeCell donated human skin suitable for processing
into AlloDerm. In obtaining such tissues, LifeCell competes with treatment
centers that use donated skin for temporary wound dressings.
The Company has established what it believes to be adequate sources of
donor skin at acceptable costs to satisfy the foreseeable demand for AlloDerm
tissue products. Although to date the Company has not experienced any material
difficulty in procuring adequate supplies of donor skin, there can be no
assurance that the future availability of donated human skin will be sufficient
to meet LifeCell's demand for such materials. Any supply shortage of available
tissues in the future would have a material adverse effect on LifeCell's
business. See "Risk Factors -- Dependence on Certain Sources of Materials".
The Company currently does not have procurement arrangements for other
tissues related to products under development, and does not intend to develop
such arrangements until such time as the product approaches commercialization.
GOVERNMENT REGULATION
Government regulation, both domestic and foreign, is a significant factor
in the manufacture and marketing of LifeCell's current and developing products.
In the United States, the Company's currently marketed human skin allograft and
AlloDerm products are subject to regulation by the FDA. The United States Food,
Drug and Cosmetics Act (the "FDC Act"), the Public Health Service Act (the "PHS
Act") and other federal statutes and regulations govern or influence the
testing, manufacture, labeling, storage, record keeping, approval, advertising
and promotion of such products. Noncompliance with applicable requirements can
result in fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, refusal of the government to
authorize the marketing of new products or to allow the Company to enter into
supply contracts and criminal prosecution.
In July 1997, the FDA published a final rule, to become effective in
January 1998, regulating "human tissue". The rule clarifies and modifies an
earlier interim rule and defines human tissue as any tissue derived from a human
body which is (i) intended for administration to another human for the
diagnosis, cure, mitigation, treatment or prevention of any condition or disease
and (ii) recovered, processed, stored or distributed by methods not intended to
change tissue function or characteristics. The FDA definition excludes, among
other things, tissue that currently is regulated as a human drug, biological
product or medical device and kidney, liver, heart, lung, pancreas or any other
vascularized human organ. Human tissue is regulated by the FDA in a manner the
agency has deemed necessary to protect the public health from the transmission
of HIV infection and hepatitis infection through transplantation of tissue from
donors with or at risk of these diseases. Unlike certain drugs, biologicals and
medical devices, human tissue is not subject to premarket notification or
approval by the FDA.
The Company was advised by the FDA on two occasions in 1995 that AlloDerm,
when sold for use in periodontal applications, would be regulated as a medical
device. After discussions with the agency, the Company received a letter from
the FDA in September 1996 to the effect that AlloDerm intended for use for
replacement or repair of damaged or inadequate integumental tissue, including
gingival dermis, is human tissue within the meaning of the interim final rule.
Consequently, the Company may promote and sell AlloDerm without FDA premarket
notification or FDA approval for use in the
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treatment of wounds, such as third-degree burns, in periodontal surgical
procedures, such as free-gingival grafting and guided tissue regeneration, and
in plastic and reconstructive surgery procedures, such as contracture release
grafting and scar revision. The agency also informed the Company that this
decision applies only to AlloDerm when it is intended for use in
transplantation, and the regulatory status of the product when it is promoted
for other uses, such as the Additional Indications, would need to be determined
by the FDA on a case by case basis.
While the Company's marketing efforts had not previously focused on the
Additional Indications, as a follow-up to its September 1996 letter, the FDA
informed the Company that indications for Additional Indications would have to
be formally presented to the FDA to determine if, with these indications,
AlloDerm would continue to fall within the scope of the interim rule for banked
human tissue and thus not require premarket clearance. The Company was asked to
indicate what changes in advertisement and promotion it would make for AlloDerm.
The Company responded to the FDA letter in October 1996, and informed the agency
that the Company believes that the distinctions drawn regarding the definition
of transplantation and human tissue and between integumental tissue and all
other tissue in the September 1996 opinion were fairly novel and ones for which
the Company would require clarification from the FDA as it goes forward. The
Company believes that AlloDerm, when used for augmentation and as a void filler,
still qualifies as human tissue. Similarly, the Company advised the FDA that
since almost every replacement or repair of damaged or inadequate tissue
involves a cosmetic aspect, the Company believes that many cosmetic uses of
AlloDerm are within the purview of human tissue.
Nevertheless, the Company informed the FDA that it intends to follow the
agency's decision and, until this matter is clarified on a case by case basis,
will not promote AlloDerm for the Additional Indications. There can be no
assurance that the FDA will not finally conclude that use of AlloDerm for the
Additional Indications should be regulated as a medical device and require a
510(k) premarket notification or premarket approval application for AlloDerm for
such indications. If the FDA were to conclude definitively that the Company is
required to obtain agency clearance of a 510(k) notification or approval of a
premarket approval application for AlloDerm for the Additional Indications, the
FDA may require the Company to conduct laboratory testing and preclinical and
clinical studies of AlloDerm to support a marketing application. Testing,
preparation of necessary applications and processing of those applications by
the FDA is expensive and any required laboratory testing or preclinical or
clinical studies that the Company were required to conduct could take several
years to complete. There can be no assurance that any required testing could be
completed successfully, or that if successfully completed, would provide
sufficient data and information to enable the FDA to determine, on a timely
basis, if at all, that when AlloDerm is used for the Additional Indications, it
is substantially equivalent to a legally marketed predicate device or is safe
and effective for the Additional Indications and permit the product to be
marketed for such uses. Failure of the Company to receive any required FDA
clearance or approval of AlloDerm for the Additional Indications on a timely
basis would preclude promotion of AlloDerm for the Additional Indications and
could have a material adverse effect on the Company's business, financial
condition and results of operation. See "Risk Factors -- Government
Regulation -- of AlloDerm".
The Company and the FDA have agreed that AlloDerm intended for use for
replacement or repair of damaged or inadequate integumental tissue, including
gingival dermis, is human tissue within the meaning of the human tissue for
transplantation regulation. However, it is unclear whether the FDA would agree
that the following indications for which AlloDerm has been used by physicians
(and for which the Company may want to promote AlloDerm in the future) is human
tissue or whether the FDA would regulate AlloDerm under its medical device
authorities for these indications: (i) graft for guided bone regeneration; (ii)
neurosurgery; (iii) oncological reconstruction; (iv) urological applications;
(v) certain orthopedic surgeries; and (vi) general surgeries. In addition,
further discussion with the FDA is required to determine the level of regulation
that may be applied with regard to the promotion and marketing of injectable
AlloDerm for various indications, vascular grafts, composite skin grafts, venous
valves, and processed nerve connective tissue. There can be no assurance that
the
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FDA will not require the submission of premarket approval applications for these
products supported by extensive clinical data.
In February 1997, the FDA issued a comprehensive "proposed approach" to the
regulation of cellular and tissue-based products, other than human tissue for
transplantation. The FDA proposal sets forth a tiered approach to cell and
tissue regulation that ranges from no regulatory requirements for cells or
tissue that are removed and transplanted into the same patient in a single
surgical procedure to full premarket approval requirements for biologics and
medical devices that raise potential health, safety or efficacy concerns.
Although the FDA has notified the Company that AlloDerm is not now subject to
premarket notification or approval, there can be no assurance that the FDA will
not impose additional or different regulatory requirements on AlloDerm after the
agency finalizes its approach to the regulation of cellular and tissue-based
products.
The FDA's final human tissue regulation requires establishments engaged in
the procurement, processing, and distribution of human tissue to conduct and
maintain records of tissue donor screening procedures and blood testing. In
addition, tissue processing establishments are periodically inspected by the FDA
to ensure compliance with these requirements. LifeCell believes that the
Company's operations substantially comply with the requirements of the FDA's
final human tissue regulation.
LifeCell requires that the tissue banks supplying the Company with tissue
comply with the FDA's human tissue regulation. In addition, the Company requires
supplying tissue banks to comply with procedural guidelines outlined by the
AATB. The FDA has stated that it will propose additional requirements for human
tissue. Additional requirements could include registration of tissue banking
establishments and tissue listing with the FDA. Other requirements may include
donor-recipient tracking, Good Tissue Practices and clinical evaluation of
tissues that are determined to have undergone other than "minimal manipulation".
If significant additional regulatory requirements were to be established, the
Company could incur significant additional costs in order to comply with such
requirements.
LifeCell's proposed xenograft heart valve product and other xenograft
tissue transplantation products including XenoDerm tissue and xenograft vascular
conduits likely will be subject to regulation by the FDA as medical devices.
LifeCell's proposed blood cell preservation products, including ThromboSol
platelet storage solution, will be subject to regulation as biologics.
Accordingly, such products will require FDA premarket approval or clearance
prior to commercialization. To obtain FDA approval or clearance for these
products, the Company must submit proof of the safety and efficacy of these
products. In most cases, this entails extensive pre-clinical and clinical
testing performed in accordance with the FDA's regulations. The testing,
preparation of necessary applications and processing of those applications by
the FDA is expensive and time consuming and will take several years to complete.
There is no assurance that the FDA will act favorably or quickly in making such
reviews, and significant difficulties or costs may be encountered by the Company
in its efforts to obtain the FDA approvals or clearances that could delay or
preclude the Company from marketing any product it may develop. The FDA also may
require post-market testing and surveillance to monitor the effects of approved
products, and may place conditions on approvals that could restrict commercial
applications of such products. Product marketing approvals or clearances may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur following initial marketing. In addition, delays imposed by the
governmental approval process may materially reduce the period during which the
Company may have the exclusive right to commercialize patented products.
The FDA reviews medical devices for marketing approval or clearance through
two different procedures, the 510(k) premarket notification process and the
premarket approval process, which is significantly more complex, costly and time
consuming than the 501(k) clearance procedure. LifeCell will need to pursue one
of these routes with respect to each product determined to be a medical device.
The determination of which process will be required for any particular product
will depend in part
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upon how the FDA has regulated similar products by the time LifeCell is ready to
pursue its own approvals or clearances.
Under the 510(k) premarket notification procedure, the applicant or
"sponsor" submits an application containing data that demonstrate the
"substantial equivalence" of the product to a device marketed prior to the
enactment of the Medical Device Amendments of 1976 or to a device legally
marketed thereafter pursuant to a 510(k). The FDA may require a 510(k) applicant
to submit additional, and possibly extensive, clinical data establishing the
safety and effectiveness of the product for each proposed indication. Prior to
conducting the necessary clinical trials, an applicant may be required to submit
an investigational device ("IDE") protocol to the FDA for approval. An IDE
application typically contains data from laboratory and animal testing
demonstrating that the product is sufficiently safe for study in humans as well
as a description of the proposed study methods and protocol. Clinical studies
must be conducted according to a written protocol and pursuant to the approval
and oversight of one or more Institutional Review Boards. In addition, clinical
investigators must adhere to good clinical practices. The FDA may order the
temporary or permanent discontinuation of a clinical trial at any time for
non-compliance with its regulations, because of safety issues or for other
reasons. The collection of data and preparation of a 510(k) application can be
costly and time consuming, and a 510(k) applicant may not market the product
until a favorable decision is received from the FDA. The FDA review of a 510(k)
premarket notification can take anywhere from a few months to several years.
There can be no assurance that marketing clearance ultimately will be obtained
for any of LifeCell's products that are the subject of 510(k) premarket
notifications.
The PMA process is significantly more complex, costly and time consuming
than the 510(k) clearance procedure. To obtain premarket approval, the applicant
is required to submit extensive preclinical and clinical data to the FDA. An IDE
will be required to conduct the clinical trials. Upon completion and analysis of
clinical studies, the applicant assembles and submits a PMA application setting
forth the preclinical, clinical, manufacturing and other data. Typically, the
FDA will also inspect the manufacturing facility for compliance with the Quality
System regulation. The FDA review and approval of a PMA can take several years.
There can be no assurance that PMA approvals will be obtained for any of
LifeCell's proposed products.
With respect to LifeCell's proposed biological blood cell preservation
products, the Company or its contracted designee must obtain both a product
license and an establishment license from the FDA prior to marketing. A product
and license application ("PLA") and establishment license application ("ELA")
must be submitted and supported by extensive data, including preclinical and
clinical data that demonstrate that the manufactured product meets prescribed
standards of safety and efficacy. Before conducting the required clinical
testing of a biological product, an applicant must submit an investigational new
drug application to the FDA, containing preclinical data demonstrating the
safety of the product for human investigational use, information about the
manufacturing processes and procedures, and the proposed clinical protocol.
Clinical trials of biological products typically are conducted in three
sequential phases, but may overlap. Phase I trials test the product in a small
number of healthy subjects, primarily to determine its safety and tolerance at
one or more doses. In Phase II, in addition to safety, the efficacy, optimal
dose and side effects of the product are evaluated in a patient population
somewhat larger than the Phase I trial. Phase III involves further safety and
efficacy testing on an expanded patient population at geographically dispersed
test sites. All clinical studies must be conducted in accordance with FDA
approved protocol and are subject to the approval and monitoring of one or more
Institutional Review Boards. In addition, clinical investigators must adhere to
good clinical practices. Completion of all three phases of clinical studies may
take several years, and the FDA may temporarily or permanently suspend a
clinical study at any time. Upon completion and analysis of clinical trials, the
applicant assembles and submits a PLA and an ELA. The ELA contains a complete
description of the manufacturing process. Before the licenses can be granted,
the Company or its designee must undergo a successful establishment inspection.
The FDA review and approval of a biological product can take several years.
There can be no assurance that LifeCell will obtain the required approvals for
any of its proposed biological products.
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All products marketed by LifeCell pursuant to the above-described approvals
and clearances will be subject to pervasive and continuing regulation by the
FDA. Products must be manufactured in registered establishments and must be
produced in accordance with GMP regulations. There are post-marketing
surveillance and reporting requirements. Manufacturing facilities and processes
are subject to periodic FDA inspection. Labeling and promotional activities are
also subject to FDA scrutiny and, in certain instances, by the Federal Trade
Commission. The export of devices and biologics is also subject to regulation
and may require prior FDA clearance. From time to time, the FDA may modify such
regulations and impose additional or different requirements. It is impossible to
predict how such revisions would affect the Company's operations. Failure to
comply with any applicable FDA requirements could result in civil and criminal
enforcement actions and penalties.
Sales of medical devices and biological products outside the United States
are subject to foreign regulatory requirements that vary widely from country to
country. Approval of a product by comparable regulatory authorities of foreign
countries must be obtained prior to commercialization of the product in those
countries. Certain countries regulate AlloDerm as a pharmaceutical product,
requiring extensive filings and regulatory approvals to market the product.
Certain countries classify AlloDerm as "banked human tissue" but may restrict
its import or sale. Other countries have no applicable regulations regarding the
import or sale of products similar to AlloDerm, creating uncertainty regarding
the import or sale of the product. The inability to classify AlloDerm as a
medical device has restricted LifeCell's ability to obtain a CE mark for Western
Europe, which would provide a clearer marketing path in the European Union. The
time required to obtain foreign approvals may be longer or shorter than that
required for FDA approval and there can be no assurance that approvals would be
obtained for any of the Company's products. AlloDerm currently is being marketed
in certain foreign countries, and LifeCell is actively pursuing clearance to
market AlloDerm in additional countries. There can be no assurance that the
uncertainty of regulations in each country will not delay or impede the
marketing of AlloDerm or impede the ability of LifeCell to negotiate
distribution arrangements on favorable terms.
In addition, NOTA prohibits the acquisition, receipt or transfer of certain
human organs, including skin and heart valves and vascular conduits for
"valuable consideration", but permits the payment of reasonable expenses
associated with the removal, transportation, processing, preservation, quality
control and storage of human tissue and skin. Assuming that NOTA applies to
LifeCell's products, it may be interpreted to limit the prices that LifeCell may
charge for processing and transporting such human tissue products. LifeCell
includes in its AlloDerm pricing structure certain of its educational costs
associated with the processing and transportation of human tissue. Although
LifeCell believes that recovery of educational costs is permitted under NOTA, a
future inability of LifeCell to pass these costs on to purchasers of its
products could adversely affect LifeCell's business and prospects. Assuming that
NOTA applies to LifeCell's products, LifeCell intends to comply with NOTA, but
there can be no assurance that the government will not adopt interpretations of
NOTA that would adversely affect LifeCell's pricing structure or otherwise call
into question one or more aspects of LifeCell's method of operation. Certain
foreign countries have laws similar to NOTA. These laws may restrict the amount
that the Company can charge for AlloDerm, and may restrict the importation or
distribution of AlloDerm to licensed not-for-profit organizations.
LifeCell is also subject to various federal, state and local laws,
regulations and recommendations relating to such matters as safe working
conditions, laboratory and manufacturing practices, and the use, handling and
disposal of hazardous or potentially hazardous substances used and produced in
connection with LifeCell's research and development work. See "-- Environmental
Matters". Although LifeCell believes it is in compliance in all material
respects with these laws and regulations, there can be no assurance that the
Company will not incur significant additional costs to comply with environmental
laws or regulations in the future.
RESEARCH AND DEVELOPMENT
LifeCell has historically funded the development of its tissue products
(other than AlloDerm) and blood cell preservation products primarily through
external sources, including a corporate alliance and
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government grants and contracts as well as proceeds from equity offerings. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources". LifeCell's research and
development costs in 1994, 1995 and 1996 and for the six months ended June 30,
1997 for all programs, including those programs funded through corporate and
government support, were approximately $2.1 million, $2.2 million, $1.6 million
and $1.1 million, respectively. Research and development of heart valves is
currently being funded in part by Medtronic. See "-- Corporate Alliance".
The SBIR grant program provides funding for two phases of awards. Phase I
is to evaluate the scientific and technical merit and feasibility of an idea.
Awards are up to $100,000 with a period of performance normally not to exceed
six months. Phase II is to expand on the results of Phase I. Awards are up to
$750,000, with a period of performance normally not to exceed two years. To
date, LifeCell has been awarded approximately $4.6 million through 14 approved
SBIR program awards and Department of Defense contracts.
In 1996, LifeCell received a two-year Phase II SBIR grant award from the
NSF in the amount of $300,000 to support the composite skin graft program, a
one-year U.S. Navy contract in the amount of approximately $613,000 to support
the ThromboSol program and a two-year Collaborative Agreement with the U.S. Army
in the amount of approximately $1.1 million to support investigation of AlloDerm
grafts to repair dura mater, the use of AlloDerm grafts in conjunction with
microskin grafting in burn wounds and the development of vascular graft
products.
LifeCell intends to continue to seek funding through the SBIR programs, as
well as to pursue additional government grant and contract programs. Generally,
LifeCell has the right to patent any technologies developed from government
grants and contract funding, subject to the United States government's right to
receive a royalty-free license for federal government use and to require
licensing to others in certain circumstances.
PATENTS, PROPRIETARY INFORMATION AND TRADEMARKS
LifeCell's ability to compete effectively with other companies is
materially dependent upon the proprietary nature of its technologies. LifeCell
relies primarily on patents and trade secrets to protect its technologies.
LifeCell currently licenses the exclusive right to nine United States patents
and related foreign patents and the non-exclusive right to one United States
patent. In addition, LifeCell has been issued three United States utility
patents, one United States design patent and has five pending United States
patent applications.
The Company's technology is protected by three primary families of patents
and patent applications. One United States patent covers methods of producing
the Company's tissue-based products. Two United States patents and two pending
patent applications cover methods of extending the shelf-life of platelets, red
blood cells and other blood cells. Eight additional United States patents
supplement the Company's other patents and cover methods of freeze-drying
without the damaging effects of ice crystal formation.
LifeCell has also applied for patent protection in several foreign
countries. Because of the differences in patent laws and laws concerning
proprietary rights, the extent of protection provided by United States patents
or proprietary rights owned by or licensed to LifeCell may differ from that of
their foreign counterparts.
No assurances may be given that the Company's products or planned products
may not be the subject of an infringement action by a third party. Any
successful patent infringement claim relating to any products or planned
products could have a material adverse effect on the Company. Further, there can
be no assurance that any patents or proprietary rights owned by or licensed to
LifeCell will not be challenged, invalidated, circumvented, or rendered
unenforceable based on, among other things, subsequently discovered prior art,
lack of entitlement to the priority of an earlier, related application or
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failure to comply with the written description, best mode, enablement or other
applicable requirements. See "Risk Factors -- Patents and Proprietary Rights".
LifeCell may decide for business reasons to retain certain knowledge that
it considers proprietary as confidential and elect to protect such information
as a trade secret, as business confidential information, or as know-how. In that
event, LifeCell must rely upon trade secrets, know-how and continuing
technological innovation to maintain its competitive position. There can be no
assurance that others will not independently develop substantially equivalent
proprietary information or otherwise gain access to or disclose such
information.
LifeCell has federal trademark or service mark registrations that it
currently uses for LifeCell(R), which concerns processing and preserving tissue
samples, and AlloDerm(R), which concerns LifeCell's commercial acellular dermal
graft product.
COMPETITION
The biomedical field is undergoing rapid and significant technological
change. LifeCell's success depends upon its ability to develop and commercialize
its technology. There are many companies and academic institutions that are
capable of developing products based on similar technology, and that have
developed and are capable of developing products based on other technologies,
which are or may be competitive with LifeCell's products. Many of those
companies and academic institutions are well-established, have substantially
greater financial and other resources than LifeCell and have established
reputations for success in the development, sale and service of products. These
companies and academic institutions may succeed in developing competing products
that are more effective than LifeCell's products or that receive government
approvals more quickly than LifeCell's products.
LifeCell anticipates direct competition for AlloDerm tissue products and
all of its proposed transplantable tissue products, as well as indirect
competition from advances in therapeutic agents, such as growth factors now used
to enhance wound healing. LifeCell believes that therapeutic growth factors may
be used in conjunction with its proposed products and may potentially enhance
the products' efficacy. LifeCell is not aware of any person or entity currently
marketing transplantable tissue products with features similar to AlloDerm or
LifeCell's other proposed transplantable products. There can be no assurance,
however, that LifeCell will be able to compete effectively with other
commercially available products or that development of other technologies will
not detrimentally affect LifeCell's commercial opportunities or competitive
advantage.
ENVIRONMENTAL MATTERS
LifeCell's research and development and processing techniques generate
waste that is classified as hazardous by the United States Environmental
Protection Agency and the Texas Natural Resources Commission. LifeCell
segregates such waste and disposes of it through a licensed hazardous waste
transporter. Although LifeCell believes it is currently in compliance in all
material respects with applicable environmental regulations, its failure to
comply fully with any such regulations could result in the imposition of
penalties, fines or sanctions that could have an adverse effect on LifeCell's
business. See "Risk Factors -- Disposal of Hazardous Materials".
EMPLOYEES
At September 30, 1997, the Company had 88 full-time and three part-time
employees of which 27 were employed in sales and marketing, 31 in engineering,
production and quality assurance, 17 in research and development and clinical
trials, and 16 in administration and accounting. As of September 30, 1997, the
Company employed, full time, two persons with M.D. degrees and eight persons
with Ph.D. degrees.
PROPERTIES
LifeCell leases approximately 25,000 square feet of laboratory, office and
warehouse space at its facilities in The Woodlands, Texas, under lease
agreements that expire in January 2001. The Company's monthly rental obligation
for its facilities is approximately $24,000.
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<PAGE> 45
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information as of September 30, 1997,
regarding the executive officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- ------------------------------------------
<S> <C> <C>
Paul M. Frison....................................... 60 Chairman of the Board, President and Chief
Executive Officer
Stephen A. Livesey, M.D., Ph.D....................... 44 Executive Vice President and Chief
Science Officer
John R. Harper, Ph.D................................. 44 Vice President, Clinical Development
Jane Lea Hicks....................................... 47 Vice President, Business Development
J. Donald Payne...................................... 42 Vice President, Chief Financial Officer
and Secretary
Charles M. Schiff.................................... 53 Vice President, Operations
Ronald J. Schwartz................................... 37 Vice President, Sales and Marketing
Michael E. Cahr(1)(2)(3)............................. 57 Director
James G. Foster(1)(2)................................ 52 Director
Lori G. Koffman(2)(3)................................ 38 Director
K. Flynn McDonald(1)(2)(3)........................... 44 Director
David A. Thompson(1)(2)(3)........................... 55 Director
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Member of Stock Option Committee.
PAUL M. FRISON. Mr. Frison has served as Chairman of the Board, President
and Chief Executive Officer of LifeCell since May 1986. His background includes
over 30 years of experience in the health care industry. He spent 13 years with
American Hospital Supply Corporation, where he was responsible for all corporate
activities in Western Europe and Latin America. From 1975 to 1984, he was
President, Chief Operating Officer and a director of LifeMark Corporation, a
Houston-based hospital management corporation. He joined LifeMark in September
1975 and remained until its merger with American Medical International in 1984.
Prior to joining LifeCell in 1986, Mr. Frison was Chairman of the Board,
President and Chief Executive Officer of ComputerCraft, Inc. Mr. Frison received
his bachelor's degree in 1958 from Occidental College in Los Angeles.
STEPHEN A. LIVESEY, M.D., PH.D. Dr. Livesey has served as Executive Vice
President, Chief Science Officer and as a director of the Company since March
1993. He served as Executive Vice President, Scientific Development of the
Company from June 1991 until March 1993. He is also a co-developer of the
Company's initial technology and was involved in the formation of the Company
and the licensing of such technology to the Company from The University of Texas
Health Science Center in Houston. Dr. Livesey served as a consultant to the
Company from its inception until June 1991, when he became a full-time employee.
He holds an adjunct instructorship position at Baylor College of Medicine,
Houston, Texas. Dr. Livesey received his medical degree from the University of
Melbourne, Australia in 1977 and a Ph.D. in biological chemistry in 1985 from
the University of Melbourne, Australia.
JOHN R. HARPER, PH.D. Dr. Harper has served as Vice President, Clinical
Development since June 1997. He served as Vice President of Research and
Development from November 1994 until June 1997. He is responsible for directing
LifeCell's clinical research and development activities for AlloDerm and future
products. Prior to joining LifeCell, Dr. Harper was Director of Fibrosis
Research at Telios Pharmaceuticals, La Jolla, California, from 1989 to 1994. He
was an Assistant Professor at the Scripps Clinic and Research Foundation, La
Jolla, California from 1986 to 1989. Dr. Harper received his
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<PAGE> 46
Ph.D. in Biomedical Sciences from the Graduate School of Biomedical Sciences at
the University of Texas, Health Science Center in Houston, Texas in 1981 and
completed post-doctoral studies at Scripps Clinic and Research Foundation and
the National Cancer Institute.
JANE LEA HICKS. Ms. Hicks, Vice President, Business Development, is
responsible for the development of corporate partnerships and strategic
alliances for LifeCell. Prior to becoming Vice President, Business Development
in March 1992, Ms. Hicks served LifeCell as Director of Business Development
since 1991. Ms. Hicks joined LifeCell in 1986 as Technical Marketing Manager
responsible for the development and implementation of sales and marketing
programs and the ultimate sublicensing of LifeCell's electron microscopy
equipment business. Prior to joining LifeCell, Ms. Hicks spent five years in
sales and marketing management with Warner Lambert Company, two years in medical
supply sales, and eight years in clinical laboratory management. Ms. Hicks
received her bachelor's degree in 1972 from the University of North Carolina at
Greensboro.
J. DONALD PAYNE. Mr. Payne joined LifeCell in March 1997 as Vice President,
Chief Financial Officer and Secretary. Prior to joining LifeCell, from 1992 to
1997, Mr. Payne was Vice President, Finance, Chief Financial Officer and a
director of Aprogenex, Inc. From 1980 to 1990, Mr. Payne was Vice President,
Finance, Treasurer, Corporate Secretary and Chief Financial Officer of UMC
Petroleum Corporation. Mr. Payne received his bachelor's degree in business
administration from Texas A&M University in 1976 and his master's degree in
business administration from Rice University in 1992.
CHARLES M. SCHIFF. Mr. Schiff was elected Vice President, Operations of the
Company in September 1997 and is responsible for directing the manufacturing
activities of LifeCell. From June 1996 until September 1997, Mr. Schiff served
as Director of Manufacturing for the Company. Prior to joining LifeCell, from
1994 to 1996, Mr. Schiff was Vice President of Operations of EyeSys
Technologies. Mr. Schiff was Vice President of Operations of Endosonics Inc.
from 1989 to 1994. Mr. Schiff received his bachelor of science in mechanical
engineering from Ohio Northern University in 1967.
RONALD J. SCHWARTZ. Mr. Schwartz was elected Vice President, Sales and
Marketing of the Company in April 1995 and is responsible for the direction of
the sales and marketing activities for LifeCell. Prior to joining LifeCell, from
August 1984 to March 1995, Mr. Schwartz held various positions with Sherwood
Medical (a division of American Home Products), most recently as Group Marketing
Manager, where he was responsible for the sales and marketing programs for
Sherwood Medical's wound care product line. Mr. Schwartz received his bachelor's
degree in business administration from the University of South Florida in Tampa,
Florida in 1981.
MICHAEL E. CAHR. Mr. Cahr has been a director of the Company since July
1991. Mr. Cahr has been the chairman of Allscrips Pharmaceuticals, Inc., a
medication management and distribution firm since June 1994, and also served as
its President and Chief Executive Officer from June 1994 to October 1997. From
1987 to June 1994, he was the venture group manager in the Venture Capital
Division of the Investment Department of Allstate Insurance Company, a principal
stockholder of the Company. Mr. Cahr is a director of Optek Technologies, Inc.,
an optoelectronic company, and Alarmguard Holdings, Inc., an electronic security
monitoring company.
JAMES G. FOSTER. Mr. Foster has been a director of the Company since March
1995. Mr. Foster has been Vice President and General Manager of Medtronic Heart
Valves, a division of Medtronic, since December 1994. From February 1984 to
December 1994, Mr. Foster held various officer positions with Medtronic. Mr.
Foster was named to the Board of Directors pursuant to Medtronic's right under
its investment agreement with LifeCell to designate one member of the Company's
Board of Directors.
LORI G. KOFFMAN. Ms. Koffman was elected a director of the Company in
November 1996. Ms. Koffman is a Managing Director of CIBC Wood Gundy Ventures,
Inc., the merchant banking arm of the Canadian Imperial Bank of Commerce, where
she has been employed since April 1995. From August 1984 to December 1994, Ms.
Koffman was employed at Lehman Brothers Inc., most recently as a senior vice
president in the Merchant Banking Group. Ms. Koffman is a director of R.P.
Scherer Corporation, Sinclair Montrose Healthcare plc, Mulberry Childcare
Centers, Inc., Collegiate Health
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<PAGE> 47
Care, Inc. and Village Inc. Ms. Koffman was named to the Board of Directors
pursuant to the right of the holders of the Series B Preferred Stock to elect up
to three members of the Board of Directors. See "Description of Capital
Stock -- Series B Preferred Stock".
K. FLYNN MCDONALD. Ms. McDonald was elected a director of the Company in
November 1996. Ms. McDonald is Vice President of Vector Fund Management, L.P.,
the general partner of the Vector Later-Stage Equity Fund, L.P., where she has
been employed since November 1995. From December 1993 through October 1995, she
was a Vice President of Technology Funding, investing in both the technology and
health care sectors. From 1986 through 1993, Ms. McDonald was employed at
Raychem Corporation where her last position was Vice President of Raychem
Ventures and Controller/Director of Business Development, Technology Sector. Ms.
McDonald is a director of MaterniCare, Inc., an obstetrics and gynecology
physician practice management company, and Pilot Network Services, Inc., a
provider of security services to the Internet. Ms. McDonald was named to the
Board of Directors pursuant to the right of the holders of the Series B
Preferred Stock to elect up to three members of the Board of Directors. See
"Description of Capital Stock -- Series B Preferred Stock".
DAVID A. THOMPSON. Mr. Thompson was elected a director of the Company in
June 1997. Mr. Thompson has been Chief Executive Officer of Strategic
Improvement Processes, a private consulting firm, since June 1995. From 1964
through June 1995, Mr. Thompson was employed by Abbott Laboratories, a
healthcare company, where he served in various capacities, including Senior Vice
President, Diagnostic Operations, President, Diagnostic Division, Vice
President, Human Resources and Vice President, Corporate Materials Management.
Mr. Thompson is a director of HYCOR Biomedical, Inc., a medical diagnostic
company, NABI, a biopharmaceutical company, and NeoPath, Inc., an automated
medical images company.
BOARD OF DIRECTORS
The holders of the shares of Series B Preferred Stock have the right to
elect up to three directors of the Company. Each holder of Series B Preferred
Stock has entered into a voting agreement pursuant to which such holder has
agreed to vote such holder's shares of Series B Preferred Stock in favor of one
nominee designated by CIBC Wood Gundy Ventures, Inc. and one nominee designated
by Vector Later-Stage Equity Fund, L.P. In addition, Medtronic has the right,
pursuant to the investment agreement dated March 3, 1994, between the Company
and Medtronic, to designate one member of the Board of Directors until March 3,
1999. See "Description of Capital Stock -- Series B Preferred Stock".
COMMITTEES
The Board of Directors has established an Audit Committee, a Compensation
Committee and a Stock Option Committee. The Audit Committee recommends the
independent public accountants appointed by the Board of Directors to audit the
financial statements of the Company and reviews issues raised by such
accountants as to the scope of their audit and their report thereon, including
any questions and recommendations that may arise relating to such audit and
report or the Company's internal accounting and auditing procedures. The
Compensation Committee reviews, approves and makes recommendations to the Board
of Directors on matters regarding the compensation of the Company's officers,
directors, employees and agents. The Stock Option Committee administers the
Company's stock option plans.
46
<PAGE> 48
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
MANAGEMENT AND SELLING STOCKHOLDERS
The following table sets forth information as of September 30, 1997, with
respect to (i) persons known to the Company to be beneficial holders of five
percent or more of either the outstanding shares of Common Stock or the
outstanding shares of Series B Preferred Stock, (ii) the executive officers and
directors of the Company and (iii) all executive officers and directors of the
Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1)
----------------------------------------------------------------
SERIES B COMMON STOCK COMMON STOCK
PREFERRED PRIOR TO NUMBER SUBSEQUENT TO
STOCK OFFERING OF OFFERING
------------- ---------------- SHARES ----------------
BENEFICIAL OWNER NUMBER % NUMBER % TO BE SOLD NUMBER %
- --------------------------------------------- ------ ---- --------- ---- ---------- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS AND 5%
STOCKHOLDERS
CIBC Wood Gundy Ventures, Inc.(2)............ 47,098 37.8 2,530,901 26.7
425 Lexington Avenue
New York, New York 10017
Vector Later-Stage Equity Fund, L.P.(3)...... 42,050 33.8 2,259,676 24.5
1751 Lake Cook Road, Suite 350
Deerfield, Illinois 60015
Allstate Insurance Company(4)................ -- -- 899,109 12.9
Allstate Plaza South G5D
Northbrook, Illinois 60062
The Woodlands Venture Capital Company(5)..... 2,627 2.1 732,498 10.3
2201 Timberloch Place
The Woodlands, Texas 77380
S.B.S.F. Biotechnology Fund, L.P.(6)......... 9,460 7.6 508,396 6.8
c/o Spears, Benzak, Salomon & Farrell
45 Rockefeller Plaza, 33rd Floor
New York, New York 10111
Medtronic, Inc.(7)........................... -- -- 345,191 5.0
Corporate Center
7000 Central Avenue N.E.
Minneapolis, Minnesota 55432
Paul M. Frison(8)............................ -- -- 334,237 4.7
Chairman of the Board, President and
Chief Executive Officer
Michael E. Cahr.............................. 524 * 103,643 1.5
Director(9)
James G. Foster.............................. -- -- -- --
Director(10)
Lori Koffman(11)............................. -- -- -- --
Director
Stephen A. Livesey, M.D., Ph.D.(12).......... 261 * 220,759 3.1
Executive Vice President, Chief
Science Officer and Director
K. Flynn McDonald(13)........................ -- -- 25,000 *
Director
David A. Thompson............................ -- -- 1,700 *
Director
John R. Harper, Ph.D.(14).................... -- -- 12,546 *
Vice President, Clinical Development
Jane Lea Hicks(15)........................... -- -- 80,261 *
Vice President, Business Development
J. Donald Payne(16).......................... -- -- 66 *
Vice President, Chief Financial Officer and
Secretary
Charles M. Schiff(17)........................ -- -- 7,034 *
Vice President, Operations
Ronald J. Schwartz(18)....................... -- -- 20,882 *
Vice President, Sales and Marketing
All executive officers, directors and........ 785 * 806,128 10.8
nominees as a group (12 persons)(19)
</TABLE>
47
<PAGE> 49
- ---------------
* Less than 1%.
(1) Each beneficial owner's percentage ownership is determined by assuming that
options, warrants and other convertible securities that are held by such
person (but not those held by any other person) and that are exercisable or
convertible within 60 days of September 30, 1997 have been exercised or
converted. Unless otherwise noted, the Company believes that all persons
named in the above table have sole voting and investment power with respect
to all shares of Common Stock and/or Series B Preferred Stock beneficially
owned by them.
(2) Includes 2,530,901 shares of Common Stock issuable upon conversion of
shares of Series B Preferred Stock and exercise of a warrant. Lori Koffman,
a director of the Company, is a managing director of CIBC Wood Gundy
Ventures, Inc. ("CIBC").
(3) Includes 2,259,676 shares of Common Stock issuable upon conversion of
shares of Series B Preferred Stock and exercise of a warrant. K. Flynn
McDonald, a director of the Company, is a vice president of Vector Fund
Management, L.P., the general partner of Vector Later-Stage Equity Fund,
L.P.
(4) Information with respect to such stockholder was obtained from its report
on Form 4 dated September 5, 1997, as received by the Company, and the
Company's stock records.
(5) Total number of shares of Common Stock includes 141,192 shares of Common
Stock issuable upon conversion of shares of Series B Preferred Stock and
exercise of a warrant. The Woodlands Venture Capital Company is a wholly
owned subsidiary of Mitchell Energy & Development Corp. George P. Mitchell
owns the majority of the issued and outstanding shares of Mitchell Energy &
Development Corp. Because of these relationships, Mitchell Energy &
Development Corp. and George P. Mitchell may be deemed to be the beneficial
owners of the 732,498 shares of Common Stock held directly or indirectly by
The Woodlands Venture Capital Company. Certain information with respect to
the ownership of such stockholders was obtained from Amendment No. 3 to
their joint report on Schedule 13G dated February 13, 1997, as received by
the Company, and the Company's stock records.
(6) Includes 508,386 shares of Common Stock issuable upon conversion of shares
of Series B Preferred Stock and exercise of warrants.
(7) Does not include shares of Common Stock issuable upon exercise of an option
to convert a $1.5 million licensing fee into shares of Common Stock
pursuant to a license and development agreement between LifeCell and
Medtronic. Information with respect to the ownership of such stockholder
was obtained from Amendment No. 1 to its report on Schedule 13G dated
February 14, 1997, as received by the Company, and the Company's stock
records. James G. Foster, a director of the Company, is the Vice President
and General Manager of Medtronic Heart Valves, a division of Medtronic.
(8) Total number of shares of Common Stock includes 158,734 shares underlying
options granted under the 1992 Stock Option Plan and 395 shares held for
Mr. Frison's account by the Employee Stock Purchase Plan (the "Stock
Purchase Plan").
(9) Total number of shares of Common Stock includes 75,000 shares underlying
options granted under the LifeCell Corporation Second Amended and Restated
1993 Non-Employee Director Stock Option Plan, as amended (the "Director
Stock Option Plan"), and 28,193 shares of Common Stock issuable upon
conversion of shares of Series B Preferred Stock and exercise of a warrant.
(10) Mr. Foster is the Vice President and General Manager of Medtronic Heart
Valves, a division of Medtronic, and because of such position may be deemed
the beneficial owner of the 345,191 shares of Common Stock held by
Medtronic. Mr. Foster disclaims any such beneficial ownership.
(11) Ms. Koffman is a Managing Director of CIBC and because of such position may
be deemed the beneficial owner of the 2,530,901 shares of Common Stock and
the 47,098 shares of Series B Preferred Stock beneficially owned by CIBC.
Ms. Koffman disclaims any such beneficial ownership.
(12) Total number of shares of Common Stock includes 105,414 shares underlying
options granted under the 1992 Stock Option Plan, 13,774 shares of Common
Stock issuable pursuant to the conversion of shares of Series B Preferred
Stock and exercise of a warrant and 752 shares of Common Stock held for Dr.
Livesey's account by the Stock Purchase Plan.
(13) Includes 25,000 shares underlying options granted under the Director Stock
Option Plan. Ms. McDonald is a Vice President of Vector Fund Management,
L.P., the general partner of Vector Later-Stage Equity Fund, L.P., and
because of such position may be deemed the beneficial owner of the
2,259,676 shares of Common Stock and the 42,050 shares of Series B
Preferred Stock beneficially owned by Vector Later-Stage Equity Fund, L.P.
Ms. McDonald disclaims any such beneficial ownership.
(14) Total number of shares of Common Stock includes 12,291 shares underlying
option granted under the 1992 Stock Option Plan and 255 shares of Common
Stock held for Mr. Harper's account by the Stock Purchase Plan.
(15) Total number of shares of Common Stock includes 67,748 shares underlying
options granted under the 1992 Stock Option Plan and 752 shares of Common
Stock held for Ms. Hicks' account by the Stock Purchase Plan.
(16) Total number of shares of Common Stock includes 66 shares held for Mr.
Payne's account by the Stock Purchase Plan.
(17) Total number of shares of Common Stock includes 6,250 shares underlying
options granted under the 1992 Stock Option Plan and 84 shares of Common
Stock held for Mr. Schiff's account by the Stock Purchase Plan.
(18) Total number of shares of Common Stock includes 20,416 shares underlying
options granted under the 1992 Stock Option Plan and 466 shares of Common
Stock held for Mr. Schwartz's account by the Stock Purchase Plan.
(19) See notes (8) through (18).
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<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of the capital stock of
LifeCell does not purport to be complete and is subject to, and qualified in its
entirety by the Restated Certificate of Incorporation and the By-laws of the
Company which are included as exhibits to the registration statement of which
this Prospectus forms a part and by the provisions of applicable law.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
LifeCell is authorized by the Restated Certificate of Incorporation to
issue 25,000,000 shares of Common Stock, $.001 par value per share, and
2,000,000 shares of Preferred Stock, $.001 par value per share ("Preferred
Stock"), 182,205 shares of which are designated "Series B Preferred Stock". The
Company previously had designated 300,000 shares of Preferred Stock as "Series A
Preferred Stock". In March 1997, in accordance with the terms of the Series A
Preferred Stock, the Company redeemed all of the outstanding shares of Series A
Preferred Stock through the conversion of such shares into shares of Common
Stock and in September 1997, the Company retired all of such shares. As of
September 30, 1997, there were 6,973,466 shares of Common Stock issued and
outstanding and 124,360 shares of Series B Preferred Stock issued and
outstanding. In addition, there were an aggregate of 10,820,863 shares of Common
Stock reserved for issuance upon conversion of the Series B Preferred Stock,
upon exercise of outstanding warrants, under director and employee benefit plans
and pursuant to other rights to acquire Common Stock.
The Board of Directors has authority to divide the Preferred Stock into one
or more series and has broad authority to fix and determine relative rights and
preferences of the shares of each such series. Preferred Stock redeemed or
otherwise retired by the Company will assume the status of authorized but
unissued Preferred Stock and may be reissued in the same manner as other
authorized but unissued shares of Preferred Stock. Holders of Preferred Stock
have no preemptive rights.
COMMON STOCK
Holders of Common Stock are entitled to receive such dividends as are
declared by the Board of Directors and to share ratably in assets available for
distribution to holders of the Common Stock upon any liquidation. Any
distributions to holders of Common Stock upon liquidation will be subject to the
prior rights of any holders of Series B Preferred Stock then outstanding. See
"Risk Factors -- Series B Preferred Stock". Each share of Common Stock entitles
the holder thereof to one vote on all matters submitted to a vote of the
stockholders of the Company. Holders of Common Stock have no preemptive rights
and no right to cumulate votes. Except as otherwise required by law or the
provisions of the Certificate of Incorporation, the holders of shares of Common
Stock are not entitled to vote separately as a class on any matter submitted to
a vote of the stockholders of the Company.
SERIES B PREFERRED STOCK
Dividends
Holders of the Series B Preferred Stock are entitled to receive, when, as
and if declared by the Board of Directors, out of the funds of the Company
legally available therefor, a quarterly dividend payable in Series B Preferred
Stock or cash or a combination of Series B Preferred Stock and cash, at the
Company's option, at an annual rate equal to the greater of (i) the per annum
rate of dividends paid on the Common Stock and (ii) $6.00 per share (and, in the
case of any accrued but unpaid dividends, at such additional times and for such
interim periods, if any, as determined by the Board of Directors). Dividends on
shares of Series B Preferred Stock accrue on the last day of each calendar
quarter during which such shares are outstanding (with each such date being an
"Accrual Date") and are cumulative from the date of issuance. Accrued but unpaid
dividends do not bear interest. Dividends cease accruing on September 30, 2001.
The number of shares of Series B Preferred Stock to be issued as a
dividend, with respect to the portion of such dividend accrued on each Accrual
Date, is equal to the number obtained by dividing the
49
<PAGE> 51
dollar amount of such dividend or portion thereof to be paid in Series B
Preferred Stock by $100.00 (as adjusted on the same basis as the conversion
price).
Voting and Special Rights
On all matters submitted to a vote of the stockholders of the Company, each
share of Series B Preferred Stock entitles the holder thereof to one vote for
each share of Common Stock into which such share of Series B Preferred Stock is
then convertible.
Without the vote or consent of the holders of at least a majority of the
shares of Series B Preferred Stock then outstanding, the Company may not
authorize or create any class or series of capital stock ranking prior to or on
a parity with the Series B Preferred Stock either as to redemption or
liquidation.
The holders of the shares of Series B Preferred Stock have the right to
elect up to three directors of the Company. Each holder of Series B Preferred
Stock has entered into a voting agreement pursuant to which such holder agreed
to vote such holder's shares of Series B Preferred Stock in favor of one nominee
designated by CIBC Wood Gundy Ventures, Inc., and one nominee designated by
Vector Later-Stage Equity Fund, L.P.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of shares of Series B Preferred
Stock will be entitled to receive out of the assets of the Company available for
distribution to stockholders, before any distribution of assets is made to
holders of Common Stock or of any other class or series of stock of the Company
ranking junior to the Series B Preferred Stock, liquidating distributions in the
amount equal to $100.00 per share of Series B Preferred Stock, plus accrued and
unpaid dividends. If upon any liquidation, dissolution or winding up of the
Company, the amounts payable with respect to the Series B Preferred Stock and
any other class or series of stock ranking as to any such distribution on a
parity with the Series B Preferred Stock are not paid in full, the holders of
the Series B Preferred Stock and of such other stock will share ratably in any
such distribution of assets in proportion to the full respective preferential
amounts to which they are entitled. After payment of the full amount of the
liquidating distribution to which they are entitled, the holders of shares of
Series B Preferred Stock will be entitled to share ratably (treating all then
issued and outstanding shares of Series B Preferred Stock as if such shares had
been converted into Common Stock) in any further distribution of assets by the
Company to the holders of Common Stock.
Conversion
Each share of Series B Preferred Stock is convertible at the option of the
holder at any time into shares of Common Stock at a conversion price per share
of Common Stock initially equal to $3.10, subject to adjustment upon certain
events. In addition, each outstanding share of Series B Preferred Stock shall be
converted, at the conversion price then in effect, into fully paid and
nonassessable shares of Common Stock on the earlier to occur of (i) the
Company's completion of an underwritten public offering of shares of Common
Stock in which the proceeds to the Company (net of underwriter's discounts) are
equal to or greater than $20.0 million and the per share offering price is equal
to or greater than $9.30 and (ii) the first date following the Company's
completion of an underwritten public offering of shares of Common Stock in which
the proceeds to the Company (net of underwriter's discounts) are equal to or
greater than $20.0 million and average closing price of the Common Stock for 30
consecutive trading days has been equal to or greater than $9.30.
The 124,360 shares of Series B Preferred Stock outstanding as of September
30, 1997 currently are convertible into 4,011,612 shares of Common Stock. The
number of shares of Common Stock to be issued upon conversion will be calculated
to the nearest 1/100th of share.
No fractional shares or securities representing fractional shares of Common
Stock will be issued upon conversion. Any fractional shares resulting from
conversion will be paid in cash based on the
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<PAGE> 52
current market price of the Common Stock at the close of business on the first
business day preceding the date of conversion.
REGISTRATION RIGHTS
Pursuant to agreements with the Company, at September 30, 1997, holders of
an aggregate of 9,501,773 shares of Common Stock, including 3,096,507 shares of
Common Stock issuable upon the exercise of outstanding warrants (the
"Registrable Securities"), are entitled to certain registration rights
("Registration Rights"). The holders of such shares may, subject to certain
limitations, require the Company to register their Registrable Shares for public
resale at the Company's expense. Such holders also have the right to include
their Registrable Shares, subject to certain limitations, in any registration of
shares of Common Stock by the Company under the Securities Act. The holders of
approximately 345,191 Registrable Securities also have the right to request one
registration on Form S-3 in any six-month period. In general, the Company is
required to bear all registration expenses, other than underwriters' discounts
and commissions, for all Company-initiated registrations.
The Company maintains the effectiveness of two registration statements
covering the public sale of shares of Common Stock. One such registration
statement covers the public sale of an aggregate of 2,559,617 shares of Common
Stock issued upon conversion of and as dividends on shares of preferred stock
issued by the Company in a private placement completed in 1994 and upon exercise
of warrants issued in connection therewith. The other registration statement
covers the public sale of an aggregate of 8,775,644 shares of Series B Preferred
Stock issued by the Company in a private placement completed during 1996, upon
the exercise of warrants issued in connection therewith and upon conversion of
shares of Series B Preferred Stock issued or issuable as dividends on the Series
B Preferred Stock.
WARRANTS
The Company has outstanding warrants to purchase an aggregate of 3,196,507
shares of Common Stock, at exercise prices ranging from $2.50 to $11.05 per
share and with terms expiring from December 31, 1997 to November 18, 2001. The
warrants contain certain antidilution adjustments. Warrant holders have been
granted certain registration rights.
MEDTRONIC RIGHTS
In 1994, LifeCell entered into a license and development agreement and an
investment agreement pursuant to which Medtronic paid LifeCell an initial $1.5
million licensing fee. If, however, Medtronic terminates the license and
development agreement prior to FDA approval of the heart valve products,
Medtronic may convert the $1.5 million licensing fee into a number of shares of
Common Stock equal to $1.5 million divided by the then average market price of
the Common Stock for the 20 trading days immediately preceding the date of
Medtronic's termination notice (the "Average Market Price"). Pursuant to the
terms of the investment agreement, the shares of Common Stock issuable upon
conversion of the licensing fee, together with all other shares of Common Stock
held by Medtronic, may not exceed 19% of the then issued and outstanding shares
of Common Stock. In the event that as a result of such limitation, LifeCell is
not obligated to convert the entire $1.5 million into shares of Common Stock,
LifeCell must pay to Medtronic cash or a promissory note or a combination of
cash and a promissory note equal to the difference between $1.5 million and the
value of the shares of Common Stock actually converted. If, however, immediately
after conversion of the $1.5 licensing fee into shares of Common Stock, the
aggregate number of shares of Common Stock held by Medtronic is less than 5% of
the then outstanding shares of Common Stock, Medtronic will have the option to
purchase from LifeCell in cash at a price per share equal to the Average Market
Price a number of shares of Common Stock that when added to the shares converted
and any other shares of Common Stock held by Medtronic would equal 5% of then
issued and outstanding shares of Common Stock.
51
<PAGE> 53
CERTAIN ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE
OF INCORPORATION, BY-LAWS AND DELAWARE GENERAL CORPORATION LAW
The Restated Certificate of Incorporation and By-laws contain certain
provisions that could make more difficult the acquisition of the Company by
means of a tender or exchange offer, a proxy contest or otherwise. The
description of such provisions set forth below is intended only as a summary and
is qualified in its entirety by reference to the Restated Certificate of
Incorporation and the By-laws, each of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. See "Risk
Factors -- Possible Anti-Takeover Effects".
Preferred Stock. The Restated Certificate of Incorporation authorizes the
Board of Directors to establish one or more series of Preferred Stock and to
determine, with respect to any series of Preferred Stock, the terms and rights
of such series. The Company believes that the ability of the Board of Directors
to issue one or more series of Preferred Stock will provide the Company with
flexibility in structuring possible future financings and acquisitions and in
meeting other corporate needs that may arise. The authorized shares of Preferred
Stock, as well as shares of Common Stock, will be available for issuance without
further action by the Company's stockholders, unless such action is required by
the Restated Certificate of Incorporation, applicable laws or the rules of any
stock exchange or automated quotation system on which the Company's securities
may be listed or traded.
Although the Board of Directors has no intention at the present time of
doing so, it could issue a series of Preferred Stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The Board of Directors will make any determination to
issue such shares based on its judgment as to the best interests of the Company
and its stockholders. The Board of Directors, in so acting, could issue
Preferred Stock having terms that could discourage an acquisition attempt
through which an acquiror may be otherwise able to change the composition of the
Board of Directors, including a tender or exchange offer or other transaction
that some, or a majority, of the Company's stockholders might believe to be in
their best interests or in which stockholders might receive a premium for their
stock over the then current market price of such stock.
Special Meeting of Stockholders. The By-laws provide that special meetings
of stockholders may be called only by the President or the Board of Directors.
Such provisions, together with the other anti-takeover provisions described
herein, also could have the effect of discouraging a third party from initiating
a proxy contest, making a tender or exchange offer or otherwise attempting to
obtain control of the Company.
Notice Procedures. The By-Laws provide that stockholder election of
directors may be conducted only at annual meetings of stockholders and establish
advance notice procedures with regard to stockholder proposals relating to the
nomination of candidates for election as director. These procedures provide that
notice of such stockholder proposals must be timely and notice must be received
at the principal executive offices of the Company not less than 60 days nor more
than 90 days prior to an annual meeting. The notice must contain certain
information specified in the By-Laws.
Delaware Anti-Takeover Law. Under Section 203 of the Delaware General
Corporation Law (the "Delaware anti-takeover law"), certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless (i) the corporation has
elected in its certificate of incorporation or bylaws not to be governed by the
Delaware anti-takeover law (the Company has not made such an election), (ii)
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder was approved by the board of
directors of the corporation before the other party to the business combination
became an interested stockholder, (iii) upon consummation of the transaction
that made it an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the commencement
of the transaction (excluding voting stock owned by directors who are also
officers or held in employee stock plans in which the employees do not have a
right to determine confidentially whether to tender or vote stock
52
<PAGE> 54
held by the plan), or (iv) the business combination was approved by the board of
directors of the corporation and ratified by 66 2/3% of the voting stock which
the interested stockholder did not own. The three-year prohibition does not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors. The
term "business combination" is defined generally to include mergers or
consolidations between a Delaware corporation and an interested stockholder,
transactions with an interested stockholder involving the assets or stock of the
corporations or its majority-owned subsidiaries and transactions which increase
an interested stockholder's percentage ownership of stock. The term "interested
stockholder" is defined generally as a stockholder who becomes the beneficial
owner of 15% or more of a Delaware corporation's voting stock. Section 203 could
have the effect of delaying, deferring or preventing a change in control of the
Company.
LIMITATION ON DIRECTORS' LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated Certificate of Incorporation provides that a director of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. The Company is required to
indemnify any director who, as the result of his acting as a director of the
Company, was or is a party or is threatened to be made a party to any
threatened, pending or contemplated action, suit or proceeding, whether civil,
criminal, administrative or investigative, to the full extent permitted by
Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank, New York, New York.
53
<PAGE> 55
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters (the "Underwriters") named below, for whom Vector Securities
International, Inc. and Gruntal & Co., L.L.C. are acting as representatives (the
"Representatives"), have severally agreed to purchase 4,000,000 shares of Common
Stock from the Company and 500,000 shares of Common Stock from the Selling
Stockholders. The aggregate number of shares of Common Stock that each
Underwriter has agreed to purchase is set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Vector Securities International, Inc........................
Gruntal & Co., L.L.C. ......................................
---------
Total............................................. 4,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any of such shares are
purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of $ per share. 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 of the shares of Common Stock, the offering price and other
selling terms may be changed by the Representatives.
The Company and the Selling Stockholders have granted to the Underwriters
an option, exercisable at any time during the 30-day period after the date of
this Prospectus, to purchase up to an additional shares and
shares, respectively, of Common Stock at the public offering price set forth on
the cover page of this Prospectus, less underwriting discounts and commissions.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the Offering. To the extent such
option is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares of Common Stock set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
listed in the table.
The offering of shares is made for delivery when, as and if accepted by the
Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of this Offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The executive officers, directors and certain other stockholders of the
Company, including the Selling Stockholders, have agreed that they will not,
without the prior consent of Vector Securities International, Inc., offer, sell
or otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock or securities exchangeable for or convertible
into shares of Common Stock owned by them for a period of 90 days after the date
of this Prospectus. The Company has agreed that it will not, without the prior
written consent of Vector Securities International, Inc., offer, sell or
otherwise dispose of any shares of Common Stock, options or warrants to acquire
shares of Common Stock or securities exchangeable or convertible into shares of
Common Stock for a period of 90 days after the date of this Prospectus, except
that the Company may grant additional options under its stock option plans, or
issue shares upon the exercise of outstanding stock options or warrants.
54
<PAGE> 56
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase shares of Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members in
the Offering, if the syndicate repurchases previously distributed Common Stock
in syndicate covering transactions or otherwise. Any of these activities may
stabilize or maintain the market price above independent market levels. The
Underwriters are not required to engage in these activities and may end any of
these activities at any time.
In connection with this Offering, certain Underwriters and selling group
members (if any) who are qualifying registered market makers may engage in
passive market-making transactions in the Common Stock in accordance with Rule
103 of Regulation M promulgated by the Commission. In general, a passive market
maker may not bid for, or purchase, the Common Stock at a price that exceeds the
highest independent bid. In addition, the net daily purchases made by any
passive market maker generally may not exceed 30% of its average daily trading
volume in the Common Stock during a specified two month prior period, or 200
shares, whichever is greater. A passive market maker must identify passive
market making bids as such on the Nasdaq electronic inter-dealer reporting
system. 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.
An affiliate of Vector Securities International, Inc. holds 33.8% of the
Series B Preferred Stock. K. Flynn McDonald, an officer of such affiliate, is a
director of LifeCell pursuant to the right of the holders of the Series B
Preferred Stock to elect up to three members of LifeCell's Board of Directors.
Gruntal & Co., L.L.C. has previously provided financial advisory services to the
Company for reasonable and customary fees and acted as the placement agent in a
private placement of the Company's equity securities in November 1996.
The Common Stock is currently listed on the Nasdaq SmallCap Market under
the symbol "LIFC". The Company has applied to have the Common Stock listed on
the Nasdaq National Market under the symbol "LIFC" effective upon the closing of
the Offering.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for
LifeCell by Fulbright & Jaworski L.L.P., Houston, Texas. Certain legal matters
for the Underwriters will be passed upon by Skadden, Arps, Slate, Meagher & Flom
(Illinois), Chicago, Illinois. Robert E. Wilson, a partner of Fulbright &
Jaworski L.L.P., beneficially owns 200 shares of the Company's Common Stock.
EXPERTS
The financial statements included in this Prospectus to the extent and for
the periods indicated in their report have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto and are included herein in reliance upon the authority of said firm as
experts in giving said report. Statements in this Prospectus under the captions
"Risk Factors -- Patents and Proprietary Rights", "Business -- General",
"Business -- Technology" and "Business -- Patents, Proprietary Information and
Trademarks" insofar as they relate to patent matters have been reviewed and
approved by Arnold, White & Durkee, Houston, Texas, patent counsel to the
Company, and have been included herein in reliance upon the review and approval
by such firm as experts in patent law.
55
<PAGE> 57
AVAILABLE INFORMATION
LifeCell has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-2 (herein, together with all
amendments, exhibits and financial statement schedules thereto, the
"Registration Statement") under the Securities Act, with respect to the shares
of Common Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement, which may be inspected
without charge at the public reference facilities maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of which may be obtained from the Commission at prescribed rates.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Company furnishes holders of Common Stock annual reports containing
financial statements audited by its independent public accountants in accordance
with generally accepted accounting principles following the end of each fiscal
year, and with quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year following the end of each such
fiscal quarter. The Company is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Commission.
Such reports and other information may be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison Street,
14th Floor, Chicago, Illinois 60661. The Commission also maintains a World Wide
Web site on the Internet at http://www.sec.gov. which contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission. Such reports, proxy and information
statements and other information concerning the Company can also be inspected
and copied at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1996, as amended by Amendment No. 1 to the Annual Report on
Form 10-K on Form 10-K/A;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997;
(c) The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997; and
(d) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A (filed February 27, 1992), including any
amendment or report filed for the purpose of updating such description.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the Offering of the Common Stock pursuant hereto
shall be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of the filing of such documents. Any statement
contained in this Prospectus or in a document incorporated or deemed to be
incorporated by reference in this Prospectus shall be deemed to be modified or
superseded for purposes of this Prospectus to the
56
<PAGE> 58
extent that a statement contained in this Prospectus or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon the written or oral request of
any such person, a copy of any or all of the documents incorporated by reference
herein, other than the exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates. Written or oral requests for such copies should be directed to the
Company at 3606 Research Forest Drive, The Woodlands, Texas 77381, Attention:
Secretary (Telephone number: 281/367-5368).
57
<PAGE> 59
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants.................. F-2
Balance Sheets as of December 31, 1995 and 1996........... F-3
Statements of Operations for the years ended December 31,
1994, 1995 and 1996.................................... F-4
Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996....................... F-5
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996.................................... F-7
Notes to Audited Financial Statements..................... F-8
UNAUDITED FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1997 and December 31,
1996................................................... F-19
Statements of Operations for the three months ended June
30, 1997 and 1996 six months ended June 30, 1997 and
1996................................................... F-20
Statements of Operations for the six months ended June 30,
1997 and 1996.......................................... F-21
Statements of Cash Flows for the six months ended June 30,
1997 and 1996.......................................... F-22
Notes to Unaudited Financial Statements................... F-23
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To LifeCell Corporation:
We have audited the accompanying balance sheets of LifeCell Corporation (a
Delaware corporation) as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. 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 financial position of LifeCell Corporation as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 26, 1997
F-2
<PAGE> 61
LIFECELL CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 3,015,332 $ 10,748,250
Accounts and other receivables............................ 251,509 436,839
Inventories............................................... 351,502 839,821
Prepayments and other..................................... 51,838 52,780
------------ ------------
Total current assets.............................. 3,670,181 12,077,690
FURNITURE AND EQUIPMENT, net................................ 415,563 478,098
INTANGIBLE ASSETS, net...................................... 290,295 334,227
------------ ------------
Total assets...................................... $ 4,376,039 $ 12,890,015
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 384,780 $ 514,848
Accrued liabilities....................................... 218,351 539,271
Deferred revenues......................................... 179,002 138,792
------------ ------------
Total current liabilities......................... 782,133 1,192,911
DEFERRED CREDIT............................................. 1,500,000 1,500,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A preferred stock, $.001 par value, 300,000 shares
authorized, 264,500 and 260,000 issued and outstanding,
including accrued dividends of $70,533 and $86,667........ 5,496,793 5,291,473
Series B preferred stock, $.001 par value, 182,205 shares
authorized, none and 124,157 issued and outstanding and
accrued dividends of none and 1,426 shares................ -- 126
Undesignated preferred stock, $.001 par value, 1,517,795
shares authorized, none issued and outstanding............ -- --
Common stock, $.001 par value, 12,500,000 and 25,000,000
shares authorized, respectively, 4,403,658 and 4,899,944
shares issued and outstanding, respectively............... 4,404 4,900
Warrants outstanding to purchase 574,066 and 3,378,264
shares of Common Stock, respectively...................... 226,560 423,218
Additional paid in capital.................................. 21,160,808 33,788,321
Unearned portion of restricted stock compensation &
warrants.................................................. (19,906) --
Accumulated deficit......................................... (24,774,753) (29,310,934)
------------ ------------
Total stockholders' equity........................ 2,093,906 10,197,104
------------ ------------
Total liabilities and stockholders' equity........ $ 4,376,039 $ 12,890,015
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 62
LIFECELL CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Product sales..................................... $ 93,940 $ 742,238 $ 2,012,205
Corporate alliance................................ 358,331 825,221 546,461
Grants and contracts.............................. 364,344 239,116 386,904
----------- ----------- -----------
Total revenues............................ 816,615 1,806,575 2,945,570
----------- ----------- -----------
COSTS AND EXPENSES
Cost of goods sold................................ 515,500 925,174 1,281,353
Funded research and development................... 722,675 1,064,337 933,365
Proprietary research and development.............. 1,363,176 1,105,427 654,821
General and administrative........................ 1,381,470 1,422,588 1,911,254
Selling and marketing............................. 727,615 1,475,296 2,389,573
----------- ----------- -----------
Total costs and expenses.................. 4,710,436 5,992,822 7,170,366
----------- ----------- -----------
LOSS FROM OPERATIONS................................ (3,893,821) (4,186,247) (4,224,796)
----------- ----------- -----------
Interest income................................... 167,300 280,843 135,082
----------- ----------- -----------
NET LOSS............................................ $(3,726,521) $(3,905,404) $(4,089,714)
=========== =========== ===========
Loss per share before effect of preferred dividends,
accretion of preferred stock and warrant
exercises......................................... $ (0.87) $ (0.91) $ (0.90)
Effect of preferred dividends, accretion of
preferred stock and warrant exercises............. $ (0.03) $ (0.19) $ (0.24)
----------- ----------- -----------
LOSS PER COMMON SHARE............................... $ (0.90) $ (1.10) $ (1.14)
=========== =========== ===========
SHARES USED IN COMPUTING LOSS PER
COMMON SHARE...................................... 4,294,179 4,313,366 4,542,519
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 63
LIFECELL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A SERIES B CLASS I
PREFERRED STOCK PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------- ---------------- ------------------ --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- ------ --------- ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993....... -- $ -- -- $ -- 1,473,359 $1,473 2,803,812 $ 2,804
Class I common converted to
common......................... -- -- -- -- 2,803,812 2,804 (2,803,812) (2,804)
Purchase of common stock......... -- -- -- -- -- -- -- --
Issuance for cash ($7.77 per
share)......................... -- -- -- -- 20,421 21 -- --
Issuance of Series A preferred
stock and warrants for cash.... 264,500 4,877,995 -- -- -- -- -- --
Warrant issued to purchase common
stock.......................... -- -- -- -- -- -- -- --
Earned portion of restricted
stock.......................... -- -- -- -- -- -- -- --
Earned portion of warrants....... -- -- -- -- -- -- -- --
Dividends accrued on preferred
stock.......................... -- 333,246 -- -- -- -- -- --
Accretion of preferred stock..... -- 68,668 -- -- -- -- -- --
Expiration of warrants........... -- -- -- -- -- -- -- --
Net Loss......................... -- -- -- -- -- -- -- --
------- ---------- ------- ---- --------- ------ ---------- -------
Balance at December 31, 1994....... 264,500 $5,279,909 -- $ -- 4,297,592 $4,298 -- $ --
Warrant issued to purchase common
stock.......................... -- -- -- -- -- -- -- --
Stock options exercised.......... -- -- -- -- 1,000 1 -- --
Warrants exercised............... -- -- -- -- 1,250 1 -- --
Issuance of common stock as
dividends on Series A Preferred
stock.......................... -- (317,400) -- -- 103,816 104 -- --
Earned portion of restricted
stock.......................... -- -- -- -- -- -- -- --
Earned portion of warrants....... -- -- -- -- -- -- -- --
Dividends accrued on preferred
stock.......................... -- 190,947 -- -- -- -- -- --
Accretion of preferred stock..... -- 343,337 -- -- -- -- -- --
Net Loss......................... -- -- -- -- -- -- -- --
------- ---------- ------- ---- --------- ------ ---------- -------
Balance at December 31, 1995....... 264,500 $5,496,793 -- $ -- 4,403,658 $4,404 -- $ --
Stock options exercised.......... -- -- -- -- 6,062 6 -- --
Warrants exercised............... -- -- -- -- 339,066 339 -- --
Expiration of warrants........... -- -- -- -- -- -- -- --
Conversion of preferred stock.... (4,500) (90,000) -- -- 30,104 30 -- --
Issuance of common stock as
dividends on Series A Preferred
stock.......................... -- (415,920) -- -- 121,054 121 -- --
Earned portion of restricted
stock.......................... -- -- -- -- -- -- -- --
Issuance of stock options for
services....................... -- -- -- -- -- -- -- --
Issuance of Series B preferred
stock and common stock warrants
for cash....................... -- -- 124,157 124 -- -- -- --
Dividends accrued on preferred
stock.......................... -- 300,600 -- 2 -- -- -- --
Net Loss......................... -- -- -- -- -- -- -- --
------- ---------- ------- ---- --------- ------ ---------- -------
Balance at December 31, 1996....... 260,000 $5,291,473 124,157 $126 4,899,944 $4,900 -- $ --
======= ========== ======= ==== ========= ====== ========== =======
</TABLE>
(Continued)
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 64
LIFECELL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
UNEARNED
WARRANTS TO PORTION OF
PURCHASE RESTRICTED
COMMON STOCK STOCK ADDITIONAL TOTAL
--------------------- COMPENSATION PAID IN TREASURY ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT AND WARRANTS CAPITAL STOCK DEFICIT EQUITY
--------- --------- ------------ ----------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993...... 165,933 $ 116,260 $(529,942) $21,073,701 $ -- $(16,618,635) $ 4,045,661
Class I common converted to
common........................ -- -- -- -- -- -- --
Purchase of common stock........ -- -- -- -- (307,755) -- (307,755)
Issuance for cash ($7.77 per
share)........................ -- -- -- 174,341 307,755 -- 482,117
Issuance of Series A preferred
stock and warrants for cash... 264,500 105,800 -- -- -- -- 4,983,795
Warrant issued to purchase
common stock.................. 90,816 5,000 -- -- -- -- 5,000
Earned portion of restricted
stock......................... -- -- 238,872 -- -- -- 238,872
Earned portion of warrants...... -- -- 21,958 -- -- -- 21,958
Dividends accrued on preferred
stock......................... -- -- -- -- -- (333,246) --
Accretion of preferred stock.... -- -- -- (68,668) -- -- --
Expiration of warrants.......... (5,933) -- -- -- -- -- --
Net Loss........................ -- -- -- -- -- (3,726,521) (3,726,521)
--------- --------- --------- ----------- --------- ------------ -----------
Balance at December 31, 1994...... 515,316 $ 227,060 $(269,112) $21,179,374 $ -- $(20,678,402) $ 5,743,127
Warrant issued to purchase
common stock.................. 60,000 -- -- -- -- -- --
Stock options exercised......... -- -- -- 2,999 -- -- 3,000
Warrants exercised.............. (1,250) (500) -- 4,574 -- -- 4,075
Issuance of common stock as
dividends on Series A
Preferred stock............... -- -- -- 317,198 -- -- (98)
Earned portion of restricted
stock......................... -- -- 238,872 -- -- -- 238,872
Earned portion of warrants...... -- -- 10,334 -- -- -- 10,334
Dividends accrued on preferred
stock......................... -- -- -- -- -- (190,947) --
Accretion of preferred stock.... -- -- -- (343,337) -- -- --
Net Loss........................ -- -- -- -- -- (3,905,404) (3,905,404)
--------- --------- --------- ----------- --------- ------------ -----------
Balance at December 31, 1995...... 574,066 $ 226,560 $ (19,906) $21,160,808 $ -- $(24,774,753) $ 2,093,906
Stock options exercised......... -- -- -- 17,274 -- -- 17,280
Warrants exercised.............. (339,066) (104,300) -- 1,155,617 -- -- 1,051,656
Expiration of warrants.......... (15,000) (6,000) -- 6,000 -- -- --
Conversion of preferred stock... -- -- -- 89,970 -- -- --
Issuance of common stock as
dividends on Series A
Preferred stock............... -- -- -- 409,700 -- -- (6,099)
Earned portion of restricted
stock......................... -- -- 19,906 -- -- -- 19,906
Issuance of stock options for
services...................... -- -- -- 150,000 -- -- 150,000
Issuance of Series B preferred
stock and common stock
warrants for
cash.......................... 3,158,264 306,958 -- 10,653,087 -- -- 10,960,169
Dividends accrued on preferred
stock......................... -- -- -- 145,865 -- (446,467) --
Net Loss........................ -- -- -- -- -- (4,089,714) (4,089,714)
--------- --------- --------- ----------- --------- ------------ -----------
Balance at December 31, 1996...... 3,378,264 $ 423,218 $ -- $33,788,321 $ -- $(29,310,934) $10,197,104
========= ========= ========= =========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 65
LIFECELL CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss............................................ $(3,726,521) $(3,905,404) $(4,089,714)
Adjustments to reconcile net loss to net cash used
in operating activities --
Depreciation and amortization.................... 107,351 138,518 229,237
Stock and warrant compensation expense........... 260,830 249,206 169,906
Change in assets and liabilities --
(Increase) in accounts and other receivables..... (67,237) (87,014) (185,330)
(Increase) in inventories........................ (54,834) (243,720) (488,319)
(Increase) decrease in prepayments and other..... (8,580) 11,347 (942)
Increase in accounts payable and accrued
liabilities.................................... 270,219 118,494 450,988
Increase (decrease) in deferred revenues and
credit......................................... 1,769,640 (90,638) (40,210)
----------- ----------- -----------
Total adjustments........................... 2,277,389 96,193 135,330
----------- ----------- -----------
Net cash used in operating activities....... (1,449,132) (3,809,211) (3,954,384)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................ (90,509) (190,199) (278,673)
Intangible assets................................... (34,012) (24,354) (57,032)
Short-term investments.............................. (2,138,313) 5,154,824 --
----------- ----------- -----------
Net cash provided by (used in) investing
activities................................ (2,262,834) 4,940,271 (335,705)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock and warrants........ 5,163,157 6,977 12,029,105
Proceeds from issuance of notes payable............. -- -- 370,000
Dividends paid...................................... -- -- (6,098)
Payments of notes payable........................... -- -- (370,000)
----------- ----------- -----------
Net cash provided by financing
activities................................ 5,163,157 6,977 12,023,007
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS............. 1,451,191 1,138,037 7,732,918
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........ 426,104 1,877,295 3,015,332
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END
OF YEAR............................................. $ 1,877,295 $ 3,015,332 $10,748,250
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest.............. $ -- $ -- $ 13,766
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
During 1995 and 1996, the Company issued common
stock as payment for dividends in the amount of
$317,400 and $415,920, respectively.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 66
LIFECELL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION:
LifeCell Corporation, a Delaware corporation (LifeCell or the Company), is
engaged in the research, development and commercialization of transplantable
tissue and transfusable blood products. The Company was incorporated on January
6, 1992 for the purpose of merging with its predecessor entity, which was formed
in 1986. LifeCell commercially introduced its first transplantable tissue
product, AlloDerm(R), during December 1993. Sales of AlloDerm to date have not
been sufficient to fund the Company's operations, and the Company expects
continued operating losses during 1997. The future operating results of the
Company will be principally dependent on the market acceptance of its current
and future products, competition from other products or technologies, protection
of the Company's proprietary technology, and access to funding as required.
Accordingly, there can be no assurance of the Company's future success. See
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" elsewhere herein.
2. ACCOUNTING POLICIES:
Cash and Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Investments
that the Company intends to hold to maturity are classified as either current or
non-current assets based on the maturity date of the security. As of December
31, 1995 and 1996, the Company held $3,009,376 and $10,638,981, respectively, of
interest bearing money market accounts and A1/P1 commercial paper which were
classified as "held to maturity" securities. The carrying basis of these
investments approximated fair value and amortized cost. The securities held at
December 31, 1996 matured prior to March 31, 1997.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out (FIFO) basis.
Furniture and Equipment
Furniture and equipment are stated at cost. Maintenance and repairs that do
not improve or extend the life of the assets are expensed as incurred.
Expenditures for renewals and betterments are capitalized. The cost of assets
retired and the related accumulated depreciation are removed from the accounts
and any gain or loss is included in the results of operations.
Depreciation of furniture and equipment is provided on the straight-line
method based on the estimated useful lives of the assets of five years.
Leasehold improvements are depreciated over the life of the lease.
Intangible Assets
Intangible assets primarily consist of the costs of obtaining patents for
the proprietary technology owned by or licensed to the Company. These costs are
being amortized over the lesser of the legal (generally 17 years) or economic
life of the patent. Accumulated amortization at December 31, 1995 and 1996,
amounted to $39,933 and $53,033, respectively.
F-8
<PAGE> 67
LIFECELL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Product sales are recognized as revenue when the product is shipped to fill
customer orders. Revenues from corporate alliances and from government grants
and contracts are recognized as the work is performed unless the Company has
continuing performance obligations, in which case revenue is recognized upon the
satisfaction of such obligations. Revenue received, but not yet earned, is
classified as deferred revenue.
Research and Development Costs
Research and development costs are expensed when incurred. The Company
performs research funded by others, including research funded through the
corporate alliance with Medtronic (see Note 8), as well as its own independent
proprietary research, development and clinical testing of its products.
Externally funded research consists of direct costs associated with specific
projects as well as an allocation of overhead associated with administering
these activities.
Loss Per Share
Loss per share has been computed by dividing net loss, which has been
increased for periodic accretion and imputed and stated dividends on outstanding
Preferred Stock and the discount offered on warrant exercises induced during
1996, by the weighted average number of shares of Common Stock outstanding
during the periods. In all applicable years, all Common Stock equivalents,
including the Series A Preferred Stock and the Series B Preferred Stock, were
antidilutive and, accordingly, were not included in the computation.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." Statement 128
establishes standards for computing and presenting earnings per share (EPS).
This statement simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15, Earnings Per Share, and makes them
comparable to international EPS standards. The statement also retroactively
revises the presentation of earnings per share in the financial statements. The
Company will adopt this Standard for the year ended December 31, 1997, and has
not currently quantified the effect of applying the new Standard.
Stock-Based Compensation
The Company accounts for employee stock-based compensation pursuant to the
provisions of Accounting Principles Board Opinion No. 25. Compensation expense
for stock options issued to employees and directors is generally recorded at the
intrinsic value (the discount, if any, of the option price from the market price
of the Common Stock under option) of the option at the date of grant. Subsequent
changes in the market price of the underlying stock do not affect the accounting
treatment of the option. Options granted to others are accounted for under the
provisions of Statement of Financial Accounting Standards No. 123, which
requires that the option be recorded at its estimated fair value using
option-pricing formulas used in the financial markets.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-9
<PAGE> 68
LIFECELL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES:
Inventories consist of products in various stages produced for sale and
includes the costs of raw materials, labor, and overhead.
A summary of inventories is as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Raw Materials............................................... $ 29,171 $ 52,738
Work-In-Process............................................. 107,988 437,221
Finished Goods.............................................. 214,343 349,862
-------- --------
$351,502 $839,821
======== ========
</TABLE>
4. FURNITURE AND EQUIPMENT:
A summary of furniture and equipment is as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Office furniture and fixtures............................... $ 57,636 $ 61,130
Machinery and equipment..................................... 1,097,480 1,342,243
Leasehold improvements...................................... 189,877 220,293
---------- ----------
1,344,993 1,623,666
Less --
Accumulated depreciation and amortization................. 929,430 1,145,568
---------- ----------
Net furniture and equipment............................... $ 415,563 $ 478,098
========== ==========
</TABLE>
5. CAPITAL STOCK:
Authorized Capital Stock
As of December 31, 1996, the authorized capital of the Company consisted of
25,000,000 shares of Common Stock, $.001 par value, and 2,000,000 shares of
Preferred Stock, $.001 par value, of which 300,000 shares were designated as
Series A Convertible Preferred Stock and 182,205 shares were designated as
Series B Preferred Stock. As of December 31, 1996, there were 4,899,944 shares
of Common Stock, 260,000 shares of Series A Convertible Preferred Stock and
124,157 shares of Series B Preferred Stock outstanding. During March 1997, all
outstanding shares of Series A Convertible Preferred Stock and a portion of the
accrued dividends were converted into 1,772,433 shares of Common Stock.
Series A Preferred Stock
During November 1994, the Company issued 264,500 shares of Series A
Convertible Preferred Stock (Series A Preferred Stock) and warrants to acquire
264,500 shares of Common Stock for gross proceeds of approximately $5.3 million
in a private placement. Each share of Series A Preferred Stock was convertible
at any time at the option of the holder into 6.69 shares of Common Stock. During
1996, 4,500 shares of Series A Preferred Stock were converted into 30,104 shares
of Common Stock. The Series A Preferred Stock had a liquidation preference of
$20 per share, or $5,200,000 as of December 31, 1996.
The Series A Preferred Stock bore dividends at annual rates of $1.20,
$1.60, and $2.00 per share for each of the first, second and third years,
respectively, after the date of original issuance. Dividends were payable in
cash, Common Stock, or any combination of cash and Common Stock at the Company's
F-10
<PAGE> 69
LIFECELL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
discretion. The Series A Preferred Stock had no ordinary voting rights. While
the preferred shares were outstanding or any dividends were owed thereon, the
Company could not declare or pay cash dividends on its Common Stock. During 1995
and 1996, respectively, the Company paid $317,400 and $415,920 in accrued
dividends on the Series A Preferred Stock by issuing 103,816 shares and 121,054
shares of Common Stock.
The preferred stock was automatically convertible into Common Stock on
November 9, 1997 and could be redeemed sooner by the Company if, after November
9, 1995, the closing bid price of the Company's Common Stock averaged or
exceeded $5.17 per share for 20 consecutive days. Pursuant to such provisions,
during February 1997, the Company called for redemption all outstanding shares
of Series A Preferred Stock. During March 1997 the Company issued 1,739,128
shares of Common Stock to redeem the Series A Preferred Stock and paid a cash
dividend of $65,000 and issued an additional 33,305 shares of Common Stock for
dividends accrued through the date of redemption.
The carrying amount of the Series A Preferred Stock was increased for
accrued and unpaid stated dividends plus periodic accretion, using the effective
interest method, such that the carrying amount equaled the redemption amount on
November 9, 1995. In November 1994, the Series A Preferred Stock was also
increased by imputed dividends resulting from the increasing dividend rates.
Series B Preferred Stock
During November 1996, the Company issued 124,157 shares of Series B
Preferred Stock (Series B Preferred Stock) and warrants to acquire 2,803,530
shares of Common Stock for gross proceeds of approximately $12.4 million in a
private placement. Each share of Series B Preferred Stock is initially
convertible at any time at the option of the holder into approximately 32.26
shares of Common Stock (or 4,005,064 shares of Common Stock at December 31,
1996), subject to adjustment for dilutive issuances of securities. The Series B
Preferred Stock has a liquidation preference of $100 per share, or $12,415,700
as of December 31, 1996, and shares ratable in any residual assets after payment
of such liquidation preference.
The Series B Preferred Stock bears cumulative dividends, payable quarterly,
for five years at the greater of the annual rate of $6.00 per share or the rate
of any dividends paid on the Series A Preferred Stock (effectively $10 per share
until the Series A Preferred Stock was redeemed in March 1997). Dividends may be
paid in cash, in additional shares of Series B Preferred Stock based on the
stated value of $100 per share, or any combination of cash and Series B
Preferred Stock at the Company's option. On all matters for which the Company's
stockholders are entitled to vote, each share of Series B Preferred Stock will
entitle the holder to one vote for each share of Common Stock into which the
share of Series B Preferred Stock is then convertible. Additionally, the holders
of Series B Preferred Stock have the right to elect up to three directors to the
Board of Directors of the Company. While the preferred shares are outstanding or
any dividends are owned thereon, the Company may not declare or pay cash
dividends on its Common Stock. During 1996 the Company declared accrued
dividends on the Series B Preferred Stock of $145,867 payable through the
issuance of 1,426 additional shares of Series B Preferred Stock on February 15,
1997.
The preferred stock will be automatically converted into Common Stock if
(i) the closing price of the Company's Common Stock averages or exceeds $9.30
per share for 30 consecutive trading days and (ii) the Company conducts an
underwritten public offering of newly issued Common Stock with gross proceeds,
net of underwriting discounts and commissions, exceeding $20 million.
Additionally, the preferred stock will be automatically converted into Common
Stock if the Company conducts an underwritten public offering of newly issued
Common Stock with gross proceeds, net of underwriting discounts and commissions,
exceeding $20 million and the price per share in such offering equals or exceeds
$9.30.
F-11
<PAGE> 70
LIFECELL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Common Stock
During February 1994, all previously outstanding shares of Class I Common
Stock were automatically converted into 2,803,812 shares of Common Stock and the
Class I Common Stock was eliminated during June 1995.
During 1995 and 1996, respectively, the Company issued 103,816 shares and
121,054 shares of Common Stock as payment of accrued dividends on Series A
Preferred Stock. Additionally, during 1996, the Company induced the exercise of
warrants by temporarily lowering exercise prices and issued 339,066 shares of
Common Stock at a weighted average price of $3.10 upon exercise of certain
warrants.
During March 1997, the Company issued 1,739,128 shares of Common Stock to
redeem all outstanding shares of the Series A Preferred Stock and paid a cash
dividend of $65,000 and issued an additional 33,305 shares of Common Stock for
dividends accrued through the date of redemption.
During 1994, the Company purchased 43,965 shares of Common Stock from
several employees, including officers and directors, for the purpose of
satisfying their income tax liabilities for shares and options previously
granted under a deferred compensation arrangement. These treasury shares were
subsequently reissued during 1994.
In 1992, the Company adopted a Restricted Stock Plan and issued 241,372
shares of Common Stock to employees, a director and a consultant of the Company
for $.001 per share. The restricted stock vested over a four year period.
Deferred compensation expense totaling $965,000 was expensed over the vesting
period of the grants. The non-cash charge related to these stock grants was
$239,000 for 1994 and 1995 and $20,000 for 1996.
Options
The Company's 1992 Stock Option Plan, as amended (1992 Plan), provides for
the grant of options to purchase up to 1,000,000 shares of Common Stock. Granted
options generally become exercisable over a four year period, 25 percent per
year beginning on the first anniversary of the date of grant. To the extent not
exercised, options generally expire on the tenth anniversary of the date of
grant, except for employees who own more than 10 percent of all the voting
shares of the Company, in which event the expiration date is the fifth
anniversary of the date of grant. All options granted under the plan have
exercise prices equal to the fair market value at the dates of grant.
The 1993 Non-Employee Director Stock Option Plan (Director Plan) was
adopted in 1993 and amended during 1996. A total of 750,000 shares of Common
Stock are available for grant under the Director Plan. Upon amendment of the
Director Plan in 1996, options to purchase 50,000 shares of Common Stock were
granted to each then-current non-employee director of the Company at an exercise
price equal to the fair market value of a share of Common Stock on the date of
the Director Plan. Options to purchase 25,000 shares of Common Stock will be
granted to newly elected directors at an exercise price equal to the fair market
value of a share of Common Stock on such election date. The provisions of the
Director Plan provide for an annual grant of an option to purchase 10,000 shares
of Common Stock to each non-employee director. Options under the Director Plan
generally vest one year after date of grant and expire after 10 years.
F-12
<PAGE> 71
LIFECELL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
1992 STOCK OPTION PLAN DIRECTOR PLAN
------------------------ ------------------------
WEIGHTED- WEIGHTED-
AVG. EXERCISE AVG. EXERCISE
OPTIONS PRICE($) OPTIONS PRICE($)
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993.................... 224,593 9.06 40,000 11.00
Granted....................................... 192,819 2.87 10,000 3.00
Exercised..................................... -- -- -- --
Forfeited..................................... (2,650) 7.68 -- --
-------- --------
Balance at December 31, 1994.................... 414,762 6.19 50,000 9.40
-------- --------
Granted....................................... 266,350 2.46 10,000 2.75
Exercised..................................... (1,000) 3.00 -- --
Forfeited..................................... (225,917) 8.97 -- --
-------- --------
Balance at December 31, 1995.................... 454,195 2.63 60,000 8.29
-------- --------
Granted....................................... 558,000 3.80 240,000 3.07
Exercised..................................... (1,062) 2.74 (5,000) 2.88
Forfeited..................................... (42,313) 3.18 -- --
Reissue....................................... -- -- (220,000) 4.14
-------- --------
Balance at December 31, 1996.................... 968,820 3.28 75,000 4.11
-------- --------
Exercisable at December 31, 1994................ 57,606 9.11 40,000 11.00
Exercisable at December 31, 1995................ 158,330 2.61 50,000 9.40
Exercisable at December 31, 1996................ 255,429 2.61 15,000 8.29
</TABLE>
At December 31, 1996, 28,718 and 670,000 options were available for future
grant under the 1992 Plan and the Director Plan, respectively. The exercise
prices of options outstanding under the 1992 Plan and the Director Plan at
December 31, 1996 range from $0.07 to $4.375 and $2.75 to $11.00, respectively.
The weighted average contractual life of options outstanding at December 31,
1996 was 9.1 years for the 1992 Plan and 7.8 years for the Director Plan.
In addition to the amounts set forth in the table above, during 1996, the
Company granted options to purchase 220,000 shares of Common Stock to directors
who resigned upon the closing of the sale of the Series B Preferred Stock in
exchange for options previously granted under the Director Plan. These options
have provisions identical to the options previously granted under the Director
Plan, including exercise prices and vesting periods. The weighted average
exercise price of the options granted was $4.14. The weighted average remaining
contractual life of the grants was 8.8 years as of December 31, 1996. The
Company expensed $150,000, which was the difference between the market price and
the option price on the date of the grant, during 1996 related to this
reissuance.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock-Based Compensation" which, if fully adopted, requires
the Company to record stock-based compensation at fair value. The Company has
adopted the disclosure requirements of SFAS No. 123 and has elected to record
employee compensation expense in accordance with Accounting Principles Board
Opinion (APB) No. 25.
F-13
<PAGE> 72
LIFECELL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company accounts for its employee stock-based compensation plans under
APB No. 25 and its related interpretations. Accordingly, deferred compensation
expense is recorded for stock options based on the excess of the market value of
the common stock on the date the options were granted over the aggregate
exercise price of the options. This deferred compensation is amortized over the
vesting period of each option. As the exercise price of options granted under
the 1992 Plan and the Director Plan has been equal to or greater than the market
price of the Company's stock on the date of grant, no compensation expense
related to these plans has been recorded. Had compensation expense for its 1992
Plan and Director Plan been determined consistent with SFAS No. 123, the
Company's net loss and loss per share would have been increased to the following
pro forma amounts:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Net Loss:
As reported......................................... $3,905,404 $4,089,714
Pro forma........................................... $3,940,041 $5,372,049
Loss Per Share:
As reported......................................... $ 1.10 $ 1.14
Pro forma........................................... $ 1.10 $ 1.42
</TABLE>
Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
Under the provisions of SFAS No. 123, the weighted average fair value of
options granted in 1995 and 1996 was $1.88 and $3.21, respectively, under the
1992 Plan. The weighted average fair value of options granted in 1995 and 1996
was $2.21 and $2.40, respectively, under the Director Plan. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions used for
grants in 1995 and 1996, respectively: a weighted average risk-free interest
rate of 6 percent for both years; no expected dividend yields for both years;
expected lives of 3 years for both years and expected volatility between 96 and
100 percent.
The stock options issued to retiring directors in 1996 had a weighted
average fair value of $2.57. The fair values of such options are estimated on
the date of grant using Black-Scholes option price model with the following
assumptions used: a weighted average risk-free interest rate of 6 percent,
expected lives of 3 to 5 years, expected volatility of 99 percent and no
expected dividends.
During 1995, options to purchase 225,917 shares of Common Stock at exercise
prices of $9.00 and $14.50 were canceled and reissued at substantially the same
terms, but with an exercise price equal to the then current market price of
$2.50.
Warrants
As of December 31, 1996, warrants to acquire a total of 3,378,264 shares of
Common Stock were outstanding as set forth below.
During 1996, the Company issued warrants to acquire 2,803,530 shares of
Common Stock in conjunction with the sale of the Series B Preferred Stock (the
1996 Warrants). The 1996 Warrants are exercisable at an exercise price of $4.13
per share. The warrants expire on the fifth anniversary of the date of grant,
are callable if the average closing price of the Company's Common Stock for 30
trading days equals or exceeds three times the then-exercise price, and allow
cashless exercise. The warrants also have provisions for adjustment of the
exercise price and number of shares for below-exercise price issuance of
securities.
F-14
<PAGE> 73
LIFECELL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, the Company issued a warrant to acquire 354,734 shares of
Common Stock to the placement agent for the Series B Preferred Stock (Agent
Warrant). The Agent Warrant is exercisable at an exercise price of $4.50 per
share. The warrant expires on the fifth anniversary of the date of grant and
allows cashless exercise. The warrant also has provisions for adjustment of the
exercise price and number of shares for below-exercise price issuance of
securities.
In connection with the sale of the Series A Preferred Stock, the Company
issued warrants to acquire 264,500 shares of Common Stock at exercise prices of
$3.26 per share during the first year and $3.54 per share during the second
year. Additionally, the placement agent was issued a warrant to purchase 90,816
shares of Common Stock at $6.00 per share. A total of 339,066 warrants were
exercised during 1996 through inducement of exercise by lowering the exercise
price to $3.10 per share. The difference between the market price on the date of
inducement and the induced exercise price has been deducted from net income to
determine loss per Common share. A total of 15,000 warrants expired unexercised.
As of December 31, 1996, additional warrants to acquire 100,000 shares of
Common Stock were outstanding with exercise prices ranging from $2.50 to $11.05.
Such warrants expire during periods ranging from December 31, 1997 to December
13, 2000. Additionally, as of December 31, 1996, warrants to acquire 120,000
shares of Common Stock were outstanding but expired unexercised on February 27,
1997.
6. EMPLOYEE BENEFIT PLANS:
The Company maintains a retirement savings plan as described in Section
401(k) of the Internal Revenue Code of 1986. The Company may, at its discretion,
contribute amounts not to exceed each employee's contribution. During January
1996 and January 1997, the Company made total contributions of $5,292 and $8,187
to the plan for a partial matching of employee contributions during 1995 and
1996, respectively.
During 1996, the Company established an Employee Stock Purchase Plan to
allow for the purchase of the Company's Common Stock on the open market using
employee and any employer matching contributions. During 1996, the Company
contributed $1,328 to this plan.
F-15
<PAGE> 74
LIFECELL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. FEDERAL INCOME TAXES:
The Company has not made any income tax payments since inception. As of
December 31, 1996, the Company has a net operating loss (NOL) carryforward for
federal income tax purposes of approximately $26 million, subject to the
limitations described below, expiring as follows:
<TABLE>
<CAPTION>
YEAR EXPIRES
------------
<S> <C>
2001...................................................... $ 500,000
2002...................................................... 1,500,000
2003...................................................... 2,800,000
2004...................................................... 2,200,000
2005...................................................... 1,700,000
2006...................................................... 1,400,000
2007...................................................... 2,400,000
2008...................................................... 3,000,000
2009...................................................... 2,500,000
2010...................................................... 4,000,000
2011...................................................... 4,000,000
-----------
$26,000,000
===========
</TABLE>
Additionally, the Company has approximately $385,000 of research and
development tax credit carryforwards which will expire in varying amounts
commencing in 2001. The Company's ability to utilize its tax loss and credit
carryforwards to reduce future taxable income may be limited by either the prior
expiration of such loss or credit or by the occurrence of a "change in
ownership," as such term is defined by federal income tax laws and regulations.
A change in ownership may occur upon the sale of additional equity securities by
the Company, conversion of existing shares of Series B Preferred Stock or by
sales of stock by existing stockholders. In the event of a change in ownership,
the amount of the tax loss and credit carryforwards that may be utilized to
offset taxable income in any year may be limited and result in the payment of
federal income taxes that otherwise would be offset by such tax losses or
credits.
For financial reporting purposes, a valuation allowance of $9,897,000 has
been recorded as of December 31, 1996 to fully offset the deferred tax asset
related to these carryforwards. The principal components of the deferred tax
asset as of December 31, 1995 and 1996, assuming a 34% federal tax rate, are as
follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Temporary differences:
Deferred revenue.......................................... 582,000 510,000
Restricted stock compensation............................. (196,000) 154,000
Uniform capitalization of inventory costs................. 160,000 37,000
Other items............................................... 66,000 (29,000)
---------- ----------
Total temporary differences............................... 612,000 672,000
Federal tax losses and credits not currently utilizable... 7,845,000 9,225,000
---------- ----------
Total deferred tax assets................................... 8,457,000 9,897,000
Less valuation allowance.................................. (8,457,000) (9,897,000)
---------- ----------
Net deferred tax asset...................................... -- --
---------- ----------
</TABLE>
F-16
<PAGE> 75
LIFECELL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net increase in the deferred tax valuation allowance for 1995 and 1996
was $1,691,000, and $1,440,000, respectively. Other than the net operating loss
and tax credit carryforwards, there is no significant difference between the
statutory federal income tax rate and the Company's effective tax rate during
1994, 1995 and 1996.
8. COLLABORATIONS AND CORPORATE ALLIANCES
Medtronic Collaboration
During March 1994, the Company entered into a collaboration with Medtronic,
Inc. (Medtronic) for the development and commercialization of universal tissue
heart valves engineered with LifeCell's proprietary technology. Medtronic paid
the Company an initial licensing fee of $1,500,000, agreed to fund development
of heart valve products, and acquired $500,000 of the Company's Common Stock at
a price of $7.77 per share. Medtronic is obligated to pay royalties, up to a
maximum of $25,000,000, on any product sales. Medtronic was also granted rights
of first refusal to evaluate technology and negotiate license and development
agreements for vascular conduit products utilizing the Company's technology. In
the event Medtronic terminates funding of the heart valve program, Medtronic may
convert its initial $1.5 million license fee into newly issued shares of the
Company's Common Stock at the then-current market price. Accordingly, the
Company has deferred recognition of the initial license fee and recorded a $1.5
million deferred credit in the accompanying balance sheet. Medtronic also has
the right, subject to certain restrictions, to purchase additional shares of the
Company's Common Stock, to have the Company register the resale of any Common
Stock acquired from it, and to appoint one member of the Board of Directors of
the company through March 1999.
Other Product Sales Arrangements
The Company has negotiated other distribution or sales collaboration
arrangements with various parties with exclusive regional or international
territories under each agreement. The agreements generally provide that the
distributor must meet certain performance measures or the agreement may be
terminated by the Company. The markets served by these arrangements include
plastic and reconstructive surgery.
9. COMMITMENTS AND CONTINGENCIES:
External Funding for Research
Certain of the Company's research programs have been funded by Small
Business Innovation Research (SBIR) grants and other direct federal government
funding contracts. The grants and contracts generally obligate the Company to
perform specified research activities in return for such funding, and the
utilization of funds under the grants is subject to audit by the appropriate
governmental agencies. At December 31, 1996, the Company had received $138,792
of deferred revenue, including advance payments from a corporate alliance, for
research to be conducted during 1997. Additionally, as of December 31, 1996, the
Company has unfunded awards totaling $1,597,000 for research that is expected to
occur and be funded during 1997 and 1998.
Exclusive License Agreement
The Company has an exclusive license agreement with the Board of Regents of
the University of Texas System (Board) to technology and patents related to the
analysis or preservation of certain cells or tissues. The Company is required to
pay the Board royalties on net sales of products encompassing the licensed
technologies. For the periods ended December 31, 1994, 1995 and 1996 no
significant royalties were paid under the agreement.
F-17
<PAGE> 76
LIFECELL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Leases
The Company leases approximately 20,000 square feet for office and
laboratory space. The future minimum lease payments under noncancelable lease
terms in excess of one year as of December 31, 1996 were as follows:
<TABLE>
<S> <C>
1997........................................................ $218,028
1998........................................................ 221,320
1999........................................................ 221,320
2000........................................................ 221,320
2001........................................................ 18,443
--------
Total.................................................. $900,431
--------
</TABLE>
10. TRANSACTIONS WITH RELATED PARTIES:
The Company leases office space from an affiliate of a stockholder of the
Company. The Company paid rent expense of approximately $139,000, $129,000 and
$142,000 during 1994, 1995, and 1996 respectively, related to this lease.
The Company paid consulting fees and expenses to an affiliate of a
stockholder and a former director of the Company, totaling approximately
$96,000, $91,000 and $80,000 during the years ended December 31, 1994, 1995 and
1996 respectively, pursuant to a consultant agreement.
As of December 31, 1996, the Company has notes receivable totaling $95,060
from participants, two of whom are directors of the Company, in a previous
deferred compensation plan. Such notes represent loans of federal income tax
amounts payable by the individuals as a result of grants under the plan.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summary unaudited financial data for the years
ended December 31, 1995 and 1996. The Company believes that this information
reflects all adjustments, consisting of only normal recurring items, considered
necessary for a fair presentation of the quarterly financial information
presented. The operating results for any quarterly period are not necessarily
indicative of the results that may be expected for future periods.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1995
Product Sales................................ $ 98 $ 130 $ 251 $ 263
Total Revenues............................... $ 430 $ 399 $ 514 $ 464
Gross Margin................................. $ (5) $ (52) $ (7) $ (119)
Net loss..................................... $ (958) $(1,016) $ (867) $(1,064)
Loss per share............................... $(0.27) $ (0.29) $ (0.25) $ (0.29)
1996
Product Sales................................ $ 421 $ 429 $ 561 $ 602
Total Revenues............................... $ 576 $ 678 $ 816 $ 876
Gross Margin................................. $ 149 $ 157 $ 205 $ 220
Net loss..................................... $ (949) $ (909) $(1,023) $(1,209)
Loss per share............................... $(0.25) $ (0.24) $ (0.33) $ (0.32)
</TABLE>
F-18
<PAGE> 77
LIFECELL CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................... $ 7,290,396 $ 10,748,250
Accounts and other receivables............................ 802,263 436,839
Inventories............................................... 993,325 839,821
Prepayments and other..................................... 72,842 52,780
------------ ------------
Total current assets.............................. 9,158,826 12,077,690
FURNITURE AND EQUIPMENT, net................................ 770,744 478,098
INTANGIBLE ASSETS, net...................................... 375,668 334,227
------------ ------------
$ 10,305,238 $ 12,890,015
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 720,112 $ 514,848
Accrued liabilities....................................... 764,891 539,271
Deferred revenues......................................... 215,274 138,792
------------ ------------
Total current liabilities......................... 1,700,277 1,192,911
DEFERRED CREDIT............................................. 1,500,000 1,500,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A preferred stock, $.001 par value, 300,000 shares
authorized, none and 260,000 issued and outstanding
including accrued dividends of none and $86,667........... -- 5,291,473
Series B preferred stock, $.001 par value, 182,205 shares
authorized, 123,037 and 124,157 issued and outstanding and
accrued dividends of 1,794 and 1,426 shares............... 127 126
Undesignated preferred stock, $.001 par value, 1,517,795
shares authorized, none issued and outstanding............ -- --
Common stock, $.001 par value, 25,000,000 shares authorized,
6,911,932 and 4,899,944 shares issued and outstanding,
respectively.............................................. 6,912 4,900
Warrants outstanding to purchase 3,231,925 and 3,378,264
shares of Common Stock, respectively...................... 420,652 423,218
Additional paid in capital.................................. 39,805,918 33,788,321
Accumulated deficit......................................... (33,128,648) (29,310,934)
------------ ------------
Total stockholders' equity........................ 7,104,961 10,197,104
------------ ------------
Total liabilities and stockholders' equity........ $ 10,305,238 $ 12,890,015
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 78
LIFECELL CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-------------------------
1997 1996
----------- ----------
<S> <C> <C>
REVENUES
Product sales............................................. $ 1,007,464 $ 429,065
Research funded by others................................. 265,548 248,455
----------- ----------
Total revenues.................................... 1,273,012 677,520
----------- ----------
COSTS AND EXPENSES
Cost of goods sold........................................ 520,551 272,401
Funded research and development........................... 265,548 248,455
Proprietary research and development...................... 281,414 141,429
General and administrative................................ 693,501 385,346
Selling and marketing..................................... 1,190,745 551,803
----------- ----------
Total costs and expenses.......................... 2,951,759 1,599,434
----------- ----------
LOSS FROM OPERATIONS........................................ (1,678,747) (921,914)
----------- ----------
Interest income and other, net............................ 105,772 13,263
----------- ----------
NET LOSS.................................................... $(1,572,975) $ (908,651)
=========== ==========
Loss per share before preferred dividends................... $ (0.22) $ (0.21)
Effect of preferred dividends............................. (0.03) (0.03)
----------- ----------
LOSS PER COMMON SHARE....................................... $ (0.25) $ (0.24)
=========== ==========
SHARES USED IN COMPUTING LOSS PER COMMON SHARE.............. 6,888,787 4,403,658
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 79
LIFECELL CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
REVENUES
Product sales............................................. $ 1,828,433 $ 849,701
Research funded by others................................. 555,224 403,931
----------- -----------
Total revenues.................................... 2,383,657 1,253,632
----------- -----------
COSTS AND EXPENSES
Cost of goods sold........................................ 1,010,191 544,158
Funded research and development........................... 555,224 403,931
Proprietary research and development...................... 559,843 331,464
General and administrative................................ 1,490,872 772,692
Selling and marketing..................................... 2,226,649 1,102,525
----------- -----------
Total costs and expenses.......................... 5,842,779 3,154,770
----------- -----------
LOSS FROM OPERATIONS........................................ (3,459,122) (1,901,138)
----------- -----------
Interest income and other, net............................ 236,510 43,383
----------- -----------
NET LOSS.................................................... $(3,222,612) $(1,857,755)
=========== ===========
Loss per share before preferred dividends................... $ (0.54) $ (0.42)
Effect of preferred dividends............................. (0.10) (0.07)
----------- -----------
LOSS PER COMMON SHARE....................................... $ (0.64) $ (0.49)
=========== ===========
SHARES USED IN COMPUTING LOSS PER COMMON SHARE.............. 5,980,521 4,403,658
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 80
LIFECELL CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss.................................................. $(3,222,612) $(1,857,755)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization.......................... 93,430 84,866
Stock and warrant compensation expense................. -- 19,906
Change in assets and liabilities --
(Increase) decrease in accounts and other
receivables........................................... (365,424) (76,893)
(Increase) decrease in inventories..................... (153,503) (323,664)
(Increase) decrease in prepayments and other........... (20,064) (174,195)
Increase in accounts payable and accrued liabilities... 396,889 185,479
Increase (decrease) in deferred revenues............... 76,482 (21,031)
----------- -----------
Total adjustments................................. 27,810 (305,532)
----------- -----------
Net cash used in operating activities............. (3,194,802) (2,163,287)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (379,392) (138,212)
Intangible assets......................................... (48,125) (16,702)
----------- -----------
Net cash used in investing activities............. (427,517) (154,914)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock........................... 207,294 --
Proceeds from issuance of notes payable................... 65,369 140,990
Dividends paid............................................ (76,823) --
Payments of notes payable................................. (31,375) (21,117)
----------- -----------
Net cash provided by financing activities......... 164,465 119,873
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (3,457,854) (2,198,328)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 10,748,250 3,015,332
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 7,290,396 $ 817,004
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest............... $ 1,860 $ 4,157
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 81
CONDENSED NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND CERTAIN SIGNIFICANT RISKS:
LifeCell Corporation, a Delaware corporation ("LifeCell" or the "Company"),
is engaged in the research, development and commercialization of transplantable
tissue and transfusable blood products. The Company was incorporated on January
6, 1992, for the purpose of merging with its predecessor entity, which was
formed in 1986. LifeCell commercially introduced its first transplantable tissue
product, AlloDerm(R), during December 1993. Sales of AlloDerm products to date
have not been sufficient to fund the Company's operations, and the Company
expects continued operating losses during 1997. The future operating results of
the Company will be principally dependent on the market acceptance of its
current and future products, competition from other products or technologies,
protection of the Company's proprietary technology, and access to funding as
required. Accordingly, there can be no assurance of the Company's future
success. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" elsewhere herein.
2. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission (the
"Commission"). Certain information and footnote disclosures normally included in
the annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules and
regulations. This financial information should be read in conjunction with the
Financial Statements included elsewhere herein.
In the opinion of the management of the Company, the accompanying financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) that are necessary for a fair presentation of financial position
and the results of operations for the periods presented. Financial results for
interim periods are not necessarily indicative of the results for the full year
or future interim periods.
3. REDEMPTION OF SERIES A PREFERRED STOCK
The Series A Preferred Stock was automatically convertible into Common
Stock on November 9, 1997, and could be redeemed sooner by the Company if, after
November 9, 1995, the closing bid price of the Company's Common Stock averaged
or exceeded $5.17 per share for 20 consecutive days. Pursuant to such
provisions, during February 1997, the Company called for redemption all
outstanding shares of Series A Preferred Stock. During March 1997 the Company
issued 1,739,128 shares of Common Stock to redeem the Series A Preferred Stock,
paid a cash dividend of $65,000 and issued an additional 33,305 shares of Common
Stock for dividends accrued through the date of redemption.
4. DIVIDENDS PAYABLE ON SERIES B PREFERRED STOCK
The Series B Preferred Stock bears cumulative dividends, payable quarterly
for five years ending 2001, at the greater of the annual rate of $6.00 per share
or the rate of any dividends paid on the Series A Preferred Stock (effectively
$10.00 per share until the Series A Preferred Stock was redeemed in March 1997).
Dividends may be paid in cash, in additional shares of Series B Preferred Stock
based on the stated value of $100 per share, or any combination of cash and
Series B Preferred Stock at the Company's option. While the shares of Series B
Preferred Stock are outstanding or any dividends are owed thereon, the Company
may not declare or pay cash dividends on its Common Stock.
During the second quarter of 1997, the Company accrued dividends on the
Series B Preferred Stock of $182,504, payable in cash of $3,104 and 1,794 shares
of Series B Preferred Stock.
During the first six months of 1997, the Company accrued dividends on the
Series B Preferred Stock of $482,511, payable in cash of $11,611 and 4,709
shares of Series B Preferred Stock. Such
F-23
<PAGE> 82
CONDENSED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
dividend was at the rate of $10.00 per share for the period through March 26,
1997, the date of redemption of the Series A Preferred Stock, and $6.00 per
share thereafter.
5. LOSS PER COMMON SHARE
Loss per common share has been computed by dividing net loss, which has
been increased by imputed and stated dividends on outstanding Preferred Stock,
by the weighted average number of shares of Common Stock outstanding during the
periods. Such imputed and stated dividends totaled $146,681 and $182,504 for the
three months ended June 30, 1996, and 1997, respectively, and $293,362 and
$590,846 for the six months ended June 30, 1996, and 1997, respectively. In all
applicable periods, all Common Stock equivalents, including the Series A
Preferred Stock and the Series B Preferred Stock, were anti-dilutive and,
accordingly, were not included in the computation.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." Statement 128
establishes standards for computing and presenting earnings per share ("EPS").
This statement simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15, "Earnings per Share", and makes them
comparable to international EPS standards. The statement also retroactively
revises the presentation of earnings per share in the financial statements. The
Company will adopt this Standard for the year ended December 31, 1997, but such
adoption is not expected to have a significant effect on net loss per share for
the period ended June 30, 1997.
F-24
<PAGE> 83
======================================================
No dealer, sales representative or any other person is authorized in
connection with any offering made hereby to give any information or to make any
representation not contained herein, and if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or the Underwriters. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any security other than the securities offered
hereby, nor does it constitute an offer to sell or a solicitation of an offer to
buy any such securities to any person in any jurisdiction in which it is
unlawful to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create an
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
date subsequent to the date hereof.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Special Note Regarding Forward-Looking
Statements.......................... 16
Use of Proceeds....................... 17
Price Range of Common Stock........... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Financial Data............... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 26
Management............................ 44
Security Ownership of Certain
Beneficial Owners, Management and
Selling Stockholders................ 47
Description of Capital Stock.......... 49
Underwriting.......................... 54
Legal Matters......................... 55
Experts............................... 55
Available Information................. 56
Incorporation of Certain Information
by Reference........................ 56
Index to Financial Statements......... F-1
</TABLE>
---------------------
======================================================
======================================================
4,500,000 SHARES
[LIFECELL LOGO]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
Vector Securities International, Inc.
Gruntal & Co., L.L.C.
, 1997
======================================================
<PAGE> 84
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the Offering are:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $12,546
NASD Filing Fee............................................. 4,640
Nasdaq National Market Listing Fee.......................... *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Blue Sky Fees and Expenses (including legal fees)........... *
Printing Expenses........................................... *
Transfer Agent and Registrar Fees........................... *
Miscellaneous............................................... *
-------
TOTAL............................................. $ *
=======
</TABLE>
- ---------------
* To be provided by amendment.
None of these expenses will be paid by the Selling Stockholders pursuant to
the terms of the agreements under which the shares of Common Stock to be sold
hereby are being registered.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article X of the Company's By-laws provides for mandatory indemnification
to at least the extent specifically allowed by Section 145 of the General
Corporation Law of the State of Delaware (the "GCL").
Pursuant to Section 145 of the GCL, the Company generally has the power to
indemnify its current and former directors, officers, employees and agents
against expenses and liabilities incurred by them in connection with any suit to
which they are, or are threatened to be made, a party by reason of their serving
in such positions so long as they acted in good faith and in a manner in which
they reasonably believed to be, or not opposed to, the best interest of the
Company, and with respect to any criminal action, they had no reasonable cause
to believe their conduct was unlawful. With respect to suits by or in the right
of the Company, however, indemnification is generally limited to attorneys' fees
and other expenses and is not available if such person is adjudged to be liable
to the Registrant unless the court determines that indemnification is
appropriate. The statute expressly provides that the power to indemnify
authorized thereby is not exclusive of any rights granted under any bylaw,
agreement, vote of stockholders or disinterested directors, or otherwise. The
Company also has the power to purchase and maintain insurance for such persons.
The above discussion of the Company's By-laws and Section 145 of the GCL is
not intended to be exhaustive and is qualified in its entirety by such document
and statute.
Reference is made to the form of the Underwriting Agreement, filed as
Exhibit 1.1 hereto, which contains provisions for indemnification of the
Company, its directors, officers and any controlling persons by the Underwriters
against certain liabilities for information furnished by the Underwriters.
II-1
<PAGE> 85
ITEM 15. EXHIBITS.
(a) Exhibits:
<TABLE>
<CAPTION>
NO. DESCRIPTION
--- -----------
<C> <S>
1.1+ -- Form of Underwriting Agreement.
3.1* -- Restated Certificate of Incorporation, as amended.
3.2 -- Amended and Restated By-laws (incorporated by reference
to Exhibit 3.2 to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1996).
4.1 -- Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4.2 to Amendment No. 2 to the
Company's Registration Statement on Form S-1,
Registration No. 33-44969, filed with the Commission on
February 10, 1992).
4.2 -- See Exhibits numbered 3.1 and 3.2 for provisions of the
Restated Certificate of Incorporation and Amended and
Restated By-laws of LifeCell defining the rights of the
holders of Common Stock.
5.1+ -- Opinion of Fulbright & Jaworski L.L.P.
10.1 -- LifeCell Corporation Second Amended and Restated 1992
Stock Option Plan, as amended (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1997, filed with the
Commission on August 12, 1997).
10.4 -- LifeCell Corporation Second Amended and Restated 1993
Non-Employee Director Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, filed with the Commission on
March 31, 1997).
10.5 -- Form of Confidentiality/Non-Compete Agreement
(incorporated by reference to Exhibit 10.28 to the
Company's Registration Statement on Form S-1,
Registration No. 33-44969, filed with the Commission on
January 9, 1992).
10.6 -- Exclusive License Agreement dated June 6, 1986, between
the Registrant and The Board of Regents of The University
of Texas System (incorporated by reference to Exhibit
10.29 to the Company's Registration Statement on Form
S-1, Registration No. 33-44969, filed with the Commission
on January 9, 1992).
10.7 -- Amended and Restated Registration Rights Agreement dated
February 26, 1992, by and between the Registration and
the stockholders named therein (incorporated by reference
to Exhibit 10.40 to Amendment No. 3 to the Company's
Registration Statement on Form S-1, Registration No.
33-44969, filed with the Commission on February 27,
1992).
10.8 -- Underwriter's Warrant Agreement dated March 6, 1992,
between the Registrant and Robert Todd Financial
Corporation, and First Amendment to Underwriter's Warrant
Agreement dated January 26, 1993, between the Registrant
and Robert Todd Financial Corporation (incorporated by
reference to Exhibit 10.18 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1992).
</TABLE>
II-2
<PAGE> 86
<TABLE>
<CAPTION>
NO. DESCRIPTION
--- -----------
<C> <S>
10.9 -- Lease Agreement dated December 10, 1986, between the
Registrant and The Woodlands Corporation, Modification
and Ratification of Lease Agreement dated April 11, 1988,
between the Registration and The Woodlands Corporation
Modification and Ratification of Lease dated August 1,
1992, between the Company and The Woodlands Corporation
and Modification, Extension and Ratification of Lease
dated March 5, 1993, between the Registrant and The
Woodlands Corporation, and Modification and Ratification
of Lease Agreement dated December 21, 1995, between the
Company and The Woodlands Office Equities -- '95 Limited
(incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period
ended March 31, 1996).
10.10 -- Lease Agreement dated September 1, 1988, between the
Registrant and The Woodlands Corporation, and
Modification of Lease Agreement dated March 5, 1993,
between the Registrant and The Woodlands Corporation
(incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992).
10.11 -- Stock Purchase Warrant dated January 26, 1993, issued to
Strategem of Alabama, Inc. (incorporated by reference to
Exhibit 10.25 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992).
10.12 -- License and Development Agreement dated March 3, 1994,
between the Registrant and Medtronic, Inc. (incorporated
by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated March 3, 1994).
10.13 -- Investment Agreement dated March 3, 1994, between the
Registrant and Medtronic, Inc. (incorporated by reference
to Exhibit 10.2 to Company's Current Report on Form 8-K
dated March 3, 1994).
10.14 -- Lease Agreement between LifeCell Corporation and Unichem,
dated August 1, 1994 (incorporated by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1994).
10.15 -- Securities Purchase Agreement dated November 18, 1996,
between LifeCell Corporation and the Investors named
therein (incorporated by reference to Exhibit 10.15 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996).
10.16 -- Voting Agreement dated November 18, 1996, among LifeCell
Corporation and certain stockholders named therein
(incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996).
10.17 -- Registration Rights Agreement dated November 18, 1996,
between LifeCell Corporation and certain stockholders
named therein (incorporated by reference to Exhibit 10.15
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
10.18 -- Form of Stock Purchase Warrant dated November 18, 1996,
issued to each of the warrant holders named on Schedule
10.19 attached thereto (incorporated by reference to
Exhibit 10.15 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996).
10.19 -- Stock Purchase Warrant dated November 18, 1996, issued to
Gruntal & Co., Incorporated (incorporated by reference to
Exhibit 10.19 to Amendment No. 1 to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1996 on Form 10-K/A).
</TABLE>
II-3
<PAGE> 87
<TABLE>
<CAPTION>
NO. DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
10.20* -- Agreement dated July 1, 1997, between LifeCell Corporation and Paul M. Frison.
10.21* -- Agreement dated July 1, 1997, between LifeCell Corporation and Stephen A. Livesey.
11.1 -- Statement Regarding Computation of Per Share Earnings.
23.1* -- Consent of Arthur Andersen LLP.
23.2+ -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
23.3* -- Consent of Arnold, White & Durkee.
24.1 -- Powers of Attorney from certain members of the Board of Directors of the Company
(contained on page II-5).
</TABLE>
- ---------------
* Filed herewith.
+ To be filed by amendment.
As permitted by Item 601(b)(4) of Regulation S-K, the Company has not filed
with this Registration Statement certain instruments defining the rights of
holders of long-term debt of the Company, if any, because the total amount of
securities authorized under any of such instruments does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated basis. The
Company agrees to furnish a copy of any such agreements to the Securities and
Exchange Commission upon request.
ITEM 16. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company 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 Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Company hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as a part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, 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> 88
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, LifeCell
Corporation has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of The Woodlands, State of Texas, on October 3, 1997.
LifeCell Corporation
By: /s/ PAUL M. FRISON
----------------------------------
Paul M. Frison
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Paul M. Frison and J. Donald Payne, and
each of them, his or her true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same and all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting said
attorney-in-fact and agent, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or either of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ PAUL M. FRISON Chairman of the Board, President and October 3, 1997
- ----------------------------------------------------- Chief Executive Officer (Principal
Paul M. Frison Executive Officer)
/s/ J. DONALD PAYNE Vice President, Chief Financial October 3, 1997
- ----------------------------------------------------- Officer and Secretary (Principal
J. Donald Payne Financial and Accounting Officer)
/s/ MICHAEL E. CAHR Director October 3, 1997
- -----------------------------------------------------
Michael E. Cahr
/s/ JAMES G. FOSTER Director October 3, 1997
- -----------------------------------------------------
James G. Foster
/s/ LORI G. KOFFMAN Director October 3, 1997
- -----------------------------------------------------
Lori G. Koffman
/s/ STEPHEN A. LIVESEY Director October 3, 1997
- -----------------------------------------------------
Stephen A. Livesey
Director , 1997
- -----------------------------------------------------
K. Flynn McDonald
/s/ DAVID A. THOMPSON Director October 3, 1997
- -----------------------------------------------------
David A. Thompson
</TABLE>
II-5
<PAGE> 89
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION
--- -----------
<C> <S>
1.1+ -- Form of Underwriting Agreement.
3.1* -- Restated Certificate of Incorporation, as amended.
3.2 -- Amended and Restated By-laws (incorporated by reference
to Exhibit 3.2 to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1996).
4.1 -- Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4.2 to Amendment No. 2 to the
Company's Registration Statement on Form S-1,
Registration No. 33-44969, filed with the Commission on
February 10, 1992).
4.2 -- See Exhibits numbered 3.1 and 3.2 for provisions of the
Restated Certificate of Incorporation and Amended and
Restated By-laws of LifeCell defining the rights of the
holders of Common Stock.
5.1+ -- Opinion of Fulbright & Jaworski L.L.P.
10.1 -- LifeCell Corporation Second Amended and Restated 1992
Stock Option Plan, as amended (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1997, filed with the
Commission on August 12, 1997).
10.4 -- LifeCell Corporation Second Amended and Restated 1993
Non-Employee Director Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, filed with the Commission on
March 31, 1997).
10.5 -- Form of Confidentiality/Non-Compete Agreement
(incorporated by reference to Exhibit 10.28 to the
Company's Registration Statement on Form S-1,
Registration No. 33-44969, filed with the Commission on
January 9, 1992).
10.6 -- Exclusive License Agreement dated June 6, 1986, between
the Registrant and The Board of Regents of The University
of Texas System (incorporated by reference to Exhibit
10.29 to the Company's Registration Statement on Form
S-1, Registration No. 33-44969, filed with the Commission
on January 9, 1992).
10.7 -- Amended and Restated Registration Rights Agreement dated
February 26, 1992, by and between the Registration and
the stockholders named therein (incorporated by reference
to Exhibit 10.40 to Amendment No. 3 to the Company's
Registration Statement on Form S-1, Registration No.
33-44969, filed with the Commission on February 27,
1992).
10.8 -- Underwriter's Warrant Agreement dated March 6, 1992,
between the Registrant and Robert Todd Financial
Corporation, and First Amendment to Underwriter's Warrant
Agreement dated January 26, 1993, between the Registrant
and Robert Todd Financial Corporation (incorporated by
reference to Exhibit 10.18 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1992).
10.9 -- Lease Agreement dated December 10, 1986, between the
Registrant and The Woodlands Corporation, Modification
and Ratification of Lease Agreement dated April 11, 1988,
between the Registration and The Woodlands Corporation
Modification and Ratification of Lease dated August 1,
1992, between the Company and The Woodlands Corporation
and Modification, Extension and Ratification of Lease
dated March 5, 1993, between the Registrant and The
Woodlands Corporation, and Modification and Ratification
of Lease Agreement dated December 21, 1995, between the
Company and The Woodlands Office Equities -- '95 Limited
(incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period
ended March 31, 1996).
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
NO. DESCRIPTION
--- -----------
<C> <S>
10.10 -- Lease Agreement dated September 1, 1988, between the
Registrant and The Woodlands Corporation, and
Modification of Lease Agreement dated March 5, 1993,
between the Registrant and The Woodlands Corporation
(incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992).
10.11 -- Stock Purchase Warrant dated January 26, 1993, issued to
Strategem of Alabama, Inc. (incorporated by reference to
Exhibit 10.25 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992).
10.12 -- License and Development Agreement dated March 3, 1994,
between the Registrant and Medtronic, Inc. (incorporated
by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated March 3, 1994).
10.13 -- Investment Agreement dated March 3, 1994, between the
Registrant and Medtronic, Inc. (incorporated by reference
to Exhibit 10.2 to Company's Current Report on Form 8-K
dated March 3, 1994).
10.14 -- Lease Agreement between LifeCell Corporation and Unichem,
dated August 1, 1994 (incorporated by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1994).
10.15 -- Securities Purchase Agreement dated November 18, 1996,
between LifeCell Corporation and the Investors named
therein (incorporated by reference to Exhibit 10.15 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996).
10.16 -- Voting Agreement dated November 18, 1996, among LifeCell
Corporation and certain stockholders named therein
(incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996).
10.17 -- Registration Rights Agreement dated November 18, 1996,
between LifeCell Corporation and certain stockholders
named therein (incorporated by reference to Exhibit 10.15
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
10.18 -- Form of Stock Purchase Warrant dated November 18, 1996,
issued to each of the warrant holders named on Schedule
10.19 attached thereto (incorporated by reference to
Exhibit 10.15 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996).
10.19 -- Stock Purchase Warrant dated November 18, 1996, issued to
Gruntal & Co., Incorporated (incorporated by reference to
Exhibit 10.19 to Amendment No. 1 to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1996 on Form 10-K/A).
10.20* -- Agreement dated July 1, 1997, between LifeCell
Corporation and Paul M. Frison.
10.21* -- Agreement dated July 1, 1997, between LifeCell
Corporation and Stephen A. Livesey.
11.1 -- Statement Regarding Computation of Per Share Earnings.
23.1* -- Consent of Arthur Andersen LLP.
23.2+ -- Consent of Fulbright & Jaworski L.L.P. (included in
Exhibit 5.1).
23.3* -- Consent of Arnold, White & Durkee.
24.1 -- Powers of Attorney from certain members of the Board of
Directors of the Company (contained on page II-5).
</TABLE>
- ---------------
* Filed herewith.
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
LIFECELL CORPORATION
(Originally incorporated under the name
"Successor LifeCell Corporation" on January 6, 1992)
First: The name of the Corporation is LifeCell Corporation.
Second: The registered office of the Corporation in the State of
Delaware is located at Corporation Trust Center, 1209 Orange Street in the City
of Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
Third: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
Fourth: The total number of shares of capital stock that the
Corporation shall have authority to issue is 14,500,000, of which 2,000,000
shares of the par value of $.001 per share shall be a class designated
Preferred Stock ("Preferred Stock"), and 12,500,000 shares of the par value of
$.001 per share shall be a class designated Common Stock ("Common Stock").
The voting powers, designations, preferences and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions thereof, of the Preferred Stock and Common Stock,
and the authority with respect thereto expressly granted to the Board of
Directors of the Corporation, are as follows:
A. Common Stock.
1. Voting Rights. The holders of shares of Common Stock shall
have the following voting rights:
(a) Each share of Common Stock shall entitle the holder
thereof to one vote on all matters submitted to a vote of the stockholders of
the Corporation.
(b) Except as otherwise required by law or the provisions
of this Restated Certificate of Incorporation, the holders of shares of Common
Stock shall not be entitled to vote separately as a class on any matter
submitted to a vote of the stockholders of the Corporation.
2. Liquidation. Subject to the provisions of this Restated
Certificate of Incorporation, in the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether voluntary or involuntary,
after payment or provision for payment of any preferential amount due the
holders of shares of any other class or series of stock, the holders of shares
of Common Stock shall be entitled to receive
<PAGE> 2
ratably, based on the number of shares of Common Stock held by such holders,
any assets of the Corporation available for distribution to holders of Common
Stock.
3. Dividends. Subject to the provisions of this Restated
Certificate of Incorporation, the Board of Directors, in its discretion, out of
funds legally available for the payment of dividends and at such times and in
such manner as determined by the Board of Directors, may declare and pay
dividends on the outstanding shares of Common Stock of the Corporation.
4. Reacquired Shares. Any shares of Common Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever that have been
retired shall upon their retirement become authorized but unissued shares of
Common Stock.
B. Preferred Stock.
1. Additional Series of Preferred Stock.
The Board of Directors is hereby expressly vested with the authority
to adopt a resolution or resolutions providing for the issue of authorized but
unissued shares of Preferred Stock, which shares may be issued from time to
time in one or more series and in such amounts as may be determined by the
Board of Directors in such resolution or resolutions. The voting powers,
designations, preferences and relative, participating, optional or other
special rights, if any, of each such series of Preferred Stock and the
qualifications, limitations or restrictions, if any, thereof (collectively the
"Series Terms"), shall be such as are stated and expressed in a resolution or
resolutions providing for the creation or revision of such Series Terms adopted
by the Board of Directors or, to the extent permitted by law, a committee of
the Board of Directors to which such responsibility is specifically and
lawfully delegated.
2. Series A Preferred Stock.
The voting powers, designations, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, of one series of Preferred Stock, the
Series A Preferred Stock, designated on November 9, 1994, are as follows:
(a) Designation. The designation of the series shall be
"Series A Preferred Stock" (the "Series A Preferred Stock").
(b) Number. The number of shares constituting the Series
A Preferred Stock shall be 300,000.
(c) Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(i) Except as required by law or Section
B.2.(c)(ii) of this Article Fourth, the holders of shares of Series A Preferred
Stock shall not have any right or power to vote on any question or in any
proceeding or to be represented at or to receive
-2-
<PAGE> 3
notice of any meeting or consent of stockholders. On any matters on which the
holders of the Series A Preferred Stock shall be entitled to vote, each share
of Series A Preferred Stock shall entitle the holder thereof to one vote
multiplied by the number of shares of Common Stock into which such share of
Series A Preferred Stock is convertible on the record date for such vote.
(ii) Without the vote or consent of the holders of
at least a majority of the shares of Series A Preferred Stock then outstanding,
the Corporation may not (A) authorize, create or issue, or increase the
authorized number of shares of, any class or series of capital stock ranking
prior to or on a parity with the Series A Preferred Stock either as to
dividends or liquidation, (B) authorize, create or issue any class or series of
common stock of the Corporation other than the Common Stock, (C) authorize any
reclassification of the Series A Preferred Stock, (D) authorize, create or
issue any securities convertible into capital stock prohibited by Section
B.2.(c)(ii)(A) or (B) of this Article Fourth, or (E) amend Section B.2 of this
Article Fourth.
(d) Liquidation.
(i) Preference. Subject to the rights of the
holders of any other series of Preferred Stock ranking senior to or on a parity
with the Series A Preferred Stock with respect to liquidation and any other
class or series of capital stock of the Corporation ranking senior to or on a
parity with the Series A Preferred Stock with respect to liquidation, in the
event of any liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, the holders of record of the
issued and outstanding shares of Series A Preferred Stock shall be entitled to
receive, out of the assets of the Corporation available for distribution to the
holders of shares of Series A Preferred Stock, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of Common
Stock or and any other series of Preferred Stock ranking junior to the Series A
Preferred Stock with respect to liquidation and any other class or series of
capital stock of the Corporation ranking junior to the Series A Preferred Stock
with respect to liquidation, an amount in cash per share equal to $20.00, plus
an amount equal to all dividends accrued and unpaid on each such share (whether
or not declared) up to the date fixed for distribution. If, upon such
liquidation, dissolution or winding up of the affairs of the Corporation, the
assets of the Corporation distributable among the holders of Series A Preferred
Stock and any other series of Preferred Stock ranking on a parity therewith in
respect thereto or any class or series of capital stock of the Corporation
ranking on a parity therewith in respect thereto shall be insufficient to
permit the payment in full to all such holders of shares of the preferential
amounts payable to them, then the entire assets of the Corporation available
for distribution to such holders of shares shall be distributed ratably among
such holders in proportion to the respective amounts that would be payable per
share if such assets were sufficient to permit payment in full. After payment
of the full amount to which they are entitled upon liquidation pursuant to this
Section B.2.(d)(i), the holders of shares of Series A Preferred Stock will not
be entitled to any further participation in any distribution of assets by the
Corporation. Neither a consolidation or merger of the Corporation with another
corporation or other entity nor a sale, transfer, lease or exchange of all or
part of the Corporation's assets will be
-3-
<PAGE> 4
considered a liquidation, dissolution or winding up of the affairs of the
Corporation for purposes of this Section B.2.(d)(i).
(ii) Adjustments. The liquidation preference
provided for herein with respect to the Series A Preferred Stock shall be
equitably adjusted to reflect any stock dividend, stock distribution, stock
split or reverse stock split, combination of shares, subdivision of shares or
reclassification of shares with respect to the Series A Preferred Stock.
(e) Conversion Rights.
(i) Optional Conversion. Subject to and upon
compliance with the provisions of this Section B.2.(e) (and Section B.2.(g)
with respect to conversion after notice of redemption), the holder of any
shares of Series A Preferred Stock shall have the right at such holder's
option, at any time or from time to time, and without the payment of any
additional consideration therefor, to convert any of such shares of Series A
Preferred Stock into fully paid and nonassessable shares of Common Stock at the
Conversion Price (as defined in Section B.2.(e)(iii) below) in effect on any
Conversion Date (as defined in Section B.2.(e)(iv) below) upon the terms
hereinafter set forth.
(ii) Automatic Conversion. Each outstanding share
of Series A Preferred Stock shall automatically be converted, without any
further act of the Corporation or its stockholders, at the Conversion Price
then in effect, into fully paid and nonassessable shares of Common Stock on
November 9, 1997.
(iii) Number of Conversion Shares. Each share of
Series A Preferred Stock shall be convertible pursuant to Sections B.2.(e)(i)
and B.2.(e)(ii) into a number of shares of Common Stock determined by dividing
(x) $20.00 by (y) the Conversion Price in effect on any Conversion Date. For
the purposes of this Section B.2.(e), the term "Conversion Price" shall
initially mean $2.99.
(iv) Mechanics of Conversion. The holder of any
shares of Series A Preferred Stock may exercise the conversion right specified
in Section B.2.(e)(i) by surrendering to the Corporation or any transfer agent
of the Corporation the certificate or certificates for the shares to be
converted, accompanied by written notice specifying the number of shares to be
converted. Upon the occurrence of automatic conversion pursuant to Section
B.2.(e)(ii), the outstanding shares of Series A Preferred Stock shall be
converted automatically without any further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent; provided that the
Corporation shall not be obligated to issue to any holder certificates
evidencing the shares of Common Stock issuable upon such conversion unless
certificates evidencing such shares of Series A Preferred Stock are delivered
either to the Corporation or any transfer agent of the Corporation. Conversion
shall be deemed to have been effected on the date when delivery of notice of an
election to convert and of certificates for shares being converted is made or
on the date specified in Section B.2.(e)(ii), as the case may be, and such date
is referred to herein as the "Conversion Date". Subject to the provisions of
-4-
<PAGE> 5
Section B.2.(e)(vi)(C), as promptly as practicable thereafter (and after
surrender of the certificate or certificates representing shares of Series A
Preferred Stock to the Corporation or any transfer agent of the Corporation in
the case of conversion pursuant to Section B.2.(e)(ii)) the Corporation shall
issue and deliver to or upon the written order of such holder a certificate or
certificates for the number of full shares of Common Stock to which such holder
is entitled and a check or cash with respect to any fractional interest in a
share of Common Stock as provided in Section B.2.(e)(v). Subject to the
provisions of Section B.2.(e)(vi)(C), the person in whose name the certificate
or certificates for Common Stock are to be issued shall be deemed to have
become a holder of record of such Common Stock on the applicable Conversion
Date. Upon conversion of only a portion of the number of shares covered by a
certificate representing shares of Series A Preferred Stock surrendered for
conversion (in the case of conversion pursuant to Section B.2.(e)(i)), the
Corporation shall issue and deliver to or upon the written order of the holder
of the certificate so surrendered for conversion, at the expense of the
Corporation, a new certificate covering the number of shares of Series A
Preferred Stock representing the unconverted portion of the certificate so
surrendered.
(v) Fractional Shares. No fractional shares of
Common Stock or scrip shall be issued upon conversion of shares of Series A
Preferred Stock. If more than one share of Series A Preferred Stock shall be
surrendered for conversion at any one time by the same holder or shall be held
by the same holder at the time of any automatic conversion, the number of full
shares of Common Stock issuable upon conversion thereof shall be computed on
the basis of the aggregate number of shares so surrendered or held, as the case
may be. Instead of any fractional shares of Common Stock which would otherwise
be issuable upon conversion of any shares of Series A Preferred Stock, the
Corporation shall pay out of funds legally available therefor a cash adjustment
in respect of such fractional interest, rounded to the nearest one hundredth
(1/100th) of a share, in an amount equal to that fractional interest of the
then Current Market Price (as defined in Section B.2.(e)(vii) below), rounded
to the nearest cent ($.01).
(vi) Common Stock Conversion Price Adjustments.
The Conversion Price shall be subject to adjustment from time to time as
follows:
(A) Stock Dividends, Subdivisions,
Reclassifications or Combinations. If the Corporation shall (x) declare a
dividend or make a distribution on its Common Stock in shares of its Common
Stock, (y) subdivide or reclassify the outstanding shares of Common Stock into
a greater number of shares of Common Stock or (z) combine or reclassify the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, the Conversion Price in effect at the time of the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be adjusted to that price determined by multiplying
the Conversion Price in effect by a fraction (x) the numerator of which shall
be the total number of issued and outstanding shares of Common Stock
immediately prior to such dividend, distribution, subdivision, combination or
reclassification and (y) the denominator of which shall be the total number of
issued and outstanding shares of Common Stock immediately after such dividend,
distribution, subdivision, combination
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or reclassification. Successive adjustments in the Conversion Price shall be
made whenever any event specified above shall occur.
(B) Rounding of Calculations; Minimum
Adjustment. All calculations under this Section B.2.(e)(vi) shall be made to
the nearest cent ($.01) or to the nearest one hundredth (1/100th) of a share,
as the case may be. Any provision of this Section B.2.(e) to the contrary
notwithstanding, no adjustment in the Conversion Price shall be made if the
amount of such adjustment would be less than 1% of the then current Conversion
Price until the end of one year after such adjustment would otherwise have been
required; but any such amount shall be carried forward and an adjustment with
respect thereto shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other amount or amounts so
carried forward, shall aggregate 1% of the then current Conversion Price or
more, provided that if the events giving rise to such adjustments occur within
three months of each other, then such adjustments shall be calculated as if
these events giving rise to them had occurred simultaneously on the date of the
first such event.
(C) Timing of Issuance of Additional
Common Stock Upon Certain Adjustments. In any case in which the provisions of
this Section B.2.(e)(vi) shall require that an adjustment shall become
effective immediately after a record date for an event, the Corporation may
defer until the occurrence of such event (x) issuing to the holder of any share
of Series A Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Common Stock issuable upon
such conversion by reason of the adjustment required by such event over and
above the shares of Common Stock issuable upon such conversion before giving
effect to such adjustment and (y) paying to such holder any amount of cash in
lieu of a fractional share of Common Stock pursuant to Section B.2.(e)(v);
provided that the Corporation upon request shall deliver to such holder a due
bill or other appropriate instrument evidencing such holder's right to receive
such additional shares, and such cash, upon the occurrence of the event
requiring such adjustment.
(vii) Current Market Price. The "Current Market
Price" at any date shall mean, in the event the Common Stock is publicly
traded, the average of the daily closing prices per share of such equity
security for the 20 consecutive trading days ending on the trading day
immediately before such date (as adjusted for any stock dividend, split,
combination or reclassification that took effect during such 20 trading day
period). The closing price for each day shall be the last reported sale price
regular way or, in case no such reported sale takes place on such day, the
average of the last closing bid prices regular way, in either case on the
principal national securities exchange on which such equity security is listed
or admitted to trading, or if not listed or admitted to trading on any national
securities exchange, the closing bid price for such day reported by NASDAQ, if
such equity security is traded over-the-counter and quoted in the National
Market System, or if such equity security is so traded, but not so quoted, the
average of the closing bid prices of such equity security as reported by NASDAQ
or any comparable system or, if such equity security is not listed on NASDAQ or
any comparable system, the average of the closing bid prices as furnished by
two members of the National Association of Securities Dealers, Inc., selected
in good faith from time to time by the Board of Directors of the Corporation
for that purpose. If
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<PAGE> 7
such equity security is not traded in such manner that the quotations referred
to above are available for the period required hereunder, Current Market Price
per share of such equity security shall be deemed to be the fair value as
determined in good faith by the Board of Directors of the Corporation,
irrespective of any accounting treatment.
(viii) Statement Regarding Adjustments. Whenever
the Conversion Price shall be adjusted as provided in Section B.2.(e)(vi), the
Corporation shall forthwith file, at the office of any transfer agent for the
Series A Preferred Stock and at the principal office of the Corporation, a
statement showing in detail the method of calculation of such adjustment, the
facts requiring such adjustment and the Conversion Price that shall be in
effect after such adjustment, and the Corporation shall also cause a copy of
such statement to be sent by mail, first class postage prepaid, to each holder
of shares of Series A Preferred Stock at its address appearing on the
Corporation's records. Each such statement shall be signed by the
Corporation's chief financial officer. Where appropriate, such copy may be
given in advance and may be included as part of a notice required to be mailed
under the provisions of Section B.2.(e)(ix).
(ix) Notice to Holders. In the event the
Corporation shall propose to take any action of the type described in Section
B.2.(e)(vi)(A) or B.2.(e)(x), the Corporation shall give notice to each holder
of shares of Series A Preferred Stock in the manner set forth in Section
B.2.(e)(viii), which notice shall specify the record date, if any, with respect
to any such action and the approximate date on which such action is to take
place. Such notice shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the Conversion
Price and the number, kind or class of shares or other securities or property
which shall be deliverable upon conversion of shares of Series A Preferred
Stock. In the case of any action which would require the fixing of a record
date, such notice shall be given at least ten calendar days prior to the date
so fixed, and in the case of all other action, such notice shall be given at
least 15 calendar days prior to the taking of such proposed action. Failure to
give such notice, or any defect therein, shall not affect the legality or
validity of any such action.
(x) Mergers, etc. In the event the Corporation
shall be a party to any transaction (including, without limitation, a merger,
consolidation, sale, lease or transfer of all or substantially all of its
assets, reclassification of the Common Stock or reorganization of the Company)
as a result of which shares of Common Stock shall be converted into the right
to receive stock, securities or other property (including cash or any
combination thereof), each share of Series A Preferred Stock shall thereafter
be convertible into the kind and amount of shares of stock and other securities
and property receivable (including cash) upon the consummation of such
transaction by a holder of that number of shares of Common Stock, or fraction
thereof, into which one share of Series A Preferred Stock was convertible
immediately prior to such transaction.
(xi) Treasury Stock. For the purposes of this
Section B.2.(e), the sale or other disposition of any shares of Common Stock
theretofore held in the Corporation's treasury shall be deemed to be an
issuance thereof.
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<PAGE> 8
(xii) Costs. The Corporation shall pay all
documentary, stamp, transfer or other transactional taxes attributable to the
issuance or delivery of shares of Common Stock upon conversion of any shares of
Series A Preferred Stock; provided that the Corporation shall not be required
to pay any taxes which may be payable in respect of any transfer involved in
the issuance or delivery of any certificate for such shares in a name other
than that of the holder of the shares of Series A Preferred Stock in respect of
which such shares are being issued.
(xiii) Dividends Upon Conversion. In connection
with any conversion of shares of Series A Preferred Stock, the Corporation
shall pay accrued and unpaid dividends thereon in accordance with the
provisions of Section B.2.(f)(iv).
(f) Dividends.
(i) General.
(A) Subject to the rights of the holders
of any other series of Preferred Stock ranking senior to or on a parity with
the Series A Preferred Stock with respect to dividends and any other class or
series of capital stock of the Corporation ranking senior to or on a parity
with the Series A Preferred Stock with respect to dividends, other than the
Common Stock, the holders of the Series A Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors, cumulative dividends
per share of Series A Preferred Stock at the rate per annum of (1) $1.20,
during the period commencing on the date of original issuance of any shares of
Series A Preferred Stock and ending on November 9, 1995, (2) $1.60, during the
period commencing on November 10, 1995, and ending on November 9, 1996, and (3)
$2.00, during the period commencing on November 10, 1996, and ending on
November 9, 1997.
(B) Dividends on the Series A Preferred
Stock will accrue on each February 9, May 9, August 9 and November 9, occurring
after the date of original issuance (each such date being referred to herein as
an "Accrual Date" and the three-month period or portion thereof, as the case
may be, ending on an Accrual Date being referred to herein as an "Accrual
Period"). Dividends will accrue from the date of original issuance. Dividends
will be paid (when and as declared by the Board of Directors of the
Corporation) annually, in the arrears, on November 9, 1995, November 9, 1996,
and November 9, 1997. Each such dividend shall be paid to the holders of
record of shares of the Series A Preferred Stock as they appear on the stock
register of the Corporation on such record date not exceeding 45 nor less than
ten calendar days preceding the payment date thereof, as shall be fixed by the
Board of Directors of the Corporation. Dividends on account of arrears for any
past dividend periods may be declared and paid at any time, without reference
to any regular dividend payment date, to holders of record on such date, not
exceeding 45 nor less than ten calendar days preceding the payment date
thereof, as may be fixed by the Board of Directors of the Corporation. Holders
of shares of Series A Preferred Stock at the close of business on a dividend
payment record date will be entitled to receive the dividend payable with
respect to such shares on the corresponding dividend payment date
notwithstanding the conversion thereof or the Corporation's default on
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<PAGE> 9
payment of the dividend due on such dividend payment date. However, for shares
of Series A Preferred Stock surrendered for conversion during the period from
the close of business on any dividend payment record date to the opening of
business on the corresponding dividend payment date, the Corporation shall only
be required to pay the dividend to the holder of such shares on the dividend
payment record date. Except as so provided above and in Section B.2.(f)(iv)
below, no payment or adjustment will be made on account of accrued or unpaid
dividends upon conversion of shares of Series A Preferred Stock. Holders of
shares of Series A Preferred Stock called for redemption on a redemption date
falling between a dividend payment record date and the dividend payment date
shall, in lieu of receiving such dividend on the dividend payment date, receive
such dividend payment on the redemption payment date (unless such holders
convert such shares in accordance with this Section B.2 of this Article
Fourth).
(C) The Corporation shall pay the
dividends on the Series A Preferred Stock described in Section B.2.(f)(i)(A),
at the Corporation's option and in its sole discretion, out of funds legally
available therefor (1) in cash, (2) in shares of Common Stock, such that the
number of shares of Common Stock to be distributed as a dividend with respect
to the portion of the dividend attributable to each Accrual Period shall be
equal to the number obtained by dividing the dollar amount of the portion of
the dividend attributable to such Accrual Period by the greater of (I) the
Current Market Price of the Common Stock on the tenth trading day immediately
preceding the applicable Accrual Date and (II) $2.00 (as shall be equitably
adjusted to reflect any stock dividend, stock distribution, stock split or
reverse stock split, combination of shares, subdivision of shares or
reclassification of shares with respect to the Common Stock), or (III) in any
combination of cash and shares of Common Stock that the Corporation may
determine in its sole discretion, with the number of shares of Common Stock to
be distributed in connection therewith to be calculated on the basis set forth
in Section B.2.(f)(i)(C)(2).
(D) No fractional shares of Common Stock
or scrip shall be issued upon payment of any dividends in shares of Common
Stock. If more than one share of Series A Preferred Stock shall be held by the
same holder at the time of any dividend payment date, the number of full shares
of Common Stock issuable upon payment of such dividends shall be computed on
the basis of the aggregate dividend amount that the Corporation has determined
to pay in Common Stock shares. Instead of any fractional shares of Common
Stock which would otherwise be issuable upon payment of such dividends, the
Corporation shall pay out of funds legally available therefor a cash adjustment
in respect of such fractional interest, rounded to the nearest one hundredth
(1/100th) of a share, in an amount equal to that fractional interest of the
then Current Market Price, rounded to the nearest cent ($.01).
(E) Notwithstanding the dividend rate
otherwise applicable pursuant to Section B.2.(f)(i)(C) and notwithstanding any
other provision of this Section B.2 of this Article Fourth to the contrary, in
the event the Corporation pays any dividends in shares of Common Stock and
pursuant to the provisions of Section B.2.(f)(i)(C) the Current Market Price
used in the calculation of the number of shares payable in respect of such
dividends in respect of any Accrual Period is less than $2.00, as shall be
equitably adjusted to reflect any stock dividend, stock distribution,
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<PAGE> 10
stock split or reverse stock split, combination of shares, subdivision of
shares or reclassification of shares with respect to the Common Stock (and,
therefore, pursuant to and for purposes of Section B.2.(f)(i)(C), deemed to be
equal to $2.00, as so adjusted), payment of any such dividends in shares of
Common Stock calculated pursuant thereto shall constitute payment in full of
any such dividends.
(ii) Allocation of Dividends. Dividends on the
Series A Preferred Stock, if paid, or if declared and set apart for payment,
must be paid or declared and set apart for payment on all outstanding shares of
Series A Preferred Stock contemporaneously. In the event dividends on the
Series A Preferred Stock and any other series of Preferred Stock ranking on a
parity therewith in respect thereto or any other class or series of capital
stock of the Corporation ranking on a parity therewith in respect thereto are
declared and paid in an amount less than all accumulated and current dividends
on all of such shares, the total amount declared and paid shall be allocated
among all of such shares so that the per share dividend to be declared and paid
on each share is the same percentage of the sum of the accumulated dividends
for each such share. In the event dividends are declared and paid on the
Series A Preferred Stock in a combination of cash and shares of Common Stock,
the percentage of the dividend paid in cash and the percentage of the dividend
paid in stock must be the same for each share of Series A Preferred Stock.
(iii) Dividend Priorities. The Corporation shall
not declare or pay any distributions to the holders of the Common Stock or any
other class or series of capital stock ranking junior to the Series A Preferred
Stock in respect of dividends during any period of time in which any shares of
Series A Preferred Stock are outstanding or in which any dividends payable on
any shares of Series A Preferred Stock have not been declared and paid in full.
In this Section B.2.(f)(iii), "distribution" means the transfer of cash or
property without consideration, whether by way of dividend or otherwise (except
a dividend solely in shares of Common Stock), or the purchase or redemption by
the Corporation of shares of Common Stock or any other shares of capital stock
of the Corporation ranking junior to the Series A Preferred Stock in respect of
dividends for cash or property, but does not include the repurchase by the
Corporation of shares from an officer, director, employee or consultant of the
Corporation.
(iv) Dividends on Conversion or Redemption.
(A) Immediately prior to the conversion
of any shares of Series A Preferred Stock into Common Stock or the redemption
of any shares of Series A Preferred Stock, all accrued and unpaid dividends
payable pursuant to Section B.2.(f) (whether or not declared) on such shares so
converted or redeemed, as the case may be, (prorated until the date of
conversion or redemption, as the case may be, in respect of the Accrual Period
in which such date occurs) shall be payable, at the Corporation's option and in
its sole discretion, out of funds legally available therefor (1) in cash, (2)
in shares of Common Stock, such that the number of shares of Common Stock to be
distributed with respect to the portion of the dividend attributable to each
Accrual Period shall be equal to the number obtained by dividing the dollar
amount of the portion of the dividend attributable to such Accrual Period by
the greater of (I) the
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<PAGE> 11
Current Market Price of the Common Stock on the tenth trading day immediately
preceding the applicable Accrual Date and (II) $2.00 (as shall be equitably
adjusted to reflect any stock dividend, stock distribution, stock split or
reverse stock split, combination of shares, subdivision of shares or
reclassification of shares with respect to the Common Stock), or (III) in any
combination of cash and shares of Common Stock that the Corporation may
determine in its sole discretion, with the number of shares of Common Stock to
be distributed in connection therewith to be calculated on the basis set forth
in Section B.2.(f)(iv)(A)(2).
(B) No fractional shares of Common Stock
or scrip shall be issued upon payment of any dividends in shares of Common
Stock upon conversion or redemption of any shares of Series A Preferred Stock.
If more than one share of Series A Preferred Stock shall be surrendered for
conversion at any one time by the same holder, shall be held by the same holder
at the time of any automatic conversion or shall be held by the same holder at
the time of any redemption, as the case may be, the number of full shares of
Common Stock issuable upon payment of such dividends shall be computed on the
basis of the aggregate dividend amount that the Corporation has determined to
pay in Common Stock shares. Instead of any fractional shares of Common Stock
which would otherwise be issuable upon payment of such dividends, the
Corporation shall pay out of funds legally available therefor a cash adjustment
in respect of such fractional interest, rounded to the nearest one hundredth
(1/100th) of a share, in an amount equal to that fractional interest of the
then Current Market Price, rounded to the nearest cent ($.01).
(C) Notwithstanding the dividend rate
otherwise applicable pursuant to Section B.2.(f)(i)(A) and notwithstanding any
other provision of this Section B.2 of this Article Fourth to the contrary, in
the event the Corporation pays any dividends in shares of Common Stock upon
conversion or redemption of any shares of Series A Preferred Stock and pursuant
to the provisions of Section B.2.(f)(iv)(A) the Current Market Price used in
the calculation of the number of shares payable in respect of such dividends in
respect of any Accrual Period is less than $2.00, as shall be equitably
adjusted to reflect any stock dividend, stock distribution, stock split or
reverse stock split, combination of shares, subdivision of shares or
reclassification of shares with respect to the Common Stock (and, therefore,
pursuant to and for purposes of Section B.2.(f)(iv)(A), deemed to be equal to
$2.00, as so adjusted), payment of any such dividends in shares of Common Stock
calculated pursuant thereto shall constitute payment in full of any such
dividends.
(g) Redemption.
(i) General.
(A) At any time after November 9, 1995,
the Corporation may redeem in whole or in part the then outstanding shares of
Series A Preferred Stock; provided, however, that the Corporation may not
redeem any shares of Series A Preferred Stock unless the Current Market Price
of the Common Stock on a date (which date may be prior to, on or after November
9, 1995) that is within ten trading days of the date notice of redemption is
given pursuant to Section B.2.(g)(iii) equals or
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<PAGE> 12
exceeds $5.17 (as shall be equitably adjusted to reflect any stock dividend,
stock distribution, stock split or reverse stock split, combination of shares,
subdivision of shares or reclassification of shares with respect to the Common
Stock).
(B) The Corporation shall redeem the
Series A Preferred Stock by paying a redemption amount equal to $20.00 per
share of Series A Preferred Stock (the "Redemption Price"), at the
Corporation's option and in its sole discretion, out of funds legally available
therefor (1) in cash, (2) in shares of Common Stock, such that the number of
shares of Common Stock to be distributed in payment of the Redemption Price
shall be equal to the number obtained by dividing the dollar amount of the
Redemption Price by the lesser of (I) the Current Market Price of the Common
Stock on the tenth trading day immediately preceding the date notice of
redemption is given pursuant to Section B.2.(g)(iii) and (II) the Conversion
Price on the redemption payment date, or (3) in any combination of cash and
shares of Common Stock that the Corporation may determine in its sole
discretion, with the number of shares of Common Stock distributed in connection
therewith to be calculated on the basis set forth in Section B.2.(f)(iv)(B)(2).
(C) No fractional shares of Common Stock
or scrip shall be issued upon payment of the Redemption Price or any portion
thereof in shares of Common Stock. If more than one share of Series A
Preferred Stock shall be held by the same holder at the time of any redemption,
the number of full shares of Common Stock issuable upon payment of the
Redemption Price, or any portion thereof, shall be computed on the basis of the
aggregate Redemption Price that the Corporation has determined to pay in Common
Stock shares. Instead of any fractional shares of Common Stock which would
otherwise be issuable upon payment of any such Redemption Price, the
Corporation shall pay out of funds legally available therefor a cash adjustment
in respect of such fractional interest, rounded to the nearest one hundredth
(1/100th) of a share, in an amount equal to that fractional interest of the
then Current Market Price, rounded to the nearest cent ($.01).
(D) In connection with any redemption of
shares of Series A Preferred Stock, in addition to the Redemption Price, the
Corporation shall pay accrued and unpaid dividends thereon in accordance with
the provisions of Section B.2.(f)(iv).
(E) The Redemption Price payable
pursuant hereto shall be equitably adjusted to reflect any stock dividend,
stock distribution, stock split or reverse stock split, combination of shares,
subdivision of shares or reclassification of shares with respect to any shares
of the Series A Preferred Stock.
(ii) Partial Redemption. In case of the
redemption of only part of the Series A Preferred Stock at the time
outstanding, at the option of the Board of Directors, such redemption shall be
made pro rata or the shares to be redeemed shall be chosen by lot in such
manner as may be prescribed by the Board of Directors.
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(iii) Notice.
(A) Notice of any proposed redemption of
Series A Preferred Stock shall be given by the Corporation by mailing a copy of
such notice by first class mail, postage prepaid, not less than 30 nor more
than 90 calendar days prior to the date fixed for such redemption to each
holder of record of the shares to be redeemed at his address appearing on the
books of the Corporation.
(B) Each such notice shall state, among
other things, (1) the redemption payment date, (2) whether the Redemption Price
will be paid in shares of Common Stock or cash, or in a combination of Common
Stock and cash, (3) that dividends on the shares to be redeemed shall cease to
accrue following such redemption payment date, and (4) that dividends accrued
to and including the date fixed for redemption will be paid as specified in
said notice.
(C) Notice having been mailed as
aforesaid, from and after the redemption payment date, unless the Corporation
shall be in default in providing money or Common Stock for the payment of the
Redemption Price (or for any accrued and unpaid dividends to and including the
redemption payment date), (1) dividends on the shares of Series A Preferred
Stock so called for redemption shall cease to accrue, (2) said shares shall be
deemed no longer outstanding, and (3) all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from the
Corporation any monies or Common Stock payable upon redemption without interest
thereon) shall cease except for the rights applicable to any Common Stock paid
pursuant to the redemption.
(iv) Conversion Prior to Redemption. The holder
of any shares of Series A Preferred Stock to whom notice of redemption has been
given pursuant hereto may pursuant to the provisions of Section B.2.(f) hereof
elect to convert the shares of Series A Preferred Stock for which notice of
redemption has been given at any time on or prior to the tenth calendar day
immediately preceding the redemption payment date.
(h) Reacquired Shares. Any shares of Series A Preferred
Stock redeemed, purchased, converted or otherwise acquired by the Corporation
in any manner whatsoever shall not be reissued as part of such series and shall
be retired promptly after the acquisition thereof. All such shares shall upon
their retirement and the filing of any certificate required in connection
therewith pursuant to the Delaware General Corporation Law become authorized
but unissued shares of Preferred Stock.
C. Number of Authorized Shares.
The number of authorized shares of any class of capital stock of the
Corporation may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a majority
of the shares of capital stock of the Corporation entitled to vote on matters
submitted to a vote of the stockholders of the Corporation, and no class vote
shall be required in connection therewith.
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D. No Preemptive Rights.
No holder of shares of stock of the Corporation shall have any
preemptive or other right, except as such rights are expressly provided herein
or by contract, to purchase or subscribe for or receive any shares of any
class, or series thereof, of stock of the Corporation, whether now or hereafter
authorized, or any warrants, options, bonds, debentures or other securities
convertible into, exchangeable for or carrying any right to purchase any shares
of any class, or series thereof, of stock; but such additional shares of stock
and such warrants, options, bonds, debentures or other securities convertible
into, exchangeable for or carrying any right to purchase any shares of any
class, or series thereof, of stock may be issued or disposed of by the Board of
Directors to such persons, and on such terms and for such lawful consideration,
as in its discretion it shall deem advisable or as the Corporation shall have
by contract agreed.
Fifth: The Corporation is to have perpetual existence.
Sixth: Elections of directors need not be by written ballot unless
the bylaws of the Corporation shall so provide.
Seventh:
A. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law hereafter
is amended to authorize the further elimination or limitation of the liability
of directors, then the liability of a director of the Corporation, in addition
to the limitation on personal liability provided herein, shall be limited to
the fullest extent permitted by the amended Delaware General Corporation Law.
Any repeal or modification of this paragraph by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
B. The Corporation shall indemnify any director or officer to the full
extent permitted by Delaware law.
Eighth: In furtherance of, and not in limitation of, the powers
conferred by statute, the Board of Directors is expressly authorized to adopt,
amend or repeal the bylaws of the Corporation, or adopt new bylaws, without any
action on the part of the stockholders.
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation, which restates and integrates and also amends the
Corporation's Restated Certificate of Incorporation as heretofore amended,
after having been duly
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adopted by the Corporation in accordance with the provisions of Sections 242
and 245 of the Delaware General Corporation Law, to be signed by its duly
authorized officer on this 20th day of June, 1995.
LIFECELL CORPORATION
By /s/ Paul M. Frison
-------------------------------------
Paul M. Frison, Chairman of the Board,
President and Chief Executive Officer
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LIFECELL CORPORATION
CERTIFICATE OF DESIGNATION
OF SERIES B PREFERRED STOCK
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
LifeCell Corporation (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: That the Board of Directors of the Corporation, pursuant to a
unanimous consent of the Board of Directors dated as of November 6, 1996, duly
adopted the following resolution:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation by the provisions of the
Restated Certificate of Incorporation of the Corporation, out of the authorized
but unissued shares of Preferred Stock of the Corporation this Board of
Directors hereby creates a series of the Preferred Stock, par value $.001 per
share (the "Preferred Stock"), of the Corporation, and this Board of Directors
hereby fixes the powers, designations, preferences and relative, participating,
optional or other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof (in addition to the powers,
designations, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions thereof,
set forth in the Restated Certificate of Incorporation of the Corporation which
are applicable to Preferred Stock of all series) as follows:
1. Designation. The designation of the series shall be "Series B
Preferred Stock" (the "Series B Preferred Stock").
2. Number. The number of shares constituting the Series B
Preferred Stock shall be 182,205.
3. Voting Rights.
(a) General. Each share of Series B Preferred Stock
shall entitle the holder thereof to one vote for each share of Common Stock,
$.001 par value per share, of the Corporation (the "Common Stock"), into which
such share of Series B Preferred Stock is convertible on the record date for
such vote on all matters submitted to a vote of the stockholders of the
Corporation.
<PAGE> 17
(b) Directors. At any meeting of the stockholders of the
Corporation held for the election of directors, the holders of Series B
Preferred Stock, voting separately as a series, shall be entitled to elect
three members of the Board of Directors of the Corporation.
(c) Other. Without the vote or consent of the holders of
at least a majority of the shares of Series B Preferred Stock then outstanding,
the Corporation may not authorize or create any class or series of capital
stock ranking prior to or on a parity with the Series B Preferred Stock either
as to redemption or liquidation.
4. Liquidation.
(a) Preference. The Series B Preferred Stock shall rank
on a parity with the Series A Preferred Stock, $.001 par value per share, of
the Corporation (the "Series A Preferred Stock"), with respect to liquidation.
All capital stock of the Corporation other than the Series A Preferred Stock
and the Series B Preferred Stock is referred to herein as the "Junior
Securities". In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, each holder of
record of the issued and outstanding shares of Series B Preferred Stock shall
be entitled to receive, out of the assets of the Corporation available for
distribution to the holders of shares of Series B Preferred Stock, prior and in
preference to any distribution of any of the assets of the Corporation to the
holders of Junior Securities, an amount in cash equal to the aggregate
Liquidation Value (as defined below) of all shares of Series B Preferred Stock
then held by such holder, plus an amount equal to all dividends accrued and
unpaid on such shares (whether or not declared) up to the date fixed for
distribution. If, upon such liquidation, dissolution or winding up of the
affairs of the Corporation, the assets of the Corporation distributable among
the holders of Series B Preferred Stock, the Series A Preferred Stock and any
other series of Preferred Stock ranking on a parity therewith in respect
thereto or any class or series of capital stock of the Corporation ranking on a
parity therewith in respect thereto shall be insufficient to permit the payment
in full to all such holders of shares of the preferential amounts payable to
them, then the entire assets of the Corporation available for distribution to
such holders of such shares shall be distributed ratably among such holders in
proportion to the respective amounts that would be payable per share if such
assets were sufficient to permit payment in full. Not less than 30 days prior
to the payment date stated therein, the Corporation shall mail written notice
of any such liquidation, dissolution or winding up to each record holder of the
Series B Preferred Stock, setting forth in reasonable detail the amount of
proceeds to be paid with respect to each share of Series B Preferred Stock and
each share of Common Stock in connection with such liquidation, dissolution or
winding up.
(b) After payment of the full amount to which they are
entitled upon liquidation pursuant to Section 4(a), the holders of shares of
Series B Preferred Stock shall be entitled to participate ratably in any
distribution of any remaining assets of the Corporation legally available for
distribution to the holders of Common Stock with the holders of record of the
then issued and outstanding shares of Common Stock, as a single class, on the
basis of the number of shares held by each such holder of Series B Preferred
Stock (for the purposes of this Section 4(b), treating such shares of Series B
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<PAGE> 18
Preferred Stock as if converted into shares of Common Stock pursuant to the
provisions of this Certificate).
(c) Liquidation Value; Adjustments. "The Liquidation
Value" of any particular share of Series B Preferred Stock as of any particular
date shall equal $100.00. The Liquidation Value shall be equitably adjusted by
the Corporation to reflect any stock dividend, stock distribution, stock split
or reverse stock split, combination of shares, subdivision of shares or
reclassification of shares with respect to the Series B Preferred Stock.
5. Conversion Rights. The Series B Preferred Stock shall be
convertible as follows:
(a) Optional Conversion. Subject to and upon compliance
with the provisions of this Section 5, the holder of any shares of Series B
Preferred Stock shall have the right at such holder's option, at any time or
from time to time, and without the payment of any additional consideration
therefor, to convert any of such shares of Series B Preferred Stock into fully
paid and nonassessable shares of Common Stock at the Conversion Price (as
defined in Section 5(c) below) in effect on any Conversion Date (as defined in
Section 5(d) below) upon the terms hereinafter set forth.
(b) Automatic Conversion. Each outstanding share of
Series B Preferred Stock shall automatically be converted, without any further
act of the Corporation or its stockholders, at the Conversion Price then in
effect, into fully paid and nonassessable shares of Common Stock on the earlier
to occur of the following:
(i) the date of the closing of an underwritten
public offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended (the "Securities Act"),
covering the offering and sale of Common Stock, or of any equity
security that as a part of a unit includes Common Stock, for the
account of the Corporation, in which the aggregate gross proceeds
received by the Corporation, net of any underwriter discounts or
commissions, equals or exceeds $20,000,000, and in which the public
offering price per share of Common Stock equals or exceeds $9.30 (as
equitably adjusted to reflect any stock dividend, stock distribution,
stock split or reverse stock split, combination of shares, subdivision
of shares or reclassification of shares); and
(ii) the date first occurring after the closing of
an underwritten public offering pursuant to an effective registration
statement under the Securities Act covering the offering and sale of
Common Stock, or of any equity security that as a part of a unit
includes Common Stock, for the account of the Corporation, in which
the aggregate gross proceeds received by the Corporation, net of any
underwriter discounts or commissions, equals or exceeds $20,000,000,
on which the Current Market Price (as defined in the first sentence of
Section 5(j) below) of the Common Stock equals or exceeds $9.30 (as
equitably adjusted to reflect any stock dividend, stock distribution,
stock split or reverse stock split, combination of shares, subdivision
of shares or reclassification of shares).
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<PAGE> 19
(c) Number of Conversion Shares. Each share of Series B
Preferred Stock shall be convertible pursuant to Sections 5(a) and 5(b) into a
number of shares of Common Stock determined by dividing (i) the Liquidation
Value (as it may be adjusted pursuant to Section 4(c) hereof) by (ii) the
Conversion Price in effect on any Conversion Date. For the purposes of this
Section 5, the term "Conversion Price" shall initially mean $3.10. In order to
prevent dilution of the conversion rights granted under this Section 5, the
Conversion Price shall be subject to adjustment from time to time pursuant to
Section 5(f).
(d) Conversion Procedures. The holder of any shares of
Series B Preferred Stock may exercise the conversion right specified in Section
5(a) by surrendering to the Corporation or any transfer agent of the
Corporation the certificate or certificates for the shares to be converted,
accompanied by written notice specifying the number of shares to be converted.
Upon the occurrence of automatic conversion pursuant to Section 5(b), the
outstanding shares of Series B Preferred Stock shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent; provided that the Corporation shall not be obligated to issue
to any holder certificates evidencing the shares of Common Stock issuable upon
such conversion unless certificates evidencing such shares of Series B
Preferred Stock are delivered either to the Corporation or any transfer agent
of the Corporation. Conversion shall be deemed to have been effected on the
date when delivery of notice of an election to convert and of certificates for
shares being converted is made or on a date specified in Section 5(b), as the
case may be, and such date is referred to herein as the "Conversion Date".
Subject to the provisions of Section 5(f)(iv), as promptly as practicable
thereafter (and after surrender of the certificate or certificates representing
shares of Series B Preferred Stock to the Corporation or any transfer agent of
the Corporation in the case of conversion pursuant to Section 5(b)) the
Corporation shall issue and deliver to or upon the written order of such holder
a certificate or certificates for the number of full shares of Common Stock to
which such holder is entitled and a check or cash with respect to any
fractional interest in a share of Common Stock as provided in Section 5(e).
Subject to the provisions of Section 5(f)(iv), the person in whose name the
certificate or certificates for Common Stock are to be issued shall be deemed
to have become a holder of record of such Common Stock on the applicable
Conversion Date. Upon conversion of only a portion of the number of shares
covered by a certificate representing shares of Series B Preferred Stock
surrendered for conversion (in the case of conversion pursuant to Section
5(a)), the Corporation shall issue and deliver to or upon the written order of
the holder of the certificate so surrendered for conversion, at the expense of
the Corporation, a new certificate covering the number of shares of Series B
Preferred Stock representing the unconverted portion of the certificate so
surrendered.
(e) Fractional Shares. No fractional shares of Common
Stock or scrip shall be issued upon conversion of shares of Series B Preferred
Stock. If more than one share of Series B Preferred Stock shall be surrendered
for conversion at any one time by the same holder or shall be held by the same
holder at the time of any automatic conversion, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of shares so
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<PAGE> 20
surrendered or held, as the case may be. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of any shares of
Series B Preferred Stock, the Corporation shall pay out of funds legally
available therefor a cash adjustment in respect of such fractional interest,
rounded to the nearest one hundredth (1/100th) of a share, in an amount equal
to that fractional interest of the then Current Market Price (as defined in
Section 5(j) below), rounded to the nearest cent ($.01).
(f) Conversion Price Adjustments. The Conversion Price
shall be subject to adjustment from time to time as follows:
(i) If and whenever on or after the date of the
original issuance of the Series B Preferred Stock, the Corporation
issues or sells, or in accordance with Section 5(g) is deemed to have
issued or sold, any shares of its Common Stock (other than Excluded
Stock) for a consideration per share less than the Conversion Price in
effect immediately prior to the time of such issue or sale, or deemed
issue or sale then immediately upon such issue or sale or deemed issue
or sale the Conversion Price shall be reduced to the Conversion Price
determined by dividing (A) the sum of (1) the product derived by
multiplying the Conversion Price in effect immediately prior to such
issue or sale or deemed issue or sale by the number of shares of
Common Stock Deemed Outstanding immediately prior to such issue or
sale or deemed issue or sale, plus (2) the consideration, if any,
received by the Corporation upon such issue or sale or deemed issue or
sale, by (B) the number of shares of Common Stock Deemed Outstanding
immediately after such issue or sale or deemed issue or sale.
(ii) For purposes of this Section 5, "Excluded
Stock" means (A) Common Stock issued or reserved for issuance by the
Company as a dividend on Preferred Stock or upon any subdivision or
split-up of the outstanding shares of any shares of capital stock of
the Company or any recapitalization thereof, or upon conversion of any
shares of Preferred Stock, (B) Common Stock issuable pursuant to any
options, warrants or other rights that are outstanding on the
effective date of this Certificate, (C) Common Stock issued or
issuable in connection with a Board-approved acquisition of a business
by the Company as a result of which the Company owns in excess of 50%
of the voting power of such business, (D) Common Stock issued or
issuable to employees, officers, consultants, directors or vendors of
the Company or pursuant to any Board-approved employee, officer,
consultant or director benefit plan, including without limitation any
stock option plan, and (E) Common Stock issued or issuable to (1)
banks, savings and loan associations, equipment lessors or similar
lending institutions in connection with such entities providing
Board-approved credit facilities or equipment financings to the
Company or (2) any party to any technology transfer agreement,
distribution agreement, marketing agreement or any other agreement
similar thereto, with the Company, as approved by the Board. For
purposes of this Section 5, "Common Stock Deemed Outstanding" means,
at any given time, the number of shares of Common Stock actually
outstanding at such time, plus the number of shares of Common Stock
deemed to be outstanding pursuant to Sections 5(g)(i) and 5(g)(ii)
hereof regardless of
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<PAGE> 21
whether Options (as defined below) or Convertible Securities (as
defined below) are actually exercised or converted at such time.
(iii) All calculations under this Section 5(f)
shall be made to the nearest cent ($.01) or to the nearest one
hundredth (1/100th) of a share, as the case may be. Any provision of
this Section 5 to the contrary notwithstanding, no adjustment in the
Conversion Price shall be made if the amount of such adjustment would
be less than 1% of the then current Conversion Price until the end of
the calendar year after such adjustment would otherwise have been
required; but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of and
together with any subsequent adjustment which, together with such
amount and any other amount or amounts so carried forward, shall
aggregate 1% of the then current Conversion Price or more, provided
that if the events giving rise to such adjustments occur within three
months of each other, then such adjustments shall be calculated as if
these events giving rise to them had occurred simultaneously on the
date of the first such event.
(iv) In any case in which the provisions of this
Section 5(f) shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may
defer until the occurrence of such event (A) issuing to the holder of
any share of Series B Preferred Stock converted after such record date
and before the occurrence of such event the additional shares of
Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Common Stock
issuable upon such conversion before giving effect to such adjustment
and (B) paying to such holder any amount of cash in lieu of a
fractional share of Common Stock pursuant to Section 5(e); provided
that the Corporation upon request shall deliver to such holder a due
bill or other appropriate instrument evidencing such holder's right to
receive such additional shares, and such cash, upon the occurrence of
the event requiring such adjustment.
(g) Effect on Conversion Price of Certain Events. For
purposes of determining the adjusted Conversion Price under Section 5(f), the
following shall be applicable:
(i) Issuance of Rights or Options. If the
Corporation in any manner grants or sells any rights to subscribe for
or purchase Common Stock or Convertible Securities ("Options") and the
price per share for which Common Stock is issuable upon the exercise
of such Options, or upon conversion or exchange of any stock or
securities (directly or indirectly) convertible into or exchangeable
for Common Stock ("Convertible Securities") issuable upon exercise of
such Options, is less than the Conversion Price in effect immediately
prior to the time of the granting or sale of such Options, then the
total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed
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<PAGE> 22
to be outstanding and to have been issued and sold by the Corporation
at the time of the granting or sale of such Options for such price per
share. For purposes of this paragraph, the "price per share for which
Common Stock is issuable" shall be determined by dividing (A) the
total amount, if any, received or receivable by the Corporation as
consideration for the granting or sale of such Options, plus the
minimum aggregate amount of additional consideration payable to the
Corporation upon exercise of all such Options, plus in the case of
such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (B) the total maximum
number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No further
adjustment of the Conversion Price shall be made when Convertible
Securities are actually issued upon the exercise of such Options or
when Common Stock is actually issued upon the exercise of such Options
or the conversion or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the
Corporation in any manner issues or sells any Convertible Securities
and the price per share for which Common Stock is issuable upon
conversion or exchange thereof is less than the Conversion Price in
effect immediately prior to the time of such issue or sale, then the
maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Corporation at the
time of the issuance or sale of such Convertible Securities for such
price per share. For the purposes of this paragraph, the "price per
share for which Common Stock is issuable" shall be determined by
dividing (A) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion
or exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment of the Conversion Price
shall be made when Common Stock is actually issued upon the conversion
or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any
Options for which adjustments of the Conversion Price had been or are
to be made pursuant to other provisions of this Section 5(g), no
further adjustment of the Conversion Price shall be made by reason of
such issue or sale.
(iii) Change in Option Price or Conversion Rate.
If the purchase price provided for in any Options, the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities or the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock changes at any
time, the Conversion Price in effect at the time of such change shall
be immediately adjusted to the Conversion Price which would have been
in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
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<PAGE> 23
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold; provided that if such adjustment
would result in an increase of the Conversion Price then in effect,
such adjustment shall not be effective until 30 days after written
notice thereof has been given by the Corporation to all holders of the
Series B Preferred Stock. For purposes of this Section 5(g), if the
terms of any Option or Convertible Security which was outstanding as
of the date of issuance of the Series B Preferred Stock are changed in
the manner described in the immediately preceding sentence, then such
Option or Convertible Security and the Common Stock deemed issuable
upon exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such change.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option or the
termination of any right to convert or exchange any Convertible
Security without the exercise of any such Option or right, the
Conversion Price then in effect hereunder shall be adjusted
immediately to the Conversion Price which would have been in effect at
the time of such expiration or termination had such Option or
Convertible Security, to the extent outstanding immediately prior to
such expiration or termination, never been issued; provided that if
such expiration or termination would result in an increase in the
Conversion Price in effect, such increase shall not be effective until
30 days after written notice thereof has been given to all holders of
the Series B Preferred Stock. For purposes of this Section 5(g), the
expiration or termination of any Option or Convertible Security which
was outstanding as of the date of issuance of the Series B Preferred
Stock shall not cause the Conversion Price hereunder to be adjusted
unless, and only to the extent that, a change in the terms of such
Option or Convertible Security caused it to be deemed to have been
issued after the date of issuance of the Series B Preferred Stock.
(v) Calculation of Consideration Received. If
any Common Stock, Option or Convertible Security is issued or sold or
deemed to have been issued or sold for cash, the consideration
received therefor shall be deemed to be the gross amount received by
the Corporation therefor (net of any underwriter, placement agent or
broker discounts and commissions). If any Common Stock, Option or
Convertible Security is issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be the fair value of such consideration, except
where such consideration consists of securities, in which case the
amount of consideration received by the Corporation shall be the
Current Market Price thereof as of the date of receipt. If any Common
Stock, Option or Convertible Security is issued to the owners of the
non-surviving entity in connection with any merger in which the
Corporation is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity as is attributable
to such Common Stock, Option or Convertible Security, as the case may
be. The fair value of any consideration other than cash and
securities shall be determined jointly by the Corporation and the
holders of a majority of the outstanding Series B Preferred
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<PAGE> 24
Stock. If such parties are unable to reach an agreement within a
reasonable period of time, the fair value of such consideration shall
be determined by an independent appraiser experienced in valuing such
type of consideration jointly selected by the Corporation and the
holders of a majority of the outstanding Series B Preferred Stock.
The determination of such appraiser shall be final and binding upon
the parties, and the fees and expenses of such appraiser shall be
borne by the Corporation.
(vi) Integrated Transactions. In case any Option
is issued in connection with the issue or sale of other securities of
the Corporation, together comprising one integrated transaction in
which no specific consideration is allocated to such Option by the
parties thereto, the Option shall be deemed to have been issued for a
consideration of $.01.
(vii) Treasury Shares. For the purpose of this
Section 5, the number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the
account of the Corporation or any subsidiary, and the disposition of
any shares so owned or held shall be considered an issue or sale of
Common Stock.
(viii) Record Date. If the Corporation takes a
record of the holders of Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in Common
Stock, Options or in Convertible Securities or (B) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or upon the making of such other
distribution or the date of the granting of such right of subscription
or purchase, as the case may be.
(h) Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced, and if
the Corporation at any time combines (by reverse stock split or otherwise) one
or more classes of its outstanding shares of Common Stock into a smaller number
of shares, the Conversion Price in effect immediately prior to such combination
shall be proportionately increased.
(i) Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Corporation's
assets or other transaction, in each case which is effected in such a manner
that the holders of Common Stock are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock, is referred to herein as an "Organic Change". Prior
to the consummation of any Organic Change, the Corporation shall make
appropriate provisions (in form and substance satisfactory to the holders of a
majority of the Series B Preferred Stock then outstanding) to insure that each
of the holders of
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<PAGE> 25
Series B Preferred Stock shall thereafter have the right to acquire and
receive, in lieu of or in addition to (as the case may be) the shares of Common
Stock immediately theretofore acquirable and receivable upon the conversion of
such holder's Series B Preferred Stock, such shares of stock, securities or
assets as such holder would have received in connection with such Organic
Change if such holder had converted its Series B Preferred Stock immediately
prior to such Organic Change. In each such case, the Corporation shall also
make appropriate provisions (in form and substance satisfactory to the holders
of a majority of the Series B Preferred Stock then outstanding) to insure that
the provisions of this Section 5 and Sections 4, 6 and 7 hereof shall
thereafter be applicable to the Series B Preferred Stock (including, in the
case of any such consolidation, merger or sale in which the successor entity or
purchasing entity is other than the Corporation, an immediate adjustment of the
Conversion Price to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and a corresponding immediate adjustment in
the number of shares of Common Stock acquirable and receivable upon conversion
of Series B Preferred Stock, if the value so reflected is less than the
Conversion Price in effect immediately prior to such consolidation, merger or
sale). The Corporation shall not effect any such consolidation, merger or
sale, unless prior to the consummation thereof, the successor entity (if other
than the Corporation) resulting from consolidation or merger or the entity
purchasing such assets assumes by written instrument (in form and substance
satisfactory to the holders of a majority of the Series B Preferred Stock then
outstanding), the obligation to deliver to each such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
(j) Current Market Price. The "Current Market Price"
means as to any security the average of the closing prices of such security's
sales on all domestic or foreign securities exchanges on which such security
may at the time be listed, or, if there have been no sales on any such exchange
on any day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any such day security is not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ National Market or NASDAQ SmallCap Market, as of 4:00 P.M., New York
time, on such day, or, if on any day such security is not quoted in the NASDAQ
National Market or the NASDAQ SmallCap Market (as applicable), the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of 30 days consisting of the day as of which "Current Market
Price" is being determined and the 29 consecutive business days prior to such
day; provided that if such security is listed on any domestic securities
exchange the term "business days" as used in this sentence means business days
on which such exchange is open for trading. If at any time such security is
not listed on any domestic securities exchange or quoted in the NASDAQ National
Market or the NASDAQ SmallCap Market or the domestic over-the-counter market,
the "Current Market Price" shall be the fair value thereof determined jointly
by the Corporation and the holders of shares of Series B Preferred Stock
representing a majority of the shares of Series B Preferred Stock then
outstanding; provided that if such parties are unable to reach agreement within
a reasonable period of time, such fair value shall be determined by an
appraiser jointly
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<PAGE> 26
selected by the Corporation and the holders of shares of Series B Preferred
Stock representing a majority of the shares of shares of Series B Preferred
Stock then outstanding. The determination of such appraiser shall be final and
binding on the Corporation and the holders of the shares of Series B Preferred
Stock and the fees and expenses of such appraiser shall be paid by the
Corporation.
(k) Statement Regarding Adjustments. Whenever the
Conversion Price shall be adjusted as provided in this Section 5, the
Corporation shall forthwith file, at the office of any transfer agent for the
Series B Preferred Stock and at the principal office of the Corporation, a
statement showing in detail the method of calculation of such adjustment, the
facts requiring such adjustment and the Conversion Price that shall be in
effect after such adjustment, and the Corporation shall also cause a copy of
such statement to be sent by mail, first class postage prepaid, to each holder
of shares of Series B Preferred Stock at its address appearing on the
Corporation's records. Each such statement shall be signed by the
Corporation's chief financial officer. Where appropriate, such copy may be
given in advance and may be included as part of a notice required to be mailed
under the provisions of Section 5(l).
(l) Notice to Holders. In the event the Corporation
shall propose to take any action of the type described in this Section 5, the
Corporation shall give notice to each holder of shares of Series B Preferred
Stock in the manner set forth in Section 5(k), which notice shall specify the
record date, if any, with respect to any such action and the approximate date
on which such action is to take place. Such notice shall also set forth such
facts with respect thereto as shall be reasonably necessary to indicate the
effect of such action (to the extent such effect may be known at the date of
such notice) on the Conversion Price and the number, kind or class of shares or
other securities or property which shall be deliverable upon conversion of
shares of Series B Preferred Stock. In the case of any action which would
require the fixing of a record date, such notice shall be given at least ten
calendar days prior to the date so fixed, and in the case of all other action,
such notice shall be given at least 15 calendar days prior to the taking of
such proposed action. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of any such action.
(m) Costs. The Corporation shall pay all documentary,
stamp, transfer or other transactional taxes attributable to the issuance or
delivery of shares of Common Stock upon conversion of any shares of Series B
Preferred Stock; provided that the Corporation shall not be required to pay any
taxes which may be payable in respect of any transfer involved in the issuance
or delivery of any certificate for such shares in a name other than that of the
holder of the shares of Series B Preferred Stock in respect of which such
shares are being issued.
(n) Dividends Upon Conversion. In connection with any
conversion of shares of Series B Preferred Stock, the Corporation shall pay
accrued and unpaid dividends thereon in accordance with the provisions of
Section 7(d).
-11-
<PAGE> 27
(o) Certain Events. If any event occurs of the type
contemplated by the provisions of Section 5(f)(i) but not expressly provided
for by such provisions, then the Conversion Price shall be adjusted by the
Corporation's Board of Directors in good faith so as to protect the rights of
the holders of Series B Preferred Stock; provided that no such adjustment shall
increase the Conversion Price as otherwise determined pursuant to this Section
5 or decrease the number of shares of Common Stock issuable upon conversion of
each share of Series B Preferred Stock.
6. Purchase Rights.
If at any time the Corporation grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then each holder of Series B Preferred
Stock shall be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
conversion of such holder's Series B Preferred Stock immediately before the
date on which a record is taken for the grant, issuance or sale of such
Purchase Rights, or if no such record is taken, the date as of which the record
holders of Common Stock are to be determined for the grant, issue or sale of
such Purchase Rights.
7. Dividends.
(a) General.
(i) The Series B Preferred Stock shall rank on
parity with the Series A Preferred Stock with respect to dividends. During the
period commencing on the date on which the first share of Series B Preferred
Stock is issued and terminating on the fifth anniversary of such date, the
holders of the Series B Preferred Stock shall be entitled to receive, when and
as declared by the Board of Directors out of funds legally available therefor,
cumulative dividends per share of Series B Preferred Stock at the rate per
annum equal to the greater of (A), if any shares of Series A Preferred Stock
are then outstanding, the per annum rate of dividends per share of Series A
Preferred Stock then payable thereon, (B) $6.00 (as shall be equitably adjusted
to reflect any stock dividend, stock distribution, stock split or reverse stock
split, combination of shares, subdivision of shares or reclassification of
shares with respect to the Series A Preferred Stock or Series B Preferred
Stock, as the case may be) and (C) the per annum rate of dividends per share
paid by the Corporation on the Common Stock.
(ii) Dividends on the Series B Preferred Stock
will accrue on each March 31, June 30, September 30 and December 31, occurring
after the date of original issuance (each such date being referred to herein as
an "Accrual Date" and the three-month period or portion thereof, as the case
may be, ending on an Accrual Date being referred to herein as an "Accrual
Period"), whether or not such dividends have been declared, and whether or not
there are funds of the Corporation legally available for the payment of
dividends, and will cease accruing on September 30, 2001.
-12-
<PAGE> 28
Dividends will be paid (when and as declared by the Board of Directors of the
Corporation) quarterly, in arrears, on each February 15, May 15, August 15 and
November 15, occurring in 1997, 1998, 1999, 2000 and 2001. Each such dividend
shall be paid to the holders of record of shares of the Series B Preferred
Stock as they appear on the stock register of the Corporation on such record
date not exceeding 45 nor less than ten calendar days preceding the payment
date thereof, as shall be fixed by the Board of Directors of the Corporation.
Dividends on account of arrears for any past dividend periods may be declared
and paid at any time, without reference to any regular dividend payment date,
to holders of record on such date, not exceeding 45 nor less than ten calendar
days preceding the payment date thereof, as may be fixed by the Board of
Directors of the Corporation. Holders of shares of Series B Preferred Stock at
the close of business on a dividend payment record date will be entitled to
receive the dividend payable with respect to such shares on the corresponding
dividend payment date notwithstanding the conversion thereof or the
Corporation's default on payment of the dividend due on such dividend payment
date. For shares of Series B Preferred Stock surrendered for conversion during
the period from the close of business on any dividend payment record date to
the opening of business on the corresponding dividend payment date, the
Corporation shall pay the dividend to the holder of such shares on the dividend
payment record date. Except as so provided above and in Section 7(d) below, no
payment or adjustment will be made on account of accrued or unpaid dividends
upon conversion of shares of Series B Preferred Stock.
(iii) The Corporation shall pay the dividends on
the Series B Preferred Stock described in Section 7(a)(i), at the Corporation's
option and in its sole discretion, out of funds legally available therefor (A)
in cash, (B) in shares of Series B Preferred Stock having an aggregate
Liquidation Value (as shall be equitably adjusted to reflect any stock
dividend, stock distribution, stock split or reverse stock split, combination
of shares, subdivision of shares or reclassification of shares with respect to
the Series B Preferred Stock) at the time of such payment equal to the amount
of the dividend to be paid, or (C) in any combination of cash and shares of
Series B Preferred Stock that the Corporation may determine in its sole
discretion, with the number of shares of Series B Preferred Stock to be
distributed in connection therewith to be calculated on the basis set forth in
Section 7(a)(iii)(B).
(iv) No fractional shares of Series B Preferred
Stock or scrip shall be issued upon payment of any dividends in shares of
Series B Preferred Stock. If more than one share of Series B Preferred Stock
shall be held by the same holder at the time of any dividend payment date, the
number of full shares of Series B Preferred Stock issuable upon payment of such
dividends shall be computed on the basis of the aggregate dividend amount that
the Corporation has determined to pay in Series B Preferred Stock shares.
Instead of any fractional shares of Series B Preferred Stock which would
otherwise be issuable upon payment of such dividends, the Corporation shall pay
out of funds legally available therefor a cash adjustment in respect of such
fractional interest, rounded to the nearest one hundredth (1/100th) of a share,
in an amount equal to that fractional interest of the Liquidation Value (as
shall be equitably adjusted to reflect any stock dividend, stock distribution,
stock split or reverse stock split, combination of shares, subdivision of
shares or reclassification of shares with respect to the Series B Preferred
Stock), rounded to the nearest cent ($.01).
-13-
<PAGE> 29
(b) Allocation of Dividends. Dividends on the Series B
Preferred Stock, if paid, or if declared and set apart for payment, must be
paid or declared and set apart for payment on all outstanding shares of Series
B Preferred Stock contemporaneously. In the event dividends on the Series B
Preferred Stock and any other series of Preferred Stock ranking on a parity
therewith in respect thereto or any other class or series of capital stock of
the Corporation ranking on a parity therewith in respect thereto are declared
and paid in an amount less than all accumulated and current dividends on all of
such shares, the total amount declared and paid shall be allocated among all of
such shares so that the per share dividend to be declared and paid on each
share is the same percentage of the sum of the accumulated dividends for each
such share. In the event dividends are declared and paid on the Series B
Preferred Stock in a combination of cash and shares of Series B Preferred
Stock, the percentage of the dividend paid in cash and the percentage of the
dividend paid in stock must be the same for each share of Series B Preferred
Stock.
(c) Dividends on Conversion.
(i) Immediately prior to the conversion of any
shares of Series B Preferred Stock into Common Stock, all accrued and unpaid
dividends payable pursuant to Section 7 (whether or not declared) on such
shares so converted (prorated until the date of conversion in respect of the
Accrual Period in which such date occurs) shall be payable, at the
Corporation's option and in its sole discretion, out of funds legally available
therefor (A) in cash, (B) in shares of Series B Preferred Stock, such that the
number of shares of Series B Preferred Stock to be distributed with respect to
the portion of the dividend attributable to each Accrual Period shall have an
aggregate Liquidation Value (as shall be equitably adjusted to reflect any
stock dividend, stock distribution, stock split or reverse stock split,
combination of shares, subdivision of shares or reclassification of shares with
respect to the Series B Preferred Stock) at the time of such payment equal to
the amount of the dividend to be paid, or (C) in any combination of cash and
shares of Series B Preferred Stock that the Corporation may determine in its
sole discretion, with the number of shares of Common Stock to be distributed in
connection therewith to be calculated on the basis set forth in Section
7(c)(i)(B).
(ii) No fractional shares of Series B Preferred
Stock or scrip shall be issued upon payment of any dividends in shares of
Series B Preferred Stock upon conversion of any shares of Series B Preferred
Stock. If more than one share of Series B Preferred Stock shall be surrendered
for conversion at any one time by the same holder, or shall be held by the same
holder at the time of any automatic conversion, the number of full shares of
Series B Preferred Stock issuable upon payment of such dividends shall be
computed on the basis of the aggregate dividend amount that the Corporation has
determined to pay in Series B Preferred Stock shares. Instead of any
fractional shares of Series B Preferred Stock which would otherwise be issuable
upon payment of such dividends, the Corporation shall pay out of funds legally
available therefor a cash adjustment in respect of such fractional interest,
rounded to the nearest one hundredth (1/100th) of a share, in an amount equal
to that fractional interest of the Liquidation Value (as shall be equitably
adjusted to reflect any stock dividend, stock distribution, stock split or
reverse stock split, combination of shares,
-14-
<PAGE> 30
subdivision of shares or reclassification of shares with respect to the Series
B Preferred Stock), rounded to the nearest cent ($.01).
8. Reacquired Shares. Any shares of Series B Preferred Stock
redeemed, purchased, converted or otherwise acquired by the Corporation in any
manner whatsoever shall not be reissued as part of such series and shall be
retired promptly after the acquisition thereof. All such shares shall upon
their retirement and the filing of any certificate required in connection
therewith pursuant to the Delaware General Corporation Law become authorized
but unissued shares of Preferred Stock.
SECOND: That said determination of the powers, designation,
preferences and the relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof, relating to said series of
Preferred Stock, was duly made by the Board of Directors of the Corporation
pursuant to the provisions of the Restated Certificate of Incorporation of the
Corporation, as amended, and in accordance with the provisions of Section 151
of the General Corporation Law of the State of Delaware.
-15-
<PAGE> 31
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by Paul M. Frison, its President, on this 13th day of November, 1996.
LIFECELL CORPORATION
By /s/ Paul. M. Frison
-------------------------------------
Paul M. Frison, President
-16-
<PAGE> 32
CERTIFICATE OF RETIREMENT
OF
SERIES A PREFERRED STOCK
OF
LIFECELL CORPORATION
(Pursuant to Section 243 of the General Corporation Law
of the State of Delaware)
LifeCell Corporation, a Delaware corporation (the "Company"), certified as
follows:
FIRST: Article Fourth of the Company's Restated Certificate of
Incorporation, as amended, authorizes the issuance of 300,000
shares of Series A Preferred Stock, par value $.001 per share
(the "Series A Preferred Stock").
SECOND: On June 19, 1997, the Board of Directors of the Company, by
resolution, retired 300,000 shares of Series A Preferred
Stock, which shares constituted all of the authorized shares
of Series A Preferred Stock.
THIRD: Article Fourth of the Company's Restated Certificate of
Incorporation, as amended, prohibits the reissuance of such
shares as Series A Preferred Stock, and, therefore, such
shares are restored to the status of authorized but
undesignated shares of preferred stock of the Company.
FOURTH: Pursuant to the provisions of Section 243 of the General
Corporation Law of Delaware, all reference to Series A
Preferred Stock in the Restated Certificate of Incorporation,
as amended, of the Company are hereby eliminated.
IN WITNESS WHEREOF, LifeCell Corporation has caused this certificate
to be signed and attested by Paul M. Frison, its duly authorized officer this
19th day of June, 1997.
LIFECELL CORPORATION
By: /s/ PAUL M. FRISON
------------------------------------
Paul M. Frison, Chairman of the Board,
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.20
AGREEMENT
THIS AGREEMENT between LifeCell Corporation, a Delaware corporation
(the "Company"), and Paul M. Frison (the "Employee") is dated as of July 1,
1997 (the "Effective Date").
W I T N E S S E T H:
WHEREAS, the Company and the Employee were parties to that certain
Employment Agreement executed in January 1992, that terminated in February
1997; and
WHEREAS, the parties desire to continue the 12-month severance
arrangement set forth in Section 2.2(iii) of that Employment Agreement; and
WHEREAS, the parties have set forth the substance of such severance
arrangement in this Agreement and desire to execute this Agreement for purposes
of continuing that severance arrangement;
NOW, THEREFORE, the parties agree as follows:
Section 1. Term of this Agreement. The term of this
Agreement shall begin on the Effective Date and, unless automatically extended
pursuant to the second sentence of this Section 1, shall expire on the first to
occur of:
(i) the Employee's death, the Employee's Disability (as
determined in accordance with the Company's disability policy at the
time in effect) or the Employee's Retirement (in accordance with the
Company's retirement policy at the time in effect), which events shall
also be deemed automatically to terminate Employee's employment by the
Company;
(ii) the termination by the Employee of the Employee's
employment by the Company; or
(iii) the date immediately preceding the first anniversary
of the Effective Date (the "Expiration Date") if no Termination
without Cause (as defined in Section 3 hereof) shall have occurred
during that one-year period (or any period for which the term of this
Agreement shall have been automatically extended).
If the term of this Agreement shall not have expired as a result of the
occurrence of one of the events described in clause (i) or (ii) of the
immediately preceding sentence and the Company shall not have given notice to
the Employee at least 30 days before the Expiration Date that the term of this
Agreement will expire on the Expiration Date, then the term of this Agreement
shall be automatically extended for successive one-year periods (the first such
period to begin on the day immediately following the Expiration Date) unless
the Company shall have given notice to the Employee at least 30 days before the
end of any one-year period for which the term of this Agreement shall have been
automatically extended that such term will expire at the end of that one-year
period.
Section 2. Event of Termination for Cause. An "Event of
Termination for Cause" shall have occurred if, after the Effective Date, the
Board of Directors of the Company in its good faith opinion concludes that any
of the following events has occurred: (i) Employee has been convicted of a
crime involving moral turpitude, including but not limited to fraud, theft,
embezzlement or any crime that results in or is intended to result in personal
enrichment at the expense of the Company, (ii) there has been a material breach
by Employee of this Agreement or of that certain Confidentiality, Inventions
and Discoveries and Non-Competition Agreement dated as of January 1992, between
Employee and the Company that substantially impairs the Company's interest
herein or therein, (iii) Employee has committed acts amounting to gross
negligence or willful misconduct to the material detriment of the Company or
(iv) Employee willfully or persistently fails to attend to the duties attendant
to his employment by the Company.
1
<PAGE> 2
Section 3. Benefits Payable. If the Employee's employment by
the Company is terminated by the Company otherwise than as a result of the
Employee's death, the Employee's Disability, the Employee's Retirement, or the
occurrence of an Event of Termination for Cause (a "Termination without
Cause"), then the Employee shall be entitled to the following benefits:
(i) the Company shall pay to the Employee, on the
first day of each calendar month occurring during the period
commencing on the effective date of such termination (the
"Termination Date") and ending on the first anniversary of the
Termination Date, an amount equal to one-twelfth (1/12th) of
the Employee's annual base salary as in effect immediately
before the Termination without Cause; and
(ii) during such 12-month period, the Company
shall either continue Employee's health and medical benefits
and life insurance coverage as in effect immediately before
the Termination Date or, if a continuation of such coverages
is not permitted pursuant to the terms of a plan or other
applicable instrument, the Company shall provide Employee with
substantially the same benefits that were provided under such
coverages.
Upon payment by the Company to the Employee of the amounts and other benefits
required to be paid pursuant to the foregoing provisions of this Section 3, the
Company shall no longer be obligated to pay any other amounts or benefits to
the Employee, other than benefits that, at the time of termination of the
Employee's employment by the Company, had vested in the Employee as a result of
the Employee's participation in any Company benefit plan.
Section 4. Notice. Notices required or permitted to be given by
either party pursuant to this Agreement shall be in writing and shall be deemed
to have been given when delivered personally to the other party or when
deposited with the United States Postal Service as registered mail with postage
prepaid and addressed:
(i) if to the Employee, at the Employee's address last
shown on the Company's records; and
(ii) if to the Company, at 3606 Research Forest Drive, The
Woodlands, Texas 77381, directed to the attention of Chief Financial
Officer.
or, in either case, to such other address as the party to whom or which such
notice is to be given shall have specified by notice given to the other party.
Section 5. Withholding Taxes. The Company may withhold from all
payments to be paid to the Employee pursuant to this Agreement all taxes that,
by applicable federal or state law, the Company is required to so withhold.
Section 6. Amendment and Waiver. No provision of this
Agreement may be amended or waived (whether by act or course of conduct or
omission or otherwise) unless that amendment or waiver is by written instrument
signed by the parties hereto. No waiver by either party of any breach of this
Agreement shall be deemed a waiver of any other or subsequent breach.
Section 7. Governing Law. The validity, interpretation,
construction and enforceability of this Agreement shall be governed by the laws
of the State of Texas.
Section 8. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
Section 9. Counterparts. This Agreement may be executed in
counterparts, each of which shall be
2
<PAGE> 3
deemed an original but all of which together will constitute the same
instrument.
Section 10. Assignment. This Agreement shall inure to the
benefit of and be enforceable by the Employee's legal representative. This
Agreement shall be binding upon and inure to the benefit of the Company and its
successors.
Section 11. Interpretation.
(a) In the event of the enactment of any successor provision to
any statute or rule cited in this Agreement, references in this Agreement to
such statute or rule shall be to such successor provision.
(b) The headings of Sections of this Agreement shall not control
the meaning or interpretation of this Agreement.
(c) References in this Agreement to any Section are to the
corresponding Section of this Agreement unless the context otherwise indicates.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement as of the Effective Date.
LIFECELL CORPORATION
By /s/ J. Donald Payne
------------------------------
Name: J. Donald Payne
Title: Vice President
PAUL M. FRISON
/s/ Paul M. Frison
--------------------------------------
By
------------------------------------
3
<PAGE> 1
EXHIBIT 10.21
AGREEMENT
THIS AGREEMENT between LifeCell Corporation, a Delaware corporation
(the "Company"), and Stephen A. Livesey (the "Employee") is dated as of July 1,
1997 (the "Effective Date").
W I T N E S S E T H:
WHEREAS, the Company and the Employee were parties to that certain
Employment Agreement executed in January 1992, that terminated in February
1997; and
WHEREAS, the parties desire to continue the 12-month severance
arrangement set forth in Section 2.2(iii) of that Employment Agreement; and
WHEREAS, the parties have set forth the substance of such severance
arrangement in this Agreement and desire to execute this Agreement for purposes
of continuing that severance arrangement;
NOW, THEREFORE, the parties agree as follows:
Section 1. Term of this Agreement. The term of this Agreement
shall begin on the Effective Date and, unless automatically extended pursuant
to the second sentence of this Section 1, shall expire on the first to occur
of:
(i) the Employee's death, the Employee's Disability (as
determined in accordance with the Company's disability policy at the
time in effect) or the Employee's Retirement (in accordance with the
Company's retirement policy at the time in effect), which events shall
also be deemed automatically to terminate Employee's employment by the
Company;
(ii) the termination by the Employee of the Employee's
employment by the Company; or
(iii) the date immediately preceding the first anniversary
of the Effective Date (the "Expiration Date") if no Termination
without Cause (as defined in Section 3 hereof) shall have occurred
during that one-year period (or any period for which the term of this
Agreement shall have been automatically extended).
If the term of this Agreement shall not have expired as a result of the
occurrence of one of the events described in clause (i) or (ii) of the
immediately preceding sentence and the Company shall not have given notice to
the Employee at least 30 days before the Expiration Date that the term of this
Agreement will expire on the Expiration Date, then the term of this Agreement
shall be automatically extended for successive one-year periods (the first such
period to begin on the day immediately following the Expiration Date) unless
the Company shall have given notice to the Employee at least 30 days before the
end of any one-year period for which the term of this Agreement shall have been
automatically extended that such term will expire at the end of that one-year
period.
Section 2. Event of Termination for Cause. An "Event of
Termination for Cause" shall have occurred if, after the Effective Date, the
Board of Directors of the Company in its good faith opinion concludes that any
of the following events has occurred: (i) Employee has been convicted of a
crime involving moral turpitude, including but not limited to fraud, theft,
embezzlement or any crime that results in or is intended to result in personal
enrichment at the expense of the Company, (ii) there has been a material breach
by Employee of this Agreement or of that certain Confidentiality, Inventions
and Discoveries and Non-Competition Agreement dated as of January 1992, between
Employee and the Company that substantially impairs the Company's interest
herein or therein, (iii) Employee has committed acts amounting to gross
negligence or willful misconduct to the material detriment of the Company or
(iv) Employee willfully or persistently fails to attend to the duties attendant
to his employment by the Company.
1
<PAGE> 2
Section 3. Benefits Payable. If the Employee's employment by
the Company is terminated by the Company otherwise than as a result of the
Employee's death, the Employee's Disability, the Employee's Retirement, or the
occurrence of an Event of Termination for Cause (a "Termination without
Cause"), then the Employee shall be entitled to the following benefits:
(i) the Company shall pay to the Employee, on the
first day of each calendar month occurring during the period
commencing on the effective date of such termination (the
"Termination Date") and ending on the first anniversary of the
Termination Date, an amount equal to one-twelfth (1/12th) of
the Employee's annual base salary as in effect immediately
before the Termination without Cause; and
(ii) during such 12-month period, the Company
shall either continue Employee's health and medical benefits
and life insurance coverage as in effect immediately before
the Termination Date or, if a continuation of such coverages
is not permitted pursuant to the terms of a plan or other
applicable instrument, the Company shall provide Employee with
substantially the same benefits that were provided under such
coverages.
Upon payment by the Company to the Employee of the amounts and other benefits
required to be paid pursuant to the foregoing provisions of this Section 3, the
Company shall no longer be obligated to pay any other amounts or benefits to
the Employee, other than benefits that, at the time of termination of the
Employee's employment by the Company, had vested in the Employee as a result of
the Employee's participation in any Company benefit plan.
Section 4. Notice. Notices required or permitted to be given by
either party pursuant to this Agreement shall be in writing and shall be deemed
to have been given when delivered personally to the other party or when
deposited with the United States Postal Service as registered mail with postage
prepaid and addressed:
(i) if to the Employee, at the Employee's address last
shown on the Company's records; and
(ii) if to the Company, at 3606 Research Forest Drive, The
Woodlands, Texas 77381, directed to the attention of Chief Financial
Officer.
or, in either case, to such other address as the party to whom or which such
notice is to be given shall have specified by notice given to the other party.
Section 5. Withholding Taxes. The Company may withhold from all
payments to be paid to the Employee pursuant to this Agreement all taxes that,
by applicable federal or state law, the Company is required to so withhold.
Section 6. Amendment and Waiver. No provision of this
Agreement may be amended or waived (whether by act or course of conduct or
omission or otherwise) unless that amendment or waiver is by written instrument
signed by the parties hereto. No waiver by either party of any breach of this
Agreement shall be deemed a waiver of any other or subsequent breach.
Section 7. Governing Law. The validity, interpretation,
construction and enforceability of this Agreement shall be governed by the laws
of the State of Texas.
Section 8. Validity. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
Section 9. Counterparts. This Agreement may be executed in
counterparts, each of which shall be
2
<PAGE> 3
deemed an original but all of which together will constitute the same
instrument.
Section 10. Assignment. This Agreement shall inure to the
benefit of and be enforceable by the Employee's legal representative. This
Agreement shall be binding upon and inure to the benefit of the Company and its
successors.
Section 11. Interpretation.
(a) In the event of the enactment of any successor provision to
any statute or rule cited in this Agreement, references in this Agreement to
such statute or rule shall be to such successor provision.
(b) The headings of Sections of this Agreement shall not control
the meaning or interpretation of this Agreement.
(c) References in this Agreement to any Section are to the
corresponding Section of this Agreement unless the context otherwise indicates.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement as of the Effective Date.
LIFECELL CORPORATION
By /s/ J. Donald Payne
---------------------------------
Name: J. Donald Payne
Title: Vice President
STEPHEN A. LIVESEY
/s/ Stephen A. Livesey
-----------------------------------------
By
---------------------------------------
3
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of and
incorporated by reference in this Registration Statement.
ARTHUR ANDERSEN LLP
Houston, Texas
October 3, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT
We hereby consent to the references to our Firm under the caption
"Experts" in this Registration Statement on Form S-2 of LifeCell Corporation.
Arnold, White & Durkee
Houston, Texas
October 3, 1997
