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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 0-19890
LIFECELL CORPORATION
A DELAWARE IRS EMPLOYER IDENTIFICATION
CORPORATION NO. 76-0172936
ONE MILLENNIUM WAY
BRANCHBURG, NEW JERSEY 08876
Telephone Number (908) 947-1100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.001 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock (Common Stock and Series B Preferred
Stock, assuming conversion of such Preferred Stock into Common Stock at the
current conversion rate) held by non-affiliates of registrant as of March 17,
2000: $117,282,428.
Number of shares of registrant's Common Stock outstanding as of March 17, 2000:
13,667,361. (If the Series B Preferred Stock had converted into Common Stock as
of such date, there would be 17,089,973 shares of Common Stock outstanding.)
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of registrant's proxy statement relating to the June 2, 2000
annual meeting of stockholders have been incorporated by reference into Part III
hereof.
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TABLE OF CONTENTS
DESCRIPTION
Item Page
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PART I 3
Item 1. Business 3
General 3
Technology 3
Strategy 4
Products and Product Development Activities 5
Marketing 10
Sources of Materials 10
Government Regulation 10
Research and Development 14
Competition 15
Environmental Matters 16
Employees 16
Special Note Regarding Forward-Looking Statements 16
Risk Factors 16
Item 2. Properties 23
Item 3. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 23
PART II 24
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 24
Dividend Policy 24
Item 6. Selected Financial Data 25
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 26
General and Background 26
Results of Operations 26
Liquidity and Capital Resources 28
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 29
Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure 29
PART III 29
Item 10. Directors and Executive Officers of the Registrant 29
Item 11. Executive Compensation 29
Item 12. Security Ownership of Certain Beneficial Owners and Management 29
Item 13. Certain Relationships and Related Transactions 30
PART IV 30
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 30
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PART I
This Annual Report on Form 10-K contains, in addition to historical
information, "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) that involve risks and uncertainties. See
"Business-Special Note Regarding Forward-Looking Statements."
ITEM 1. BUSINESS
GENERAL
LifeCell Corporation is a bioengineering company engaged in the development
and commercialization of tissue regeneration and cell preservation products.
Our core preservation technology produces an acellular tissue matrix, which
retains the essential biochemical and structural components necessary for normal
tissue regeneration. We currently market three products based on this
technology: AlloDerm(R) for the reconstructive plastic, burn and dental markets;
Cymetra(TM), micronized AlloDerm tissue for the reconstructive plastic and
dermatology markets; and Repliform(TM)acellular tissue for the urology and
gynecology market. We believe that our products are the only commercially
available tissue transplant products that provide a complete template for the
regeneration of normal human soft tissue. We estimate that AlloDerm has been
transplanted in more than 50,000 patients. We also are developing several
additional products, including small diameter vascular grafts as an alternative
to autografted blood vessels, orthopedic applications of our acellular tissue
matrix, and ThromboSol(TM), a formulation for extended storage of platelets
("ThromboSol".)
We were incorporated in the State of Delaware in 1992 as the successor to a
Delaware corporation that was incorporated in 1986.
TECHNOLOGY
Our product development programs have been generated from the following
proprietary technologies:
- a method for producing an extracellular tissue matrix by removing
antigenic cellular elements while stabilizing the matrix against
damage;
- a method for cell preservation by manipulating cells through signal
transduction (i.e., manipulation of cellular metabolism) to protect
cells during prolonged storage; and
- a method for freeze-drying biological cells and tissues without the
damaging effects of ice crystals.
TISSUE PROCESSING TECHNOLOGY
Our tissue processing technology removes antigenic cells from the tissue
matrix to eliminate the potential for specific rejection of the transplanted
tissue. Our tissue processing technology also
- stabilizes the tissue matrix by preserving its natural structure
and biochemical properties that promote cell repopulation and
- allows for extended storage by freeze-drying the tissue matrix
without significant ice crystal damage thus avoiding a non-specific
immune response upon transplantation.
Soft tissue contains a complex, three-dimensional structure consisting of
multiple forms of collagen, elastin, proteoglycans, other proteins, growth
factors and blood vessels (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, nerve connective tissue, and other tissue
types. As part of the body's natural remodeling process, cells within a tissue
continuously degrade and, in the process, replace the tissue matrix. However,
in the event that a large portion of the tissue matrix is destroyed or lost
because of trauma or surgery, the body cannot regenerate the damaged portion.
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. We believe 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.
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We believe our tissue processing technology offers the following important
benefits:
Natural Tissue Regeneration. Tissue grafts produced with our tissue
processing technology retain the structural and biochemical properties that
stimulate normal cell repopulation and normal soft tissue regeneration. In
addition, our clinical studies with dermis and preliminary animal studies
with heart valve leaflets, nerve connective tissue grafts, and vascular
grafts processed with our technology indicate that such tissues can be
remodeled by the recipient's own cells and eventually become the
recipient's own tissue.
Multiple Potential Applications. We believe that our tissue processing
technologies 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),
Repliform and Cymetra, we believe that our acellular tissue matrix may
provide additional benefits in neurosurgery and orthopedic surgery. We also
are evaluating the applicability of our technologies to other tissues and
are conducting animal studies with blood vessels processed with our
technology.
Safety. Our 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.
AlloDerm has a proven safety record of over seven years and over 50,000
grafts have been transplanted to date.
Prolonged Shelf Life. Our proprietary tissue processing technology
allows extended storage and ease of transportation of products. AlloDerm
and Repliform are validated for storage at normal refrigerated temperatures
for up to two years. In contrast, traditionally processed skin allografts
require low temperature (-80 C) storage and shipping with dry ice.
Compatibility with Other Technologies. Several types of tissues
processed with our technology retain important biochemical components, such
as proteoglycans including hyaluronic acid. These biochemical components
bind growth factors that stimulate tissue regeneration. Therefore, we
believe it may be possible to use our technology to develop tissue-based
delivery vehicles for these factors and cells.
CELL PRESERVATION TECHNOLOGY
Blood cells circulating within the body are exposed to multiple factors
that maintain their stability and prevent activation. When blood cells are
removed from the body for storage, these stabilizing influences are absent and
result 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.
Our 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 our
patented freeze-drying technology. If successfully implemented, our 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
Our vision is to be a leader in the emerging field of regenerative
medicine, by developing and marketing biologic solutions for the repair,
replacement and preservation of human cells and tissue. Our strategy includes
the following principal elements:
EXPANDING PENETRATION OF ALLODERM(R) INTO CURRENT TARGET MARKETS
Our direct marketing effort focuses on the use of AlloDerm(R) in head and
neck, and plastic and reconstructive procedures. We see great opportunity for
sales growth in this area, in which AlloDerm is used as an alternative to the
current standard of care, autografts. We have initiated numerous programs to
achieve this goal. These include:
- conducting additional clinical studies to demonstrate the benefits
of AlloDerm(R) compared to autografts;
- supporting publications in leading scientific journals describing the
uses and benefits of AlloDerm;
- utilizing our expanded sales and marketing staff to call on a broader
audience of hospital-based surgeons;
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- participating at trade shows and sponsoring educational and surgical
training workshops on the use of AlloDerm.
We currently market AlloDerm for use in reconstructive plastic and burn
surgery in domestic markets through our own sales force. For dental
applications and selected international markets, we market through distributors.
FULL LAUNCH OF REPLIFORM IN UROGYNECOLOGY MARKET
Repliform , introduced in 1999, is the application of our matrix technology
within the urology and gynecology market. We market Repliform through our
partnership with Boston Scientific, a worldwide developer, manufacturer and
marketer of medical devices with a well-established marketing presence in the
urology field.
In February 2000, we, in conjunction with Boston Scientific, initiated the
full launch of Repliform following the successful completion of a targeted
introduction of the product to thought leaders in the United States. We intend
to increase the penetration of Repliform in this market by demonstrating the
benefits of Repliform compared to other products when used as a bladder sling
for the treatment of urinary incontinence.
LAUNCH CYMETRA(TM) IN RECONSTRUCTIVE PLASTIC AND DERMATOLOGY MARKETS
In December 1999, we introduced Cymetra, a micronized AlloDerm tissue to
selected plastic and reconstructive surgeons. In February 2000, we announced a
co-promotion agreement with Obagi Medical Products ("Obagi") that granted Obagi
exclusive promotion rights to market to office-based plastic surgeons and
dermatologists. Our sales force will focus its efforts on hospital-based
reconstructive plastic surgeons.
LEVERAGING TECHNOLOGY PLATFORMS TO DEVELOP NEW PRODUCTS
Research continues into uses of our technology in vascular grafts and
orthopedics. Our vascular graft research has shown promise in pre-clinical
feasibility studies. We intend to seek a corporate partner for the further
development and commercialization of this product during 2000.
Pre-clinical studies suggest that our acellular tissue matrix may also
remodel into tendons, cartilage and bone. We intend to investigate further the
use of our acellular tissue and micronized acellular tissue for use in
orthopedics.
We are using our proprietary cell preservation technology in the development of
solutions that would extend the shelf life of platelets and red blood cells. We
plan to establish collaborative out-licensing arrangements with appropriate
partners to fund the development and commercialization of certain of these
products.
PRODUCTS AND PRODUCT DEVELOPMENT ACTIVITIES
ACELLULAR TISSUE PRODUCTS
ALLODERM(R)
AlloDerm(R) is acellular tissue processed with our proprietary tissue
processing technology using donated human (cadaveric) skin. We believe 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. AlloDerm is a versatile tissue and has multiple surgical applications.
AlloDerm is predominately used in reconstructive plastic, periodontal and burn
surgery.
We receive donated human skin from tissue banks in the United States that
comply with the FDA's human tissue regulations. In addition, we require
supplying tissue banks to comply with procedural guidelines outlined by the
American Association of Tissue Banks. We conduct microbiological and other
rigorous quality assurance testing before our acellular tissue products are
released for shipment. AlloDerm has a proven safety record of over seven years
and over 50,000 grafts have been transplanted to date. AlloDerm is shipped at
ambient temperature by overnight delivery services and has a two-year
refrigerated shelf life.
We have established what we believe to be adequate sources of donated skin
tissue at acceptable costs to satisfy the foreseeable demand for all of our
commercialized tissue products. However, there can be no assurance that the
future availability of donated human skin will be sufficient to meet our demand
for such materials.
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RECONSTRUCTIVE PLASTIC SURGERY. AlloDerm is marketed to reconstructive
plastic surgeons as an "off-the-shelf" alternative to autograft. Within
reconstructive plastic surgery, AlloDerm is used primarily in the following
types of surgical procedures:
- as an implant for soft tissue reconstruction or tissue deficit
correction;
- as an interpositional graft for tissue coverage or closure;
- as a graft or implant for scar revision or the dermal component of a
skin graft; and
- as a sling to support tissue following nerve or muscle damage.
Based on industry sources, we estimate there are approximately one million
reconstructive surgical procedures performed annually in the United States in
which AlloDerm could be used. We estimate that our target market for sheet
AlloDerm is 241,000 procedures. These procedures include various head and neck
aesthetic and reconstructive surgeries, cancer reconstruction, scar revision and
oral cavity reconstruction. In these procedures, the greatest competitive
pressures to AlloDerm are from autologous tissue, synthetic and biosynthetic
materials. The disadvantages of using autologous tissue is the creation of a
separate donor site wound and the associated pain, healing, and scarring from
this additional wound. The disadvantages of using synthetic materials are the
susceptibility of synthetics to infection, the graft moving away from the
transplanted area (mobility), and erosion of the graft through the skin
(extrusion). Additionally, some biosynthetic materials may include bovine
collagen, which requires patient sensitivity testing.
PERIODONTAL SURGERY. We began marketing AlloDerm to periodontists in
September 1995. Lifecore Biomedical, Inc. is our exclusive distributor in the
United States and select international markets of AlloDerm for use in
periodontal applications. Periodontal surgeons use AlloDerm to increase the
amount of attached gum tissue supporting the teeth. Until the development of
AlloDerm, these procedures were predominately performed with autologous tissue
excised from the roof of the patient's mouth and then transplanted to the gum.
AlloDerm also is used in periodontal procedures for covering exposed tooth
roots. This procedure involves placing AlloDerm underneath gum tissue, which is
then lifted up to cover the exposed root. AlloDerm allows for the coverage of
multiple exposed roots in a single surgery without being limited by the
availability of autologous palatal tissue. AlloDerm has been evaluated in a
clinical study of 50 patients in which AlloDerm proved equivalent to autologous
connective tissue grafts for covering roots. The patients were also spared the
pain and discomfort associated with the excision of the palatal autograft.
In mid 1998, in association with Lifecore Biomedical, we began marketing
AlloDerm for use in root coverage procedures. Based on industry sources, we
estimate 250,000 root coverage procedures in which AlloDerm could be used are
performed annually in the United States.
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 or bone substitutes, which are used to restore degenerated
alveolar bone.
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. We believe 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's tissue and does not require a separate procedure
for removal.
BURNS. During 1994, we began commercial sales of AlloDerm for use in the
treatment of third-degree and deep second-degree burns requiring skin grafting.
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 consisting primarily 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 de novo regeneration. The most conservative and common surgical
treatment of third-degree and deep second-degree burns use split-thickness skin
autografts (the epidermal layer and a portion of the dermis) taken from
uninjured areas of the patient's body. The surgical procedure when using
AlloDerm in treating these patients is to place AlloDerm where the patient is
missing dermis and cover the AlloDerm with an ultra-thin split-thickness skin
autograft (the epidermal layer and a much thinner portion of the dermis). This
procedure has produced comparable results to normal autografts while
significantly reducing donor site trauma.
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The use of AlloDerm in burn grafting has clinically shown performance
equivalent to autograft in reducing the occurrence and effects of scar
contracture. Scar contracture is a progressive tightening of scar tissue that
can cause skin and joint immobility. Severe scar contracture can limit the use
and function of all mobile joints, such as the arms, legs, feet, hands and neck.
Burn patients commonly undergo or need repetitive reconstructive surgeries for
scar contracture. We believe that AlloDerm provides significant therapeutic
value when used in burn grafting over a patient's mobile joints.
Based on industry sources, we estimate that approximately 80,000 people are
hospitalized each year in the United States due to burns and that more than
20,000 of such patients are admitted with major burns requiring skin grafts. We
believe AlloDerm could be used effectively with all of these patients.
POTENTIAL ORTHOPEDIC APPLICATIONS OF ALLODERM. We have been advised that a
small number of surgeons have used AlloDerm to reinforce the capsular ligament
surrounding certain joints. Based on these surgeons' preliminary results, a
product development plan has been implemented for orthopedic uses of AlloDerm.
We intend to conduct pre-clinical studies investigating the potential of our
acellular tissue matrix to remodel into orthopedic tissues such as tendon,
ligament, cartilage, meniscus and bone.
If successfully developed, an acellular tissue product for orthopedics
could be used in more than 620,000 procedures.
REPLIFORM(TM)
UROLOGY AND GYNECOLOGY SURGERY. Since 1997, surgeons have used Repliform or
AlloDerm in urological and gynecological procedures in the treatment of urinary
incontinence and to repair damaged or inadequate female pelvic tissues. Since
March 1999, Boston Scientific has been our exclusive worldwide sales and
marketing representative for Repliform for use in urology and gynecology.
Urinary incontinence affects approximately 13 million Americans, 85% of
whom are women. Fewer than half of these individuals seek treatment due to the
combined factors of embarrassment and a lack of acceptable therapeutic options
for some types of incontinence. Some forms of urinary incontinence can be
treated with a sling procedure, which involves lifting and supporting the
bladder neck to provide urethral support and compression.
Cystocele, rectocele and other pelvic floor conditions also occur
frequently in women and require soft tissue surgical repair. These conditions
are particularly common after multiple vaginal births and cause significant
discomfort to the patient. It is common that these conditions exist with or
cause urinary incontinence. Therefore, it is becoming the current standard of
care to correct pelvic floor conditions at the same time as a sling or
suspension procedure to ensure that there are no conditions that can adversely
affect patient outcome.
Currently, materials used for slings and pelvic floor repair surgeries
include autologous tissue, synthetic materials and cadaveric fascia. The
autologous tissue often is taken from the patient's thigh or abdomen resulting
in a painful donor site. The greatest drawback of using synthetic materials is
the occurrence of erosion through the urethra or vaginal wall causing pain and
infection, necessitating repeat surgery. Cadaveric fascia commonly is used with
minimal complications but currently is undergoing supply constraints. We believe
that Repliform used as a sling provides a safe and effective alternative that
eliminates the need for a donor site, will repopulate as the patient's own
tissue, will not erode through the soft pelvic tissues, and is available in
adequate supply.
Annually in the United States, there are approximately 190,000 retropubic
suspensions, bladder neck suspensions, and sling procedures performed of which
approximately 75,000 are bladder slings that could use Repliform as the sling
material. Also, there are approximately 240,000 pelvic floor procedures
performed annually in the United States of which 200,000 could use Repliform for
the soft tissue repair. Repliform has already been used in over 300 patients for
the treatment of incontinence and various pelvic floor repair surgeries. We
believe that the use of Repliform in slings and pelvic floor repair falls within
the FDA classification of "human tissue" intended for transplantation. However,
there can be no assurance that the FDA would agree.
FDA STATUS OF ALLODERM. The FDA has notified us 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.
The FDA has notified us that AlloDerm should be regulated as a Class II medical
device when it is labeled and promoted as a dura mater replacement. However, it
is unclear whether the FDA would agree that the following indications for which
AlloDerm has been used by physicians (and for which we 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:
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- graft for guided bone regeneration;
- oncological reconstruction;
- urological and gynecological applications;
- orthopedic surgeries; and
- general surgeries.
There is risk that the FDA will require the submission of premarket
approval applications supported by extensive clinical data for the marketing and
promotion of some or all of these indications.
MICRONIZED ALLODERM PRODUCTS
CYMETRA(TM)
We have developed Cymetra, the brand name for Micronized AlloDerm(TM) (a
particulate form of AlloDerm) for use in multiple applications, including
reconstructive and dermatological applications. We believe that the delivery of
Cymetra non-surgically will create additional market opportunities that are
impenetrable by AlloDerm or Repliform. We have conducted various animal and
clinical studies aimed at demonstrating the efficacy and safety of Cymetra. We
began marketing Cymetra on a limited basis to thought leaders in the field of
reconstructive and facial plastic surgery in December 1999.
In February 2000, we signed an agreement granting Obagi Medical Products
the exclusive right to promote Cymetra to office-based dermatologists and
plastic surgeons. We will market and distribute Cymetra directly to hospitals
and a subset of private office accounts through our own sales force.
Cymetra offers a new non-surgical alternative in reconstructive plastic and
dermatological procedures, such as correction of facial and body soft tissue
deficits, the revision of acne scars and wrinkle correction. Unlike intradermal
fillers such as bovine and human collagen, Cymetra is delivered subdermally to
replace tissue that has been lost or eroded for various reasons. Some of these
procedures currently use bovine collagen injections. In 1998 there were over
400,000 collagen injection procedures performed in the United States. This
represents a significant market opportunity for Cymetra. The greatest
competitive pressure will be from injectable bovine collagen. The disadvantages
of bovine collagen include the requirement for pre-procedural sensitivity
testing and its limited persistence of two to three months due to resorption.
Cymetra will not require sensitivity testing and may potentially persist longer
than bovine collagen, offering greater patient and surgeon satisfaction.
MICRONIZED ALLODERM(TM)
In addition to the applications targeted by Cymetra, we believe that
micronized AlloDerm may have urological uses such as for the treatment of
urethral sphincter deficiency, a common cause of urinary incontinence, and
vesicoureteric reflux, which is the most common cause of renal failure in
children. One treatment for these conditions has been injecting bovine collagen
to bulk the sphincter muscle or to recreate the proper angle of the urethra or
the ureter. Based on an independent market research report, we estimate there
were approximately 118,000 injections of bovine collagen in 1996 to treat
urinary conditions for 33,000 individuals in the United States. A significant
drawback of bovine collagen in these procedures is that the body recognizes the
bovine collagen as a foreign material and eventually resorbs the injected
material requiring repeated injections to maintain continence or reflux
correction. We currently are testing the persistence of micronized acellular
tissue in animals for the treatment of urological disorders.
The FDA regulatory status of micronized acellular tissue in the United
States is uncertain. Although we believe that this form of AlloDerm should be
classified as human tissue intended for transplantation, there can be no
assurance that the FDA would agree. Additionally, even if some configurations or
uses of micronized acellular tissue are classified as human tissue, other
configurations such as those packaged to facilitate use by the physician, as
well as certain clinical applications, may be regulated by the FDA as a medical
device. 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.
CARDIOVASCULAR TISSUE PRODUCTS
We are conducting pre-clinical studies to evaluate small-diameter vascular
graft products for potential use in cardiovascular and vascular surgery. If
successfully developed, a vascular graft could be used in coronary artery bypass
procedures or used to restore peripheral blood circulation in patients with
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vascular insufficiency, such as below-knee bypass procedures. According to an
independent market research report, replacement vascular conduits are required
for the 320,000 coronary artery bypass surgeries and 250,000 peripheral vascular
reconstructions that are performed annually in the United States. There are
additional requirements for construction of arterio-venous (A-V) fistulas for
venous access in hemodialysis, patches for closure following carotid
endarterectomy and microvascular conduits for microsurgical repair techniques.
Veins harvested from the patient for use as a replacement graft continue to
be the mainstay of therapy, yet these vessels are frequently donor site limited
as a result of the condition of the patient. When available, autologous vessel
harvest leads to significant patient discomfort and an increase in risk for
complications. To address these drawbacks, there is a severe requirement for an
"off-the-shelf" small diameter vascular graft, which is non-immunogenic,
non-thrombotic and has compliance characteristics and handling properties
equivalent to native vessels.
Our processed grafts are decellularized to circumvent an immune response,
and they are freeze-dried to allow shelf storage for immediate use. Handling
characteristics and physical properties are equivalent to the native vessel. A
pre-clinical study has demonstrated our processed graft has an equivalent
patency to the animal's autologous vein. This study also showed the graft was
repopulated with the animal's own cells and hence, remodeled into the animal's
own tissue.
BLOOD CELL PRESERVATION
We are 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(TM) . We are developing ThromboSol; a patented 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 increase the safety and 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 7.9 million platelet units
transfused in the United States in 1994, according to an industry survey.
Platelets are blood cells that initiate clotting. Untreated platelets are
sensitive to storage at low temperatures and cannot be refrigerated effectively.
Presently, platelets are stored at room temperature and, due to the risk of
microbial contamination, have a limited shelf life of five days. We have shown
in laboratory tests that the addition of ThromboSol solution preserves the in
vitro functional aspects of refrigerated platelets for up to nine days and
frozen platelets for more than one year.
During 1999, we successfully completed biocompatability testing on the
ThromboSol solutions. A pilot clinical study under a physician-sponsored
Investigational New Drug ("IND") was conducted during 1998 and the study found
that ThromboSol treated cryopreserved platelets performed better than standard
cryopreserved platelets. A second physician-sponsored IND has been initiated
which involves a "standard of care" transfusion of ThromboSol cryopreserved
platelets into oncology patients. This study should be completed in 2000. We
intend to license this product to major pharmaceutical and or other companies
for commercial development.
RED BLOOD CELLS. We are conducting research to develop procedures to freeze
and 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 13 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 and washed
blood. We believe 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 simple closed loop cell washing methods or 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 us. Any product developed will require extensive
regulatory approvals, including approval of an IND by the FDA to conduct
clinical trials.
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MARKETING
We currently distribute AlloDerm in the United States for reconstructive
plastic and burn surgical applications through our network of direct technical
sales representatives. Periodontal applications of AlloDerm in the United
States are marketed through our exclusive United States distributor, Lifecore
Biomedical, Inc. In March 1999, we entered an exclusive agreement with Boston
Scientific for the worldwide sales and marketing of Repliform for use in urology
and gynecology. In February 2000, we entered an agreement with Obagi Medical
Products granting them the exclusive right for promotion of Cymetra to
office-based dermatologists and plastic surgeons.
For several years before 1999, we used a network of regional and
international distributors to augment our sales efforts. We currently maintain a
network of international distributors, but during the first quarter of 1999, we
eliminated the use of regional distributors in favor of using distributors only
on an exclusive field of use basis. We currently intend to develop and
commercialize additional tissue products processed from cardiovascular,
neurological and other tissues in conjunction with corporate marketing partners.
As of March 6, 2000, we had a sales and marketing staff of 39 persons,
including 25 domestic sales personnel, and 14 domestic marketing and other
personnel. Our sales representatives are responsible for interacting with
surgeons, primarily plastic surgeons and burn surgeons and educating them
regarding the use and anticipated benefits of AlloDerm. We also participate in
national and international conferences and trade shows, participate in or fund
certain educational symposia or fellowship programs and advertise in industry
trade publications.
SOURCES OF MATERIALS
We pay a procurement fee to obtain allograft skin and other tissues from
contracted tissue banks in the United States. We are expanding our 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 the
National Organ Transplant Act, which prohibits purchase and sale of human
organs, skin, and related tissue for "valuable consideration."
Pursuant to contractual arrangements, we reimburse tissue banks for
expenses incurred that are associated with the recovering and shipping of
donated human skin suitable for processing into AlloDerm, Repliform, Cymetra and
allograft skin as a temporary wound dressing. In obtaining such tissues, we
compete with treatment centers that use donated skin for temporary wound
dressings.
We believe we have established adequate sources of donor skin at acceptable
costs to satisfy the foreseeable demand for AlloDerm products during 2000.
Although we have not experienced any material difficulty in procuring adequate
supplies of donor skin, there is risk that the future availability of donated
human skin will not be sufficient to meet our demand for such materials. Any
supply shortage of available tissues in the future would likely have a material
adverse effect on our financial condition and results of operations.
We currently do not have procurement arrangements for other tissues related
to products under development, and do not intend to develop such arrangements
until the products approach commercialization.
We are accredited by the American Association of Tissue Banks ("AATB"). The
AATB is recognized for the development of industry standards and its program of
inspection and accreditation. The AATB provides a standards-setting function
similar to the FDA's quality system regulations for medical device companies,
and has procedures for accreditation similar to the International Standards
Organization ("ISO") standards. The license was granted to us in 1997 following
a detailed audit by the AATB of our operations and procedures. The accreditation
must be renewed every three years and is for the processing, storage and
distribution of tissue used in AlloDerm, Repliform, Cymetra and allograft skin.
GOVERNMENT REGULATION
Overview
Government regulation, both domestic and foreign, is a significant factor
in the manufacturing and marketing of our current and developing products. In
the United States, our AlloDerm products are subject to regulation by the United
States Food and Drug Administration (the "FDA"). The FDA applies the Federal
Food, Drug, and Cosmetics Act (the "FDC Act") and the Public Health Service Act
(the "PHS Act"). These rules provide the regulations which apply to the testing,
manufacture, labeling, storage, record keeping, approval, advertising and
promotion of our products.
The FDA does not apply a single regulatory scheme to human tissues and
products derived from human tissue. On a case by case basis, FDA may choose to
regulate such products as transplanted human tissue, biologics or medical
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devices. A fundamental difference in the treatment of products under these
various classifications is that the FDA generally permits transplanted human
tissue to be commercially distributed without premarket approval. In contrast,
products regulated as devices or biologics usually require such approval. The
process of obtaining premarket approval for a device or biologic is often
expensive, lengthy and uncertain.
Once on the market, all of our products are subject to pervasive and
continuing regulation by the FDA. We are subject to inspection at any time by
the FDA and state agencies for compliance with regulatory requirements. FDA may
impose a wide of range of enforcement sanctions if we fail to comply, including:
- fines,
- injunctions,
- civil penalties,
- recall or seizure of our products,
- total or partial suspension of production,
- refusal of the government to authorize the marketing of new products
or to allow us to enter into supply contracts, and
- criminal prosecution.
Tissue Regulation
In 1996, correspondence from the FDA stated that AlloDerm used for the
replacement or repair of damaged or inadequate integumental tissue would be
regulated as human tissue under an interim regulation governing human tissue for
transplantation then in effect. This letter reversed the FDA's initial position
that AlloDerm for these indications should be regulated as a medical device. In
1997, the FDA issued a final regulation that became effective in 1998 regulating
"human tissue." The rule 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 excludes vascularized human organs.
The final tissue rule requires establishments engaged in the procurement,
processing, and distribution of human tissue to conduct donor screening and
infectious disease testing and to maintain records available for FDA inspection
documenting that the procedures were followed. The rule also provides the FDA
with authority to conduct inspections of tissue establishments and to detain,
recall, or destroy tissue where the procedures were not followed or appropriate
documentation of the procedures is not available.
Relying on the 1996 letter, we have not obtained prior FDA approval for
commercial distribution of AlloDerm for use in the treatment of burns,
periodontal surgical procedures (such as free-gingival grafting and guided
tissue regeneration), and reconstructive plastic surgery procedures (such as
atrophic lip reconstruction and scar revision). We believe that the final tissue
regulation did not alter the provisions of the interim regulation that was the
foundation of the FDA's decision not to regulate AlloDerm as a device when sold
for these indications. Therefore, we continue to believe that AlloDerm for these
uses is regulated as human tissue. However, because the FDA's approach to tissue
regulation is evolving, we cannot assure you that FDA will adhere to this
position. In the future, the FDA could choose to impose device regulation on
AlloDerm for these indications.
The FDA also stated in the 1996 letter that their decision applied only to
AlloDerm when intended for use in transplantation to repair or replace damaged
or inadequate integumental tissue and that 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, would be determined on a
case-by-case basis. After the initial 1996 letter, additional FDA
correspondence stated that we would need to seek a regulatory status
determination on AlloDerm for any other uses.
We recently began marketing Cymetra (a micronized version of AlloDerm) for
plastic reconstructive procedures. We also are marketing Repliform (an acellular
tissue matrix) for urological and gynecological surgery (bladder sling; pelvic
floor repair). We believe that these products all meet the regulatory definition
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of human tissue, and therefore, have not sought guidance from the FDA. The FDA
could choose to regulate any or all of these uses under the device regulations,
requiring us to cease marketing and/or recall product already sold until 510(k)
clearance or PMA approval is obtained. The FDA also could impose sanctions for
our failure to obtain premarket clearance or approval.
In May 1998, the FDA issued a proposed rule requiring registration of
tissue banking establishments and the listing of tissue products. This proposal
(which has not been finalized) may be a first step toward imposing significant
additional regulatory requirements upon tissue products. Such requirements could
cause us to incur significant additional costs.
The National Organ Transplant Act ("NOTA") prohibits the acquisition,
receipt or transfer of certain human organs, including skin and heart valves and
vascular grafts, 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. We cannot
assure you that NOTA will not be interpreted to limit the prices that we may
charge for processing and transporting such products.
Our pricing structure for AlloDerm, Repliform and Cymetra also includes
certain educational costs associated with the processing and transportation of
human tissue. Although we believe that recovery of educational costs is
permitted under NOTA, a future inability to pass these costs on could adversely
affect our financial condition and operations. We cannot assure you that the
government will not adopt interpretations of NOTA that would adversely affect
our pricing structure or otherwise call into question one or more aspects of our
method of operation. Certain states and foreign countries have laws similar to
NOTA. These laws may restrict the amount that we can charge for our products,
and may restrict the importation or distribution of AlloDerm, Repliform and
Cymetra to licensed not-for-profit organizations.
In 1997, the FDA also issued a comprehensive "proposed approach" to the
regulation of cellular and tissue-based products, including human tissue for
transplantation. The FDA proposal set 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 as biologics and medical
devices for products that raise potential health, safety or efficacy concerns.
Thus, FDA's approach to the regulation of tissue continues to evolve.
Medical Device Regulation
A medical device generally may be marketed in the United States only with
the FDA's prior authorization. Devices classified by the FDA as posing less risk
are placed in class I or class II. Class II devices require the manufacturer to
seek "510(k) clearance" from the FDA prior to marketing through the filing of a
"premarket notification," unless exempted from this requirement by regulation.
Such clearance generally is granted based upon a finding that a proposed device
is "substantially equivalent" in intended use and safety and effectiveness to a
"predicate device," which is a legally marketed class II device that already has
510(k) clearance or a "preamendment" class III device (in commercial
distribution prior to May 28, 1976) for which the FDA has not called for PMA
applications (defined below). We believe that it usually takes from four to 12
months from the date of submission to obtain 510(k) clearance, but it may take
longer. No assurance can be given that any 510(k) submission will ever receive
clearance. After a device receives 510(k) clearance, any modification that could
significantly affect its safety or effectiveness, or that would constitute a
major change in the intended use of the device, will require a new 510(k)
submission.
A medical device that does not qualify for 510(k) clearance is placed in
class III, which is reserved for devices classified by the FDA as posing the
greatest risk (e.g., life-sustaining, life-supporting or implantable devices, or
devices that are not substantially equivalent to a predicate device). A class
III device generally must undergo the premarket approval ("PMA") process, which
requires the manufacturer to prove the safety and effectiveness of the device to
the FDA's satisfaction. A PMA application must provide extensive preclinical and
clinical trial data and information about the device and its components
regarding, manufacturing, labeling and promotion. As part of the PMA review, the
FDA will inspect the manufacturer's facilities for compliance with the Quality
System Regulation ("QSR"), which includes elaborate testing, control,
documentation and other quality assurance procedures. Upon submission, the FDA
determines if the PMA application is sufficient to permit a substantive review,
and, if so, the application is accepted for filing. The FDA then commences an
in-depth review of the PMA application, which we believe typically takes one to
three years, but may take longer.
If the FDA's evaluation of the PMA application is favorable, the FDA
typically issues an "approval letter" requiring the applicant's agreement to
comply with specific conditions (e.g., changes in labeling) or to supply
specific additional data (e.g., longer patient follow up) or information (e.g.,
submission of final labeling) in order to secure final approval of the PMA
application. Once the approval letter is satisfied, the FDA will issue a PMA
order for the approved indications, which can be more limited than those
originally sought by the manufacturer. The PMA order can include postapproval
conditions that the FDA believes necessary to ensure the safety and
effectiveness of the device including, restrictions on labeling, promotion, sale
and distribution. Failure to comply with the conditions of approval can result
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in enforcement action, including withdrawal of the approval. The PMA process can
be expensive and lengthy, and no assurance can be given that any PMA application
will ever be approved for marketing. Even after approval of a PMA, a new PMA or
PMA supplement is required in the event of a modification to the device.
A clinical study in support of a PMA application or 510(k) submission for a
"significant risk" device requires an Investigational Device Exemption ("IDE")
application approved in advance by the FDA for a limited number of patients. The
IDE application must be supported by appropriate data, such as animal and
laboratory testing results. The clinical study may begin if the FDA and the
appropriate institutional review board ("IRB") at each clinical study site
approve the IDE application. If the device presents a "nonsignificant risk" to
the patient, a sponsor may begin the clinical study after obtaining IRB approval
without the need for FDA approval. In all cases, the clinical study must be
conducted under the auspices of an IRB pursuant to FDA's regulatory requirements
intended for the protection of subjects and to assure the integrity and validity
of the data.
Once on the market, our medical device products will be subject to
pervasive and continuing regulation. We will have to comply with these
requirements, including the FDA's labeling regulations, the QSR, the Medical
Device Reporting ("MDR") regulations (which require that a manufacturer report
to the FDA certain types of adverse events involving its products), and the
FDA's general prohibitions against promoting products for unapproved or
"off-label" uses. In addition, class II devices can be subject to additional
special controls (e.g., performance standards, postmarket surveillance, patient
registries, and FDA guidelines) that do not apply to class I devices.
In 1997, the FDA told us that NeoDura (an acellular tissue matrix) for use
in dura mater replacement procedures would be classified as a medical device
requiring 510(k) clearance. In March 1999, we withdrew this 510(k) submission
with the intent to submit a new 510(k) notification after we have addressed
several issues raised by the FDA. We cannot assure you that we will submit a new
510(k) notice for NeoDura or that it will ultimately receive 510(k) clearance.
Based upon relevant precedents, it is not clear whether the FDA will
regulate our vascular products now in development as medical devices requiring
510(k) clearance or PMA approval or as human tissue. However, we will seek to
persuade the FDA that our vascular products should be regulated as human tissue
similar to other vascular products previously marketed.
Biologics Regulation
Biologic products are regulated under the FDC Act and the Section 351(a) of
the PHS Act. The PHS Act imposes a special additional licensing requirement,
known as a Biologic License. This license imposes very specific requirements
upon the facility and the manufacturing and marketing of licensed products to
assure their safety, purity, and potency. Some licensed biological products are
also subject to batch release by the FDA. That is, the products from a newly
manufactured batch cannot be shipped until the FDA has evaluated either a sample
or the specific batch records and given permission to ship the batch of product.
The PHS Act also grants the FDA authority to impose mandatory product recalls
and provides for civil and criminal penalties for violations.
Before conducting the required clinical testing of a biological product, an
applicant must submit an investigational new drug application ("IND") 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 1 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 2, 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 1 trial.
Phase 3 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
protocols 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 Product License Application and an Establishment License
Application or a Biologic License Application containing, among other things, a
complete description of the manufacturing process. Before the licenses can be
granted, we must undergo a successful establishment inspection. FDA review and
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approval of a biological product can take several years. We cannot assure you
that we will obtain the required approval for ThromboSol platelet storage
solution or any other proposed biological products.
Other Regulation
We are 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 our
research and development work. We cannot assure you that we will not incur
significant additional costs to comply with these laws or regulations in the
future.
International Regulation
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 "human tissue transplant" which may
restrict its commercialization. Other countries have no applicable regulations
regarding the commercialization of products similar to AlloDerm, creating
uncertainty about the import or sale of the product.
The inability to classify AlloDerm as a medical device has restricted our
ability to obtain an appropriate regulatory designation for the product 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 our products. AlloDerm currently is being marketed
in certain foreign countries, and we are actively pursuing clearance to market
AlloDerm in certain 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 our ability to negotiate distribution
arrangements on favorable terms.
RESEARCH AND DEVELOPMENT
We have historically funded the development of our tissue products and
blood cell preservation products primarily through external sources, including a
corporate alliance and government grants and contracts, as well as through the
proceeds from equity offerings. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources."
Our research and development costs in 1997, 1998 and 1999 for all programs,
including those programs funded through corporate and government support, were
approximately $2.0 million $3.4 million and $3.9 million respectively.
We have received a substantial portion of our government grant funding from
the United States government's Small Business Innovation Research ("SBIR")
program. The SBIR grant program provides funding to evaluate the scientific and
technical merit and feasibility of an idea. To date, we have been awarded
approximately $6.3 million through 15 approved SBIR program awards and
Department of Defense contracts. We intend to continue to seek funding through
the SBIR programs, as well as to pursue additional government grant and contract
programs. Generally, we have 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
Our ability to compete effectively with other companies is dependent
materially upon the proprietary nature of our technologies. We rely primarily
on patents, trade secrets and confidentiality agreements to protect our
technologies. We currently license the exclusive right to nine United States
patents and related foreign patents and the non-exclusive right to 14 United
States patents. In addition, we have been issued five United States utility
patents, one United States design patent and have seven pending United States
patent applications.
Our technology is protected by three primary families of patents and patent
applications. One United States patent covers methods of producing our
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. Nine additional United States patents supplement
our other patents and cover methods of freeze-drying without the damaging
effects of ice crystal formation.
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We also have 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 us may differ from that of their
foreign counterparts.
In general, the patent position of biotechnology and medical product firms
is highly uncertain and involves complex legal, scientific and factual
questions. There is risk that other patents may not be granted with respect to
the patent applications filed by us. Furthermore, there is risk that one or more
patents issued or licensed to the Company will not provide commercial benefit to
us or will be infringed, invalidated or circumvented by others. The United
States Patent and Trademark Office currently has a significant backlog of patent
applications, and the approval or rejection of patents may take several years.
Prior to actual issuance, the contents of United States patent applications are
generally not made public. Once issued, a patent would constitute prior art from
its filing date, which might predate the date of a patent application on which
we rely. Conceivably, the issuance of such a prior art patent, or the discovery
of "prior art" of which we are currently unaware, could invalidate a patent of
ours or our licensor or discourage commercialization of a product claimed within
such patent.
No assurances may be given that our products or planned products may not be
the subject of additional infringement actions by third parties. Any successful
patent infringement claim relating to any products or planned products could
have a material adverse effect on our financial condition and results of
operations. Further, there can be no assurance that any patents or proprietary
rights owned by or licensed to us 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.
We conduct a cursory review of issued patents prior to engaging in research
or development activities. Accordingly, we may be required to obtain a license
from others to commercialize any of our products under development. There can be
no assurance that any such license that may be required could be obtained on
favorable terms or at all.
We may decide for business reasons to retain certain knowledge that we
consider proprietary as confidential and elect to protect such information as a
trade secret, as business confidential information, or as know-how. In that
event, we must rely upon trade secrets, know-how and continuing technological
innovation to maintain our 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.
We have federal trademark or service mark registrations that we currently
use for LifeCell , which concerns processing and preserving tissue samples, and
AlloDerm , which concerns our commercial acellular dermal graft product. We have
filed trademark applications for the protection of the phrases Micronized
AlloDerm , the particulate form of AlloDerm, Cymetra , the brand name for
Micronized AlloDerm, Repliform , the AlloDerm product designed for urology and
gynecology and for NeoDura , the AlloDerm product designed for neurosurgery.
COMPETITION
The biomedical field is undergoing rapid and significant technological
change. Our success depends upon our ability to develop and commercialize our
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 our products. Many of those 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 us. These companies and academic institutions may succeed in
developing competing products that are more effective than our products or that
receive government approvals more quickly than our products, which may render
our products or technology uncompetitive, uneconomical or obsolete.
For most current applications of AlloDerm and Repliform, the principal form
of competition is with the use of the patient's autologous tissue. We anticipate
direct competition for AlloDerm tissue products and all of our proposed
transplantable tissue products, as well as indirect competition from advances in
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therapeutic agents, such as growth factors now used to enhance wound healing. We
believe that therapeutic growth factors may be used in conjunction with our
proposed products and may potentially enhance the products' efficacy. There can
be no assurance that we will be able to compete effectively with other
commercially available products or that development of other technologies will
not detrimentally affect our commercial opportunities or competitive advantage.
ENVIRONMENTAL MATTERS
Our research and development and processing techniques generate waste that
is classified as hazardous by the United States Environmental Protection Agency,
the Texas Natural Resources Commission and the New Jersey Department of
Environmental Protection. We segregate such waste and dispose of it through
licensed hazardous waste transporters. Although we believe we are currently in
compliance in all material respects with applicable environmental regulations,
our 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
our financial condition and results of operations.
EMPLOYEES
At March 14, 2000, we had 154 full-time and 12 part-time employees of which
39 were employed in sales and marketing, 85 in engineering, production and
quality assurance, 17 in research and development and clinical studies, and 25
in administration and accounting. Also, at such date, we employed, full-time, 3
persons with M.D. degrees and 9 persons with Ph.D. degrees.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended. All statements other
than statements of historical facts included herein, including, without
limitation, statements regarding our financial position, business strategy,
products, products under development, markets, budgets, plans and objectives of
management for future operations and Year 2000 Readiness, are forward-looking
statements. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we can give no assurance that such
expectations will prove to be correct. Important factors that could cause
actual results to differ materially from our expectations ("Cautionary
Statements") are disclosed under "Risk Factors" and elsewhere herein, including,
without limitation, in conjunction with the forward-looking statements included
herein. All subsequent written and oral forward-looking statements attributable
to us or persons acting on our behalf are expressly qualified in their entirety
by the Cautionary Statements.
RISK FACTORS
In addition to the other information in this Annual Report on Form 10-K,
the following factors should be considered carefully in evaluating the Company.
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.
WE HAVE A HISTORY OF OPERATING LOSSES AND A SUBSTANTIAL ACCUMULATED
EARNINGS DEFICIT
Since our inception in 1986, we have generated only limited revenues from
product sales and have incurred substantial losses, including losses of
approximately $6.1 million, $7.3 million and $9.2 million for the years ended
December 31, 1997, 1998, and 1999, respectively. At December 31, 1999, we had
an accumulated deficit of approximately $54.4 million. We expect to incur
additional operating losses as well as negative cash flow from operations
through the middle of 2000 as we continue to use substantial resources to expand
our marketing efforts with respect to AlloDerm and to expand our product
development programs. Our ability to increase revenues and achieve profitability
and positive cash flows from operations will depend on increased market
acceptance and sales of AlloDerm, Repliform and Cymetra and commercialization of
products under development.
WE MAY NEED ADDITIONAL CAPITAL TO MARKET ALLODERM AND DEVELOP NEW PRODUCTS
The development and commercialization of new products will require
additional development, sales and marketing, manufacturing and other
expenditures. We intend 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.
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We may need additional capital, depending on:
- the costs and progress of our 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 our 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.
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
us to relinquish our rights to certain of our technologies, products or
marketing territories. If adequate funds are not available, we expect that we
will be required to delay, scale back or eliminate one or more of our product
development programs.
OUR FAILURE TO COMPLY WITH APPLICABLE REGULATION COULD LEAD THE FDA TO
IMPOSE ENFORCEMENT SANCTIONS.
Significant government regulation, both domestic and foreign, applies to
the manufacturing and marketing of our current and developing products. In the
United States, our AlloDerm products are subject to regulation by the United
States Food and Drug Administration. Noncompliance with the FDA's 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 allow us to enter into supply contracts, and
- criminal prosecution.
THE FDA MAY DECIDE TO IMPOSE MEDICAL DEVICE REGULATION RULES UPON
ALLODERM'S CURRENT TISSUE PRODUCTS FOR RECONSTRUCTIVE PLASTIC SURGERY,
PERIODONTAL SURGERY AND BURN GRAFTS, WHICH WOULD REQUIRE US TO OBTAIN
510(K) CLEARANCE OR PMA APPROVAL.
The FDA generally permits transplanted human tissue to be commercially
distributed without 510(k) clearance or PMA approval. In contrast, products
regulated as medical devices usually require such approval. In 1996, the FDA
determined that AlloDerm used for the repair or replacement of damaged or
inadequate integumental tissue, including gingiva, would be regulated as
transplanted human tissue. On that basis, we began commercial distribution of
17
<PAGE>
this product for reconstructive plastic surgery, periodontal surgery and burn
grafts without 510(k) clearance or PMA approval from the FDA. However, the FDA's
regulatory approach to tissue products continues to evolve. There is a risk that
the FDA could alter its regulatory approach and decide that this product is more
appropriately regulated as a medical device. If so, the FDA could require us to
obtain 510(k) clearance or PMA approval for these products. The process of
obtaining 510(k) clearance or PMA approval may be expensive, lengthy and
unpredictable and/or may require collection of extensive clinical data.
THE FDA MAY DECIDE TO REGULATE ALLODERM FOR OTHER USES, INCLUDING
MICRONIZED ALLODERM, AS A MEDICAL DEVICE AND COULD ORDER US TO CEASE
MARKETING AND/OR RECALL PRODUCT ALREADY SOLD UNTIL 510(K) CLEARANCE OR PMA
APPROVAL IS OBTAINED; THE FDA ALSO COULD IMPOSE ENFORCEMENT SANCTIONS FOR
MARKETING THESE PRODUCTS WITHOUT CLEARANCE OR APPROVAL.
Although the FDA determined that AlloDerm used for the repair or
replacement of damaged or inadequate integumental tissue, including gingiva, is
regulated as tissue, the agency stated in that decision that the regulatory
status of any different uses would need to be determined on a case-by-case
basis. In recent months, we began marketing Cymetra (a micronized version of
AlloDerm) for plastic and reconstructive procedures. We also began marketing
Repliform (an acellular tissue matrix) for urological and gynecological surgery
(bladder sling; pelvic floor repair) procedures.
Because we believe that these products meet the regulatory definition of
human tissue, we have not sought a determination of this question from the FDA.
There is a risk that FDA could determine that AlloDerm for one or more of these
new uses is more appropriately regulated as a medical device. Pursuant to such a
decision, the FDA could require us to cease marketing and/or recall product
already sold until 510(k) clearance or PMA approval is obtained. We do not know
if such clearance or approval could be obtained in a timely fashion, or at all,
or if the FDA would require extensive clinical data to support clearance or
approval. The FDA also could seek to impose enforcement sanctions for marketing
these products without 510(k) clearance or PMA approval.
IF WE DO NOT PASS THE FDA'S INSPECTIONS OF OUR TISSUE FACILITIES, FDA COULD
REQUIRE THE RECALL OR DESTRUCTION OF OUR TISSUE PRODUCTS.
Our involvement in the processing and distribution of human tissue requires
us to ensure that proper donor screening and infectious disease testing is done
appropriately and conducted under strict procedures. In addition, we must
maintain records, which are available for FDA inspectors documenting that the
procedures were followed. The FDA has authority to conduct inspections of tissue
establishments and to detain, recall, or destroy tissue if the procedures were
not followed or appropriate documentation is not available.
THERE IS A RISK THAT LAWS WILL LIMIT OUR ABILITY TO SELL OUR PRODUCTS AT A
PROFIT.
The National Organ Transplant Act prohibits the acquisition, receipt or
transfer of certain human organs, including skin and heart valves and vascular
grafts, 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. We include in our
AlloDerm, Repliform and Cymetra pricing structure certain of its educational
costs and reasonable processing expenses. There is a risk that NOTA payment
allowances may be interpreted differently in the future for our products, and if
it is, it would limit profits, by limiting recovery of educational costs and
processing expenses.
18
<PAGE>
OUR PRODUCTS MAY BE SUBJECT TO EXPORT RESTRICTIONS.
FDA export restrictions may apply to our products that have not yet been
cleared or approved for domestic distribution. There can be no assurance that we
will receive on a timely basis, if at all, any FDA export approvals necessary
for the marketing of our products abroad.
OUR PROPOSED BLOOD CELL PRESERVATION PRODUCTS WILL BE SUBJECT TO REGULATION
AS BIOLOGICS.
Biologic products require FDA premarket licensing prior to
commercialization in the United States. To obtain licensing approval for these
products, we must submit proof of their safety, purity and potency. Testing,
preparation of necessary applications and the processing of those applications
by the FDA is expensive and time consuming. We do not know if the FDA will act
favorably or quickly in making such reviews and significant difficulties or
costs may be encountered by us in our efforts to obtain FDA licenses. The FDA
may also place conditions on clearances that could restrict commercial
applications of such products. Product approvals may be withdrawn if compliance
with regulatory standards are not maintained or if problems occur following
initial marketing. Delays imposed by the FDA licensing process may materially
reduce the period during which we have the exclusive right to commercialize
patented products.
OUR PRODUCTS ARE SUBJECT TO PERVASIVE AND CONTINUING REGULATION.
Products marketed by us 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 Quality System Regulation for medical devices or Good
Manufacturing Practices regulations for biologics. Tissue establishments must
engage in donor screening, infectious disease testing and stringent record
keeping. Our facilities and processes are subject to periodic FDA inspection for
compliance with all requirements. Labeling and promotional activities are also
subject to scrutiny by the FDA and, in certain instances, by the Federal Trade
Commission. 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 that would have a material adverse effect on us. In addition, there
can be no assurance that the various states in which our products are sold will
not impose additional regulatory requirements or marketing impediments.
We are subject to various federal, state and local laws, regulations and
recommendations relating to such matters as safe working condition, laboratory
and manufacturing practices, and the use, handling and disposal of hazardous or
potentially hazardous substances used and produced in connections with our
research and development work. We may incur significant additional costs to
comply with these laws or regulations in the future.
WE ARE SUBJECT TO VARYING AND EXTENSIVE REGULATION BY FOREIGN GOVERNMENTS.
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.
AlloDerm currently is being marketed in certain foreign countries, and we
are pursuing clearance to market AlloDerm in additional countries. The
19
<PAGE>
uncertainty of the regulations in each country may delay or impede the marketing
of AlloDerm or impede our ability to negotiate distribution arrangements on
favorable terms. Certain foreign countries have laws similar to the United
States' National Organ Transplant Act. These laws may restrict the amount that
we can charge for AlloDerm and may restrict the importation or distribution of
AlloDerm to licensed not-for-profit organizations.
OUR PRODUCTS REPRESENT NEW METHODS OF TREATMENT WHICH MAY NOT BE ACCEPTED
BY DOCTORS.
Much of our ability to increase revenues and to achieve profitability and
positive cash flow will depend on expanding the use and market penetration of
our AlloDerm products and the successful introduction of our products in
development. Products based on our technologies represent new methods of
treatment. Physicians will not use our 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 our 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 our AlloDerm
products or products under development will gain any significant degree of
market acceptance among physicians, health care payers and patients. Broad
market acceptance of our products may require the training of numerous
physicians and clinicians, as well as conducting or sponsoring clinical studies
to demonstrate the benefits of such 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 payers' approval of reimbursement for
our products in development may be an important factor in establishing market
acceptance.
WE WILL NEED TO DEVELOP NEW PRODUCTS TO BE SUCCESSFUL.
Our growth and profitability will depend, in part, upon our ability to
complete development of and successfully introduce new products. We may be
required to undertake time-consuming and costly development activities and seek
regulatory clearance or approval for new products. Although we have conducted
animal studies on many of our products under development which indicate that the
product may be feasible for a particular application, results obtained from
expanded studies may not be consistent with earlier trial results or be
sufficient for us to obtain any required regulatory approvals or clearances. We
may experience difficulties that could delay or prevent the successful
development, introduction and marketing of new products. Regulatory clearance or
approval of these or any new products may not be granted on a timely basis, if
ever, and the new products may not adequately meet the requirements of the
applicable market or achieve market acceptance. The completion of the
development of any of our 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.
The inability to complete successfully the development of a product or
application, or a determination by us, for financial, technical or other
reasons, not to complete development of any product or application, particularly
in instances in which we have made significant capital expenditures, could have
a material adverse effect on our business.
WE ARE DEPENDENT ON AGENT AND DISTRIBUTOR SALES.
We have engaged Lifecore Biomedical, Inc. as the exclusive distributor for
AlloDerm for periodontal applications in the United States; Boston Scientific
Corporation as our exclusive worldwide sales and marketing representative for
Repliform for use in urology and gynecology; and Obagi Medical Products as the
exclusive sales and marketing representative of Cymetra for office-based
dermatologists and plastic surgeons. Other distributors also may be granted
exclusive distribution rights. To the extent any exclusive distributor fails
adequately to promote, market and sell our products, we 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.
WE ARE DEPENDENT ON CERTAIN SOURCES OF MATERIALS.
Our business is dependent on the availability of donated human skin and
other tissues. A finite supply of donated tissue is available. Although we have
established what we believe to be adequate sources of donated human skin to
satisfy the expected demand for AlloDerm during in the foreseeable future, we
have not yet developed a supply of other tissues and there can be no assurance
that the availability of donated human skin and other tissues will be sufficient
to meet our demand for such materials. Any significant interruption in supply of
such tissue would likely have a material adverse effect on our financial
condition and results of operations.
20
<PAGE>
We acquire 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 us or increase the required payments from us.
We have 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 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 us in the
event of a reduced supply of human tissue or that the cost of such animal tissue
would not materially adversely affect our business, financial condition and
results of operations.
Donors of organs and tissues, including donated human skin, have various
motivations. Although we do 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.
WE ARE DEPENDENT ON KEY MANAGEMENT AND PERSONNEL.
We are dependent in large part on the efforts of our executive officers,
including Paul G. Thomas, President and Chief Executive Officer of the Company,
and Stephen A. Livesey, M.D., Ph.D., Executive Vice President and Chief Science
Officer and a director of the Company. We have obtained "keyman" life insurance
on Dr. Livesey of $3.0 million. Further, our success is also dependent upon our
ability to hire and retain qualified operating, marketing and technical
personnel. The competition for qualified personnel in the biochemical industry
is intense, and accordingly, there can be no assurance that we will be able to
hire or retain such personnel.
THE BIOMEDICAL FIELD WHICH WE ARE IN IS PARTICULARLY SUSCEPTIBLE TO RAPID
CHANGE.
The biomedical field is undergoing rapid and significant technological
change. Our success depends upon our ability to develop and commercialize
efficient and effective products based on our 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 our 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 us.
These companies and academic institutions may succeed in developing competing
products that are more effective than our products, or that receive government
approvals more quickly than our products, which may render our products or
technology uncompetitive, uneconomical or obsolete.
THE ABILITY TO OBTAIN THIRD-PARTY REIMBURSEMENT FOR THE COSTS OF NEW
MEDICAL TECHNOLOGIES LIKE OURS IS LIMITED.
Generally, hospitals, physicians and other health care providers purchase
products, such as the products being sold or developed by us, for use in
providing care to their patients. These parties typically rely on third-party
payers, 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 payers 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. We believe that certain third-party
payers provide reimbursement for medical procedures at a specified rate without
additional reimbursement for products, such as those being sold or developed by
us, used in such procedures. Adequate third-party payer reimbursement may not be
available for us to maintain price levels sufficient for realization of an
appropriate return on our investment in developing new products. In addition,
government and other third-party payers 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 our products are used in medical
procedures that typically are not covered by third-party payers, such as
cosmetic procedures, or for which patients sometimes do not obtain coverage,
such as dental procedures. These and future changes in third-party payer
reimbursement practices regarding the procedures performed with our products
could adversely affect the market acceptance of our products.
21
<PAGE>
WE ARE DEPENDENT ON PATENTS AND PROPRIETARY RIGHTS.
Our ability to compete effectively with other companies is materially
dependent upon the proprietary nature of our technologies. We rely primarily on
patents and trade secrets to protect our technologies. We currently license the
exclusive right to nine United States patents and related foreign patents and
non-exclusive rights to 14 patents. In addition, we have been issued five United
States utility patents, one United States design patent and have seven pending
United States patent applications. We may not obtain additional patents or other
protection. The claims allowed under those patents will be sufficient to protect
our technology. Further, any patents or proprietary rights owned by or licensed
to us may 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 the Company could have a material
adverse effect on us.
PATENT PROTECTION IN THE BIOTECHNOLOGY FIELD IS HIGHLY UNCERTAIN.
In general, the patent position of biotechnology and medical product firms
is highly uncertain, still evolving and involves complex legal, scientific and
factual questions. We are at risk that:
- other patents may be granted with respect to the patent applications
filed by us.
- any patents issued or licensed to us will provide commercial benefit
to us or will not be infringed, invalidated or circumvented by others.
The United States Patent and Trademark Office currently has a significant
backlog of patent applications, and the approval or rejection of patents may
take several years. Prior to actual issuance, the contents of United States
patent applications are generally not made public. Once issued, such a patent
would constitute prior art from its filing date, which might predate the date of
a patent application on which we rely. Conceivably, the issuance of such a prior
art patent, or the discovery of "prior art" of which we are currently unaware,
could invalidate a patent of ours or our licensor or prevent commercialization
of a product claimed therby.
We generally conduct a cursory review of issued patents prior to engaging
in research or development activities. Accordingly, we may be required to obtain
a license from others to commercialize any of our products under development.
There can be no assurance that any such license that may be required could be
obtained on favorable terms or at all.
In addition, if patents that cover our existing activities are issued to
other companies, there can be no assurance that we 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 us. In addition, we may be required to obtain a
license under one or more patents prior to commercializing any new products
developed. Such a license may not be available, or if available, the terms may
not be commercially acceptable to the Company.
There can be no assurance that we will not be required to resort to
litigation to protect our patented technologies or other proprietary rights or
that we will not be the subject of additional patent litigation to defend our
existing or proposed products or processes against claims of patent infringement
or other intellectual property claims. Any of such litigation could result in
substantial costs and diversion of resources.
We also have 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 us may differ from that of their
foreign counterparts.
We may decide for business reasons to retain certain knowledge that we
consider proprietary as confidential and elect to protect such information as a
trade secret, as business confidential information or as know-how. In that
event, we must rely upon trade secrets, know-how and continuing technological
innovation to maintain our 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 our trade secrets could have a material
adverse effect on our financial condition and results of operations.
22
<PAGE>
OUR PRODUCT LIABILITY INSURANCE MAY BE INADEQUATE.
Our business exposes us to potential product liability risks which are
inherent in the testing, manufacturing and marketing of medical products.
Although we have product liability insurance coverage with an aggregate limit of
$8.0 million and a per occurrence limit of $6.0 million, there can be no
assurance that such insurance will provide adequate coverage against potential
liabilities, 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 we
are able to acquire could have a material adverse effect on our business,
financial condition and results of operations. We use donated human skin as the
raw material for our acellular tissue products. 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. Our manufacturing process also has been
demonstrated to inactivate concentrated suspensions of HIV in tissue. While we
believe such procedures are adequate to reduce the threat of disease
transmission, there can be no assurance that our products will not be associated
with transmission of disease or that a patient otherwise infected with disease
would not erroneously assert a claim that the use of our acellular tissue
products resulted in the disease transmission. Any such transmission or alleged
transmission could have a material adverse effect on our ability to manufacture
or market our products or could otherwise have a material adverse effect on our
financial condition or results of operations.
WE ARE LIMITED ON THE USE OF OUR NET OPERATING LOSSES AND RESEARCH AND
DEVELOPMENT TAX CREDITS.
As of December 31 1999, we had accumulated net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $48.5 million and
research and development tax credits of approximately $533,000 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 our
common stock in a public offering completed in December 1997 resulted in an
ownership change for federal income tax purposes. We estimate that the amount
of its NOL carryforwards and the credits available to offset taxable income as
of December 31, 1999 is approximately $22 million on a cumulative basis.
Accordingly, if we generate taxable income in any year in excess of the then
cumulative limitation, we may be required to pay federal income taxes even
though we have unexpired NOL carryforwards.
WE ARE SUBJECT TO EXTENSIVE REGULATION REGARDING DISPOSAL OF HAZARDOUS
MATERIALS.
Our research and development and processing techniques generate waste that
is classified as hazardous by the United States Environmental Protection Agency,
the Texas Natural Resources Commission and the New Jersey Natural Resources
Commission. We segregate such waste and dispose of it through licensed
hazardous waste transporters. Although we believe we are currently in
compliance in all material respects with applicable environmental regulations,
our 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 our financial condition and results of operations.
ITEM 2. PROPERTIES
We lease approximately 60,000 square feet of laboratory, production and
office space in Branchburg, New Jersey. In addition we lease 27,000 square feet
of laboratory, office and warehouse facilities in The Woodlands, Texas, under
lease agreements that expire in January 2001. We are currently in the process
of shutting down The Woodlands facility and consolidating operations in the
newly completed Branchburg facility. Our monthly rental obligation for
facilities is approximately $58,000.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our Common Stock is listed on the Nasdaq National Market under the symbol
"LIFC." On March 22, 2000, the last reported sale price for the Company's
Common Stock on The Nasdaq National Market was $8.13 per share. The following
table sets forth the high and low sales information for our Common Stock for the
periods indicated, as reported by The Nasdaq Stock Market.
<TABLE>
<CAPTION>
High Low
<C> <S> <C> <C>
1998 First Quarter $5.19 $4.50
Second Quarter 8.03 5.03
Third Quarter 6.50 3.75
Fourth Quarter 5.50 3.31
1999 First Quarter $4.63 $3.38
Second Quarter 5.50 3.81
Third Quarter 7.25 4.00
Fourth Quarter 6.94 4.19
</TABLE>
As of February 29, 2000, there were approximately 362 holders of record of
shares of Common Stock and 30 holders of record of shares of Series B Preferred
Stock. We estimate that there are in excess of 4,000 beneficial holders of
Common Stock.
In March 1999, we issued 108,577 shares of Common Stock for consideration
of $1 million to Boston Scientific as part of the agreement signed in March
1999. In November 1999, we issued 925,000 shares of Common Stock pursuant to a
private placement transaction. None of such issuances involved underwriters.
We consider these securities to have been offered and sold in transactions not
involving a public offering and, therefore, to be exempted from registration
under Section 4(2) of the Securities Act of 1933, as amended.
DIVIDEND POLICY
We have not paid a cash dividend to holders of shares of Common Stock and
do not anticipate paying cash dividends to the holders of our Common Stock in
the foreseeable future
On February 17, 1998, May 15, 1998, August 15, 1998, and November 15, 1998,
the Company paid a per share dividend in shares of its Series B Preferred Stock
equivalent to $1.51, $1.48, $1.50 and $1.51, respectively, to the holders of
shares of Series B Preferred Stock. On February 15, 1999, May 15, 1999, August
15, 1999 and November 15, 1999, and February 15, 2000, the Company paid a $1.51,
$1.48, $1.50, $1.51, and $1.51, respectively, per share dividend in cash 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 on the Series B Preferred Stock accrue and are paid quarterly.
The Series B Preferred Stock ceases bearing dividends on September 30, 2001.
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.
24
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data of LifeCell
for each of the years in the five-year period ended December 31, 1999, derived
from the Company's audited financial statements. This information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements and notes
thereto included elsewhere in this Annual Report on Form
10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1996 1997 1998 1999
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Operations Statement Data:
- ------------------------------
Revenues:
Product sales . . . . . . . $ 742,238 $ 2,012,205 $ 4,904,971 $ 7,245,102 $ 11,911,497
Research funded by others . 1,064,337 933,365 1,074,954 746,789 764,322
------------- ------------- ------------- ------------- -------------
Total revenues . . . . . . 1,806,575 2,945,570 5,979,925 7,991,891 12,675,819
------------- ------------- ------------- ------------- -------------
Costs and expenses:
Cost of goods sold . . . . . 925,174 1,281,353 2,540,644 2,837,037 3,452,329
Research and development . . 2,169,764 1,588,186 2,007,062 3,375,545 3,871,062
General and administrative . 1,422,588 1,911,254 3,081,512 3,484,460 4,839,536
Selling and marketing. . . . 1,475,296 2,389,573 4,955,597 6,500,000 7,236,022
Relocation costs . . . . . . -- -- -- -- 2,936,645
------------- ------------- ------------- ------------- -------------
Total costs and expenses . 5,992,822 7,170,366 12,584,815 16,197,042 22,335,594
------------- ------------- ------------- ------------- -------------
Loss from operations . . . . . (4,186,247) (4,224,796) (6,604,890) (8,205,151) (9,659,775)
Interest income and other, net 280,843 135,082 466,255 863,837 467,579
------------- ------------- ------------- ------------- -------------
Net loss . . . . . . . . . . . $ (3,905,404) $ (4,089,714) $ (6,138,635) $ (7,341,314) $ (9,192,196)
Loss per share(1)-basic and
diluted. . . . . . . . . . . $ (1.10) $ (1.14) $ (1.04) $ (0.72) $ (0.83)
Shares used in computing loss
per share-basic and diluted 4,313,366 4,542,519 6,820,122 11,228,912 11,937,532
============= ============= ============= ============= =============
As of December 31,
1995 1996 1997 1998 1999
------------- ------------- ------------- ------------- -------------
Balance Sheet Data:
- ------------------------------
Cash and cash equivalents. . . $ 3,015,332 $ 10,748,250 $ 20,781,026 $ 8,025,415 $ 4,736,877
Short-term investments . . . . - - - 4,000,745 315,244
Working capital . . . . . . . 2,888,048 10,884,779 20,515,559 12,596,612 2,541,469
Total assets . . . . . . . . . 4,376,039 12,890,015 24,155,598 17,030,699 18,083,431
Accumulated deficit. . . . . . (24,774,753) (29,310,934) (36,411,480) (44,475,992) (54,378,000)
Total stockholders' equity . . 2,093,906 10,197,104 20,259,603 14,260,638 9,248,381
<FN>
(1) Includes effect of accounting treatment of preferred stock and warrants of $0.19, $0.24, $0.14,
$0.07 and $0.07 in 1995, 1996, 1997, 1998 and 1999, respectively.
</TABLE>
25
<PAGE>
ITEM 7. 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 Annual Report on Form 10-K.
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 "Business-Special Note Regarding Forward-Looking
Statements."
GENERAL AND BACKGROUND
LifeCell Corporation is a bioengineering company engaged in the development
and commercialization of tissue regeneration and cell preservation products. Our
core preservation technology produces an acellular tissue matrix, which retains
the essential biochemical and structural components necessary for normal tissue
regeneration. We currently market three products based on this technology:
AlloDerm(R) for the reconstructive plastic, burn and dental markets; Cymetra(TM)
a micronized version of AlloDerm for the reconstructive plastic and dermatology
markets; and Repliform(R) acellular tissue for the urology and gynecology
market. We believe that our products are the only commercially available tissue
transplant products that provide a complete template for the regeneration of
normal human soft tissue. We estimate that AlloDerm has been transplanted in
more than 50,000 patients. We also are developing several additional products,
including small diameter vascular grafts as an alternative to autografted blood
vessels, orthopedic applications of our acellular tissue matrix, and
ThromboSol(TM) a formulation for extended storage of platelets.
We were incorporated in the State of Delaware in 1992 as the successor to a
Delaware corporation that was incorporated in 1986.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
The net loss for the year ended December 31, 1999, increased 26% to
approximately $9.2 million compared to approximately $7.3 million for 1998. The
increase was principally attributable to higher costs associated with the
Company's increased marketing activities for its AlloDerm products, increased
investment in the Company's product development programs, increased expenditures
for the infrastructure to support these activities and relocation costs related
to the Company's move to New Jersey. The increase in net loss was offset
partially by increased product sales.
Total revenues for the year ended December 31, 1999, increased 59% to
approximately $12.7 million compared to approximately $8.0 million for 1998. An
approximately $4.7 million increase in sales of products was the result of
expanded sales and marketing activities and increased distribution activities
during 1999. Amounts recognized as revenues under such cost-reimbursement
arrangements are for expenses incurred during the respective periods. Cost of
goods sold for the year ended December 31, 1999, was approximately $3.5 million,
resulting in a gross margin of approximately 71%. The gross margin for the year
ended December 31, 1998, was approximately 61%. The increase in gross margin was
principally attributable to an increase in sales of certain higher-margin
AlloDerm products and an increase in the price of certain AlloDerm products in
1999.
Research and development expenses for the year ended December 31, 1999,
increased 15% to approximately $3.9 million compared to approximately $3.4
million for 1998. The increase in research and development expense was primarily
attributable to increased animal and clinical studies for the expanding uses for
AlloDerm . In addition, the Company dedicated increased resources to product
development programs such as Micronized AlloDerm(TM).
General and administrative expenses for the year ended December 31, 1999,
increased 39% to approximately $4.8 million compared to approximately $3.5
million for 1998. The increase was attributable to recruiting and staffing costs
incurred in connection with the recruitment of new key members of senior
management and professional fees incurred in relation to a distribution
agreement entered into during 1999.
26
<PAGE>
Selling and marketing expenses increased 11% to $7.2 million for the year
ended December 31, 1999, compared to approximately $6.5 million for 1998. The
increase was primarily attributable to the addition of domestic sales and
marketing personnel and the expansion of marketing activities during 1999.
Relocation expenses for the year ended December 31, 1999 were $2.9 million.
These costs related to the relocation of the Company's operations from The
Woodlands, Texas to Branchburg, New Jersey and included a non-cash charge to
abandon assets related to the Company's Texas facility, costs of non-relocating
employee retention benefits and the costs of relocating key employees and
transporting certain assets to New Jersey.
Interest income and other, net decreased 46% to approximately $468,000 for
the year ended December 31, 1999, compared to approximately $864,000 for 1998.
The decrease was principally attributable to a reduction of funds available for
investing activities during 1999.
YEARS ENDED DECEMBER 31, 1998 AND 1997
The net loss for the year ended December 31, 1998, increased 20% to
approximately $7.3 million compared to approximately $6.1 million for 1997. The
increase was principally attributable to higher costs associated with the
Company's increased marketing activities for its AlloDerm products, increased
investment in the Company's product development programs, increased expenditures
for the infrastructure to support these activities and severance costs related
to changes in executive management. The increase in net loss was offset
partially by increased product sales, as well as higher interest income from
investments.
Total revenues for the year ended December 31, 1998, increased 34% to
approximately $8.0 million compared to approximately $6.0 million for 1997. An
approximately $2.4 million increase in sales of products was the result of
expanded sales and marketing activities, and increased distribution activities
during 1998. This increase was offset in part by an approximately $328,000
decrease in revenues from funded research and development. The research and
development funding available to the Company through grants and alliances was
lower during 1998 than in 1997. Amounts recognized as revenues under such
cost-reimbursement arrangements are for expenses incurred during the periods.
Cost of goods sold for the year ended December 31, 1998, was approximately $2.8
million, resulting in a gross margin of approximately 61%. The gross margin for
the year ended December 31, 1997, was approximately 48%. The increase in gross
margin was principally attributable to the implementation of certain production
efficiencies, the allocation of fixed costs to higher volumes of products, an
increase in sales of certain higher-margin AlloDerm products and an increase in
the price of certain AlloDerm products in 1998.
Research and development expenses for the year ended December 31, 1998,
increased 68% to approximately $3.4 million compared to approximately $2.0
million for 1997. The increase in research and development expense was primarily
attributable to increased animal and clinical studies for the expanding uses for
AlloDerm. In addition, the Company dedicated increased resources to product
development programs such as Micronized AlloDerm .
General and administrative expenses for the year ended December 31, 1998,
increased 13% to approximately $3.5 million compared to approximately $3.1
million for 1997. The increase was primarily attributable to severance costs
related to a change in executive management.
Selling and marketing expenses increased 31% to $6.5 million for the year
ended December 31, 1998, compared to approximately $5.0 million for 1997. The
increase was primarily attributable to the addition of domestic sales and
marketing personnel, expansion of marketing activities as well as severance
costs related to changes in executive marketing personnel.
Interest income and other, net increased 85% to approximately $864,000 for
the year ended December 31, 1998, compared to approximately $466,000 for 1997.
The increase was principally attributable to higher funds available for
investment during the current period as a result of the $16.0 million net
proceeds received from the public offering of Common Stock in December 1997.
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, LifeCell's principal sources of funds have been equity
offerings, debt, 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
December 1996, LifeCell was awarded a two-year contract of approximately $1.1
million from the United States Army to support the development of vascular graft
and other products. In June 1998, LifeCell was awarded a $600,000 contract from
the United States Navy related to the development and clinical research of
ThromboSol . In September and November 1999, LifeCell was awarded two contracts
from the United States Navy related to the preservation of human platelets. Such
grants total approximately $1.2 million.
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 discretion, to fund certain costs
of the research and development of LifeCell's proprietary tissue processing
technology in the field of heart valves. Through December 31, 1998, LifeCell had
recognized approximately $2.0 million in revenues for development funding,
excluding the initial license fee, for this program. In December 1998, LifeCell
and Medtronic mutually agreed to terminate their early stage license and
development agreement related to heart valves in order to focus on near-term
opportunities. LifeCell regained all rights to its cardiovascular technology. As
a result of terminating the agreement, the $1.5 million up-front licensing fee
paid by Medtronic to LifeCell in 1994 converted into 310,771 shares of Common
Stock.
In December 1997, LifeCell received net proceeds of approximately $16.0
million pursuant to a public offering of 4 million shares of Common Stock.
In March 1999, the Company received net proceeds of approximately $900,000
from the sale of 108,577 shares of the Company's Common Stock to Boston
Scientific in connection with the agreement for worldwide marketing and
distribution of its proprietary acellular tissue matrix for applications in
urology and gynecology.
In November 1999, LifeCell received net proceeds of approximately $3.6
million pursuant to a private placement of 925,000 shares of Common Stock. Also,
in December 1999, the Company closed on a debt financing of approximately $6.0
million. As of December 31, 1999, the Company has drawn down $3.0 million of
this facility.
In February 2000, the company drew-down an additional $2.5 million on the
debt facility.
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. While the Company
believes that its existing available funds will be sufficient to meet its
present operating and capital requirements through 2000, 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 2000 and 2001, 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 its inception and therefore has not been
subject to federal income taxes. As of December 31, 1999, LifeCell had net
operating loss ("NOL") and research and development tax credit carryforwards for
income tax purposes of approximately $48.5 million and $533,000, 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 Company's sale of Common Stock in the
1997 public offering resulted 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 $22 million 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.
28
<PAGE>
YEAR 2000 COMPLIANCE
The Year 2000 issues related to the possibility that computer programs and
embedded computer chips might be unable to accurately process data with year
dates of 2000 and beyond.
Prior to December 31, 1999, LifeCell made the necessary revisions or
upgrades to its systems to render them year 2000 compliant. Subsequent to
December 31, 1999, the Company experienced no significant events, nor received
any significant reports indicating any material year 2000 issues. The costs
incurred in 1999 to address potential year 2000 issues were not material. We are
unaware of any uncorrected problems regarding the year 2000 issue at this time,
but will continue to monitor for any potential problems throughout 2000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to certain market risks associated with interest
rates. The Company's revolving loan and term loan borrowings bear interest at
variable rates and therefore, changes in U.S interest rates, affect interest
expense incurred thereon. Based on debt outstanding at December 31, 1999, a 10%
increase in variable interest rates would not have a material adverse effect on
the Company's future operations or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information required
to be filed under this Item are presented commencing on page F-1 of the Annual
Report on Form 10-K, and are incorporated herein by reference.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item will be set forth in the Registrant's
Proxy Statement relating to the annual meeting of the Registrant's stockholders
scheduled to be held June 2, 2000, under the captions "Election of Directors"
and "Executive Compensation," and such information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be set forth in the Registrant's
Proxy Statement relating to the annual meeting of the Registrant's stockholders
scheduled to be held June 2, 2000, under the caption "Executive Compensation,"
and such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be set forth in the Registrant's
Proxy Statement relating to the annual meeting of the Registrant's stockholders
scheduled to be held June 2, 2000, under the caption "Security Ownership of
Certain Beneficial Owners and Management," and such information is incorporated
herein by reference.
29
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be set forth in the Registrant's
Proxy Statement relating to the annual meeting of the Registrant's stockholders
scheduled to be held June 2, 2000, under the caption "Certain Relationships and
Related Transactions," and such information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS INCLUDED IN THIS REPORT:
<TABLE>
<CAPTION>
1. FINANCIAL STATEMENTS PAGE
----
<S> <C> <C>
Report of Independent Public Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Balance Sheets as of December 31, 1998 and 1999 . . . . . . . . . . . . . . . . . . . . . . F-2
Statements of Operations for the years ended December 31, 1997, 1998 and 1999 . . . . . . . F-3
Statements of Stockholders' Equity for the years ended December 31, 1997, 1998 and 1999 . . F-4
Statements of Cash Flows for the years ended December 31, 1997, 1998 and 1999 . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
All other schedules are omitted because they are not applicable, not
required, or because the required information is contained in the Company's
financial statements and the notes thereto.
(B) REPORTS ON FORM 8-K:
During the quarter ended December 31, 1999, the Company filed (i) on
November 30, 1999, a Current Report on Form 8-K dated as of November 22,
1999, to report the private placement of equity securities of the Company.
<TABLE>
<CAPTION>
EXHIBITS:
<S> <C>
Exhibits designated by the symbol * are filed with this Annual Report on Form 10-K. All exhibits not so
designated are incorporated by reference to a prior filing as indicated.
Exhibits designated by the symbol + are management contracts or compensatory plans or arrangements that are
required to be filed with this report pursuant to this Item 14.
LifeCell undertakes to furnish to any stockholder so requesting a copy of any of the following exhibits upon
payment to the Company of the reasonable costs incurred by Company in furnishing any such exhibit.
3.1 Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the period ended June 30, 1998, filed with the Securities and
Exchange Commission ("the Commission") on August 10, 1998).
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, filed with the Commission on August 14, 1996.)
10.1+ LifeCell Corporation 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, 1998,
filed with the Commission on August 10, 1998).
10.2+ 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).
30
<PAGE>
10.3 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).
10.4 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).
10.5 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).
10.6 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).
10.7 Voting Agreement dated November 18, 1996, as amended as of April 15, 1999 among LifeCell
Corporation and certain stockholders named therein (incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q filed with the Commission on May 17, 1999).
10.8 Registration Rights Agreement dated November 18, 1996, between LifeCell Corporation and certain
stockholders named therein (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996).
10.9 Form of Stock Purchase Warrant dated November 18, 1996, issued to each of the warrant holders
named on Schedule 10.18 attached thereto (incorporated by reference to Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996).
10.10 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).
10.11+ Agreement dated August 19, 1998, between LifeCell Corporation and Paul M. Frison (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 30,
1998 filed with the Commission on November 13, 1998).
10.12+ Agreement dated July 1, 1997, between LifeCell Corporation and Stephen A. Livesey. (incorporated by
reference to Exhibit 10.20 to the Company's Registration Statement No. 333-37123 on Form S-2 filed with the
Commission on October 3, 1997).
10.13+ Agreement dated October 5, 1998 between LifeCell Corporation and Paul G. Thomas (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed with the Commission on
November 13, 1998.)
10.14+ Letter agreement dated September 8, 1998 between LifeCell Corporation and Paul G. Thomas, as amended by
letter agreements dated September 9, 1998 and September 29, 1998 (incorporated by reference to Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q filed with the Commission on November 13, 1998.)
10.15 Lease Agreement by and between Maurice M. Weill, Trustee for Branchburg Property and LifeCell
Corporation dated June 17, 1999 (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report
on Form 10-Q filed with the Commisssion on November 15, 1999)
10.16 Stock Purchase Warrant dated November 17, 1999, issued to The Tail Wind Fund, Ltd (incorporated by
reference to Exhibit 4.4 to the Company's Registration Statement on Form S-3 (Registration No. 333-94715)
filed with the Commission on January 14, 2000.)
31
<PAGE>
10.17* Loan Agreement dated December 6, 1999 between LifeCell Corporation and Transamerica Business
Credit Corporation.
10.18* Stock Purchase and Registration Rights Agreements dated November 17, 1999 between LifeCell
Corporation and The Tail Wind Fund, Ltd.
23.1* Consent of Arthur Andersen LLP.
27.1* Financial data schedule.
</TABLE>
32
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LIFECELL CORPORATION
(Registrant)
By: /s/ Paul G. Thomas
------------------------
Paul G. Thomas, President, Chief
Executive Officer and Chairman
of the Board of Directors
Dated: March 24, 2000.
In accordance with the Securities Exchange Act of 1934, this report has
been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------ ----------------------------------------------- --------------
<C> <S> <C>
/s/ Paul G. Thomas President and Chief Executive March 24, 2000
- ------------------------ Officer (Principal Executive Officer)
(Paul G. Thomas)
/s/ Fenel M. Eloi Sr. Vice President and Chief Financial Officer March 24, 2000
- ------------------------ (Principal Financial Officer)
(Fenel M. Eloi)
/s/ David B. Platt Controller March 24, 2000
- ------------------------ (Principal Accounting Officer)
(David B. Platt)
/s/ Michael E. Cahr Director March 24, 2000
- ------------------------
(Michael E. Cahr)
/s/ Peter D. Costantino Director March 24, 2000
- ------------------------
(Peter D. Costantino)
/s/ James G. Foster Director March 24, 2000
- ------------------------
(James G. Foster)
/s/ Stephen A. Livesey Director March 24, 2000
- ------------------------
(Stephen A. Livesey)
/s/ K. Flynn McDonald Director March 24, 2000
- ------------------------
(K. Flynn McDonald)
/s/ David A. Thompson Director March 24, 2000
- ------------------------
(David A. Thompson)
</TABLE>
33
<PAGE>
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, 1998 and 1999, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. 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, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
February 9, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
LIFECELL CORPORATION
BALANCE SHEETS
DECEMBER 31,
-----------------------------
1998 1999
-------------- -------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 8,025,415 $ 4,736,877
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . 4,000,745 315,244
Accounts and other receivables, net of allowance for doubtful accounts
$5,915 and $174,578, respectively . . . . . . . . . . . . . . . . . . 1,383,920 2,557,337
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,749,023 3,202,271
Prepayments and other . . . . . . . . . . . . . . . . . . . . . . . . . 207,570 159,664
-------------- -------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . 15,366,673 10,971,393
Fixed assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,388,339 6,547,863
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,687 564,175
-------------- -------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,030,699 $ 18,083,431
============== =============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 704,938 $ 741,375
Accrued liablities. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,065,123 4,896,090
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,792,459
-------------- -------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 2,770,061 8,429,924
-------------- -------------
Deferred Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 405,126
-------------- -------------
Commitments and Contingencies (Note 12)
Stockholders' Equity
Series B preferred stock, $.001 par value, 182,205 shares
authorized, 119,084 and 118,016 issued and outstanding (liquidation
preference at December 31, 1999 of $11,801,600) . . . . . . . . . . . 119 118
Undesignated preferred stock, $.001 par value 1,817,795
shares authorized, none issued and outstanding . . . . . . . . . . . . -- --
Common stock, $.001 par value, 48,000,000 shares
authorized, respectively, 11,611,852 and 12,899,643 shares issued and
outstanding, respectively . . . . . . . . . . . . . . . . . . . . . . . 11,612 12,900
Warrants outstanding to purchase 3,182,188 and 3,466,399
shares of common stock, respectively. . . . . . . . . . . . . . . . . . 298,344 887,812
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 58,426,555 62,725,551
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . (44,475,992) (54,378,000)
-------------- -------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . 14,260,638 9,248,381
-------------- -------------
Total liabilities and stockholders' equity. . . . . . . . . . . . . . $ 17,030,699 $ 18,083,431
============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
LIFECELL CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Product sales . . . . . . . . . . . . . $ 4,904,971 $ 7,245,102 $11,911,497
Research funded by others. . . . . . . . 1,074,954 746,789 764,322
------------ ------------ ------------
Total revenues . . . . . . . . . . . . 5,979,925 7,991,891 12,675,819
------------ ------------ ------------
Costs and Expenses:
Cost of goods sold . . . . . . . . . . . 2,540,644 2,837,037 3,452,329
Research and development . . . . . . . . 2,007,062 3,375,545 3,871,062
General and administrative . . . . . . . 3,081,512 3,484,460 4,839,536
Selling and marketing. . . . . . . . . . 4,955,597 6,500,000 7,236,022
Relocation costs . . . . . . . . . . . . -- -- 2,936,645
------------ ------------ ------------
Total costs and expenses . . . . . . . 12,584,815 16,197,042 22,335,594
------------ ------------ ------------
Loss From Operations . . . . . . . . . . . (6,604,890) (8,205,151) (9,659,775)
Interest income and other, net . . . . . 466,255 863,837 467,579
------------ ------------ ------------
Net Loss . . . . . . . . . . . . . . . . . (6,138,635) (7,341,314) (9,192,196)
Preferred Stock Dividends. . . . . . . . . (961,911) (723,198) (709,812)
------------ ------------ ------------
Net Loss Applicable to Common Stockholders $(7,100,546) $(8,064,512) $(9,902,008)
============ ============ ============
Loss Per Common Share-Basic and Diluted. . $ (1.04) $ (0.72) $ (0.83)
============ ============ ============
Shares Used in Computing Loss Per
Common Share-Basic and Diluted . . . . 6,820,122 11,228,912 11,937,532
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
LIFECELL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
----------------------- ------------------ -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 . . . . . . . . . 260,000 $ 5,291,473 124,157 $ 126 4,899,944 $ 4,900
Stock options exercised . . . . . . . . . . . -- -- -- -- 47,987 48
Warrants exercised . . . . . . . . . . . . . -- -- -- -- 76,813 77
Expiration of warrants . . . . . . . . . . . -- -- -- -- -- --
Redemption of Series A preferred stock. . . . (260,000) (5,200,000) -- -- 1,739,128 1,739
Conversion of Series B preferred stock. . . . -- -- (6,688) (7) 215,729 216
Common stock and cash issued as dividends . .
on Series A preferred stock . . . . . . . . -- (195,000) -- -- 33,305 33
Common stock sold in public offering. . . . . -- -- -- -- 4,000,000 4,000
Stock options issued for services . . . . . . -- -- -- -- -- --
Series B preferred stock issued as. . . . . .
dividends on Series B preferred stock . . . -- -- 7,972 6 -- --
Dividends accrued on Series B preferred stock -- 103,527 -- -- --
Net Loss -- -- -- -- -- --
--------- ------------ -------- -------- ---------- -------
Balance at December 31, 1997 . . . . . . . . . -- -- 125,441 125 11,012,906 11,013
Stock options exercised . . . . . . . . . . . -- -- -- -- 12,550 13
Warrants exercised . . . . . . . . . . . . . -- -- -- -- 4,965 5
Expiration of warrants. . . . . . . . . . . . -- -- -- -- -- --
Warrants issued to purchase Common Stock. . . -- -- -- -- -- --
Conversion of Series B preferred stock. . . . -- -- (6,357) (6) 205,060 205
Common stock issued for cash, and . . . . . . -- -- -- -- 376,371 376
conversion of license fee
Stock options issued for services . . . . . . -- -- -- -- -- --
Dividends paid on Series B preferred stock. . -- -- -- -- -- --
Dividends accrued on Series B preferred stock -- -- -- -- -- --
Net Loss -- -- -- -- -- --
--------- ------------ -------- -------- ---------- -------
Balance at December 31, 1998. . . . . . . . . . -- -- 119,084 119 11,611,852 11,612
Stock options exercised . . . . . . . . . . . -- -- -- -- 219,764 220
Warants issued to purchase Common Stock . . . -- -- -- -- -- --
Conversion of Series B preferred stock . . . -- -- (1,068) (1) 34,450 34
Common stock issued for cash. . . . . . . . . -- -- -- -- 1,033,577 1,034
Dividends paid on Series B preferred stock. . -- -- -- -- -- --
Dividends accrued on Series B preferred stock -- -- -- -- -- --
Net Loss . . . . . . . . . . . . . . . . . . -- -- -- -- -- --
--------- ------------ -------- -------- ---------- -------
Balance at December 31, 1999. . . . . . . . . . -- $ -- 118,016 $ 118 12,899,643 $12,900
========= ============ ======== ======== ========== =======
</TABLE>
(continued)
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
LIFECELL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY-(CONTINUED)
WARRANTS TO PURCHASE
COMMON STOCK ADDITIONAL TOTAL
---------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 . . . . . . . . . 3,378,264 $ 423,218 $33,788,321 $(29,310,934) $10,197,104
Stock options exercised . . . . . . . . . . -- -- 128,719 -- 128,767
Warrants exercised . . . . . . . . . . . . . (89,786) (123,738) 432,527 -- 308,866
Expiration of warrants. . . . . . . . . . . . (125,000) -- -- -- --
Redemption of Series A preferred stock . . . -- -- 5,198,261 -- --
Conversion of Series B preferred stock. . . . -- -- (209) -- --
Common stock and cash issued as dividends . .
on Series A preferred stock . . . . . . . . -- -- 129,919 -- (65,048)
Common stock sold in public offering. . . . . -- -- 16,018,766 -- 16,022,766
Stock options issued for services . . . . . . -- -- 12,834 -- 12,834
Series B preferred stock issued as . . . . .
dividends on Series B preferred stock . . . -- -- 651,327 (669,749) (18,416)
Dividends accrued on Series B preferred stock -- -- -- (292,162) (188,635)
Net Loss -- -- -- (6,138,635) (6,138,635)
---------- ---------- ------------ ------------- ------------
Balance at December 31, 1997 3,163,478 299,480 56,360,465 (36,411,480) 20,259,603
Stock options exercised -- -- 43,416 -- 43,429
Warrants exercised (11,290) (1,136) 1,125 -- (6)
Expiration of warrants (20,000) -- -- -- --
Warrants issued to purchase common stock 50,000 -- -- -- --
Conversion of Series B preferred stock -- -- (199) -- --
Common stock issued for cash, and
conversion of license fee . . . . . . . . . -- -- 1,999,929 -- 2,000,305
Stock options issued for services -- -- 21,819 -- 21,819
Dividends paid on Series B preferred stock -- -- -- (542,998) (542,998)
Dividends accrued on Series B preferred stock -- -- -- (180,200) (180,200)
Net Loss -- -- -- (7,341,314) (7,341,314)
---------- ---------- ------------ ------------- ------------
Balance at December 31, 1998. 3,182,188 298,344 58,426,555 (44,475,992) 14,260,638
Stock options exercised -- -- 670,035 -- 670,255
Warrants issued to purchase common stock 284,211 589,468 (381,927) -- 207,541
Conversion of Series B preferred stock -- -- (33) -- --
Common stock issued for cash -- -- 4,010,921 -- 4,011,955
Dividends paid on Series B preferred stock -- -- -- (531,300) (531,300)
Dividends accrued on Series B preferred stock -- -- -- (178,512) (178,512)
Net Loss -- -- -- (9,192,196) (9,192,196)
---------- ---------- ------------ ------------- ------------
Balance at December 31, 1999 3,466,399 $ 887,812 $62,725,551 $(54,378,000) $ 9,248,381
========== ========== ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
LIFECELL CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
------------ ------------- ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
- ---------------------------------------------------------
Net Loss $(6,138,635) $ (7,341,314) $(9,192,196)
Adjustments to reconcile net loss to net cash used in
operating activities -
Depreciation and amortization 225,092 495,523 411,321
Provision for bad debt 83,690 5,915 174,578
Stock and warrant compensation expense 12,834 21,819 --
Loss on asset disposals -- -- 334,874
Change in assets and liabilities -
Increase in accounts and other receivables (742,755) (293,931) (1,347,995)
Increase in inventories (96,576) (812,625) (1,453,248)
Increase in prepayments and other (45,446) (109,344) (152,225)
Increase in accounts payable and accrued
liabilities 1,282,357 253,384 2,688,892
Increase (Decrease) in deferred revenues (79,273) (59,519) 405,126
------------ ------------- ------------
Net cash used in operating activities (5,498,712) (7,840,092) (8,130,873)
------------ ------------- ------------
Cash Flows from Investing Activities:
Capital expenditures (597,685) (831,982) (5,885,494)
Additions to patents (59,129) (83,524) (108,582)
Purchase of short-term investments -- (4,000,745) (315,244)
Sales of short-term investments -- -- 4,000,745
------------ ------------- ------------
Net cash used in investing activities (656,814) (4,916,251) (2,308,575)
------------ ------------- ------------
Cash Flows from Financing Activities:
Proceeds from issuance of stock and warrants 16,460,399 543,730 4,682,210
Proceeds from issuance of notes payable -- -- 3,000,000
Dividends paid (272,097) (542,998) (531,300)
------------ ------------- ------------
Net cash provided by financing activities 16,188,302 732 7,150,910
------------ ------------- ------------
Net Increase (Decrease) in Cash and Cash Equivalents 10,032,776 (12,755,611) (3,288,538)
Cash and Cash Equivalents at Beginning of Year 10,748,250 20,781,026 8,025,415
------------ ------------- ------------
Cash and Cash Equivalents at End of Year $20,781,026 $ 8,025,415 $ 4,736,877
============ ============= ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 4,583 $ 1,769 $ --
============ ============= ============
Supplemental Disclosure of Noncash Financing Activities:
Common Stock issued as payment of dividends $ 195,000 $ -- $ --
============ ============= ============
Series B Preferred stock issued as payment of dividends $ 797,200 $ -- $ --
============ ============= ============
Common Stock issued in exchange for deferred credit $ -- $ 1,500,000 $ --
============ ============= ============
Fair value of warrants issued in connection with
Notes payable $ -- $ -- $ 207,541
============ ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
LIFECELL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION:
LifeCell Corporation, a Delaware corporation ("LifeCell" or "the Company"),
is a bioengineering company engaged in the development and commercialization of
tissue regeneration and cell preservation products. The Company was
incorporated on January 6, 1992 for the purpose of merging with its predecessor
entity, which was formed in 1986. LifeCell began commercial sales of its first
product, AlloDerm(R) cellular dermal graft, during 1994. The future operating
results of the Company will be principally dependent on the market acceptance of
its current product, development of and market acceptance of 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.
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. While the Company
believes that its existing available funds will be sufficient to meet its
present operating and capital requirements through 2000, 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 2000 and 2001, 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.
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
with longer maturities 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, 1998 and 1999, the Company held $11,734,522
and $4,736,877 respectively, of interest-bearing money market accounts and A1/P1
commercial paper which were classified as "hold to maturity" securities. The
carrying basis of these investments approximated fair value and amortized cost.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out (FIFO) basis.
Fixed Assets
Fixed Assets 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 improvements 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.
F-7
<PAGE>
Accounts Receivable
As of December 31, 1997, 1998 and 1999, the allowance for doubtful accounts
was $83,690, $5,915 and $174,578 respectively. In 1997, 1998 and 1999,
approximately $83,690, $5,915 and $168,663 of write-offs were charged to this
allowance in each of the respective years . During 1998, $83,690 was deducted
from this allowance.
Revenue Recognition
Product sales are recognized as revenue when the product is shipped to fill
customer orders. Revenues from research funded by others 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 Expense
Research and development costs are expensed when incurred. The Company
performs research funded by others, as well as its own independent proprietary
research, development and clinical testing of its products.
Loss Per Common Share
Loss per Common share has been computed by dividing net loss, which has
been increased for periodic accretion and imputed and stated dividends on
outstanding Preferred Stock, by the weighted average number of shares of Common
Stock outstanding during each period. In all applicable years, all Common Stock
equivalents, including the stock options and warrants, Series A Preferred Stock
and the Series B Preferred Stock, were antidilutive and, accordingly, were not
included in the computation.
During 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share,". The implementation of Statement 128
had no effect on the Company's presentation of earnings per share due to the
antidilutive nature of all of the Company's Common Stock equivalents.
Diluted loss per Common share is the same as basic loss per share due to
the antidilutive nature of all of the Company's Common Stock equivalents.
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.
New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). The bulletin draws on existing accounting rules and provides specific
guidance on how those accounting rules should be applied, and specifically
addresses revenue recognition for non-refundable technology access fees in the
biotechnology industry. SAB 101 is effective for fiscal years beginning after
December 15, 1999. The Company is evaluating SAB 101 and the effect it may have
on its financial statements. At this time, the Company believes that SAB 101
will not have a material impact on its financial position or results of
operations.
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:
F-8
<PAGE>
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Raw materials used in production. . . . . . . $ 723,921 $ 1,081,449
Work-in-process . . . . . . . . . . . . . . . 423,839 1,214,619
Finished goods. . . . . . . . . . . . . . . . 601,263 906,203
------------ ------------
Total inventories . . . . . . . . . . . . . $ 1,749,023 $ 3,202,271
4. FIXED ASSETS:
A summary of fixed assets is as follows:
1998 1999
------------ ------------
Machinery and equipment . . . . . . . . . . . $ 1,853,164 $ 2,303,100
Leasehold improvements. . . . . . . . . . . . 465,924 4,966,944
Office furniture and fixtures . . . . . . . . 709,412 869,429
------------ ------------
3,028,500 8,139,473
Accumulated depreciation and amortization . . (1,640,161) (1,591,610)
------------ ------------
Net fixed assets. . . . . . . . . . . . . . $ 1,388,339 $ 6,547,863
5. ACCRUED LIABILITIES:
Accrued liabilities consist of the following:
1998 1999
------------ ------------
Employee compensation and benefits. . . . . . $ 403,633 $ 1,094,382
Operating expenses and other. . . . . . . . . 1,052,701 2,484,123
Relocation costs. . . . . . . . . . . . . . . -- 1,079,362
Severance expense . . . . . . . . . . . . . . 608,789 238,223
------------ ------------
Total accrued liabilities . . . . . . . . . $ 2,065,123 $ 4,896,090
============ ============
</TABLE>
F-9
<PAGE>
6. DEFERRED REVENUE
In March 1999, in conjunction with the signing of a sales and marketing
agreement, the Company issued 108,577 shares of Common Stock at a premium of
154% over the then-prevailing market price. This premium was equal to $506,408
and is being recognized over the 5-year term of the agreement The total equity
investment was valued at $1 million less offering costs of $100,000 (see Note
8).
7. NOTES PAYABLE
On December 6, 1999 the Company entered into a $6 million credit facility
with a financial institution. The loan provides for a revolving portion (the
"Revolving Loan") not to exceed $3 million and a term portion (the "Term Loan")
not to exceed $3 million. The Revolving Loan bears interest at a rate of prime
plus 3% (11.5% at December 31, 1999) with a minimum rate of 9% and matures on
December 30, 2000 with provisions for automatic renewal for additional terms of
one year each. As of December 31, 1999, $3,000,000 was outstanding on the
Revolving Loan. As of December 31, 1999, $15,335 of interest expense has been
accrued on the Revolving Loan. The Term Loan bears interest at a rate of 13.23%
and is payable in 30 equal monthly installments of principal and interest
beginning June 1, 2000 and continuing through and including November 1, 2002. At
December 31, 1999, no amounts were outstanding under the Term Loan. This credit
facility is secured by assets of the Company and the New Jersey Economic
Development Authority Guaranty and the New Jersey Economic Development Authority
Participation. In conjunction with this credit facility, the Company also
issued warrants to purchase 84,211 shares of the Company's Common Stock at a
price of $4.75 per share (see Note 8). The warrants expire on December 6, 2004.
The warrants are valued at $207,541 and is recorded in the balance sheet as a
reduction of debt outstanding. The value of the warrant will be accreted over
the term of the loan agreement as additional interest expense.
8. CAPITAL 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 1997, the Company paid $195,000 in dividends by issuing 33,305 shares of
Common Stock and paying a cash dividend of $65,000.
Pursuant to provisions in the agreement, during February 1997, the Company
called for redemption of 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.
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 (3,807,196 shares of Common Stock at December 31, 1999),
subject to adjustment for dilutive issuances of securities. The Series B
Preferred Stock has a liquidation preference of $100 per share, or $11,801,600
as of December 31, 1999, and shares ratably 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 other series of 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
liquidation 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 two directors to the
Board of Directors of the Company. While the preferred shares are outstanding or
F-10
<PAGE>
any dividends are owned thereon, the Company may not declare or pay cash
dividends on its Common Stock. During 1999, the Company paid cash dividends on
the Series B Preferred Stock of $531,300. The Company has accrued a dividend at
December 31, 1999, of $178,512.
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.
Common Stock
In December 1997, the Company issued 4,000,000 shares of Common Stock in a
public offering at a price of $4.50 per share. The proceeds of the offering
were approximately $16.7 million before deducting offering costs of
approximately $717,000.
During 1997, the Company issued 33,305 shares of Common Stock as payment of
accrued dividends on Series A Preferred Stock.
During 1997, the Company issued 74,786 shares of Common Stock upon exercise
of certain warrants and 2,027 shares of Common Stock upon the net exercise of
warrants to acquire 15,000 shares of Common Stock.
In December 1998, as a result of terminating a license and development
agreement, the $1.5 million up-front licensing fee paid by Medtronic Inc. to
LifeCell in 1994 converted into 310,771 shares of newly issued LifeCell Common
Stock.
During 1998, the Company issued 4,965 shares of Common Stock upon the net
exercise of warrants to acquire 11,290 shares of Common Stock, the Company
issued 65,600 shares of Common Stock to an unaffiliated party in connection with
the settlement of prior litigation and the Company issued 310,771 shares of
Common Stock as a result of the mutually agreed upon termination of the license
and development agreement relating to heart valves.
In March 1999, the Company issued 108,577 shares of Common Stock in
connection with the signing of a distribution agreement at a price of $9.21 per
share which represents a 154% premium over the then-prevailing market price. The
premium is being recognized over the term of the agreement (see Note 6). The
proceeds of this offering were $1,000,000 before deduction offering costs of
approximately $100,000. During November 1999 the Company issued 925,000 shares
of Common Stock in a private placement at a price of $4.20 per share. The
proceeds of the offering were approximately $3.9 million before deducting
offering costs of approximately $267,000.
Options
The Company's Amended and Restated 1992 Stock Option Plan, as amended in
1998 (the "1992 Plan"), provides for the grant of options to purchase up to
2,500,000 shares of Common Stock. Granted options generally become exercisable
over a four year period, 25 percent per year beginning on the first anniversary
of the date of grant. To the extent not exercised, options generally expire on
the tenth anniversary of the date of grant, except for employees who own more
than 10 percent of all the voting shares of the Company, in which event the
expiration date is the fifth anniversary of the date of grant. All options
granted under the plan have exercise prices equal to the fair market value at
the dates of grant.
The Second Amended and Restated 1993 Non-Employee Director Stock Option
Plan, as amended ("Director Plan") was adopted in 1993. A total of 750,000
shares of Common Stock are available for grant under the Director Plan. Upon
amendment of the Director Plan in 1996, options to purchase 50,000 shares of
Common Stock were granted to each then-current non-employee director of the
Company at an exercise price equal to the fair market value of a share of Common
Stock on the date of the Director Plan. Options to purchase 25,000 shares of
Common Stock will be granted to newly elected directors at an exercise price
equal to the fair market value of a share of Common Stock on such election date.
The provisions of the Director Plan provide for an annual grant of an option to
purchase 10,000 shares of Common Stock to each non-employee director. Options
under the Director Plan generally vest one year after date of grant and expire
after 10 years.
F-11
<PAGE>
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
1992
Stock Option Plan Director Plan
-------------------- ------------------
Weighted- Weighted-
Avg. Exercise Avg. Exercise
Options Price($) Options Price($)
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 968,820 3.28 75,000 4.11
Granted. . . . . . . . . . . . 131,050 5.21 70,000 5.10
Exercised. . . . . . . . . . . (47,987) 2.68 -- --
Forfeited. . . . . . . . . . . (14,563) 3.75 -- --
---------- --------
Balance at December 31, 1997 1,037,320 3.54 145,000 4.59
Granted. . . . . . . . . . . . 936,700 5.04 30,000 6.69
Exercised. . . . . . . . . . . (12,550) 3.49 -- --
Forfeited. . . . . . . . . . . (141,767) 5.65 -- --
---------- --------
Balance at December 31, 1998 1,819,703 4.15 175,000 4.95
Granted. . . . . . . . . . . . 695,000 4.09 80,000 4.22
Exercised. . . . . . . . . . . (154,764) 3.05 (65,000) 3.05
Forfeited. . . . . . . . . . . (158,468) 5.21 -- --
---------- --------
Balance at December 31, 1999 2,201,471 4.13 190,000 5.29
========== ========
Exercisable at December 31, 1997 484,427 3.02 100,000 4.05
Exercisable at December 31, 1998 701,528 3.21 145,000 4.59
Exercisable at December 31, 1999 940,958 3.74 110,000 6.07
</TABLE>
At December 31, 1999, 80,767 and 490,000 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, 1999, range from $0.07 to $6.75 and $2.75 to $11.00, respectively.
The weighted average contractual life of options outstanding at December 31,
1999, was 7.91 years for the 1992 Plan and 8.15 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 5.82 years as of December 31, 1999.
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>
1997 1998 1999
------------ ------------ -------------
<S> <C> <C> <C>
Net Loss:
As reported . . . . . . . . . . . . $(6,138,635) $(7,341,314) $ (9,192,196)
Pro forma . . . . . . . . . . . . . $(7,058,879) $(9,103,482) $(11,145,590)
Loss Per Share (Basic and Diluted):
As reported . . . . . . . . . . . . $ (1.04) $ (0.72) $ (0.83)
Pro forma . . . . . . . . . . . . . $ (1.18) $ (0.81) $ (0.99)
</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.
F-12
<PAGE>
Under the provisions of SFAS No. 123, the weighted average fair value of
options granted in 1997, 1998, and 1999 was $4.24, $3.99, and $2.64 per share,
respectively, under the 1992 Plan. The weighted average fair value of options
granted in 1997, 1998, and 1999 was $4.08, $5.33, and $2.76 per share,
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 1997, 1998 and
1999, respectively: a weighted average risk-free interest rate of approximately
4% - 6% percent for all years; no expected dividend yield during the expected
life of the option; expected lives of 5 to 6 years for each grant and expected
volatility between 64 and 64 and 112 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.
Warrants
As of December 31, 1999, warrants to acquire a total of 3,466,399 shares of
Common Stock were outstanding as set forth below.
During 1999, the Company issued warrants to acquire 200,000 shares of
Common Stock in conjunction with the sale of the Company's Common Stock at an
exercise price of $5.46. These warrants expire on the fourth anniversary of the
date of grant. Also, during 1999 the Company issued warrants to acquire 84,211
shares of Common Stock in conjunction with the issuance of notes payable (see
Note 7). These warrants are exercisable at a price of $4.75 per share and expire
on the fifth anniversary of the date of grant
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. As of December 31, 1999, the 1996 warrants to acquire 2,717,454
Shares of Common Stock were outstanding.
Additionally, the Company issued warrants to acquire 354,734 shares of
Common Stock to the placement agent for the Series B Preferred Stock ("Agent
Warrant"). The Agent Warrants are exercisable at an exercise price of $4.50 per
share. The warrants expire 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.
As of December 31, 1999, additional warrants to acquire 110,000 shares of
Common Stock were outstanding with exercise prices ranging from $2.50 to $8.00.
Such warrants expire during periods ranging from April 5, 2000, to February 1,
2001.
9. RELOCATION COSTS:
In June 1999, management approved plans to relocate the Company's
operations from The Woodlands, Texas to Branchburg, New Jersey. Costs charged
to operations during the year ended December 31, 1999 included the cost of
non-relocating employee benefits, a charge to abandon assets related to the
Company's Texas facility and the costs of relocating key employees to New
Jersey. The Company anticipates the relocation to be completed by May 31, 2000.
Costs recorded during the year ended December 31, 1999 classified as
relocation costs in the Statement of Operations are as follows:
F-13
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Non-relocating employee benefits $ 516,381
Asset abandonment costs. . . . . 334,875
Relocation costs . . . . . . . . 2,085,389
----------
Total relocation costs . . . . $2,936,645
==========
</TABLE>
10. EMPLOYEE BENEFIT PLANS:
The Company maintains a retirement savings plan as described in Section
401(k) of the Internal Revenue Code of 1986, as amended. The Company may, at
its discretion, contribute amounts not to exceed each employee's contribution.
During February 1998, February 1999 and February 2000, the Company made total
contributions of $13,088, $21,387, and $22,955 to the plan for a partial
matching of employee contributions during 1997, 1998, and 1999, 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 1997, 1998, and 1999,
the Company contributed $7,631, $13,661, and $13,962, to this plan,
respectively.
11. FEDERAL INCOME TAXES:
The Company has not made any income tax payments since inception. As of
December 31, 1999, the Company has a net operating loss (NOL) carryforward for
federal income tax purposes of approximately $48.5 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
2012. . . . 5,700,000
2018. . . . 8,200,000
2019. . . . 8,600,000
-------------
48,500,000
</TABLE>
Additionally, the Company has approximately $533,000 of research and
development tax credit carryforwards which will expire in varying amounts
commencing in 2001. 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 public offering in December 1997 resulted 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 at
December 31, 1999, is approximately $22 million 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.
For financial reporting purposes, a valuation allowance of $16,938,000 has
been recorded as of December 31, 1999, to fully offset the deferred tax asset
related to these carryforwards. The principal components of the deferred tax
asset as of December 31, 1998 and 1999, assuming a 34% federal tax rate, are as
follows:
F-14
<PAGE>
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
Temporary differences:
Deferred revenue. . . . . . . . . . . . . . . . . . . . $ -- $ 138,000
Restricted stock compensation . . . . . . . . . . . . . -- --
Uniform capitalization of inventory costs . . . . . . . 70,000 147,000
Other items . . . . . . . . . . . . . . . . . . . . . . 16,000 140,000
------------- -------------
Total temporary differences . . . . . . . . . . . . . . 86,000 425,000
Federal tax losses and credits not currently utilizable 14,301,000 16,513,000
------------- -------------
Total deferred tax assets 14,387,000 16,938,000
Less valuation allowance. . . . . . . . . . . . . . . . (14,387,000) (16,938,000)
------------- -------------
Net deferred tax asset . . . . . . . . . . . . . . . . . $ -- $ --
============= =============
</TABLE>
The net increase in the deferred tax valuation allowance for 1998 and 1999
was $2,561,000, and $2,551,000 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
1997, 1998 and 1999.
12. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is subject to numerous risks and uncertainties and from time to
time may be subject to various claims in the ordinary course of its operations.
The Company maintains insurance coverage for events and in amounts that it deems
appropriate. There can be no assurance that the level of insurance maintained
will be sufficient to cover any claims incurred by the Company or that the type
of claims will be covered by the terms of insurance coverage.
License Agreements
The Company has entered into several license agreements, both exclusive and
nonexclusive in conjunction with its business. The Company is required to pay
royalties on net sales of products encompassing the licensed technologies. For
the years ended December 31, 1997, 1998, and 1999, $141,539, $10,248, and
$17,311 of expenses were incurred under these agreements, respectively.
Leases
The Company leases approximately 85,000 square feet for office and
laboratory space and has various other operating leases. The future minimum
lease payments under noncancelable lease terms in excess of one year as of
December 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
2000. . . . . . . $ 896,944
2001. . . . . . . 573,572
2002. . . . . . . 535,936
2003. . . . . . . 535,936
2004 and beyond 3,490,825
----------
Total . . . . . $6,033,213
==========
</TABLE>
F-15
<PAGE>
13. SEGMENT AND MAJOR CUSTOMER DATA
The Company has principally one business segment related to the sale
of AlloDerm. Product Sales by geographic area are summarized as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
United States $4,401,351 $6,575,206 $11,065,008
Other foreign countries $ 503,620 $ 669,896 $ 846,489
---------- ---------- -----------
Total Product Sales $4,904,971 $7,245,102 $11,911,497
========== ========== ===========
</TABLE>
During 1999 LifeCell had one customer who comprised greater than 10% of the
Company's net product sales. Sales during 1999 to this customer were $1,238,139.
14. SUBSEQUENT EVENT
In February 2000, LifeCell entered into a marketing and distribution rights
agreement with Obagi Medical Products (OMP). Under the terms of the agreement,
OMP will pay a $1 million up-front fee to LifeCell for the licensed marketing
and distribution rights. For its efforts, OMP will receive a co-promotion fee
based upon a percentage of net sales. LifeCell and OMP will jointly oversee the
development and implementation of marketing programs.
F-16
<PAGE>
- --------------------------------------------------------------------------------
TBCC
LOAN AND SECURITY AGREEMENT
BORROWER: LIFECELL CORPORATION,
A DELAWARE CORPORATION
ADDRESS: ONE MILLENIUM WAY
BRANCHBURG, NEW JERSEY 08867
DATE: DECEMBER 6, 1999
THIS LOAN AND SECURITY AGREEMENT is entered into as of the above date, between
the above borrower(s) (jointly and severally, the "Borrower"), having its chief
executive office and principal place of business at the address shown above, and
TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware corporation, ("TBCC")
having its principal office at 9399 West Higgins Road, Suite 600, Rosemont,
Illinois 60018 and having an office at 15260 Ventura Blvd., Suite 1240, Sherman
Oaks, CA 91403. The Schedule to this Agreement (the "Schedule") being signed
concurrently is an integral part of this Agreement. (Definitions of certain
terms used in this Agreement are set forth in Section 9 below.) The parties
agree as follows:
1. Loans.
-----
1.1. Loans. TBCC, subject to the terms and condi-tions of this Agreement,
-----
agrees to make loans (the "Loans") to Borrower, from time to time during the
period from the date of this Agreement to the Maturity Date set forth in the
Schedule, at Borrower's request, in an aggregate principal amount at any one
time outstanding not to exceed the Credit Limit shown on the Schedule (the
"Credit Limit"). If at any time the total outstanding Loans and other monetary
Obligations exceed the Credit Limit, Borrower shall repay the excess immediately
without demand. Borrower shall use the proceeds of all Loans solely for lawful
general business purposes.
1.2. Due Date. The Loans, all accrued interest and all other monetary
---------
Obligations shall be payable in full on the Maturity Date. Borrower may
bor-row, repay and reborrow Loans (other than any Term Loans), in whole or in
part, in accordance with the terms of this Agreement.
1.3. Loan Account. TBCC shall maintain an ac-count on its books in the
-------------
name of Borrower (the "Loan Account"). All Loans and advances made by TBCC to
Borrower or for Borrower's account and all other monetary Obligations will be
Charged to the Loan Account. All amounts received by TBCC from Borrower or for
Borrower's account will be credited to the Loan Account. TBCC will send Borrower
a monthly statement reflecting the activity in the Loan Account, and each such
monthly statement shall be an account stated between Borrower and TBCC and shall
be final, conclusive and binding absent manifest error.
1.4. Collection of Receivables. Subject to the Streamline Agreement of
---------------------------
even date herewith between the Borrower and TBCC, Borrower shall remit to TBCC
all Collections including all checks, drafts and other documents and instruments
evidencing remittances in payment (collectively referred to as "Items of
Payment") within one Business Day after receipt, in the same form as received,
with any necessary indorsements. For purposes of calculating interest due to
TBCC, credit will be given for Collections and all other proceeds of Collateral
and other payments to TBCC three Business Days after receipt of cleared funds.
For all purposes of this Agreement any cleared funds received by TBCC later than
10:00 a.m. (California time) on any Business Day shall be deemed to have been
received on the following Business Day and any applicable interest or fee shall
continue to accrue. Borrower's Loan Account will be credited only with the net
amounts actually received in payment of Receivables, and such payments shall be
credited to the Obligations in such order as TBCC shall determine in its
discretion. Pending delivery to TBCC, Borrower will not commingle any Items of
Payment with any of its other funds or property, but will segregate them from
the other assets of Borrower and will hold them in trust and for the account and
as the property of TBCC. Borrower hereby agrees to endorse any Items of Payment
upon the re-quest of TBCC.
* SUBJECT TO THE STREAMLINE AGREEMENT OF EVEN DATE HEREWITH BETWEEN THE BORROWER
AND TBCC,
-1-
<PAGE>
TBCC LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
1.6. Term of Revolving Loan Facility and Term of Agreement.
--------------------------------------------------------------
(a) Term of Revolving Loan Facility. The period during which Revolving Loans
---------------------------------
(as defined in the Schedule) will be made (the "Revolving Loan Period") shall be
from the date of this Agreement to the Revolving Loan Maturity Date set forth in
the Schedule, unless sooner terminated in accordance with the terms of this
Agreement, provided that the Revolving Loan Maturity Date shall automatically be
extended for successive addi-tional terms of one year each, unless one party
gives written notice to the other, not less than thirty (30)days prior to the
next Revolving Loan Maturity Date, that such party elects to terminate the
Revolving Loan Period effective on the next Revolving Loan Maturity Date. On and
after the Revolving Loan Maturity Date or any earlier termination of this
Agreement, no further Revolving Loans will be made. On the Revolving Loan
Maturity Date or on any earlier termination of this Agreement, Borrower shall
pay in full all outstanding Revolving Loans.
* thirty (30)
(b) Early Termination of Revolving Loan Facility at Borrower's Option. The
-----------------------------------------------------------------
Revolving Loan Period may be termi-nated prior to the Revolving Loan Maturity
Date by Borrower, effective three business days after written notice of
termination is given by Borrower to TBCC.
(c) Term of Agreement. The term of this Agreement shall be from the date
------------------
of this Agreement to the later of the following (the "Maturity Date"): (i) the
termination of the Revolving Loan Period, or (ii) the date the last installment
of principal on the Term Loan is due. On the Maturity Date or on any earlier
termination of this Agreement Borrower shall pay in full all Obligations, and
notwithstanding any termination of this Agreement all of TBCC's security
interests and all of TBCC's other rights and remedies shall continue in full
force and effect until payment and performance in full of all Obligations.
(d) Early Termination of Agreement. This Agreement may be termi-nated
---------------------------------
prior to the Maturity Date as follows: (i) by Borrower, effective three
business days after written notice of termination is given to TBCC; or (ii) by
TBCC at any time after the occurrence of an Event of Default, without notice,
effective immediately.
(e) Termination Fee. If the Revolving Loan Period is termi-nated by
----------------
Borrower under Section 1.6(b), or if this Agreement is termi-nated by Borrower
or by TBCC under Section 1.6(d), then Borrower shall pay to TBCC a termination
fee (the "Termination Fee") in the amount set forth on the Schedule, which
Termination Fee shall be payable on the date of termination.
(f) Payment of Obligations. Notwithstanding anything herein to the contrary,
------------------------
Borrower shall have no right to terminate this Agreement at any time that any
prin-cipal of, or interest on any of the Loans or any other mone-tary
Obligations are outstanding, except upon prepayment of all Obligations and the
satisfaction of all other conditions set forth in the Loan Documents.
1.7. Payment Procedures. Borrower hereby authorizes TBCC to charge the
-------------------
Loan Account with the amount of all interest, fees, expenses and other payments
to be made hereunder and under the other Loan Documents. TBCC may, but shall
not be obligated to, discharge Borrower's payment obligations hereunder by so
charging the Loan Account. Whenever any payment to be made hereunder is due on
a day that is not a Business Day, the payment may be made on the next succeeding
Business Day and such extension of time shall be included in the compu-tation of
the amount of interest due.
1.8. Conditions to Initial Loan. The obligation of TBCC to make the
-----------------------------
initial Loan is subject to the satisfaction of the following conditions prior to
or concurrent with such initial Loan, and Borrower shall cause all such
conditions to be satisfied by the Closing Deadline set forth in the Schedule:
(a) Except for the filing of termination statements under the Code by the
existing lender to Borrower whose loans are being repaid with the Loan proceeds,
no consent or authorization of, filing with or other act by or in respect of any
Governmental Authority or any other Person is required in connection, with the
execution, delivery, performance, validity or enforceability of this Agreement,
or the other Loan Documents or the consummation of the transactions contemplated
hereby or thereby or the continuing operations of the Borrower following the
consummation of such transactions.
(b) TBCC and its counsel shall have performed (i) a review satisfactory to
TBCC of all of the Material Contracts and other assets of the Borrower, the
financial condition of the Borrower, including all of its tax, litigation,
environmental and other potential contingent liabilities, and the corporate and
capital structure of the Borrower and (ii) a pre-closing audit and collateral
review, in each case with results satisfactory to TBCC.
(c) TBCC shall have received the following, each dated the date of the
initial Loan or as of an earlier date acceptable to TBCC, in form and substance
satisfactory to TBCC and its counsel: (i) a Depository Account Agreement (as
TBCC shall designate), duly executed by the Borrower and its bank on TBCC's
standard form; (ii) acknowledgment copies of Uniform Commercial Code financing
statements (naming TBCC as secured party and the Borrower as debtor), duly filed
in all jurisdictions that TBCC deems necessary or desirable to perfect and
protect the Liens created hereunder, and evidence that all other filings,
registrations and recordings have been made in the appropriate governmental
offices, and all other action has been taken, which shall be necessary to
create, in favor of TBCC, a perfected first priority Lien on the Collateral;
TBCC LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
-2-
<PAGE>
(iii) the opinion of counsel for the Borrower covering such matters incident to
the transactions contemplated by this Agreement as TBCC may specify in its
discretion; (iv) certified copies of all policies of insurance required by this
Agreement and the other Loan Documents, together with loss payee endorsements
for all such policies naming TBCC as lender loss payee and an additional
insured; (v) copies of the Borrower's articles or certificate of incorporation,
certified as true, correct and complete by the secretary of state of Borrower's
state of incorporation within 45 days of the date hereof; (vi) copies of the
bylaws of the Borrower and a copy of the resolutions of the Board of Directors
of the Borrower authorizing the execution, delivery and performance of this
Agreement, the other Loan Documents, and the transactions contemplated hereby
and thereby, attached to which is a certificate of the Secretary or an Assistant
Secretary of the Borrower certifying (A) that such copies of the bylaws and
resolutions are true, complete and accurate copies thereof, have not been
amended or modified since the date of such certificate and are in full force and
effect and (B) the incumbency, names and true signatures of the officers of the
Borrower; (vii) a good standing certificate from the Secretary of State of
Borrower's state of incorporation and each state in which the Borrower is
qualified as a foreign corporation, each dated within ten days of the date
hereof; (viii) the additional documents and agreements, if any, listed in the
Schedule; and (ix) such other agreements and instruments as TBCC deems necessary
in its sole and absolute discretion in connection with the transactions
contemplated hereby.
1.9. Conditions to Lending. The obligation of TBCC to make any Loan is
-----------------------
subject to the satisfac-tion of the following conditions precedent:
(a) There shall be no pending or, to the knowledge of Borrower after due
inquiry, threatened litigation, proceeding, inquiry or other action relating to
this Agreement, or any other Loan Document, or which could be expected to have a
Material Adverse Effect in the judgment of TBCC;
(b) Borrower shall be in compliance with all Requirements of Law and
Material Contracts, other than such noncompliance that could not have a Material
Adverse Effect;
(c) The Liens in favor of TBCC shall have been duly perfected and shall
constitute first priority Liens, except for Permitted Liens;
(d) All representations and warranties contained in this Agreement and the
other Loan Documents shall be true and correct on and as of the date of such
Loan as if then made, other than representations and warranties that expressly
re-late solely to an earlier date, in which case they shall have been true and
correct as of such earlier date;
(e) No Default or Event of Default shall have occurred and be continuing or
would result from the making of the requested Loan as of the date of such
request; and
(f) No Material Adverse Effect shall have occurred.
2. INTEREST AND FEES.
-------------------
2.1. Interest. Borrower shall pay TBCC interest on all outstanding Loans
--------
and other monetary Obligations, at the interest rate set forth in the Schedule.
Interest shall be payable monthly in arrears on the first Business Day of each
month, and on the Maturity Date. Following the occur-rence and during the
continuance of any Event of Default, the interest rate applicable to all
Obligations shall be in-creased by two percent per annum.
2.2. Fees. Borrower shall pay TBCC the fees set forth in the Schedule.
----
2.3. Calculations. All interest and fees under this Agreement shall be
------------
calculated on the basis of a year of 360 days for the actual number of days
elapsed in the period for which such interest or fees are payable.
2.4. Taxes. Any and all payments by Borrower under this Agreement or any
-----
other Loan Document shall be made free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges or
with-holdings and penalties, interest and all other liabilities with respect
thereto, excluding in the case of TBCC, taxes imposed on its net income and
franchise taxes imposed on it by the jurisdiction under the laws of which TBCC
is organized or any political subdivision thereof.
3. Security.
--------
3.1. Grant of Security Interest. To secure the payment and performance
-----------------------------
when due of all of the Obligations, Borrower hereby grants to TBCC a security
interest in all of its present and future Receivables, Investment Property,
Inventory, Equipment, Other Property, and other Collateral, wherever located.
3.2. Other Liens; Location of Collateral. Borrower repre-sents, warrants
------------------------------------
and covenants that all of the Collateral is, and will at all times continue to
be, free and clear of all Liens, other than Permitted Liens and Liens in favor
of TBCC. All Collateral is and will continue to be maintained at the locations
shown on the Schedule.
3.3. Receivables.
-----------
(a) Schedules and Other Actions. Subject to the Streamline Agreement, as
-----------------------------
may from time to time be requested by TBCC, Borrower shall execute and deliver
to TBCC written schedules of Receivables (but the failure to execute or deliver
any schedule shall not affect or limit TBCC's security interest in all
Receivables). On TBCC's request, Borrower shall also furnish to TBCC copies of
invoices to customers and shipping and delivery receipts. Borrower shall deliver
to TBCC the originals of all letters of credit, notes, and instruments in its
favor and such endorsements or assign-ments as TBCC may reasonably request and,
upon the request of TBCC, Borrower shall deliver to TBCC all certificated
securities with respect to any Investment Property, with all necessary
indorsements, and obtain such account control agreements with securities
intermediaries and take such other action with respect to any Investment
Property, as TBCC shall request, in form and substance satisfactory to TBCC.
Upon request of TBCC Borrower additionally shall obtain consents from any letter
of credit issuers with respect to the assignment to TBCC of any letter of credit
proceeds
TBCC LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
-3-
<PAGE>
* Subject to the Streamline Agreement, as
(b) Records, Collections. At the request of TBCC, Borrower shall report all
---------------------
cus-tomer credits to TBCC, on the regular reports to TBCC in the form from time
to time specified by TBCC. * Borrower shall notify TBCC of all re-turns and
recoveries of merchandise and of all claims as-serted with respect to
merchandise, on its regular reports to TBCC. * Borrower shall not settle or
adjust any dis-pute or claim, or grant any discount, credit or allowance or
accept any return of merhandise, except in the ordinary course of its business,
without TBCC's prior written consent.
* At the request of TBCC,
3.4. Inventory. Borrower shall maintain full, accurate and complete
---------
records respecting the Inventory describing the kind, type and quantity of the
Inventory and Borrower's cost therefor, withdrawals therefrom and addi-tions
thereto, including a perpetual inventory for work in process and finished goods.
3.5. Equipment. Borrower shall at all times keep correct and accurate
---------
records itemizing and describing the location, kind, type, age and condition of
the Equipment, Borrower's cost therefor and accumulated depreciation thereof and
re-tirements, sales, or other dispositions thereof. Borrower shall keep all of
its Equipment in a satisfactory state of re-pair and satisfactory operating
condition in accordance with industry standards, ordinary wear and tear
excepted. No Equipment shall be annexed or affixed to or become part of any
realty, unless the owner of the realty has executed and delivered a Landlord
Waiver in such form as TBCC shall specify. Where Borrower is permitted to
dispose of any Equipment under this Agreement or by any consent thereto
hereafter given by TBCC, Borrower shall do so at arm's length, in good faith and
by obtaining the max-imum amount of recovery practicable therefor and without
impairing the operating integrity or value of the remaining Equipment.
3.6. Investment Property. Borrower shall have the right to retain all
--------------------
Investment Property payments and distributions, unless and until a Default or an
Event of Default has occurred. If a Default or an Event of Default exists,
Borrower shall hold all payments on, and proceeds of, and distributions with
respect to, Investment Property in trust for TBCC, and Borrower shall deliver
all such payments, proceeds and distributions to TBCC, immediately upon receipt,
in their original form, duly endorsed, to be applied to the Obligations in such
order as TBCC shall determine. Upon the request of TBCC, any such distributions
and payments with respect to any Investment Property held in any securities
account shall be held and retained in such securities account as part of the
Collateral.
3.7 Further Assurances. Borrower will perform any and all steps that TBCC
------------------
may reasonably request to perfect TBCC's security interests in the Collateral,
includ-ing, without limitation, executing financing and continuation statements
in form and substance satisfactory to TBCC and returning such financing
statements to TBCC at the direction of TBCC for filing and other appropriate
handling. TBCC is hereby authorized by Borrower to sign Borrower's name or file
any financing statements or similar documents or instruments covering the
Collateral whether or not Borrower's signature appears thereon. Borrower
agrees, from time to time, at TBCC's request, to file notices of Liens,
financing statements, similar documents or instruments, and amend-ments,
renewals and continuations thereof, and cooperate with TBCC, in connection with
the continued perfec-tion and protection of the Collateral. If any Collateral
is in the possession or control of any Person other than a public warehouseman
where the warehouse receipt is in the name of or held by TBCC, Borrower shall
notify such Person of TBCC's security interest therein and, upon request,
instruct such Person or Persons to hold all such Collateral for the account of
TBCC and subject to TBCC's instructions. If so requested by TBCC, Borrower will
deliver to TBCC ware-house receipts covering any Collateral located in
warehouses showing TBCC as the beneficiary thereof and will also cause the
warehouseman to execute and deliver such agreements as TBCC may request relating
to waivers of liens by such warehouseman and the release of the Inventory to
TBCC on its demand. Borrower shall defend the Collateral against all claims and
demands of all Persons.
* and returning such financial statements to TBCC at the direction of TCBB
for filing and other appropriate handling
3.8. Power of Attorney. Borrower hereby appoints and constitutes TBCC as
------------------
Borrower's attorney-in-fact (i) to request at any time from account debtors
verification of in-formation concerning Receivables and the amount owing
thereon, (ii) upon the occurrence and during the continu-ance of an Event of
Default, to convey any item of Collateral to any purchaser thereof, (iii) to
give or sign Borrower's name to any notices or statements necessary or desirable
to create or continue the Lien on any Collateral granted hereunder, (iv) to
execute and deliver to any securities intermediary or other Person any
entitlement order, account control agreement or other notice, document or
instrument with respect to any Investment Property, and (v) to make any payment
or take any act necessary or desirable to protect or preserve any Collateral.
TBCC's authority hereunder shall include, without limitation, the authority to
execute and give receipt for any certificate of ownership or any document,
transfer ti-tle to any item of Collateral and take any other actions aris-ing
from or incident to the powers granted to TBCC under this Agreement. This power
of attorney is coupled with an interest and is irrevocable.
4. Representations and Warranties of Borrower. Borrower represents and
--------------------------------------------
warrants as follows:
4.1. Organization, Good Standing and Qualification. Borrower (i) is a
-------------------------------------------------
corporation duly organized, validly exist-ing and in good standing under the
laws of the State set forth above, (ii) has the corporate power and authority to
own its properties and assets and to transact the businesses in which it is
TBCC LOAN AND SECURITY AGREEMENT
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-4-
<PAGE>
engaged and (iii) is duly qualified, authorized to do business and in good
standing in each jurisdiction where it is engaged in business, except to the
extent that the failure to so qualify or be in good standing would not have a
Material Adverse Effect.
4.2. Locations of Offices, Records and Collateral. The address of the
------------------------------------------------
principal place of business and chief executive office of Borrower is, and the
books and records of Borrower and all of its chattel paper and records relating
to Collateral are maintained exclusively in the possession of Borrower at, the
address of Borrower specified in the heading of this Agreement. Borrower has
places of business, and Collateral is located, only at such address and at the
addresses set forth in the Schedule and at any additional locations reported to
TBCC as provided in Section 5.8(c) as to which TBCC has taken all necessary
action to perfect and protect its security interests in the Collateral at any
such locations.
4.3. Authority. Borrower has the requisite corporate power and authority to
---------
execute, deliver and perform its obli-gations under each of the Loan Documents.
All corporate action necessary for the execution, delivery and performance by
Borrower of the Loan Documents has been taken.
4.4. Enforceability. This Agreement is, and, when exe-cuted and delivered,
--------------
each other Loan Document will be, the legal, valid and binding obligation of
Borrower enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or similar laws affect-ing creditors'
rights generally and general principles of eq-uity.
4.5. No Conflict. The execution, delivery and perfor-mance of each Loan
------------
Document by Borrower does not and will not contravene (i) any of the Governing
Documents, (ii) any Requirement of Law or (iii) any Material Contract and will
not result in the imposition of any Liens other than in favor of TBCC.
4.6. Consents and Filings. No consent, authorization or approval of, or
--------------------
filing with or other act by, any shareholders of Borrower or any Governmental
Authority or other Person is required in connection with the execution,
delivery, per-formance, validity or enforceability of this Agreement or any
other Loan Document, the consummation of the trans-actions contemplated hereby
or thereby or the continuing operations of Borrower following such consummation,
except (i) those that have been obtained or made, (ii) the filing of financing
statements under the Uniform Commercial Code and (iii) any necessary filings
with the U.S. Copyright Office and the U.S. Patent and Trademark Office.
4.7. Solvency. Borrower is Solvent and will be Solvent upon the completion
--------
of all transactions contemplated to oc-cur on or before the date of this
Agreement (including, without limitation, the Loans to be made on the date of
this Agreement).
4.8. Financial Data. Borrower has provided to TBCC complete and accurate
---------------
Financial Statements, which have been prepared in accordance with GAAP
consis-tently applied throughout the periods involved and fairly present the
financial position and results of operations of Borrower for each of the periods
covered, subject, in the case of any quarterly financial statements, to normal
year end adjustments and the absence of notes. Borrower has no Contingent
Obligation or liability for taxes, unrealized losses, unusual forward or
long-term commitments or long-term leases, which is not reflected in such
Financial Statements or the footnotes thereto. Since the last date covered by
such Financial Statements, there has been no sale, transfer or other disposition
by Borrower of any mate-rial part of its business or property and no purchase or
other acquisition of any business or property (including any capi-tal stock of
any other Person) material in relation to the fi-nancial condition of Borrower
at said date. Since said date, (i) there has been no change, occurrence,
development or event which has had or could reasonably be expected to have a
Material Adverse Effect and (ii) none of the capital stock of Borrower has been
redeemed, retired, purchased or other-wise acquired for value by Borrower.
4.9. Accuracy and Completeness of Information. All data, reports and
--------------------------------------------
information previously, now or hereafter furnished by or on behalf of Borrower
to TBCC or the Auditors are or will be true and accurate in all material
respects on the date as of which such data, reports and in-formation are dated
or certified, and not incomplete by omit-ting to state any material fact
necessary to make such data, reports and information not materially misleading
at such time. There are no facts now known to Borrower which in-dividually or in
the aggregate would reasonably be expected to have a Material Adverse Effect and
which have not been disclosed in writing to TBCC.
4.10. No Joint Ventures, Partnerships or Subsidiaries. Borrower is not
-----------------------------------------------
engaged in any joint venture or partnership with any other Person. Borrower has
no Subsidiaries.
4.11. Corporate and Trade Name. During the past five years, Borrower has
-------------------------
not been known by or used any other corporate, trade or fictitious name except
for its name as set forth on the signature page of this Agreement and the other
names specified in the Schedule.
4.12. No Actual or Pending Material Modification of Business. There exists
-------------------------------------------------------
no actual or, to the best of Borrower's knowledge after due inquiry, threatened
termina-tion, cancellation or limitation of, or any modification or change in
the business relationship of Borrower with any customer or group of customers
whose purchases individu-ally or in the aggregate are material to the operation
of Borrower's business or with any material supplier.
4.13. No Broker's or Finder's Fees. No broker or finder brought about this
--------------------------------
Agreement or the Loans. No broker's or finder's fees or commissions will be
payable by Borrower to any Person in connection with the transactions
contem-plated by this Agreement.
4.14. Taxes and Tax Returns. Borrower has properly completed and timely
----------------------
filed all income tax returns it is re-quired to file. The information filed is
complete and accu-rate in all material respects. All deductions taken in such
TBCC LOAN AND SECURITY AGREEMENT
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-5-
<PAGE>
income tax returns are appropriate and in accordance with applicable laws and
regulations, except deductions that may have been disallowed but are being
challenged in good faith and for which adequate reserves have been made in
accor-dance with GAAP. All taxes, assessments, fees and other governmental
charges for periods beginning prior to the date of this Agreement have been
timely paid (or, if not yet due, adequate reserves therefor have been
established in accordance with GAAP) and Borrower has no liability for taxes in
excess of the amounts so paid or reserves so established. No deficiencies for
taxes have been claimed, proposed or assessed by any taxing or other
Governmental Authority against Borrower and no no-tice of any tax Lien has been
filed. There are no pending or threatened audits, investigations or claims for
or relating to any liability for taxes and there are no matters under
discus-sion with any Governmental Authority which could result in an additional
liability for taxes. No extension of a statute of limitations relating to taxes,
assessments, fees or other governmental charges is in effect with respect to
Borrower. Borrower is not a party to and does not have any obligations under any
written tax sharing agreement or agreement regarding payments in lieu of taxes.
4.15. No Judgments or Litigation. Except as set forth in the Schedule, no
--------------------------
judgments, orders, writs or decrees are outstanding against Borrower, nor is
there now pending or, to the knowledge of Borrower after due inquiry, threatened
litigation, contested claim, investiga-tion, arbitration, or governmental
proceeding by or against Borrower that (i) could individually or in the
aggregate be likely in the reasonable business judgment of TBCC to have a
Material Adverse Effect or (ii) purports to affect the legality, validity or
enforceability of this Agreement, any other Loan Document or the consummation of
the transactions contemplated hereby or thereby.
4.16. Investments; Contracts. Borrower (i) has not committed to make any
-----------------------
Investment; (ii) is not a party to any indenture, agreement, contract,
instrument or lease or subject to any charter, by-law or other corporate
restriction or any injunction, order, restriction or decree, which would
materially and adversely affect its business, operations, as-sets or financial
condition; (iii) is not a party to any take or pay contract as to which it is
the purchaser; or (iv) has no material contingent or long-term liability,
including management contracts (excluding employment contracts of full-time
individual officers or employees), which could have a Material Adverse Effect.
4.17. No Defaults; Legal Compliance. Borrower is not in default under any
-----------------------
term of any Material Contract or in vio-lation of any Requirement of Law, nor is
Borrower subject to any investigation with respect to a claimed violation of any
Requirement of Law.
4.18. Rights in Collateral; Priority of Liens. All Collateral is owned or
-----------------------------------------
leased by Borrower, free and clear of any and all Liens in favor of third
parties, other than Permitted Liens. The Liens granted to TBCC pur-suant to the
Loan Documents constitute valid, enforceable and perfected first-priority Liens
on the Collateral, except for Permitted Liens.
4.19. Intellectual Property. Set forth in the written Representations and
----------------------
Warranties of Borrower previously delivered to TBCC is a complete and accurate
list of all patents, trademarks, trade names, service marks and copyrights
(registered and unregistered), and all applications therefor and licenses
thereof, of Borrower. Borrower owns or licenses all material patents,
trademarks, service-marks, logos, trade-names, trade secrets, know-how,
copyrights, or licenses and other rights with respect to any of the foregoing,
which are necessary or advisable for the operation of its business as presently
conducted or proposed to be conducted. To the best of its knowledge after due
inquiry, Borrower has not in-fringed any patent, trademark, service-mark,
tradename, copyright, license or other right owned by any other Person by the
sale or use of any product, process, method, sub-stance, part or other material
presently contemplated to be sold or used, where such sale or use would
reasonably be expected to have a Material Adverse Effect and no claim or
litigation is pending, or to the best of Borrower's knowl-edge, threatened
against or affecting Borrower that contests its right to sell or use any such
product, process, method, substance, part or other material.
4.20. Labor Matters. There are no existing or threatened strikes, lockouts
-------------
or other disputes relating to any collective bargaining or similar agreement to
which Borrower is a party which would, individually or in the aggregate, be
rea-sonably likely to have a Material Adverse Effect.
4.21. Licenses and Permits. Borrower has obtained and holds in full force
---------------------
and effect, all franchises, licenses, leases, permits, certificates,
authorizations, qualifications, ease-ments, rights of way and other rights and
approvals which are necessary or advisable for the operation of its business as
presently conducted and as proposed to be conducted, except where the failure
to possess any of the foregoing (individually or in the aggregate) would not
have a Material Adverse Effect.
4.22. Government Regulation. Borrower is not subject to regulation under
----------------------
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, the Investment Company Act of 1940, or any other
Requirement of Law that limits its ability to in-cur indebtedness or its ability
to consummate the transac-tions contemplated by this Agreement and the other
Loan Documents.
4.23. Business and Properties. The business of Borrower is not affected by
-----------------------
any fire, explosion, accident, strike, lock-out or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or other
casu-alty (whether or not covered by insurance) that could reason-ably be
expected to have a Material Adverse Effect.
TBCC LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
-6-
<PAGE>
4.24. Affiliate Transactions. Borrower is not a party to or bound by any
-----------------------
agreement or arrangement (whether oral or written) to which any Affiliate of
Borrower is a party except (i) in the ordinary course of and pursuant to the
reasonable requirements of the business of Borrower and (ii) upon fair and
reasonable terms no less favorable to Borrower than it could obtain in a
comparable arm's-length transaction with an unaffiliated Person.
4.25. Survival of Representations. All representations made by Borrower in
---------------------------
this Agreement and in any other Loan Document executed and delivered by it in
connection here-with shall survive the execution and delivery hereof and thereof
and the closing of the transactions contemplated hereby and thereby.
5. AFFIRMATIVE COVENANTS OF THE BORROWER. Until termination of this Agreement
--------------------------------------
and payment and satis-faction of all Obligations:
5.1. Corporate Existence. Borrower shall (i) maintain its corporate
--------------------
existence, (ii) maintain in full force and effect all material licenses, bonds,
franchises, leases, trademarks, qualifications and authorizations to do
business, and all ma-terial patents, contracts and other rights necessary or
advis-able to the profitable conduct of its business, and (iii) continue in, and
limit its operations to, the same lines of business as presently conducted by
it.
5.2. Maintenance of Property. Borrower shall keep all property useful and
-------------------------
necessary to its business in good work-ing order and condition (ordinary wear
and tear excepted) in accordance with its past operating practices.
5.3. Affiliate Transactions. Borrower shall conduct trans-actions with any
-----------------------
of its Affiliates on an arm's-length basis or other basis no less favorable to
Borrower and which are ap-proved by the board of directors of Borrower.
5.4. Taxes. Borrower shall pay when due (i) all tax as-sessments, and other
-----
governmental charges and levies im-posed against it or any of its property and
(ii) all lawful claims that, if unpaid, might by law become a Lien upon its
property; provided, however, that, unless such tax as-sessment, charge, levy or
claim has become a Lien on any of the property of Borrower, it need not be paid
if it is being contested in good faith, by appropriate proceedings dili-gently
conducted and an adequate reserve or other appropriate provision shall have been
made therefor as required in accor-dance with GAAP.
5.5. Requirements of Law. Borrower shall comply with all Requirements of
--------------------
Law applicable to it, including, without limitation, all applicable Federal,
State, local or foreign laws and regulations, including, without limitation,
those relating to environmental matters, employee matters, the Employee
Retirement Income Security Act of 1974, and the collection, payment and deposit
of employees' income, un-employment and social security taxes, provided that
Borrower shall not be deemed in violation hereof if Borrower's failure to comply
with any of the foregoing would not require more than $50,000 to cure the same.
5.6. Insurance. Borrower shall maintain public liability insurance,
---------
business interruption insurance, third party prop-erty damage insurance and
replacement value insurance on its assets (including the Collateral) under such
policies of insurance, with such insurance companies, in such amounts and
covering such risks as are at all times satisfactory to TBCC in its commercially
reasonable judgment, all of which policies covering the Collateral shall name
TBCC as an additional insured and lender loss payee in case of loss, and contain
other provisions as TBCC may reasonably require to protect fully TBCC's interest
in the Collateral and any payments to be made under such policies
* EXCEPT THAT, PROVIDED NO DEFAULT OR EVENT OF DEFAULT HAS OCCURRED, TBCC SHALL
RELEASE TO THE BORROWER INSURANCE PROCEEDS WITH RESPECT TO EQUIPMENT TOTALING
LESS THAN $500,000, PROVIDED THAT PROCEDURES, ACCEPTABLE TO TBCC, ARE
--------
ESTABLISHED FOR THE USE AND DISBURSEMENT OF SUCH PROCEEDS FOR THE REPLACEMENT OF
THE EQUIPMENT WITH RESPECT TO WHICH THE INSURANCE PROCEEDS WERE PAID
5.7. Books and Records; Inspections. Borrower shall (i) maintain books and
------------------------------
records (including computer records) pertaining to the Collateral in such
detail, form and scope as is consistent with good business practice and (ii)
provide TBCC and its agents access to the premises of Borrower at any time and
from time to time, during normal business hours and upon reasonable notice under
the cir-cumstances, and at any time on and after the occurrence of a Default or
Event of Default, for the purposes of (A) inspecting and verifying the
Collateral, (B) inspecting and copying (at Borrower's expense) any and all
records per-taining thereto, and (C) discussing the affairs, finances and
business of Borrower with any officer, employee or director of Borrower or with
the Auditors. Borrower shall reimburse TBCC for the reasonable travel and
related expenses of TBCC's employees or, at TBCC's option, of such outside
accountants or examiners as may be retained by TBCC to verify or inspect
Collateral, records or documents of Borrower on a regular basis or for a special
inspection if TBCC deems the same appropriate. If TBCC's own employees are used,
Borrower shall also pay therefor $600 per person per day (or such other amount
as shall repre-sent TBCC's then current standard charge for the same), or, if
outside examiners or accountants are used, Borrower shall also pay TBCC such sum
as TBCC may be obligated to pay as fees therefor.
5.8. Notification Requirements. Borrower shall give TBCC the following
-------------------------
notices and other documents:
(a) Notice of Defaults. Borrower shall give TBCC written notice of any
-------------------
Default or Event of Default within two Business Days after becoming aware of the
same.
(b) Proceedings or Adverse Changes. Borrower shall give TBCC written notice
-------------------------------
of any of the following, promptly, and in any event within five Business Days
after Borrower becomes aware of any of the following: (i) any proceeding being
instituted or threatened by or against it in any federal, state, local or
foreign court or before any com-mission or other regulatory body involving a
TBCC LOAN AND SECURITY AGREEMENT
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<PAGE>
sum, together with the sum involved in all other similar proceedings, in excess
of * in the aggregate, (ii) any order, judgment or decree being entered
against Borrower or any of its prop-erties or assets involving a sum, together
with the sum of all other orders, judgments or decrees, in excess of * in
the aggregate, and (iii) any actual or prospective change, de-velopment or event
which has had or could reasonably be expected to have a Material Adverse Effect.
* $200,000
(c) Change of Name or Chief Executive Office; Opening Additional Places of
-----------------------------------------------------------------------
Business. Borrower shall give TBCC at least 30 days prior written notice of any
- --------
change of Borrower's corporate name or its chief execu-tive office or of the
opening of any additional place of busi-ness.
(d) Casualty Loss. Borrower shall (i) provide written notice to TBCC,
--------------
within ten Business Days, of any material damage to, the destruction of or any
other material loss to any asset or property owned or used by Borrower other
than any such asset or property with a net book value (individually or in the
aggregate) less than * or any condemnation, confiscation or other taking,
in whole or in part, or any event that otherwise diminishes so as to render
impracticable or unreasonable the use of such asset or prop-erty owned or used
by Borrower together with the amount of the damage, destruction, loss or
diminution in value and (ii) diligently file and prosecute its claim or claims
for any award or payment in connection with any of the forego-ing.
* $100,000
(e) Intellectual Property. Borrower shall give TBCC written
----------------------
notice, on a quarterly basis, of any copyright registration made by it, any
rights Borrower may obtain to any copyrightable works, new trademarks or any new
patentable inventions, and of any renewal or extension of any trademark
registration, or if it shall otherwise become entitled to the benefit of any
patent or patent application or trademark or trademark application. (f) Deposit
Accounts and Security Accounts. Borrower shall promptly give TBCC written notice
of the opening of any new bank account or other deposit account, and any new
securities account.
* , ON A QUARTERLY BASIS,
5.9. Qualify to Transact Business. Borrower shall qualify to transact
-------------------------------
business as a foreign corporation in each jurisdic-tion where the nature or
extent of its business or the owner-ship of its property requires it to be so
qualified or autho-rized and where failure to qualify or be authorized would
have a Material Adverse Effect.
5.10. Financial Reporting. Borrower shall timely deliver to TBCC the
--------------------
following financial information: the information set forth in the Schedule, and,
when requested by TBCC in its good-faith judgment, any further in-formation
respecting Borrower or any Collateral. Borrower authorizes TBCC to communicate
directly with its officers, employees and Auditors and to examine and make
abstracts from its books and records. Borrower authorizes its Auditors to
disclose to TBCC any and all financial statements, work papers and other
information of any kind that they may have with respect to Borrower and its
busi-ness and financial and other affairs. Borrower shall deliver a letter
addressed to the Auditors requesting them to comply with the provisions of this
paragraph when requested by TBCC.
5.11. Payment of Liabilities. Borrower shall pay and dis-charge, in the
-----------------------
ordinary course of business, all Indebtedness, except where the same may be
contested in good faith by appropriate proceedings and adequate reserves with
respect thereto have been provided on the books and records of Borrower in
accordance with GAAP.
5.12. Patents, Trademarks, Etc. Borrower shall do and cause to be done all
-------------------------
things necessary to preserve, maintain and keep in full force and ef-fect all of
its registrations of trademarks, service marks and other marks, trade names and
other trade rights, patents, copyrights and other intellectual property in
accordance with prudent business practices.
5.13. Proceeds of Collateral. * limiting any of the other terms of this
------------------------
Agreement, and without implying any consent to any sale or other transfer of
Collateral in viola-tion of any provision of this Agreement, Borrower shall
de-liver to TBCC all proceeds of any sale or other trans-fer or disposition of
any Collateral, immediately upon re-ceipt of the same and in the same form as
received, with any necessary endorsements, and Borrower will not commingle any
such proceeds with any of its other funds or property, but will segregate them
from the other assets of Borrower and will hold them in trust and for the
account and as the property of TBCC.
* SUBJECT TO THE TERMS AND CONDITIONS OF THE STREAMLINE AGREEMENT OF EVEN DATE
HEREWITH, SALES OF EQUIPMENT AS OTHERWISE PERMITTED HEREUNDER AND SALES OF
INVENTORY IN THE ORDINARY COURSE OF BUSINESS, AND WITHOUT
5.14. Solvency. Borrower shall be Solvent at all times.
--------
6. Negative Covenants. Until termination of this Agreement and payment and
-------------------
satisfaction of all Obligations:
6.1. Contingent Obligations. Borrower will not, directly or indirectly,
-----------------------
incur, assume, or suffer to exist any Contingent Obligation, excluding
indemnities given in connection with this Agreement or the other Loan Documents
in favor of TBCC or in connection with the sale of Inventory or other asset
dispositions permitted hereunder.
6.2. Corporate Changes. Borrower will not, directly or indirectly, merge
-----------------
or consolidate with any Person, or liqui-date or dissolve (or suffer any
liquidation or dissolution). If TBCC fails to so provide its written consent for
any contemplated corporate changes, then such an occurrence shall constitute a
"Consent Condition" for purposes of all Term Notes and repayment thereof.
* WITHOUT THE WRITTEN CONSENT OF TBCC,
** IF TBCC FAILS TO SO PROVIDE ITS WRITTEN CONSENT FOR ANY CONTEMPLATED
CORPORATE CHANGES, THEN SUCH AN OCCURRENCE SHALL CONSTITUTE A "CONSENT
CONDITION" FOR PURPOSES OF ALL TERM NOTES AND REPAYMENT THEREOF.
TBCC LOAN AND SECURITY AGREEMENT
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<PAGE>
6.3. Change in Nature of Business. Borrower will not at any time make any
material change in the lines of its busi-ness as carried on at the date of this
Agreement or enter into any new line of business , other than business relating
to or arising in connection with the Borrower's current line of business.
* , OTHER THAN BUSINESS RELATING TO OR ARISING IN CONNECTION WITH THE
BORROWER'S CURRENT LINE OF BUSINESS
6.4. Sales of Assets. Borrower will not, directly or indi-rectly, in any
fiscal year, sell, transfer or otherwise dispose of any assets, or grant any
option or other right to purchase or otherwise acquire any assets other than (i)
Equipment with an aggregate value of less than $100,000 * the proceeds of which
shall be paid to TBCC and applied to the Obligations, (ii) sales of Inventory in
the ordinary course of business and (iii) licenses or sublicenses on a
non-exclusive basis of intellectual property in the ordinary course of
Borrower's business.
*100,000
6.5. Cancellation of Debt. Borrower will not cancel any claim or debt owed
to it, except in the ordinary course of business.
6.6. Loans to Other Persons. Borrower will not at any time make loans or
advance any credit (except to trade debtors in the ordinary course of business)
to any Person in excess of $25,000 in the aggregate at any time for all such
loans.
6.7. Liens. Borrower will not, directly or indirectly, at any time create,
incur, assume or suffer to exist any Lien on or with respect to any of the
Collateral, other than: Liens created hereunder and by any other Loan Document;
and Permitted Liens, provided that the aggregate amount of debt relating to
Purchase Money Liens with respect to Equipment shall not exceed $4,000,000
outstanding at any one time.
* , PROVIDED THAT THE AGGREGATE AMOUNT OF DEBT RELATING TO PURCHASE MONEY
LIENS WITH RESPECT TO EQUIPMENT SHALL NOT EXCEED $4,000,000 OUTSTANDING AT ANY
ONE TIME
6.8. Dividends, Stock Redemptions. Borrower will not, directly or
indirectly, pay any dividends or distributions on, purchase, redeem or retire
any shares of any class of its capi-tal stock or any warrants, options or rights
to purchase any such capital stock, whether now or hereafter outstanding
("Stock"), or make any payment on account of or set apart assets for a sinking
or other analogous fund for, the pur-chase, redemption, defeasance, retirement
or other acquisi-tion of its Stock, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of Borrower, except for dividends paid solely in stock of the
Borrower, provided that, so long as no Default or Event of Default is then
occurring that relates to or arises from the failure of Borrower to make payment
on the Obligations, then Borrower shall be permitted to pay dividends on its
preferred stock in an aggregate amount not to exceed $800,000 per calendar year;
provided, further, that, in any event, Borrower may issue dividends in common
stock of the Borrower without the consent of TBCC
* , PROVIDED THAT, SO LONG AS NO DEFAULT OR EVENT OF DEFAULT IS THEN
--------
OCCURRING THAT RELATES TO OR ARISES FROM THE FAILURE OF BORROWER TO MAKE PAYMENT
ON THE OBLIGATIONS, THEN BORROWER SHALL BE PERMITTED TO PAY DIVIDENDS ON ITS
PREFERRED STOCK IN AN AGGREGATE AMOUNT NOT TO EXCEED $800,000 PER CALENDAR YEAR;
PROVIDED, FURTHER, THAT, IN ANY EVENT, BORROWER MAY ISSUE DIVIDENDS IN COMMON
- -------- -------
STOCK OF THE BORROWER WITHOUT THE CONSENT OF TBCC
6.9. Investments in Other Persons. Without the written consent of TBCC,
Borrower will not, directly or indirectly, at any time make or hold any
Investment in any Person (whether in cash, securities or other property of any
kind) other than Investments in Cash Equivalents. If TBCC fails to so provide
its written consent for any contemplated corporate changes, then such an
occurrence shall constitute a "Consent Condition" for purposes of all Term Notes
and the repayment thereof.
* WITHOUT THE WRITTEN CONSENT OF TBCC,
** IF TBCC FAILS TO SO PROVIDE ITS WRITTEN CONSENT FOR ANY CONTEMPLATED
CORPORATE CHANGES, THEN SUCH AN OCCURRENCE SHALL CONSTITUTE A "CONSENT
CONDITION" FOR PURPOSES OF ALL TERM NOTES AND THE REPAYMENT THEREOF.
6.10. Partnerships; Subsidiaries; Joint Ventures; Management Contracts.
Without the written consent of TBCC, Borrower will not at any time cre-ate any
direct or indirect Subsidiary, enter into any joint venture or similar
arrangement or become a partner in any general or limited partnership or enter
into any management contract (other than an employment contract for the
em-ployment of an officer or employee entered into in the regu-lar course of
Borrower's business) permitting third party management rights with respect to
Borrower's business. If TBCC fails to so provide its written consent for any
contemplated corporate changes, then such an occurrence shall constitute a
"Consent Condition" for purposes of all Term Notes and the repayment thereof.
6.11. Fiscal Year. Borrower will not change its fiscal year.
------------
6.12. Accounting Changes. Borrower will not at any time make or permit any
------------------
change in accounting policies or reporting practices, except as required by
GAAP.
6.13. Broker's or Finder's Fees. Borrower will not pay or incur any
----------------------------
broker's or finder's fees in connection with this Agreement or the transactions
contemplated hereby.
6.14. Unusual Terms of Sale. Borrower will not sell goods or products on
----------------------
extended terms, consignment terms, on a progress billing or bill and hold basis,
or on any other unusual terms.
6.15. Amendments of Material Contracts. Without the written consent of TBCC
--------------------------------
(which will not be unreasonably withheld), Borrower will not amend, modify,
cancel or terminate, or permit the amendment, modification, cancellation or
termination of, any Material Contract, if such amendment, modification,
cancellation or termination could have a Material Adverse Effect.
* WITHOUT THE WRITTEN CONSENT OF TBCC (WHICH WILL NOT BE UNREASONABLY
WITHHELD),
6.16. Sale and Leaseback Obligations. Borrower will not at any time create,
------------------------------
incur or assume any obligations as lessee for the rental of real or personal
property in connection with any sale and leaseback transaction.
6.17. Acquisition of Stock or Assets. Borrower will not acquire or commit
------------------------------
or agree to acquire all or any stock, secu-rities or assets of any other Person
other than Inventory and Equipment acquired in the ordinary course of business.
TBCC LOAN AND SECURITY AGREEMENT
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-9-
<PAGE>
7. Events of Default.
-------------------
7.1. Events of Default. The occurrence of any of the fol-lowing events
shall constitute an Event of Default:
(a) Borrower shall fail to pay any principal, interest, fees, expenses or
other Obligations when payable, whether at stated maturity, by acceleration, or
otherwise within 5 calendar days of the date due; or
* WITHIN 5 CALENDAR DAYS OF THE DATE DUE
(b) Borrower shall default in the performance or ob-servance of any
agreement, covenant, condition, provision or term contained in Section 1.1, 1.2,
1.4, 3.3, 5.7, 5.13, 6 (and its Sections and subsections), or 8.1 of this
Agreement, or Borrower shall fail to perform any non-monetary Obligation which
by its nature cannot be cured; or
(c) Borrower shall default in the performance or observance of any other
agreement, covenant, condition, provision or term of this Agreement (other than
those referred to in Section
(d) Borrower or any Guarantor shall dissolve, wind up or otherwise cease to
conduct its business; or
(e) Borrower or any Guarantor shall become the subject of (i) an Insolvency
Event except as set forth in clause (e) of the def-inition of Insolvency Event
or (ii) an Insolvency Event as set forth in clause (e) of the definition of
Insolvency Event that is not dismissed within sixty days; or
(f) any representation or warranty made by or on behalf of Borrower or any
Guarantor to TBCC, under this Agreement or oth-erwise, shall be incorrect or
misleading in any material re-spect when made or deemed made; or
(g) A change in the ownership or control of more than 30% of the voting
stock of the Borrower compared to such ownership on the date of this Agreement
other than for changes in the foregoing percentages arising from issuances of
new equity securities or the conversion of preferred stock of the Borrower to
common shares of Borrower; or
* 30%
** OTHER THAN FOR CHANGES IN THE FOREGOING PERCENTAGES ARISING FROM
ISSUANCES OF NEW EQUITY SECURITIES OR THE CONVERSION OF PREFERRED STOCK OF THE
BORROWER TO COMMON SHARES OF BORROWER
(h) any judgment or order for the payment of money shall be rendered
against Borrower in an aggregate amount of $100,000 or more and shall not be
stayed, vacated, bonded or discharged within thirty days, provided that any
liens in any Collateral arising from any such judgments or orders do not attain
a higher priority than the liens of TBCC therein; or
* IN AN AGGREGATE AMOUNT OF $100,000 OR MORE
** , PROVIDED THAT ANY LIENS IN ANY COLLATERAL ARISING FROM ANY SUCH
JUDGMENTS OR ORDERS DO NOT ATTAIN A HIGHER PRIORITY THAN THE LIENS OF TBCC
THEREIN
(i) any defined "Event of Default" shall occur under any other Loan
Document; or Borrower or any Guarantor shall deny or disaffirm its obligations
un-der any of the Loan Documents or any Liens granted in connection therewith or
shall otherwise challenge any of its obligations under any of the Loan
Documents; or any Liens granted in any of the Collateral shall be determined to
be void, voidable or invalid, are subordinated or are not given the priority
contemplated by this Agreement; or
(j) any Loan Document shall for any reason cease to create a valid and
perfected Lien on the Collateral purported to be covered thereby, of first
priority (except for Permitted Liens); or
(k) the Auditors for Borrower shall deliver a Qualified opinion on any
Financial Statement; or
(l) Borrower or any Guarantor (i) shall fail to pay any Indebtedness owing
to TBCC under any other agreement with TBCC or note or instrument in favor of
TBCC, when due (whether at scheduled maturity or by required prepayment,
acceleration, demand or otherwise), or (ii) shall otherwise be in breach of or
default in any of its obligations under any such agreement, note or instrument
with respect to any such Indebtedness; or
(m) Borrower or any Guarantor (i) shall fail to pay any Indebtedness in
excess of $200,000 * owing to any Person other than TBCC or any interest or
premium thereon, when due (whether at scheduled maturity or by required
prepayment, acceleration, demand or otherwise), or (ii) shall otherwise be in
breach or default in any of its obligations under any agreement with respect to
any such Indebtedness, if the effect of such breach, default or failure to pay
is to cause such Indebtedness to become due or redeemed or permit the holder or
holders of such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to declare such Indebtedness due or require such Indebtedness to be
redeemed prior to its stated maturity; or
* $200,000
(n) the occurrence of any event or condition that, in TBCC's judgment,
could reasonably be expected to have a Material Adverse Effect. TBCC may cease
making any Loans hereunder during any of the above cure periods, and thereafter
if any Event of Default has occurred and is continuing.
7.2. Remedies. Upon the occurrence and during the con-tinuance of an Event
--------
of Default, TBCC shall have all rights and remedies under applicable law and the
Loan Documents, and TBCC may do any or all of the fol-lowing:
(a) Declare all Obligations to be imme-diately due and payable (except with
respect to any Event of Default with respect to Borrower set forth in Section
(b) Cease making any Loans or other extensions of credit to Borrower of any
kind;
(c) Take possession of all documents, instruments, files and records
(including the copying of any computer records) relating to the Receivables or
other Collateral and use (at the expense of Borrower) such supplies or space of
Borrower at Borrower's places of business necessary to administer and collect
the Receivables and other Collateral;
TBCC LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
-10-
<PAGE>
(d) Accelerate or extend the time of payment, compro-mise, issue credits,
or bring suit on the Receivables and other Collateral (in the name of Borrower
or TBCC) and otherwise administer and collect the Receivables and other
Collateral;
(e) Collect, receive, dispose of and realize upon any Investment Property,
including withdrawal of any and all funds from any securities accounts;
(f) Sell, assign and deliver the Receivables and other Collateral, with or
without advertisement, at public or pri-vate sale, for cash, on credit or
otherwise, subject to appli-cable law;
(g) Foreclose on the security interests created pursuant to the Loan
Documents by any available procedure, take pos-session of any or all of the
Collateral, with or without judi-cial process and enter any premises where any
Collateral may be located for the purpose of taking possession of or removing
the same; and
(h) Bid or become a purchaser at any sale, free from any right of
redemption, which right is ex-pressly waived by Borrower, if permitted under
applicable law. If notice of intended disposition of any Collateral is required
by law, it is agreed that ten days' notice shall con-stitute reasonable
notification. Borrower will assemble the Collateral and make it available at
such locations as TBCC may specify, whether at the premises of Borrower or
elsewhere, and will make available to TBCC the premises and facilities of
Borrower for the purpose of TBCC's taking possession of or removing the
Collateral or putting the Collateral in salable form.
(i) Borrower recognizes that TBCC may be unable to make a public sale of
any or all of the Investment Property, by reasons of prohibitions contained in
applicable securities laws or otherwise, and expressly agrees that a private
sale to a restricted group of purchasers for investment and not with a view to
any distribution thereof shall be considered a commercially reasonable sale.
7.3. Receivables. Upon the occurrence and during the continuance of an
-----------
Event of Default, or at any time that TBCC believes in good faith that fraud has
occurred or that Borrower has failed to deliver the proceeds of Receivables or
other Collateral to TBCC as may be required by this Agreement from time to time
or any other Loan Document, TBCC may (i) settle or adjust disputes or claims
di-rectly with account debtors for amounts and upon terms which it considers
advisable, and (ii) notify account debtors on the Receivables and other
Collateral that the Receivables and Collateral have been assigned to TBCC, and
that payments in respect thereof shall be made directly to TBCC. If an Event of
Default has occurred and is continuing or TBCC reasonably believes in good faith
that fraud has occurred, or that Borrower has failed to deliver the proceeds of
Receivables or other Collateral to TBCC as required by this Agreement or any
other Loan Document, Borrower hereby irrevocably authorizes and appoints TBCC,
or any Person TBCC may designate, as its attorney-in-fact, at Borrower's sole
cost and expense, to exercise, all of the following powers, which are coupled
with an interest and are irrevocable, until all of the Obligations have been
indefeasibly paid and satisfied in full in cash: (A) to receive, take, endorse,
sign, assign and de-liver, all in the name of TBCC or Borrower, any and all
checks, notes, drafts, and other documents or instruments relating to the
Collateral; (B) to receive, open and dispose of all mail addressed to Borrower
and to notify postal au-thorities to change the address for delivery thereof to
such address as TBCC may designate; and (C) to take or bring, in the name of
TBCC or Borrower, all steps, actions, suits or proceedings deemed by TBCC
neces-sary or desirable to enforce or effect collection of Receivables and
other Collateral or file and sign Borrower's name on a proof of claim in
bankruptcy or similar docu-ment against any obligor of Borrower.
7.4. Right of Set off. In addition to all rights of offset that TBCC may
----------------
have under applicable law, upon the occurrence and during the continuance of any
Event of Default, and whether or not TBCC has made any de-mand or the
Obligations of Borrower have matured, TBCC shall have the right to appropriate
and apply to the payment of the Obligations of Borrower all deposits and other
obligations then or thereafter owing by TBCC to or for the credit or the account
of Borrower. In the event that TBCC exercises any of its rights under this
Section, TBCC shall provide notice to Borrower of such exercise, provided that
the failure to give such notice shall not affect the validity of the exercise of
such rights.
7.5. License for Use of Software and Other Intellectual Property. After the
--------------------------------------------------------------
occurrence and during the continuance of an Event of Default, unless expressly
prohibited by any licensor thereof, TBCC is hereby granted a license to use all
computer software programs, data bases, processes, trademarks, tradenames and
materials used by Borrower in connection with its businesses or in connection
with the Collateral.
7.6. No Marshalling; Deficiencies; Remedies Cumulative. The net cash
--------------------------------------------------
proceeds resulting from TBCC's exercise of any of its rights with respect to
Collateral, including any and all Collections (after deducting all of TBCC's
reasonable expenses related thereto), shall be applied by TBCC to such of the
Obligations in such order as TBCC shall elect in its sole and absolute
discretion, whether due or to become due. Borrower shall remain liable to TBCC
for any defi-ciencies and TBCC shall remit to Borrower or its successor or
assign, any surplus resulting therefrom. The remedies specified in this
Agreement are cumulative, may be exercised in such order and with respect to
such Collateral as TBCC may deem desirable and are not intended to be exclusive,
and the full or partial exercise of any of them shall not preclude the full or
partial exercise of any other available remedy under this Agreement, under any
other Loan Document, at equity or at law.
TBCC LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
-11-
<PAGE>
7.7. Waivers. Borrower hereby waives any bonds, secu-rity or sureties
-------
required by any statute, rule or any other law as an incident to any taking of
possession by TBCC of any Collateral. Borrower also waives any damages (direct,
consequential or otherwise) occasioned by the en-forcement of TBCC's rights
under this Agreement or any other Loan Document including the taking of
posses-sion of any Collateral or the giving of notice to any account debtor or
the collection of any Receivable or other Collateral (other than damages that
are the result of acts or omissions constituting gross negligence or willful
miscon-duct of TBCC). These waivers and all other waivers provided for in this
Agreement and the other Loan Documents have been negotiated by the parties and
Borrower acknowledges that it has been represented by counsel of its own choice
and has consulted such counsel with respect to its rights hereunder.
7.8. Right to Make Payments. In the event that Borrower shall fail to
-----------------------
purchase or maintain insurance re-quired hereunder, or to pay any tax,
assessment, government charge or levy, except as the same may be otherwise
permit-ted hereunder, or in the event that any Lien prohibited hereby shall not
be paid in full or discharged, or in the event that Borrower shall fail to
perform or comply with any other covenant, promise or obligation to TBCC
here-under or under any other Loan Document, TBCC may (but shall not be required
to) perform, pay, satisfy, discharge or bond the same for the account of
Borrower, and all amounts so paid by TBCC shall be treated as a Loan hereunder
to Borrower and shall constitute part of the Obligations.
8. Assignments and Participations.
--------------------------------
8.1. Assignments. Borrower shall not assign this Agreement or any right or
-----------
obligation hereunder without the prior written consent of TBCC. TBCC may assign
(without the consent of Borrower) to one or more Persons all or a portion of its
rights and obligations under this Agreement and the other Loan Documents.
8.2. Participations. TBCC may sell participations in or to all or a portion
--------------
of its rights and obligations under this Agreement (including, without
limitation, all or a por-tion of the Loans); provided, however, that TBCC's
obligations under this Agreement shall remain unchanged.
8.3. Disclosure. TBCC may, in connection with any permitted assignment or
----------
participation or proposed as-signment or participation pursuant to this
Agreement, dis-close to the assignee or participant or proposed assignee or
participant any information relating to Borrower furnished to TBCC by or on
behalf of Borrower.
9. DEFINITIONS.
-----------
9.1. General Definitions. As used herein, the following terms shall have
--------------------
the meanings herein specified (to be equally applicable to both the singular and
plural forms of the terms defined):
(a) Affiliate means as to any Person, any other Person who directly or
---------
indirectly controls, is under common control with, is controlled by or is a
director or officer of such Person. As used in this definition, "control"
(including its correlative meanings, "controlled by" and "un-der common control
with") means possession, directly or indirectly, of the power to direct or cause
the direction of management or policies (whether through ownership of vot-ing
securities or partnership or other ownership interests, by contract or
otherwise), provided that, in any event, any Person who owns directly or
indirectly twenty percent (20%) or more of the securities having ordinary voting
power for the election of the members of the board of direc-tors or other
governing body of a corporation or twenty per-cent (20%) or more of the
partnership or other ownership interests of any other Person (other than as a
limited partner of such other Person) will be deemed to control such
corpo-ration, partnership or other Person.
(b) Agreement means this Loan and Security Agreement, as amended,
---------
supplemented or otherwise modi-fied from time to time.
(c) Auditors means a nationally recognized firm of in-dependent public
--------
accountants selected by Borrower and rea-sonably satisfactory to TBCC.
(d) Bankruptcy Code means Title 11 of the United States Code entitled
----------------
"Bankruptcy," as that title may be amended from time to time, or any successor
statute.
(e) Borrowing means a borrowing of Loans.
---------
(f) Business Day means any day other than a Saturday, Sunday or any other
--------
day on which commercial banks in Chicago, Illinois are re-quired or permitted by
law to close.
(g) Cash Equivalents means (i) securities issued, guaranteed or insured by
---------------
the United States or any of its agencies with maturities of not more than one
year from the date acquired; (ii) certificates of deposit with maturities of not
more than one year from the date acquired, issued by any U.S. federal or state
chartered commercial bank of recog-nized standing which has capital and
unimpaired surplus in excess of $100,000,000; (iii) investments in money market
funds registered under the Investment Company Act of 1940; and (iv) other
instruments, commercial paper or investments acceptable to TBCC in its sole
discre-tion.
(h) Collateral means Receivables, Investment Property, Inventory,
---------
Equipment, and Other Property, and all additions and acces-sions thereto and
substitutions and replacements therefor and improvements thereon, and all
TBCC LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
-12-
<PAGE>
proceeds (whether cash or other property) and products thereof, including,
without lim-itation, all proceeds of insurance covering the same and all tort
claims in connection therewith, and all records, files, computer programs and
files, data and writings relating to the foregoing, and all equipment containing
the foregoing *.
* , PROVIDED THAT THE FOREGOING SHALL NOT INCLUDE EQUIPMENT THAT IS THE SUBJECT
OF ANY PURCHASE MONEY LIEN TO THE EXTENT THE AGREEMENTS AND CONTRACTS
GIVING RISE TO ANY SUCH PURCHASE MONEY LIEN PROHIBIT THE GRANT OF A SECURITY
INTEREST THEREIN
(i) Collections means all cash, funds, checks, notes, instruments, any
-----------
other form of remittance tendered by ac-count debtors in respect of payment of
Receivables and any other payments received by Borrower with respect to any
other Collateral.
(j) Compliance Certificate means a certificate as to compliance with the
-----------------------
Obligations, on TBCC's stan-dard form (in effect from time to time).
(k) Contingent Obligation means any direct, indirect, contingent or
----------------------
on-contingent guaranty or obligation for the Indebtedness of another Person,
except endorsements in the ordinary course of business.
(l) Default means any of the events specified in Section 7.1, whether or
-------
not any of the requirements for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
(m) [Reserved]
--------
(n) [Reserved]
--------
(o) Equipment means all machinery, equipment, furniture, fixtures,
---------
conveyors, tools, materials, storage and handling equipment, hydraulic presses,
cutting equipment, computer equipment and hardware, including central
process-ing units, terminals, drives, memory units, printers, key-boards,
screens, peripherals and input or output devices, molds, dies, stamps, vehicles,
and other equipment of every kind and nature and wherever situated now or
hereafter owned by Borrower or in which Borrower may have any in-terest as
lessee or otherwise (to the extent of such interest), together with all
additions and accessions thereto, all re-placements and all accessories and
parts therefor, all manu-als, blueprints, know-how, warranties and records in
connec-tion therewith, all rights against suppliers, warrantors, manufacturers,
sellers or others in connection therewith, and together with all substitutes for
any of the foregoing.
(p) Event of Default means the occurrence of any of the events specified in
----------------
Section 7.1.
(q) Financial Statements means the balance sheets, profit and loss
---------------------
statements, statements of cash flow, and statements of changes in intercompany
accounts, if any, for the period specified, prepared in accordance with GAAP and
consistent with prior practices.
(r) GAAP means generally accepted accounting prin-ciples set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pro-nouncements of
the Financial Accounting Standards Board that are applicable to the
circumstances as of the date of de-termination. Whenever any accounting term is
used herein which is not otherwise defined, it shall be interpreted in
ac-cordance with GAAP.
(s) Good Faith means "good faith" as defined in the Uniform Commercial
----------
Code, from time to time in effect in the State of Illinois.
(t) Governing Documents means the articles or cer-tificate of incorporation
-------------------
and by-laws of Borrower.
(u) Governmental Authority means any nation or government, any state or
-----------------------
other political subdivision thereof or any entity exercising executive,
legislative, judicial, reg-ulatory or administrative functions thereof or
pertaining thereto.
(v) Guarantor means any present or future guarantor of any or all of the
---------
Obligations.
(w) Indebtedness means, with respect to any Person, as of the date of
------------
determination any indebtedness, liability or obligation of such Person
(including without limitation obligations under capital leases and Contingent
Obligations).
(x) Insolvency Event means, with respect to any Person, the occurrence of
----------------
any of the following: (a) such Person shall be adjudicated insolvent or
bankrupt, or shall generally fail to pay or admit in writing its inability to
pay its debts as they become due, (b) such Person shall seek dissolution or
reorganization or the appointment of a re-ceiver, trustee, custodian or
liquidator for it or a substantial portion of its property, assets or business
or to effect a plan or other arrangement with its creditors, (c) such Person
shall make a general assignment for the benefit of its credi-tors, or consent to
or acquiesce in the appointment of a re-ceiver, trustee, custodian or liquidator
for a substantial por-tion of its property, assets or business, (d) such Person
shall file a voluntary petition under any bankruptcy, insol-vency or similar law
or take any corporate or similar act in furtherance thereof, or (e) such Person,
or a substantial por-tion of its property, assets or business shall become the
subject of an involuntary proceeding or petition for its dis-solution,
reorganization, and such proceeding is not dis-missed or stayed within sixty
days, or the appointment of a receiver, trustee, custodian or liquidator, and
such receiver is not dismissed within sixty days.
(y) Inventory means all present and future goods in-tended for sale, lease
---------
or other disposition by Borrower in-cluding, without limitation, all raw
materials, work in pro-cess, finished goods and other retail inventory, goods in
the possession of outside processors or other third parties, goods consigned to
Borrower to the extent of its interest therein as consignee, materials and
supplies of any kind, na-ture or description which are or might be used in
connection with the manufacture, packing, shipping, advertising, sell-ing or
finishing of any such goods, and all documents of ti-tle or documents
representing the same.
(z) Investment in any Person means, as of the date of determination
----------
thereof, any payment or contribution, or commitment to make a payment or
contribution, by any Person including, without limitation, property contributed
or committed to be contributed by any Person, on its ac-count for or in
connection with its acquisition of any stock, bonds, notes, debentures,
partnership or other ownership in-terest or any other security of the Person in
TBCC LOAN AND SECURITY AGREEMENT
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-13-
<PAGE>
whom such Investment is made or any evidence of indebtedness by rea-son of a
loan, advance, extension of credit, guaranty or other similar obligation for any
debt, liability or indebtedness of such Person in whom the Investment is made.
(aa) Investment Property means any and all investment property of Borrower,
-------------------
including all securities, whether certificated or uncertificated, security
entitlements, securities accounts, commodity contracts and commodity accounts,
and all financial assets held in any securities account or otherwise, wherever
located, and whether now existing or hereafter acquired or arising.
(bb) Lien means any lien, claim, charge, pledge, secu-rity interest,
----
assignment, hypothecation, deed of trust, mortgage, lease, conditional sale,
retention of title or other preferential arrangement having substantially the
same eco-nomic effect as any of the foregoing, whether voluntary or imposed by
law.
(cc) Loan Account has the meaning specified in Section 1.3.
------------
(dd) Loan Documents means this Agreement and all present and future
---------------
documets and instruments delivered or to be delivered by Borrower or any of its
Affiliates or any Guarantor under, in connection with or relating to this
Agreement, or any other present or future instrument or agreement between TBCC
and Borrower, as each of the same may be amended, supplemented or otherwise
modi-fied from time to time.
(ee) Loans means the loans and financial accommoda-tions made by TBCC
-----
hereunder.
(ff) Material Adverse Effect means (i) a material ad-verse effect on the
------------------------
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower, (ii) the impairment of
Borrower's ability to perform its obligations under the Loan Documents to which
it is a party or of TBCC to en-force the Obligations or realize upon the
Collateral or (iii) a material adverse effect on the value of the Collateral or
the amount which TBCC would be likely to receive (after giving consideration to
delays in payment and costs of en-forcement) in the liquidation of the
Collateral.
(gg) Material Contract means any contract or other ar-rangement to which
------------------
Borrower is a party (other than the Loan Documents) for which breach,
nonperformance, can-cellation or failure to renew could have a Material Adverse
Effect.
(hh) Obligations means and includes all loans (including the Loans),
-----------
advances, debts, liabilities, obliga-tions, covenants and duties owing by
Borrower to TBCC of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other in-strument, whether or not arising
under or in connection with, this Agreement, any other Loan Document or any
other present or future instrument or agreement, whether or not for the payment
of money, whether arising by reason of an extension of credit, opening,
guaran-teeing or confirming of a letter of credit, loan, guaranty,
in-demnification or in any other manner, whether direct or indi-rect (including
those acquired by assignment, purchase, dis-count or otherwise), whether
absolute or contingent, due or to become due, now due or hereafter arising and
however ac-quired (including without limitation all loans previously made by
TBCC to Borrower). The term includes, without limitation, all interest
(including interest accruing on or after an Insolvency Event, whether or not an
allowed claim), charges, expenses, com-mitment, facility, closing and collateral
management fees, letter of credit fees, reasonable attorneys' fees, and any
other sum properly chargeable to Borrower under this Agreement, the other Loan
Documents or any other present or future agreement between TBCC and Borrower.
(ii) Other Property means all present and future: in-struments, documents,
--------------
documents of title, securities, bonds, notes, promissory notes, drafts,
acceptances, letters of credit and rights to receive proceeds of letters of
credit, deposit accounts, chattel paper, certificates, insurance policies,
insurance proceeds, leases, computer tapes, causes of action, judgments, claims
against third par-ties, leasehold rights in any personal property, books,
ledgers, files and records, general intangibles (including without limitation,
all contract rights, tax refunds, rights to receive tax refunds, patents, patent
applications, copyrights (registered and unregistered), royalties, licenses,
permits, franchise rights, authorizations, customer lists, rights of
in-demnification, contribution and subrogation, computer pro-grams, discs and
software, trade secrets, computer service contracts, trademarks, trade names,
service marks and names, logos, goodwill, deposits, choses in action, designs,
blueprints, plans, know-how, telephone numbers and rights thereto, credits,
reserves, and all forms of obligations what-soever now or hereafter owing to
Borrower), all property at any time in the possession or under the control of
TBCC, and all security given by Borrower to TBCC pursuant to any other Loan
Document or agreement.
(jj) Permitted Liens means such of the following as to which no
-----------------
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced and be continuing: (i) Liens for taxes, assessments and other
gov-ernmental charges or levies or the claims or demands of landlords, carriers,
warehousemen, mechanics, laborers, materialmen and other like Persons arising by
operation of law in the ordinary course of business for sums which are not yet
due and payable, (ii) deposits or pledges to secure the payment of workmen's
compensation, unemployment insurance or other social security benefits or
obligations, public or statutory obligations, surety or ap-peal bonds, bid or
performance bonds, or other obligations of a like nature incurred in the
ordinary course of business (but nothing in this clause (ii) shall permit the
creation of Liens on Receivables, Investment Property, Inventory or Other
Property), (iii) zoning restrictions, easements, encroachments, li-censes,
TBCC LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
-14-
<PAGE>
restrictions or covenants on the use of property which do not materially impair
either the use of the property in the operation of the business of Borrower or
the value of the property, (iv) rights of general application re-served to or
vested in any municipality or other governmen-tal, statutory or public authority
to control or regulate prop-erty, or to use property in a manner which does not
materi-ally impair the use of the property for the purposes for which it is held
by Borrower, (v) state and municipal Liens for personal property taxes which are
not yet due and payable, and (vi) Purchase Money Liens.
(kk) Person means any individual, sole proprietor-ship, partnership, joint
------
venture, limited liability company, trust, unincorporated orga-nization, joint
stock company, association, corporation, in-stitution, entity, party or
government (including any divi-sion, agency or department thereof) or any other
legal en-tity, whether acting in an individual, fiduciary or other ca-pacity,
and, as applicable, the successors, heirs and assigns of each.
(ll) Plan means any employee benefit plan, program or arrangement
----
maintained or contributed to by Borrower or with respect to which it may incur
liability.
(mm) Purchase Money Lien means a Lien on any item of Equipment created
---------------------
substantially simultaneously with the acquisition of such Equipment for the
purpose of financing such acquisition, provided that such Lien shall attach only
to the Equipment acquired.
(nn) Qualification or Qualified means, with respect to any report of
----------------------------
Auditors covering Financial Statements, a material qualification to such report
(i) resulting from a limitation on the scope of examination of such Financial
Statements or the underlying data, (ii) as to the capability of Borrower to
continue operations as a go-ing concern or (iii) which could be eliminated by
changes in Financial Statements or notes thereto covered by such re-port (such
as by the creation of or increase in a reserve or a decrease in the carrying
value of assets) and which if so eliminated by the making of any such change and
after giv-ing effect thereto would result in a Default or an Event of Default.
(oo) Receivables means all present and future accounts and accounts
-----------
receivable, together with all security therefor and guaranties thereof and all
rights and remedies relating thereto, including any right of stoppage in
transit.
(pp) Requirement of Law means (a) the Governing Documents, (b) any law,
-------------------
treaty, rule, regulation, order or determination of an arbitrator, court or
other Governmental Authority or (c) any franchise, license, lease, permit,
cer-tificate, authorization, qualification, easement, right of way, right or
approval binding on Borrower or any of its prop-erty.
(qq) Schedule means the Schedule to this Agreement being signed
--------
concurrently by Borrower and TBCC, as amended from time to time.
(rr) Solvent means when used with respect to any Person that as of the date
-------
as to which such Person's sol-vency is to be measured: (a) the fair salable
value of its as-sets is in excess of the total amount of its liabilities
(including contingent liabilities as valued in accordance with applicable law)
as they become absolute and matured; (b) it has sufficient capital to conduct
its business; and (c) it is able to meet its debts as they mature.
(ss) Subsidiary means, as to any Person, a corpora-tion or other entity in
----------
which that Person directly or indi-rectly owns or controls shares of stock or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or appoint other managers of such corporation or other
entity.
9.2. Accounting Terms and Determinations. Unless oth-erwise defined or
--------------------------------------
specified herein, all accounting terms used in this Agreement shall be construed
in accordance with GAAP, applied on a basis consistent in all material respects
with the Financial Statements delivered to TBCC on or before the date of this
Agreement. All accounting deter-minations for purposes of determining
compliance with this Agreement shall be made in accordance with GAAP as in
ef-fect on the date of this Agreement and applied on a basis consistent in all
material respects with the audited Financial Statements delivered to TBCC on or
before the date of this Agreement. The Financial Statements required to be
delivered hereunder, and all financial records, shall be main-tained in
accordance with GAAP. If GAAP shall change from the basis used in preparing the
audited Financial Statements delivered to TBCC on or before the date of this
Agreement, the Compliance Certificates required to be delivered pursuant to this
Agreement shall include calcu-lations setting forth the adjustments necessary to
demon-strate how Borrower is in compliance with the Financial Covenants (if any)
based upon GAAP as in effect on the date of this Agreement.
9.3. Other Terms; Headings; Construction. Unless otherwise defined herein,
------------------------------------
terms used herein that are defined in the Uniform Commercial Code, from time to
time in effect in the State of Illinois, shall have the meanings set forth
therein. Each of the words "hereof," "herein," and "hereunder" refer to this
Agreement as a whole. The term "including", when-ever used in this Agreement,
shall mean "including (but not limited to)". An Event of Default shall
"continue" or be "continuing" unless and until such Event of Default has been
waived or cured within the grace period specified therefor under Section 7.1.
References to Articles, Sections, Annexes, Schedules, and Exhibits are internal
ref-erences to this Agreement, and to its attachments, unless otherwise
specified. The headings and any Table of Contents are for convenience only and
shall not affect the meaning or construction of any provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against TBCC or Borrower under any rule of construction or
otherwise.
10. GENERAL PROVISIONS.
--------------------
TBCC LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
-15-
<PAGE>
10.1. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
-------------
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY DISPUTE ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, WHETHER
SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS.
10.2. SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN THE BORROWER AND
---------------------------
TBCC, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED
ONLY BY STATE AND FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, AND THE COURTS TO
WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT TBCC SHALL HAVE
THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE
BORROWER OR ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED BY TBCC IN GOOD
FAITH TO ENABLE TBCC TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR
OTHER COURT ORDER IN FAVOR OF TBCC. THE BORROWER AGREES THAT IT WILL NOT ASSERT
ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT
BY TBCC. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF
THE COURT IN WHICH TBCC HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON
CONVENIENS.
10.3. SERVICE OF PROCESS. THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT
------------------
CORPORATION SYSTEM, 1209 ORANGE STREET, WILMINGTON, DELAWARE 19801, AS THE
DESIGNEE AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF THE
BORROWER, SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. IT IS UNDERSTOOD THAT A COPY OF SUCH
PROCESS SERVED ON SUCH AGENT AT ITS ADDRESS WILL BE PROMPTLY FORWARDED BY MAIL
TO THE BORROWER, BUT THE FAILURE OF THE BORROWER TO RECEIVE SUCH COPY SHALL NOT
AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
10.4. LIMITATION OF LIABILITY. TBCC SHALL HAVE NO LIABILITY TO THE BORROWER
-----------------------
(WHETHER SOUNDING IN TORT, CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY THE
BORROWER IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE
TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT,
OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY
A FINAL AND NONAPPEALABLE JUDGMENT OR COURT ORDER OR, IN THE CASE OF A BINDING
ARBITRATION PROCEEDING, IF AGREED TO BE ENTERED INTO BY THE PARTIES HERETO IN
THE SOLE DISCRETION OF EACH OF THE PARTIES, UPON THE ISSUANCE OF A FINAL AND
NONAPPEALABLE DECISION ARISING FROM ANY SUCH PROCEEDING, BINDING ON TBCC THAT
THE LOSSES WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF TBCC. THE BORROWER HEREBY WAIVES ALL FUTURE CLAIMS AGAINST
TBCC FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.
* OR, IN THE CASE OF A BINDING ARBITRATION PROCEEDING, IF AGREED TO BE
ENTERED INTO BY THE PARTIES HERETO IN THE SOLE DISCRETION OF EACH OF THE
PARTIES, UPON THE ISSUANCE OF A FINAL AND NONAPPEALABLE DECISION ARISING FROM
ANY SUCH PROCEEDING,
10.5. Delays; Partial Exercise of Remedies. No delay or omission of TBCC to
------------------------------------
exercise any right or remedy hereunder shall impair any such right or operate as
a waiver thereof. No single or partial exercise by TBCC of any right or remedy
shall preclude any other or further exer-cise thereof, or preclude any other
right or remedy.
10.6. Notices. Except as otherwise provided herein, all notices and
-------
correspondence hereunder shall be in writing and sent by certified or registered
mail, return receipt requested, by overnight delivery service, with all charges
prepaid, or by telecopier followed by a hard copy sent by regular mail, to the
parties at their addresses set forth in the heading to this Agreement. All such
notices and correspondence shall be deemed given (i) if sent by certified or
registered mail, three Business Days after being postmarked, (ii) if sent by
overnight delivery service, when received at the above stated addresses or when
delivery is refused and (iii) if sent by telecopier transmission, when receipt
of such transmission is acknowledged. Borrower's and TBCC's telecopier numbers
for purpose of notice hereunder are set forth in the Schedule; each party's
number may be changed by written notice to the other party.
10.7. Indemnification; Reimbursement of Expenses of Collection. Borrower
---------------------------------------------------------
hereby indemnifies and agrees, whether or not any of the transactions
contemplated by this Agreement or the other Loan Documents are consummated, to
defend and hold harmless (on an after-tax basis) TBCC, its successors and
assigns and their respective directors, officers, agents, employees, advisors,
sharehold-ers, attorneys and Affiliates (each, an "Indemnified Party") from and
against any and all losses, claims, damages, liabil-ities, deficiencies,
obligations, fines, penalties, actions (whether threatened or existing),
judgments, suits (whether threatened or existing) or expenses (including,
without limi-tation, reasonable fees and disbursements of counsel, ex-perts,
consultants and other professionals) incurred by any of them (collectively,
"Claims") (except, in the case of each Indemnified Party, to the extent that any
TBCC LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
-16-
<PAGE>
Claim is deter-mined in a final and non-appealable judgment by a court of
competent jurisdiction to have directly resulted from such Indemnified Party's
gross negligence or willful misconduct) arising out of or by reason of (i) any
litigation, investiga-tion, claim or proceeding which arises out of or is
related to (A) Borrower, or this Agreement, any other Loan Document or the
transactions contemplated hereby or thereby, (B) any actual or proposed use by
Borrower of the proceeds of the Loans, or (C) TBCC's entering into this
Agreement or any other Loan Document or any other agreements and documents
relating hereto, including, with-out limitation, amounts paid in settlement,
court costs and the reasonable fees and disbursements of counsel incurred in
connection with any such litigation, investigation, claim or proceeding, (ii)
any remedial or other action taken by Borrower in connection with compliance by
Borrower, or any of its properties, with any federal, state or local
envi-ronmental laws, rules or regulations, and (iii) any pending, threatened or
actual action, claim, proceeding or suit by any shareholder or director of
Borrower or any actual or pur-ported violation of Borrower's charter, by-laws or
any other agreement or instrument to which Borrower is a party or by which any
of its properties is bound. In addition and with-out limiting the generality of
the foregoing, Borrower shall, upon demand, pay to TBCC all reasonable costs and
expenses incurred by TBCC (including the reasonable fees and disbursements of
counsel and other professionals) in connection with the preparation, execution,
delivery, ad-ministration, modification and amendment of the Loan Documents, and
pay to TBCC all reasonable costs and expenses (including the reasonable fees and
disburse-ments of counsel and other professionals) paid or incurred by TBCC in
order to enforce or defend any of its rights under or in respect of this
Agreement, any other Loan Document or any other document or instrument now or
hereafter executed and delivered in connection herewith, col-lect the
Obligations or otherwise administer this Agreement, foreclose or otherwise
realize upon the Collateral or any part thereof, prosecute ac-tions against, or
defend actions by, account debtors; commence, intervene in, or defend any action
or proceed-ing; initiate any complaint to be relieved of the automatic stay in
bankruptcy; file or pros-ecute any probate claim, bankruptcy claim, third-party
claim, or other claim; exam-ine, audit, copy, and inspect any of the Collateral
or any of Borrower's books and records; protect, obtain possession of, lease,
dispose of, or otherwise enforce TBCC's secu-rity interest in, the Collateral;
and otherwise represent TBCC in any litigation relat-ing to Borrower. Without
limiting the generality of the foregoing, Borrower shall pay TBCC a fee with
respect to each wire transfer in the amount of $15 plus all bank charges and a
fee of $15 for all returned checks plus all bank charges. If either TBCC or
Borrower files any lawsuit against the other predicated on a breach of this
Agreement, the prevailing party in such action shall be enti-tled to recover its
reason-able costs and attorneys' fees, in-cluding (but not limited to)
reasonable attorneys' fees and costs incurred in the en-forcement of, execution
upon or de-fense of any order, de-cree, award or judgment. If and to the extent
that the Obligations of Borrower hereunder are unen-forceable for any reason,
Borrower hereby agrees to make the maximum contribution to the payment and
satisfaction of the Obligations which is permissible under applicable law.
Borrower's obligations under Section 2.4 and this Section shall survive any
termination of this Agreement and the other Loan Documents and the payment in
full of the Obligations, and are in addition to, and not in substitution of, any
of the other Obligations.
10.8. Amendments and Waivers. Any provision of this Agreement or any other
----------------------
Loan Document may be amended or waived if, but only if, such amendment or waiver
is in writ-ing and signed by Borrower and TBCC and then any such amendment or
waiver shall be effective only to the ex-tent set forth therein. The failure of
TBCC at any time or times to require Borrower to strictly comply with any of the
pro-visions of this Agreement or any other present or future agreement between
Borrower and TBCC shall not waive or diminish any right of TBCC later to demand
and re-ceive strict compliance therewith. Any waiver of any de-fault shall not
waive or affect any other default, whether prior or subsequent, and whether or
not similar. None of the provisions of this Agreement or any other agreement now
or in the future executed by Borrower and delivered to TBCC shall be deemed to
have been waived by any act or knowledge of TBCC or its agents or employees, but
only by a specific written waiver signed by an authorized officer of TBCC and
delivered to Borrower.
10.9. Counterparts; Telecopied Signatures. This Agreement and any waiver or
-----------------------------------
amendment hereto may be ex-ecuted in counterparts and by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but both of which shall together con-stitute one and the same
instrument. This Agreement and each of the other Loan Documents and any notices
given in connection herewith or therewith may be executed and deliv-ered by
telecopier or other facsimile transmission all with the same force and effect as
if the same was a fully executed and delivered original manual counterpart.
10.10. Severability. In case any provision in or obligation under this
------------
Agreement or any other Loan Document shall be invalid, illegal or unenforceable
in any jurisdiction, the va-lidity, legality and enforceability of the remaining
provi-sions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
10.11. Joint and Several Liability. If Borrower consists of more than one
---------------------------
Person, their liability shall be joint and several, and the compromise of any
claim with, or the re-lease of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
10.12. Maximum Rate. Notwithstanding anything to the contrary contained
------------
elsewhere in this Agreement or in any other Loan Document, the parties hereto
hereby agree that all agreements between them under this Agreement and the other
Loan Documents, whether now existing or hereafter arising and whether written or
oral, are expressly limited so that in no contingency or event whatsoever shall
TBCC LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
-17-
<PAGE>
the amount paid, or agreed to be paid, to TBCC for the use, forbearance, or
detention of the money loaned to Borrower and evidenced hereby or thereby or for
the perfor-mance or payment of any covenant or obligation contained herein or
therein, exceed the maximum non-usurious inter-est rate, if any, that at any
time or from time to time may be contracted for, taken, reserved, charged or
received on the Obligations, under the laws of the State of Illinois (or the
laws of any other jurisdiction whose laws may be mandatorily applicable
notwithstanding other provisions of this Agreement and the other Loan
Documents), or under applicable federal laws which may presently or hereafter be
in effect and which allow a higher maximum non-usurious interest rate than under
the laws of the State of Illinois (or such other jurisdiction), in any case
after taking into ac-count, to the extent permitted by applicable law, any and
all relevant payments or charges under this Agreement and the other Loan
Documents executed in connection herewith, and any available exemptions,
exceptions and exclusions (the "Highest Lawful Rate"). If due to any
circumstance what-soever, fulfillment of any provisions of this Agreement or any
of the other Loan Documents at the time performance of such provision shall be
due shall exceed the Highest Lawful Rate, then, automatically, the obligation to
be ful-filled shall be modified or reduced to the extent necessary to limit such
interest to the Highest Lawful Rate, and if from any such circumstance TBCC
should ever receive anything of value deemed interest by applicable law which
would exceed the Highest Lawful Rate, such excessive in-terest shall be applied
to the reduction of the principal amount then outstanding hereunder or on
account of any other then outstanding Obligations and not to the payment of
interest, or if such excessive interest exceeds the principal unpaid balance
then outstanding hereunder and such other then outstanding Obligations, such
excess shall be refunded to Borrower. All sums paid or agreed to be paid to TBCC
for the use, forbearance, or detention of the Obligations and other indebtedness
of Borrower to TBCC shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness, until payment in full thereof, so that the actual rate of interest
on account of all such indebtedness does not exceed the Highest Lawful Rate
throughout the entire term of such indebtedness. The terms and provisions of
this Section shall control every other pro-vision of this Agreement, the other
Loan Documents and all other agreements between the parties hereto.
10.13. Entire Agreement; Successors and Assigns. This Agreement and the
--------------------------------------------
other Loan Documents constitute the en-tire agreement between the parties,
supersede any prior writ-ten and verbal agreements between them, and shall bind
and benefit the parties and their respective successors and per-mitted assigns.
There are no oral under-standings, oral representations or oral agreements
- --------------------------------------------------------------------------------
between the par-ties which are not set forth in this Agreement or in other
- --------------------------------------------------------------------------------
written agreements signed by the parties in connection herewith.
- --------------------------------------------------------------------------------
10.14. MUTUAL WAIVER OF JURY TRIAl. TBCC and Borrower each hereby waive the
----------------------------
right to trial by jury in any action or proceeding based upon, arising out of,
or in any way relating to: (i) this Agreement; or (ii) any other present or
future instrument or agreement between TBCC and Borrower; or (iii) any conduct,
acts or omissions of TBCC or Borrower or any of their directors, officers,
em-ployees, agents, attorneys or any other persons affiliated with TBCC or
Borrower; in each of the foregoing cases, whether sounding in contract or tort
or otherwise.
Borrower:
LifeCell Corporation
By
------------------------------------
Title
----------------------------
TBCC:
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By
------------------------------------
Title
----------------------------
Form-10
Version: -4
TBCC LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
-18-
<PAGE>
SCHEDULE
<PAGE>
- --------------------------------------------------------------------------------
TBCC
Schedule to
Loan and Security Agreement
Borrower: LifeCell Corporation
Address: One Millenium Way
Branchburg, New Jersey 08867
Date: December 6, 1999
This Schedule is an integral part of the Loan and Security Agreement between
TRANSAMERICA BUSINESS CREDIT CORPORATION ("TBCC") and the above borrower
("Borrower") of even date herewith.
Credit Limit (Section 1.1):
An amount (the "Credit Limit") not to exceed the lesser of
$6,000,000 OR the sum of (A) and (B) below:
(A) Revolving Loans. Loans (the "Revolving Loans") in an
----------------
amount not to exceed the Applicable Revolving Sublimit (as
defined below); PLUS
(B) Term Loans. Loans (each a "Term Loan" and collectively
----------
referred to as the "Term Loans") in an amount not to exceed
the Applicable Term Sublimit (as defined below) at any one
time outstanding.
The term "Applicable Revolving Sublimit" shall mean
----------------------------------
$3,000,000.
The term "Applicable Term Sublimit" shall mean (a)
-----------------------------
$3,000,000, if the NJEDA Guaranty (as defined below) is in
effect and has not been revoked and the NJEDA Participation
(as defined below) has been effected.
The term "NJEDA Guaranty" shall mean a guaranty by the New
-----------------
Jersey Economic Development Authority ("NJEDA") in favor of
TBCC, in such form, having such provisions and relating to
such aggregate amount of Borrower's debt as are acceptable
to TBCC in its discretion.
The term "NJEDA Participation" shall mean a participation by
---------------------
NJEDA in the Term Loans in such amounts and pursuant to such
documentation and agreements as are acceptable to TBCC in
its discretion.
<PAGE>
TBCC SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Term Loans.
-----------
Each Term Loan shall be in the minimum amounts established
by TBCC from time to time. Term Loans may be drawn down
through March 15, 2000 only. Term Loans may not be repaid
and reborrowed.
Term Loans shall be repaid as follows: (i) interest only for
the period from the date on which any portion of the Term
Loan is disbursed through May 31, 2000; and (ii) thereafter,
with respect to the aggregate principal amount of
Term Loans outstanding, 30 equal amortized consecutive
monthly installments of principal and interest, commencing
on June 1, 2000 and continuing through and including
November 1, 2002.
Notwithstanding anything herein to the contrary, any unpaid
principal balance of the Term Loans and all sums due in
connection therewith shall be due in full on any termination
of this Loan Agreement for any reason.
At the request of TBCC, Borrower shall execute and deliver
Notes, on TBCC's standard form, evidencing the Term Loans.
2. Interest. (Section 2.1):
Revolving Loans: The interest rate in effect throughout each
---------------
calendar month during the term of this Agreement shall be
the highest "Base Rate" in effect during such month, plus
3.00% per annum, provided that the interest rate in effect
in each month shall not be less than 9.00% per annum, and
provided that the interest charged for each month with
respect to Revolving Loans shall be a minimum of $5,000,
regardless of the amount of the Obligations outstanding.
Interest shall be calculated on the basis of a 360-day year
for the actual number of days elapsed. "Base Rate" shall
mean the higher of (a) the highest prime, base or equivalent
rate of interest announced from time to time by Citibank,
N.A., First National Bank of Chicago and Bank of America
National Trust and Savings Association (which may not be the
lowest rate of interest charged by such bank) and (b) the
published annualized rate for 90-day dealer commercial paper
which appears in the "Money Rates" section of The Wall
Street Journal.
-2-
<PAGE>
TBCC SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Term Loans: The Term Loans shall bear interest at the rate
----------
of 13.23% per annum; provided that TBCC shall have the right
to increase said interest rate applicable to a Term Loan, as
of the date any Term Loan is made, proportionally to any
increase in the weekly average of the interest rates of
three-year U.S. Treasury Securities (as published in the
Wall St. Journal) from the week ending October 1, 1999 to
the week preceding the date of disbursement of such Term
Loan.
3. Fees: Loan Fee (Section 2.2): $60,000, payable concurrently
herewith. TBCC agrees that any amounts outstanding after the
application of the application fee that the Borrower paid to
the costs and expenses hereunder shall be applied to the
foregoing loan fee.
Termination Fee (Section 1.6(b)): An amount equal to $4,000
multiplied by each month (or portion thereof) from the
effective date of termination to the Revolving Loan Maturity
Date, which Termination Fee shall be payable on the date of
termination, provided that the amount thereof shall not
exceed $24,000.
4. REVOLVING LOAN Maturity Date (Section 1.6):
December 30, 2000 (the "Maturity Date"), subject to
automatic renewal and early termination as provided in
Section 1.6 above.
5. Reporting (Section 5.10): Borrower shall provide TBCC with the following
reports:
(a) Quarterly Financial Statements. Quarterly unaudited
--------------------------------
financial statements, as soon as available, and in any event
within 45 days after the end of each fiscal quarter of
Borrower and copies of all statements, reports and notices
sent or made available generally by Borrower to its security
holders and all reports on Form 10-Q filed with the
Securities and Exchange Commission.
(b) Annual Financial Statements. As soon as available, but
---------------------------
not later than 90 days after the end of the Borrower's
fiscal year, copies of all statements, reports and notices
sent or made available generally by Borrower to its security
holders and all reports on Form 10-K filed with the
Securities and Exchange Commission.
6. Borrower Information:
(a) Prior Names of Borrower (Section 4.11): None
(b) Prior Trade Names of Borrower (Section 4.11): None
(c) Existing Trade Names of Borrower (Section 4.11): None
(d) Other Places of Business and Locations of Collateral
(Section 4.2): None
-3-
<PAGE>
TBCC SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
7. FACSIMILE NUMBERS:
Borrower: To be provided under separate letter
TBCC: 860-677-6466
8. CLOSING DEADLINE (Section 1.8): December 15, 1999
9. ADDITIONAL PROVISIONS:
(a) Guaranty; Participation. Borrower shall concurrently
------------------------
herewith cause NJEDA to deliver to TBCC the NJEDA Guaranty
and the NJEDA Participation.
(b) Warrants. The Borrower shall concurrently herewith issue
--------
to TBCC or its designee five-year warrants to purchase
84,211 shares of common stock of the Borrower, at an initial
exercise price of $4.75 per share, on TBCC's standard form
of warrant, together with anti-dilution protection and
registration rights relating thereto all as more
specifically set forth in such warrant agreement.
Borrower:
LifeCell Corporation
TBCC:
ANSAMERICA BUSINESS CREDIT CORPORATION
By By
------------------------------- --------------------------------
President or Vice President Title
--------------------------------
Form-10
Version: -4
-4-
<PAGE>
REVOLVING NOTE
<PAGE>
- --------------------------------------------------------------------------------
REVOLVING CREDIT NOTE
$3,000,000 Chicago, Illinois December 6, 1999
FOR VALUE RECEIVED, LifeCell Corporation, a Delaware corporation having its
chief executive office and principal place of business at One Millenium Way,
Branchburg, New Jersey 08867 (the "Borrower"), hereby unconditionally and
absolutely promises to pay to the order of TRANSAMERICA BUSINESS CREDIT
CORPORATION, a Delaware corporation ("TBCC"), on the Maturity Date, at TBCC's
office at 9399 West Higgins Road, Suite 600, Rosemont, Illinois 60018, or at
such other location as TBCC may from time to time designate, in lawful money of
the United States of America and in immediately available funds, the principal
amount equal to $3,000,000 or such greater or lesser amount as represents the
aggregate unpaid principal amount of all Loans made by TBCC to the Borrower
under the revolving credit facility made available pursuant to the Loan and
Security Agreement between TBCC and Borrower dated December 6, 1999 (the "Loan
Agreement"). The Borrower further promises to pay interest in like money and
funds at TBCC's office specified above (or at such other location as TBCC may
from time to time designate) on the unpaid principal amount hereof from time to
time outstanding from and including the date hereof until paid in full (both
before and after judgment) at the rates and on the dates set forth in the Loan
Agreement. All capitalized terms used herein which are not defined herein shall
have the meanings ascribed to such terms in the Loan Agreement.
The holder of this Note is authorized to record the date and amount of each
Loan evidenced by this Note, the date and amount of each payment or prepayment
of principal hereof and the interest rate with respect thereto on a schedule
attached hereto, or on a continuation of such schedule attached hereto and made
a part hereof, and any such notation shall be conclusive and binding for all
purposes absent manifest error; provided, however, that the failure of TBCC to
-------- -------
make any such recordation or endorsement shall not affect the obligations of the
Borrower hereunder or under the Loan Agreement.
Whenever any payment to be made hereunder shall be stated to be due on a
day that is not a Business Day, the payment may be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the amount of interest due hereunder.
This Note is entitled to the benefit of all terms and conditions of, and
the security of all security interests, liens, mortgages, deeds of trust and
rights granted pursuant to, the Loan Agreement and the other Loan Documents, and
is subject to optional and mandatory prepayment as provided therein.
Upon the occurrence of any one or more Events of Default, all amounts then
remaining unpaid on this Note may be declared to be or may automatically become
immediately due and payable as provided in the Loan Agreement.
The Borrower acknowledges that the holder of this Note may assign, transfer
or sell all or a portion of its rights and interests to and under this Note to
one or more Persons as provided in the Loan Agreement and that such Persons
shall thereupon become vested with all of the rights and benefits of TBCC in
respect hereof as to all or that portion of this Note which is so assigned,
transferred or sold.
In the event of any conflict between the terms hereof and the terms and
provisions of the Loan Agreement, the terms and provisions of the Loan Agreement
shall control.
The Borrower and all other parties that at any time may be liable hereupon
in any capacity, jointly or severally, waive presentment, demand for payment,
protest and notice of dishonor of this Note and authorize the holder hereof,
without notice, to increase or decrease the rate of interest on any amount owing
2
<PAGE>
TBCC REVOLVING CREDIT NOTE
- --------------------------------------------------------------------------------
under this Note in accordance with the Loan Agreement. The Borrower further
waives promptness, diligence, notice of acceptance and any other notice with
respect to any of the Obligations and any requirement that TBCC exhaust any
rights or take any action against any other Person or any collateral. The
Borrower further hereby waives notice of or proof of reliance by TBCC upon this
Note, and the Obligations shall conclusively be deemed to have been created,
contracted, incurred, renewed, extended, amended or waived in reliance upon this
Note. The Borrower shall make all payments hereunder and under the Loan
Agreement without defense, offset or counterclaim. No failure to exercise and no
delay in exercising any rights hereunder on the part of the holder hereof shall
operate as a waiver of such rights. This Note may not be changed orally, but
only by an agreement in writing, which is signed by the party or parties against
whom enforcement of any waiver, change, modification or discharge is sought.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS NOTE AND THE OTHER
LOAN DOCUMENTS AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS NOTE,
WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY
THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) AND DECISIONS
OF THE STATE OF ILLINOIS.
ALL DISPUTES ARISING UNDER OR IN CONNECTION WITH THIS NOTE AND ANY OTHER
LOAN DOCUMENT BETWEEN THE BORROWER AND TBCC, WHETHER SOUNDING IN CONTRACT, TORT,
EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED
IN CHICAGO, ILLINOIS, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN;
PROVIDED, HOWEVER, THAT TBCC SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN ANY LOCATION
REASONABLY SELECTED BY TBCC IN GOOD FAITH TO ENABLE TBCC TO REALIZE ON SUCH
PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF TBCC. THE
BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR
CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY TBCC. THE BORROWER WAIVES ANY
OBJECTION THAT THE BORROWER MAY HAVE TO THE LOCATION OF THE COURT IN WHICH TBCC
HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS.
THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT CORPORATION SYSTEM, 1209
ORANGE STREET, WILMINGTON, DELAWARE 19801 AS THE DESIGNEE AND AGENT OF THE
BORROWER TO RECEIVE, FOR AND ON BEHALF OF THE BORROWER SERVICE OF PROCESS IN ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS NOTE OR ANY OTHER LOAN DOCUMENT.
IT IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED ON SUCH AGENT AT ITS ADDRESS
WILL BE PROMPTLY FORWARDED BY MAIL TO THE BORROWER, BUT THE FAILURE OF THE
BORROWER TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH
PROCESS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF TBCC TO SERVE LEGAL PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW.
THE BORROWER AND, BY ITS ACCEPTANCE HEREOF, TBCC EACH hereby waive the
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO: (I) THIS NOTE; OR (II) ANY OTHER PRESENT OR FUTURE
<PAGE>
TBCC REVOLVING CREDIT NOTE
- --------------------------------------------------------------------------------
INSTRUMENT OR AGREEMENT BETWEEN TBCC AND BORROWER; OR (III) ANY CONDUCT, ACTS OR
OMISSIONS OF TBCC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EM-PLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH TBCC OR BORROWER; IN
EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
LifeCell Corporation
By:
------------------------------
Title:
---------------------------
3
<PAGE>
SCHEDULE
TO REVOLVING CREDIT NOTE
DATED December 6, 1999
OF LifeCell Corporation TO
TRANSAMERICA BUSINESS CREDIT CORPORATION
<TABLE>
<CAPTION>
Date Amount of Loan Interest Rate Amount of Principal Paid Unpaid Principal Balance Notation Made by
- ---- -------------- ------------- ------------------------ ------------------------ ----------------
<S> <C> <C> <C> <C> <C>
</TABLE>
4
<PAGE>
TERM NOTE
5
<PAGE>
RESOLUTION
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE RESOLUTION TO BORROW
RESOLVED, that this corporation, LIFECELL CORPORATION, a Delaware
corporation, borrow from TRANSAMERICA BUSINESS CREDIT CORPORATION ("TBCC"), from
time to time, such sum or sums of money as, in the judgment of the officers
hereinafter authorized, this corporation may require.
RESOLVED FURTHER, that any officer of this corporation (hereinafter
"authorized officers") be, and they hereby are authorized, directed and
empowered, in the name of this corporation, to execute and deliver to TBCC, and
TBCC is requested to accept, the loan agreements, security agreements, notes,
financing statements, and other documents and instruments evidencing and/or
securing the indebtedness of this corporation for the monies so borrowed, or to
be borrowed, with interest thereon, and said authorized officers are authorized
from time to time to execute renewals, extensions and/or amendments of said loan
agreements, security agreements, and other documents and instruments.
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized, directed and empowered, as security for any notes or any other
indebtedness of this corporation to TBCC, whether arising pursuant to this
resolution or otherwise, to grant, transfer, pledge, mortgage, assign, or
otherwise hypothecate to TBCC, or deed in trust for its benefit, any property of
any and every kind, belonging to this corporation, including, but not limited
to, any and all real property, accounts, inventory, equipment, general
intangibles, instruments, documents, chattel paper, notes, money, deposit
accounts, furniture, fixtures, goods and all other property, of every kind, and
to execute and deliver to TBCC any and all grants, transfers, trust receipts,
loan or credit agreements, pledge agreements, mortgages, deeds of trust,
financing statements, security agreements and other hypothecation agreements,
which said instruments and the note or notes and other instruments referred to
in the preceding paragraph may contain such provisions, covenants, recitals and
agreements as TBCC may require and said authorized officers may approve, and the
execution thereof by said authorized officers shall be conclusive evidence of
such approval.
RESOLVED FURTHER, that any and all acts of the authorized officers of this
corporation done or made heretofore in connection with the borrowing of money
from TBCC, including, but not limited to: the execution of all instruments
evidencing the indebtedness of this corporation for monies so borrowed and
renewals or extensions thereof, and the grant, transfer, pledge, mortgage,
assignment, or any other hypothecation, or deed in trust of any property
belonging to this corporation as security for the indebtedness of this
corporation, to TBCC and the delivery of all instruments related thereto to
TBCC, are hereby ratified, approved and confirmed.
RESOLVED FURTHER, that any bank, banker or trust company be and it hereby
is, authorized and requested to receive for deposit to the credit of TBCC
without further inquiry, all checks, drafts and other instruments for the
payment of money payable to this corporation or its order, and that said bank,
banker, or trust company shall be under no liability to this corporation for the
disposition which TBCC may or shall make of said instruments or the proceeds
thereof, and that any officer or agent of TBCC is hereby authorized and
empowered to endorse the name of this corporation to any and all checks, drafts,
and other instruments payable to this corporation or its order.
<PAGE>
Warrants
- --------
RESOLVED FURTHER, that, in connection with the foregoing loans, this
corporation shall issue to TBCC Funding Trust II, a Delaware business trust
five-year warrants to purchase 84,211 shares of common stock of this
corporation, at $4.75 per share, on the terms and provisions of TBCC's standard
form Warrant to Purchase Stock and related documents (including without
limitation registration rights agreements and anti-dilution agreements), with
such changes therein as TBCC and this corporation shall agree; any officer of
this corporation is hereby authorized to execute and deliver such Warrant to
Purchase Stock and related documents, and all documents and instruments relating
thereto, in such form and containing such additional provisions as said
authorized officers may approve, and the execution thereof by said authorized
officers shall be conclusive evidence of such approval.
RESOLVED FURTHER, that TBCC is authorized to act upon this resolution until
written notice of its revocation is delivered to, and actually received by,
TBCC, and that the authority hereby granted shall apply with equal force and
effect to the successors in office of the officers herein named.
I, Secretary of LIFECELL CORPORATION, a corporation, incorporated under and
by virtue of the laws of the State of Delaware, do hereby certify that the
foregoing is a full, true and correct copy of resolutions duly and regularly
adopted by the Board of Directors of said corporation as required by law, and by
the by-laws of said corporation.
I further certify that said resolutions are still in full force and effect
and have not been in any way modified, repealed, rescinded, amended or revoked,
and that the following are the names and specimen signatures of the officers and
agents of said corporation:
Name Office Signature
- ----------------------- ----------------------- -----------------------------
- ----------------------- ----------------------- -----------------------------
- ----------------------- ----------------------- -----------------------------
- ----------------------- ----------------------- -----------------------------
IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary and
affixed the corporate seal of said corporation on December 6, 1999.
--------------------------------
Secretary of Said Corporation
13,746
2
<PAGE>
OPINION
<PAGE>
- --------------------------------------------------------------------------------
[FORM OF TERM NOTE]
-------------------
PROMISSORY NOTE
---------------
$ Date:
- ---------------- -----------------
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
Transamerica Business Credit Corporation or its assigns (the "Payee") at its
office located at Riverway II, West Office Tower, 9399 West Higgins Road,
Rosemont, Illinois 60018, or at such other place as the Payee or the holder
hereof may designate in writing, the principal amount of $ ___________ received
by the undersigned, plus interest, in lawful money of the United States and in
immediately available funds.
This Note is executed and delivered pursuant to the Loan and Security
Agreement between TBCC and Borrower dated DECEMBER 6, 1999 (as amended from time
to time, the "Loan Agreement"). This Note shall be payable commencing with a
first installment of $_____________ per month payable on MAY 1, 2000 and
continuing on the same day of each succeeding month until DECEMBER 1, 2002, on
which date the entire unpaid principal balance of this Note, plus all accrued
interest shall be due and payable; provided that the entire unpaid principal
balance of this Note, plus all accrued interest shall be due and payable on the
date the Loan Agreement terminates by its terms or is terminated by either
party. The Borrower further promises to pay interest in like money and funds at
TBCC's office specified above (or at such other location as TBCC may from time
to time designate) on the unpaid principal amount hereof from time to time
outstanding from and including the date hereof until paid in full (both before
and after judgment) at the rates and on the dates set forth in the Loan
Agreement. All capitalized terms used herein which are not defined herein shall
the meanings ascribed to such terms in the Loan Agreement.
This Note is one of the Notes regarding Term Loans referred to in the
Schedule the Loan and Security Agreement dated as of December 6, 1999 (as
amended, supplemented or otherwise modified from time to time, the "Agreement")
between the undersigned and the Payee and is subject and entitled to all
provisions and benefits thereof. Capitalized terms used but not defined herein
shall have the meanings set forth in the Agreement.
If any installment of this Note is not paid within five days after its due
date, the undersigned agrees to pay on demand, in addition to the amount of such
installment, an amount equal to 5% of such installment, but only to the extent
permitted by Applicable Law.
The undersigned shall have the right to prepay this Note in the aggregate
principal amount outstanding hereunder together with all accrued and unpaid
interest thereon, fees and all other amounts payable relating thereto plus the
following (the "Prepayment Special Amount"): (1) if any such prepayment is made
during the first year after the date hereof, the undersigned shall also pay an
amount equal to 3% of the principal amount outstanding hereunder; and (2) if any
such prepayment is made during the second year after the date hereof, the
undersigned shall also pay an amount equal to 2% of the principal amount
outstanding hereunder. No Prepayment Special Amount is applicable with the
period beginning as of the date of the second anniversary hereof and after.
Further, and notwithstanding the foregoing, if the Warrant Special Condition (as
defined below) occurs at the time of any such prepayment, then no Prepayment
<PAGE>
Special Amount is applicable regardless of the date of any such prepayment. As
used herein the term "Warrant" shall mean the Stock Subscription Warrant dated
December 6, 1999 executed by the undersigned in favor of TBCC Funding Trust II,
as amended or otherwise modified from time to time. If the per share current
market price of the common stock of the undersigned as of the date of the
prepayment is greater than two times the Warrant Price (as defined in the
Warrant), then such an occurrence shall constitute the "Warrant Special
Condition".
Upon the maturity of this Note or the acceleration of the maturity of this
Note in accordance with the terms of the Agreement, the entire unpaid principal
amount on this Note, together with all interest, fees and other amounts payable
hereon or in connection herewith (including without limitation the Prepayment
Special Amount referred to in the preceding paragraph), shall be immediately due
and payable without further notice or demand, with interest on all such amounts
at a rate not to exceed the lawful limit, from the date of such maturity or
acceleration, as the case may be, until all such amounts have been paid.
If any payment on this Note becomes payable on a day other than a Business
Day, the maturity thereof shall be extended to the next succeeding Business Day.
The undersigned hereby waives diligence, demand, presentment, protest and
notice of any kind, and assents to extensions of the time of payment, release,
surrender or substitution of security, or forbearance or other indulgence,
without notice. The undersigned agrees to pay all amounts under this Note
without offset, deduction, claim, counterclaim, defense or recoupment, all of
which are hereby waived.
The Payee, the undersigned and any other parties to the Loan Documents
intend to contract in strict compliance with applicable usury law from time to
time in effect. In furtherance thereof such Persons stipulate and agree that
none of the terms and provisions contained in the Loan Documents shall ever be
construed to create a contract to pay, for the use, forbearance or detention of
money, interest in excess of the maximum amount of interest permitted to be
charged by Applicable Law from time to time in effect. Neither the undersigned
nor any present or future guarantors, endorsers, or other Persons hereafter
becoming liable for payment of any Obligation shall ever be liable for unearned
interest thereon or shall ever be required to pay interest thereon in excess of
the maximum amount that may be lawfully charged under Applicable Law from time
to time in effect, and the provisions of this paragraph shall control over all
other provisions of the Loan Documents which may be in conflict or apparent
conflict herewith. The Payee expressly disavows any intention to charge or
collect excessive unearned interest or finance charges in the event the maturity
of any Obligation is accelerated. If (a) the maturity of any Obligation is
accelerated for any reason, (b) any Obligation is prepaid and as a result any
amounts held to constitute interest are determined to be in excess of the legal
maximum, or (c) the Payee or any other holder of any or all of the Obligations
shall otherwise collect amounts which are determined to constitute interest
which would otherwise increase the interest on any or all of the Obligations to
an amount in excess of that permitted to be charged by Applicable Law then in
effect, then all sums determined to constitute interest in excess of such legal
limit shall, without penalty, be promptly applied to reduce the then outstanding
principal of the related Obligations or, at the Payee's or such holder's option,
promptly returned to the undersigned upon such determination. In determining
whether or not the interest paid or payable, under any specific circumstance,
exceeds the maximum amount permitted under Applicable Law, the Payee and the
undersigned (and any other payors thereof) shall to the greatest extent
permitted under Applicable Law, (i) characterize any non-principal payment as an
expense, fee or premium rather than as interest, (ii) exclude voluntary
prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and
spread the total amount of interest through the entire contemplated term of this
Note in accordance with the amount outstanding from time to time thereunder and
the maximum legal rate of interest from time to time in effect under Applicable
Law in order to lawfully charge the maximum amount of interest permitted under
Applicable Law. As used herein, "Applicable Law" means the laws of the State of
Illinois (or any other jurisdiction whose laws are mandatorily applicable
notwithstanding the parties' choice of Illinois law) or the laws of the United
States of America, whichever laws allow the greater interest, as such laws now
exist or may be changed or amended or come into effect in the future.
This Note may not be changed, modified or terminated orally, but only by an
agreement in writing signed by the undersigned and the Payee or any holder
hereof.
The undersigned shall, upon demand, pay to the Payee all costs and expenses
incurred by the Payee (including the fees and disbursements of counsel and other
professionals) in connection with the preparation, execution and delivery of
this Note and all other Loan Documents, and in connection with the
administration, modification and amendment of the Loan Documents, and pay to the
Payee all costs and expenses (including the fees and disbursements of counsel
and other professionals) paid or incurred by the Payee in (A) enforcing or
defending its rights under or in respect of this Note or any of the other Loan
Documents, (B) collecting any of the liabilities by the undersigned to the Payee
or otherwise administering the Loan Documents, (C) foreclosing or otherwise
collecting upon any collateral and (D) obtaining any legal, accounting or other
advice in connection with any of the foregoing.
This Note shall be binding upon the successors and assigns of the
undersigned and inure to the benefit of the Payee and its successors, endorsees
and assigns. If any term or provision of this Note shall be held invalid,
illegal or unenforceable, the validity of all other terms and provisions hereof
shall in no way be affected thereby.
<PAGE>
EACH OF THE UNDERSIGNED AND, BY ITS ACCEPTANCE HEREOF, THE PAYEE HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES (TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE
ARISING UNDER OR RELATING TO THIS NOTE AND AGREES THAT ANY SUCH DISPUTE SHALL BE
TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
LifeCell Corporation.
By:
---------------------------
Name:
Title:
Form17
<PAGE>
- --------------------------------------------------------------------------------
TBCC shall have the right to terminate the Streamlined Provisions, upon ___ days
prior written notice to Borrower. In addition, the
<PAGE>
TBCC
STREAMLINED FACILITY AGREEMENT
December 6, 1999
LifeCell Corporation
One Millenium Way
Branchburg, New Jersey 08867
Ladies and Gentlemen:
This Streamlined Facility Agreement (this "Agreement") is entered into
between Transamerica Business Credit Corporation ("TBCC"), and LifeCell
Corporation ("Borrower"), in connection with the Loan and Security Agreement
between TBCC and Borrower dated December 6, 1999 (the "Loan Agreement"). (This
Agreement, the Loan Agreement, and all other written documents and agreements
between TBCC and Borrower are referred to herein collectively as the "Loan
Documents". Capitalized terms used but not defined in this Agreement, shall
have the meanings set forth in the Loan Agreement.)
This will confirm our agreement that the following provisions (the
"Streamlined Provisions") shall apply, effective on the date hereof, until
terminated as provided below:
1. [Reserved]
2. Delivery of the proceeds of Receivables within one Business Day after
receipt, as called for by Section 1.4 of the Loan Agreement, will not be
required.
3. TBCC will also not require any Depository Account Agreement or Blocked
Account Agreement, as called for by Section 1.8 of the Loan Agreement. In
addition, Borrower will not be required to provide TBCC with copies of invoices
to customers or shipping and delivery receipts, as called for by Section 3.3(a)
of the Loan Agreement, or to report customer credits, returns and recoveries of
merchandise as called for by Section 3.3(b) of the Loan Agreement.
The Streamlined Provisions shall immediately terminate if any Default or
Event of Default occurs and is continuing. Upon any termination of the
Streamlined Provisions, without limiting TBCC's other rights and remedies,
Borrower shall, then and thereafter, provide TBCC with such other or additional
reporting of Receivables as TBCC shall request under Section 3.3(a) of the Loan
Agreement, comply in all respects with Section 3.3(b), and deliver all proceeds
of Receivables to TBCC, within one Business Day after receipt, as called for by
Section 1.4 of the Loan Agreement. Additionally, Borrower and its bank shall
execute and deliver a Blocked Account Agreement or Depository Account Agreement
(as TBCC shall designate), in form and substance satisfactory to TBCC.
<PAGE>
Please confirm your agreement to the foregoing by signing the enclosed copy of
this Agreement and returning it to us.
Sincerely yours,
Transamerica Business Credit Corporation
By By
------------------------- -------------------------
Title Title
------------------------- -------------------------
Acknowledged and Agreed.
LifeCell Corporation
By By
------------------------- -------------------------
Title Title
------------------------- -------------------------
<PAGE>
SECURITY AGREEMENT IN COPYRIGHTED WORKS
This Security Agreement In Copyrighted Works (this "Agreement") is made at
Chicago, Illinois as of December 6, 1999, is entered into between LifeCell
Corporation, a Delaware corporation ("Grantor"), which has a mailing address at
One Millenium Way, Branchburg, New Jersey 08867, and TRANSAMERICA BUSINESS
CREDIT CORPORATION, a Delaware corporation, ("TBCC") having its principal office
at 9399 West Higgins Road, Suite 600, Rosemont, Illinois 60018 and having an
office at 15260 Ventura Blvd., Suite 1240, Sherman Oaks, California 91403.
RECITALS
A. TBCC is providing financing to Grantor pursuant to the Loan and
Security Agreement of even date herewith between TBCC and Grantor (as amended
from time to time, the "Loan Agreement"). Pursuant to the Loan Agreement,
Grantor has granted to TBCC a security interest in all of Grantor's present and
future assets, including without limitation all of Grantor's present and future
general intangibles, and including without limitation the "Copyrights" (as
defined below), to secure all of its present and future indebtedness,
liabilities, guaranties and other obligations to TBCC.
B. To supplement TBCC's rights in the Copyrights, Grantor is executing
and delivering this Agreement.
NOW, THEREFORE, for valuable consideration, Grantor agrees as follows:
1. Assignment. To secure the complete and timely payment and
performance of all "Obligations" (as defined in the Loan Agreement), and without
limiting any other security interest Grantor has granted to TBCC, Grantor hereby
hypothecates to TBCC and grants, assigns, and conveys to TBCC a security
interest in Grantor's entire right, title, and interest in and to all of the
following, now owned and hereafter acquired (collectively, the "Collateral"):
(a) Registered Copyrights and Applications for Copyright Registrations.
All of Grantor's present and future United States registered copyrights and
copyright registrations, including, without limitation, the registered
copyrights listed in Schedule A to this Agreement (and including all of the
exclusive rights afforded a copyright registrant in the United States under 17
U.S.C. 106 and any exclusive rights which may in the future arise by act of
Congress or otherwise) and all of Grantor's present and future applications for
copyright registrations (including applications for copyright registrations of
derivative works and compilations) (collectively, the "Registered Copyrights"),
and any and all royalties, payments, and other amounts payable to Grantor in
connection with the Registered Copyrights, together with all renewals and
extensions of the Registered Copyrights, the right to recover for all past,
present, and future infringements of the Registered Copyrights, and all computer
programs, computer databases, computer program flow diagrams, source codes,
object codes and all tangible property embodying or incorporating the Registered
Copyrights, and all other rights of every kind whatsoever accruing thereunder or
pertaining thereto.
(b) Unregistered Copyrights. All of Grantor's present and future
copyrights which are not registered in the United States Copyright Office (the
"Unregistered Copyrights"), whether now owned or hereafter acquired, including
<PAGE>
without limitation the Unregistered Copyrights listed in Schedule B to this
Agreement, and any and all royalties, payments, and other amounts payable to
Grantor in connection with the Unregistered Copyrights, together with all
renewals and extensions of the Unregistered Copyrights, the right to recover for
all past, present, and future infringements of the Unregistered Copyrights, and
all computer programs, computer databases, computer program flow diagrams,
source codes, object codes and all tangible property embodying or incorporating
the Unregistered Copyrights, and all other rights of every kind whatsoever
accruing thereunder or pertaining thereto. The Registered Copyrights and the
Unregistered Copyrights collectively are referred to herein as the "Copyrights."
(c) Licenses. All of Grantor's right, title and interest in and to any
and all present and future license agreements with respect to the Copyrights,
including without limitation the license agreements listed in Schedule C to this
Agreement (the "Licenses").
(d) Accounts Receivable. All present and future accounts, accounts
receivable and other rights to payment arising from, in connection with or
relating to the Copyrights.
(e) Proceeds. All cash and non-cash proceeds of any and all of the
foregoing.
2. Representations. Grantor represents and warrants that:
(a) Each of the Copyrights is valid and enforceable (except to the
extent that the Unregistered Copyrights must be registered to be enforced);
(b) Except for the security interest granted hereby and the
non-exclusive licenses granted to Grantor's licensees with respect to the
Copyrights in the ordinary course of business of Grantor, Grantor is (and upon
creation of all future Copyrights, will be) the sole and exclusive owner of the
entire and unencumbered right, title, and interest in and to each of the
Copyrights and other Collateral, free and clear of any liens, charges, or
encumbrances;
(c) There is no pending claim that the use of any of the Copyrights
does or may infringe upon or violate the rights of any third person nor does
Grantor have knowledge of any pending or threatened infringement of any of the
Copyrights by any third person. (d) Listed on Schedules A and B are all
copyrights owned by Grantor, in which Grantor has an interest, or which are used
in Grantor's business.
(e) Listed on Schedule C are all Licenses to which Grantor is a party.
(f) Each employee, agent and/or independent contractor who has
participated in the creation of the property constituting the Collateral has
either executed an assignment of his or her rights of authorship to Grantor or
is an employee of Grantor acting within the scope of his or her employment and
was such an employee at the time of said creation.
(g) All of Grantor's present and future software, computer programs
and other works of authorship subject to United States copyright protection, the
sale, licensing or other disposition of which results in royalties receivable,
license fees receivable, accounts receivable or other sums owing to Grantor
(collectively, "Receivables"), have been and shall be registered with the United
States Copyright Office prior to the date Grantor requests or accepts any loan
from TBCC with respect to such Receivables and prior to the date Grantor
<PAGE>
includes any such Receivables in any accounts receivable aging, borrowing base
report or certificate or other similar report provided to TBCC, and Grantor
shall provide to TBCC copies of all such registrations promptly upon the receipt
of the same.
3. Covenants. Until all of the Obligations have been satisfied in full
and the Loan Agreement has terminated:
(a) Grantor shall not grant a security interest in any of the
Copyrights or other Collateral to any other person and shall not enter into any
agreement or take any action that is inconsistent with Grantor's obligations
hereunder or Grantor's other Obligations or would impair TBCC's rights, under
this Agreement or otherwise, without TBCC's prior written consent.
(b) Grantor shall ensure that each use of the Copyrights described in
Section 1 of this Agreement carries a complete and accurate copyright notice.
(c) Grantor shall use its best efforts to preserve and defend
Grantor's rights in the Copyrights unless Grantor, with the concurrence of TBCC,
reasonably determines that a Copyright is not worth preserving or defending.
(d) Grantor shall undertake all reasonable measures to cause its
employees, agents and independent contractors to assign to Grantor all rights of
authorship to any copyrighted material in which Grantor has or may subsequently
acquire any right or interest.
4. License Rights. Grantor may license or sublicense the Copyrights only
in the ordinary course of business and only on a non-exclusive basis, and only
to the extent of Grantor's rights and subject to TBCC's security interest and
Grantor's obligations under this Agreement.
5. TBCC May Supplement. Grantor authorizes TBCC to modify this
Agreement by amending Schedule A or B to include any future copyrights to be
included in the Copyrights. Grantor shall from time to time update the lists of
Registered Copyrights and Unregistered Copyrights on Schedules A and B and lists
of License Agreements on Schedule C as Grantor obtains or acquires copyrights or
grants or obtains licenses in the future. Notwithstanding the foregoing, no
failure to so modify this Agreement or amend Schedules A or B or C shall in any
way affect, invalidate or detract from TBCC's continuing security interest in
all Copyrights, whether or not listed on Schedule A or B and all license
agreements whether or not listed on Schedule C.
6. Default. Upon an Event of Default (as defined in the Loan Agreement)
TBCC shall have, in addition to all of its other rights and remedies under the
Loan Agreement, all rights and remedies of a secured party under the Uniform
Commercial Code (as enacted in any jurisdiction in which the Copyrights or other
Collateral are located or deemed to be located) or other applicable law. Upon
occurrence of an Event of Default, Grantor shall, upon request of TBCC, give
written notice to all parties to the Licenses that all payments thereunder shall
be made to TBCC, and TBCC may itself give such notice.
7. Fees and Expenses. On demand by TBCC, without limiting any of the terms
of the Loan Agreement, Grantor shall pay all reasonable fees, costs, and
expenses (including without limitation reasonable attorneys' fees and legal
expenses) incurred by TBCC in connection with (a) preparing this Agreement and
all other documents relating to this Agreement, (b) consummating this
transaction, (c) filing or recording any documents (including all taxes in
connection therewith) in public offices; and (d) paying or discharging any
taxes, counsel fees, maintenance fees, encumbrances, or other amounts in
connection with protecting, maintaining, or preserving the Copyrights or
<PAGE>
defending or prosecuting any actions or proceedings arising out of or related to
the Copyrights.
8. TBCC's Rights. In the event that Grantor fails to use its best efforts
to preserve and defend Grantor's rights in the Copyrights (except as permitted
by paragraph 3(c) hereof) within a reasonable period of time after learning of
the existence of any actual or threatened infringement thereof, upon twenty (20)
days' prior written notice to Grantor, TBCC shall have the right, but shall in
no way be obligated to, bring suit or take any other action, in its own name or
in Grantor's name, to enforce or preserve TBCC's or Grantor's rights in the
Copyrights. Grantor shall at the request of TBCC and at Grantor's expense do
any lawful acts and execute any documents requested by TBCC to assist with such
enforcement. In the event Grantor has not taken action to enforce or preserve
TBCC's and Grantor's rights in the Copyrights and TBCC thereupon takes such
action, Grantor, upon demand, shall promptly reimburse and indemnify TBCC for
all costs and expenses incurred in the exercise of TBCC's or Grantor's rights
under this Section 8.
9. No Waiver. No course of dealing between Grantor and TBCC, nor any
failure to exercise nor any delay in exercising, on the part of TBCC, any right,
power, or privilege under this Agreement or under the Loan Agreement or any
other agreement, shall operate as a waiver. No single or partial exercise of
any right, power, or privilege under this Agreement or under the Loan Agreement
or any other agreement by TBCC shall preclude any other or further exercise of
such right, power, or privilege or the exercise of any other right, power, or
privilege by TBCC.
10. Rights Are Cumulative. All of TBCC's rights and remedies with respect
to the Copyrights and other Collateral whether established by this Agreement,
the Loan Agreement, or any other documents or agreements, or by law shall be
cumulative and may be exercised concurrently or in any order.
11. Copyright Office. At the request of TBCC, Grantor shall execute any
further documents necessary or appropriate to create and perfect TBCC's security
interest in the Copyrights, including without limitation any documents for
filing with the United States Copyright Office and/or any applicable state
office. TBCC may record this Agreement, an abstract thereof, or any other
document describing TBCC's interest in the Copyrights with the United States
Copyright Office, at the expense of Grantor.
12. Indemnity. Grantor shall protect, defend, indemnify, and hold harmless
TBCC and TBCC's assigns from all liabilities, losses, and costs (including
without limitation reasonable attorneys' fees) incurred or imposed on TBCC
relating to the matters in this Agreement, including, without limitation, in
connection with TBCC's defense of any infringement action brought by a third
party against TBCC.
13. Severability. The provisions of this Agreement are severable. If any
provision of this Agreement is held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such provision or part thereof in any other jurisdiction, or any
other provision of this Agreement in any jurisdiction.
14. Amendments; Entire Agreement. This Agreement is subject to modification
only by a writing signed by the parties, except as provided in Section 5 of this
Agreement. To the extent that any provision of this Agreement conflicts with
<PAGE>
any provision of the Loan Agreement, the provision giving TBCC greater rights or
remedies shall govern, it being understood that the purpose of this Agreement is
to add to, and not detract from, the rights granted to TBCC under the Loan
Agreement. This Agreement, the Loan Agreement, and the documents relating
thereto comprise the entire agreement of the parties with respect to the matters
addressed in this Agreement.
15. Further Assurances. At TBCC's request, Grantor shall execute and
deliver to TBCC any further instruments or documentation, and perform any acts,
that may be reasonably necessary or appropriate to implement this Agreement, the
Loan Agreement or any other agreement, and the documents relating thereto,
including without limitation any instrument or documentation reasonably
necessary or appropriate to create, maintain, perfect, or effectuate TBCC's
security interests in the Copyrights or other Collateral.
16. Release. At such time as Grantor shall completely satisfy all of the
Obligations and the Loan Agreement shall be terminated, TBCC shall execute and
deliver to Grantor all assignments and other instruments as may be reasonably
necessary or proper to terminate TBCC's security interest in the Copyrights,
subject to any disposition of the Copyrights which may have been made by TBCC
pursuant to this Agreement. For the purpose of this Agreement, the Obligations
shall be deemed to continue if Grantor enters into any bankruptcy or similar
proceeding at a time when any amount paid to TBCC could be ordered to be repaid
as a preference or pursuant to a similar theory, and shall continue until it is
finally determined that no such repayment can be ordered.
17. True and Lawful Attorney. Grantor hereby appoints TBCC as Grantor's
true and lawful attorney, with full power of substitution, to do any or all of
the following, in the name, place and stead of Grantor: (a) execute an abstract
of this Agreement or any other document describing TBCC's interest in the
Copyrights, for filing with the United States Copyright Office; (b) execute any
modification of this Agreement pursuant to Section 5 of this Agreement; and (c)
following an Event of Default (as defined in the Loan Agreement) execute any
assignments, notices or transfer documents for purposes of transferring title or
right to receive any of the Copyrights or other Collateral to any person,
including without limitation TBCC.
18. Successors. The benefits and burdens of this Agreement shall inure to
the benefit of and be binding upon the respective successors and permitted
assigns of the parties; provided that Grantor may not transfer any of the
Collateral or any rights hereunder, without the prior written consent of TBCC,
except as specifically permitted hereby.
19. Governing Law. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF
THIS AGREEMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE
GOVERNED BY THE INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS. ALL
DISPUTES BETWEEN THE GRANTOR AND TBCC, WHETHER SOUNDING IN CONTRACT, TORT,
EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED
IN CHICAGO, ILLINOIS, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN;
PROVIDED, HOWEVER, THAT TBCC SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, TO PROCEED AGAINST THE GRANTOR OR ITS PROPERTY IN ANY LOCATION
REASONABLY SELECTED BY TBCC IN GOOD FAITH TO ENABLE TBCC TO REALIZE ON SUCH
PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF TBCC. THE
GRANTOR AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR
CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY TBCC. THE GRANTOR WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH TBCC HAS
COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS.
20. WAIVER OF RIGHT TO JURY TRIAL. TBCC AND GRANTOR EACH HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; OR (II) ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN TBCC AND GRANTOR; OR (III) ANY CONDUCT,
ACTS OR OMISSIONS OF TBCC OR GRANTOR OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH TBCC OR
GRANTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE.
WITNESS the execution hereof as of the date first written above.
Grantor:
LifeCell Corporation
By:
---------------------------------------
Name (please print):
------------------------------------
Title:
------------------------------------
Chairman of the Board,
President, or Vice President
<PAGE>
Accepted.
TBCC:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:
----------------------------------------
Name (please print):
- -------------------------------------------
Title:
-------------------------------------
<PAGE>
Schedule A
to
Security Agreement in Copyrighted Works
LifeCell Corporation
Registered Copyrights
U.S. Copyrights
TITLE OF WORK/YEAR REGISTRATION DATE
OF CREATION NUMBER OF ISSUANCE
<PAGE>
Schedule B
to
Security Agreement in Copyrighted Works
LifeCell Corporation
Unregistered Copyrights
(Where No Copyright Application Is Pending)
Copyright Description
See attached list of software applications.
<PAGE>
Schedule C
to
Security Agreement in Copyrighted Works
LifeCell Corporation
License Agreements
<PAGE>
- --------------------------------------------------------------------------------
PATENT AND TRADEMARK SECURITY AGREEMENT
This PATENT AND TRADEMARK SECURITY AGREEMENT ("Agreement"), dated as of December
6, 1999, is entered into between LifeCell Corporation, a Delaware corporation
("Grantor"), which has a mailing address at One Millenium Way, Branchburg, New
Jersey 08867, and TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware
corporation, ("TBCC") having its principal office at 9399 West Higgins Road,
Suite 600, Rosemont, Illinois 60018 and having an office at 15260 Ventura Blvd.,
Suite 1240, Sherman Oaks, California 91403.
RECITALS
A. Grantor and TBCC are, contemporaneously herewith, entering into that
certain Loan and Security Agreement ("Loan Agreement") and other instruments,
documents and agreements contemplated thereby or related thereto (collectively,
together with the Loan Agreement, the "Loan Documents"); and
B. Grantor is the owner of certain intellectual property, identified
below, in which Grantor is granting a security interest to TBCC.
NOW THEREFORE, in consideration of the mutual promises, covenants, conditions,
representations, and warranties hereinafter set forth and for other good and
valuable consideration, the parties hereto mutually agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. The following terms, as used in this Agreement, have
the following meanings:
"Code" means the Illinois Uniform Commercial Code, as amended and
supplemented from time to time, and any successor statute.
"Collateral" means all of the following, whether now owned or
hereafter acquired:
(i) Each of the trademarks and rights and interest which are capable
of being protected as trademarks (including trademarks, service marks,
designs, logos, indicia, tradenames, corporate names, company names,
business names, fictitious business names, trade styles, and other source
or business identifiers, and applications pertaining thereto), which are
presently, or in the future may be, owned, created, acquired, or used
(whether pursuant to a license or otherwise) by Grantor, in whole or in
part, and all trademark rights with respect thereto throughout the world,
including all proceeds thereof (including license royalties and proceeds of
infringement suits), and rights to renew and extend such trademarks and
trademark rights;
(ii) Each of the patents and patent applications which are presently,
or in the future may be, owned, issued, acquired, or used (whether pursuant
to a license or otherwise) by Grantor, in whole or in part, and all patent
rights with respect thereto throughout the world, including all proceeds
thereof (including license royalties and proceeds of infringement suits),
foreign filing rights, and rights to extend such patents and patent rights;
<PAGE>
(iii) All of Grantor's right to the trademarks and trademark
registrations listed on Exhibit A attached hereto, as the same may be
updated hereafter from time to time;
(iv) All of Grantor's right, title, and interest, in and to the
patents and patent applications listed on Exhibit B attached hereto, as the
same may be updated hereafter from time to time;
(v) All of Grantor's right, title and interest to register trademark
claims under any state or federal trademark law or regulation of any
foreign country and to apply for, renew, and extend the trademark
registrations and trademark rights, the right (without obligation) to sue
or bring opposition or cancellation proceedings in the name of Grantor or
in the name of TBCC for past, present, and future infringements of the
trademarks, registrations, or trademark rights and all rights (but not
obligations) corresponding thereto in the United States and any foreign
country;
(vi) All of Grantor's right, title, and interest in all patentable
inventions, and to file applications for patent under federal patent law or
regulation of any foreign country, and to request reexamination and/or
reissue of the patents, the right (without obligation) to sue or bring
interference proceedings in the name of Grantor or in the name of TBCC for
past, present, and future infringements of the patents, and all rights (but
not obligations) corresponding thereto in the United States and any foreign
country;
(vii) the entire goodwill of or associated with the businesses now or
hereafter con-ducted by Grantor con-nected with and symbol-ized by any of
the aforementioned properties and assets;
(viii) All general intangibles relating to the foregoing and all other
intangible intellectual or other similar property of the Grantor of any
kind or nature, associated with or arising out of any of the aforementioned
properties and assets and not otherwise described above; and
(ix) All products and proceeds of any and all of the foregoing
(including, without limitation, license royalties and proceeds of
infringement suits) and, to the extent not otherwise included, all payments
under insurance, or any indemnity, warranty, or guaranty payable by reason
of loss or damage to or otherwise with respect to the Collateral.
1.2 Construction. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, and the term "including" is not limiting. The
words "hereof," "herein," "hereby," "hereunder," and other similar terms refer
to this Agreement as a whole and not to any particular provision of this
Agreement. Any initially capitalized terms used but not defined herein shall
have the meaning set forth in the Loan Agreement. Any reference herein to any of
the Loan Documents includes any and all alterations, amendments, extensions,
<PAGE>
modifications, renewals, or supplements thereto or thereof, as applicable.
Neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved against TBCC or Grantor, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been reviewed by
Grantor, TBCC, and their respective counsel, and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of TBCC and Grantor. Headings have been
set forth herein for convenience only, and shall not be used in the construction
of this Agreement.
2. GRANT OF SECURITY INTEREST.
To secure the complete and timely payment and performance of all
Obligations, and without limiting any other security interest Grantor has
granted to TBCC, Grantor hereby grants, assigns, and conveys to TBCC a security
interest in Grantor's entire right, title, and interest in and to the
Collateral.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
Grantor hereby represents, warrants, and covenants that:
3.1 Trademarks; Patents. A true and complete schedule setting forth all
federal and state trademark registrations owned or controlled by Grantor or
licensed to Grantor, together with a summary description and full information in
respect of the filing or issuance thereof and expiration dates is set forth on
Exhibit A; and a true and complete schedule setting forth all patent and patent
applications owned or controlled by Grantor or licensed to Grantor, together
with a summary description and full information in respect of the filing or
issuance thereof and expiration dates is set forth on Exhibit B.
3.2 Validity; Enforceability. Each of the patents and trademarks is valid
and enforceable, and Grantor is not presently aware of any past, present, or
prospective claim by any third party that any of the patents or trademarks are
invalid or unenforceable, or that the use of any patents or trademarks violates
the rights of any third person, or of any basis for any such claims.
3.3 Title. Grantor is the sole and exclusive owner of the entire and
unencumbered right, title, and interest in and to each of the patents, patent
applications, trademarks, and trademark registrations, free and clear of any
liens, charges, and encumbrances, including pledges, assignments, licenses, shop
rights, and covenants by Grantor not to sue third persons.
3.4 Notice. Grantor has used and will continue to use proper statutory
notice in connection with its use of each of the patents and trademarks.
3.5 Quality. Grantor has used and will continue to use consistent standards
of high quality (which may be consistent with Grantor's past practices) in the
manufacture, sale, and delivery of products and services sold or delivered under
or in connection with the trademarks, including, to the extent applicable, in
the operation and maintenance of its merchandising operations, and will continue
to maintain the validity of the trademarks.
3.6 Perfection of Security Interest. Except for the filing of appropriate
financing statements (all of which filings have been made) and filings with the
United States Patent and Trademark Office necessary to perfect the security
interests created hereunder, no authorization, approval, or other action by, and
<PAGE>
no notice to or filing with, any governmental authority or regulatory body is
required either for the grant by Grantor of the security interest hereunder or
for the execution, delivery, or performance of this Agreement by Grantor or for
the perfection of or the exercise by TBCC of its rights hereunder to the
Collateral in the United States.
4. AFTER-ACQUIRED PATENT OR TRADEMARK RIGHTS.
If Grantor shall obtain rights to any new trademarks, any new patentable
inventions or become entitled to the benefit of any patent application or patent
for any reissue, division, or continuation, of any patent, the provisions of
this Agreement shall automatically apply thereto. Grantor shall give prompt
notice in writing to TBCC with respect to any such new trademarks or patents, or
renewal or extension of any trademark registration. Grantor shall bear any
expenses incurred in connection with future patent applications or trademark
registrations. Without limiting Grantor's obligation under this Section 4,
Grantor authorizes TBCC to modify this Agreement by amending Exhibits A or B to
include any such new patent or trademark rights. Notwithstanding the foregoing,
no failure to so modify this Agreement or amend Exhibits A or B shall in any way
affect, invalidate or detract from TBCC's continuing security interest in all
Collateral, whether or not listed on Exhibit A or B.
5. LITIGATION AND PROCEEDINGS.
Grantor shall commence and diligently prosecute in its own name, as the
real party in interest, for its own benefit, and its own expense, such suits,
administrative proceedings, or other action for infringement or other damages as
are in its reasonable business judgment necessary to protect the Collateral.
Grantor shall provide to TBCC any information with respect thereto requested by
TBCC. TBCC shall provide at Grantor's expense all necessary cooperation in
connection with any such suits, proceedings, or action, including, without
limitation, joining as a necessary party. Following Grantor's becoming aware
thereof, Grantor shall notify TBCC of the institution of, or any adverse
determination in, any proceeding in the United States Patent and Trademark
Office, or any United States, state, or foreign court regarding Grantor's claim
of ownership in any of the patents or trademarks, its right to apply for the
same, or its right to keep and maintain such patent or trademark rights.
6. POWER OF ATTORNEY.
Grantor hereby appoints TBCC as Grantor's true and lawful attorney, with
full power of substitution, to do any or all of the following, in the name,
place and stead of Grantor: (a) file this Agreement (or an abstract hereof) or
any other document describing TBCC's interest in the Collateral with the United
States Patent and Trademark Office; (b) execute any modification of this
Agreement pursuant to Section 4 of this Agreement; (c) take any action and
execute any instrument which TBCC may deem necessary or advisable to accomplish
the purposes of this Agreement; and (d) following an Event of Default (as
defined in the Loan Agreement), (i) endorse Grantor's name on all applications,
documents, papers and instruments necessary for TBCC to use or maintain the
Collateral; (ii) ask, demand, collect, sue for, recover, impound, receive, and
give acquittance and receipts for money due or to become due under or in respect
of any of the Collateral; (iii) file any claims or take any action or institute
<PAGE>
any proceedings that TBCC may deem necessary or desirable for the collection of
any of the Collateral or otherwise enforce TBCC's rights with respect to any of
the Collateral, and (iv) assign, pledge, convey, or otherwise transfer title in
or dispose of the Collateral to any person.
7. RIGHT TO INSPECT.
Grantor grants to TBCC and its employees and agents the right to visit
Grantor's plants and facilities which manufacture, inspect, or store products
sold under any of the patents or trademarks, and to inspect the products and
quality control records relating thereto at reasonable times during regular
business hours.
8. SPECIFIC REMEDIES.
Upon the occurrence of any Event of Default (as defined in the Loan
Agreement), TBCC shall have, in addition to, other rights given by law or in
this Agreement, the Loan Agreement, or in any other Loan Document, all of the
rights and remedies with respect to the Collateral of a secured party under the
Code, including the following:
8.1 Notification. TBCC may notify licensees to make royalty payments on
license agreements directly to TBCC;
8.2 Sale. TBCC may sell or assign the Collateral and associated goodwill at
public or private sale for such amounts, and at such time or times as TBCC deems
advisable. Any requirement of reasonable notice of any disposition of the
Collateral shall be satisfied if such notice is sent to Grantor five (5) days
prior to such disposition. Grantor shall be credited with the net proceeds of
such sale only when they are actually received by TBCC, and Grantor shall
continue to be liable for any deficiency remaining after the Collateral is sold
or collected. If the sale is to be a public sale, TBCC shall also give notice of
the time and place by publishing a notice one time at least five (5) days before
the date of the sale in a newspaper of general circulation in the county in
which the sale is to be held. To the maximum extent permitted by applicable law,
TBCC may be the purchaser of any or all of the Collateral and associated
goodwill at any public sale and shall be entitled, for the purpose of bidding
and making settlement or payment of the purchase price for all or any portion of
the Collateral sold at any public sale, to use and apply all or any part of the
Obligations as a credit on account of the purchase price of any collateral
payable by TBCC at such sale.
9. GENERAL PROVISIONS.
9.1 Effectiveness. This Agreement shall be binding and deemed effective
when executed by Grantor and TBCC.
9.2 Notices. Except to the extent otherwise provided herein, all notices,
demands, and requests that either party is required or elects to give to the
other shall be in writing and shall be governed by the notice provisions of the
Loan Agreement.
9.3 No Waiver. No course of dealing between Grantor and TBCC, nor any
failure to exercise nor any delay in exercising, on the part of TBCC, any right,
power, or privilege under this Agreement or under the Loan Agreement or any
other agreement, shall operate as a waiver. No single or partial exercise of any
<PAGE>
right, power, or privilege under this Agreement or under the Loan Agreement or
any other agreement by TBCC shall preclude any other or further exercise of such
right, power, or privilege or the exercise of any other right, power, or
privilege by TBCC.
9.4 Rights Are Cumulative. All of TBCC's rights and remedies with respect
to the Collateral whether established by this Agreement, the Loan Agreement, or
any other documents or agreements, or by law shall be cumulative and may be
exercised concurrently or in any order.
9.5 Successors. The benefits and burdens of this Agreement shall inure to
the benefit of and be binding upon the respective successors and permitted
assigns of the parties; provided that Grantor may not transfer any of the
Collateral or any rights hereunder, without the prior written consent of TBCC,
except as specifically permitted hereby.
9.6 Severability. The provisions of this Agreement are severable. If any
provision of this Agreement is held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such provision or part thereof in any other jurisdiction, or any
other provision of this Agreement in any jurisdiction.
9.7 Entire Agreement. This Agreement is subject to modification only by a
writing signed by the parties, except as provided in Section 4 of this
Agreement. To the extent that any provision of this Agreement conflicts with any
provision of the Loan Agreement, the provision giving TBCC greater rights or
remedies shall govern, it being understood that the purpose of this Agreement is
to add to, and not detract from, the rights granted to TBCC under the Loan
Agreement. This Agreement, the Loan Agreement, and the documents relating
thereto comprise the entire agreement of the parties with respect to the matters
addressed in this Agreement.
9.8 Fees and Expenses. Grantor shall pay to TBCC on demand all costs and
expenses that TBCC pays or incurs in connection with the negotiation,
preparation, consummation, administration, enforcement, and termination of this
Agreement, including: (a) reasonable attorneys' and paralegals' fees and
disbursements of counsel to TBCC; (b) costs and expenses (including reasonable
attorneys' and paralegals' fees and disbursements) for any amendment,
supplement, waiver, consent, or subsequent closing in connection with this
Agreement and the transactions contemplated hereby; (c) costs and expenses of
lien and title searches; (d) taxes, fees, and other charges for filing this
Agreement at the United States Patent and Trademark Office, or for filing
financing statements, and continuations, and other actions to perfect, protect,
and continue the security interest created hereunder; (e) sums paid or incurred
to pay any amount or take any action required of Grantor under this Agreement
that Grantor fails to pay or take; (f) costs and expenses of preserving and
protecting the Collateral; and (g) costs and expenses (including reasonable
attorneys' and paralegals' fees and disbursements) paid or incurred to enforce
the security interest created hereunder, sell or otherwise realize upon the
Collateral, and otherwise enforce the provisions of this Agreement, or to defend
any claims made or threatened against the TBCC arising out of the transactions
contemplated hereby (including preparations for the consultations concerning any
such matters). The foregoing shall not be construed to limit any other
provisions of this Agreement or the Loan Documents regarding costs and expenses
to be paid by Grantor. The parties agree that reasonable attorneys' and
paralegals' fees and costs incurred in enforcing any judgment are recoverable as
<PAGE>
a separate item in addition to fees and costs incurred in obtaining the judgment
and that the recovery of such attorneys' and paralegals' fees and costs is
intended to survive any judgment, and is not to be deemed merged into any
judgment.
9.9 Indemnity. Grantor shall protect, defend, indemnify, and hold harmless
TBCC and TBCC's assigns from all liabilities, losses, and costs (including
without limitation reasonable attorneys' fees) incurred or imposed on TBCC
relating to the matters in this Agreement.
9.10 Further Assurances. At TBCC's request, Grantor shall execute and
deliver to TBCC any further instruments or documentation, and perform any acts,
that may be reasonably necessary or appropriate to implement this Agreement, the
Loan Agreement or any other agreement, and the documents relating thereto,
including without limitation any instrument or documentation reasonably
necessary or appropriate to create, maintain, perfect, or effectuate TBCC's
security interests in the Collateral.
9.11 Release. At such time as Grantor shall completely satisfy all of the
Obligations and the Loan Agreement shall be terminated, TBCC shall execute and
deliver to Grantor all assignments and other instruments as may be reasonably
necessary or proper to terminate TBCC's security interest in the Collateral,
subject to any disposition of the Collateral which may have been made by TBCC
pursuant to this Agreement. For the purpose of this Agreement, the Obligations
shall be deemed to continue if Grantor enters into any bankruptcy or similar
proceeding at a time when any amount paid to TBCC could be ordered to be repaid
as a preference or pursuant to a similar theory, and shall continue until it is
finally determined that no such repayment can be ordered.
9.12 Governing Law. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT,
WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY
THE INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS. ALL DISPUTES BETWEEN
THE GRANTOR AND TBCC, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE,
SHALL BE RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS,
AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER,
THAT TBCC SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO
PROCEED AGAINST THE GRANTOR OR ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED
BY TBCC IN GOOD FAITH TO ENABLE TBCC TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE
A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF TBCC. THE GRANTOR AGREES THAT IT
WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY
PROCEEDING BROUGHT BY TBCC. THE GRANTOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO
THE LOCATION OF THE COURT IN WHICH TBCC HAS COMMENCED A PROCEEDING, INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON
CONVENIENS.
9.13 Waiver of Right to Jury Trial. TBCC and Grantor each hereby waive the
right to trial by jury in any action or proceeding based upon, arising out of,
or in any way relating to: (i) this Agreement; or (ii) any other present or
future instrument or agreement between TBCC and Grantor; or (iii) any conduct,
acts or omissions of TBCC or Grantor or any of their directors, officers,
employees, agents, attorneys or any other persons affiliated with TBCC or
Grantor; in each of the foregoing cases, whether sounding in contract or tort or
otherwise.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
TRANSAMERICA BUSINESS CREDIT LifeCell Corporation
CORPORATION
By By
------------------------- -------------------------
Title Title
------------------------- -------------------------
<PAGE>
Exhibit "A"
REGISTERED TRADEMARKS
Trademark Registration Date Registration No.
- --------- ------------------ -----------------
PENDING TRADEMARKS
------------------
<PAGE>
Exhibit "B"
PATENTS
Patent Description/Title Issue Date Patent No. Name of Inventor
- ------------------------- ----------- ----------- ----------------
PATENT APPLICATIONS
-------------------
Description Filing Date Serial No. Name of Inventor
- ----------- ------------ ----------- ----------------
<PAGE>
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
STOCK SUBSCRIPTION WARRANT
To Purchase Common Stock of
LifeCell Corporation (the "Company")
DATE OF INITIAL ISSUANCE: December 6, 1999
THIS CERTIFIES THAT for value received, TBCC Funding Trust II, a Delaware
business trust or its registered assigns (hereinafter called the "Holder") is
entitled to purchase from the Company, at any time during the Term of this
Warrant, 84,211 shares of common stock, $.001 par value, of the Company (the
"Common Stock"), at the Warrant Price, payable as provided herein. The exercise
of this Warrant shall be subject to the provisions, limitations and restrictions
herein contained, and may be exercised in whole or in part.
SECTION 1. Definitions.
-----------
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
Common Stock - shall mean and include the Company's authorized Common
-------------
Stock, $.001 par value, as constituted at the date
hereof.
Exchange Act - shall mean the Securities Exchange Act of 1934, as amended
-------------
from time to time.
Securities Act - the Securities Act of 1933, as amended.
---------------
Term of this Warrant - shall mean the period beginning on the date of
-----------------------
initial issuance hereof and ending on December 31, 2004
Warrant Price - $4.75 per share, subject to adjustment in accordance with
--------------
Section 5 hereof.
Warrants - this Warrant and any other Warrant or Warrants are issued in
--------
connection with a Loan and Security Agreement dated December 6, 1999 by and
between the Company and Transamerica Business Credit Corporation (the "Loan
Agreement") to the original holder of this Warrant, or any transferees from such
original holder or this Holder.
Warrant Shares - shares of Common Stock purchased or purchasable by the
---------------
Holder of this Warrant upon the exercise hereof.
SECTION 2. Exercise of Warrant.
---------------------
<PAGE>
2.1. Procedure for Exercise of Warrant. To exercise this Warrant in
------------------------------------
whole or in part (but not as to any fractional share of Common Stock), the
Holder shall deliver to the Company at its office referred to in Section 13
hereof at any time and from time to time during the Term of this Warrant: (i)
the Notice of Exercise in the form attached hereto, (ii) cash, certified or
official bank check payable to the order of the Company, wire transfer of funds
to the Company's account, or evidence of any indebtedness of the Company to the
Holder (or any combination of any of the foregoing) in the amount of the Warrant
Price for each share being purchased, and (iii) this Warrant. Notwithstanding
any provisions herein to the contrary, if the Current Market Price (as defined
in Section 5) is greater than the Warrant Price (at the date of calculation, as
set forth below), in lieu of exercising this Warrant as hereinabove permitted,
the Holder may elect to receive shares of Common Stock equal to the value (as
determined below) of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the office of the Company referred to in Section 13
hereof, together with the Notice of Exercise, in which event the Company shall
issue to the Holder that number of shares of Common Stock computed using the
following formula:
CS = WCS x (CMP-WP)
--------------
CMP
Where
CS equals the number of shares of Common Stock to be issued to the Holder
WCS equals the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised, the
portion of the Warrant being exercised (at the date of such
calculation)
CMP equals the Current Market Price (at the date of such calculation)
WP equals the Warrant Price (as adjusted to the date of such calculation)
In the event of any exercise of the rights represented by this Warrant, a
certificate or certificates for the shares of Common Stock so purchased,
registered in the name of the Holder or such other name or names as may be
designated by the Holder, shall be delivered to the Holder hereof within a
reasonable time, not exceeding fifteen (15) days, after the rights represented
by this Warrant shall have been so exercised; and, unless this Warrant has
expired, a new Warrant representing the number of shares (except a remaining
fractional share), if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder hereof within such time.
The person in whose name any certificate for shares of Common Stock is issued
upon exercise of this Warrant shall for all purposes be deemed to have become
the holder of record of such shares on the date on which the Warrant was
surrendered and payment of the Warrant Price and any applicable taxes was made,
irrespective of the date of delivery of such certificate, except that, if the
date of such surrender and payment is a date when the stock transfer books of
the Company are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.
2.2. Transfer Restriction Legend. Each certificate for Warrant Shares
----------------------------
shall bear the following legend (and any additional legend required by (i) any
applicable state securities laws and (ii) any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
<PAGE>
thereof unless at the time of exercise such Warrant Shares shall be registered
under the Securities Act:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold or
transferred in the absence of such registration or an exemption
therefrom under said Act."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the holder thereof (which counsel shall be reasonably satisfactory
to counsel for the Company) the securities represented thereby are not, at such
time, required by law to bear such legend.
SECTION 3. Covenants as to Common Stock. The Company covenants and agrees that
----------------------------
all shares of Common Stock that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable, and free from all taxes, liens and charges with respect to
the issue thereof. The Company further covenants and agrees that it will pay
when due and payable any and all federal and state taxes which may be payable in
respect of the issue of this Warrant or any Common Stock or certificates
therefor issuable upon the exercise of this Warrant. The Company further
covenants and agrees that the Company will at all times have authorized and
reserved, free from preemptive rights, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant.
The Company further covenants and agrees that if any shares of capital stock to
be reserved for the purpose of the issuance of shares upon the exercise of this
Warrant require registration with or approval of any governmental authority
under any federal or state law before such shares may be validly issued or
delivered upon exercise, then the Company will in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be. If and so long as the Common Stock issuable upon the exercise
of this Warrant is listed on any national securities exchange, the Company will,
if permitted by the rules of such exchange, list and keep listed on such
exchange, upon official notice of issuance, all shares of such Common Stock
issuable upon exercise of this Warrant.
SECTION 4. Adjustment of Number of Shares. Upon each adjustment of the Warrant
------------------------------
Price as provided in Section 5, the Holder shall thereafter be entitled to
purchase, at the Warrant Price resulting from such adjustment, the number of
shares (calculated to the nearest tenth of a share) obtained by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant Price resulting from such
adjustment.
SECTION 5. Adjustment of Warrant Price. The Warrant Price shall be subject to
---------------------------
adjustment from time to time as follows:
(iii) If, at any time during the Term of this Warrant, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, following the record date fixed for the determination of holders of
Common Stock entitled to receive such stock dividend, subdivision or split-up,
the Warrant Price shall be appropriately decreased so that the number of shares
of Common Stock issuable upon the exercise hereof shall be increased in
proportion to such increase in outstanding shares.
(iv) If, at any time during the Term of this Warrant, the number of shares
of Common Stock outstanding is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date for such combination,
the Warrant Price shall appropriately increase so that the number of shares of
Common Stock issuable upon the exercise hereof shall be decreased in proportion
to such decrease in outstanding shares.
(v) In case, at any time during the Term of this Warrant, the Company
shall declare a cash dividend upon its Common Stock payable otherwise than out
of earnings or earned surplus or shall distribute to holders of its Common Stock
shares of its capital stock (other than Common Stock), stock or other securities
of other persons, evidences of indebtedness issued by the Company or other
persons, assets (excluding cash dividends and distributions) or options or
rights (excluding options to purchase and rights to subscribe for Common Stock
or other securities of the Company convertible into or exchangeable for Common
Stock), then, in each such case, immediately following the record date fixed for
the determination of the holders of Common Stock entitled to receive such
dividend or distribution, the Warrant Price in effect thereafter shall be
determined by multiplying the Warrant Price in effect immediately prior to such
record date by a fraction of which the numerator shall be an amount equal to the
<PAGE>
difference of (x) the Current Market Price of one share of Common Stock minus
(y) the fair market value (as determined by the Board of Directors of the
Company, whose determination shall be conclusive) of the stock, securities,
evidences of indebtedness, assets, options or rights so distributed in respect
of one share of Common Stock, and of which the denominator shall be such Current
Market Price.
(vi) All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-tenth (1/10) of a share, as the case may be.
(vii) For the purpose of any computation pursuant to Section 2 hereof, or
this Section 5, the Current Market Price at any date of one share of Common
Stock shall be deemed to be the average of the daily closing prices for the 15
consecutive business days ending on the last business day before the day in
question (as adjusted for any stock dividend, split, combination or
reclassification that took effect during such 15 business day period). The
closing price for each day shall be the last reported sales price regular way
or, in case no such reported sales took place on such day, the average of the
last reported bid and asked prices regular way, in either case on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading or as reported by Nasdaq (or if the Common Stock is not at the time
listed or admitted for trading on any such exchange or if prices of the Common
Stock are not reported by Nasdaq then such price shall be equal to the average
of the last reported bid and asked prices on such day as reported by The
National Quotation Bureau Incorporated or any similar reputable quotation and
reporting service, if such quotation is not reported by The National Quotation
Bureau Incorporated); provided, however, that if the Common Stock is not traded
in such manner that the quotations referred to in this clause (vii) are
available for the period required hereunder, the Current Market Price shall be
determined in good faith by the Board of Directors of the Company or, if such
determination cannot be made, by a nationally recognized independent investment
banking firm selected by the Board of Directors of the Company (or if such
selection cannot be made, by a nationally recognized independent investment
banking firm selected by the American Arbitration Association in accordance with
its rules).
(viii) Whenever the Warrant Price shall be adjusted as provided in Section
5, the Company shall prepare a statement showing the facts requiring such
adjustment and the Warrant Price that shall be in effect after such adjustment.
The Company shall cause a copy of such statement to be sent by mail, first class
postage prepaid, to each Holder of this Warrant at its, his or her address
appearing on the Company's records. Where appropriate, such copy may be given
in advance and may be included as part of the notice required to be mailed under
the provisions of subsection (x) of this Section 5.
(ix) Adjustments made pursuant to clauses (iii), (iv) and (v) above shall
be made on the date such dividend, subdivision, split-up, combination or
distribution, as the case may be, is made, and shall become effective at the
opening of business on the business day next following the record date for the
determination of stockholders entitled to such dividend, subdivision, split-up,
combination or distribution.
<PAGE>
(x) In the event the Company shall propose to take any action of the types
described in clauses (iii), (iv) or (v) of this Section 5, the Company shall
forward, at the same time and in the same manner, to the Holder of this Warrant
such notice, if any, which the Company shall give to the holders of capital
stock of the Company.
(xi) In any case in which the provisions of this Section 5 shall require
that an adjustment shall become effective immediately after a record date for an
event, the Company may defer until the occurrence of such event issuing to the
Holder of all or any part of this Warrant which is exercised after such record
date and before the occurrence of such event the additional shares of capital
stock issuable upon such exercise by reason of the adjustment required by such
event over and above the shares of capital stock issuable upon such exercise
before giving effect to such adjustment exercise; provided, however, that the
Company shall deliver to such Holder a due bill or other appropriate instrument
evidencing such Holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
SECTION 6. Ownership.
---------
6.1. Ownership of This Warrant. The Company may deem and treat the
----------------------------
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 6.
6.2. Transfer and Replacement. This Warrant and all rights hereunder
--------------------------
are transferable in whole or in part upon the books of the Company by the Holder
hereof in person or by duly authorized attorney, and a new Warrant or Warrants,
of the same tenor as this Warrant but registered in the name of the transferee
or transferees (and in the name of the Holder, if a partial transfer is
effected) shall be made and delivered by the Company upon surrender of this
Warrant duly endorsed, at the office of the Company referred to in Section 13
hereof. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft or destruction, and, in such case, of indemnity or security
reasonably satisfactory to it, and upon surrender of this Warrant if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided that if the Holder hereof is an instrumentality of a state or
local government or an institutional holder or a nominee for such an
instrumentality or institutional holder an irrevocable agreement of indemnity by
such Holder shall be sufficient for all purposes of this Section 6, and no
evidence of loss or theft or destruction shall be necessary. This Warrant shall
be promptly cancelled by the Company upon the surrender hereof in connection
with any transfer or replacement. Except as otherwise provided above, in the
case of the loss, theft or destruction of a Warrant, the Company shall pay all
expenses, taxes and other charges payable in connection with any transfer or
replacement of this Warrant, other than stock transfer taxes (if any) payable in
connection with a transfer of this Warrant, which shall be payable by the
Holder. Holder will not transfer this Warrant and the rights hereunder except
in compliance with federal and state securities laws.
SECTION 7. Mergers, Consolidation, Sales. In the case of any proposed
-------------------------------
consolidation or merger of the Company with another entity, or the proposed sale
of all or substantially all of its assets to another person or entity, or any
proposed reorganization or reclassification of the capital stock of the Company,
then, as a condition of such consolidation, merger, sale, reorganization or
reclassification, lawful and adequate provision shall be made whereby the Holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein, in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable hereunder, such
<PAGE>
shares of stock, securities or assets as may (by virtue of such consolidation,
merger, sale, reorganization or reclassification) be issued or payable with
respect to or in exchange for the number of shares of such Common Stock
purchasable hereunder immediately before such consolidation, merger, sale,
reorganization or reclassification. In any such case appropriate provision
shall be made with respect to the rights and interests of the Holder of this
Warrant to the end that the provisions hereof shall thereafter be applicable as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of this Warrant.
SECTION 8. Notice of Dissolution or Liquidation. In case of any distribution
-------------------------------------
of the assets of the Company in dissolution or liquidation (except under
circumstances when the foregoing Section 7 shall be applicable), the Company
shall give notice thereof to the Holder hereof and shall make no distribution to
shareholders until the expiration of thirty (30) days from the date of mailing
of the aforesaid notice and, in any case, the Holder hereof may exercise this
Warrant within thirty (30) days from the date of the giving of such notice, and
all rights herein granted not so exercised within such thirty-day period shall
thereafter become null and void.
SECTION 9. Notice of Extraordinary Dividends. If the Board of Directors of the
---------------------------------
Company shall declare any dividend or other distribution on its Common Stock
except out of earned surplus or by way of a stock dividend payable in shares of
its Common Stock, the Company shall mail notice thereof to the Holder hereof not
less than thirty (30) days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution, and
the Holder hereof shall not participate in such dividend or other distribution
unless this Warrant is exercised prior to such record date. The provisions of
this Section 9 shall not apply to distributions made in connection with
transactions covered by Section 7.
SECTION 10. Fractional Shares. Fractional shares shall not be issued upon the
-----------------
exercise of this Warrant but in any case where the Holder would, except for the
provisions of this Section 10, be entitled under the terms hereof to receive a
fractional share upon the complete exercise of this Warrant, the Company shall,
upon the exercise of this Warrant for the largest number of whole shares then
called for, pay a sum in cash equal to the excess of the value of such
fractional share (determined in such reasonable manner as may be prescribed in
good faith by the Board of Directors of the Company) over the Warrant Price for
such fractional share.
SECTION 11. Special Arrangements of the Company. The Company covenants and
--------------------------------------
agrees that during the Term of this Warrant, unless otherwise approved by the
Holder of this Warrant:
11.1. Will Reserve Shares. The Company will reserve and set apart and
--------------------
have available for issuance at all times, free from preemptive or other
preferential rights, the number of shares of authorized but unissued Common
Stock deliverable upon the exercise of this Warrant.
11.2. Will Not Amend Certificate. The Company will not amend its
-----------------------------
Certificate of Incorporation to eliminate as an authorized class of capital
stock that class denominated as "Common Stock" on the date hereof.
11.3. Will Bind Successors. This Warrant shall be binding upon any
----------------------
corporation or other person or entity succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
<PAGE>
SECTION 12. Registration Rights; etc.
--------------------------
12.1. Certain Definitions. As used in this Section 12, the following
--------------------
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean the Warrant Shares less any Warrant
Shares theretofore sold to the public or in a private placement.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company in
compliance with Section 12.2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company, which shall be paid in any
event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, all fees and
disbursements of counsel for any Holder and any blue sky fees and expenses
excluded from the definition of "Registration Expenses."
"Holder" shall mean any holder of outstanding Warrant Shares or Registrable
Securities which (except for purposes of determining "Holders" under Section
12.5 hereof) have not been sold to the public.
"Other Shareholders" shall mean holders of securities of the Company who
are entitled by contract with the Company or who are permitted by the Company to
have securities included in a registration of the Company's securities.
12.2. Company Registration.
---------------------
(a) Notice of Registration. If the Company shall determine to
------------------------
register any of its securities either for its own account or the account of a
security holder or holders, other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Commission Rule
145 transaction, or a registration on any registration form which does not
permit secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made by any Holder within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above, subject to any
limitations on the number of shares as set forth in Section 12.2(b) below.
<PAGE>
PROVIDED, it is understood and agreed that the registration rights set
forth in this section 12.2 shall not apply to any registration occurring within
90 days of the date of this Warrant.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the written notice given pursuant
to Section 12.2(a)(i). In such event, the right of any Holder to registration
pursuant to Section 12.2 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company, directors and officers and the Other Shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for underwriting by
the Company.
Notwithstanding any other provision of this Section 12.2, if the
underwriter determines that marketing factors require a limitation on the number
of shares to be underwritten, the underwriter may (subject to the allocation
priority set forth below) exclude from such registration and underwriting some
or all of the Registrable Securities which would otherwise be underwritten
pursuant hereto. The Company shall so advise all holders of securities
requesting registration, and the number of shares of securities that are
entitled to be included in the registration and underwriting shall be allocated
in the following manner. The number of shares that may be included in the
registration and underwriting on behalf of such Holders, directors and officers
and Other Shareholders shall be allocated among such Holders, directors and
officers and Other Shareholders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities and other securities which they had
requested to be included in such registration at the time of filing the
registration statement.
If any Holder of Registrable Securities or any officer, director or Other
Shareholder disapproves of the terms of any such underwriting, it, he or she may
elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
12.3. Registration Rights. In the event that the Company grants
--------------------
registration rights, including demand registration rights, to any other holder
of securities of the Company, the Company will promptly give to the Holder
written notice thereof and, if in the opinion of the Holder such registration
rights are more favorable than the registration rights provided under this
Warrant, the Holder shall so notify the Company within thirty (30) days of
receipt of the foregoing notice from the Company, whereupon such registration
rights shall automatically be deemed to be incorporated in this Warrant.
12.4. Expenses of Registration. The Company shall bear all
--------------------------
Registration Expenses incurred in connection with any registration,
qualification and compliance by the Company pursuant to Section 12.2 hereof.
All Selling Expenses shall be borne by the holders of the securities so
registered pro rata on the basis of the number of their shares so registered.
12.5. Registration Procedures. In the case of each registration
------------------------
effected by the Company pursuant to this Section 12, the Company will keep each
Holder advised in writing as to the initiation of each registration and as to
the completion thereof. The Company will, at its expense:
<PAGE>
(a) keep such registration effective for a period of one hundred
twenty (120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs;
(b) furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request; and
(c) use its best efforts to register or qualify the Registrable
Securities under the securities laws or blue-sky laws of such jurisdictions as
any Holder may request; provided, however, that the Company shall not be
obligated to register or qualify such Registrable Securities in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in order to effect such registration, qualification or
compliance, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act or applicable
rules or regulations thereunder.
12.6. Indemnification.
---------------
(a) The Company, with respect to each registration, qualification
and compliance effected pursuant to this Section 12, will indemnify and hold
harmless each Holder, each of its officers, directors, partners, and agents, and
each party controlling such Holder, and each underwriter, if any, and each party
who controls any underwriter, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers, directors, partners, and
agents, and each party controlling such Holder, each such underwriter and each
party who controls any such underwriter, for any legal and any other expenses
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based solely upon
written information furnished to the Company by such Holder or underwriter, as
the case may be, and stated to be specifically for use in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance.
(b) Each Holder and Other Shareholder will, if Registrable
Securities held by it, him or her are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify and
hold harmless the Company, each of its directors and officers and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each party who controls the Company or such underwriter, each other
such Holder and Other Shareholder and each of their respective officers,
directors, partners, and agents, and each party controlling such Holder or Other
Shareholder, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and such Holders, Other Shareholders, directors, officers, partners,
agents, parties, underwriters or control persons for any legal or any other
<PAGE>
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document solely in reliance upon and in
conformity with written information furnished to the Company by such Holder or
Other Shareholder and stated to be specifically for use in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance; provided, however, that the obligations of such
Holders and Other Shareholders hereunder shall be limited to an amount equal to
the proceeds to each such Holder or Other Shareholder of securities sold as
contemplated herein.
(c) Each party entitled to indemnification under this Section 12.5
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have been
advised by counsel that actual or potential differing interests or defenses
exist or may exist between the Indemnifying Party and the Indemnified Party, in
which case such expense shall be paid by the Indemnifying Party), and provided
further that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 12. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall provide such information as may be
reasonably requested by an Indemnifying Party in order to enable such
Indemnifying Party to defend a claim as to which indemnity is sought.
12.7. Information by Holder. Each Holder of Registrable Securities,
-----------------------
and each Other Shareholder holding securities included in any registration,
shall furnish to the Company such information regarding such Holder or Other
Shareholder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 12.
12.8. Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may permit the sale of
the Registrable Securities to the public without registration, the Company
agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act") at any time
after it has become subject to such reporting requirements; and
<PAGE>
(c) So long as the Holder owns any Registrable Securities, furnish
to the Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement in connection with an offering of its Securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed as the Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing the Holder to sell any such securities
without registration.
SECTION 13. Notices. Any notice or other document required or permitted to be
-------
given or delivered to the Holder shall be delivered at, or sent by certified or
registered mail to, the Holder at 15260 Ventura Blvd., Suite 1240, Sherman Oaks,
California 91403, with a copy to Holder at Riverway II, West Office Tower, 9399
West Higgins Road, Rosemont, Illinois 60018, Attention: Legal Department or to
such other address as shall have been furnished to the Company in writing by the
Holder. Any notice or other document required or permitted to be given or
delivered to the Company shall be delivered at, or sent by certified or
registered mail to, the Company at One Millenium Way, Branchburg, New Jersey
08867, or to such other address as shall have been furnished in writing to the
Holder by the Company. Any notice so addressed and mailed by registered or
certified mail shall be deemed to be given when so mailed. Any notice so
addressed and otherwise delivered shall be deemed to be given when actually
received by the addressee.
SECTION 14. No Rights as Stockholder; Limitation of Liability. This Warrant
---------------------------------------------------
shall not entitle the Holder to any of the rights of a shareholder of the
Company except upon exercise in accordance with the terms hereof. No provision
hereof, in the absence of affirmative action by the Holder to purchase shares of
Common Stock, and no mere enumeration herein of the rights or privileges of the
Holder, shall give rise to any liability of the Holder for the Warrant Price
hereunder or as a shareholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company.
SECTION 15. Law Governing. THE VALIDITY, INTERPRETATION, AND ENFORCEMENT OF
--------------
THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
SECTION 16. Miscellaneous.
(a) This Warrant and any provision hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by both parties
(or any respective predecessor in interest thereof). The headings in this
Warrant are for purposes of reference only and shall not affect the meaning or
construction of any of the provisions hereof
(b) All capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to them in the Loan Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer on December 6, 1999.
LifeCell Corporation
[CORPORATE SEAL]
By:
--------------------------------------
Title:
--------------------------------------
<PAGE>
FORM OF NOTICE OF EXERCISE
[To be signed only upon exercise of the Warrant]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THE WITHIN WARRANT
The undersigned hereby exercises the right to purchase _________ shares of
Common Stock which the undersigned is entitled to purchase by the terms of the
within Warrant according to the conditions thereof, and herewith
[check one]
o makes payment of $ therefor; or
---------------
o directs the Company to issue shares, and to withhold shares
in lieu of payment of the Warrant Price, as described in
Section 2.1 of the Warrant.
All shares to be issued pursuant hereto shall be issued in the name of and the
initial address of such person to be entered on the books of the Company shall
be:
The shares are to be issued in certificates of the following denominations:
--------------------------------------
[Type Name of Holder]
By:
--------------------------------------
Title:
--------------------------------------
Dated:
-----------
<PAGE>
FORM OF ASSIGNMENT
(ENTIRE)
[To be signed only upon transfer of entire Warrant]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED hereby sells, assigns and
---------------------------
transfers unto all rights of the undersigned
-------------------------------
under and pursuant to the within Warrant, and the undersigned does hereby
irrevocably constitute and appoint Attorney to
-------------------------------
transfer the said Warrant on the books of the Company, with full power of
substitution.
--------------------------------------
[Type Name of Holder]
By:
--------------------------------------
Title:
--------------------------------------
Dated:
-----------
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
FORM OF ASSIGNMENT
(PARTIAL)
[To be signed only upon partial transfer of Warrant]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED hereby sells, assigns and
-------------------------
transfers unto (i) the rights of the undersigned
-------------------------------
to purchase shares of Common Stock under and pursuant to the within Warrant,
---
and (ii) on a non-exclusive basis, all other rights of the undersigned under and
pursuant to the within Warrant, it being understood that the undersigned shall
retain, severally (and not jointly) with the transferee(s) named herein, all
rights assigned on such non-exclusive basis. The undersigned does hereby
irrevocably constitute and appoint Attorney to
------------------------------
transfer the said Warrant on the books of the Company, with full power of
substitution.
--------------------------------------
[Type Name of Holder]
By:
--------------------------------------
Title:
--------------------------------------
Dated:
-----------
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
PURCHASE AGREEMENT
------------------
THIS PURCHASE AGREEMENT ("Agreement") is made as of the ____ day of
November, 1999 by and between LifeCell Corporation, a Delaware corporation (the
"Company"), and the Investors set forth on the signature page affixed hereto
(each an "Investor" and collectively the "Investors").
RECITALS
A. The Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the U.S.
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended;
B. Each Investor wishes to purchase, and the Company wishes to
sell and issue to each Investor, upon the terms and conditions stated in this
Agreement, that number of shares of the common stock of the Company, $0.001 par
value per share (the "Common Stock") and that number of warrants to purchase
Common Stock in the form attached hereto as EXHIBIT A (the "Warrants"), as are
---------
set forth on the signature page attached hereto and executed by each such
Investor, for an aggregate offering of 925,000 shares of Common Stock and
200,000 Warrants; and
C. Contemporaneous with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as EXHIBIT B (the "Registration Rights
---------
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended and the rules
and regulations promulgated thereunder, and applicable state securities laws;
In consideration of the mutual promises made herein and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. In addition to those terms defined above and elsewhere
-----------
in this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings here set forth:
1.1 "Affiliate" means, with respect to any person, any other
---------
person which directly or indirectly controls, is controlled by, or is under
common control with, such person.
1.2 "Agreements" means this Agreement, the Registration Rights
----------
Agreement, and the Warrants.
1.3 "Closing" means the consummation of the transactions
-------
contemplated by this Agreement, and "Closing Date" shall have the meaning set
------------
forth in Section 3, below.
<PAGE>
1.4 "Control" means the possession , direct or indirect, of the
-------
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract or
otherwise.
1.5 "Market Price" means the average closing bid price of the
-------------
Common Stock in the ten (10) trading days immediately preceding the date on
which the calculation is being made.
1.6 "Material Adverse Effect" means a material adverse effect on
-------------------------
the (i) condition (financial or otherwise), business, assets, or results of
operations of the Company; (ii) ability of the Company to perform any of its
material obligations under the terms of this Agreement; or (iii) rights and
remedies of the Investor under the terms of this Agreement.
1.7 "Person" means an individual, corporation, partnership, trust,
------
business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
1.8 "SEC Filings" has the meaning set forth in Section 4.6.
------------
1.9 "Securities" means the Shares, the Warrants and the Warrant
----------
Shares (defined below).
1.10 "Shares" means the shares of Common Stock being purchased by
------
the Investors hereunder.
1.11 "Warrant Shares" means the shares of Common Stock issuable
---------------
upon exercise of or otherwise pursuant to the Warrants.
1.12 "1933 Act" means the Securities Act of 1933, as amended, and
---------
the rules and regulations promulgated thereunder.
1.13 "1934 Act" means the Securities Exchange Act of 1934, as
---------
amended, and the rules and regulations promulgated thereunder.
2. Purchase and Sale of the Shares and Warrants. Subject to the terms
---------------------------------------------
and conditions of this Agreement, each of the Investors hereby severally, and
not jointly, agrees to purchase, and the Company hereby agrees to sell and issue
to the Investors, the number of Shares and Warrants to purchase the number of
shares of Common Stock set forth on such Investor's signature page attached
hereto. The purchase price per share of Common Stock purchased by each Investor
hereunder shall be $4.20 (the "Purchase Price"). The exercise price of the
Warrants shall be 130% of the Purchase Price, or $5.46 per share.
2
<PAGE>
3. Closing. The Company shall promptly deliver to Investors' counsel,
-------
in trust, a certificate or certificates, registered in such name or names as the
Investors shall have designated, representing all of the Shares and all of the
Warrants, with instructions that such certificates are to be held for release to
the Investors only upon payment of the Purchase Price to the Company. Upon
receipt by counsel to the Investors of the certificates, the Investors shall
promptly cause a wire transfer in same day funds to be sent to the account of
the Company as instructed in writing by the Company, in an amount representing
the entire Purchase Price. On the date the Company receives such funds, the
certificates evidencing the Shares and the Warrants shall be released to the
Investors (and such date shall be deemed the "Closing Date").
4. Representations and Warranties of the Company. The Company hereby
-----------------------------------------------
represents and warrants to the Investors that:
4.1 Organization, Good Standing and Qualification. The Company is
---------------------------------------------
a corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to carry on its business as now conducted and own its
properties. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property makes such qualification or
licensing necessary unless the failure to so qualify would not have a Material
Adverse Effect. The Company has no subsidiaries.
4.2 Authorization. The Company has the requisite corporate power
-------------
and authority and has taken all requisite action on the part of the Company, its
officers, directors and stockholders necessary for (i) the authorization,
execution and delivery of the Agreements, (ii) authorization of the performance
of all obligations of the Company hereunder or thereunder, and (iii) the
authorization, issuance (or reservation for issuance) and delivery of the
Securities. The Agreements constitute the legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability, relating to or affecting
creditors' rights generally.
4.3 Capitalization. Set forth on Schedule 4.3 hereto is (a) the
-------------- ------------
authorized capital stock of the Company on the date hereof; (b) the number of
shares of capital stock issued and outstanding; (c) the number of shares of
capital stock issuable pursuant to the Company's stock plans; and (d) the number
of shares of capital stock issuable and reserved for issuance pursuant to
securities (other than the Shares and the Warrants) exercisable for, or
convertible into or exchangeable for any shares of capital stock. All of the
issued and outstanding shares of the Company's capital stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
3
<PAGE>
preemptive rights. Except as set forth on Schedule 4.3, no Person is entitled
------------
to preemptive or similar statutory or contractual rights with respect to any
securities of the Company. Except as set forth on Schedule 4.3, there are no
------------
outstanding warrants, options, convertible securities or other rights,
agreements or arrangements of any character under which the Company is or may be
obligated to issue any equity securities of any kind and except as contemplated
by this Agreement, the Company is not currently in negotiations for the issuance
of any equity securities of any kind. Except as set forth on Schedule 4.3, the
------------
Company has no knowledge of any voting agreements, buy-sell agreements, option
or right of first purchase agreements or other agreements of any kind among any
of the securityholders of the Company relating to the securities of the Company
held by them. Except as set forth on Schedule 4.3, the Company has not granted
------------
any Person the right to require the Company to register any securities of the
Company under the 1933 Act, whether on a demand basis or in connection with the
registration of securities of the Company for its own account or for the account
of any other Person.
4.4 Valid Issuance. The Company has reserved a sufficient number
---------------
of shares of Common Stock for the issuance of the Shares pursuant to this
Agreement and upon exercise of the Warrants. The Company will take such steps
as may be necessary to reserve sufficient shares for issuance pursuant to
Section 7 below when such issuance is determinable. The Shares and Warrants are
duly authorized, and such Securities, along with the Warrant Shares when issued
in accordance herewith and with the terms of the Warrants, will be duly
authorized, validly issued, fully paid, non-assessable and free and clear of all
encumbrances and restrictions, except for restrictions on transfer imposed by
applicable securities laws.
4.5 Consents. The execution, delivery and performance by the
--------
Company of the Agreements and the offer, issuance and sale of the Securities
require no consent of, action by or in respect of, or filing with, any Person,
governmental body, agency, or official other than filings that have been made
pursuant to applicable state securities laws and post-sale filings pursuant to
applicable state and federal securities laws and the requirements of the Nasdaq
Stock Market, which the Company undertakes to file within the applicable time
periods.
4.6 Delivery of SEC Filings; Business. The Company has provided
-----------------------------------
the Investors with copies of the Company's most recent Annual Report on Form
10-K for the fiscal year ended December 31, 1998, and all other reports filed by
the Company pursuant to the 1934 Act since the filing of the Annual Report on
Form 10-K and prior to the date hereof (collectively, the "SEC Filings"). The
Company is engaged only in the business described in the SEC Filings and the SEC
Filings contain a complete and accurate description of the business of the
Company.
4.7 Use of Proceeds. The proceeds of the sale of the Common Stock
---------------
and the Warrants hereunder shall be used by the Company for working capital and
general corporate purposes.
4.8 No Material Adverse Change. Since the filing of the Company's
--------------------------
most recent Annual Report on Form 10-K or as otherwise identified and described
in subsequent reports filed by the Company pursuant to the 1934 Act or as set
forth on Schedule 4.8 hereto, there has not been:
-------------
(i) any change in the consolidated assets, liabilities,
financial condition or operating results of the Company from that reflected in
the financial statements included in the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30 1999, except changes in the ordinary course of
business which have not had, in the aggregate, a Material Adverse Effect;
4
<PAGE>
(ii) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of the
Company, or any redemption or repurchase of any securities of the Company;
(iii) any material damage, destruction or loss, whether or
not covered by insurance to any assets or properties of the Company;
(iv) any waiver by the Company of a valuable right or of a
material debt owed to it;
(v) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and which is not material to the assets, properties,
financial condition, operating results or business of the Company taken as a
whole (as such business is presently conducted and as it is proposed to be
conducted);
(vi) any material change or amendment to a material
contract or arrangement by which the Company or any of its assets or properties
is bound or subject;
(vii) any material labor difficulties or labor union
organizing activities with respect to employees of the Company;
(viii) any transaction entered into by the Company other
than in the ordinary course of business; or
(ix) any other event or condition of any character that
might have a Material Adverse Effect.
4.9 SEC Filings; Material Contracts.
----------------------------------
(a) The SEC Filings complied as to form in all material respects
with the requirements of the 1934 Act and did not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading.
(b) During the preceding two years, each registration
statement and any amendment thereto filed by the Company pursuant to the 1933
Act and the rules and regulations thereunder, as of the date such statement or
amendment became effective, complied as to form in all material respects with
the 1933 Act and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading; and each prospectus filed pursuant to Rule
424(b) under the 1933 Act, as of its issue date and as of the closing of any
sale of securities pursuant thereto did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
5
<PAGE>
(c) Except as set forth on Schedule 4.3 hereto, there are no
------------
agreements or instruments currently in force and effect that constitute a
warrant, option, convertible security or other right, agreement or arrangement
of any character under which the Company is or may be obligated to issue any
material amounts of any equity security of any kind, or to transfer any material
amounts of any equity security of any kind.
4.10 Form S-3 Eligibility. The Company is currently eligible to
----------------------
register the resale of its Common Stock on a registration statement on Form S-3
under the 1933 Act.
4.11 No Conflict, Breach, Violation or Default. The execution,
--------------------------------------------
delivery and performance of the Agreements by the Company and the issuance and
sale of the Securities will not conflict with or result in a breach or violation
of any of the terms and provisions of, or constitute a default under (i) the
Company's Certificate of Incorporation or the Company's Bylaws, both as in
effect on the date hereof (copies of which have been provided to the Investors
before the date hereof), or (ii) except where it would not have a Material
Adverse Effect, (a) any statute, rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over the
Company or any of its properties, or (b) except as set forth on Schedule 4.11,
-------------
any agreement or instrument to which the Company is a party or by which the
Company is bound or to which any of the properties of the Company is subject.
4.12 Tax Matters. The Company has timely prepared and filed all
------------
tax returns required to have been filed by the Company with all appropriate
governmental agencies and timely paid all taxes owed by it. There are no
material unpaid assessments against the Company nor, to the knowledge of the
Company, any basis for the assessment of any additional taxes, penalties or
interest for any fiscal period or audits by any federal, state or local taxing
authority except such as which are not material. All material taxes and other
assessments and levies that the Company is required to withhold or to collect
for payment have been duly withheld and collected and paid to the proper
governmental entity or third party when due. There are no tax liens or claims
pending or threatened against the Company or any of its respective assets or
property. There are no outstanding tax sharing agreements or other such
arrangements between the Company and any other corporation or entity.
4.13 Title to Properties. Except as disclosed in the SEC Filings
--------------------
or Schedule 4.13, the Company has good and marketable title to all real
--------------
properties and all other properties and assets owned by it, in each case free
from liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or currently planned to be
made thereof by them; and except as disclosed in the SEC Filings, the Company
holds any leased real or personal property under valid and enforceable leases
with no exceptions that would materially interfere with the use made or
currently planned to be made thereof by them.
6
<PAGE>
4.14 Certificates, Authorities and Permits. The Company possesses
-------------------------------------
adequate certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by it and has
not received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit that, if determined
adversely to the Company, would individually or in the aggregate have a Material
Adverse Effect.
4.15 No Labor Disputes. No material labor dispute with the
-------------------
employees of the Company exists or, to the knowledge of the Company, is
imminent.
4.16 Intellectual Property. The Company has sufficient title or
----------------------
adequate rights or licenses to use the inventions, know-how, patents,
copyrights, trademarks, trade names, confidential information and other
intellectual property (collectively, "Intellectual Property Rights"), material
to and used in the conduct of the business now operated by it, or presently
employed by it, and presently contemplated to be operated by it, and the Company
has not received any notice of infringement of or conflict with asserted rights
of others with respect to any Intellectual Property Rights. To the knowledge of
the Company, the Company's patents and other Intellectual Property Rights and
the present activities of the Company do not infringe any patent, copyright,
trademark, trade name or other proprietary rights of any third party.
4.17 Environmental Matters. The Company is not in violation of
----------------------
any statute, rule, regulation, decision or order of any governmental agency or
body or any court, domestic or foreign, relating to the use, disposal or release
of hazardous or toxic substances or relating to the protection or restoration of
the environment or human exposure to hazardous or toxic substances
(collectively, "Environmental Laws"), does not own or operate any real property
contaminated with any substance that is subject to any Environmental Laws, is
not liable for any off-site disposal or contamination pursuant to any
Environmental Laws, and is not subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim would
individually or in the aggregate have a Material Adverse Effect; and the Company
is not aware of any pending investigation that might lead to such a claim.
4.18 Litigation. Except as disclosed in the SEC Filings or on
----------
Schedule 4.18 hereto, there are no pending actions, suits or proceedings against
----------
or affecting the Company or any of its properties that, if determined adversely
to the Company, would individually or in the aggregate have a Material Adverse
Effect or would materially and adversely affect the ability of the Company to
perform its obligations under this Agreement, or which are otherwise material in
the context of the sale of the Securities; and to the Company's knowledge, no
such actions, suits or proceedings are threatened or contemplated.
4.19 Financial Statements. The financial statements included in
---------------------
each SEC Filing present fairly and accurately in all material respects the
consolidated financial position of the Company as of the dates shown and its
consolidated results of operations and cash flows for the periods shown, and
such financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis. Except as set
forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof, to the best of the Company's knowledge, the
Company has no liabilities, contingent or otherwise, except those which
individually or in the aggregate are not material to the financial condition or
operating results of the Company.
7
<PAGE>
4.20 Insurance Coverage. The Company maintains in full force and
-------------------
effect the insurance coverage set forth on Schedule 4.20, and the Company
-------------
reasonably believes such insurance coverage to be adequate against all
liabilities, claims and risks against which it is customary for comparably
situated companies to insure.
4.21 Compliance with Nasdaq Continued Listing Requirements. The
-------------------------------------------------------
Company is in compliance with all applicable Nasdaq continued listing
requirements. There are no proceedings pending or to the Company's knowledge
threatened against the Company relating to the continued listing of the
Company's Common Stock on the Nasdaq National Market and the Company has not
received any notice of, nor to the knowledge of the Company is there any basis
for, the delisting of the Common Stock from the Nasdaq National Market.
4.22 Brokers and Finders. Except as set forth on Schedule 4.23
--------------------- -------------
hereof, the Company shall have no liability or responsibility for the payment of
any commission or finder's fee to any third party in connection with or
resulting from this agreement or the transactions contemplated by this
Agreement. No agreement by the Company with any third party will give rise to
any liability or responsibility of any Investor for a finder's fee or commission
related to this Agreement and the transactions contemplated hereby.
4.23 No Directed Selling Efforts or General Solicitation. Neither
---------------------------------------------------
the Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D) in
connection with the offer or sale of any of the Securities.
4.24 No Integrated Offering. Neither the Company nor any of its
------------------------
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would adversely affect reliance by
the Company on Section 4(2) for the exemption from registration for the
transactions contemplated hereby or would require registration of the Securities
under the 1933 Act.
4.25 Disclosures. No representation or warranty made under any
-----------
Section hereof contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein, in
light of the circumstances under which the statements were made, not misleading.
5. Representations and Warranties of the Investor. Each of the
---------------------------------------------------
Investors hereby severally, and not jointly, represents and warrants to the
Company that:
8
<PAGE>
5.1 Organization and Existence. The Investor is a validly
----------------------------
existing corporation or limited liability company and has all requisite
corporate or limited liability company power and authority to invest in the
Securities pursuant to this Agreement.
5.2 Authorization. The execution, delivery and performance by the
-------------
Investor of the Agreements have been duly authorized and the Agreements will
each constitute the valid and legally binding obligation of the Investor,
enforceable against the Investor in accordance with their terms.
5.3 Purchase Entirely for Own Account. The Securities to be
-------------------------------------
received by the Investor hereunder will be acquired for investment for the
Investor's own account, not as nominee or agent, and not with a view to the
resale or distribution of any part thereof, and the Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. The Investor is not a registered broker dealer or an entity engaged
in the business of being a broker dealer.
5.4 Investment Experience. The Investor acknowledges that it can
----------------------
bear the economic risk and complete loss of its investment in the Securities and
has such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment contemplated
hereby.
5.5 Disclosure of Information. The Investor has had an
---------------------------
opportunity to receive documents related to the Company and to ask questions of
and receive answers from the Company regarding the Company, its business and the
terms and conditions of the offering of the Securities. The Investor
acknowledges receipt of the SEC Filings and any other filings which it requested
be made by the Company with the SEC. Neither such inquiries nor any other due
diligence investigation conducted by the Investor shall modify, amend or affect
the Investor's right to rely on the Company's representations and warranties
contained in this Agreement.
5.6 Restricted Securities. The Investor understands that the
----------------------
Securities are characterized as "restricted securities" under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.
5.7 Legends. It is understood that, until registration for resale
-------
pursuant to the Registration Rights Agreement, certificates evidencing the
Securities may bear one or all of the following legends:
(a) "The shares represented by this certificate may not be
transferred without (i) the opinion of counsel satisfactory to the corporation
that such transfer may lawfully be made without registration under the
Securities Act of 1933 or qualification under applicable state securities laws;
or (ii) such registration or qualification."
9
<PAGE>
(b) If required by the authorities of any state in connection
with the issuance of sale of the Securities, the legend required by such state
authority.
Upon registration for resale pursuant to the Registration Rights
Agreement, the Company shall promptly cause certificates evidencing the Shares
previously issued hereunder to be replaced with certificates which do not bear
such restrictive legends, and each Investor will thereafter sell the Common
Stock evidenced by such certificates only pursuant to the Prospectus (as defined
in the Registration Rights Agreement) or pursuant to Rule 144(k).
5.8 Accredited Investor. The Investor is an accredited investor
--------------------
as defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act.
5.9 No General Solicitation. The Investor did not learn of the
-------------------------
investment in the Securities as a result of any public advertising or general
solicitation.
5.10 Reliance. The Investor understands and acknowledges that (i)
--------
the Securities to be acquired by it hereunder are being offered and sold to it
without registration under the 1933 Act in a private placement that is exempt
from the registration provisions of the 1933 Act and (ii) the availability of
such exemption depends in part on and the Company will rely upon the accuracy
and truthfulness of the representations contained herein and the Investor hereby
consents to such reliance.
5.11 Transactions in Common Stock. The Investor has not, during
------------------------------
the thirty (30) trading days immediately preceding the date hereof, sold or
established a short position in, any shares of Common Stock.
6. Registration Rights Agreement. The parties acknowledge and agree
-------------------------------
that part of the inducement for the Investor to enter into this Agreement is the
Company's execution and delivery of the Registration Rights Agreement. The
parties acknowledge and agree that simultaneously with the execution hereof, the
Registration Rights Agreement is being duly executed and delivered by the
parties thereto.
7. Covenants and Agreements of the Company.
--------------------------------------------
7.1 Purchase Price Adjustments.
----------------------------
(a) Potential Adjustments. Subject to Section 7.1(e), if the
---------------------
Market Price on the first, second or third anniversary of the Closing is lower
than $2.60, $4.00 or $4.00, respectively, the Company shall issue to each of the
Investors that number of shares of Common Stock at such Market Price equal in
value to the difference between such Market Price and $2.60, $4.00 and $4.00,
respectively, multiplied by the number of Shares originally acquired by such
Investor hereunder. For so long as an Investor owns 65% or more of the Shares
originally acquired by such Investor hereunder, which holdings shall be
confirmed in writing by the Investor in the form attached as Schedule 7.1, such
------------
Investor shall be entitled to the full benefit of the adjustment required by
this Section 7.1(a). In the event an Investor on any anniversary date then owns
less than 65% of the Shares acquired by it hereunder, such Investor shall be
entitled to additional shares only with respect to the number of Shares then
owned by such Investor (i.e., the multiplier shall be only that number of Shares
as the Investor still owns). The term "Shares" as used in this Agreement shall
include shares issued to the Investors pursuant to this Section 7.1.
10
<PAGE>
(b) Adjustment Mechanics. If an adjustment is required
---------------------
pursuant to Section 7.1(a), the Company shall deliver to the Investors within
twenty (20) business days ("Delivery Date") each Investor's additional shares of
Common Stock; provided however, that the Company shall effect such adjustment in
cash, in whole or in part, to the extent required by Section 7.1(c). In the
event the Company fails to deliver the additional shares (or cash, as the case
may be) within ten (10) days of the Delivery Date, the Company shall be liable
to the Investors for a penalty equal to 1% of the aggregate adjustment per month
(in each instance to such Investor pro rata in accordance with its participation
in this offering), payable in Common Stock or cash, at the Company's election.
Any adjustment made on the second and third anniversaries of the Closing shall
take into account the adjustment(s) made, if any, on the first anniversary and
on the first and second anniversaries, respectively, such that the per share
cash amount of the adjustment in the second and third years shall be reduced by
the per share cash amount of the adjustment in the preceding year(s). By way of
illustration, if on the first anniversary the Market Price is $2.00, the
Investors will be entitled to a $.60 per share adjustment. If then on the
second anniversary, the Market Price is $3.00, the Investors will be entitled to
a $.40 per share adjustment (to wit, $1.00 difference from the $4.00 per share
target for year two, less $.60 per share adjustment paid on the first
anniversary).
(c) Limitation on Number of Shares.
----------------------------------
(i) If by way of any adjustment required by this Section
7.1, an Investor would receive a number of shares of Common Stock such that the
total number of such shares held by the Investor as of the date of such
adjustment would be greater than 9.90% but less than 13.0% of the total
outstanding Common Stock of the Company, then the Company shall not effect the
adjustment required by this Section to the extent necessary to avoid causing the
aforesaid limitation to be exceeded until 120 days following the date such
adjustment would have otherwise been made.
(ii) If by way of any adjustment required by this
Section 7.1, an Investor would receive a number of shares of Common Stock such
that the total number of such shares held by the Investor as of the date of such
adjustment would equal or exceed 13.0% of the total outstanding Common Stock of
the Company, then the Company shall not effect the adjustment required by this
Section to the extent necessary to avoid causing the aforesaid limitation to be
exceeded until 180 days following the date such adjustment would have otherwise
been made.
(iii) In the event that the Company would be obligated
to issue an amount of shares of Common Stock which, when aggregated with all
shares of Common Stock issued to an Investor, would constitute a breach of the
Company's obligations under the rules or regulations of Nasdaq as they apply to
the Company, or any other principal securities exchange or market upon which the
Common Stock is or becomes traded (the "Cap Regulations"), the Company shall not
be obligated to issue any such shares of Common Stock. Instead, the Company
shall immediately seek shareholder approval of this transaction if such approval
would, under the Cap Regulations, permit the Company to issue the shares of
Common Stock without violation of the Cap Regulations. If such shareholder
approval will not afford a cure of the breach of the Cap Regulations, or if such
shareholder approval is not obtained within eighty (80) days, then the Company
shall promptly redeem the Investor at a redemption price equal to 105% of the
cash value of the adjustment.
11
<PAGE>
Only shares acquired pursuant to this Agreement will be included in
determining whether the limitations would be exceeded for purposes of this
Section 7.1(c).
(d) Capital Adjustments. In case of any stock split or
--------------------
reverse stock split of the Common Stock, stock dividend on the Common Stock,
reclassification of the common stock, recapitalization, merger or consolidation,
or like capital adjustment affecting the Common Stock of the Company, the
provisions of Section 7.1 shall be applied in a fair, equitable and reasonable
manner so as to give effect, as nearly as may be, to the purposes hereof. No
adjustment shall be required by reason of stock dividends paid on the Series B
Preferred Stock.
(e) Early Termination of Potential Adjustment Period. If at
-------------------------------------------------
any time prior to the expiration of the three-year period for potential
adjustments as contemplated by Section 7.1 (the "Potential Adjustment Period"),
the closing bid price for the Common Stock of the Company exceeds $10.00 for
twenty (20) consecutive trading days, the Potential Adjustment Period shall
thereupon terminate; provided that at all times during such twenty trading days,
the Shares were effectively registered for resale by the Investors.
7.2 Limitation on Transactions.
----------------------------
(a) Until the date of effectiveness of the Registration
Statement covering the Shares as contemplated by the Registration Rights
Agreement, without the prior written consent of the Investors (which consent may
be withheld in the Investors' discretion), the Company shall not issue or sell
or agree to issue or sell for cash in a non-public offering any equity
securities in a capital raising transaction.
(b) Until the expiration of the Potential Adjustment Period
(or its early termination pursuant to Section 7.1(e)) without the prior written
consent of the Investors (which consent may be withheld in the Investors'
discretion), the Company shall not issue or sell, or agree to issue or sell, for
cash in a non-public Variable Rate Transaction. For the purposes of this
Agreement, a "Variable Rate Transaction" shall mean: (A) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (x) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the Common Stock at any time
after the initial issuance of such debt or equity securities, or (y) with a
fixed conversion, exercise or exchange price that is subject to being reset at
some future date after the initial issuance of such debt or equity security or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock (but
excluding standard stock split anti-dilution provisions), or (B) any securities
of the Company pursuant to an "equity line" structure which provides for the
sale, from time to time, of securities of the Company which are registered for
resale pursuant to the 1933 Act; provided, however, that the foregoing
limitation on Variable Rate Transactions shall not apply to any such securities
with an aggregate face value outstanding at any time equal to or less than seven
and one-half percent (7.5%) of the Company's primary market capitalization.
12
<PAGE>
7.3 Right of Investors to Participate in Future Transactions.
--------------------------------------------------------
Until the expiration of the Potential Adjustment Period (or its early
termination pursuant to Section 7.1(e)), or such earlier termination thereof,
the Investors will have a right to participate in future capital raising
transactions of the Company on the terms and conditions set forth in this
Section 7.3. During such period, the Company shall give five (5) business days
advance written notice to the Investors prior to any non-public offer or sale of
any of the Company's equity securities or any securities convertible into or
exchangeable or exercisable for such securities by providing to the Investors a
comprehensive term sheet containing all significant business terms of such a
proposed transaction. Prior to the closing of any such sale, the Investors
shall have the right to participate (pro rata in accordance with each Investor's
participation in this offering) in up to 20%, but if such right is exercised not
less than an aggregate of 10%, of such new offering. If such offering
constitutes a Variable Rate Transaction as defined above, the Investors shall
have the right to participate (pro rata in accordance with each Investor's
participation in this offering) in up to 50%, but if such right is exercised not
less than an aggregate of 10%, of such new offering. The Investor(s)' right
hereunder must be exercised in writing by the Investor(s) within five (5)
business days following receipt of the notice from the Company. If, subsequent
to the Company giving notice to the Investors hereunder but prior to the
Investor exercising its right to participate (or the expiration of the five-day
period without response from the Investor), the terms and conditions of the
proposed third-party sale are changed from that disclosed in the comprehensive
term sheet provided to the Investors, the Company shall be required to provide a
new notice to the Investors hereunder and the Investors shall have the right,
which must be exercised within five (5) business days of such new notice, to
exercise its rights to purchase the securities on such changed terms and
conditions as provided hereunder. In the event the Investors do not exercise
their rights hereunder, or affirmatively decline to engage in the proposed
transaction with the Company, then the Company may proceed with such proposed
transaction on the same terms and conditions as noticed to the Investors
(assuming the Investors have consented to the transaction, if required, pursuant
to Section 7.2 of this Agreement). The rights and obligations of this Section
7.3 shall in no way diminish the other rights of the Investor pursuant to this
Section 7.
7.4 Opinion of Counsel. On or prior to the Closing Date, the
--------------------
Company will deliver to the Investors the opinion of legal counsel to the
Company, in form and substance reasonably acceptable to the Investors,
addressing those legal matters set forth in Schedule 7.4 hereto.
-------------
13
<PAGE>
7.5 Reservation of Common Stock Pursuant to Section 7.1 and
--------------------------------------------------------------
Exercise of Warrants. The Company hereby agrees at all times to reserve and
----------------
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of providing for the exercise of the Warrants, such number of
shares of Common Stock as shall from time to time equal the number of shares
sufficient to permit the exercise of the Warrants in accordance with the terms
of the Warrants. In addition, as soon as such number is determinable, the
Company agrees to reserve such shares as may be necessary to permit the
issuances to the Investors required by Section 7.1.
7.6 Reports. For so long as the Investors beneficially own any of
-------
the Securities, the Company will furnish to the Investors the following reports,
each of which shall be provided to the Investors by air mail (within one week of
filing with the SEC, in the case of SEC filings):
(a) Quarterly Reports. The Company's quarterly report on
------------------
Form 10-Q or, in the absence of such report, consolidated balance sheets of the
Company as at the end of such period and the related consolidated statements of
operations, stockholders' equity and cash flows for such period and for the
portion of the Company's fiscal year ended on the last day of such quarter, all
in reasonable detail and certified by a principal financial officer of the
Company to have been prepared in accordance with generally accepted accounting
principles, subject to year-end and audit adjustments.
(b) Annual Reports. The Company's Form 10-K or, in the
---------------
absence of a Form 10-K, consolidated balance sheets of the Company as at the end
of such year and the related consolidated statements of earnings, stockholders'
equity and cash flows for such year, all in reasonable detail and accompanied by
the report on such consolidated financial statements of an independent certified
public accountant selected by the Company and reasonably satisfactory to the
Investor.
(c) Securities Filings. Copies of (i) all notices, proxy
-------------------
statements, financial statements, reports and documents as the Company shall
send or make available generally to its stockholders or to financial analysts,
promptly after providing same to the stockholders and (ii) all periodic and
special reports, documents and registration statements (other than on Form S-8)
which the Company furnishes or files, or any officer or director of the Company
(in such person's capacity as such) furnishes or files with the SEC.
(d) Other Information. Such other information relating to
------------------
the Company as from time to time may reasonably be requested by the Investors
provided the Company produces such information in its ordinary course of
business, and further provided that the Company, solely in its own discretion,
determines that such information is not confidential in nature and disclosure to
the Investor would not be harmful to the Company.
7.7 Press Releases. Any press release or other publicity
---------------
concerning this Agreement or the transactions contemplated by this Agreement
shall be submitted to the Investors for comment at least two (2) business days
prior to issuance, unless the release is required to be issued within a shorter
period of time by law or pursuant to the rules of a national securities
exchange.
14
<PAGE>
7.8 No Conflicting Agreements. The Company will not take any
---------------------------
action, enter into any agreement or make any commitment that would conflict or
interfere in any material respect with the obligations to the Investors under
the Agreements.
7.9 Insurance. So long as the Investors beneficially own any
---------
Securities, the Company shall not materially reduce the insurance coverages set
forth in Schedule 4.20.
--------------
7.10 Compliance with Laws. So long as the Investors beneficially
---------------------
own any Securities, the Company will use reasonable efforts to comply with all
applicable laws, rules, regulations, orders and decrees of all governmental
authorities, except to the extent non-compliance (in one instance or in the
aggregate) would not have a Material Adverse Effect.
7.11 Listing of Underlying Shares and Related Matters. The
------------------------------------------------------
Company hereby agrees, promptly following the Closing of the transactions
contemplated by this Agreement, to take such action to cause the Shares and the
Warrant Shares to be listed on the Nasdaq National Market as promptly as
possible but no later than the effective date of the registration contemplated
by the Registration Rights Agreement. The Company further agrees that if the
Company applies to have its Common Stock or other securities traded on any other
principal stock exchange or market, it will include in such application the
Warrant Shares and will take such other action as is necessary to cause such
Common Stock to be so listed. For so long as the Investors beneficially own any
of the Securities, the Company will take all action necessary to continue the
listing and trading of its Common Stock on the Nasdaq National Market and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of such exchange, as applicable, to ensure
the continued eligibility for trading of the Shares and the Warrant Shares
thereon.
7.12 Corporate Existence. So long as the Investors beneficially
--------------------
own any of the Shares or Warrants (but in no event longer than five years), the
Company shall maintain its corporate existence, except in the event of a merger,
consolidation or sale of all or substantially all of the Company's assets, as
long as the surviving or successor entity in such transaction (a) assumes the
Company's obligations hereunder and under the agreements and instruments entered
into in connection herewith, regardless of whether or not the Company would have
had a sufficient number of shares of Common Stock authorized and available for
issuance in order to fulfill its obligations hereunder and effect the exercise
in full of all Warrants outstanding as of the date of such transaction; (b) has
no legal, contractual or other restrictions on its ability to perform the
obligations of the Company hereunder and under the agreements and instruments
entered into in connection herewith; and (c) (i) is a publicly traded
corporation whose common stock and the shares of capital stock issuable upon
exercise of the Warrants are (or would be upon issuance thereof) listed for
trading on the Nasdaq National Market, the Nasdaq SmallCap Market, the New York
Stock Exchange or the American Stock Exchange, or (ii) if not such a publicly
traded corporation, then the buyer agrees that it will, at the election of an
Investor, purchase such Investor's Shares (and Warrant Shares) within 30 days of
such election at a per share purchase price of $4.20.
15
<PAGE>
8. Survival. All representations, warranties, covenants and agreements
--------
contained in this Agreement shall be deemed to be representations, warranties,
covenants and agreements as of the date hereof and shall survive the execution
and delivery of this Agreement for a period of two years from the date of this
Agreement; provided, however, that the provisions contained in Section 7 hereof
shall survive in accordance therewith.
9. Arbitration.
-----------
9.1 Scope. Resolution of any and all disputes arising from or in
-----
connection with the Agreements, whether based on contract, tort, common law,
equity, statute, regulation, order or otherwise ("Disputes"), shall be
exclusively governed by and settled in accordance with the provisions of this
Section 9; provided, that the foregoing shall not preclude equitable or other
judicial relief to enforce the provisions hereof or to preserve the status quo
pending resolution of Disputes hereunder.
9.2. Binding Arbitration. The parties hereby agree to submit all
--------------------
Disputes to arbitration for final and binding resolution. Either party may
initiate such arbitration by delivery of a demand therefor (the "Arbitration
Demand") to the other party. The arbitration shall be conducted in New York,
New York by a sole arbitrator selected by agreement of the parties not later
than fifteen (15) business days after delivery of the Arbitration Demand, or,
failing such agreement, appointed pursuant to the Commercial Arbitration Rules
of the America Arbitration Association, as amended from time to time (the "AAA
Rules"). If the arbitrator becomes unable to serve, his successor(s) shall be
similarly selected or appointed.
9.3. Procedure. The arbitration shall be conducted pursuant to
---------
the Federal Arbitration Act and such procedures as the parties may agree or, in
the absence of or failing such agreement, pursuant to the AAA Rules.
Notwithstanding the foregoing, (a) each party shall have the right to conduct
limited discovery of information relevant to the Dispute; (b) each party shall
provide to the other, reasonably in advance of any hearing, copies of all
documents that a party intends to present in such hearing; (c) all hearings
shall be conducted on an expedited schedule; and (d) except as otherwise
required by law and as required to conduct the proceedings, all proceedings
shall be confidential, except that either party may at its expense make a
stenographic record thereof.
9.4. Timing. The arbitrator shall complete all hearings not later
------
than 90 days after his or her selection or appointment, and shall make a final
award not later than 30 days thereafter. The arbitrator shall apportion all
costs and expenses of the arbitration, including the arbitrator's fees and
expenses, and fees and expenses of experts ("Arbitration Costs") between the
prevailing and non-prevailing party as the arbitrator shall deem fair and
reasonable. In circumstances where a Dispute has been asserted or defended
against on grounds that the arbitrator deems frivolous, the arbitrator may
assess all Arbitration Costs against the non-prevailing party and may include in
the award the prevailing party's attorney's fees and expenses in connection with
any and all proceedings under this Section 9. Notwithstanding the foregoing, in
no event may the arbitrator award multiple or punitive damages.
16
<PAGE>
10. Miscellaneous.
-------------
10.1 Successors and Assigns. This Agreement may not be assigned
------------------------
by a party hereto without the prior written consent of the other party hereto,
except that without the prior written consent of the Company, but after notice
duly given, an Investor may assign its rights and delegate its duties hereunder
to an Affiliate, and without the prior written consent of the Investors, but
after notice duly given and in compliance with this Agreement, the Company may
assign its rights and delegate its duties hereunder to any successor-in-interest
corporation in the event of a merger or consolidation of the Company with or
into another corporation, or any merger or consolidation of another corporation
with or into the Company that results directly or indirectly in an aggregate
change in the ownership or control of more than 50% of the voting rights of the
equity securities of the Company, or the sale of all or substantially all of the
Company's assets. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective permitted successors and assigns
of the parties. Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
10.2 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.3 Titles and Subtitles. The titles and subtitles used in this
---------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
10.4 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given only upon delivery to each party to be notified by (i)
personal delivery, (ii) telex or telecopier, upon receipt of confirmation of
complete transmittal, or (iii) an internationally recognized overnight air
courier, addressed to the party to be notified at the address as follows, or at
such other address as such party may designate by ten days' advance written
notice to the other party:
If to the Company:
LifeCell Corporation
One Millennium Way
Branchburg, NJ 08876
Attn: Fenel M. Eloi
Chief Financial Officer
Fax: 908-947-1081
If to the Investors, to the addresses set forth on the
signature pages hereto.
17
<PAGE>
10.5 Fees and Expenses. The parties hereto shall pay their own
-------------------
costs and expenses in connection herewith, except that the Company shall pay to
Tail Wind, Inc. a sum equal to 1% of the Purchase Price paid by each Investor as
and for reimbursement for legal and due diligence expenses incurred in
connection herewith and such amount shall be paid at Closing from gross proceeds
of the offering.
10.6 Amendments and Waivers. Any term of this Agreement may be
------------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investors.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Securities purchased under this Agreement at the
time outstanding, each future holder of all such securities, and the Company.
10.7 Severability. If one or more provisions of this Agreement
------------
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
10.8 Entire Agreement. This Agreement, including the Exhibits and
----------------
Schedules hereto, and the Registration Rights Agreement constitute the entire
agreement among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof.
10.9 Further Assurances. The parties shall execute and deliver
-------------------
all such further instruments and documents and take all such other actions as
may reasonably be required to carry out the transactions contemplated hereby and
to evidence the fulfillment of the agreements herein contained.
10.10 Applicable Law. This Agreement shall be governed by, and
---------------
construed in accordance with, the laws of the State of New York without regard
to principles of conflicts of laws.
18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
The Company: LIFECELL CORPORATION
By:_________________________
Name:
Title:
19
<PAGE>
The Investor: [___________________________]
By:_________________________
Name:
Title:
By:_________________________
Name:
Title:
Aggregate Purchase Price: __________
Number of Shares of Common Stock: ____________
Number of Warrants: _______________
Effective per share Purchase Price of Shares: $4.20
Exercise price of Warrants: $5.46
Address for Notice:
[____________________________]
[____________________________]
[____________________________]
[____________________________]
[____________________________]
[____________________________]
with a copy to:
Bryan Cave LLP
700 Thirteenth Street, NW
Washington, DC 20005
Attn: LaDawn Naegle
Telephone: 202/508-6046
Facsimile: 202/508-6200
20
<PAGE>
SCHEDULE 7.1
Date:
LifeCell Corporation
One Millennium Way
Branchburg, NJ 08876
Attn: Fenel M. Eloi
Gentlemen:
By this letter we represent that on this date we own ___________ shares of
LifeCell Corporation common stock. These shares are held in our brokerage
account at ________________________________________________.
Sincerely,
___________________________________
[Investor]
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (the "Agreement") is made and
entered into as of this ____ day of November, 1999 by and between LifeCell
Corporation, a Delaware corporation (the "Company"), and the "Investors" named
in that certain Purchase Agreement of even date herewith by and between the
Company and the Investors (the "Purchase Agreement").
The parties hereby agree as follows:
1. Certain Definitions
--------------------
As used in this Agreement, the following terms shall have the
following meanings:
"Additional Registrable Securities" shall mean the shares of
-----------------------------------
Common Stock, if any, issued to the Investors pursuant to Section 7.1 of the
Purchase Agreement.
"Common Stock" shall mean the Company's Common Stock, par value
-------------
$0.001 per share.
"Investors" shall mean the purchasers identified in the Purchase
---------
Agreement and any affiliate of any Investor who is a subsequent holder of any
Warrants, Registrable Securities or Additional Registrable Securities.
"Prospectus" shall mean the prospectus included in any
----------
Registration Statement, as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Registrable
Securities or Additional Registrable Securities covered by such Registration
Statement and by all other amendments and supplements to the prospectus,
including post-effective amendments and all material incorporated by reference
in such prospectus.
"Register," "registered" and "registration" refer to a
-------- ---------- ------------
registration made by preparing and filing a registration statement or similar
document in compliance with the 1933 Act (as defined below), and the declaration
or ordering of effectiveness of such registration statement or document.
"Registrable Securities" shall mean the shares of Common Stock
-----------------------
issued and issuable to the Investors pursuant to the Purchase Agreement (other
than additional shares of Common Stock issuable pursuant to Section 7.1 of the
Purchase Agreement) and issuable upon the exercise of the Warrants.
<PAGE>
"Registration Statement" shall mean any registration statement of
----------------------
the Company filed under the 1933 Act that covers the resale of any of the
Registrable Securities or Additional Registrable Securities pursuant to the
provisions of this Agreement, amendments and supplements to such Registration
Statement, including post-effective amendments, all exhibits and all material
incorporated by reference in such Registration Statement.
"SEC" means the U.S. Securities and Exchange Commission.
---
"1933 Act" means the Securities Act of 1933, as amended, and the
---------
rules and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended,
--------
and the rules and regulations promulgated thereunder.
"Warrants" mean the warrants to purchase shares of Common Stock
--------
issued to the Investors pursuant to the Purchase Agreement, the form of which is
attached to the Purchase Agreement as Exhibit A.
2. Registration.
------------
(a) Registration Statements.
------------------------
(i) Registrable Securities. Promptly following the
-----------------------
closing of the purchase and sale of Common Stock and Warrants contemplated by
the Purchase Agreement (the "Closing Date") (but no later than thirty (30) days
after the Closing Date), the Company shall prepare and file with the SEC one
Registration Statement on Form S-3 (or, if Form S-3 is not then available to the
Company, on such form of registration statement as is then available to effect a
registration for resale of the Registrable Securities, subject to the Investors'
consent) covering the resale of the Registrable Securities in an amount equal to
the number of shares of Common Stock issued to the Investors on the Closing Date
plus the number of shares of Common Stock necessary to permit the exercise in
full of the Warrants. Such Registration Statement also shall cover, to the
extent allowable under the 1933 Act and the Rules promulgated thereunder
(including Rule 416), such indeterminate number of additional shares of Common
Stock resulting from stock splits, stock dividends or similar transactions with
respect to the Registrable Securities. The Company shall use its best efforts
to obtain from each person who now has piggyback registration rights a waiver of
those rights with respect to the Registration Statement. No securities shall be
included in the Registration Statement without the consent of each Investor
other than the Registrable Securities and the securities subject to piggyback
registration rights on the date hereof for which the Company could not obtain
waivers. The Registration Statement (and each amendment or supplement thereto,
and each request for acceleration of effectiveness thereof) shall be provided in
accordance with Section 3(c) to the Investors and their counsel prior to its
filing or other submission.
2
<PAGE>
(ii) Additional Registrable Securities. Upon the
-----------------------------------
written demand of any Investor and following the issuance of any additional
shares of Common Stock to such Investor pursuant to Section 7.1 of the Purchase
Agreement, the Company shall prepare and file with the SEC a Registration
Statement on Form S-3, and any additional Registration Statements on Form S-3
upon the written demand of any Investor pursuant to its rights during the
Potential Adjustment Period as that term is defined in the Purchase Agreement
(or, if Form S-3 is not then available to the Company, on such form of
registration statement as is then available to effect a registration for resale
of the Additional Registrable Securities, subject to the Investor's consent),
covering the resale of the Additional Registrable Securities in an amount equal
to the number of shares of Common Stock issued to and designated in the demand
by such Investor. Such Registration Statement also shall cover, to the extent
allowable under the 1933 Act and the Rules promulgated thereunder (including
Rule 416), such indeterminate number of additional shares of Common Stock
resulting from stock splits, stock dividends or similar transactions with
respect to the Additional Registrable Securities. The Company shall use its
best efforts to obtain from each person who now has piggyback registration
rights a waiver of those rights with respect to the Registration Statement. No
securities shall be included in the Registration Statement without the consent
of the Investor other than the Registrable Securities and Additional Registrable
Securities and the securities subject to piggyback registration rights on the
date hereof for which the Company could not obtain waivers. The Registration
Statement (and each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided in accordance with
Section 3(c) to the Investor and its counsel prior to its filing or other
submission.
(b) Expenses. The Company will pay all its expenses
--------
associated with each registration, and the Investors will pay all their expenses
subject to the reimbursement provided for in the Purchase Agreement (and to the
extent funds have been returned to the Company, in respect thereof, the Company
will pay them over subject to receipt of appropriate documentation). In no
event will the Company reimburse Investors for discounts, commissions, fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals.
(c) Effectiveness.
-------------
(i) The Company shall use its best efforts to have each
Registration Statement declared effective as soon as practicable. If (A) the
Registration Statement covering Registrable Securities is not declared effective
by the SEC within four (4) months following the Closing Date, or the
Registration Statement covering Additional Registrable Securities is not
declared effective by the SEC within four (4) months following the demand of an
Investor relating to the Additional Registrable Securities covered thereby
(each, a "Registration Date"), (B) after a Registration Statement has been
declared effective by the SEC, sales cannot be made pursuant to such
Registration Statement (by reason of a stop order, or the Company's failure to
update the Registration Statement) but except as excused pursuant to
subparagraph (ii) below, or (C) the Common Stock generally or the Registrable
Securities specifically is not listed or included for quotation on the Nasdaq
National Market System, the Nasdaq Small Cap Market, the New York Stock Exchange
or the American Stock Exchange, then the Company will make pro-rata payments to
each Investor, as liquidated damages and not as a penalty, in an amount equal to
2% of the aggregate amount paid by such Investor on the Closing Date to the
3
<PAGE>
Company for shares of Common Stock still held by such Investor for any month or
pro rata for any portion thereof following the Registration Date during which
any of the events described in (A) or (B) or (C) above occurs and is continuing
(the "Blackout Period"). The Blackout Period shall terminate upon (x) the
effectiveness of the applicable Registration Statement in the case of (A) and
(B) above; (y) listing or inclusion of the Common Stock on the Nasdaq National
Market System, the Nasdaq Small Cap Market, the New York Stock Exchange or the
American Stock Exchange in the case of (C) above; and (z) in the case of the
events described in (A) or (B) above, the earlier termination of the
Registration Period (as defined in Section 3(a) below). The amounts payable as
liquidated damages pursuant to this paragraph shall be payable, at the option of
the Company, in lawful money of the United States or in shares of Common Stock
at the Market Price (as that term is defined in the Purchase Agreement), and
amounts payable as liquidated damages shall be paid monthly within two (2)
business days of the last day of each month following the commencement of the
Blackout Period until the termination of the Blackout Period. Amounts payable
as liquidated damages hereunder shall cease when an Investor no longer holds
Warrants or Registrable Securities, or Additional Registrable Securities, as
applicable. Notwithstanding the above, if after twelve (12) months, the Company
in good faith determines that it is unable to remedy the events set forth in
(A), (B) or (C), the Company may notify the Investors that the liquidated
damages will cease to accrue and, at the Investor's election, the Company shall
redeem (if and only if permitted under applicable law), in whole or in part, as
instructed by the Investor, the shares of Common Stock and Warrants held by such
Investor for an amount equal to 100% of the amount originally invested by such
Investor. If an Investor does not elect to have its Common Stock and Warrants
so redeemed, the Company shall use reasonable efforts to remedy the events set
forth in (A), (B) and (C), but the Investor will no longer be entitled to
further liquidated damages pursuant to this Agreement.
(ii) For not more than thirty (30) consecutive trading days
or for a total of not more than forty (40) trading days in any twelve (12) month
period, the Company may delay the disclosure of material non-public information
concerning the Company and terminate or suspend effectiveness of any
registration contemplated by this Section containing such information, if
disclosure of such information at the time is not, in the good faith opinion of
the Company, in the best interests of the Company (an "Allowed Delay");
provided, that the Company shall promptly (a) notify the Investors in writing of
the existence of (but in no event, without the prior written consent of an
Investor, shall the Company disclose to such Investor any of the facts or
circumstances regarding) material non-public information giving rise to an
Allowed Delay, and (b) advise the Investors in writing to cease all sales under
the Registration Statement until the end of the Allowed Delay. The duration of
the Restricted Period as provided in the Purchase Agreement will be extended by
the number of days of any and all Allowed Delays.
(d) Underwritten Offering. If any offering pursuant to a
----------------------
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Company shall have the right to select an investment banker and
manager to administer the offering, which investment banker or manager shall be
reasonably satisfactory to the Investors; provided, the Investors may only
object to such selection by the Company in extreme circumstances.
4
<PAGE>
3. Company Obligations. The Company will use its best efforts to
--------------------
effect the registration of the Registrable Securities and Additional Registrable
Securities in accordance with the terms hereof, and pursuant thereto the Company
will, as expeditiously as possible:
(a) use its best efforts to cause such Registration Statement
to become effective and to remain continuously effective for a period that will
terminate upon the earlier of the date on which all Registrable Securities or
Additional Registrable Securities, as the case may be, covered by such
Registration Statement, as amended from time to time, have been sold or are
eligible for sale under Rule 144(k) promulgated under the Securities Act (the
"Registration Period");
(b) prepare and file with the SEC such amendments and
post-effective amendments to the Registration Statement and the Prospectus as
may be necessary to keep the Registration Statement effective for the period
specified in Section 3(a) and to comply with the provisions of the 1933 Act and
the 1934 Act with respect to the distribution of all Registrable Securities and
Additional Registrable Securities; provided that, at least three (3) days prior
to the filing of a Registration Statement or Prospectus, or any amendments or
supplements thereto, the Company will furnish to the Investors copies of all
documents proposed to be filed, which documents will be subject to the comments
of the Investors;
(c) permit one counsel designated by the Investors to review
each Registration Statement and all amendments and supplements thereto no fewer
than five (5) days prior to their filing with the SEC and not file any document
to which such counsel reasonably objects in a timely manner;
(d) furnish to the Investors and their legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of any Registration Statement and any
amendment thereto, each preliminary prospectus and Prospectus and each amendment
or supplement thereto, and each letter written by or on behalf of the Company to
the SEC or the staff of the SEC, and each item of correspondence from the SEC or
the staff of the SEC, in each case relating to such Registration Statement
(other than any portion of any thereof which contains information for which the
Company has sought confidential treatment), and (ii) such number of copies of a
Prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as each Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities and
Additional Registrable Securities owned by such Investor;
(e) in the event the Company selects an underwriter for the
offering, the Company shall enter into and perform its reasonable obligations
under an underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriter of such offering;
(f) if required by the underwriter, at the request of the
Investors, the Company shall furnish, on the date that Registrable Securities or
Additional Registrable Securities, as applicable, are delivered to an
underwriter, if any, for sale in connection with the Registration Statement (i)
an opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriter and the Investors and (ii) a letter, dated such date, from the
Company's independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriter and the Investors;
5
<PAGE>
(g) make effort to prevent the issuance of any stop order or
other suspension of effectiveness and, if such order is issued, obtain the
withdrawal of any such order at the earliest possible moment (except as allowed
under Section 2(c)(ii) hereof);
(h) furnish to each Investor a copy of the Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules by courier pursuant to the notice requirements of
Section 10.4 of the Purchase Agreement;
(i) use its reasonable best efforts to register or qualify or
cooperate with the Investors and their counsel in connection with the
registration or qualification of such Registrable Securities or Additional
Registrable Securities, as applicable, for offer and sale under the securities
or blue sky laws of such jurisdictions as the Investors reasonably request in
writing and do any and all other reasonable acts or things necessary or
advisable to enable the distribution in such jurisdictions of the Registrable
Securities or Additional Registrable Securities covered by the Registration
Statement;
(j) cause all Registrable Securities or Additional
Registrable Securities covered by a Registration Statement to be listed on each
securities exchange, interdealer quotation system or other market on which
similar securities issued by the Company are then listed;
(k) immediately notify the Investors, at any time when a
Prospectus relating to the Registrable Securities or Additional Registrable
Securities is required to be delivered under the Securities Act, upon discovery
that, or upon the happening of any event as a result of which, the Prospectus
included in such Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and subject to Section 2(c)(ii), at
the request of any such holder, promptly prepare and furnish to such holder a
reasonable number of copies of a supplement to or an amendment of such
Prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities or Additional Registrable Securities,
as applicable, such Prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing; and
(l) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC under the 1933 Act and the 1934 Act,
take such other actions as may be reasonably necessary to facilitate the
registration of the Registrable Securities and Additional Registrable
Securities, if applicable, hereunder; and make available to its security
holders, as soon as reasonably practicable, but not later than the Availability
Date (as defined below), an earnings statement covering a period of at least
6
<PAGE>
twelve months, beginning after the effective date of each Registration
Statement, which earnings statement shall satisfy the provisions of Section
11(a) of the 1933 Act (for the purpose of this subsection 3(m), "Availability
Date" means the 45th day following the end of the fourth fiscal quarter that
includes the effective date of such Registration Statement, except that, if such
fourth fiscal quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth fiscal
quarter).
4. Obligations of the Investors.
-------------------------------
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities or Additional Registrable Securities, as
applicable, that each Investor shall furnish in writing to the Company such
information regarding itself, the Registrable Securities or Additional
Registrable Securities, as applicable, held by it and the intended method of
disposition of the Registrable Securities or Additional Registrable Securities,
as applicable, held by it, as shall be reasonably required to effect the
registration of such Registrable Securities or Additional Registrable
Securities, as applicable, and shall execute such documents in connection with
such registration as the Company may reasonably request. At least ten (10)
business days prior to the first anticipated filing date of any Registration
Statement, the Company shall notify each Investor of the information the Company
requires from such Investor if such Investor elects to have any of the
Registrable Securities or Additional Registrable Securities included in the
Registration Statement. An Investor shall provide such information to the
Company at least five (5) business days prior to the first anticipated filing
date of such Registration Statement if such Investor elects to have any of the
Registrable Securities or Additional Registrable Securities included in the
Registration Statement.
(b) Each Investor, by its acceptance of the Registrable
Securities and Additional Registrable Securities, if any, agrees to cooperate
with the Company as reasonably requested by the Company in connection with the
preparation and filing of a Registration Statement hereunder, unless such
Investor has notified the Company in writing of its election to exclude all of
its Registrable Securities or Additional Registrable Securities, as applicable,
from the Registration Statement, in which case the Investor shall be deemed to
have waived its rights to have Registrable Securities or Additional Registrable
Securities, as the case may be, registered under this Agreement, unless the
Investor reasonably believes sales of its securities under such Registration
Statement may violate federal securities laws.
(c) In the event the Company determines to engage the services of
an underwriter, each Investor agrees to enter into and perform its obligations
under an underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the dispositions of the
Registrable Securities or Additional Registrable Securities, as applicable.
7
<PAGE>
(d) Each Investor agrees that, upon receipt of any notice
from the Company of the happening of any event rendering a Registration
Statement no longer effective, such Investor will immediately discontinue
disposition of Registrable Securities or Additional Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities or
Additional Registrable Securities, until the Investor's receipt of the copies of
the supplemented or amended prospectus filed with the SEC and declared effective
and, if so directed by the Company, the Investor shall deliver to the Company
(at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in the Investor's possession of the
prospectus covering the Registrable Securities or Additional Registrable
Securities, as applicable, current at the time of receipt of such notice.
(e) No Investor may participate in any underwritten
registration hereunder unless it (i) agrees to sell the Registrable Securities
or Additional Registrable Securities, as applicable, on the basis provided in
any underwriting arrangements in usual and customary form entered into by the
Company, (ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements, and (iii) agrees to pay its
pro rata share of all underwriting discounts and commissions and any expenses in
excess of those payable by the Company pursuant to the terms of this Agreement.
5. Indemnification.
---------------
(a) Indemnification by Company. The Company agrees to
----------------------------
indemnify and hold harmless, to the fullest extent permitted by law the
Investors, each of their officers, directors, partners and employees and each
person who controls the Investors (within the meaning of the 1933 Act) against
all losses, claims, damages, liabilities, costs (including, without limitation,
reasonable attorney's fees) and expenses imposed on such person caused by (i)
any untrue or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or any preliminary prospectus or any
amendment or supplement thereto or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances under which they were made, not
misleading, except insofar as the same are based entirely upon any information
furnished in writing to the Company by such Investors, expressly for use
therein, or (ii) any violation by the Company of any federal, state or common
law, rule or regulation applicable to the Company in connection with any
Registration Statement, Prospectus or any preliminary prospectus, or any
amendment or supplement thereto, provided that such violation was not caused by
the negligence or willful misconduct of the Investor and shall reimburse in
accordance with subparagraph (c) below, each of the foregoing persons for any
legal and any other expenses reasonably incurred in connection with
investigating or defending any such claims. The foregoing is subject to the
condition that, insofar as the foregoing indemnities relate to any untrue
statement, alleged untrue statement, omission or alleged omission made in any
preliminary prospectus or Prospectus that is eliminated or remedied in any
Prospectus or amendment or supplement thereto, the above indemnity obligations
of the Company shall not inure to the benefit of any indemnified party if a copy
of such corrected Prospectus or amendment or supplement thereto had been made
available to such indemnified party and was not sent or given by such
8
<PAGE>
indemnified party at or prior to the time such action was required of such
indemnified party by the 1933 Act and if delivery of such Prospectus or
amendment or supplement thereto would have eliminated (or been a sufficient
defense to) any liability of such indemnified party with respect to such
statement or omission. Indemnity under this Section 5(a) shall remain in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the permitted transfer of the Registrable
Securities and Additional Registrable Securities.
(b) Indemnification by Holder. In connection with any
---------------------------
registration pursuant to the terms of this Agreement, each Investor will furnish
to the Company in writing such information as the Company reasonably requests
concerning the holders of Registrable Securities and Additional Registrable
Securities or the proposed manner of distribution for use in connection with any
Registration Statement or Prospectus and agrees, severally but not jointly, to
indemnify and hold harmless, to the fullest extent permitted by law, the
Company, its directors, officers, employees, stockholders and each person who
controls the Company (within the meaning of the 1933 Act) against any losses,
claims, damages, liabilities and expense (including reasonable attorney's fees)
resulting from (i) any untrue statement of a material fact or any omission of a
material fact required to be stated in the Registration Statement or Prospectus
or preliminary prospectus or amendment or supplement thereto or necessary to
make the statements therein in light of the circumstances under which they were
made, not misleading, to the extent, but only to the extent that such untrue
statement or omission is contained in any information furnished in writing by
such Investor to the Company specifically for inclusion in such Registration
Statement or Prospectus or amendment or supplement thereto and that such
information was substantially relied upon by the Company in preparation of the
Registration Statement or Prospectus or any amendment or supplement thereto; or
(ii) any violation by the Investor of any federal, state or common law, rule or
regulation applicable to the Investor in connection with the Registration
Statement, Prospectus or any preliminary prospectus or any amendment or
supplement thereto, provided that such violation was not caused by the
negligence or willful misconduct of the Company. In no event shall the
liability of an Investor be greater in amount than the dollar amount of the
proceeds (net of all expense paid by such Investor and the amount of any damages
such holder has otherwise been required to pay by reason of such untrue
statement or omission) received by such Investor upon the sale of the
Registrable Securities or Additional Registrable Securities included in the
Registration Statement giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any person
-----------------------------------------
entitled to indemnification hereunder shall (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party; provided that any
--------
person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such person unless (a)
the indemnifying party has agreed to pay such fees or expenses, or (b) the
9
<PAGE>
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such person or (c) in the reasonable
judgment of any such person, based upon written advice of its counsel, a
conflict of interest exists between such person and the indemnifying party with
respect to such claims (in which case, if the person notifies the indemnifying
party in writing that such person elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such claim on behalf of such person); and
provided, further, that the failure of any indemnified party to give notice as
- -------
provided herein shall not relieve the indemnifying party of its obligations
hereunder, except to the extent that such failure to give notice shall
materially adversely affect the indemnifying party in the defense of any such
claim or litigation. It is understood that the indemnifying party shall not, in
connection with any proceeding in the same jurisdiction, be liable for fees or
expenses of more than one separate firm of attorneys at any time for all such
indemnified parties. No indemnifying party will, except with the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect of such claim or litigation.
(d) Contribution. If for any reason the indemnification
------------
provided for in the preceding paragraphs (a) and (b) is unavailable to an
indemnified party or insufficient to hold it harmless, other than as expressly
specified therein, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of such loss, claim, damage
or liability in such proportion as is appropriate to reflect the relative fault
of the indemnified party and the indemnifying party, as well as any other
relevant equitable considerations. No person guilty of fraudulent
misrepresentation within the meaning of Section 11(f) of the 1933 Act shall be
entitled to contribution from any person not guilty of such fraudulent
misrepresentation. In no event shall the contribution obligation of a holder of
Registrable Securities or Additional Registrable Securities be greater in amount
than the dollar amount of the proceeds (net of all expenses paid by such holder
and the amount of any damages such holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission) received by it upon the sale of the Registrable Securities or
Additional Registrable Securities giving rise to such contribution obligation.
6. Miscellaneous.
-------------
(a) Amendments and Waivers. This Agreement may be amended
------------------------
only by a writing signed by the parties hereto. The Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company shall have obtained the written consent to such
amendment, action or omission to act, of each Investor.
(b) Notices. All notices and other communications provided
-------
for or permitted hereunder shall be made as set forth in Section 10.4 of the
Purchase Agreement.
(c) Assignments and Transfers by Investors. This Agreement
----------------------------------------
and all the rights and obligations of the Investors hereunder may not be
assigned or transferred to any transferee or assignee except to an affiliate of
an Investor who is a subsequent holder of any Warrants, Registrable Securities
or Additional Registrable Securities.
10
<PAGE>
(d) Assignments and Transfers by the Company. This Agreement
----------------------------------------
may not be assigned by the Company without the prior written consent of each
Investor then holding Registrable Securities, except that without the prior
written consent of the Investors, but after notice duly given, the Company shall
assign its rights and delegate its duties hereunder to any successor-in-interest
corporation, and such successor-in-interest shall assume such rights and duties,
in the event of a merger or consolidation of the Company with or into another
corporation or the sale of all or substantially all of the Company's assets.
(e) Benefits of the Agreement. The terms and conditions of
---------------------------
this Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
(f) Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(g) Titles and Subtitles. The titles and subtitles used in
----------------------
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(h) Severability. If one or more provisions of this
------------
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms to the fullest extent permitted by law.
(i) Further Assurances. The parties shall execute and
-------------------
deliver all such further instruments and documents and take all such other
actions as may reasonably be required to carry out the transactions contemplated
hereby and to evidence the fulfillment of the agreements herein contained.
(j) Entire Agreement. This Agreement is intended by the
-----------------
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. This Agreement supersedes
all prior agreements and understandings between the parties with respect to such
subject matter.
(k) Applicable Law. This Agreement shall be governed by, and
--------------
construed in accordance with, the laws of the State of New York without regard
to principles of conflicts of law.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
The Company: LIFECELL CORPORATION
By:_________________________
Name:
Title:
The Investors:
By:_________________________
Name:
Title:
By:_________________________
Name:
Title:
12
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into LifeCell Corporation's previously filed
Registration Statements File No. 33-90740, File No. 333-20093, File No.
333-62701, File No. 333-62491 and File No. 333-94715.
/S/ ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
March 29, 2000
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1999
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