-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VZAwS9w/oaHBykVrMEmatkxcdzrMdLjA7OzsM1JlW9upAWnioqoG/Hu7pOhC/QIo RpQD5gN3H8Gl1gp1kSDj7Q== 0000891618-98-002493.txt : 19980518 0000891618-98-002493.hdr.sgml : 19980518 ACCESSION NUMBER: 0000891618-98-002493 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLLAGEN CORP /DE CENTRAL INDEX KEY: 0000021686 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 942300486 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-10640 FILM NUMBER: 98626364 BUSINESS ADDRESS: STREET 1: 2500 FABER PL CITY: PALO ALTO STATE: CA ZIP: 94303 BUSINESS PHONE: 4158560200 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarter period ended March 31, 1998 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ______ to ______ Commission File Number: 0-10640 COLLAGEN CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-2300486 State of Incorporation I.R.S. Employer Identification No. 1850 Embarcadero Road, Palo Alto, California 94303 Telephone: (650) 856-0200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of April 30, 1998, Registrant had outstanding 8,959,631 shares of common stock, exclusive of 1,972,900 shares held by the Registrant as treasury stock. 1 2 COLLAGEN CORPORATION INDEX
PART I. Financial Information Page No. - ------------------------------ -------- Consolidated Balance Sheets - March 31, 1998 and June 30, 1997 3 Consolidated Statements of Operations - Three and nine months ended March 31, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows - Nine months ended March 31, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements 6-9 Management's Discussion and Analysis of Financial Condition and Results of Operations 10-19 PART II. Other Information Other Information 20-21 Signatures 22
2 3 COLLAGEN CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share and per share amounts)
March 31, June 30, 1998 1997* --------- --------- ASSETS Current assets: Cash and cash equivalents $ 15,755 $ 18,481 Short-term investments 2,542 5,117 Accounts receivable, net 11,515 10,759 Inventories, net 13,612 14,293 Other current assets, net 8,002 9,314 --------- --------- Total current assets 51,426 57,964 Property and equipment, net 15,418 15,260 Intangible assets and goodwill, net 12,576 14,764 Investment in Boston Scientific Corporation 75,455 83,874 Other investments and assets, net 14,999 13,049 --------- --------- $ 169,874 $ 184,911 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,205 $ 2,638 Other accrued liabilities 13,850 13,638 Income taxes payable 9,883 9,376 Notes payable -- 70 --------- --------- Total current liabilities 25,938 25,722 Long-term liabilities: Deferred income taxes 32,293 35,448 Other long-term liabilities 1,703 3,795 --------- --------- Total long-term liabilities 33,996 39,243 Commitments and contingencies Minority interest 8 49 Stockholders' equity: Preferred stock, $.01 par value, authorized: 5,000,000 shares; none issued and outstanding -- -- Common stock, $.01 par value, authorized: 28,950,000 shares, issued: 10,924,127 shares at March 31, 1998 (10,756,935 shares at June 30, 1997), outstanding: 8,951,227 shares at March 31, 1998 (8,809,035 shares at June 30, 1997) 110 108 Additional paid-in capital 68,900 67,204 Retained earnings 41,637 47,999 Cumulative translation adjustment (2,314) (1,717) Unrealized gain on available-for-sale investments 42,806 47,069 Treasury stock, 1,972,900 shares at March 31, 1998 (1,947,900 shares at June 30, 1997) (41,207) (40,766) --------- --------- Total stockholders' equity 109,932 119,897 --------- --------- $ 169,874 $ 184,911 ========= =========
* Amounts derived from audited financial statements at the date indicated. (See notes to condensed consolidated financial statements) 3 4 COLLAGEN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts)
Three Months Ended Nine Months Ended March 31, March 31, ------------------------ ------------------------ 1998 1997 1998 1997 -------- -------- -------- -------- Revenues: Product Sales $ 20,114 $ 16,527 $ 63,067 $ 52,369 Costs and expenses: Cost of sales 6,885 4,461 20,922 14,927 Selling, general and administrative 11,166 10,963 32,720 30,291 Officer separation cost -- 2,006 -- 2,006 Research and development 6,416 4,558 17,910 13,244 Acquired in-process research and development -- -- 10,530 -- -------- -------- -------- -------- Total operating costs and expenses 24,467 21,988 82,082 60,468 -------- -------- -------- -------- Loss from operations (4,353) (5,461) (19,015) (8,099) Other income (expense): Net gain on investments, principally Boston Scientific Corporation (Target Therapeutics, Inc. in fiscal 1997) 4,964 -- 13,739 9,222 Equity in losses of affiliates, net (83) (133) (232) (730) Interest income 164 238 702 897 Interest expense (15) (120) (50) (351) -------- -------- -------- -------- Income (loss) before income taxes and minority interest 677 (5,476) (4,856) 939 Provision (benefit) for income taxes (250) (1,726) 651 1,674 Minority interest (11) (189) (38) (491) -------- -------- -------- -------- Net income (loss) $ 938 $ (3,561) $ (5,469) $ (244) ======== ======== ======== ======== Net income (loss) per share-Basic $ .10 $ (.41) $ (.61) $ (.03) ======== ======== ======== ======== Net income (loss) per share-Diluted $ .10 $ (.41) $ (.61) $ (.03) ======== ======== ======== ======== Shares used in calculating net income (loss) per share-Basic 8,989 8,764 8,901 8,806 ======== ======== ======== ======== Shares used in calculating net income (loss) per share-Diluted 9,071 8,764 8,901 8,806 ======== ======== ======== ======== Cash dividends declared per share $ -- $ -- $ 0.10 $ 0.10 ======== ======== ======== ========
(See notes to condensed consolidated financial statements) 4 5 COLLAGEN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (Unaudited) (In thousands)
Nine Months Ended March 31, ----------------- 1998 1997 -------- -------- Cash flows from operating activities: Net loss $ (5,469) $ (244) Adjustments to reconcile net loss to net cash used in operating activities: Acquired in-process research and development 10,530 -- Depreciation and amortization 4,946 4,524 Equity in losses of affiliates 232 730 Gain on investments, net of taxes paid of $0 and $5.2 million in fiscal 1998 and 1997, respectively (13,739) (4,051) Other adjustments related to changes in assets and liabilities 364 (5,461) -------- ------- Net cash used in operating activities (3,136) (4,502) -------- ------- Cash flows from investing activities: Proceeds from sale of Boston Scientific Corporation stock (Target Therapeutics, Inc. in fiscal 1997), net of taxes paid 14,716 5,578 Proceeds from sale of other affiliate stock 704 -- Proceeds from sales and maturities of short-term investments 7,898 4,675 Purchases of short-term investments (5,324) (6,968) Expenditures for property and equipment (3,382) (3,901) Increase in intangible and other assets -- (36) Expenditures for investments in and loans to affiliates, net of repayments (1,125) (1,891) Acquisition of shares of Cohesion Corporation (10,530) -- -------- ------- Net cash provided by (used in) investing activities 2,957 (2,543) -------- ------- Cash flows from financing activities: Repurchase of common stock (441) (2,547) Net proceeds from issuance of common stock 1,698 1,734 Cash dividends paid (1,773) (1,754) Proceeds from (repayment of) bank loans (2,031) 465 -------- ------- Net cash used in financing activities (2,547) (2,102) -------- ------- Net decrease in cash and cash equivalents (2,726) (9,147) Cash and cash equivalents at beginning of period 18,481 21,676 -------- ------- Cash and cash equivalents at end of period $ 15,755 $12,529 ======== ======= (See notes to condensed consolidated financial statements)
5 6 COLLAGEN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of Collagen Corporation (the "Company"), a Delaware corporation, and its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company operates in one industry segment focusing on the development, manufacturing, and sale of medical devices. Investments in unconsolidated subsidiaries, and other investments in which the Company has a 20% to 50% interest or otherwise has the ability to exercise significant influence, are accounted for under the equity method. Investments in companies in which the Company has less than a 20% interest with either no readily determinable fair value or with transfer restrictions are carried at cost or estimated realizable value, if less, and those unrestricted investments with a readily determinable fair value are carried at market value with the unrealized gains or losses, net of tax, recorded as a component of stockholders' equity. The consolidated balance sheet as of March 31, 1998, the consolidated statements of operations for the three and nine months ended March 31, 1998 and 1997, and the condensed consolidated statements of cash flows for the nine months ended March 31, 1998 and 1997, have been prepared by the Company and are unaudited. In the opinion of management, all necessary adjustments (which include only normal recurring adjustments) have been made to present fairly the financial position, results of operations, and cash flows at March 31, 1998 and for all periods presented. Interim results are not necessarily indicative of results for a full fiscal year. The consolidated balance sheet as of June 30, 1997 has been derived from the audited consolidated financial statements at that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended June 30, 1997, the Company's 1998 Proxy Statement for Special Meeting of Stockholders, and the Cohesion Technologies, Inc. ("Cohesion Technologies") Registration Statement on Form 10. New Accounting Standards & Required Disclosures Reporting Comprehensive Income and Disclosures About Segments of an Enterprise and Related Information. In June 1997, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," and Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures About Segments of an Enterprise and Related Information," which will be required to be adopted by the Company in fiscal 1999. Adoption of these statements is not expected to have a significant 6 7 impact on the Company's consolidated financial position, results of operations or cash flows. 2. Inventories Inventories consist of the following (in thousands):
March 31, June 30, 1998 1997 ------- ------- Raw materials $ 1,630 $ 938 Work-in-process 3,340 7,188 Finished goods 8,642 6,167 ------- ------- $13,612 $14,293 ======= =======
3. Investment in Boston Scientific Corporation The Company accounts for its investment in Boston Scientific Corporation ("Boston Scientific") as an available-for-sale equity security, which accordingly is carried at market value. During the three and nine months ended March 31, 1998, the Company sold 90,000 shares and 247,340 shares, respectively, of Boston Scientific common stock for a pre-tax gain of approximately $5.0 million and $13.7 million, respectively. Boston Scientific common stock is quoted on the New York Stock Exchange under the symbol BSX. The closing price of Boston Scientific common stock at March 31, 1998 was $67.50 per share. At March 31, 1998, the Company held 1,117,860 shares of Boston Scientific common stock and all holding restrictions resulting from the acquisition of Target Therapeutics, Inc. by Boston Scientific that were applicable at June 30, 1997, have expired. Pursuant to a hedging strategy implemented by the Company in August 1997, approximately 58% of the Company's position in Boston Scientific is hedged, utilizing the purchase of puts and calls in combination to minimize the downside risk of loss should the price of Boston Scientific stock decline while allowing for limited upside participation should the stock price rise. The call option is collateralized by shares of Boston Scientific common stock held by the Company. At March 31, 1998 and June 30, 1997, the Company's shares of Boston Scientific common stock were recorded at $75.5 and $83.9 million, respectively. The $70.7 million unrealized gain ($75.5 million estimated fair value less $4.8 million cost) at March 31, 1998 and the $78.0 million unrealized gain ($83.9 million estimated fair value less $5.9 million cost) at June 30, 1997, on these available-for-sale securities has been reported as a separate component of stockholders' equity, net of tax. 4. Investment in Innovasive Devices, Inc. Prior to October 1996, the Company's 844,000 shares of common stock of Innovasive Devices, Inc. ("Innovasive Devices") were valued at cost, or $4,064,000, due to restrictions which prevented the sale of any of the Company's shares of common stock of Innovasive Devices. At March 31, 1998, restrictions were no 7 8 longer applicable on 295,000 shares of common stock which the Company holds in Innovasive Devices. As a result, the Company now carries the non-restricted portion of its investment in Innovasive Devices as an available-for-sale investment at market value, or $3.0 million, reflecting an unrealized gain of $1.5 million, which has been included in a separate component of stockholders' equity, net of tax. The remaining 549,000 restricted shares of common stock continue to be valued at cost. During the three and nine months ended March 31, 1998, the Company did not sell any of its shares of common stock of Innovasive Devices. Innovasive Devices common stock is quoted on The Nasdaq Stock Market under the symbol IDEA. The closing price of Innovasive Devices common stock at March 31, 1998, was $10.00 per share. At March 31, 1998, the Company held approximately a 9% ownership position in Innovasive Devices. 5. Acquisitions The Company increased its ownership position in Cohesion Corporation (of Palo Alto, California) from approximately 81% to approximately 99% in December 1997. Cohesion Corporation is a privately-held company that is focused on developing and commercializing proprietary surgical products, including bioresorbable hemostatic devices and biosealants for tissue repair and regeneration, to increase the effectiveness of and minimize complications following open and minimally invasive surgeries. In connection with the Company's purchase of substantially all the remaining outstanding shares of Cohesion Corporation, $10.5 million of the purchase price (which includes compensatory amounts pertaining to the purchase of vested employee stock options) was allocated to in-process research and development, and was expensed at the time of the investment. The Company determined the amounts to be allocated to in-process technology for Cohesion Corporation based on initial studies of whether technological feasibility had been achieved and whether there was any alternative future use for the technology. Such studies are still preliminary and are subject to revision. The Company believes that the in-process technology has no alternative future use after taking into consideration the potential for both usage of the technology in different products and for resale of the technology. At March 31, 1998, there were additional unvested options outstanding providing for the purchase of the remaining shares of Cohesion Corporation common stock. Following the Spinoff and approval by Cohesion Technologies, Inc. (Cohesion Technologies) Board of Directors, Cohesion Technologies anticipates offering to exchange or substitute the outstanding options of Cohesion Corporation for options to acquire approximately 620,000 shares of the common stock of Cohesion Technologies. The new options are expected to have an exercise price substantially less than the fair market value of Cohesion's shares at the time of such exchange, based on an assumed ration of 1.67 to 1 as anticipated and to be determined by the Board of Directors. Assuming such offers are accepted by the Cohesion Corporation option holders and assuming an expected fair value of $10.00 per share at the date of the exchange, Cohesion Technologies expects to record a non-cash compensation expense of approximately $1.5 million at the date of the exchange in connection with vested options and an additional $4.5 million of deferred compensation to be amortized during the next three fiscal years. 8 9 6. Income Taxes The provision for income taxes for the nine months ended March 31, 1998, and 1997 was computed by applying the estimated annual income tax rate to income before income taxes excluding the impact of the acquired in-process R&D charge. The estimated annual income tax rate considers non-deductible items such as goodwill amortization and excludes losses from certain foreign subsidiaries. 7. Earnings per share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"), which was adopted on December 31, 1997. The Company was required to change the method previously used to compute earnings per share and to restate all prior periods. The adoption of SFAS 128 resulted in no significant impact for the three and nine month periods ended March 31, 1998 and 1997 with respect to basic and diluted earnings per share. 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for historical information contained herein, the matters discussed in this report are forward-looking statements, the accuracy of which is necessarily subject to risks and uncertainties. These risks include among others, the timing of product introductions, receipt of regulatory approvals, clinical efficacy of and market demand for products, product development cycles, results of clinical studies, development and rate growth of new markets, potential unfavorable publicity regarding Collagen and/or Cohesion Technologies, Inc. ("Cohesion Technologies") or their respective products, possible reversal of sales trends and receipt of an IRS ruling that the proposed spin-off of Cohesion Technologies (see "Separation of Aesthetics Technologies Group and Cohesion Technologies, Inc." below), will not result in recognition of taxable income or loss by Collagen or its stockholders for U.S. federal income tax purposes, among other matters discussed in this report. Actual results are subject to risks and uncertainties and actual events and results may differ significantly from the discussion of such matters in the forward-looking statements. Such differences may be based upon factors within Collagen Corporation's and Cohesion Technologies' control, such as strategic planning decisions by management and reallocation of internal resources, or on factors outside of Collagen Corporation's and Cohesion Technologies' control, such as scientific advances by third parties, introduction of competitive products and delays by regulatory and tax authorities, as well as those factors under the heading "Factors That May Affect Future Results of Operations" set forth below, those in Collagen's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, and those in Collagen's 1998 Proxy Statement for Special Meeting of Stockholders, and those factors set forth under the heading "Risk Factors" in the Cohesion Technologies Registration Statement on Form 10. The Company Collagen Corporation (the "Company") designs, develops, manufactures and markets on a worldwide basis biomedical devices for the treatment of defective, diseased, traumatized or aging human tissues. The Company's core products are used principally in aesthetic and reconstructive applications, the treatment of stress urinary incontinence, and bone repair. The Company markets its aesthetic and reconstructive products directly and through a network of international distributors and its stress urinary incontinence and bone repair products through marketing partners. In addition to internal research and development ("R&D") and joint product development arrangements, the Company continues to have a program for developing new products through affiliated companies in which the Company makes equity and debt investments. The Company believes the formation of new companies allows each to focus its technology on select market segments to bring products to market efficiently and to expand its proprietary knowledge. 10 11 Separation of Aesthetic Technologies Group and Cohesion Technologies Inc. In October 1997, the Company announced that it had determined to proceed to separate its Aesthetic Technologies Group and its Collagen Technologies Group into two independent, publicly-traded companies. In December 1997, the Company purchased substantially all of the remaining outstanding shares of Cohesion Corporation and integrated Cohesion Corporation into the Company's Collagen Technologies Group. The Collagen Technologies Group is expected to be spun off as a separate company, named Cohesion Technologies, Inc., to Collagen Corporation stockholders via a tax-free distribution by the second half of calendar year 1998. In April 1998, a Form 10 Registration Statement and a Proxy Statement pertaining to the planned spin-off of Cohesion Technologies to Collagen Corporation stockholders were filed with the Securities and Exchange Commission. The separation is subject to a number of conditions, including, without limitation, receipt of a ruling from the Internal Revenue Service ("IRS") that the transaction will be tax-free to the Company and its stockholders. The Company is currently awaiting a determination by the IRS. The actual timing of the distribution, if any, will depend upon tax, legal, and other considerations. Search for Buyer of LipoMatrix, Inc. In April 1998, the Company announced its plans to pursue a divestiture of its LipoMatrix, Incorporated subsidiary ("LipoMatrix"), manufacturer of the Trilucent(R) breast implant, thereby allowing the Company's aesthetic operations to dedicate further resources to its core business which includes products for soft tissue reconstruction and augmentation, skin care and stress urinary incontinence. The Company believes there is potential value in the Trilucent implant technology; however, the on-going expenses associated with the Trilucent(R) implant are significant, especially with the prospect of U.S. marketing clearance at least three to five years away. For the three and nine months ended March 31, 1998, the Trilucent breast implant business contributed net pre-tax losses of $0.9 million and $3.8 million, respectively. While the Company pursues this divestiture, all Trilucent implant-related operations and service to the Company's physician customers will continue as usual. The timing of the divestiture of the LipoMatrix business is dependent upon identifying interested parties in the medical device industry business. Results of Operations The following table shows for the periods indicated the percentage relationship to product sales of certain items in the Consolidated Statements of Operations. 11 12 PERCENT OF PRODUCT SALES
Three Months Ended Nine Months Ended March 31, March 31, ----------------- ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- Product sales 100% 100% 100% 100% Costs and expenses: Cost of sales 34% 27% 33% 29% Selling, general and administrative 56% 66% 52% 58% Officer separation cost -- 12% -- 4% Research and development 32% 28% 28% 25% Acquired in-process research and development -- -- 17% --
Product sales. Product sales of $20.1 million in the three months ended March 31, 1998, increased approximately $3.6 million or 22%, compared to product sales of $16.5 million for the same prior-year period. Product sales of $63.1 million in the nine months ended March 31, 1998, increased approximately $10.7 million or 20%, compared to product sales of $52.4 million for the same prior-year period. The increase in sales for the three months ended March 31, 1998, compared with the same period in the prior year, primarily was due to the increase in revenue from direct sales of Contigen(R) Bard collagen implant ("Contigen implant") to physician customers by C.R. Bard Inc. ("Bard"), the Company's marketing partner for Contigen implant, and United States sales of plastic surgery and dermatological products. The increase in United States sales of plastic surgery and dermatological products primarily was due to the introduction of SoftForm(R) facial implant ("SoftForm implant") and an increase in sales of injectable collagen products. The increase in sales for the nine months ended March 31, 1998, compared with the same period in the prior year primarily was due to the increase in revenue from direct sales of Contigen implant to physician customers by Bard, increase in United States sales of SoftForm, increase in sales of Hylaform gel in certain European countries and an increase in sales in Europe of Trilucent(TM) breast implant ("Trilucent implant"), a triglyceride-filled breast implant. (See "Operating income/loss " below.) Worldwide sales of plastic surgery and dermatological products for the three and nine months ended March 31, 1998 were $15.1 million and $48.6 million, respectively, up 10% and 9%, respectively from sales of $13.7 million and $44.7 million for the same periods in the prior year. Worldwide unit sales of plastic surgery and dermatological products for the three and nine months ended March 31, 1998 increased approximately 7% and 9%, respectively, over the same periods in the prior year. The increases in both worldwide sales and units for the three and nine month periods primarily were due to the introduction of SoftForm implant in the United States and strong collagen injectable sales in the United States, partially offset by lower sales of collagen injectable products by international subsidiaries. In addition, the increase for the nine month period was also due to an increase in sales in Europe of Trilucent implant. The Company believes the increase in injectable collagen sales in the United States in the three and nine months ended March 31, 1998, was a result of the continuation of United States marketing programs designed to increase average treatment volume per patient and to attract and retain new and existing patients, the implementation of a new sales incentive program for its sales force, and contact made with physicians not previously purchasing collagen-injectable products as a result of the introduction of SoftForm implant. The Company anticipates continued dollar growth in worldwide product sales of plastic surgery and dermatological products during fiscal 1998. The Company announced previously its plan to restructure manufacturing of the Trilucent implant to achieve manufacturing efficiencies. This plan involves relocating shell manufacturing to a third party and moving the filling process to its facilities in Fremont, California. To implement this plan, the Company entered into an agreement in December 1997 with Laboratoire Perouse Implant ("LPI") in France to manufacture the Trilucent implant shell. The Company is electing to shift a portion of its selling and marketing efforts away from this product during the transition to LPI in an effort to avoid a short supply situation. As a result, the Company does not anticipate 12 13 growth in Trilucent implant sales in fiscal year 1998 over fiscal year 1997. Additionally, the Company announced during the three months ended March 31, 1998, its plan to pursue a divestiture of LipoMatrix to dedicate further resources to its core business. While the Company pursues divestiture, all Trilucent implant-related operations and service will continue as usual. During the three and nine months ended March 31, 1998, pursuant to the Company's sales agreement with Bard, the Company recorded revenue of $2.1 million and $5.6 million, respectively, from Bard based on Bard's direct sales of Contigen implant to physician customers compared to revenue of $2.0 million and $5.3 million, respectively, in the same periods in the prior year. In addition, the Company recorded $2.7 million and $7.4 million, respectively, of revenue from shipments of Contigen implant to Bard in the three and nine months ended March 31, 1998 and minimal revenue for the same period in the prior year due to an excess inventory situation at Bard. The Company expects that revenues from Contigen implant sales in fiscal 1998 will increase as a result of the resumption of shipments of Contigen implant to Bard. For the three and nine months ended March 31, 1998, sales of Collagraft(R) bone graft matrix and Collagraft(R) bone graft matrix strip ("Collagraft bone graft products") to the Company's marketing partner, Zimmer, Inc. ("Zimmer"), were approximately $136,000 and $1.1 million, respectively, compared to $597,000 and $1.6 million in the same periods in the prior year. The Company expects sales of Collagraft bone graft products in fiscal 1998 to be at levels slightly lower than those of fiscal 1997 due to anticipated lower sales of Collagraft by Zimmer. A number of uncertainties exist surrounding the marketing and distribution of Contigen implant and Collagraft bone graft products. The Company's primary means of distribution for these products is through third party firms, Bard in the case of Contigen implant and Zimmer in the case of Collagraft bone graft products. The Company's business and financial results could be adversely affected in the event that either or both of these parties are unable to market the products effectively, anticipate customer demand accurately, or effectively manage industry-wide pricing and cost containment pressures in health care. Cost of sales. Cost of sales as a percentage of product sales was 34% and 33% for the three and nine months ended March 31, 1998, compared with 27% and 29% for the same prior-year periods. The higher cost of sales as a percentage of product sales in the three and nine months ended March 31, 1998, primarily was due to the introduction of product line extensions from third parties, Hylaform gel and SoftForm implant, and increased direct sales of Contigen implant to physician customers by Bard. Both Hylaform gel and SoftForm implant are manufactured by third parties and Contigen implant is distributed by a third party and as a result, these products have higher costs per unit. Due to the high fixed costs of the Company's Fremont, California manufacturing facility, the unit cost of manufacturing is expected to remain highly dependent on the level of output at the Company's manufacturing facility, which is affected by incremental production of collagen-based injectable products. The Company anticipates that cost of sales as a percentage of sales will decrease slightly over the next several quarters due to anticipated lower cost per unit for collagen injectable products. 13 14 SG&A. Selling, general, and administrative ("SG&A") expenses were $11.2 million for the three months ended March 31, 1998, an increase of 2% over $11.0 million for the same prior-year period. SG&A expenses were $32.7 million for the nine months ended March 31, 1998, an increase of approximately $2.4 million or 8% compared to SG&A expenses of $30.3 million for the same prior-year period. SG&A expenses as a percentage of product sales were 56% and 52% for the three and nine months ended March 31, 1998, compared to 66% and 58% for the same prior-year periods. The increase in SG&A expenses, in absolute dollars, in the three and nine months ended March 31, 1998, primarily resulted from expenses related to the separation of the Aesthetic Technologies Group and Cohesion Technologies Inc., marketing costs related to the SoftForm implant and Hylaform gel and consulting fees related to tax strategic planning, which more than offset the expenses incurred in fiscal 1997 to prepare for trial in the Company's trade secrets lawsuit against Matrix Pharmaceuticals. The Company expects SG&A expenses in fiscal 1998 as a percentage of product sales to be at levels lower than those of fiscal 1997. Officer separation cost. The officer separation cost of $2.0 million in the three and nine months ended March 31, 1997, 12% and 4% of product sales, respectively, was a charge related to Howard Palefsky's separation package in connection with Mr. Palefsky's resignation as the Company's Chief Executive Officer. These costs include payments made to the former officer and costs associated with a loan to Mr. Palefsky. Mr. Palefsky will continue to serve as a consultant to the Company. In addition, by agreement, the Company expects to continue to make payments to Mr. Palefsky during fiscal 1998 and 1999. R&D. Research and development ("R&D") expenses, which include expenditures for regulatory compliance, were $6.4 million and $17.9 million (32% and 28% of product sales) for the three and nine months ended March 31, 1998, respectively, an increase of 41% and 35% over $4.6 million and $13.2 million (28% and 25% of product sales), for the same prior-year periods, respectively. The increase in R&D spending in the three and nine months ended March 31, 1998, primarily was attributable to the ramp-up of expenses to support programs, including clinical trials, for CoSeal and CoStasis(TM) Hemostatic Device, the ramp-up of the human recombinant program partially offset by lower Trilucent R&D expenses. Subsequent to the close of the quarter, the Company announced the commencement of a pivotal U.S. clinical study with the CoStasis hemostat, which is an atruamatic, liquid hemostat designed for use in surgical procedures to control bleeding. CoStatis hemostat is designed for use as a spray, to allow fast, uniform delivery over large as well as intricate surface areas. The Company expects R&D spending in fiscal 1998 to be at levels higher than fiscal 1997 primarily due to increased expenses for the tissue adhesive sealant program and the human collagen recombinant program. Acquired in-process research and development. The charge for acquired in-process research and development ("in-process R&D") of $10.5 million in the nine months ended March 31, 1998, was a non-recurring charge related to the purchase of substantially all of the remaining shares of Cohesion Corporation, including the purchase of certain vested employee stock options. (See Note 5 of Notes to Condensed Financial Statements.) Loss from operations. Loss from operations was $4.4 million for the three months ended March 31, 1998, compared with a loss from operations of $5.5 million for the same prior-year period. The Company's consolidated operating loss was $19.0 million for the nine months ended March 31, 1998, compared with a $8.1 million loss for the same prior-year period. The loss in the three months ended March 31, 1998, primarily was due to the ramp-up of R&D expenses to support planned development programs, including clinical trials, for CoStasis hemostat and CoSeal, the ramp-up of the 14 15 Company's human collagen recombinant program, and expenses related to the separation of the Aesthetic Technologies Group and Cohesion Technologies Inc., partially offset by higher Contigen implant and SoftForm implant sales. The loss in the nine months ended March 31, 1998 primarily was due to acquired in-process R&D, representing the purchase of substantially all of the remaining shares of Cohesion, the ramp-up of R&D expenses to support planned development programs, including clinical trials, for CoStasis hemostat and CoSeal, the ramp-up of the Company's human collagen recombinant program, and expenses related to the separation of the Aesthetic Technologies Group and Cohesion Technologies Inc., partially offset by higher Contigen implant sales, sales from product line extensions, and increased Trilucent implant sales. Compared with foreign exchange rates for the same prior-year quarter, the impact of foreign exchange rates in the current fiscal quarter on operating income was a net increase of $33,000 on an equivalent local currency basis, resulting from a decrease of approximately $474,000 in operating expenses, partially offset by a decrease of approximately $441,000 in revenue. Compared with foreign exchange rates for the same prior-year period, the impact of foreign exchange rates in the nine months ended March 31, 1998 on operating income was a net increase of $302,000 on an equivalent local currency basis, resulting from a decrease of approximately $2,211,000 in operating expenses, partially offset by a decrease of approximately $1,909,000 in revenue. Until December 1994, the Company's policy was to hedge material foreign currency transaction exposures. At June 30, 1997 and March 31, 1998, no foreign currency transaction exposures were hedged. Unhedged net foreign assets were $7.0 million and $7.6 million at March 31, 1998 and June 30, 1997, respectively. Net gain on investments, principally Boston Scientific Corporation. In the three months ended March 31, 1998, the Company recorded a pre-tax gain on investments of $5.0 million primarily resulting from the sale of 90,000 shares of Boston Scientific Corporation ("Boston Scientific") common stock compared to no sales of Target Therapeutics, Inc. ("Target") common stock in the three months ended March 31, 1997. In the nine months ended March 31, 1998, the Company recorded a pre-tax gain on investments of $13.7 million, primarily resulting from the sale of 247,340 shares of Boston Scientific common stock compared to $9.2 million resulting from the sale of 330,000 shares of Target common stock in the nine months ended March 31, 1997. The Company anticipates additional sales of Boston Scientific common stock during the fourth quarter. However, the number of shares sold will depend on market conditions and the anticipated cash needs of Cohesion Technologies. Equity in losses of affiliates, net. Equity in losses of affiliate companies was approximately $83,000 for the three months ended March 31, 1998, compared to equity in losses of approximately $133,000 for the same prior-year period. For the nine months ended March 31, 1998, equity in losses of affiliate companies was $232,000 compared with losses of $730,000 in the same prior-year period. The decrease in equity in losses of affiliates for the three and nine months ended March 31, 1998, primarily was due to lower CollOptics, Inc. ("CollOptics") losses as a result of CollOptics reducing its R&D efforts until it obtains additional funding. The Company intends to continue to expand its new product development activities through more equity investments in or loans to affiliate companies during the fourth quarter of fiscal 15 16 1998. These affiliate companies typically are in an early stage of development and may be expected to incur substantial losses which in turn will have an adverse effect on the Company's operating results. There can be no assurance that these investments will result in positive returns nor can there be any assurance on the timing of any return on investment, or that the Company will not lose its entire investment. Interest income. Interest income was $164,000 and $702,000 for the three and nine months ended March 31, 1998, respectively, compared to $238,000 and $897,000 for the same periods in the prior year. The decrease in the three and nine months ended March 31, 1998, primarily was due to lower average cash, cash equivalents and short-term investment balances and a lower average interest rate. Provision for income taxes. The provision for income taxes for the nine months ended March 31, 1998 prior to the in-process R&D charge was approximately 31% as compared to 54% for the corresponding period in 1997. The decrease in the estimated annual tax rate results primarily from fluctuations in estimated annual pretax income without similar changes in non-deductible goodwill amortization in addition to deductibility of losses of foreign subsidiaries which previously could not be offset against U.S. federal taxable income. Additionally, the provision for income taxes for the nine months ended March 31, 1998 reflects a tax benefit of approximately $1.1 million which was recorded in the second quarter of fiscal 1998. This benefit relates to certain expenses included in the in-process R&D charge that are deductible for income tax purposes. The Company recorded a tax benefit for the three months ended March 31, 1998 of approximately $0.3 million which primarily resulted from foreign losses which previously could not be offset against U.S. federal taxable income. Liquidity and Capital Resources At March 31, 1998, the Company's cash and cash equivalents were $15.8 million compared to $18.5 million at June 30, 1997. Net cash used in operating activities was approximately $3.1 million in the nine months ended March 31, 1998, compared to approximately $4.5 million of net cash used in operating activities for the same prior-year period. The $3.1 million of net cash used in operating activities in the nine months ended March 31, 1998, mainly was attributable to a $3.5 million net loss after adjusting for gain on investments (net of taxes paid), depreciation and amortization expense, equity in losses of affiliates, and acquired in-process research and development, a $1.3 million increase in accounts receivable resulting from the resumption of Contigen implant shipments to Bard, partially offset by a $700,000 decrease in inventory and a $500,000 increase in accounts payable. The $400,000 of net cash provided by investing and financing activities in the nine months ended March 31, 1998, primarily was due to proceeds of $14.7 million (net of taxes paid) from the sale of 247,340 shares of common stock of Boston Scientific by the Company, proceeds of $7.9 million received from the sale of short-term investments, proceeds of $1.7 million from the issuance of 167,192 shares of the Company's 16 17 common stock and proceeds of approximately $700,000 from the sale of the Company's shares in affiliates, partially offset by payments totaling $10.5 million for the purchase of substantially all of the remaining equity interests in Cohesion Corporation, payments of $5.3 million to purchase short-term investments, capital expenditures of approximately $3.4 million, repayment of $2.0 million of the Company's credit facility, payment of cash dividends of approximately $1.8 million to the Company's stockholders in July 1997 and January 1998, net payments of approximately $1.1 million for additional investments made in and loans to affiliates and a payment of approximately $500,000 to repurchase 25,000 shares of the Company's common stock. The Company anticipates capital expenditures, equity investments in, and loans to affiliate companies to be approximately $18.0 million in fiscal 1998. As of March 31, 1998, the Company's capital expenditures, equity investments in, and loans to affiliate companies totaled approximately $15.0 million. In June 1996, the Board of Directors authorized the Company to repurchase an additional 500,000 shares of the Company's common stock in the open market, of which the Company has repurchased 172,900 shares as of March 31, 1998. Approximately 327,100 shares remain to be repurchased according to the Board of Director's authorization. In November 1997, the Board of Directors declared a dividend of ten cents per share for stockholders of record as of December 15, 1997. This dividend totaled approximately $893,000 and was paid to stock holders on January 15, 1998. Neither the Company nor Cohesion Technologies anticipate paying dividends after the Spinoff. The Company's principal sources of liquidity include cash generated from operations, sales of Boston Scientific common stock, and the Company's cash, cash equivalents, and short-term investments. At March 31, 1998, the Company held 1,117,860 shares of Boston Scientific common stock and all holding restrictions resulting from the acquisition of Target by Boston Scientific that were applicable at June 30, 1997, had expired. The Company's Board of Directors has authorized the Company to sell portions of its holdings in Boston Scientific. The Company anticipates that stock sales pursuant to this authorization will be made from time to time with the objective of generating cash, for among other things, further investments in both current and new affiliate companies. The Company believes that the above sources of liquidity should be adequate to fund its anticipated cash needs through at least the next twelve months. Factors That May Affect Future Results of Operations A large portion of the Company's revenues in recent years has come from its international operations. As a result, the Company's operations and financial results could be significantly affected by international factors, including numerous regulatory agencies, changes in foreign currency exchange rates and foreign economic and political conditions generally. The Company's results of operations could be significantly affected by fluctuations in foreign currency exchange rates or disruptions to shipments. Sales of the Company's collagen-based injectable products, Zyderm(R) I implant, Zyderm(R) II implant and Zyplast(R) implant, as well as Trilucent implant and Contigen implant, accounted for approximately 89% of consolidated product sales for the quarter ended March 31, 1998 and 87% of consolidated product sales for the nine months 17 18 ended March 31, 1998. The Company's product sales may continue to consist primarily of sales of these principal products. Factors such as adverse rulings by regulatory authorities, product liability lawsuits, the introduction of competitive products by third parties, other loss of market acceptance or other adverse publicity for these principal products may significantly and adversely affect the Company's sales of these products. The Company's quarterly operating results may vary significantly in the future depending upon factors such as the timing of significant orders and shipments, changes in pricing policies by the Company and its competitors, increased competition, demand for the Company's products, the number, timing and significance of new product and product enhancement announcements by the Company and its competitors, the ability of the Company to develop, introduce and market new and enhanced versions of the Company's products on a timely basis, the mix of direct and indirect sales, the timing of investments in affiliate companies and general economic factors, among others. If revenue levels are below expectations, operating results are likely to be materially adversely affected. In particular, because only a small portion of the Company's expenses varies with revenue in the short term, net income may be disproportionately affected by a reduction in revenue. All of the Company's manufacturing capacity for collagen products, the majority of its research and development activities, its corporate headquarters, and other critical business functions are located near major earthquake faults. In addition, all of the Company's manufacturing capacity for collagen-based products is located in one primary facility with the Company currently maintaining only limited amounts of finished product inventory. While the Company has some limited protection in the form of disaster recovery programs and basic insurance coverage, the Company's operating results and financial condition would be materially adversely affected in the event of a major earthquake, fire or other similar calamity, affecting its manufacturing or other facilities. The Company is involved in various legal actions arising in the course of business, some of which involve product liability claims. The Company operates in an industry susceptible to claims that may allege that the use of the Company's technology or products has resulted in adverse effects or infringes on third-party technology. With respect to product liability claims, such risks will exist even with respect to those products that have received, or in the future may receive, regulatory approval for commercial sale. It is possible that adverse product liability or intellectual property actions could negatively affect the Company's future results of operations. The Company has been, and may in the future, be the subject of negative publicity, which can arise from various sources, ranging from the news media on cosmetic procedures in general to legislative and regulatory investigations specific to the Company concerning, among other things, the safety and efficacy of its products. There can be no assurance that such investigations or negative publicity from such investigations or from the news media will not result in a material adverse effect on the Company's future financial position, its results of operations or the market price of its stock. In addition, significant negative publicity could result in an increased number of product liability claims. The Company's manufacturing activities and products sold in the United States are subject to extensive and rigorous regulations by the Food and Drug Administration 18 19 ("FDA") and by comparable agencies in certain foreign countries where these products are manufactured or distributed. The FDA regulates the manufacture and sale of medical devices in the United States, including labeling, advertising and record keeping. Failure to obtain, or delays in obtaining, the required regulatory approvals for new products, as well as product recalls, both inside and outside of the United States could adversely affect the Company. Due to the factors noted above, as well as other factors that may affect the Company's operating results, the Company's future earnings and stock price may be subject to significant volatility, particularly on a quarterly basis. Any shortfall in revenue or earnings from levels expected by securities analysts could have an immediate and significant adverse effect on the trading price of the Company's common stock in any given period. Additionally, the Company may not learn of, or be able to confirm, such shortfalls until late in the fiscal quarter, or following the end of the quarter, which could result in an even more immediate and adverse effect on the trading price of the Company's common stock. Finally, the Company participates in a highly dynamic industry, which often results in significant volatility of the Company's common stock. Some of the Company's older computer programs were written using two digits rather than four to define the applicable year. As a result, those computer programs have time-sensitive software that recognize a date using "00" as the year 1900 rather than the year 2000. This could cause a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. The total Year 2000 project cost is estimated at approximately $600,000 (which will be incurred over the next two fiscal years) and substantially all costs are expected to be capitalized. To date, the Company has incurred nominal costs. For a more complete discussion of risks and uncertainties involving the Company's business, please see the risks factors described under the heading "Factors That May Affect Future Results of Operations" set forth in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, and in the Company's 1998 Proxy Statement for Special Meeting of Stockholders, and those factors described under the heading "Risk Factors" in the Cohesion Technologies Registration Statement on Form 10. 19 20 PART II. OTHER INFORMATION COLLAGEN CORPORATION Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K A. Exhibits Exhibit 10.95* Chemical Peel Manufacturing and Sale License Amendment with Cosmederm Technologies, Inc., dated February 27, 1998 Exhibit 2.1* Separation and Distribution Agreement by and between Collagen Corporation and Cohesion Technologies, Inc., dated January 1, 1998 Exhibit 10.97* Collagen Supply Agreement by and between Collagen Corporation and Cohesion Technologies, Inc., dated January 1, 1998 Exhibit 10.98* Recombinant Technology Development and License Agreement by and between Collagen Corporation and Cohesion Technologies, Inc., dated January 1, 1998 20 * Confidential treatment has been or will be timely requested for a portion of this document. 21 Exhibit 10.99 Tax Allocation and Indemnity Agreement by and between Collagen Corporation and Cohesion Technologies, Inc., dated January 1, 1998 Exhibit 10.100 Services Agreement by and between Collagen Corporation and Cohesion Technologies, Inc., dated January 1, 1998 Exhibit 10.101 Benefits Agreement by and between Collagen Corporation and Cohesion Technologies, Inc., dated January 1, 1998 Exhibit 10.102 Vitrogen International Distribution Agreement by and between Collagen International, Inc. and Cohesion Technologies, Inc., dated January 1, 1998 Exhibit 10.103 Assignment and License Agreement by and between Collagen Corporation and Cohesion Technologies, Inc., dated January 1, 1998 Exhibit 10.104* Collagraft Supply Agreement by and between Collagen Corporation and Cohesion Technologies, Inc., dated January 1, 1998 Exhibit 27 Financial Data Schedule * Confidential treatment has been or will be timely requested for a portion of this document. B. Reports on Form 8-K None 21 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COLLAGEN CORPORATION Date: May 14, 1998 /s/ Norman Halleen ------------ ------------------------------- Norman Halleen Vice President Finance Chief Financial Officer 22 23 COLLAGEN CORPORATION INDEX TO EXHIBITS Exhibit Number Description - -------------- ----------- Exhibit 10.95* Chemical Peel Manufacturing and Sale License Amendment with Cosmederm Technologies, Inc., dated February 27, 1998 Exhibit 2.1* Separation and Distribution Agreement by and between Collagen Corporation and Cohesion Technologies, Inc., dated January 1, 1998 Exhibit 10.97* Collagen Supply Agreement by and between Collagen Corporation and Cohesion Technologies, Inc., dated January 1, 1998 Exhibit 10.98* Recombinant Technology Development and License Agreement by and between Collagen Corporation and Cohesion Technologies, Inc. dated January 1, 1998 Exhibit 10.99 Tax Allocation and Indemnity Agreement by and between Collagen Corporation and Cohesion Technologies, Inc., dated January 1, 1998 Exhibit 10.100 Services Agreement by and between Collagen Corporation and Cohesion Technologies, Inc. dated January 1, 1998 Exhibit 10.101 Benefits Agreement by and between Collagen Corporation and Cohesion Technologies, Inc. dated January 1, 1998 Exhibit 10.102 Vitrogen International Distribution Agreement by and between Collagen International, Inc. and Cohesion Technologies, Inc., dated January 1, 1998 Exhibit 10.103 Assignment and License Agreement by and between Collagen Corporation and Cohesion Technologies, Inc., dated January 1, 1998 Exhibit 10.104* Collagraft Supply Agreement by and between Collagen Corporation and Cohesion Technologies, Inc., dated January 1, 1998 Exhibit 27 Financial Data Schedule * Confidential treatment has been or will be timely requested for a portion of this document. EX-10.95 2 CHEMICAL PEEL MANUFACTURING AND SALE LICENSE AGMT 1 EXHIBIT 10.95 Application for an order granting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 has been or will be timely made. Confidential portions of this docu- ment have been redacted and marked with an [*] and have been filed with the Securities and Exchange Commission separately with such application. CHEMICAL PEEL MANUFACTURING AND SALE LICENSE AMENDMENT This Amendment is between Collagen corporation ("Collagen") and Cosmederm Technologies, Inc. ("Cosmederm"), effective February 27, 1998. RECITALS A. Collagen and Cosmederm are party to a License, Supply and International Distribution Agreement dated as of September 6, 1996 (the "Original Agreement"). Pursuant to Section 7.1 of the Original Agreement, Cosmederm proposed a chemical peel product to Collagen (the "Peel Product"). As of July 1, 1997 the parties entered into an amendment of the Original agreement (the "Development Amendment"), calling for the development of the Peel Product. The Parties now wish to amend the Original Agreement to provide for the manufacture and sale of the Peel Product. AGREEMENT 1. The Peel Product is added to Section 2.5 and Exhibit A of the Original Agreement as a Licensed Product. Except as set forth in this Amendment, all provisions of the Original Agreement shall be applicable to the Peel Product as a Licensed Product. 2. The Peel Product shall be manufactured by Cosmederm in "18-treatment kits," each consisting of a 2 ounce bottle of degreaser, a 2 ounce bottle of 70% glycolic peel, 2 ounce bottle of neutralizer, and 18 0.25 ounce tubes of post-peel moisturizer. Cosmederm's shipments shall be in bulk-packed, customer-ready packaging. The transfer price for each "18-treatment kit" shall be the greater of [*], or [*] of Collagen's Average Realized Price for such Peel Product for the calendar quarter in which Cosmederm's shipment is made. Collagen shall initially pay the transfer price based on the [*] amount; within 30 days after the end of each calendar quarter, Collagen shall calculate the Average Realized Price for such quarter and send Cosmederm a statement of such calculation, accompanied by payment of any indicated increment (if the [*] price for such quarter was higher than the [*] price). "Average Realized Price" means the average per-unit amount actually received by Collagen from the sale or transfer of the Peel Product, with gross revenues (including any revenues from extra sample units beyond those contemplated by Paragraph 3 of this Amendment) reduced by (i) promotional allowances, rejections (product refused by customer), returns, volume discounts, and, to the extent included in Collagen's sale or 2 transfer price, (ii) freight, transport, packaging, insurance charges associated with transportation, taxes, tariffs and import/export duties. None of the above reductions shall be allowed, in any case, unless it is delineated as a clear line item on Collagen's invoice; provided that for non-U.S. invoices if it is not Collagen's normal practice in the particular country to include any such item as a clear line item on the invoice, the reduction shall be allowed for such item if Collagen provides clear equivalent documentation of the item amount. If Collagen changes the packaging requirement, the transfer price will be renegotiated. 3. Cosmederm will manufacture for Collagen [*] "unit dose" peels, consisting of unit dose "samples" of each of the four peel products in unit dose packaging. These unit dose peels will e used for a special launch activity in the USA and will not be sold to physicians. Cosmederm and Collagen will address other geographical launches as appropriate. The special transfer price for the [*] unit dose peels is [*] each. 4. If Cosmederm is in Chapter 7 bankruptcy proceedings and is no longer conducting full operations, Collagen shall have a right (equivalent to the right under Section 4.1 of the Original Agreement) to manufacture and have manufactured all the Licensed Products, including the Peel Product. The royalty provisions of Section 6.3-6.7 of the Original Agreement would apply. 5. If any Licensed Product, including the Peel Product, is sold together with any other product(s) for a "package discount" price, then for the purpose of calculating royalties, Net Sales, Average Realized Price or any other applicable value, the gross revenues and applicable reduction items for such Licensed Product in such package shall be deemed to be allocated between such Licensed Product and the other package product(s) in accordance with the formula A/(A+B), where A is the standalone wholesale list price of such Licensed Product and B is the standalone wholesale list price of the other package product(s). 6. If Collagen requires from Cosmederm, with regard to the Peel Product, any additional research, development,packaging, manufacturing, and marketing claims support work which is over and above that specified in the Development Amendment, Cosmederm shall be entitled to be paid for such additional work at Cosmederm's standard rates. 7. If addition to all other royalties and other payments due from Collagen to Cosmederm under the Original Agreement (including the Development Amendment), there shall be an overriding royalty of [*] of Net Sales of all Licensed Products sold by Collagen for end use in Europe (the "European Non-Recurring Overriding Royalty") and an overriding royalty of [*] of Net Sales of all Licensed Products sold by Collagen for end use outside 2. 3 Europe (the "Non-European Non-Recurring Overriding Royalty"). The European Non-Recurring Overriding Royalty shall cease after [*] of European Non-Recurring Overriding Royalty payments have accrued on a cumulative basis. The Non-European Non-Recurring Overriding Royalty shall cease after [***] of Non-European Non-Recurring Overriding Royalty payments have accrued on a cumulative basis. Payment of the European and Non-European Non-Recurring Overriding Royalties shall be on a quarterly basis under Sections 6.3-6.7 of the Original Agreement, as the accrue. 8. Collagen shall forthwith lend Cosmederm [*] against delivery by Cosmederm of a convertible note in the form of Exhibit A hereto. 9. Except as expressly set forth herein the Original Agrement (as modified by the Development Amendment) remains unchanged and in full force and effect. COLLAGEN CORPORATION By: /s/ REBECCA A. STIRN ---------------------------------------- Rebecca A. Stirn V.P. Sales and Marketing COSMEDERM TECHNOLOGIES, INC. By: /s/ DEV PURKAYASTHA ---------------------------------------- Dev Purkayastha, Chief Executive Officer 3. 4 EXHIBIT A San Diego, California February 27, 1998 COSMEDERM TECHNOLOGIES, INC. CONVERTIBLE PROMISSORY NOTE Cosmederm Technologies, Inc., a Delaware corporation (the "Company"), for value received, hereby promises to pay to Collagen Corporation, or order (the "Holder"), the principal amount of [*] (the "Amount"). 1. Convertible Promissory Note ("Note"). 1.1 Interest Rate. This Note shall not bear interest before maturity. From and after maturity, this Note shall bear simple interest at 10% per annum. 1.2 Payment. Subject to the provisions of Section 2 regarding conversion of this Note, the Amount shall become due and payable on [*]. Payment and any prepayment under Section 1.3 below shall be made at the offices or residence of the Holder, or at such other place as the Holder shall have designated to the Company in writing, in lawful money of the United States of America. 1.3 Prepayment. This Note may be prepaid, in whole or in part, at any time without premium or penalty. 2. Conversion. 2.1 Mandatory Conversion. In the event the Company completes a subsequent equity financing in which shares of the Company's Preferred Stock are issued and in which the Company raises at least [*] excluding conversion of this Note (a "Qualified Equity Financing"), the Amount shall automatically and immediately be converted into that number of fully paid and nonassessable shares of the series of Preferred Stock of the Company sold in the Qualified Equity Financing (the "New Equity Shares") as is equal to the Amount divided by the per share purchase price of the New Equity Shares (the "Per Share Price"), with any fraction of a share rounded down to the next whole share of the New Equity Shares. Notwithstanding the foregoing, if the equity financing occurs in connection with a transaction described in (i) or (ii) below, the definition of a Qualified Equity Financing shall not include such equity financing unless the Company and the third party entering into such transaction mutually so determine: (i) any arrangement between the Company and any third party for any research or development involving the Company (including, without limitation, any arrangement that includes provision for research support, product development and/or testing support) or (ii) any arrangement to commercialize any products resulting from the research or development programs of the Company 5 (including, without limitation, an arrangement to develop, make, use and/or sell any such products). The Holder shall have no right to negotiate any of the terms or conditions upon which the New Equity Shares shall be issued, which negotiation shall be conducted solely among the Company and the purchasers of the New Equity Shares. 2.2 Optional Conversion. The Company shall notify the Holder if the Company decides that it will no longer be seeking to complete before [*] a Qualified Equity Financing. From and after the date of delivery of such notice, or, if there is no such notice, then from and after [*] (provided that the Company has not completed a Qualified Equity Financing before [*]), at the option of either the Holder or the Company the Amount shall be converted into that number of fully paid and nonassessable shares of Series C Preferred Stock of the Company as is equal to the Amount divided by [*] with any fraction of a share rounded down to the next whole share of Series C Preferred Stock. 2.3 Conversion Procedure. Written notice of the Qualified Equity Financing shall be delivered to the Holder of this Note on or before the scheduled closing date of the Qualified Equity Financing (the "Conversion Date"), at the address last shown on the records of the Company for the Holder or given by the Holder to the Company for the purpose of notice (or, if no such address appears or is given, at the place where the principal executive office or residence of the Holder is located), notifying the Holder of the conversion to be effected, including specifying (i) the Amount, (ii) the Per Share Price, (iii) a term sheet setting forth the rights, preferences, privileges and terms and conditions of issuance and sale of the New Equity Shares and (iv) the Conversion Date. 2.4 Optional Conversion Procedure. Written notice of the Company's exercise of its conversion option under Section 2.2 shall be delivered to the Holder of this Note on or before the scheduled conversion date, at the address last shown on the records of the Company for the Holder or given by the Holder to the Company for the purpose of notice (or, if no such address appears or is given, at the place where the principal executive office or residence of the Holder is located), notifying the Holder of the conversion to be effected, including specifying (i) the Amount, (ii) the [*] conversion price, and (iii) the conversion date. Written notice of the Holder's exercise of its conversion option under Section 2.2 shall be delivered to the Company (accompanied by this Note) on or before the scheduled conversion date, notifying the Company of the conversion to be effected and the conversion date. 2.5 Termination of Rights Upon Mandatory or Optional Conversion. Conversion shall be deemed effective on the scheduled conversion date and the Holder of this Note shall have no further rights under this Note, whether or not this Note is surrendered. The Holder is nonetheless obligated to surrender this Note. Notwithstanding the foregoing, conversion at the option of the Holder under Section 2.2 cannot be effected without surrender of this Note. 2.6 Delivery of Stock Certificates. As promptly as practicable after any conversion of this Note, the Company, at its expense, shall issue and deliver to the Holder of this Note a certificate or certificates evidencing the number of full shares of Preferred Stock issuable to Holder upon any such conversion. -2- 6 2.7 Full Participation. Upon conversion, the Holder shall be given the opportunity to become a party, by signature thereon, to all investor agreements which are part of the Qualified Equity Financing or, as the case may be, to add the new Series C shares to the investor agreements which apply to the September 1996 Series C round. 3. Miscellaneous. 3.1 Acceleration. Upon the happening of any of the following events, the Holder may, at its option, declare immediately due and payable the entire unpaid principal amount of this Note, together with all interest thereon, plus any other amounts payable at the time of such declaration pursuant to this Note. Such events are the following: (1) the Company shall admit in writing its inability to pay its debts as they become due, shall make a general assignment for the benefit of creditors or shall file any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law, or any other law or laws for the relief of, or relating to, debtors; or (2) an involuntary petition shall be filed against the Company under any bankruptcy, reorganization, insolvency or moratorium law, or any other law or laws for the relief of, or relating to, debtors unless such petition shall be dismissed or vacated within sixty (60) days of the date thereof. 3.2 Transfer of Note. This Note shall not be transferable or assignable in any manner and no interest shall be pledged or otherwise encumbered by the Holder without the express written consent of the Company, and any such attempted disposition of this Note or any portion hereof shall be of no force or effect. 3.3 Titles and Subtitles. The titles and subtitles used in this Note are for convenience only and are not to be considered in construing or interpreting this Note. 3.4 Attorneys' Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Note, the prevailing party shall be entitled to reasonable attorneys' fees, costs and disbursements in addition to any other relief to which such party may be entitled. 3.5 Amendments and Waivers. This Note may not be amended or waived (either generally or in a particular instance and either retroactively or prospectively), except with the written consent of the Company and the Holder. 3.6 Severability. If one or more provisions of this Note are held to be unenforceable under applicable law, such provision shall be excluded from this Note and the balance of the Note shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 3.7 Governing Law. This Note shall be governed by and construed and enforced in accordance with the laws of the State of California, without giving effect to its conflicts of laws principles. COSMEDERM TECHNOLOGIES, INC., a Delaware corporation -3- EX-2.1 3 SEPARATION AND DISTRIBUTION AGREEMENT 1 EXHIBIT 2.1 SEPARATION AND DISTRIBUTION AGREEMENT BY AND BETWEEN COLLAGEN CORPORATION AND COHESION TECHNOLOGIES CORPORATION EFFECTIVE AS OF JANUARY 1, 1998 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I - DEFINITIONS...............................................................1 1.1 Action....................................................................1 1.2 Affiliate.................................................................2 1.3 Agent.....................................................................2 1.4 Agreement.................................................................2 1.5 Ancillary Agreements......................................................2 1.6 Applicable Deadline.......................................................2 1.7 Arbitration Act...........................................................2 1.8 Arbitration Demand Date...................................................2 1.9 Arbitration Demand Notice.................................................2 1.10 Assets...................................................................2 1.11 Benefits Agreement.......................................................4 1.12 Change of Control........................................................4 1.13 Code.....................................................................4 1.14 Collagen Business........................................................4 1.15 Collagen Common Stock....................................................5 1.16 Collagen Field...........................................................5 1.17 Collagen Group...........................................................5 1.18 Collagen Indemnitees.....................................................5 1.19 Collagen Supply Agreement................................................5 1.20 Collagraft Supply Agreement..............................................5 1.21 Commission...............................................................5 1.22 Consents.................................................................5 1.23 Delayed Transfer Assets..................................................5 1.24 Delayed Transfer Liabilities.............................................5 1.25 Distribution.............................................................5 1.26 Distribution Date........................................................6 1.27 Effective Date...........................................................6 1.28 Environmental Law........................................................6 1.29 Environmental Liabilities................................................6 1.30 Escalation Notice........................................................6 1.31 Exchange Act.............................................................6 1.32 Excluded Assets..........................................................6 1.33 Excluded Liabilities.....................................................6 1.34 Governmental Approvals...................................................7 1.35 Governmental Authority...................................................7 1.36 Group....................................................................7 1.37 Improvements.............................................................7 1.38 Indemnifying Party.......................................................7 1.39 Indemnitee...............................................................7
3 TABLE OF CONTENTS (continued)
PAGE ---- 1.40 Indemnity Payment........................................................7 1.41 Information..............................................................7 1.42 Insurance Policies.......................................................7 1.43 Insurance Proceeds.......................................................7 1.44 Intellectual Property Rights.............................................8 1.45 Liabilities..............................................................8 1.46 License Agreement........................................................8 1.47 Licensed Technology......................................................8 1.48 Manufactured Product or Material.........................................8 1.49 Nasdaq National Market...................................................8 1.50 Notice of Infringement...................................................8 1.51 Persistence Technology...................................................8 1.52 Persistence Agreement....................................................8 1.53 Person...................................................................9 1.54 Prime Rate...............................................................9 1.55 Recombinant Technology...................................................9 1.56 Recombinant Agreement....................................................9 1.57 Record Date..............................................................9 1.58 Research and Development Agreements......................................9 1.59 Retained Receivables.....................................................9 1.60 Retained Technology......................................................9 1.61 Securities Act...........................................................9 1.62 Security Interest........................................................9 1.63 Separation..............................................................10 1.64 Services Agreement......................................................10 1.65 Subsidiary..............................................................10 1.66 Tax Allocation Agreement................................................10 1.67 Taxes...................................................................10 1.68 Technologies Assets.....................................................10 1.69 Technologies Business...................................................10 1.70 Technologies Common Stock...............................................10 1.71 Technologies Contracts..................................................10 1.72 Technologies Group......................................................11 1.73 Technologies Indemnitees................................................11 1.74 Technologies Liabilities................................................11 1.75 Third Party Claim.......................................................11 1.76 Transferred Receivables................................................11 1.77 Transferred Technology..................................................11 1.78 Vitrogen International Distribution Agreement...........................11 ARTICLE II - THE SEPARATION..........................................................11 2.1 Transfer of Assets, Assumption of Liabilities and Issuance of Technologies Stock.......................................................11 2.2 Technologies Assets......................................................12
-ii- 4 TABLE OF CONTENTS (continued)
PAGE ---- 2.3 Technologies Liabilities.................................................14 2.4 Transfer of Employees....................................................15 2.5 Documents Relating to Transfer of Real Property Interests and Tangible Property Located Thereon.................................................16 2.6 Documents Relating to Other Transfers of Assets and Assumption of Liabilities..............................................................16 2.7 Other Ancillary Agreements...............................................16 2.8 Disclaimer of Representations and Warranties.............................16 2.9 Governmental Approvals and Consents......................................17 2.10 Novation and Assignment of Assumed Technologies Liabilities.............18 ARTICLE III - THE DISTRIBUTION.......................................................19 3.1 The Distribution.........................................................19 3.2 Actions Prior to the Distribution........................................20 3.3 Conditions to Distribution...............................................20 3.4 Fractional Shares........................................................21 3.5 The Technologies Board of Directors......................................21 ARTICLE IV - INDEMNIFICATION.........................................................22 4.1 Indemnification by Collagen..............................................22 4.2 Indemnification by Technologies..........................................23 4.3 Indemnification Obligations Net of Insurance Proceeds and Other Amounts..23 4.4 Procedures for Indemnification of Third Party Claims.....................24 4.5 Additional Matters.......................................................25 4.6 Remedies Cumulative......................................................26 4.7 Survival of Indemnities..................................................26 ARTICLE V - Intellectual Property Enforcement and Indemnity..........................26 5.1 Enforcement..............................................................26 5.2 Third Party Claims.......................................................28 ARTICLE VI - INTERIM OPERATIONS AND CERTAIN OTHER MATTERS............................30 6.1 Insurance Matters........................................................30 6.2 Collection of Accounts Receivable........................................32 6.3 Certain Business Matters.................................................33 6.4 Late Payments............................................................34 ARTICLE VII - EXCHANGE OF INFORMATION; CONFIDENTIALITY...............................34 7.1 Agreement for Exchange of Information; Archives..........................34 7.2 Ownership of Information.................................................35 7.3 Compensation for Providing Information...................................35 7.4 Record Retention.........................................................35 7.5 Limitation of Liability..................................................35 7.6 Other Agreements Providing for Exchange of Information...................35
-iii- 5 TABLE OF CONTENTS (continued)
PAGE ---- 7.7 Production of Witnesses; Records; Cooperation..........................36 7.8 Confidentiality........................................................37 7.9 Protective Arrangements................................................37 ARTICLE VIII - ARBITRATION; DISPUTE RESOLUTION.......................................38 8.1 Agreement to Arbitrate.................................................38 8.2 Escalation.............................................................38 8.3 Demand for Arbitration.................................................39 8.4 Arbitrators............................................................39 8.5 Hearings...............................................................40 8.6 Discovery and Certain Other Matters....................................41 8.7 Certain Additional Matters.............................................42 8.8 Limited Court Actions..................................................42 8.9 Continuity of Service and Performance..................................43 8.10 Law Governing Arbitration Procedures...................................43 ARTICLE IX - FURTHER ASSURANCES AND ADDITIONAL COVENANTS.............................43 9.1 Further Assurances.....................................................43 9.2 Qualification as Tax-Free Distribution.................................45 ARTICLE X - TERMINATION..............................................................46 10.1 Termination............................................................46 ARTICLE XI - MISCELLANEOUS...........................................................46 11.1 Counterparts; Entire Agreement; Corporate Power........................46 11.2 Right To Offset Payments...............................................46 11.3 Governing Law..........................................................47 11.4 Assignability..........................................................47 11.5 Third Party Beneficiaries..............................................47 11.6 Notices................................................................47 11.7 Severability...........................................................48 11.8 Force Majeure..........................................................48 11.9 Publicity..............................................................48 11.10 Expenses...............................................................48 11.11 Headings...............................................................48 11.12 Waivers of Default.....................................................49 11.13 Specific Performance...................................................49 11.14 Amendments.............................................................49 11.15 Interpretation.........................................................49
-iv- 6 LIST OF SCHEDULES Schedule 1.71(a) Technologies Contracts Schedule 2.2(a)(i) Technologies Fixed Assets Schedule 2.2(a)(iii) Technologies Accounts Receivable Schedule 2.2(a)(iv) Technologies Cash and Cash Equivalents Schedule 2.2(a)(v) Technologies Equity Investments Schedule 2.2(a)(viii) Technologies Deferred Taxes Schedule 2.2(a)(x) Technologies Additional Assets Schedule 2.2(b)(ii) Collagen Assets Schedule 2.2(c) Chart of Accounts Schedule 2.3(a)(i) Technologies Accounts Payable Schedule 2.3(a)(ii) Technologies Litigation Schedule 2.3(a)(vi) Technologies Additional Liabilities Schedule 2.4 Technologies Employees Schedule 2.5 Transfer Documents Exhibit A Form of Persistence Development and License Agreement
7 Application for an order granting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 has been or will be timely made. Confidential portions of this docu- ment have been redacted and marked with an [*] and have been filed with the Securities and Exchange Commission separately with such application. SEPARATION AND DISTRIBUTION AGREEMENT This SEPARATION AND DISTRIBUTION AGREEMENT, effective as of January 1, 1998 (the "Effective Date"), is made by and between COLLAGEN CORPORATION, a Delaware corporation ("Collagen"), and COHESION TECHNOLOGIES, INC., a Delaware corporation formerly known as Collagen Technologies, Inc. ("Technologies"). RECITALS 1. The Board of Directors of Collagen has determined that it is in the best interests of Collagen and its stockholders to separate Collagen's existing businesses into two independent businesses. 2. In furtherance of the foregoing, it is appropriate and desirable to transfer the Technologies Assets (as defined below) to Technologies and its Subsidiaries (as defined below) and to cause Technologies and its Subsidiaries to assume the Technologies Liabilities (as defined below), all as more fully described in this Agreement and the Ancillary Agreements (as defined below). 3. Following completion of such transfer of the Technologies Assets and assumption of the Technologies Liabilities, the Board of Directors of Collagen may determine that it is appropriate and desirable, on the terms and conditions contemplated hereby, to distribute to holders of shares of Collagen Common Stock the outstanding shares of Technologies Common Stock owned directly or indirectly by Collagen. 4. The Distribution (as defined below), if completed, is intended to qualify as a tax-free spin-off under Section 355 of the Code (as defined below). 5. It is appropriate and desirable to set forth the principal corporate transactions required to effect the Separation (as defined below), to permit the Distribution and to provide for certain other agreements that will govern certain matters relating to the Separation (as defined below), the Distribution and the relationship of Collagen and Technologies and their respective Subsidiaries following the Distribution. NOW, THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS For the purpose of this Agreement, the following terms shall have the following meanings: 1.1 "Action" means any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any federal, state, local, foreign or international Governmental Authority (as defined below) or any arbitration or mediation tribunal. 8 1.2 "Affiliate" of any Person (as defined below) means a Person that controls, is controlled by or is under common control with such Person. As used in this Agreement, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities or other interests, by contract or otherwise. 1.3 "Agent" means the distribution agent to be appointed by Collagen to distribute to the stockholders of Collagen the shares of Technologies Common Stock (as defined below) held by Collagen in connection with the Distribution. 1.4 "Agreement" means this Separation and Distribution Agreement, including all of the Schedules and Exhibits hereto. 1.5 "Ancillary Agreements" means the deeds, lease assignments and assumptions, leases, subleases and sub-subleases, and the supplemental and other agreements and instruments related thereto, substantially in the forms attached as Schedule 2.5, the Collagraft Supply Agreement, the Collagen Supply Agreement, the License Agreement, the Benefits Agreement, the Services Agreement, the Tax Allocation Agreement, the Recombinant Agreement, the Vitrogen International Distribution Agreement and, if and when it is entered into by Collagen and Technologies, the Persistence Agreement (each as defined below). 1.6 "Applicable Deadline" has the meaning set forth in Section 8.3(b). 1.7 "Arbitration Act" means the United States Arbitration Act, 9 U.S.C. 1-14, as the same may be amended from time to time. 1.8 "Arbitration Demand Date" has the meaning set forth in Section 8.3(a). 1.9 "Arbitration Demand Notice" has the meaning set forth in Section 8.3(a). 1.10 "Assets" means assets, properties and rights (including goodwill), wherever located (including in the possession of vendors or other third parties or elsewhere), whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person, including the following: (a) all accounting and other books, records and files whether in paper, microfilm, microfiche, computer tape or disc, magnetic tape or any other form; (b) all apparatus, computers and other electronic data processing equipment, fixtures, machinery, equipment, furniture, office equipment, motor vehicles and other transportation equipment, special and general tools, test devices, prototypes and models and other tangible personal property; (c) all inventories of materials, parts, raw materials, supplies, work-in-process and finished goods and products; -2- 9 (d) all interests in real property of whatever nature, including easements, whether as owner, mortgagee or holder of a Security Interest (as defined below) in real property, lessor, sublessor, lessee, sublessee or otherwise; (e) all interests in any capital stock or other equity interests of any Subsidiary or any other Person, all bonds, notes, debentures or other securities issued by any Subsidiary or any other Person, all loans, advances or other extensions of credit or capital contributions to any Subsidiary or any other Person and all other investments in securities of any Person; (f) all license agreements, leases of personal property, open purchase orders for raw materials, supplies, parts or services, unfilled orders for the manufacture and sale of products and other contracts, agreements or commitments; (g) all deposits, letters of credit and performance and surety bonds; (h) all written technical information, data, specifications, research and development information, engineering drawings, operating and maintenance manuals, and materials and analyses prepared by consultants and other third parties; (i) all domestic and foreign patents, copyrights, trade names, trademarks, service marks and registrations and applications for any of the foregoing, trade secrets, inventions, other proprietary information and licenses from third Persons granting the right to use any of the foregoing; (j) all computer applications, programs and other software, including operating software, network software, firmware, middleware, design software, design tools, systems documentation and instructions; (k) all cost information, sales and pricing data, customer prospect lists, supplier records, customer and supplier lists, customer and vendor data, correspondence and lists, product literature, artwork, design, development and manufacturing files, vendor and customer drawings, formulations and specifications, quality records and reports and other books, records, studies, surveys, reports, plans and documents; (l) all prepaid expenses, trade accounts and other accounts and notes receivables; (m) all rights under contracts or agreements, all claims or rights against any Person arising from the ownership of any Asset, all rights in connection with any bids or offers and all claims, chooses in action or similar rights, whether accrued or contingent; (n) all rights under insurance policies and all rights in the nature of insurance, indemnification or contribution; (o) all licenses, permits, approvals and authorizations which have been issued by any Governmental Authority; -3- 10 (p) cash or cash equivalents, bank accounts, lock boxes and other deposit arrangements; and (q) interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements. 1.11 "Benefits Agreement" means the Benefits Agreement, effective as of the Effective Date, by and between Collagen and Technologies. 1.12 "Change of Control" of any Person means any of the following: (a) the consummation of a merger, consolidation, or similar business combination involving such Person, or a sale or other disposition of all or substantially all of the assets of such Person; (b) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (as defined below)) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (i) the then outstanding shares of Common Stock of such Person, (ii) the combined voting power of the then outstanding voting securities of such Person entitled to vote generally in the election of directors or (c) individuals who, as of the Distribution Date, constitute the Board of Directors of such Person (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board of Directors; provided, however, that any individual becoming a director subsequent to the Distribution Date (other than any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than such Board of Directors) whose election or nomination for election by the stockholders of such Person was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board. 1.13 "Code" means the Internal Revenue Code of 1986, as amended. 1.14 "Collagen Business" means: the development, manufacture, use, sale and other commercialization or exploitation of (a) human aesthetics products, technologies and treatments including, without limitation, soft tissue augmentation products and treatments, and non-surgical aesthetic treatments, (b) breast implant products and processes, (c) urinary incontinence products and treatments and (d) ostomy products. The Collagen Business does not include any other business, including without limitation the development, manufacture, use, sale and other commercialization or exploitation of products for fecal incontinence, dental, ophthalmologic or orthopedic applications or drug or cell delivery. 1.15 "Collagen Common Stock" means the Common Stock, $0.01 par value per share, of Collagen. 1.16 "Collagen Field" means on a worldwide basis, the fields of: (a) human aesthetics products, technologies and treatments including, without limitation, soft tissue augmentation products and treatments and non-surgical aesthetic treatments; (b) breast implant products and processes; (c) urinary incontinence products and treatments and (d) ostomy products. The -4- 11 Collagen Field shall not include any other field, including without limitation products for fecal incontinence, dental, ophthalmologic or orthopedic applications or drug or cell delivery. 1.17 "Collagen Group" means Collagen and each Person (other than any member of the Technologies Group) that is, will be or becomes, after the Distribution Date, an Affiliate of Collagen. 1.18 "Collagen Indemnitees" has the meaning set forth in Section 4.2. 1.19 "Collagen Supply Agreement" means the Collagen Supply Agreement, effective as of the Effective Date, by and between Collagen and Technologies. 1.20 "Collagraft Supply Agreement" means the Collagraft Supply Agreement, effective as of the Effective Date, by and between Collagen and Technologies. 1.21 "Commission" means the Securities and Exchange Commission. 1.22 "Consents" means any consents, waivers or approvals from, or notification requirements to, any third parties. 1.23 "Delayed Transfer Assets" means any Technologies Assets that are expressly provided in this Agreement or any Ancillary Agreement to be transferred to Technologies after the Effective Date. 1.24 "Delayed Transfer Liabilities" means any Technologies Liabilities that are expressly provided in this Agreement or any Ancillary Agreement to be assumed by Technologies after the Effective Date. 1.25 "Distribution" means the distribution by Collagen on a pro rata basis to holders of Collagen Common Stock of all of the outstanding shares of Technologies Common Stock owned by Collagen on the Distribution Date as set forth in Article III. 1.26 "Distribution Date" means the date determined pursuant to Section 3.1 on which the Distribution occurs. 1.27 "Effective Date" shall have the meaning set forth in the Preamble of this Agreement. 1.28 "Environmental Law" means any federal, state, local, foreign or international statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, common law (including tort and environmental nuisance law), legal doctrine, order, judgment, decree, injunction, requirement or agreement with any Governmental Authority, now or hereafter in effect relating to health, safety, pollution or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or to emissions, discharges, releases or threatened releases of any substance currently or at any time hereafter listed, defined, designated or classified as hazardous, toxic, waste, radioactive or dangerous, or otherwise regulated, under any of the foregoing, or otherwise relating to the manufacture, processing, distribution, use, -5- 12 treatment, storage, disposal, transport or handling of any such substances, including the Comprehensive Environmental Response, Compensation and Liability Act, the Superfund Amendments and Reauthorization Act and the Resource Conservation and Recovery Act and comparable provisions in state, local, foreign or international law. 1.29 "Environmental Liabilities" means all Liabilities (as defined below) relating to, arising out of or resulting from any Environmental Law or contract or agreement relating to environmental, health or safety matters (including all removal, remediation or cleanup costs, investigatory costs, governmental response costs, natural resources damages, property damages, personal injury damages, costs of compliance with any settlement, judgment or other determination of Liability and indemnity, contribution or similar obligations) and all costs and expenses (including allocated costs of in-house counsel and other personnel), interest, fines, penalties or other monetary sanctions in connection therewith. 1.30 "Escalation Notice" has the meaning set forth in Section 8.2. 1.31 "Exchange Act" means the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder. 1.32 "Excluded Assets" has the meaning set forth in Section 2.2(b). 1.33 "Excluded Liabilities" has the meaning set forth in Section 2.3(b). 1.34 "Governmental Approvals" means any notices, reports or other filings to be made, or any consents, registrations, approvals, permits or authorizations to be obtained from, any Governmental Authority. 1.35 "Governmental Authority" means any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority. 1.36 "Group" means either the Collagen Group or the Technologies Group, as the context requires. 1.37 "Improvements" has the meaning set forth in the License Agreement. 1.38 "Indemnifying Party" has the meaning set forth in Section 4.3(a). 1.39 "Indemnitee" has the meaning set forth in Section 4.3(a). 1.40 "Indemnity Payment" has the meaning set forth in Section 4.3(a). 1.41 "Information" means information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs -6- 13 or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data. 1.42 "Insurance Policies" means the insurance policies written by insurance carriers pursuant to which Collagen and Technologies or one or more of Technologies' Subsidiaries (or their respective officers or directors) will be insured parties after the Effective Date. 1.43 "Insurance Proceeds" means those monies: (a) received by an insured from an insurance carrier or (b) paid by an insurance carrier on behalf of the insured. 1.44 "Intellectual Property Rights" has the meaning set forth in the License Agreement. 1.45 "Liabilities" means any and all losses, claims, charges, debts, demands, actions, causes of action, suits, damages, obligations, payments, costs and expenses, sums of money, accounts, reckonings, bonds, specialties, indemnities and similar obligations, exonerations, covenants, contracts, controversies, agreements, promises, doings, omissions, variances, guarantees, make whole agreements and similar obligations, and other liabilities, including all contractual obligations, whether absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and including those arising under any law, rule, regulation, Action, threatened or contemplated Action (including the costs and expenses of demands, assessments, judgments, settlements and compromises relating thereto and attorneys' fees and any and all costs and expenses (including allocated costs of in-house counsel and other personnel), whatsoever reasonably incurred in investigating, preparing or defending against any such Actions or threatened or contemplated Actions), order or consent decree of any Governmental Authority or any award of any arbitrator or mediator of any kind, and those arising under any contract, commitment or undertaking, including those arising under this Agreement or any Ancillary Agreement, in each case, whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person. 1.46 "License Agreement" means the Assignment and License Agreement, effective as of the Effective Date, by and between Collagen and Technologies. 1.47 "Licensed Technology" has the meaning set forth in the License Agreement. 1.48 "Manufactured Product or Material" has the meaning set forth in Section 4.1(f). 1.49 "Nasdaq National Market" means the National Market of the National Association of Securities Dealers, Inc.'s Automated Quotation System. 1.50 "Notice of Infringement" has the meaning set forth in Section 5.1(a). -7- 14 1.51 "Persistence Technology" means the inventions or discoveries, whether or not patentable, made, conceived, reduced to practice or otherwise developed by Technologies, whether before or after the Effective Date, in furtherance of the development of collagen materials that are more persistent than collagen-based products marketed by Collagen as of the Effective Date. 1.52 "Persistence Agreement" means the Persistence Development and License Agreement in substantially the form attached hereto as Exhibit A, which may be entered into by and between Collagen and Technologies after the Effective Date. 1.53 "Person" means an individual, a general or limited partnership, a corporation, a trust, a joint venture, an unincorporated organization, a limited liability entity, any other entity and any Governmental Authority. 1.54 "Prime Rate" means the rate published in the Wall Street Journal as the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks, as in effect from time to time. 1.55 "Recombinant Technology" means the inventions or discoveries, whether or not patentable, made, conceived, reduced to practice, or otherwise developed by Technologies and Collagen, whether before or after the Effective Date, in furtherance of the development of recombinant collagen that has demonstrated bioequivalence with collagen in solution and that can be manufactured in commercial scale quantities. 1.56 "Recombinant Agreement" means the Recombinant Technology Research and Development Agreement, effective as of the Effective Date, by and between Collagen and Technologies. 1.57 "Record Date" means the close of business on the date to be determined by the Collagen Board of Directors as the record date for determining stockholders of Collagen entitled to receive shares of Technologies Common Stock in the Distribution. 1.58 "Research and Development Agreements" means the Recombinant Agreement and the Persistence Agreement. 1.59 "Retained Receivables" means any and all accounts receivable and other rights to payment for goods or services sold, leased or otherwise provided other than those accounts receivable listed or described on Schedule 2.2(a)(iii). 1.60 "Retained Technology" " has the meaning set forth in the License Agreement. 1.61 "Securities Act" means the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder. -8- 15 1.62 "Security Interest" means any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer or other encumbrance of any nature whatsoever. 1.63 "Separation" means the transfer of the Technologies Assets to Technologies and its Subsidiaries and the assumption by Technologies and its Subsidiaries of the Technologies Liabilities, all as more fully described in this Agreement and the Ancillary Agreements. 1.64 "Services Agreement" means the Services Agreement, effective as of the Effective Date, by and between Collagen and Technologies. 1.65 "Subsidiary" as to any Person means any corporation or other organization whether incorporated or unincorporated, of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; provided, however that no Person that is not directly or indirectly wholly owned by any other Person shall be a Subsidiary of such other Person unless such other Person controls, or has the right, power or ability to control, that Person. 1.66 "Tax Allocation Agreement" means the Tax Allocation and Indemnity Agreement, effective as of the Effective Date, by and between Collagen and Technologies. 1.67 "Taxes" has the meaning set forth in the Tax Allocation Agreement. 1.68 "Technologies Assets" has the meaning set forth in Section 2.2(a). 1.69 "Technologies Business" " means the business of Collagen prior to the Effective Date, other than the Collagen Business. 1.70 "Technologies Common Stock" means the Common Stock, $0.001 par value per share, of Technologies. 1.71 "Technologies Contracts" means the following contracts and agreements to which Collagen or any of its Affiliates is a party or by which it or any of its Affiliates or any of their respective Assets is bound, whether or not in writing, except for any such contract or agreement that is contemplated to be retained by Collagen or any member of the Collagen Group (as defined below) pursuant to any provision of this Agreement or any Ancillary Agreement: (a) those contracts and agreements listed or described on Schedule 1.71(a); (b) any contract or agreement entered into in the name of, or expressly on behalf of, any division, business unit or member of the Technologies Group (as defined below); and -9- 16 (c) any guarantee, indemnity, representation, warranty or other Liability of any member of the Technologies Group or the Collagen Group in respect of any other Technologies Contract, any Technologies Liability or the Technologies Business (including guarantees of financing incurred by customers or other third parties in connection with purchases of products or services from the Technologies Business). 1.72 "Technologies Group" means Technologies and each Person (other than any member of the Collagen Group) that is, will be or becomes, after the Distribution Date, an Affiliate of Technologies. 1.73 "Technologies Indemnitees" has the meaning set forth in Section 4.1. 1.74 "Technologies Liabilities" has the meaning set forth in Section 2.3(a). 1.75 "Third Party Claim" has the meaning set forth in Section 4.4(a). 1.76 "Transferred Receivables" means the accounts receivable listed on Schedule 2.2(a)(iii). 1.77 "Transferred Technology" " has the meaning set forth in the License Agreement. 1.78 "Vitrogen International Distribution Agreement" means the Vitrogen International Distribution Agreement, effective as of the Effective Date, by and between Collagen and Technologies. ARTICLE II THE SEPARATION 2.1 TRANSFER OF ASSETS, ASSUMPTION OF LIABILITIES AND ISSUANCE OF TECHNOLOGIES STOCK. (a) Collagen hereby agrees that, as of the Effective Date, it will assign, transfer, convey and deliver to Technologies, and Collagen hereby agrees to cause its applicable Subsidiaries to assign, transfer, convey and deliver to Technologies, and Technologies agrees to accept, as of the Effective Date, from each of Collagen and its Subsidiaries, all of Collagen's and its applicable Subsidiaries' respective right, title and interest in all Technologies Assets, other than the Delayed Transfer Assets. (b) Technologies hereby agrees that, as of the Effective Date, it will assume and Technologies hereby agrees faithfully to perform and fulfill all the Technologies Liabilities, other than the Delayed Transfer Liabilities, in accordance with their respective terms. As of the Effective Date, Technologies will be responsible for all Technologies Liabilities, regardless of when or where such Technologies Liabilities arose or arise, or whether the facts on which they are based occurred prior to or subsequent to the Effective Date, regardless of where or against whom such Liabilities are asserted or determined (including any Technologies Liabilities arising out of claims made by Collagen's or Technologies' respective directors, officers, employees, -10- 17 agents, Subsidiaries or Affiliates against any member of the Collagen Group or the Technologies Group) or whether asserted or determined prior to the Effective Date, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of law, fraud or misrepresentation by any member of the Collagen Group or the Technologies Group or any of their respective directors, officers, employees, agents, Subsidiaries or Affiliates. (c) Each of the parties hereto agrees that the Delayed Transfer Assets will be assigned, transferred, conveyed and delivered, and the Delayed Transfer Liabilities will be assumed, in accordance with the terms of the agreements that provide for such assignment, transfer, conveyance and delivery, or such assumption, as soon as practicable after the Effective Date. Following such assignment, transfer, conveyance and delivery of any Delayed Transfer Asset, or the assumption of any Delayed Transfer Liability, the applicable Delayed Transfer Asset or Delayed Transfer Liability shall be treated for all purposes of this Agreement and the Ancillary Agreements as a Technologies Asset or a Technologies Liability, as the case may be. (d) In the event that at any time or from time to time (whether prior to or after the Distribution Date), any party hereto (or any member of such party's respective Group), shall receive or otherwise possess any Asset that is allocated to any other Person pursuant to this Agreement or any Ancillary Agreement, such party shall promptly transfer, or cause to be transferred, such Asset to the Person so entitled thereto. Prior to any such transfer, the Person receiving or possessing such Asset shall hold such Asset in trust for any such other Person. (e) In consideration for the transfer to Technologies of the Technologies Assets, Technologies has previously issued to Collagen 10 shares of Technologies Preferred Stock. 2.2 TECHNOLOGIES ASSETS. (a) For purposes of this Agreement, "Technologies Assets" means: (i) those fixed assets listed or described on Schedule 2.2(a)(i); (ii) all finished goods inventory of Collagraft(R) bone graft matrix, Collagraft(R) bone graft matrix strip, Vitrogen(R), Cell Prime(TM) and Zygen(TM) as of the Effective Date; (iii) the accounts receivable listed or described on Schedule 2.2(a)(iii); (iv) the cash and cash equivalents listed or described on Schedule 2.2(a)(iv); (v) the equity investments and any associated rights listed or described on Schedule 2.2(a)(v); (vi) the Transferred Technology; (vii) the Technologies Contracts; -11- 18 (viii) the deferred taxes listed or described on Schedule 2.2(a)(viii); (ix) any Assets owned by any member of the Technologies Group on the Effective Date; (x) such additional assets listed or described on Schedule 2.2(a)(x); (xi) all Information with respect to the Technologies Assets as defined in this Section 2.2(a) and any other Information not related primarily to the Excluded Assets and (xii) except as contemplated by Section 2.2(b), any and all Assets owned or held immediately prior to the Effective Date by Collagen or any of its Subsidiaries that are not used primarily in the Collagen Business. The intention of this clause (xii) is only to rectify any inadvertent omission of transfer or conveyance of any Assets that, had the parties given specific consideration to such Asset as of the Effective Date, would have otherwise been classified as a Technologies Asset. No Asset shall be deemed to be a Technologies Asset solely as a result of this clause (xii) if such Asset is within the category or type of Asset expressly covered by the subject matter of an Ancillary Agreement. In addition, no Asset shall be deemed a Technologies Asset solely as a result of this clause (xii) unless a claim with respect thereto is made by Technologies on or prior to the first to occur of June 30, 1999 or the first anniversary of the Distribution Date. Notwithstanding the foregoing, the Technologies Assets shall not in any event include the Excluded Assets referred to in Section 2.2(b) below. (b) For the purposes of this Agreement, "Excluded Assets" means: (i) all Assets of Collagen and any other member of the Collagen Group as of the Effective Date, other than the Technologies Assets; (ii) the Assets listed or described on Schedule 2.2(b)(ii); and (iii) any and all Assets that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be retained by Collagen or any other member of the Collagen Group, including without limitation the Retained Technology. (c) The Technologies Assets and the Excluded Assets have been allocated to Technologies and Collagen, respectively, in accordance with the chart of accounts set forth on Schedule 2.2(c). 2.3 TECHNOLOGIES LIABILITIES. (a) For the purposes of this Agreement, "Technologies Liabilities" means (without duplication): (i) the accounts payable listed or described on Schedule 2.3(a)(i); -12- 19 (ii) the litigation listed or described on Schedule 2.3(a)(ii); (iii) all Liabilities (other than Taxes based on, or measured by reference to, net income) primarily relating to, arising out of or resulting from: (A) the operation of the Technologies Business, as conducted at any time prior to, on or after the Effective Date (including, without limitation, any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative of any member of the Technologies Group or, with respect to the operation of the Technologies Business on or prior to the Effective Date, any member of the Collagen Group (whether or not such act or failure to act is or was within such Person's authority)); (B) the operation of any business conducted by any member of the Technologies Group at any time after the Effective Date (including, without limitation, any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative of any member of the Technologies Group (whether or not such act or failure to act is or was within such Person's authority)); or (C) any Technologies Assets (including, without limitation, any Technologies Contracts and any real property and leasehold interests); in any such case whether arising before, on or after the Effective Date; (iv) all Environmental Liabilities primarily relating to, arising out of or resulting from: (A) the facilities located at 2500 Faber Place, Palo Alto, California and 2450 Faber Place, Palo Alto, California; (B) the operation of the Technologies Business, as conducted at any time after the Effective Date (including, without limitation, any Environmental Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative of any member of the Technologies Group (whether or not such act or failure to act is or was within such Person's authority)); or (C) the operation of any business conducted by any member of the Technologies Group at any time after the Effective Date (including, without limitation, any Environmental Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative of any member of the Technologies Group (whether or not such act or failure to act is or was within such Person's authority)); (v) any employee-related Liabilities (A) involving any employee of Technologies or its Subsidiaries (whether arising before, on or after the Effective Date and whether such employee is then currently employed by Technologies or was, at the time such Liability arose, an employee of a member of the Collagen Group), (B) involving Howard Palefsky or any former employees of Collagen or its Subsidiaries (who are not employees of -13- 20 Collagen or Technologies on the Effective Date) who were primarily engaged in research and development activities or (C) involving, as an individual defendant, any employee of Technologies or its Subsidiaries; (vi) such additional liabilities listed or described on Schedule 2.3(a)(vi); and (vii) except as contemplated by Section 2.3(b), any and all Liabilities of Collagen or its Subsidiaries accrued or otherwise outstanding immediately prior to the Effective Date that are related primarily to the Technologies Business. The intention of this clause (vii) is only to rectify any inadvertent omission or transfer or conveyance of any Liabilities that, had the parties given specific consideration to such Liability as of the Effective Date, would have otherwise been assigned to Technologies hereunder. No Liability shall be assigned to Technologies solely as a result of this clause (vii) if such Liability is within the category or type of Liability expressly covered by the subject matter of an Ancillary Agreement. In addition, no Liability shall be assigned to Technologies solely as a result of this clause (vii) unless a claim with respect thereto is made by Collagen on or prior to the first to occur of June 30, 1999 or the first anniversary of the Distribution Date. (b) For the purposes of this Agreement, "Excluded Liabilities" means: (i) all Liabilities of Collagen or any member of the Collagen Group, other than the Technologies Liabilities; and (ii) any and all Liabilities that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be retained or assumed by Collagen or any other member of the Collagen Group, and all agreements and obligations of any member of the Collagen Group under this Agreement or any of the Ancillary Agreements. 2.4 TRANSFER OF EMPLOYEES. Each of the individual employees of Collagen or its Subsidiaries listed on Schedule 2.4 shall, as of the close of business on December 31, 1997, be transferred to, and become an employee of, Technologies or the Technologies Subsidiary identified on Schedule 2.4. From and after the Effective Date, Technologies, or the Technologies Subsidiary, as the case may be, shall be responsible for paying all salary, wages, bonus, accrued vacation, severance and overtime, and applicable employment and payroll taxes, to such individuals for services performed on or after January 1, 1998. Such employees shall be entitled to the benefits set forth in the Benefits Agreement. 2.5 DOCUMENTS RELATING TO TRANSFER OF REAL PROPERTY INTERESTS AND TANGIBLE PROPERTY LOCATED THEREON. In furtherance of the assignment, transfer and conveyance of Technologies Assets and the assumption of Technologies Liabilities set forth in Section 2.1(a) and (b), on the Effective Date or as promptly as practicable thereafter, each of Collagen and Technologies, or their applicable Subsidiaries, is executing and delivering or will execute and deliver deeds, lease assignments and assumptions, leases, subleases and sub-subleases substantially in the forms attached as Schedule 2.5, with such -14- 21 changes as may be necessary to conform to any laws, regulations or usage applicable in the jurisdiction in which the relevant real property is located. Set forth in, or referenced by, such Schedule 2.5 is, among other things, a summary of each property or interest therein to be conveyed, assigned, leased, subleased or sub-subleased, the applicable entities relevant to each property and their capacities with respect to each property (e.g., as transferor, transferee, assignor, assignee, lessor, lessee, sublessor, sublessee, sub-sublessor or sub-sublessee), and any terms applicable to each property that are not specified in the forms of deed, lease assignment and assumption, lease, sublease or sub-sublease (e.g., rent and term). 2.6 DOCUMENTS RELATING TO OTHER TRANSFERS OF ASSETS AND ASSUMPTION OF LIABILITIES. In furtherance of the assignment, transfer and conveyance of Technologies Assets and the assumption of Technologies Liabilities set forth in Section 2.1(a) and (b), on the Effective Date or as promptly as practicable thereafter, (i) Collagen shall execute and deliver, and shall cause its Subsidiaries to execute and deliver, such bills of sale, stock powers, certificates of title, assignments of contracts and other instruments of transfer, conveyance and assignment as and to the extent necessary to evidence the transfer, conveyance and assignment of all of Collagen's and its Subsidiaries' right, title and interest in and to the Technologies Assets to Technologies or the designated Technologies Subsidiary and (ii) Technologies shall execute and deliver to Collagen and its Subsidiaries such bills of sale, stock powers, certificates of title, assumptions of contracts and other instruments of assumption as and to the extent necessary to evidence the valid and effective assumption of the Technologies Liabilities by Technologies. 2.7 OTHER ANCILLARY AGREEMENTS. Simultaneously with execution and delivery of this Agreement, each of Collagen and Technologies will execute and deliver all Ancillary Agreements (other than the Persistence Agreement) to which it is a party. 2.8 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. (a) Each of Collagen (on behalf of itself and each member of the Collagen Group) and Technologies (on behalf of itself and each member of the Technologies Group) understands and agrees that, except as expressly set forth in this Agreement or in any Ancillary Agreement, no party to this Agreement, any Ancillary Agreement or any other agreement or document contemplated by this Agreement, any Ancillary Agreement or otherwise, is representing or warranting in any way as to the Assets, businesses or Liabilities transferred or assumed as contemplated hereby or thereby, as to any consents or approvals required in connection therewith, as to the value or freedom from any Security Interests of, or any other matter concerning, any Assets of such party, or as to the absence of any defenses or right of setoff or freedom from counterclaim with respect to any claim or other Asset, including any accounts receivable, of any party, or as to the legal sufficiency of any assignment, document or instrument delivered hereunder to convey title to any Asset or thing of value upon the Effective Date. Except as may expressly be set forth in this Agreement or in any Ancillary Agreement, all such Assets are being transferred on an "as is," "where is" basis (and, in the case of any real property, by means of a quitclaim or similar form deed or conveyance) and, except as otherwise provided herein, the respective transferees shall bear the economic and legal risks that any -15- 22 conveyance shall prove to be insufficient to vest in the transferee good and marketable title, free and clear of any Security Interest. 2.9 GOVERNMENTAL APPROVALS AND CONSENTS. (a) To the extent that the Separation requires any Consents or Governmental Approvals, the parties will use their reasonable best efforts to obtain any such Consents and Governmental Approvals. (b) If and to the extent that the valid, complete and perfected transfer or assignment to the Technologies Group of any Technologies Assets would be a violation of applicable laws or require any Consent or Governmental Approval in connection with the Separation or the Distribution, then the transfer or assignment to the Technologies Group of such Technologies Assets shall be automatically deemed deferred and any such purported transfer or assignment shall be null and void until such time as all legal impediments are removed and/or such Consents or Governmental Approvals have been obtained. Notwithstanding the foregoing, any such Asset shall be deemed a Technologies Asset for purposes of determining whether any Liability is a Technologies Liability. (c) If the transfer or assignment of any Technologies Asset intended to be transferred or assigned hereunder is not consummated as of the Effective Date, whether as a result of the provisions of Section 2.9(b) or for any other reason, then the Person retaining such Technologies Asset shall thereafter hold such Technologies Asset for the use and benefit, insofar as reasonably possible, of the Person entitled thereto (at the expense of the Person entitled thereto). In addition, the Person retaining such Technologies Asset shall take such other actions as may be reasonably requested by the Person to whom such Technologies Asset is to be transferred in order to place such Person, insofar as reasonably possible, in the same position as if such Technologies Asset had been transferred as contemplated hereby and so that all the benefits and burdens relating to such Technologies Asset, including possession, use, risk of loss, potential for gain, and dominion, control and command over such Technologies Asset, are to inure from and after the Effective Date to the Technologies Group. (d) If and when the Consents and/or Governmental Approvals, the absence of which caused the deferral of transfer of any Technologies Asset pursuant to Section 2.9(b), are obtained, the transfer of the applicable Technologies Asset shall be effected in accordance with the terms of this Agreement and/or the applicable Ancillary Agreement. (e) The Person retaining a Technologies Asset due to the deferral of the transfer of such Technologies Asset shall not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced by the Person entitled to the Technologies Asset, other than reasonable out-of-pocket expenses, attorneys' fees and recording or similar fees, all of which shall be promptly reimbursed by the Person entitled to such Technologies Asset. -16- 23 2.10 NOVATION AND ASSIGNMENT OF ASSUMED TECHNOLOGIES LIABILITIES. (a) Each of Collagen and Technologies, at the request of the other, shall use their reasonable best efforts to obtain, or to cause to be obtained, any consent, substitution, approval or amendment required to novate and assign all obligations under agreements, leases, licenses and other obligations or Liabilities of any nature whatsoever that constitute Technologies Liabilities, or to obtain in writing the unconditional release of all parties to such arrangements other than any member of the Technologies Group, so that, in any such case, Technologies and its Subsidiaries will be solely responsible for such Liabilities; provided, however, that neither Collagen nor Technologies shall be obligated to pay any consideration therefor to any third party from whom such consents, approvals, substitutions and amendments are requested. (b) If Collagen or Technologies is unable to obtain, or to cause to be obtained, any such required consent, approval, release, substitution or amendment, the applicable member of the Collagen Group shall continue to be bound by such agreements, leases, licenses and other obligations and, unless not permitted by law or the terms thereof, Technologies shall, as agent or subcontractor for Collagen or such other Person, as the case may be, pay, perform and discharge fully all the obligations or other Liabilities of Collagen or such other Person, as the case may be, thereunder from and after the Effective Date. Collagen shall, without further consideration, pay and remit, or cause to be paid or remitted, to Technologies promptly all money, rights and other consideration received by it or any member of its Group in respect of the performance of such unassigned Liabilities (unless any such consideration is an Excluded Asset). If and when any such consent, approval, release, substitution or amendment shall be obtained or such agreement, lease, license or other rights or obligations shall otherwise become assignable or able to be novated, Collagen shall thereafter assign, or cause to be assigned, all its rights, obligations and other Liabilities thereunder or any rights or obligations of any member of the Collagen Group to Technologies or another member of the Technologies Group specified by Technologies without payment of further consideration and Technologies, without the payment of any further consideration, shall, or shall cause such other member of the Technologies Group to assume such rights and obligations. ARTICLE III THE DISTRIBUTION 3.1 THE DISTRIBUTION. (a) In the event that the Collagen Board of Directors decides to proceed with the Distribution, then subject to the conditions specified in Section 3.3, on or prior to a date determined by such Board of Directors (the "Distribution Date"), Collagen will deliver to the Agent for the benefit of holders of record of Collagen Common Stock on the Record Date, a single stock certificate, endorsed by Collagen in blank, representing all of the outstanding shares of Technologies Common Stock then owned by Collagen or any member of the Collagen Group, and shall cause the transfer agent for the shares of Collagen Common Stock to instruct the Agent -17- 24 to distribute on the Distribution Date the appropriate number of such shares of Technologies Common Stock to each such holder or designated transferee or transferees of such holder. (b) Subject to the provisions of Section 3.4, each holder of Collagen Common Stock on the Record Date (or such holder's designated transferee or transferees) will be entitled to receive in the Distribution a number of shares of Technologies Common Stock equal to the number of shares of Collagen Common Stock held by such holder on the Record Date multiplied by a fraction, the numerator of which is the number of outstanding shares of Technologies Common Stock owned by Collagen or any other member of the Collagen Group on the Record Date and the denominator of which is the number of shares of Collagen Common Stock outstanding on the Record Date. (c) Technologies and Collagen, as the case may be, will provide to the Agent all share certificates and any information required in order to complete the Distribution on the terms specified in this Section 3.1. 3.2 ACTIONS PRIOR TO THE DISTRIBUTION. (a) Collagen and Technologies shall prepare and mail, prior to the Distribution Date, to the holders of Collagen Common Stock, such information concerning Technologies, its business, operations and management, the Distribution and such other matters as Collagen shall reasonably determine and as may be required by law. Collagen and Technologies will prepare, and Technologies will, to the extent required under applicable law, file with the Commission any such documentation and any requisite no action letters which Collagen determines are necessary or desirable to effectuate the Distribution, and Collagen and Technologies shall each use its reasonable best efforts to obtain all necessary approvals from the Commission with respect thereto as soon as practicable. (b) Collagen and Technologies shall take all such action as may be necessary or appropriate under the securities or blue sky laws of the United States (and any comparable laws under any foreign jurisdiction) in connection with the Distribution. (c) Collagen and Technologies shall take all reasonable steps necessary and appropriate to cause the conditions set forth in Section 3.3 (subject to Section 3.3(d)) to be satisfied and to effect the Distribution on the Distribution Date. (d) To the extent required, Technologies shall prepare and file, and shall use its reasonable best efforts to have approved, an application for the quotation of the Technologies Common Stock to be distributed in the Distribution on the Nasdaq National Market, subject to official notice of distribution. 3.3 CONDITIONS TO DISTRIBUTION. In the event that the Collagen Board of Directors decides to proceed with the Distribution, the parties hereto shall use their reasonable best efforts to satisfy the following conditions to the consummation of the Distribution. The obligations of the parties to consummate the Distribution shall be conditioned on the satisfaction, or waiver by Collagen of the following conditions: -18- 25 (a) A private letter ruling from the Internal Revenue Service shall have been obtained, and shall continue in effect, to the effect that, among other things, the Distribution will qualify as a tax-free distribution for federal income tax purposes under Section 355 of the Code and the transfer to Technologies of the Technologies Assets and the assumption by Technologies of the Technologies Liabilities in connection with the Separation will not result in the recognition of any gain or loss to any member of the Collagen Group, any member of the Technologies Group or their respective stockholders for federal income tax purposes, and such ruling shall be in form and substance satisfactory to Collagen in its sole discretion. (b) Any material Consents and Governmental Approvals necessary to consummate the Distribution shall have been obtained and be in full force and effect. (c) No order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Distribution shall be pending or in effect and no other event outside the control of Collagen shall have occurred or failed to occur that prevents the consummation of the Distribution. (d) No other events or developments shall have occurred that, in the judgment of the Board of Directors of Collagen, would result in the Distribution having a material adverse effect on Collagen, on any member of the Collagen Group or on the stockholders of Collagen. (e) A no-action letter from the Commission shall have been obtained to the effect that, after giving effect to the Separation and the Distribution, Technologies is not an "investment company" under the Investment Company Act of 1940, as amended. (f) To the extent required, a no-action letter from the Commission shall have been obtained to the effect that the Distribution is exempt from registration under the Securities Act. (g) The stockholders of Collagen shall have approved the Distribution. The foregoing conditions are for the sole benefit of Collagen and shall not give rise to or create any duty on the part of Collagen or the Collagen Board of Directors to waive or not waive any such condition. 3.4 FRACTIONAL SHARES. As soon as practicable after the Distribution Date, Collagen shall direct the Agent to determine the number of whole shares and fractional shares of Technologies Common Stock allocable to each holder of record or beneficial owner of Collagen Common Stock as of the Record Date, to aggregate all such fractional shares and sell the whole shares obtained thereby at the direction of Collagen either to Collagen, in open market transactions or otherwise, in each case at then prevailing trading prices, and to cause to be distributed to each such holder or for the benefit of each such beneficial owner to which a fractional share shall be allocable such holder's or owner's ratable share of the proceeds of such sale, after making appropriate deductions of the amount required to be withheld for federal income tax purposes and after deducting an amount equal to all brokerage charges, commissions and transfer taxes attributed to such sale. Collagen and the Agent shall use their reasonable best -19- 26 efforts to aggregate the shares of Collagen Common Stock that may be held by any beneficial owner thereof through more than one account in determining the fractional share allocable to such beneficial owner. 3.5 THE TECHNOLOGIES BOARD OF DIRECTORS. Collagen and Technologies shall each take all actions which may be required to elect or otherwise appoint as directors of Technologies, on or prior to the Distribution Date, John Daniels, Reid Dennis, Frank DeLustro, David Foster, Craig Johnson and any other persons to be designated by a nominating committee of Technologies' Board of Directors (which nominating committee shall be comprised of individuals who are at such time neither officers nor directors of Collagen) as additional or substitute members of the Board of Directors of Technologies on the Distribution Date. ARTICLE IV INDEMNIFICATION 4.1 INDEMNIFICATION BY COLLAGEN. Subject to the provisions of Section 4.3, Collagen shall indemnify, defend and hold harmless Technologies, each member of the Technologies Group and each of their respective directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "Technologies Indemnitees"), from and against any and all Liabilities of the Technologies Indemnitees relating to, arising out of or resulting from any of the following items (without duplication): (a) the failure of Collagen or any other member of the Collagen Group or any other Person (other than Technologies or any member of the Technologies Group) to pay, perform or otherwise promptly discharge any Liabilities of the Collagen Group, other than the Technologies Liabilities or any contract other than the Technologies Contracts, in accordance with their respective terms, whether prior to or after the Effective Date, other than any failure or alleged failure resulting from any action or failure to act by Technologies or any member of the Technologies Group; (b) the Collagen Business, any Liability of the Collagen Group (including any Environmental Liability) other than the Technologies Liabilities or any contract other than the Technologies Contracts, other than any Liability resulting from any action or failure to act by Technologies or any member of the Technologies Group; (c) any breach, by Collagen or any member of the Collagen Group, of this Agreement or any of the Ancillary Agreements, other than any Liability resulting from any action or failure to act by Technologies or any member of the Technologies Group; (d) any product liability claims, whether existing on the Effective Date or arising thereafter, related to the Collagen Business; and (e) any manufacturing defect in any product or material manufactured by Collagen for Technologies pursuant to the Collagraft Supply Agreement or the Collagen Supply Agreement (a "Manufactured Product or Material"); provided, however, that Collagen shall not -20- 27 be obligated to indemnify Technologies pursuant to this Section 4.1(e) to the extent that any Liability is the result of: (i) the use of any Manufactured Product or Material that has been manufactured in accordance with and materially conforms to the specifications provided by Technologies and accepted by Collagen for such Manufactured Product or Material, (ii) the combination by Technologies of any Manufactured Product or Material with another product or material or the modification by Technologies of any Manufactured Product or Material where such Liability would not have occurred but for such combination or modification or (iii) any statement, representation, misstatement or omission made by Technologies, any member of the Technologies Group or any customer thereof regarding a Manufactured Product or Material which are inconsistent with Collagen's warranties expressly granted under the Collagraft Supply Agreement or the Collagen Supply Agreement, as applicable. 4.2 INDEMNIFICATION BY TECHNOLOGIES. Subject to the provision of Section 4.3, Technologies shall indemnify, defend and hold harmless Collagen, each member of the Collagen Group and each of their respective directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "Collagen Indemnitees"), from and against any and all Liabilities of the Collagen Indemnitees relating to, arising out of or resulting from any of the following items (without duplication): (a) the failure of Technologies or any other member of the Technologies Group or any other Person (other than Collagen or any member of the Collagen Group) to pay, perform or otherwise promptly discharge any Technologies Liabilities or Technologies Contracts, in accordance with their respective terms, whether prior to or after the Effective Date, other than any failure or alleged failure resulting from any action or failure to act by Collagen or any member of the Collagen Group; (b) any Liability arising in connection with any Technologies Liabilities that were not assigned or novated to Technologies and which Technologies is obligated to pay, perform and discharge pursuant to Section 2.10(b) of this Agreement or in connection with any assignment that was obtained without a novation or unconditional release of all parties other than members of the Technologies Group, other than any Liability resulting from any action or failure to act by Collagen or any member of the Collagen Group; (c) the Technologies Business, any Technologies Liability or any Technologies Contract, other than any Liability resulting from any action or failure to act by Collagen or any member of the Collagen Group; (d) any breach by Technologies or any member of the Technologies Group of this Agreement or any of the Ancillary Agreements, other than any breach or alleged breach resulting from any action or failure to act by Collagen or any member of the Collagen Group; and (e) any product liability claims, whether existing on the Effective Date or arising thereafter, related to the Technologies Business. -21- 28 4.3 INDEMNIFICATION OBLIGATIONS NET OF INSURANCE PROCEEDS AND OTHER AMOUNTS. (a) The parties intend that any Liability subject to indemnification or reimbursement pursuant to Articles IV and V will be net of Insurance Proceeds. Accordingly, the amount which any party (an "Indemnifying Party") is required to pay to any Person entitled to indemnification hereunder (an "Indemnitee") will be reduced by any Insurance Proceeds theretofor actually recovered by or on behalf of the Indemnitee in reduction of the related Liability. If an Indemnitee receives a payment (an "Indemnity Payment") required by this Agreement from an Indemnifying Party in respect of any Liability and subsequently receives Insurance Proceeds, then the Indemnitee will pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if the Insurance Proceeds had been received, realized or recovered before the Indemnity Payment was made. (b) An insurer who would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of the indemnification provisions hereof, have any subrogation rights with respect thereto, it being expressly understood and agreed that no insurer or any other third party shall be entitled to a "windfall" (i.e., a benefit they would not be entitled to receive in the absence of the indemnification provisions) by virtue of the indemnification provisions hereof. Nothing contained in this Agreement or any Ancillary Agreement shall obligate any member of any Group to seek to collect or recover any Insurance Proceeds. 4.4 PROCEDURES FOR INDEMNIFICATION OF THIRD PARTY CLAIMS. (a) If an Indemnitee shall receive notice or otherwise learn of the assertion by a Person (including any Governmental Authority) who is not a member of the Collagen Group or the Technologies Group of any claim or of the commencement by any such Person of any Action (collectively, a "Third Party Claim") with respect to which an Indemnifying Party may be obligated to provide indemnification to such Indemnitee pursuant to Section 4.1, Section 4.2, Section 5.2 or any other provision of this Agreement or any Ancillary Agreement, such Indemnitee shall give such Indemnifying Party written notice thereof within 20 days after becoming aware of such Third Party Claim. Any such notice shall describe the Third Party Claim in reasonable detail. Notwithstanding the foregoing, the failure of any Indemnitee or other Person to give notice as provided in this Section 4.4(a) shall not relieve the related Indemnifying Party of its obligations under Articles IV and V, except to the extent that such Indemnifying Party is actually prejudiced by such failure to give notice. (b) An Indemnifying Party may elect to defend (and, unless the Indemnifying Party has specified any reservations or exceptions, to seek to settle or compromise), at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel, any Third Party Claim. Within 30 days after the receipt of notice from an Indemnitee in accordance with Section 4.4(a) (or sooner, if the nature of such Third Party Claim so requires), the Indemnifying Party shall notify the Indemnitee as to whether the Indemnifying Party will assume responsibility -22- 29 for defending such Third Party Claim, which notice shall specify any reservations or exceptions. After notice from an Indemnifying Party to an Indemnitee of its election to assume the defense of a Third Party Claim, such Indemnitee shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise or settlement thereof, but the fees and expenses of such counsel shall be the expense of such Indemnitee except as set forth in the next sentence. In the event that the Indemnifying Party has elected to assume the defense of the Third Party Claim but has specified, and continues to assert, any reservations or exceptions in such notice, then, in any such case, the reasonable fees and expenses of one separate counsel for all Indemnitees shall be borne by the Indemnifying Party. (c) If an Indemnifying Party elects not to assume responsibility for defending a Third Party Claim, or fails to notify an Indemnitee of its election as provided in Section 4.4(b), such Indemnitee may defend such Third Party Claim at the cost and expense (including allocated costs of in-house counsel and other personnel) of the Indemnifying Party. (d) No Indemnitee may settle or compromise any Third Party Claim without the consent of the Indemnifying Party. (e) No Indemnifying Party shall consent to entry of any judgment or enter into any settlement of a Third Party Claim without the consent of the Indemnitee if the effect thereof is to permit any injunction, declaratory judgment, other order or other non-monetary relief to be entered, directly or indirectly, against any Indemnitee. (f) The provisions of Section 4.4 and Section 4.5 shall not apply to Taxes (which are covered by the Tax Allocation Agreement). (g) The Indemnitees shall cooperate with the Indemnifying Party in a reasonable manner in the defense of any Third Party Claim by the Indemnifying party, and the cost and expense (including costs of in-house counsel and other personnel) of such cooperation shall be borne by the Indemnifying Party unless otherwise specified herein. 4.5 ADDITIONAL MATTERS. (a) Any claim on account of a Liability that does not result from a Third Party Claim shall be asserted by written notice given by the Indemnitee to the Indemnifying Party. Such Indemnifying Party shall have a period of 30 days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such 30-day period, such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment. If such Indemnifying Party does not respond within such 30-day period or rejects such claim in whole or in part, such Indemnitee shall be free to pursue such remedies as may be available to such party as contemplated by this Agreement and the Ancillary Agreements. (b) In the event of payment by or on behalf of any Indemnifying Party to any Indemnitee in connection with any Third Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third -23- 30 Party Claim against any claimant or plaintiff asserting such Third Party Claim or against any other person. (c) In the event of an Action in which the Indemnifying Party is not a named defendant, if the Indemnifying Party shall so request, the parties shall endeavor to substitute the Indemnifying Party for the named defendant. If such substitution or addition cannot be achieved for any reason or is not requested, the named defendant shall allow the Indemnifying Party to manage the Action as set forth in this Section 4.5 and the Indemnifying Party shall fully indemnify the named defendant against all costs of defending the Action (including court costs, sanctions imposed by a court, attorneys' fees, experts' fees and all other external expenses, and the allocated costs of in-house counsel and other personnel), the costs of any judgment or settlement, and the cost of any interest or penalties relating to any judgment or settlement. 4.6 REMEDIES CUMULATIVE. The remedies provided in this Article IV shall be cumulative and, subject to the provisions of Article VIII and Section 5.2(f), shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party. 4.7 SURVIVAL OF INDEMNITIES. The rights and obligations of each of Collagen and Technologies and their respective Indemnitees under Articles IV and V shall survive the sale or other transfer by any party of any Assets or businesses or the assignment by it of any Liabilities. ARTICLE V INTELLECTUAL PROPERTY ENFORCEMENT AND INDEMNITY 5.1 ENFORCEMENT. (a) NOTICE. In the event that Technologies, Collagen or any member of the Technologies Group or Collagen Group becomes aware of, or has reason to suspect, that a third party is infringing or misappropriating, or may be in the position to begin infringing or misappropriating, either directly or indirectly, the Transferred Technology, the Retained Technology, Persistence Technology, Recombinant Technology or Improvements, it shall promptly deliver written notice to the other party of such infringement or misappropriation or prospective infringement or misappropriation by such third party ("Notice of Infringement"). (b) INFRINGEMENT IN THE COLLAGEN FIELD. (i) If the alleged infringement or misappropriation by a third party is of the Retained Technology or Improvements in the Collagen Field, then Collagen shall have the right to initiate a legal proceeding against such third party, together with the right to enforce and collect any judgment thereon. Collagen shall have sole control and shall bear all costs and expenses associated with such legal proceeding against such third party. Collagen shall retain all monetary recoveries or awards resulting from such legal proceeding. Upon Collagen' request, Technologies shall provide reasonable assistance to Collagen in any such legal proceeding -24- 31 initiated by Collagen, including without limitation providing documentation and testimony and joining in such legal proceeding if required, provided that all expenses incurred by Technologies for such assistance shall be reimbursed by Collagen. If Collagen declines to initiate or fails to initiate within 90 days after delivery of the Notice of Infringement a legal proceeding against such third party where such alleged infringement or misappropriation relates to Improvements owned by Technologies and licensed to Collagen, then Technologies shall have the right, but not the obligation, to initiate a legal proceeding against such third party at its expense and retain any monetary recoveries or awards resulting therefrom. Upon Technologies' request, Collagen shall provide reasonable assistance to Technologies in any such legal proceeding initiated by Technologies, including without limitation providing documentation and testimony and joining in such legal proceeding if required, provided that all expenses incurred by Collagen for such assistance shall be reimbursed by Technologies. (ii) If the alleged infringement or misappropriation by a third party is of Licensed Technology, Persistence Technology (if and to the extent licensed to Collagen pursuant to the Persistence Agreement) or Recombinant Technology (if and to the extent licensed to Collagen pursuant to the Recombinant Agreement) in the Collagen Field, then Collagen shall have the right to elect to initiate a legal proceeding against such third party, together with the right to enforce and collect any judgment thereon. Collagen shall have control of such legal proceeding or settlement thereof; provided, however, that: (a) Collagen notifies Technologies in writing of such election within 90 days after the Notice of Infringement has been delivered and (b) Collagen shall not enter into any settlement of such legal proceeding without the approval of Technologies, which approval shall not be unreasonably withheld. If Collagen does not initiate such legal proceeding within 90 days after delivery of the Notice of Infringement, or notifies Technologies that it declines to initiate such legal proceeding, then Technologies shall have the right, but not the obligation, to initiate a legal proceeding against such third party. Technologies shall have control of such legal proceeding or settlement thereof, provided that it shall not enter into any settlement of such legal proceeding without the approval of Collagen, which approval shall not be unreasonably withheld. Each party shall provide reasonable assistance to the party initiating the legal proceeding, including without limitation, providing documentation and testimony and joining in such legal proceeding if required. Without regard to which party initiates the legal proceeding, all costs and expenses associated with such legal proceeding, including any costs incurred for assistance, and all monetary recoveries and awards resulting from such legal proceeding shall be allocated seventy-five percent (75%) to Collagen and twenty-five percent (25%) to Technologies. (c) INFRINGEMENT OUTSIDE THE COLLAGEN FIELD. If the alleged infringement or misappropriation by a third party is of Retained Technology, Transferred Technology, Improvements, Persistence Technology or Recombinant Technology outside of the Collagen Field, then Technologies shall have the right to initiate a legal proceeding against such third party, together with the right to enforce and collect any judgment thereon. Technologies shall have control and shall bear all costs and expenses associated with such legal proceeding against such third party. Technologies shall retain all monetary recoveries or awards resulting from such legal proceeding. Upon Technologies' -25- 32 request, Collagen shall provide reasonable assistance to Technologies in any such legal proceeding initiated by Technologies, including without limitation providing documentation and testimony and joining in such legal proceeding if required, provided that all expenses incurred by Collagen for such assistance shall be reimbursed by Technologies. If Technologies declines to initiate or fails to initiate within 90 days after delivery of the Notice of Infringement a legal proceeding against such third party where such alleged infringement or misappropriation relates to Retained Technology or Improvements owned by Collagen and licensed to Technologies, then Collagen shall have the right to initiate a legal proceeding against such third party at its expense and retain any monetary recoveries or awards resulting therefrom. Upon Collagen's request, Technologies shall provide reasonable assistance to Collagen in any such legal proceeding initiated by Collagen, including without limitation providing documentation and testimony and joining in such legal proceeding if required, provided that all expenses incurred by Technologies for such assistance shall be reimbursed by Collagen. (d) INFRINGEMENT IN AND OUTSIDE THE COLLAGEN FIELD. If a third party is allegedly infringing or misappropriating Retained Technology, Transferred Technology, Improvements, Persistence Technology (if and to the extent licensed to Collagen pursuant to the Persistence Agreement) or Recombinant Technology (if and to the extent licensed to Collagen pursuant to the Recombinant Agreement) both in and outside the Collagen Field, then the parties shall cooperate with each other and negotiate in good faith an arrangement for enforcing their Intellectual Property Rights against such third party. 5.2 THIRD PARTY CLAIMS. (a) COLLAGEN INDEMNIFICATION. In the event that a Third Party Claim is brought or filed against the Technologies Indemnitees for any alleged infringement or misappropriation of any third party Intellectual Property Rights based on or arising out of: (i) Collagen's making, using, selling, offering for sale, marketing or promoting technology, products or processes incorporating Retained Technology in the Collagen Field after the Effective Date or (ii) the combination by Collagen of any technology, product or process incorporating Persistence Technology or Recombinant Technology with another product or process, or the modification by Collagen of any technology, product or process incorporating Persistence Technology or Recombinant Technology, where any Liability would not have occurred but for such combination or modification, then Collagen will have the obligation to defend, indemnify and hold harmless the Technologies Indemnitees against such Third Party Claim. Collagen agrees to pay any Liabilities entered against such Technologies Indemnitees relating to, arising out of or resulting from such Third Party Claim. (b) TECHNOLOGIES INDEMNIFICATION. In the event that a Third Party Claim is brought or filed against the Collagen Indemnitees for any alleged infringement or misappropriation of any third party Intellectual Property Rights based on or arising out of: (i) Collagen's making, using, selling, offering for sale, marketing or promoting technology, products or processes incorporating Transferred Technology outside the Collagen Field before the Effective Date, (ii) Collagen's making, using, selling, offering for sale, marketing or -26- 33 promoting products or processes incorporating Persistence Technology or Recombinant Technology (whether in or outside the Collagen Field) prior to the Effective Date, (iii) Technologies' making, using, selling, offering for sale, marketing or promoting products or processes incorporating Transferred Technology, Persistence Technology and Recombinant Technology outside the Collagen Field after the Effective Date, or (iv) Collagen's making, using, selling, offering for sale, marketing or promoting products or processes incorporating Persistence Technology or Recombinant Technology within the Collagen Field after the Effective Date, then Technologies will have the obligation to defend, indemnify and hold harmless the Collagen Indemnitees against any such Third Party Claims; provided, however, that Technologies shall not be obligated to indemnify Collagen pursuant to this Section 5.2(b) to the extent that any Liability is the result of: (i) the combination by Collagen of any technology, product or process incorporating Persistence Technology or Recombinant Technology with another product or process, or the modification by Collagen of any technology, product or process incorporating Persistence Technology or Recombinant Technology, where such Liability would not have occurred but for such combination or modification or (ii) any unauthorized use by Collagen of Persistence Technology or Recombinant Technology, including without limitation any use of Persistence Technology prior to execution of the Persistence Agreement. Subject to the limitations herein, Technologies agrees to pay any Liabilities entered against such Collagen Indemnitees relating to, arising out of or resulting from such Third Party Claim. (c) SHARED DEFENSE. In the event that any Third Party Claim is brought or filed against Collagen, any member of the Collagen Group, Technologies or any member of the Technologies Group for any infringement or misappropriation of any third party Intellectual Property Rights based on or arising out of: (i) Collagen's making, using, selling, offering for sale, marketing or promoting technology, products or processes incorporating Retained Technology or Transferred Technology in the Collagen Field prior to the Effective Date or (ii) Collagen's making, using, selling, offering for sale, marketing or promoting technology, products or processes incorporating Licensed Technology in the Collagen Field after the Effective Date, then Collagen will have the first right to defend against or settle any Third Party Claim; provided, however, that Technologies: (i) cooperates fully with Collagen in such defense; and (b) Technologies funds twenty-five percent (25%) of all expenses associated with such defense, including without limitation attorneys and expert fees and court or other administrative agency costs. Technologies will have the right to participate, in a non-controlling manner and at its sole expense in such defense by Collagen. If Collagen declines to defend such Third Party Claim, then Technologies shall have the right to defend or settle such Third Party Claim; provided that Collagen: (x) cooperates fully with Technologies in such defense and (y) Collagen funds seventy-five percent (75%) of all expenses associated with such defense, including without limitation attorneys and expert fees and court or other administrative agency costs. Collagen will have the right to participate, in a non-controlling manner and at its sole expense in such defense by Technologies. Without regard to which party controls defense of such third party claim, suit or proceeding, each party agrees that it will: (k) share with the other party any Liabilities or monetary recoveries resulting from such Third Party Claim, with twenty-five (25%) of such amount payable to or by Technologies, and the remainder of such amount payable to or by Collagen; and (l) not settle such Third Party Claim prior to receiving approval from the other party, which approval shall not be unreasonably withheld. -27- 34 (d) Neither party shall have any obligation to indemnify or defend any Third Party Claim brought or filed against the other party or any member of the other party's group based on or arising out of any Improvements. (e) The provisions of Sections 4.3, 4.4, 4.5 and 4.7 shall apply to this Section 5.2 to the extent applicable and not inconsistent with the provisions of this Section 5.2. (f) THE REMEDIES IN THIS SECTION 5.2 SHALL STATE THE ENTIRE LIABILITY AND THE EXCLUSIVE REMEDY OF THE PARTIES AND ANY MEMBERS OF THEIR RESPECTIVE GROUPS FOR ANY ALLEGED INFRINGEMENT OR MISAPPROPRIATION OF THE INTELLECTUAL PROPERTY RIGHTS OF A THIRD PARTY RELATING TO THE RETAINED TECHNOLOGY, TRANSFERRED TECHNOLOGY, LICENSED TECHNOLOGY, IMPROVEMENTS, RECOMBINANT TECHNOLOGY OR PERSISTENCE TECHNOLOGY. ARTICLE VI INTERIM OPERATIONS AND CERTAIN OTHER MATTERS 6.1 INSURANCE MATTERS. (a) Technologies agrees that it will pay to Collagen the amounts provided for in the Services Agreement or the Benefits Agreement in respect of the period from the Effective Date until such time as Technologies and Collagen determine that it is appropriate for Technologies to obtain its own insurance coverage (which, in any event, shall be no later than the Distribution Date). Such amounts shall be subject to adjustment in the event of any change in the premiums charged to Collagen for the Insurance Policies, which adjustment shall be equal to: (i) in the case of any premium change that is a result of changes in the factual criteria for the insured party (e.g., number of employees, revenue, prior claims history), any increase or decrease in such premiums attributable to changes at Technologies or the Technologies Group shall result in a dollar for dollar adjustment to the amounts payable by Technologies to Collagen pursuant to this Section 6.1(a) or (ii) in the case of any other premium charge, any increase or decrease in such premiums shall result in a proportionate adjustment to the amounts payable by Technologies to Collagen pursuant to this Section 6.1(a). Collagen and Technologies agree to cooperate in good faith to provide for an orderly transition of insurance coverage from the Effective Date until such time as Technologies and Collagen determine that it is appropriate for Technologies to obtain its own insurance coverage (which, in any event, shall be no later than the Distribution Date), and for the treatment of any Insurance Policies that will remain in effect following the Effective Date on a mutually agreeable basis. In no event shall Collagen, any other member of the Collagen Group or any Collagen Indemnitee have any liability or obligation whatsoever to any member of the Technologies Group in the event that any Insurance Policy or other contract or policy of insurance shall be terminated or otherwise cease to be in effect for any reason (other than failure to pay when due any premium or other amount due thereunder), shall be unavailable or inadequate to cover any Liability of any member of the Technologies Group for any reason whatsoever or shall not be renewed or extended beyond the current expiration date. -28- 35 (b) (i) Except as otherwise provided in any Ancillary Agreement, the parties intend by this Agreement that Technologies and each other member of the Technologies Group be successors-in-interest to all rights that any member of the Technologies Group may have as of the Effective Date as a subsidiary, affiliate, division or department of Collagen prior to the Effective Date under any policy of insurance issued to Collagen by any insurance carrier unaffiliated with Collagen or under any agreements related to such policies executed and delivered prior to the Effective Date, including any rights such member of the Technologies Group may have, as an insured or additional named insured, subsidiary, affiliate, division or department, to avail itself of any such policy of insurance or any such agreements related to such policies as in effect prior to the Effective Date. At the request of Technologies, Collagen shall take all reasonable steps, including the execution and delivery of any instruments, to effect the foregoing; provided, however, that Collagen shall not be required to pay any amounts, waive any rights or incur any Liabilities in connection therewith. (ii) Except as otherwise contemplated by any Ancillary Agreement, after the Effective Date, none of Collagen or Technologies or any member of their respective Groups shall, without the consent of the other, provide any such insurance carrier with a release, or amend, modify or waive any rights under any such policy or agreement, if such release, amendment, modification or waiver would adversely affect any rights or potential rights of any member of the other Group thereunder; provided however that the foregoing shall not (A) preclude any member of any Group from presenting any claim or from exhausting any policy limit, (B) require any member of any Group to pay any premium or other amount or to incur any Liability or (C) require any member of any Group to renew, extend or continue any policy in force. Each of Technologies and Collagen will share such information as is reasonably necessary in order to permit the other to manage and conduct its insurance matters in an orderly fashion. (c) This Agreement shall not be considered as an attempted assignment of any Insurance Policy or other policy of insurance or as a contract of insurance and shall not be construed to waive any right or remedy of any member of the Collagen Group in respect of any Insurance Policy or any other contract or policy of insurance. (d) Technologies does hereby, for itself and each other member of the Technologies Group, agree that no member of the Collagen Group or any Collagen Indemnitee shall have any Liability whatsoever as a result of the Insurance Policies and practices of Collagen and its Affiliates as in effect at any time, including as a result of the level or scope of any such insurance, the creditworthiness of any insurance carrier, the terms and conditions of any policy, the adequacy or timeliness of any notice to any insurance carrier with respect to any claim or potential claim or otherwise. (e) Nothing in this Agreement shall be deemed to restrict any member of the Technologies Group from acquiring at its own expense any other insurance policy in respect of any Liabilities or covering any period. -29- 36 6.2 COLLECTION OF ACCOUNTS RECEIVABLE. (a) Technologies acknowledges on behalf of itself and each other member of the Technologies Group that it is aware that the Retained Receivables are Excluded Assets and that certain Persons that are account debtors with respect to the Transferred Receivables (or that in the future may otherwise become payable to a member of the Technologies Group) are also account debtors with respect to the Retained Receivables. Collagen agrees that from and after the Effective Date and prior to June 30, 1999, unless otherwise specifically directed by Technologies, Collagen, as agent for Technologies, will take all commercially reasonable steps consistent with the current practices of the Collagen Business to service and collect the Transferred Receivables. Technologies will cooperate to establish as promptly as practicable mutually acceptable operational procedures. If, in order to collect any Transferred Receivables, Collagen is required to engage a collection agency or to institute legal proceedings or any other Action it shall be entitled to be reimbursed for its reasonable out-of-pocket costs and expenses incurred in connection therewith. After June 30, 1999, the parties will negotiate in good faith with respect to the final disposition of any then outstanding Transferred Receivables. (b) Each of Collagen and Technologies shall deliver to the other such schedules and other information with respect to the Retained Receivables and the Transferred Receivables as each shall reasonably request from time to time in order to permit such parties to reconcile their respective records and to monitor the collection of all accounts receivable (whether Transferred Receivables or Retained Receivables). Each of Technologies and Collagen shall afford the other reasonable access to its books and records relating to such accounts receivable. Without limiting the foregoing, Collagen shall at all times maintain the ability to provide to Technologies promptly upon request a true and complete schedule of all Transferred Receivables due and owing as of the end of the prior month. (c) By the 3rd business day of each month, Collagen hereby irrevocably agrees to pay over, or cause to be paid over, in immediately available funds to Technologies, at no cost or charge to Technologies or any of its Affiliates (other than any member of the Collagen Group), any and all amounts which were received during the immediately preceding month by any member of the Collagen Group in respect of the Transferred Receivables. Any such amounts not paid over to Technologies by the date specified in the first sentence of this Section 6.2(c) shall bear interest at the Prime Rate plus 2% per annum. (d) Nothing in this Agreement or any Ancillary Agreement shall be construed to grant to any member of the Collagen Group any right, title or interest in any Transferred Receivable and no member of the Collagen Group shall have any right or power to, and no member of the Collagen Group shall, grant or suffer to exist any right of set off, lien or any other Security Interest in any Transferred Receivables or proceeds thereof. Collagen will not, and it will not permit any member of the Collagen Group to, extend or otherwise change the amount or other terms of payment of any Transferred Receivable, unless Collagen shall have paid to Technologies an amount equal to the full amount of such Transferred Receivable. Collagen hereby irrevocably and unconditionally agrees that it shall not assert (and it shall not permit any member of the Collagen Group to assert) any offsets, claims, counterclaims or defenses in -30- 37 respect of the Transferred Receivables or its obligations to pay over any such Transferred Receivables to Technologies hereunder (whether existing on the Effective Date or arising thereafter and whether or not relating to the transactions contemplated by this Agreement, any Ancillary Agreement or otherwise). (e) Technologies shall retain the right to collect or seek to collect in such manner as it may in its sole discretion determine all or any portion of the Transferred Receivables. 6.3 CERTAIN BUSINESS MATTERS. (a) Except as set forth in this Agreement or any Ancillary Agreement, no member of any Group shall have any duty to refrain from (i) engaging in the same or similar activities or lines of business as any member of any other Group, (ii) doing business with any potential or actual supplier or customer of any member of any other Group or (iii) engaging in, or refraining from, any other activities whatsoever relating to any of the potential or actual suppliers or customers of any member of any other Group. (b) Each of Collagen and Technologies is aware that from time to time certain business opportunities may arise which more than one Group may be financially able to undertake, and which are, from their nature, in the line of more than one Group's business and are of practical advantage to more than one Group. In connection therewith, the parties agree that if prior to (but not following) the Distribution Date, any member of either the Collagen Group or the Technologies Group acquires knowledge of an opportunity that meets the foregoing standard with respect to more than one Group, neither Collagen nor Technologies shall have any duty to communicate or offer such opportunity to any of the others and may pursue or acquire such opportunity for itself, or direct such opportunity to any other Person, unless (i) such opportunity relates primarily to the Technologies Business, in which case the party that acquires knowledge of such opportunity shall use its reasonable best efforts to communicate and offer such opportunity to Technologies, (ii) such opportunity relates primarily to the Collagen Business, in which case the party that acquires knowledge of such opportunity shall use its reasonable efforts to communicate and offer such opportunity to Collagen or (iii) such opportunity relates both to the Collagen Business and the Technologies Business but not primarily to either one, in which case the party that acquires such knowledge of opportunity shall use its reasonable best efforts to communicate such opportunity to the Collagen Board of Directors and the Collagen Board of Directors shall determine whether such opportunity shall first be offered to Technologies or to Collagen. Notwithstanding the foregoing, no party shall be required to so communicate or offer any such opportunity if it would result in the breach of any contract or agreement or violate any applicable law, rule or regulation of any Governmental Authority and no party shall have any obligation to provide financing (or provide any other assistance whatsoever) to any other party in connection with any such opportunity. In the event the foregoing clause (i) or (ii) is applicable, no party, other than the party to whom the opportunity must be offered in accordance with such clauses, shall pursue or acquire such opportunity for itself, or direct such opportunity to any other Person, unless the party to whom -31- 38 the opportunity is required to be offered does not within a reasonable period of time begin to pursue, or does not thereafter continue to pursue, such opportunity diligently and in good faith. 6.4 LATE PAYMENTS. Except as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, any amount not paid when due pursuant to this Agreement or any Ancillary Agreement (and any amounts billed or otherwise invoiced or demanded and properly payable that are not paid within 30 days of such bill, invoice or other demand) shall accrue interest at a rate per annum equal to the Prime Rate plus 2%. ARTICLE VII EXCHANGE OF INFORMATION; CONFIDENTIALITY 7.1 AGREEMENT FOR EXCHANGE OF INFORMATION; ARCHIVES. (a) Each of Collagen and Technologies, on behalf of its respective Group, agrees to provide, or cause to be provided, to the other Group, at any time before or after the Effective Date, as soon as reasonably practicable after written request therefor, any Information in the possession or under the control of such respective Group which the requesting party reasonably needs (i) to comply with reporting, disclosure, filing or other requirements imposed on the requesting party (including under applicable securities or tax laws) by a Governmental Authority having jurisdiction over the requesting party, (ii) for use in any other judicial, regulatory, administrative, tax or other proceeding or in order to satisfy audit, accounting, claims, regulatory, litigation, tax or other similar requirements or (iii) to comply with its obligations under this Agreement or any Ancillary Agreement; provided, however, that in the event that any party determines that any such provision of Information could be commercially detrimental, violate any law or agreement, or waive any attorney client privilege, the parties shall take all reasonable measures to permit the compliance with such obligations in a manner that avoids any such harm or consequence. (b) After the Effective Date, each of Collagen and Technologies shall have access during regular business hours (as in effect from time to time) to the documents, data and objects of historic significance that relate to the business conducted by such party that are in the possession of the other party. Each party may obtain from the other party copies (but not originals), in paper or electronic format, of documents, data or other objects of historic significance for bona fide business purposes and the party obtaining such documents, data or other objects of historic significance shall comply with any rules, procedures or other requirements, and shall be subject to any restrictions (including prohibitions on removal of specified objects), that are then applicable to the other party. (c) After the Effective Date, (i) Collagen shall maintain in effect at its own cost and expense adequate systems and controls to the extent necessary to enable the members of the Technologies Group to satisfy their respective financial reporting, accounting, audit, adverse event reporting and other obligations and (ii) Collagen shall provide, or cause to be provided, to Technologies in such form as Technologies shall request, at no charge to Technologies, all financial and other data and information as Technologies determines necessary or advisable in order to prepare Technologies financial statements and reports or filings with any Governmental -32- 39 Authority, including, without limitation, the Commission and the United States Food and Drug Administration. 7.2 OWNERSHIP OF INFORMATION. Any Information owned by one Group that is provided to a requesting party pursuant to Section 7.1 shall be deemed to remain the property of the providing party. Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such Information. 7.3 COMPENSATION FOR PROVIDING INFORMATION. The party requesting such Information agrees to reimburse the other party for the reasonable out-of-pocket costs, if any, of creating, gathering and copying such Information, to the extent that such costs are incurred for the benefit of the requesting party. No charge shall be required for reasonable personnel time of a party incurred in providing access to Information in its existing format or documentation, including, without limitation, in providing access to existing databases. Except as may be otherwise specifically provided elsewhere in this Agreement or in any other agreement between the parties, such costs shall be computed in accordance with the providing party's standard methodology and procedures. 7.4 RECORD RETENTION. To facilitate the possible exchange of Information pursuant to this Article VII and other provisions of this Agreement after the Distribution Date, the parties agree to use their reasonable best efforts to retain all Information in their respective possession or control on the Distribution Date in accordance with their policies in effect from time to time. Each party will notify the other party of any material changes in its record retention policy made after the Effective Date. 7.5 LIMITATION OF LIABILITY. No party shall have any liability to any other party in the event that any Information exchanged or provided pursuant to this Agreement which is an estimate or forecast, or which is based on an estimate or forecast, is found to be inaccurate, or incomplete in the absence of willful misconduct by the party providing such Information. No party shall have any liability to any other party if any Information is destroyed after reasonable best efforts by such party to comply with the provisions of Section 7.4. 7.6 OTHER AGREEMENTS PROVIDING FOR EXCHANGE OF INFORMATION. The rights and obligations granted under this Article VII are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of Information set forth in any Ancillary Agreement. 7.7 PRODUCTION OF WITNESSES; RECORDS; COOPERATION. (a) After the Effective Date, except in the case of an adversarial Action by one party against another party (which shall be governed by such discovery rules as may be applicable under Article VIII or otherwise), each party hereto shall use its reasonable best efforts to make available to each other party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise -33- 40 has the ability to make available, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any Action in which the requesting party may from time to time be involved, regardless of whether such Action is a matter with respect to which indemnification may be sought under this Agreement. The requesting party shall bear all costs and expenses (including allocated costs of in-house counsel and other personnel) in connection therewith. (b) If an Indemnifying Party chooses to defend or to seek to compromise or settle any Third Party Claim, the other parties shall make available to such Indemnifying Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with such defense, settlement or compromise and shall otherwise cooperate in such defense, settlement or compromise. (c) Without limiting the foregoing, the parties shall cooperate and consult to the extent reasonably necessary with respect to any Actions. (d) Without limiting any provision of this Section 7.7, each of the parties agrees to cooperate, and to cause each member of its respective Group to cooperate, with each other in the defense of any infringement or similar claim with respect any intellectual property and shall not claim to acknowledge, or permit any member of its respective Group to claim to acknowledge, the validity or infringing use of any intellectual property of a third Person in a manner that would hamper or undermine the defense of such infringement or similar claim. (e) The obligation of the parties to provide witnesses pursuant to this Section 7.7 is intended to be interpreted in a manner so as to facilitate cooperation and shall include the obligation to provide as witnesses inventors and other officers without regard to whether the witness or the employer of the witness could assert a possible business conflict (subject to the exception set forth in the first sentence of Section 7.7(a)). (f) In connection with any matter contemplated by this Section 7.7, the parties will enter into a mutually acceptable joint defense agreement so as to maintain to the extent practicable any applicable attorney-client privilege or work product immunity of any member of any Group. 7.8 CONFIDENTIALITY. (a) Subject to Section 7.9, each of Collagen and Technologies, on behalf of itself and each member of its respective Group, agrees to hold, and to cause its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives to hold, in strict confidence, with at least the same degree of care that applies to Collagen's confidential and proprietary information pursuant to policies in effect as of the -34- 41 Effective Date, all Information concerning each such other Group that is either in its possession (including Information in its possession prior to the Effective Date or the Distribution Date) or furnished by any such other Group or its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives at any time pursuant to this Agreement, any Ancillary Agreement or otherwise, and shall not use any such Information other than for such purposes as shall be expressly permitted hereunder or thereunder, except, in each case, to the extent that such Information has been (i) in the public domain through no fault of such party or any member of such Group or any of their respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives, (ii) later lawfully acquired from other sources by such party (or any member of such party's Group) which sources are not themselves bound by a confidentiality obligation) or (iii) independently generated without reference to any proprietary or confidential Information of the other party. (b) Each party agrees not to release or disclose, or permit to be released or disclosed, any such Information to any other Person, except its directors, officers, employees, agents, accountants, counsel and other advisors and representatives who need to know such Information (who shall be advised of their obligations hereunder with respect to such Information), except in compliance with Section 7.9. Without limiting the foregoing, when any Information is no longer needed for the purposes contemplated by this Agreement or any Ancillary Agreement, each party will promptly after request of the other party either return to the other party all Information in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or certify to the other party that it has destroyed such Information (and such copies thereof and such notes, extracts or summaries based thereon). 7.9 PROTECTIVE ARRANGEMENTS. In the event that any party or any member of its Group either determines on the advice of its counsel that it is required to disclose any Information pursuant to applicable law or receives any demand under lawful process or from any Governmental Authority to disclose or provide Information of any other party (or any member of any other party's Group) that is subject to the confidentiality provisions hereof, such party shall notify the other party prior to disclosing or providing such Information and shall cooperate at the expense of the requesting party in seeking any reasonable protective arrangements requested by such other party. Subject to the foregoing, the Person that received such request may thereafter disclose or provide Information to the extent required by such law (as so advised by counsel) or by lawful process or such Governmental Authority. ARTICLE VIII ARBITRATION; DISPUTE RESOLUTION 8.1 AGREEMENT TO ARBITRATE. Except as otherwise specifically provided in any Ancillary Agreement, the procedures for discussion, negotiation and arbitration set forth in this Article VIII shall apply to all disputes, controversies or claims (whether contract, tort or otherwise) that may arise out of or relate to, or arise under or in connection with, this Agreement or any Ancillary Agreement, or the transactions contemplated hereby or thereby (including all actions taken in furtherance of the transactions contemplated hereby or thereby on or prior to the Effective Date), or the commercial or economic relationship of the parties relating hereto or -35- 42 thereto, between or among any member of the Collagen Group and the Technologies Group. Each party agrees on behalf of itself and each member of its respective Group that the procedures set forth in this Article VIII shall be the sole and exclusive remedy in connection with any dispute, controversy or claim relating to any of the foregoing matters and irrevocably waives any right to commence any Action in or before any Governmental Authority, except as expressly provided in Sections 8.7(b) and 8.8 and except to the extent provided under the Arbitration Act in the case of judicial review of arbitration results or awards. Each party on behalf of itself and each member of its respective Group irrevocably waives any right to any trial by jury with respect to any claim, controversy or dispute set forth in the first sentence of this Section 8.1. 8.2 ESCALATION. (a) It is the intent of the parties to use their respective reasonable best efforts to resolve expeditiously any dispute, controversy or claim between or among them with respect to the matters covered hereby or by any Ancillary Agreement that may arise from time to time on a mutually acceptable negotiated basis. In furtherance of the foregoing, any party involved in a dispute, controversy or claim may deliver a notice (an "Escalation Notice") demanding an in-person meeting involving representatives of the parties at a senior level of management (or if the parties agree, of the appropriate strategic business unit or division within such entity). A copy of any such Escalation Notice shall be given to the Chief Financial Officer, or like officer or official, of each party involved in the dispute, controversy or claim (which copy shall state that it is an Escalation Notice pursuant to this Agreement). Any agenda, location or procedures for such discussions or negotiations between the parties may be established by the parties from time to time; provided, however, that the parties shall use their reasonable best efforts to meet within 30 days of the Escalation Notice. (b) The parties shall, upon request by either party, retain a mediator to aid the parties in their discussions and negotiations by informally providing advice to the parties. Any opinion expressed by the mediator shall be strictly advisory and shall not be binding on the parties, nor shall any opinion expressed by the mediator be admissible in any arbitration proceedings. The mediator may be chosen from a list of mediators previously selected by the parties or by other agreement of the parties. Costs of the mediation shall be borne equally by the parties involved in the matter, except that each party shall be responsible for its own expenses. Mediation shall be a prerequisite to a demand for arbitration under Section 8.3. 8.3 DEMAND FOR ARBITRATION. (a) At any time after the first to occur of (i) the date of the meeting actually held pursuant to the applicable Escalation Notice or (ii) 45 days after the delivery of an Escalation Notice (as applicable, the "Arbitration Demand Date"), any party involved in the dispute, controversy or claim (regardless of whether such party delivered the Escalation Notice) may, unless the Applicable Deadline has occurred, make a written demand (the "Arbitration Demand Notice") that the dispute be resolved by binding arbitration, which Arbitration Demand Notice shall be given to the parties to the dispute, controversy or claim in the manner set forth in Section 11.5. In the event that any party shall deliver an Arbitration Demand Notice to another -36- 43 party, such other party may itself deliver an Arbitration Demand Notice to such first party with respect to any related dispute, controversy or claim with respect to which the Applicable Deadline has not passed without the requirement of delivering an Escalation Notice. No party may assert that the failure to resolve any matter during any discussions or negotiations, the course of conduct during the discussions or negotiations or the failure to agree on a mutually acceptable time, agenda, location or procedures for the meeting, in each case, as contemplated by Section 8.2, is a prerequisite to a demand for arbitration under Section 8.3. (b) Except as may be expressly provided in any Ancillary Agreement, any Arbitration Demand Notice may be given until one year after the later of the occurrence of the act or event giving rise to the underlying claim or the date on which such act or event was, or should have been, in the exercise of reasonable due diligence, discovered by the party asserting the claim (as applicable and as it may in a particular case be specifically extended by the parties in writing, the "Applicable Deadline"). Any discussions, negotiations or mediations between the parties pursuant to this Agreement or otherwise will not toll the Applicable Deadline unless expressly agreed in writing by the parties. Each of the parties agrees on behalf of itself and each member of its Group that if an Arbitration Demand Notice with respect to a dispute, controversy or claim is not given prior to the expiration of the Applicable Deadline, as between or among the parties and the members of their Groups, such dispute, controversy or claim will be barred. Subject to Sections 8.7(d) and 8.8, upon delivery of an Arbitration Demand Notice pursuant to Section 8.3(a) prior to the Applicable Deadline, the dispute, controversy or claim shall be decided by a sole arbitrator in accordance with the rules set forth in this Article VIII. 8.4 ARBITRATORS. (a) Within 15 days after a valid Arbitration Demand Notice is given, the parties involved in the dispute, controversy or claim referenced therein shall attempt to select a sole arbitrator satisfactory to all such parties. (b) In the event that such parties are not able jointly to select a sole arbitrator within such 15-day period, such parties shall each appoint an arbitrator within 30 days after delivery of the Arbitration Demand Notice. If one party appoints an arbitrator within such time period and the other party or parties fail to appoint an arbitrator within such time period, the arbitrator appointed by the one party shall be the sole arbitrator of the matter. (c) In the event that a sole arbitrator is not selected pursuant to Section 8.4(a) or Section 8.4(b) and, instead, two or three arbitrators are selected pursuant to paragraph (b) above, the two or three arbitrators will, within 30 days after the appointment of the later of them to be appointed, select an additional arbitrator who shall act as the sole arbitrator of the dispute. After selection of such sole arbitrator, the initial arbitrators shall have no further role with respect to the dispute. Any arbitrator selected pursuant to this Section 8.4(c) shall be disinterested with respect to any of the parties and the matter and shall be reasonably competent in the applicable subject matter. (d) The sole arbitrator selected pursuant to Section 8.4(a), Section 8.4(b) or Section 8.4(c) will set a time for the hearing of the matter which will commence no later than 90 -37- 44 days after the date of appointment of the sole arbitrator pursuant to Section 8.4(a), Section 8.4(b) or Section 8.4(c) and which hearing will be no longer than 30 days (unless in the judgment of the arbitrator the matter is unusually complex and sophisticated and thereby requires a longer time, in which event such hearing shall be no longer than 90 days). The final decision of such arbitrator will be rendered in writing to the parties not later than 60 days after the last hearing date, unless otherwise agreed by the parties in writing. (e) The place of any arbitration hereunder will be San Francisco, California, unless otherwise agreed by the parties. 8.5 HEARINGS. Within the time period specified in Section 8.4(d), the matter shall be presented to the arbitrator at a hearing by means of written submissions of memoranda and verified witness statements, filed simultaneously, and responses, if necessary in the judgment of the arbitrator or both the parties. If the arbitrator deems it to be essential to a fair resolution of the dispute, live cross-examination or direct examination may be permitted, but is not generally contemplated to be necessary. The arbitrator shall actively manage the arbitration with a view to achieving a just, speedy and cost-effective resolution of the dispute, claim or controversy. The arbitrator may, in his or her discretion, set time and other limits on the presentation of each party's case, its memoranda or other submissions, and refuse to receive any proffered evidence, which the arbitrator, in his or her discretion, finds to be cumulative, unnecessary, irrelevant or of low probative nature. Except as otherwise set forth herein, any arbitration hereunder will be conducted in accordance with the American Arbitration Association then prevailing (except that the arbitration will not be conducted under the auspices of the American Arbitration Association and the fee schedule of the American Arbitration Association will not apply). Except as expressly set forth in Section 8.8(b), the decision of the arbitrator will be final and binding on the parties, and judgment thereon may be had and will be enforceable in any court having jurisdiction over the parties. Arbitration awards will bear interest at an annual rate of the Prime Rate plus 2% per annum. To the extent that the provisions of this Agreement and the prevailing rules of the American Arbitration Association conflict, the provisions of this Agreement shall govern. 8.6 DISCOVERY AND CERTAIN OTHER MATTERS. (a) Any party involved in the applicable dispute may request limited document production from the other party or parties of specific and expressly relevant documents, with the reasonable expenses of the producing party incurred in such production paid by the requesting party. Any such discovery (which rights to documents shall be substantially less than document discovery rights prevailing under the Federal Rules of Civil Procedure) shall be conducted expeditiously and shall not cause the hearing provided for in Section 8.5 to be adjourned except upon consent of all parties involved in the applicable dispute or upon an extraordinary showing of cause demonstrating that such adjournment is necessary to permit discovery essential to a party to the proceeding. Depositions, interrogatories or other forms of discovery (other than the document production set forth above) shall not occur except by consent of the parties involved in the applicable dispute. Disputes concerning the scope of document production and enforcement of the document production requests will be determined by written -38- 45 agreement of the parties involved in the applicable dispute or, failing such agreement, will be referred to the arbitrator for resolution. All discovery requests will be subject to the proprietary rights and rights of privilege of the parties, and the arbitrator will adopt procedures to protect such rights and to maintain the confidential treatment of the arbitration proceedings (except as may be required by law). Subject to the foregoing, the arbitrator shall have the power to issue subpoenas to compel the production of documents relevant to the dispute, controversy or claim. (b) The arbitrator shall have full power and authority to determine issues of arbitrability but shall otherwise be limited to interpreting or construing the applicable provisions of this Agreement or any Ancillary Agreement, and will have no authority or power to limit, expand, alter, amend, modify, revoke or suspend any condition or provision of this Agreement or any Ancillary Agreement; it being understood, however, that the arbitrator will have full authority to implement the provisions of this Agreement or any Ancillary Agreement, and to fashion appropriate remedies for breaches of this Agreement (including interim or permanent injunctive relief); provided that the arbitrator shall not have (i) any authority in excess of the authority a court having jurisdiction over the parties and the controversy or dispute would have absent the arbitration provisions or (ii) any right or power to award punitive or treble damages. It is the intention of the parties that in rendering a decision the arbitrator give effect to the applicable provisions of this Agreement and the Ancillary Agreements and follow applicable law (it being understood and agreed that this sentence shall not give rise to a right of judicial review of the arbitrator's award). (c) If a party fails or refuses to appear at and participate in an arbitration hearing after due notice, the arbitrator may hear and determine the controversy upon evidence produced by the appearing party. (d) Arbitration costs will be borne equally by each party involved in the matter, except that each party will be responsible for its own attorney's fees and other costs and expenses, including the costs of witnesses selected by such party. 8.7 CERTAIN ADDITIONAL MATTERS. (a) Any arbitration award shall be a bare award limited to a holding for or against a party and shall be without findings as to facts, issues or conclusions of law (including with respect to any matters relating to the validity or infringement of patents or patent applications) and shall be without a statement of the reasoning on which the award rests, but must be in adequate form so that a judgment of a court may be entered thereupon. Judgment upon any arbitration award hereunder may be entered in any court having jurisdiction thereof. (b) Prior to the time at which an arbitrator is appointed pursuant to Section 8.4, any party may seek one or more temporary restraining orders in a court of competent jurisdiction if necessary in order to preserve and protect the status quo. Neither the request for, or grant or denial of, any such temporary restraining order shall be deemed a waiver of the obligation to arbitrate as set forth in this Agreement and the arbitrator may dissolve, continue or modify any such order. Any such temporary restraining order shall remain in effect until the first -39- 46 to occur of the expiration of the order in accordance with its terms or the dissolution thereof by the arbitrator. (c) Except as required by law, the parties shall hold, and shall cause their respective officers, directors, employees, agents and other representatives to hold, the existence, content and result of mediation or arbitration in confidence in accordance with the provisions of Article VII and except as may be required in order to enforce any award. Each of the parties shall request that any mediator or arbitrator comply with such confidentiality requirement. (d) In the event that at any time the sole arbitrator shall fail to serve as an arbitrator for any reason, the parties shall select a new arbitrator who shall be disinterested as to the parties and the matter in accordance with the procedures set forth in this Agreement for the selection of the initial arbitrator. The extent, if any, to which testimony previously given shall be repeated or as to which the replacement arbitrator elects to rely on the stenographic record (if there is one) of such testimony shall be determined by the replacement arbitrator. 8.8 LIMITED COURT ACTIONS. (a) Notwithstanding anything in this Agreement to the contrary, in the event that any party reasonably determines the amount in controversy in any dispute, controversy or claim (or any series of related disputes, controversies or claims) under this Agreement or any Ancillary Agreement is, or is reasonably likely to be, in excess of $2.5 million and if such party desires to commence an Action in lieu of complying with the arbitration provisions of this Article, such party shall so state in its Arbitration Demand Notice. If the other parties to the arbitration do not agree that the amount in controversy in such dispute, controversy or claim (or such series of related disputes, controversies or claims) is, or is reasonably likely to be, in excess of $2.5 million, the arbitrator selected pursuant to Section 8.4 hereof shall decide whether the amount in controversy in such dispute, controversy or claim (or such series of related disputes, controversies or claims) is, or is reasonably likely to be, in excess of $2.5 million. The arbitrator shall set a date that is no later than ten days after the date of his or her appointment for submissions by the parties with respect to such issue. There shall not be any discovery in connection with such issue. The arbitrator shall render his or her decision on such issue within five days of such date so set by the arbitrator. In the event that the arbitrator determines that the amount in controversy in such dispute, controversy or claim (or such series of related disputes, controversies or claims) is or is reasonably likely to be in excess of $2.5 million, the provisions of Sections 8.4(d) and (e), 8.5, 8.6, 8.7 and 8.10 hereof shall not apply and on or before (but, except as expressly set forth in Section 8.8(b), not after) the tenth business day after the date of such decision, any party to the arbitration may elect, in lieu of arbitration, to commence an Action with respect to such dispute, controversy or claim (or such series of related disputes, controversies or claims) in any court of competent jurisdiction. If the arbitrator does not so determine, the provisions of this Article VIII (including with respect to time periods) shall apply as if no determinations were sought or made pursuant to this Section 8.8(a). (b) In the event that an arbitration award in excess of $2.5 million is issued in any arbitration proceeding commenced hereunder, any party may, within 60 days after the date of -40- 47 such award, submit the dispute, controversy or claim (or series of related disputes, controversies or claims) giving rise thereto to a court of competent jurisdiction, regardless of whether such party or any other party sought to commence an Action in lieu of proceeding with arbitration in accordance with Section 8.8(a). In such event, the applicable court may elect to rely on the record developed in the arbitration or, if it determines that it would be advisable in connection with the matter, allow the parties to seek additional discovery or to present additional evidence. Each party shall be entitled to present arguments to the court with respect to whether any such additional discovery or evidence shall be permitted and with respect to all other matters relating to the applicable dispute, controversy or claim (or series of related disputes, controversies or claims). 8.9 CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in writing, the parties will continue to provide service and honor all other commitments under this Agreement and each Ancillary Agreement during the course of dispute resolution pursuant to the provisions of this Article VIII with respect to all matters not subject to such dispute, controversy or claim. 8.10 LAW GOVERNING ARBITRATION PROCEDURES. The interpretation of the provisions of this Article VIII, only insofar as they relate to the agreement to arbitrate and any procedures pursuant thereto, shall be governed by the Arbitration Act and other applicable federal law. In all other respects, the interpretation of this Agreement shall be governed as set forth in Section 11.2. ARTICLE IX FURTHER ASSURANCES AND ADDITIONAL COVENANTS 9.1 FURTHER ASSURANCES. (a) In addition to the actions specifically provided for elsewhere in this Agreement, each of the parties hereto shall use its reasonable best efforts, on and after the Effective Date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements. (b) Without limiting the foregoing, on and after the Effective Date, each party shall cooperate with the other party, and without any further consideration, but at the expense of the requesting party, to execute and deliver, or use its reasonable best efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all consents, approvals or authorizations of, any Governmental Authority or any other Person under any permit, license, agreement, indenture or other instrument (including any Consents or Governmental Approvals), and to take all such other actions as such party may reasonably be requested to take by the other party from time to time, consistent with the terms of this Agreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of this Agreement and the Ancillary Agreements and the transfer of the Technologies Assets and the assignment and assumption of the Technologies -41- 48 Liabilities and the other transactions contemplated hereby and thereby. Without limiting the foregoing, each party will, at the reasonable request, cost and expense of the other party, take such other actions as may be reasonably necessary to vest in such other party good and marketable title to any Assets to be transferred to such other party, free and clear of any Security Interest, if and to the extent it is practicable to do so. (c) On or prior to the Distribution Date, Collagen and Technologies in their respective capacities as direct and indirect stockholders of their respective Subsidiaries, shall each ratify any actions which are reasonably necessary or desirable to be taken by Collagen, Technologies or any other Subsidiary of Collagen, as the case may be, to effectuate the transactions contemplated by this Agreement. On or prior to the Distribution Date, Collagen and Technologies shall take all actions as may be necessary to approve the stock-based employee benefit plans of Technologies in order to satisfy the requirements of Rule 16b-3 under the Exchange Act and Section 162(m) of the Code. (d) The parties hereto agree to take any reasonable actions necessary in order for the Distribution to qualify as a tax-free distribution pursuant to Section 355 of the Code. (e) Collagen and Technologies, and each of the members of their respective Groups, waive (and agree not to assert against any of the others) any claim or demand that any of them may have against any of the others for any Liabilities or other claims relating to or arising out of: (i) the failure of Technologies or any member of the Technologies Group, on the one hand, or of Collagen or any member of the Collagen Group, on the other hand, to provide any notification or disclosure required under any state Environmental Law in connection with the Separation or the other transactions contemplated by this Agreement, including the transfer by any member of any Group to any member of any other Group of ownership or operational control of any Assets not previously owned or operated by such transferee or (ii) any inadequate, incorrect or incomplete notification or disclosure under any such state Environmental Law by the applicable transferor. To the extent any Liability to any Governmental Authority or any third Person arises out of any action or inaction described in clause (i) or (ii) of this Section 9.1(e), the transferee of the applicable Asset hereby assumes and agrees to pay any such Liability. (f) Prior to the Distribution Date, if one or more of the parties identifies any commercial or other service that is needed to assure a smooth and orderly transition of the businesses in connection with the consummation of the transactions contemplated hereby, and that is not otherwise governed by the provisions of this Agreement or any Ancillary Agreement, the parties will cooperate in determining whether there is a mutually acceptable arm's-length basis on which one or more of the other parties will provide such service. (g) After the Effective Date, in the event that either party is a direct or indirect beneficiary of any Asset (including, without limitation, any rights under any contract) of the other party, the party owning such Asset will cooperate with the other party, upon such party's request, to secure, perfect or enforce any rights or benefits such requesting party has with respect to the Asset. The parties shall bear the costs incurred pursuant to this Section 9.1(h) in -42- 49 proportion to the benefit each party receives as a result of securing, perfecting or enforcing such rights or benefits with respect to the asset. 9.2 QUALIFICATION AS TAX-FREE DISTRIBUTION. After the Effective Date, neither Collagen nor Technologies shall take, or permit any member of its respective Group to take, any action that could reasonably be expected to prevent the Distribution from qualifying as a tax-free distribution within the meaning of Section 355 of the Code or any other transaction contemplated by this Agreement or any Ancillary Agreement that is intended by the parties to be tax-free from failing so to qualify. Without limiting the foregoing, after the Effective Date and on or prior to the Distribution Date, Technologies shall not, without the prior consent of Collagen, issue or grant, and shall not permit any member of the Technologies Group to issue or grant, directly or indirectly, any shares of Technologies Common Stock or any rights, warrants, options or other securities to purchase or acquire (whether upon conversion, exchange or otherwise) any shares of Technologies Common Stock (whether or not then exercisable, convertible or exchangeable) if such issuance or grant would cause Collagen to own less than 80.1% of the outstanding shares of Technologies Common Stock. In the event that any such issuance or grant made with the prior consent of Collagen would cause Collagen to own less than 80.1% of the outstanding shares of Technologies Common Stock, Technologies shall give Collagen notice not less than three business days prior to such issuance or grant and Collagen shall have the right to purchase from Technologies, and Technologies hereby agrees to sell to Collagen, a sufficient number of shares of Technologies Common Stock, at a price equal to the fair market value of such shares (as determined by the Board of Directors of Technologies, which, in the event that the Technologies Common Stock is listed on the Nasdaq National Market or other exchange, shall be equal to the average closing price of the Technologies Common Stock as reported on the Nasdaq National Market or other exchange for the 30 days prior to the date of sale), to cause Collagen to own not less than 80.1% of the outstanding shares of Technologies Common Stock, after giving effect to such issuance or grant and the sale of such shares to Collagen. ARTICLE X TERMINATION 10.1 TERMINATION. This Agreement may be terminated only upon the mutual consent of Collagen and Technologies and any such termination shall have the effects mutually agreed upon by Collagen and Technologies. -43- 50 ARTICLE XI MISCELLANEOUS 11.1 COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER. (a) This Agreement and each Ancillary Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. (b) This Agreement, and the Ancillary Agreements and the Exhibits, Schedules and Appendices hereto and thereto contain the entire agreement between the parties with respect to the subject matter hereof and thereto, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the parties other than those set forth or referred to herein or therein. (c) Collagen represents on behalf of itself and each other member of the Collagen Group and Technologies represents on behalf of itself and each other member of the Technologies Group as follows: (i) each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute and deliver this Agreement and each Ancillary Agreement to which it is a party and, subject to receipt of approval of the stockholders of Collagen of the Distribution, to consummate the transactions contemplated hereby and thereby; and (ii) this Agreement and each Ancillary Agreement to which it is a party has been duly executed and delivered by it and constitutes a valid and binding agreement of it, enforceable in accordance with the terms thereof. 11.2 RIGHT TO OFFSET PAYMENTS. Technologies and Collagen shall, at the end of each calendar quarter after the Effective Date, net any amounts then owed by Collagen to Technologies under this Agreement or any Ancillary Agreement against any amounts then owed by Technologies to Collagen under this Agreement or any Ancillary Agreement and, after such calculation has been approved by Collagen and Technologies, the party owing funds shall promptly pay such amount to the other party. Nothing in this Section 11.2 shall supersede the time at which payments are due from one party to the other under this Agreement or any Ancillary Agreement. 11.3 GOVERNING LAW. Except as set forth in Section 8.10, this Agreement and, unless expressly provided therein, each Ancillary Agreement, shall be governed by and construed and interpreted in accordance with the laws of the State of California (other than as to its laws of arbitration which shall be governed under the Arbitration Act or other applicable federal law pursuant to Section 8.10), irrespective of the choice of laws principles of the State of California, -44- 51 as to all matters, including matters of validity, construction, effect, enforceability, performance and remedies. 11.4 ASSIGNABILITY. Except as set forth in any Ancillary Agreement, this Agreement and each Ancillary Agreement shall be binding upon and inure to the benefit of the parties hereto and thereto, respectively, and their respective successors and assigns; provided, however, that no party hereto or thereto may assign its respective rights or delegate its respective obligations under this Agreement or any Ancillary Agreement without the express prior written consent of the other parties hereto or thereto. Notwithstanding the foregoing, each party may assign its rights and obligations under this Agreement and each Ancillary Agreement without the prior written consent of the other party in connection with the transfer by the assigning party of substantially all of its business by merger, sale of assets, sale of stock or other form of reorganization. 11.5 THIRD PARTY BENEFICIARIES. Except for the indemnification rights under this Agreement of any Collagen Indemnitee or Technologies Indemnitee in their respective capacities as such, (a) the provisions of this Agreement and each Ancillary Agreement are solely for the benefit of the parties hereto or thereto and are not intended to confer upon any Person except the parties any rights or remedies hereunder and (b) there are no third party beneficiaries of this Agreement or any Ancillary Agreement and neither this Agreement nor any Ancillary Agreement shall provide any third person with any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement or any Ancillary Agreement. No party hereto shall have any right, remedy or claim with respect to any provision of this Agreement or any Ancillary Agreement to the extent such provision relates solely to the other party hereto or the members of such other party's Group. 11.6 NOTICES. All notices or other communications under this Agreement or any Ancillary Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in person or (b) deposited in the United States mail or private express mail, postage prepaid, addressed as follows: If to Technologies, to: Cohesion Technologies, Inc. 2500 Faber Place Palo Alto, CA 94303 Attn: President If to Collagen, to: Collagen Corporation 1850 Embarcadero Road Palo Alto, CA 94303 Attn: President Any party may, by notice to the other party, change the address to which such notices are to be given. -45- 52 11.7 SEVERABILITY. If any provision of this Agreement or any Ancillary Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or thereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby or thereby, as the case may be, is not affected in any manner adverse to any party. Upon such determination, the parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the parties. 11.8 FORCE MAJEURE. No party shall be deemed in default of this Agreement or any Ancillary Agreement to the extent that any delay or failure in the performance of its obligations under this Agreement or any Ancillary Agreement results from any cause beyond its reasonable control and without its fault or negligence, such as acts of God, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of materials, or, in the case of computer systems, any failure in electrical or air conditioning equipment. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay. 11.9 PUBLICITY. Prior to the Distribution, each of Technologies and Collagen shall consult with the other prior to issuing any press releases or otherwise making public statements with respect to the Distribution or any of the other transactions contemplated by this Agreement and prior to making any filings with any Governmental Authority with respect thereto. 11.10 EXPENSES. Except as expressly set forth in this Agreement or in any Ancillary Agreement, whether or not the Distribution is consummated, all third party fees, costs and expenses paid or incurred in connection with the Distribution that are not capitalized by Collagen in accordance with generally accepted accounting principles will be shared equally by Collagen and Technologies. 11.11 HEADINGS. The Article, Section and Paragraph headings contained in this Agreement and in the Ancillary Agreements are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or any Ancillary Agreement. 11.12 WAIVERS OF DEFAULT. Waiver by any party of any default by the other party of any provision of this Agreement or any Ancillary Agreement shall not be deemed a waiver by the waiving party of any subsequent or other default, nor shall it prejudice the rights of the other party. 11.13 SPECIFIC PERFORMANCE. In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement or any Ancillary Agreement, the party who is or is to be thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement or such Ancillary Agreement, in addition to any and all other rights and remedies at law or in equity, and -46- 53 all such rights and remedies shall be cumulative. The parties agree that the remedies at law for any breach or threatened breach, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived. 11.14 AMENDMENTS. (a) No provisions of this Agreement or any Ancillary Agreement shall be deemed waived, amended, supplemented or modified by any party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the party against whom it is sought to enforce such waiver, amendment, supplement or modification. (b) Without limiting the foregoing, the parties intend that, as of the Effective Date, the Schedules to this Agreement will be amended or supplemented and such amended or supplemented Schedules shall be attached hereto in lieu of the original Schedules. In addition, the parties anticipate that, after the Effective Date and prior to the Distribution Date, some or all of the Schedules to this Agreement may be further amended or supplemented and, in such event, such amended or supplemented Schedules shall be attached hereto in lieu of the original or previously amended or supplemented Schedules. 11.15 INTERPRETATION. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other genders as the context requires. The terms "hereof," "herein," and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement (or the applicable Ancillary Agreement) as a whole (including all of the Schedules, Exhibits and Appendices hereto and thereto) and not to any particular provision of this Agreement (or such Ancillary Agreement). Article, Section, Exhibit, Schedule and Appendix references are to the Articles, Sections, Exhibits, Schedules and Appendices to this Agreement (or the applicable Ancillary Agreement) unless otherwise specified. The word "including" and words of similar import when used in this Agreement (or the applicable Ancillary Agreement) shall mean "including, without limitation," unless the context otherwise requires or unless otherwise specified. The word "or" shall not be exclusive. -47- 54 IN WITNESS WHEREOF, the parties have caused this Separation and Distribution Agreement to be executed by their duly authorized representatives. COLLAGEN CORPORATION By: /s/ GARY S. PETERSMEYER --------------------------------------- Name: Gary S. Petersmeyer ------------------------------------- Title: President and CEO ------------------------------------ COHESION TECHNOLOGIES, INC. By: /s/ DAVID FOSTER --------------------------------------- Name: David Foster ------------------------------------- Title: CEO ------------------------------------ -48- 55 THE REGISTRANT HEREBY UNDERTAKES TO FURNISH SUPPLEMENTARILY UPON REQUEST A COPY OF ANY OMITTED SCHEDULES OF THE SECURITIES AND EXCHANGE COMMISSION UPON REQUEST. 56 PERSISTENCE DEVELOPMENT AND LICENSE AGREEMENT This PERSISTENCE DEVELOPMENT AND LICENSE AGREEMENT (the "Agreement"), effective as of ________ (the "Effective Date"), is made by and between COLLAGEN CORPORATION, a Delaware corporation ("Technologies"), and COLLAGEN TECHNOLOGIES, INC., a Delaware corporation ("Technologies"). RECITALS WHEREAS, Collagen and Technologies have entered into a relationship whereby certain assets and liabilities are transferred from Collagen to Technologies, as further described in the Separation and Distribution Agreement, dated as of the Effective Date, between Technologies and Collagen (the "Separation Agreement") and in the Ancillary Agreements; WHEREAS, Technologies is in the business of developing products and processes utilizing innovative collagen-based technology and novel biomaterials; WHEREAS, Collagen is in the business of developing, manufacturing and selling human aesthetic and reconstructive medical technology products; WHEREAS, Collagen desires for Technologies to perform for Collagen research and development relating to persistent collagen, and Technologies desires to perform such research and development for Collagen; and WHEREAS, the parties desire to commercialize the results of such research and development relating to such technology. IN CONSIDERATION OF THE MUTUAL PROMISES, REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN, THE PARTIES AGREE AS FOLLOWS: ARTICLE I DEFINITIONS Except as otherwise defined herein, capitalized terms used herein shall have the meanings given to them in the Separation Agreement. In addition, for the purposes of this Agreement, the capitalized terms set forth below shall have the meanings set forth in this Article 1. 1.1 "Persistence Technology" shall mean the inventions or discoveries, whether or not patentable, made, conceived, reduced to practice, or otherwise developed by Technologies in furtherance of the Project. 1.2 "Costs" shall mean the direct and indirect costs to Technologies related to performing its research and development obligations pursuant to the Project hereunder as set forth in Exhibit A. -1- 57 1.3 "FDA" shall mean the United States Food and Drug Administration or any successor agency thereof. 1.4 "Intellectual Property Rights" shall mean trade secrets, patents, copyrights, trademarks, know-how, moral rights and similar rights of any type under the laws of any governmental authority, domestic or foreign, including all applications and registrations relating to any of the foregoing. 1.5 "Net Sale Price" shall mean: the gross invoiced price for all Products sold by Collagen, its Affiliates or sublicensees to: (i) C.R. Bard, Inc. for incontinence; or (ii) third party end-users in the facial business, including Affiliates of Collagen that are end-users of the Products, less deductions made in the normal course of business for: (a) commercially reasonable quantity, trade and cash discounts or rebates, recalls, credits or allowance and adjustments separately and actually credited to customers for rejections and returns of Products; (b) charges for freight, postage, transportation, import or export taxes, excise taxes and other similar taxes, insurance and other delivery costs not otherwise charged to the customer and actually paid by Collagen; and (c) any tax or other government charges (other than income tax) levied on the use, sale, transportation or delivery of Product and borne by Collagen and its Affiliates. 1.6 "Performance Specification" shall mean that the Product's persistence must exceed ZyplastTM persistence by at least two times at all time points. 1.7 "Product" shall mean any commercial product for use solely within the Aesthetics Field and which incorporates all or any portion of the Persistence Technology. 1.8 "Project" shall mean the research and development activities to be performed by Technologies under this Agreement relating to persistent collagen as set forth in the "Project Plan" which shall be delivered and executed by the parties at the time of execution of this Agreement. ARTICLE II RESEARCH AND DEVELOPMENT 2.1 PERFORMANCE OF THE PROJECT. The parties shall agree upon the Project Plan which shall be delivered and executed by the parties at the time of execution of this Agreement. The Project Plan shall set forth: (i) the scope and objectives of the Project; and (ii) work plan activities, and time schedules associated with: (a) filing for expanded IDE in the U.S. for CP-1; (b) filing dossier for product registration in Europe for CE Mark for CP-1; and (c) starting expanded U.S. clinical study (collectively "Development Milestones"). Subject to the terms and conditions set forth herein, Technologies shall use its commercially reasonable efforts to perform the Project in accordance with the Project Plan. Technologies' obligations to perform the Project shall be extinguished upon Collagen's confirmation that Technologies has delivered to Collagen a Product which materially conforms to the Performance Specification, which confirmation shall not be unreasonably withheld. If the parties decide to abandon development and commercialization of the CP-1 Product and to instead pursue development and/or -2- 58 commercialization of a new product, then the parties shall negotiate with each other, in good faith, the terms for developing and commercializing such new product. 2.2 REPORTING. Technologies shall furnish Collagen with quarterly written reports summarizing the progress of the Project to date within thirty (30) days after the end of each quarter during which work on the Project is performed ("Quarterly Reports"). Technologies will also provide Collagen with Technologies' summary and conclusions upon completion of the Project (the "Final Project Report"). Between Quarterly Reports, Technologies shall keep Collagen advised of the progress of the Project upon Collagen's reasonable request and shall make available to Collagen, at Collagen's expense, developmental personnel to share Technologies' information, data, know-how, product plans and relevant data reduction techniques relating to the Project. Collagen will maintain the confidentiality of all data provided pursuant to this Section 2.2 in accordance with Article 6. 2.3 DEVELOPMENT FEES. In consideration for Technologies' performance of the Project, commencing upon the Effective Date through June 30, 1998, Collagen shall pay to Technologies the Costs associated with the Project, based on the methodology used by Technologies in the fiscal year 1998 budget. After June 30, 1998, the development fees shall be [*] Technologies shall bill Collagen for Costs on a monthly basis, and payment shall be due and payable by Collagen to Technologies within thirty (30) days of receipt of such bill. Technologies agrees to provide to Collagen within two (2) weeks after the close of each calendar quarter: (i) a written estimate of the Costs for the third month of such calendar quarter; and (ii) the actual amounts of the Costs for the first and second months of such calendar quarter (if not previously billed). In the event that Collagen fails to pay the Costs to Technologies as set forth herein, Technologies may terminate this Agreement pursuant to Section 5.2. Upon reasonable notice to Technologies, Collagen shall have the right to have an independent certified public accountant, selected by Collagen and reasonably acceptable to Technologies, audit Technologies' records, during normal business hours, to verify Technologies' Costs associated with the Project; provided, however, that such audit shall not take place more frequently than once a year and shall not cover such records for more than the preceding two (2) years. The accountant shall only report to Collagen as to the accuracy of Technologies' Costs, and in the event of any inaccuracy, the correct amount of such Costs. Technologies shall promptly refund to Collagen the amount of any overpayment determined in such audit, and Collagen shall promptly pay to Technologies the amount of any underpayment determined in such audit. Such audit shall be at Collagen's expense unless the audit identifies an overpayment based on Technologies' invoices, of greater than five percent (5%), in which case such audit shall be at Technologies' expense. Technologies shall preserve and maintain all such records and accounts required for audit for a period of two (2) years after the calendar quarter for which the records apply. 2.4 DEVELOPMENT MILESTONES. Technologies shall use commercially reasonable efforts to meet the Development Milestones by their "Finish Dates" specified in the Project Plan. For the purpose of this Section 2.4, meeting a Development Milestone shall mean both completing the Development Milestone within: (i) ninety (90) days of its corresponding Finish Date; and (ii) one hundred and twenty percent (120%) of the budget amount associated -3- 59 with that Development Milestone. In the event Technologies fails to so meet any Development Milestone, Collagen may terminate this Agreement pursuant to Section 5.2. 2.5 OWNERSHIP OF PERSISTENCE TECHNOLOGY. The parties agree that Persistence Technology, including works-in-progress, the Product and any and all Intellectual Property Rights thereto and therein shall be owned by and be the sole property of Technologies. ARTICLE III LICENSE GRANT TO AESTHETICS 3.1 LICENSE. Technologies hereby grants to Collagen a worldwide, exclusive license, with the right to sublicense, to Persistence Technology solely within the Aesthetics Field, including the right to develop, have developed, make, have made, sell, offer to sell, have sold, import, export, have imported and exported, distribute, and have distributed Products. 3.2 ROYALTIES. Collagen shall pay to Technologies a royalty of [*] of the Net Sale Price of the Product. 3.3 PAYMENT AND AUDIT. Collagen shall make royalty payments to Technologies pursuant to Section 3.2 on a quarterly basis within thirty (30) days after the end of each quarter. Sales made in foreign currency will be determined in the foreign funds for the country in which the Product are sold, and then converted into equivalent United States dollars at the rate of exchange for selling funds as published by the Wall Street Journal (U.S., Western Edition) for the last business day of each quarter. Upon reasonable notice to Collagen, Technologies shall have the right to have an independent certified public accountant, selected by Technologies and reasonably acceptable to Collagen, audit Collagen's records, during normal business hours, to verify the royalties payable by Collagen to Technologies; provided, however, that such audit shall not take place more frequently than once a year and shall not cover such records for more than the preceding two (2) years. The accountant shall only report to Technologies as to the accuracy of the payments paid by Collagen to Technologies, and in the event of any inaccuracy, the correct amount of such payment. Collagen shall promptly pay to Technologies the amount of any underpayment determined in such audit. Such audit shall be at Technologies' expense unless the audit identifies greater than five percent (5%) error, in which case such audit shall be at Collagen's expense. Collagen shall preserve and maintain all such records and accounts required for audit for a period of two (2) years after the calendar quarter for which the record applies. 3.4 REGULATORY MATERIALS. So long as the license granted in Section 3.1 is in effect, Technologies grants to Collagen a royalty free, non-exclusive, fully paid-up right and license to all United States and foreign regulatory registrations, licenses, and applications ("Regulatory Materials") relating to the Persistence Technology, solely as such relates to the Aesthetics Field. Technologies expressly reserves the right to reference any and all such Regulatory Materials, solely to the extent necessary for Technologies to exercise its rights in the Persistence Technology not granted to Collagen hereunder. -4- 60 ARTICLE IV COMMERCIALIZATION 4.1 COMMERCIALIZATION PLANS. Collagen shall keep Technologies generally informed of Collagen's commercialization plans for Products, including Collagen's planned timing for Product launch dates. All dates and other information provided by Collagen in such plan shall be used for planning purposes only, and shall be subject to modification by Collagen. All information provided pursuant to this Section 4.1 shall be kept confidential pursuant to Article 6. 4.2 GOVERNMENTAL APPROVALS. Collagen shall be responsible for obtaining all necessary governmental approvals, including FDA approvals, for the development, testing, production, distribution, sale and use of any Product in the Aesthetics Field. Technologies agrees to provide Collagen, at Collagen's expense, with any assistance reasonably requested by Collagen, in obtaining such governmental approvals, including, without limitation, the furnishing of all relevant technical information and know-how presently or hereafter available to Technologies, but excluding any documentation or data which Technologies is bound by obligations to third parties to keep confidential. Collagen shall promptly notify Technologies of FDA and corresponding foreign regulatory approvals received by Collagen for any Product. ARTICLE V TERM AND TERMINATION 5.1 TERM. The term of this Agreement shall commence on the Effective Date and continue in full force and effect until the termination by either party pursuant to Sections 5.2 or 5.3. 5.2 TERMINATION FOR CAUSE. Either Technologies or Collagen may terminate this Agreement by written notice stating such party's intent to terminate in the event the other shall have breached or defaulted in the performance of any of its material obligations hereunder, and the failure of the breaching party to cure such default or breach within thirty (30) days after written notice thereof was provided to the breaching party by the non-breaching party. Such breach shall include but shall not be limited to: (i) Collagen's failure to pay Costs pursuant to Section 2.3; and (ii) Technologies' failure to meet the Development Milestones. If Collagen terminates this Agreement for cause under this Section 5.2, then Collagen shall be granted the license set forth in Section 3.1. If Technologies terminates this Agreement for cause under this Section 5.2 then all Collagen's rights under Section 3.1 to Persistence Technology and Products shall terminate and revert back to Technologies. 5.3 ADDITIONAL TERMINATION RIGHTS. Subject to the terms and conditions, herein, either party may terminate this Agreement upon thirty (30) day written notice to the other party; provided, however, in the event that Collagen terminates this Agreement pursuant to this Section 5.3, then all Collagen's rights under Section 3.1 to Persistence Technology and Products shall terminate and revert back to Technologies. If Technologies terminates this Agreement -5- 61 pursuant to this Section 5.3, prior to Technologies' delivery to Collagen of a Product in conformity with the Performance Specifications, then Collagen shall be granted the License set forth in Section 3.1. 5.4 EFFECT OF TERMINATION. Expiration or termination of this Agreement pursuant to the terms and conditions set forth in this Agreement shall not relieve the parties of any payment obligations, accruing prior to or upon such expiration or termination. 5.5 SURVIVAL OF CERTAIN TERMS. The provisions of Sections 2.3, 2.5, 3.3, 3.4 5.3 and 5.4 and Article 6 shall survive the expiration or termination of this Agreement for any reason. All other rights and obligations of the parties shall cease upon expiration or termination of this Agreement. ARTICLE VI CONFIDENTIALITY The parties agree that Information that is proprietary or confidential to (i) Technologies prior to the Effective Date; or (ii) to one party and provided to the other party pursuant to or in furtherance of this Agreement after the Effective Date shall be subject to and treated in accordance with Article VIII of the Separation Agreement. ARTICLE VII MISCELLANEOUS This Agreement shall be subject to and incorporate the terms and provisions contained in Article XI of the Separation Agreement to the extent applicable. IN WITNESS WHEREOF, the parties have caused this Persistence Development and License Agreement to be executed by their duly authorized representatives. COLLAGEN TECHNOLOGIES, INC. COLLAGEN CORPORATION By:_________________________________ By:_________________________________ (Signature) (Signature) Name:_______________________________ Name:_______________________________ Title:______________________________ Title:______________________________ Date:_______________________________ Date:_______________________________ -6- 62 Address: Address: 2500 Faber Place 1850 Embarcadero Road Palo Alto, CA 94303 Palo Alto, CA 94303 -7- 63 EXHIBIT A Costs Direct Costs include: [*] Indirect Costs allocable percentage of the following costs: [*] 64 PERSISTENCE PROJECT PLAN Attached hereto is the Project Plan as defined in the Persistence Development and License Agreement effective as of _________ by and between Collagen Technologies, Inc. and Collagen Corporation. COLLAGEN CORPORATION COLLAGEN AESTHETICS, INC. By:_________________________________ By:_________________________________ (Signature) (Signature) Name:_______________________________ Name:_______________________________ Title:______________________________ Title:______________________________ Date:_______________________________ Date:_______________________________ Address: Address: 2500 Faber Place 1850 Embarcadero Road Palo Alto, CA 94303 Palo Alto, CA 94303 65 MILESTONES Milestone Date (a) File for expanded IDE in U.S. (b) File dossier with TUV (c) Start expanded U.S. clinical study EX-10.97 4 COLLAGEN SUPPLY AGREEMENT 1 EXHIBIT 10.97 Application for an order granting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 has been made. Confidential portions of this document have been redacted and marked with an [*] and have been filed with the Securities and Exchange Commission separately with such application. COLLAGEN SUPPLY AGREEMENT This COLLAGEN SUPPLY AGREEMENT (the "Agreement"), effective as of January 1, 1998 (the "Effective Date"), is made by and between COLLAGEN CORPORATION, a Delaware corporation ("Collagen"), and COHESION TECHNOLOGIES, INC., a Delaware corporation formerly known as Collagen Technologies, Inc. ("Technologies"). RECITALS 1. Technologies and Collagen have entered into a relationship whereby certain assets and liabilities are being transferred from Collagen to Technologies as further described in the Separation and Distribution Agreement effective as of January 1, 1998 between Collagen and Technologies (the "Separation Agreement") and in the Ancillary Agreements. 2. Collagen is in the business of developing, manufacturing and selling human aesthetic and reconstructive medical technology products and processes. 3. Technologies is in the business of developing, manufacturing and selling products and processes utilizing innovative collagen-based technology and novel biomaterials. 4. Technologies wishes to purchase from Collagen its requirements for certain collagen based materials and products, and Collagen wishes to supply such requirements to Technologies. NOW, THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS Except as otherwise defined herein, capitalized terms used herein shall have the meanings given to them in the Separation Agreement. In addition, for the purposes of this Agreement, the capitalized terms set forth below shall have the meanings set forth in this Article I. 1.1 "Collagen Material" shall mean any collagen based product, intermediate or finished material other than a Product, Specified Material or products and materials provided by Collagen to Technologies pursuant to the Collagraft Supply Agreement dated as of the Effective Date. 2 1.2 "CoStasis" shall mean the bovine collagen based finished product currently known as CoStasisTM. 1.3 "Direct Costs" shall mean the direct cost to Collagen related to manufacturing the Product, Collagen Material or Specified Material as set forth in Exhibit A attached hereto. 1.4 "FDA" shall mean the United States Food and Drug Administration or any successor agency thereof. 1.5 "Intellectual Property Rights" shall mean trade secrets, patents, copyrights, trademarks, know-how, moral rights and similar rights of any type under the laws of any governmental authority, domestic or foreign, including all applications and registrations relating to any of the foregoing. 1.6 "Product" shall mean a finished product or intermediate incorporating human placental collagen or Persistent Technology. 1.7 "Specifications" shall mean the technical specifications for a product or material that Collagen is obliged to supply to Technologies under this Agreement. 1.8 "Specified Material" shall mean (A) any Third Party Product and (B) any collagen based product, intermediate, or finished material (including collagen components of the products of Cohesion Corporation) other than recombinant human collagen based products and materials (i) manufactured (commercially or by the Investigational Formulation Department) by Collagen prior to January 1, 1999 or (ii) for which Technologies initially submits a purchase order based upon Specifications mutually agreed to by the parties prior to January 1, 1999. 1.9 "Third Party Product" shall mean any collagen-based product, intermediate or finished material other than recombinant human collagen based products and materials that Technologies is obligated to supply to a third party prior to March 15, 2004 pursuant to a written agreement first entered into: (i) by Collagen prior to the Effective Date (the "Existing Third Party Products"), a list of such agreements is set forth on the Schedule of Material Supply Agreements delivered and executed by the parties at the time of execution of this Agreement; or (ii) by Technologies on or after the Effective Date and prior to January 1, 1999 (the "Additional Third Party Products"). ARTICLE II SUPPLY 2.1 SPECIFIED MATERIALS. Subject to the terms and conditions hereto, Collagen shall manufacture for and supply to Technologies all Technologies' requirements for any Specified Material commencing upon the Effective Date until the later of: (i) March 15, 2004; (ii) after eighteen (18) months written notice of termination of the Agreement (as a whole or on a product-by-product basis) by either party to the other; or (iii) solely with respect to Existing Third Party Products, the date of termination of Technologies' obligation to supply such Existing Third Party Products. Notwithstanding the foregoing and solely with respect to CoStasis, subject -2- 3 to the terms and conditions herein, Collagen shall manufacture and supply CoStasis to Technologies until January 1, 2000, provided that Technologies' requirements for CoStasis are no more than [*] syringes ([*] ccs per syringe) per batch. Collagen shall have no obligation to supply CoStasis to Technologies hereunder when Technologies' requirements for CoStasis exceed [*] syringes ([*] ccs per syringe) per batch. 2.2 PRODUCTS. Subject to terms and conditions herein, Collagen shall manufacture for and supply to Technologies all Technologies' requirements for any Product; provided, however, that Technologies has received regulatory approval anywhere in the world for such Product based on manufacturing by Collagen prior to January 1, 2002. Collagen's obligations under this Section 2.2 to supply Products to Technologies shall terminate the later of: (i) March 15, 2004; or (ii) after eighteen (18) months written notice of termination of the Agreement by either party to the other (as a whole or on a product-by-product basis). 2.3 COLLAGEN MATERIALS. Subject to terms and conditions herein, upon Technologies' request, Collagen shall manufacture for and supply to Technologies any Collagen Material upon such terms as shall be mutually agreed to by the parties in good faith commencing from the Effective Date until the later of: (i) March 15, 2004; or (ii) after eighteen (18) months written notice of termination of this Agreement by either party to the other (as a whole or on a product-by-product basis). 2.4 CONDITIONS TO SUPPLY. Notwithstanding anything herein to the contrary, Collagen shall not be obligated to supply to Technologies bovine collagen based Products, Specified Materials or Collagen Materials once Collagen has discontinued making bovine collagen based products or materials for its own requirements or for supply to third parties. In addition, the quantity, in the aggregate, of Specified Materials and Products that Collagen is obligated to supply to Technologies annually pursuant to Sections 2.1 and 2.2 shall not exceed the greater of: (i) [*] percent ([*]%) of Collagen's total annual (actual and not theoretical) cc manufacturing facility capacity; or (ii) [*] cc of Zyderm ITM equivalent ("Supply Obligation"). Collagen shall have sole discretion whether to supply any Specified Materials and/or Products in excess of the Supply Obligation. 2.5 TECHNOLOGIES PURCHASE OBLIGATION. Subject to the terms and conditions herein, Technologies shall purchase from Collagen all its requirements for any Specified Material or Product that Collagen is obligated to supply to Technologies pursuant to Sections 2.1 and 2.2 hereof until the termination of this Agreement or the termination of Collagen's supply obligation for such Specified Material or Product; provided that Technologies shall be released from any further obligation to purchase its requirements for CoStasis from Collagen once its requirements for CoStasis exceeds [*] syringes ([*] ccs per syringe) per batch, in which event Technologies may terminate the supply of CoStasis by Collagen hereunder upon ninety (90) days prior written notice to Collagen. [*] Application for an order granting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 has been made. Confidential portions of this document have been redacted and marked with an [*] and have been filed with the Securities and Exchange Commission separately with such application. -3- 4 2.6 RELEASE FROM REQUIREMENTS OBLIGATION. Technologies shall have no obligation pursuant to Section 2.5 to purchase its requirements for Specified Materials and Products from Collagen in the event that: (i) Collagen shall fail to deliver any such Specified Materials or Products within ninety (90) days of Collagen's receipt of a firm purchase order issued by Technologies and acknowledged by Collagen (unless the scheduled delivery date set forth in such purchase order is more than ninety (90) days from Collagen's receipt thereof) or shall fail on two (2) consecutive occasions or three (3) occasions in any one hundred eighty (180) day period to deliver such Specified Materials or Products within fifteen (15) days of the scheduled delivery date therefor as set forth in a firm purchase order issued by Technologies and acknowledged by Collagen; (ii) Collagen shall have manufactured any Specified Materials and/or Products not in conformance with Section 4.3, except as otherwise requested by Technologies; or (iii) the quantity in the aggregate, of Specified Materials and Products shall exceed the Supply Obligation, and Collagen shall not agree to supply any such excess Specified Materials or Products. 2.7 SERVICES. Collagen shall, at Technologies' reasonable request, provide to Technologies support to manufacture clinical materials including without limitation proposed Products for regulatory approval ("Investigational Formulation Services") until the earlier of: (i) January 1, 2002 or (ii) the termination of the Agreement by either party. For providing Investigational Formulation Services, Technologies shall pay Collagen $[*] per person hour, which shall cover routine testing, but shall not cover costs incurred by Collagen in procuring raw materials from third parties or non-standard production materials to perform such Investigational Formulation Services for Technologies, the latter costs which shall be reimbursed by Technologies to Collagen. 2.8 CLOSED HERDS. During the Term and after the termination or expiration of this Agreement, Collagen shall allow Technologies access to any closed herd animals that are not being used by Collagen; provided, however, Collagen shall have sole control and discretion over all practices and procedures relating to the health, husbandry, maintenance and slaughter of the closed herd animals and access thereto. ARTICLE III TERMS OF PURCHASE 3.1 ORDER AND ACCEPTANCE. Technologies shall from time to time submit to Collagen firm purchase orders for Specified Materials and Products. All orders shall be by means of signed written purchase orders by Technologies to Collagen, sent to Collagen at Collagen's address for notice hereunder specifying the Product, Specified Material or Collagen Material and required quantity. Orders may initially be placed by telephone or telecopy; provided, however, that a signed confirming purchase order is received in writing (which may [*] Application for an order granting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 has been made. Confidential portions of this document have been redacted and marked with an [*] and have been filed with the Securities and Exchange Commission separately with such application. -4- 5 include telecopy transmission) by Collagen. Upon receipt, Collagen shall promptly accept such purchase order (except to the extent that Collagen is not required to supply Products or Specified Materials pursuant to Section 2.4) and return a signed acceptance thereof to Technologies. Notwithstanding anything herein to the contrary, no order shall be binding upon Collagen until accepted by Collagen in writing. Each party may cancel or reschedule purchase orders for Product only with prior written approval of the other party. 3.2 FORECASTING. Technologies shall provide Collagen with a non-binding six (6) month rolling forecast prepared in good faith setting forth its projected requirements for Products and Specified Materials. 3.3 PURCHASE PRICE. The purchase price to Technologies for Products, Specified Materials and Collagen Materials shall be equal to [*]. The list price shall equal: (i) Collagen's [*] for manufacturing such products or materials plus [*] percent ([*]%) during the period commencing on the Effective Date and terminating on June 30, 1999, and (ii) Collagen's [*] for manufacturing such products or materials plus [*] percent ([*]%) during the period from July 1, 1999 until the termination or expiration of the Agreement. The list price for VitrogenTM and Cell PrimeTM shall be equal to the greater of: (i) [*] percent ([*]%) of the end market selling price of Technologies to third parties for such products; or (ii) Collagen's [*] for manufacturing such products, plus [*] percent ([*]%). The parties agree that to the extent that the purchase prices hereunder are based on Collagen's [*], Collagen may not increase its [*] by more than [*] percent ([*]%) from one fiscal year to the next. Collagen shall provide Technologies with an updated price list upon execution of this Agreement for the fiscal year ending June 30, 1998 and at the beginning of each fiscal year, i.e., July 1, which shall be effective for such fiscal year. Collagen will review such updated price list with Technologies and shall provide supporting documentation therefor similar to those provided for the fiscal year 1998 price list. Payment by Technologies to Collagen of the purchase prices pursuant to this Section 3.3 shall constitute payment in full for the Products, Specified Materials and Collagen Materials, including without limitation, payment for manufacturing, distribution, order entry and accounts receivables services performed in connection therewith. Collagen shall use reasonable commercial efforts to efficiently manufacture the Products, Specified Materials and Collagen Materials and pursue manufacturing cost reductions without compromising the quality or function of the Products, Specified Materials and Collagen Materials. 3.4 INVOICING. Collagen shall submit an invoice, packing list and airway bill to Technologies upon each shipment of Product, Specified Material or Collagen Material ordered by Technologies. All invoices and other shipping documents shall be sent via first class mail or by fax, followed by business mail to Technologies' address for notices hereunder, without regard to the actual shipping address. Each such invoice shall state the aggregate and unit invoice price for Product, Specified Material or Collagen Material in a given shipment. Solely with respect to VitrogenTM and Cell PrimeTM, Collagen shall invoice Technologies for such products based on the [*] Application for an order granting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 has been made. Confidential portions of this document have been redacted and marked with an [*] and have been filed with the Securities and Exchange Commission separately with such application. -5- 6 end market selling price of Technologies to third parties in effect at the end of the previous fiscal year. Within sixty (60) days of the close of the fiscal year, Collagen will submit to Technologies an accounting of any discrepancy between the invoiced prices and the prices pursuant to Section 3.3, and Technologies agrees to promptly, upon Collagen's request, provide Collagen with any information, including but not limited to end user pricing information, of which Technologies has knowledge or control for Collagen to prepare such accounting. Within thirty (30) days after such accounting is delivered by Collagen to Technologies: (i) Technologies shall pay any balance owed to Collagen; or (ii) Collagen shall pay to Technologies any overpayment based on such accounting. 3.5 DELIVERY. Collagen shall ship Products, Specified Materials and Collagen Materials to the address set forth in the applicable purchase order for delivery on the scheduled delivery date specified in the applicable purchase order; provided, however, that such scheduled delivery date shall not be less than sixty (60) days from the date of receipt by Collagen of such purchase order with respect to any Product, Specified Material or Collagen Material. All Products, Specified Materials and Collagen Materials supplied to Technologies by Collagen shall be delivered to Technologies within thirty (30) days from the date their manufacture is completed. All shipments shall be F.O.B. Collagen's manufacturing facilities in Fremont, and Technologies shall bear the risk of loss and cost of transportation of the products and materials upon delivery by Collagen to the carrier identified by Technologies. Collagen shall suitably pack the products and materials for delivery by surface or air, at Technologies' discretion, in Collagen's standard shipping cartons. Collagen shall ship the products and materials using the carrier specified in Technologies' purchase order; provided, however, that if Technologies does not provide instructions with respect to the carrier to be used, Collagen shall select the carrier. All freight and insurance shall be paid by Technologies. Product, Specified Materials or Collagen Materials shall be deemed delivered by Collagen and accepted by Technologies upon: (i) the receipt by Technologies of a Certificate of Analysis based on the Specifications; and (ii) the review and approval by Technologies of the information contained in the alert notices and deviation reports. 3.6 PAYMENT AND AUDIT. Technologies shall make payment within thirty (30) days of receipt of Collagen's invoice. Upon reasonable notice to Collagen, Technologies shall have the right to have an independent certified public accountant, selected by Technologies and reasonably acceptable to Collagen, audit Collagen's records during normal business hours to verify the amount payable by Technologies for Products, Specified Materials and Collagen Materials, and charges for providing Investigational Formulation Services; provided, however, that such audit shall not take place more frequently than once a year and shall not cover such records for more than the preceding two (2) years. The accountant shall only report to Technologies as to the accuracy of the amounts charged by Collagen to Technologies for Products, Specified Materials and Collagen Materials and the charges for Investigational Formulation Services, and in the event of any inaccuracy, the correct amounts thereof. Collagen shall promptly refund to Technologies the amount of any overpayment determined in such audit, and Technologies shall promptly pay to Collagen the amount of any underpayment. Such audit shall be at Technologies' expense unless such audit indicates greater than five percent (5%) overpayment or underpayment by Technologies based on invoices submitted by Collagen, in -6- 7 which case such audit shall be at Collagen's expense. Collagen shall preserve and maintain all such records and accounts required for audit for a period of two (2) years after the calendar quarter for which the record applies. 3.7 PRODUCT PACKAGING AND LABELING. Collagen shall package and label Products, Specified Materials and Collagen Materials as directed by Technologies. Technologies shall be responsible for designing and determining the form and format of packaging labels. ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1 BY BOTH PARTIES. Technologies (on behalf of itself and each member of the Technologies Group) and Collagen (on behalf of itself and each member of the Collagen Group), represents and warrants to the other that: (i) it has full power and authority to execute, deliver and perform this Agreement; and (ii) the execution, delivery and performance by such party of this Agreement does not contravene any law, regulation, rules or order binding on such party and do not contravene the provisions of or constitute a default under any contract or other agreement binding on such party. 4.2 REGULATORY APPROVALS. Technologies warrants to Collagen that any and all required government approvals, including any approvals under applicable health and safety laws and regulations, to import, register, market, distribute and sell the Products, Specified Materials and Collagen Materials pursuant to a purchase order issued by Technologies shall have been secured for every jurisdiction into which such products and materials shall be shipped or sold in accordance with such purchase order. The parties agree to cooperate with each other and perform all necessary actions to obtain and maintain CE marks and ISO certification for Products, Specified Materials and Collagen Material, as applicable. 4.3 GMP. Except as otherwise requested by Technologies in writing, Collagen shall manufacture the Products, Specified Materials and Collagen Materials in accordance with: (i) then current GMP, as required by the United States Food and Drug and Cosmetic Act (the "Act"); (ii) all pertinent rules and regulations of the FDA; (iii) the laws of the United States of America and all local laws; and (iv) all other laws, regulations and guidelines, including without limitation regulations of the European Union and any jurisdiction therein, to the extent the same are applicable; provided, however, that nothing contained in this Agreement is intended to render applicable any laws other than the Act, FDA regulations and United States law. Collagen represents and warrants that no products and materials delivered by Collagen under this Agreement will be adulterated or misbranded by Collagen within the meaning of the Act, or within the meaning of any other applicable law in which the definitions of adulteration or misbranding are substantially the same as those contained in the Act, as such laws are constituted and effective at the time of such shipment or delivery, or as an article which may not, under the provisions of Section 404 or 505 of the Act, be introduced into interstate commerce. 4.4 LIMITED WARRANTY. Collagen represents and warrants that the products and materials supplied by it to Technologies under this Agreement shall conform to their Specifications, if any, and shall be free from defects in material and workmanship for the shelf -7- 8 life of the products and materials as set forth in the applicable Specifications. Technologies' exclusive remedy and sole liability for breach of the foregoing warranty shall be the remedy as set forth in this Section 4.4. 4.4.1 RETURN OF DEFECTIVE PRODUCT. In the event that any Product, Specified Material or Collagen Material purchased by Technologies from Collagen fails to conform to the warranty set forth in this Article 4.4, Collagen's sole and exclusive liability and Technologies' exclusive remedy shall be to replace the product or material, or if, at Collagen's sole determination, replacement is not practicable, refund Technologies for the amount actually paid by Technologies for any such product or material; provided, however, that: (i) Technologies promptly notifies Collagen in writing that such product or material failed to conform, furnishes a detailed explanation of any alleged nonconformity, and requests a return material authorization number; and (ii) such product or material is returned to Collagen by Technologies F.O.B. Collagen's shipping location in Fremont, California, during the warranty period, with the return material authorization number affixed prominently to the outside packaging. If such product or material fails to so conform, Collagen will reimburse Technologies for shipment charges for return of the nonconforming product or material. 4.4.2 RECALL; MDR; FIELD CORRECTION. Should any defect in the Product, Specified Material, or Collagen Material, or any governmental action require: (i) the recall, destruction or withholding from market ("Recall"); (ii) issuance of a Medical Device Report within the meaning of the Act ("MDR"); or (iii) institution of a field correction ("Field Correction") for the Product, Specified Material or Collagen Material, Collagen shall bear the costs and expenses of such Recall, MDR or Field Correction to the extent such Recall, MDR or Field Correction is the result of any non-conformance to Specifications due to a fault or omission attributable to Collagen, and Technologies shall bear the costs and expenses of such Recall, MDR or Field Correction to the extent such Recall, MDR or Field Correction is the result of any fault or omission attributable to Technologies. Should such Recall, MDR or Field Correction result from the fault of both parties, the parties shall share such costs and expenses in accordance with their proportionate fault. ARTICLE V TERM AND TERMINATION 5.1 TERM. The term of this Agreement shall commence on the Effective Date and continue in full force and effect until the expiration of Collagen's supply obligations set forth in Sections 2.1, 2.2 and 2.3 or expiration or termination of the Agreement ("Term"). 5.2 TERMINATION FOR CAUSE. Either party shall have the right to terminate this Agreement following any material breach or default in performance under this Agreement by the other party upon sixty (60) days prior written notice to the breaching party specifying the nature of the breach or default. Unless the breaching party has cured the breach or default prior to the expiration of the sixty (60) day period, the non-breaching party, at its sole option, may terminate this Agreement upon written notice to the breaching party. Termination of this Agreement shall become effective upon receipt of such second notice by the breaching party. -8- 9 5.3 EFFECT OF TERMINATION. Upon expiration under Section 5.1 or termination under Section 5.2, Collagen: (i) hereby grants to Technologies a non-exclusive, non-transferable, royalty-free, perpetual, irrevocable, world-wide, right and license (with the right to sublicense) to any Manufacturing Improvements; and (ii) shall deliver to Technologies a copy of any written materials embodying such Manufacturing Improvements as reasonably necessary for Technologies to manufacture or have manufactured such Specified Material or Product. For purposes of this Agreement, the term "Manufacturing Improvements" shall mean any modifications, improvements, enhancements, and other revisions to the manufacturing materials or processes, solely as related to the Specified Material or Product that is the subject of this Section 5.3, made by Collagen during the Term of this Agreement. Expiration or termination of this Agreement pursuant to the terms and conditions set forth in this Agreement shall not relieve Technologies of any payment obligations to Collagen, accruing prior to or upon such expiration or termination. 5.4 LIMITATION OF LIABILITY UPON TERMINATION. A PARTY SHALL NOT BE LIABLE TO THE OTHER PARTY, OR ANY OF ITS EMPLOYEES, AGENTS, OR CUSTOMERS, FOR DAMAGES OF ANY KIND, INCLUDING DIRECT, INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, ON ACCOUNT OF THE TERMINATION OR EXPIRATION OF THIS AGREEMENT IN ACCORDANCE WITH THIS ARTICLE 5. EACH PARTY HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO RECEIVE ANY COMPENSATION OR REPARATIONS ON TERMINATION OR EXPIRATION OF THIS AGREEMENT UNDER LAW OTHER THAN AS EXPRESSLY PROVIDED HEREIN. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY ON ACCOUNT OF TERMINATION OR EXPIRATION OF THIS AGREEMENT FOR REIMBURSEMENT OR DAMAGES FOR THE LOSS OF GOODWILL, PROSPECTIVE PROFITS OR ANTICIPATED INCOME, OR ON ACCOUNT OF ANY EXPENDITURES, INVESTMENTS, LEASES OR COMMITMENTS MADE BY THE OTHER PARTY OR FOR ANY OTHER REASON WHATSOEVER. EACH PARTY ACKNOWLEDGES THAT IT HAS NO EXPECTATIONS AND HAS RECEIVED NO ASSURANCES FROM THE OTHER PARTY THAT ANY INVESTMENT BY IT IN THE DISTRIBUTION, PROMOTION, OR SALE OF THE PRODUCTS, SPECIFIED MATERIALS AND COLLAGEN MATERIALS WILL BE RECOVERED OR RECOUPED OR THAT IT WILL OBTAIN ANY ANTICIPATED AMOUNT OF PROFITS BY VIRTUE OF THIS AGREEMENT. THE PARTIES ACKNOWLEDGE THAT THIS SECTION HAS BEEN INCLUDED AS A MATERIAL INDUCEMENT FOR THEM TO ENTER INTO THIS AGREEMENT AND THAT THEY WOULD NOT HAVE ENTERED INTO THIS AGREEMENT BUT FOR THE LIMITATIONS OF LIABILITY AS SET FORTH HEREIN. 5.5 SURVIVAL OF CERTAIN TERMS. The provisions of Sections 2.8, 3.6, 4.4, 5.3, 5.4, and 5.5, and Articles VI and VII shall survive the expiration or termination of this Agreement for any reason. All other rights and obligations of the parties shall cease upon expiration or termination of this Agreement. -9- 10 ARTICLE VI CONFIDENTIALITY The parties agree that Information that is proprietary or confidential to: (i) Collagen prior to the Effective Date or (ii) to one party and provided to the other party pursuant to or in furtherance of this Agreement after the Effective Date shall be subject to and treated in accordance with Article VII of the Separation Agreement. ARTICLE VII MISCELLANEOUS This Agreement shall be subject to the terms and provisions of Article XI of the Separation Agreement, which are hereby incorporated into this Agreement to the extent applicable. -10- 11 IN WITNESS WHEREOF, the parties hereto have caused this Collagen Supply Agreement to be executed by their duly authorized representatives. COLLAGEN CORPORATION Dated: March 5, 1998 By: /s/ Gary S. Petersmeyer ------------- ----------------------- Name: Gary S. Petersmeyer Title: President and CEO COHESION TECHNOLOGIES, INC. Dated: March 5, 1998 By: /s/ David Foster ------------- ---------------- Name: David Foster Title: CEO -11- 12 EXHIBIT A Direct Costs Direct Costs shall include the following expense types incurred by the cost centers directly involved in manufacturing the products or materials. Type of expenses or costs: [*] Cost centers: [*] Direct Costs shall specifically exclude the following types of costs and expenses: [*] 13 SCHEDULE OF MATERIAL SUPPLY AGREEMENTS Attached hereto is a list of the supply agreements for Existing Third Party Products, as defined in the Collagen Supply Agreement effective as of January 1, 1998 by and between Collagen Corporation and Collagen Technologies, Inc. COLLAGEN CORPORATION COHESION TECHNOLOGIES, INC. By: /s/ Gary S. Petersmeyer By: /s/ David Foster ------------------------------ ------------------------------- (Signature) (Signature) Name: Gary S. Petersmeyer Name: David Foster Title: President and CEO Title: CEO Date: March 5, 1998 Date: March 5, 1998 ------------- ------------- Address: Address: 1850 Embarcadero Road 2500 Faber Place Palo Alto, CA 94303 Palo Alto, CA 94303 EX-10.98 5 RECOMBINANT TECHNOLOGY DEVELOPMENT & LICENSE AGMT. 1 EXHIBIT 10.98 Application for an order granting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 has been made. Confidential portions of this document have been redacted and marked with an [*] and have been filed with the Securities and Exchange Commission separately with such application. RECOMBINANT TECHNOLOGY DEVELOPMENT AND LICENSE AGREEMENT This RECOMBINANT TECHNOLOGY DEVELOPMENT AND LICENSE AGREEMENT (the "Agreement"), effective as of January 1, 1998 (the "Effective Date"), is made by and between COLLAGEN CORPORATION, a Delaware corporation ("Collagen"), and COHESION TECHNOLOGIES, INC., a Delaware corporation formerly known as Collagen Technologies, Inc. ("Technologies"). RECITALS 1. Collagen and Technologies have entered into a relationship whereby certain assets and liabilities are transferred from Collagen to Technologies, as further described in the Separation and Distribution Agreement, effective as of January 1, 1998 between Technologies and Collagen (the "Separation Agreement") and in the Ancillary Agreements. 2. Technologies is in the business of developing products and processes utilizing innovative collagen-based technology and novel biomaterials. 3. Collagen is in the business of developing, manufacturing and selling human aesthetic and reconstructive medical technology products. 4. The parties desire to collaborate with each other to develop and commercialize recombinant human collagen-based materials and products. NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS: ARTICLE I DEFINITIONS Except as otherwise defined herein, capitalized terms used herein shall have the meanings given to them in the Separation Agreement. In addition, for the purposes of this Agreement, the capitalized terms set forth below shall have the meanings set forth in this Article 1. 1.1 "Bioequivalence Milestone" shall mean that certain development stage during the performance of an Approach when the parties shall have attained the ability to: (i) produce a recombinant human collagen material that has demonstrated bioequivalence with the material 2 currently known as homogenate; and (ii) manufacture such material in commercial scale quantities. The specifications of the Bioequivalence Milestone shall be mutually agreed to in writing by the Parties no later than thirty (30) days after the execution of this Agreement. 1.2 "Costs" shall mean the [*] to either Technologies or Collagen for performing its obligations pursuant to the Project hereunder as set forth in Exhibit A; provided, however, the [*] and [*] of [*] (defined below) and [*] in the Costs of such party for performing the Project. 1.3 "Net Revenue" shall mean the [*] payments, in whatever form, received by Collagen or a Collagen Affiliate from a third party on account of the grant of a sublicense to the Recombinant Technology or option therefor by Collagen or its Affiliate to such third party, other than amounts included in Net Sales, including but not limited to [*] payments, [*] and the like, [*]: (i) any [*] or other [*] charge (other than [*]) to the extent borne by Collagen or its Affiliate; and (ii) in the case of [*] received by Collagen or its Affiliate, the extent to which such payments constitute reimbursement of [*] costs incurred by Collagen or its Affiliate (including but not limited to expenses for [*]. 1.4 "Net Sales" shall mean the [*] amounts invoiced by Collagen, its Affiliates or sublicensees thereof that acquire Product other than from Collagen or its Affiliates (each a "Seller") for all Products sold or otherwise transferred to: (i) third parties; or (ii) Affiliates of Collagen that are end-users of the Products, [*] made in the normal course of business for: (a) [*]; (b) charges for [*]; and (c) any [*] or other [*] charges (other than [*]) [*]. In the event that Products are sold or otherwise transferred as a combination product, i.e., bundled with or in combination with one or more other components, then the Net Sales for such Products shall be computed based on: (A) the [*] at which such Product would be [*] after [*] to the [*] to which other components in such combination product are subject; or (B) if [*] exists for such Product, the [*] thereof. 1.5 "FDA" shall mean the United States Food and Drug Administration or any successor agency thereof. 1.6 "Intellectual Property Rights" shall mean trade secrets, patents, copyrights, know-how and similar rights of any type under the laws of any governmental authority, domestic or foreign, including all applications and registrations relating to any of the foregoing. 1.7 "Product" shall mean a commercial product or process which incorporates all or any portion of Recombinant Technology. 1.8 "Project" shall mean the research, development, and manufacturing process development activities to be performed by the parties under this Agreement for the purpose of developing human recombinant collagen-based products and materials. [*] Application for an order granting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 has been made. Confidential portions of this document have been redacted and marked with an [*] and have been filed with the Securities and Exchange Commission separately with such application. -2- 3 1.9 "Recombinant Technology" shall mean the inventions, discoveries and know-how relating to human recombinant collagen-based materials and products, whether or not patentable, made or developed by the parties pursuant to the Project and any and all Intellectual Property Rights therein and thereto. ARTICLE II RESEARCH AND DEVELOPMENT 2.1 PERFORMANCE OF THE PROJECT. At present, the parties contemplate that the Project will be conducted using two separate developmental approaches, one in the yeast system and one in the bovine system (each an "Approach"). The parties shall agree upon the development plan for the Project ("Project Plan") in writing no later than thirty (30) days after the execution of this Agreement. The Project Plan shall set forth for both Approaches: (i) the parties' strategies, plans, activities and schedules with regard to research, development, pre-clinical, pre-regulatory, scale-up and manufacturing development; and (ii) the parties' respective responsibilities for performing the Project. The Project Plan shall be reviewed at least once per calendar quarter by the management of each party and at least once every six (6) months by the Board of Directors of each party and may be amended from time to time during the Term (as defined herein) by mutual agreement of the parties. Subject to the terms and conditions of this Agreement, each party shall use its commercially reasonable efforts to perform the Project in accordance with the Project Plan. The parties' respective obligations to perform each Approach shall terminate when the Bioequivalence Milestone has been reached for such Approach unless the parties agree to terminate the Project or such Approach at an earlier date; provided, however, in the event that the parties mutually agree to terminate an Approach, Collagen shall, subject to Article III, be granted the license set forth in Section 3.1 to any Recombinant Technology developed by such Approach prior to and up to the termination of such Approach. Notwithstanding anything herein to the contrary, upon mutually agreeable terms, Collagen and Technologies may agree to: (i) expand their collaboration beyond the Project so as to include research, development, pre-clinical, pre-regulatory, scale-up or manufacturing development relating to designer collagen materials or technologies other than Recombinant Technology; and/or (ii) continue their collaboration with respect to Recombinant Technology after the Bioequivalence Milestone has been reached in either one or both Approaches. 2.2 MANAGEMENT. 2.2.1 CO-CHAIRS. Each party shall appoint one highly qualified and experienced representative as a co-chair of the Project, who together with the other party's co-chair, shall be responsible for managing the Project and relationship between the parties pursuant to this Agreement ("Co-chairs"). Unless the parties agree otherwise, each party will inform the other party in writing of its appointed Co-chair no later than thirty (30) days from the execution of this Agreement. Each party shall have the right to replace its Co-chair from time to time, provided that it promptly notifies the other party thereof in writing. The Co-chairs together shall: (i) provide overall direction to the Project and manage information exchange between the parties; (ii) decide key strategies and issues with respect to research, development, pre-clinical, pre-regulatory, scale-up and manufacturing development; (iii) monitor the progress of the Project; and (iv) investigate new opportunities and/or solve problems and issues that arise relating to the -3- 4 Project and/or Recombinant Technology. In addition, the Co-chair of a party shall be responsible for ensuring that such party performs and fulfills the duties and obligations of such party as set forth in Project Plan (or otherwise mutually agreed upon by the parties) and managing the employees and/or subcontractors of such party working on the Project. 2.2.2 GOVERNANCE. In general, the Co-chairs shall strive to reach agreement on all matters relating to the Project. In the event the Co-chairs are unable to reach a decision on any conflict within ten (10) business days after the conflict is identified, the matter shall be submitted to the Chief Executive Officers of Collagen and Technologies for resolution. In the event the Chief Executive Officers of the parties are unable to resolve such conflict within ten (10) business days after having such conflict submitted to them for resolution, then each party shall each designate two Directors from its Board of Directors (neither of whom is the CEO of such party), which Directors, together with the other two Directors selected by the other party, shall attempt to resolve such matter or dispute. If the four Directors are unable to resolve the conflict, then the parties shall submit such conflict to a single, appropriately qualified, mediator mutually agreeable to the parties who shall work with the parties to resolve the conflict. 2.3 OBLIGATIONS AFTER BIOEQUIVALENCE MILESTONE. After the Bioequivalence Milestone is reached in an Approach, each party shall bear all responsibility and costs for development of its own Products utilizing the Recombinant Technology developed from such Approach; provided, however, after the Bioequivalence Milestone is reached in such Approach, subject to Section 2.5, each party will be obligated to provide on-going information and reasonable assistance for the other party's Product development and regulatory approval efforts, as requested by the other party, including but not limited to furnishing all relevant technical information and know-how presently or hereafter available relating to the Recombinant Technology and developed from such Approach, but excluding any information which the party is bound by obligations to third parties to keep confidential ("Requested Assistance"). By way of illustration and not limitation, if requested by Collagen, Technologies shall provide to Collagen any existing data needed by Collagen to generate pre-clinical data to support a regulatory filing related to a Collagen Product. The party that desires such Requested Assistance shall pay to the other party such other party's standard rates for such Requested Assistance. 2.4 DEVELOPMENT FEES. Commencing from the Effective Date until both Approaches have been either: (i) completed as a result of the attainment of the Bioequivalence Milestone for such Approach; or (ii) terminated pursuant to the terms and conditions herein, all Costs of the Project shall be divided equally between Collagen and Technologies. No later than -4- 5 thirty (30) days after the last day of a calendar quarter, each party shall submit to the other party an invoice setting forth the Costs, if any, incurred by such party during such quarter. The party with the lesser Costs for such quarter shall pay the other party [*] percent ([*]%) of the difference between the Costs incurred by the parties within sixty (60) days after the last day of such quarter. The Senior Financial Officers of the parties may agree upon alternate methods for accounting, invoicing and payment of Costs associated with the Project. 2.5 OWNERSHIP OF INVENTIONS. The parties agree that Recombinant Technology, including works-in-progress, and any Intellectual Property Rights therein and thereto shall be owned by Technologies. Except as otherwise agreed to by both parties, any improvement to the Recombinant Technology developed from an Approach made by either party after: (i) the Bioequivalence Milestone has been reached for such Approach or (ii) such Approach is terminated pursuant to the terms and conditions herein, will be owned by the party that made such improvement, and the other party shall have no automatic right to such improvement. ARTICLE III LICENSE AND COMMERCIALIZATION 3.1 LICENSE. Subject to the terms and conditions of this Agreement, Technologies hereby grants to Collagen a worldwide, exclusive, perpetual right and license, with the right to sublicense, solely within the Collagen Field, to develop, have developed, make, have made, sell, have sold, offer to sell, import, export, have imported and exported, distribute, and have distributed Products in the Collagen Field. 3.2 ROYALTIES. In consideration for the license granted herein, Collagen shall pay Technologies a license fee ("License Fees") equal to: (i) [*] percent ([*]%) of the Net Sales of Product; and (ii) [*] percent ([*]%) of the Net Revenue, provided, Collagen's obligation to pay the License Fees to Technologies hereunder shall terminate once the cumulative License Fees paid by Collagen to Technologies reach $[*] Million U.S. Dollars. In addition, Collagen shall have the option, exercisable by Collagen at any time, to pay Technologies a lump sum equal to $[*] Million U.S. Dollars in lieu of any and all further License Fees to Technologies that shall accrue after the receipt by Technologies of such lump sum payment. Subject to Technologies' prior written approval, Collagen may have an Affiliate or sublicensee pay any royalties due on the Net Sales of such Seller's Products directly to Technologies. 3.3 REPORTING AND PAYMENT. Collagen (or, to the extent approved by Technologies, its Affiliate or sublicensee) shall pay to Technologies, within thirty (30) days after the last day of each calendar quarter: (a) the amounts due Technologies under Section 3.2 during such quarter; and (b) any amounts payable to third parties for the manufacture, sale and/or use of such Seller's Products pursuant to the Pre-existing Third Party Agreements (defined below) to the extent such amounts have not been paid by Collagen directly to such third parties and shall concurrently provide Technologies with a written report ("Sales Report") setting forth: [*] Application for an order granting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 has been made. Confidential portions of this document have been redacted and marked with an [*] and have been filed with the Securities and Exchange Commission separately with such application. -5- 6 (i) by Seller, the quantity and type of Product sold or otherwise transferred in such quarter and the Net Sales therefore; (ii) by sublicensee, the Net Revenues received by Collagen and its Affiliates in such quarter; and (iii) a calculation of the amounts payable to Technologies pursuant to Section 3.2 for such quarter (including the conversion rate used to convert such amounts into dollars). Collagen shall require each Affiliate and/or sublicensee to provide to Collagen a written report containing the information required to be contained in the Sales Report. Sales made in foreign currency will be determined in the foreign funds for the country in which the Product are sold, and then converted into equivalent United States dollars at the exchange rate as published by the Wall Street Journal (U.S., Western Edition) for the last business day of each quarter. Collagen shall remain liable for any amounts payable to Technologies hereunder by a Seller to the extent not satisfied by the Seller. 3.4 AUDIT. Each party shall maintain detailed and accurate written records and books of account in such manner and detail as to permit the verification of Costs, and Collagen shall, and shall require each Seller to, maintain detailed and accurate written records and books of account in such manner and detail as to permit the verification of the amounts payable to Technologies pursuant to Section 3.2. Upon reasonable notice to the other party ("Audited Party"), a party ("Auditing Party") shall have the right to have an independent certified public accountant, selected by the Auditing Party and reasonably acceptable to the Audited Party audit the Audited Party's records, during normal business hours, to verify the Audited Party's Costs. In addition, Technologies shall have the right to have an independent certified public accountant audit the records of each Seller to verify the amounts payable to Technologies pursuant to Section 3.2. Any such audit of Technologies or Collagen or a Seller shall not take place more frequently than once a year and shall not cover such records for more than the preceding two (2) years. The accountant shall only report as to the accuracy of Technologies or Collagen's Costs or the amounts payable to Technologies pursuant to Section 3.2, and in the event of any inaccuracy, the correct amounts thereof. The Audited Party shall promptly refund any overpayment of Costs made by the Auditing Party, and the Auditing Party shall promptly pay any underpayment of Costs. In addition, a Seller shall promptly pay to Technologies any underpayment revealed in such audit, and Technologies shall promptly refund any overpayment made by Seller. Such audit shall be at the expense of the Auditing Party unless the audit identifies an overpayment by the Auditing Party or an underpayment by the Audited Party or Seller of greater than five percent (5%), in which case such audit shall be at the Audited Party's or Seller's expense. The parties and Sellers shall preserve and maintain all such records and accounts required for audit for a period of two (2) years after the calendar quarter for which the records apply. -6- 7 3.5 THIRD PARTY RIGHTS AND OBLIGATIONS. 3.5.1 OBLIGATIONS. The parties acknowledge that the parties may incur financial obligations to third parties for the manufacture, use and/or sale of Product, including without limitation license fees, royalties or other payments pursuant to agreements entered into by Collagen prior to the Effective Date, including but not limited to (i) the Intellectual Property and Production Agreement for the Production of Collagens Using a Yeast Expression System between Collagen and Genotypes, Inc., with an effective date of August 15, 1996 ("Genotypes Agreement"); and (ii) the Amended and Restated Research, License and Supply Agreement between Collagen and Pharming B.V., with an effective date of February 20, 1996 ("Pre-existing Third Party Agreements"). In addition, after the Effective Date, each party may, if necessary or desirable, enter into agreements with third parties which may require that license fees, royalties or other payments be paid to such third parties for the manufacture, sale and/or use of such party's Products. The parties agree that each party shall be solely responsible for any and all license fees, royalties or other payments to third parties accruing from the manufacture, use and/or sale of its own Products, whether pursuant to Pre-existing Third Party Agreements or to agreements entered into by such party after the Effective Date; provided, however, with respect to any license fees, royalties or other payments to third parties that accrue pursuant to Pre-existing Third Party Agreements which are assigned to Technologies pursuant to the Separation Agreement, Collagen shall, at Technologies' option, make such payments therefore directly to such third parties if permitted by such third parties. In addition, during the Term, each party will, with reasonable promptness and detail, notify the other party in writing of any third party rights of which it becomes aware that may be required for the other party's manufacture, use and/or sale of its Products. In addition, Collagen shall abide by the terms and conditions in such Pre-existing Third Party Agreements and shall not perform any act or fail to act for which Technologies shall be exposed to liability thereunder. 3.5.2 RIGHTS. Pursuant to Section 3 (b) of the Genotypes Agreement which shall be assigned to Technologies as of the Effective Date, Technologies has a first right of refusal for an exclusive license to an Invention (as that term is defined therein) made under the terms of the Genotypes Agreement, which Invention is not competitive with an existing product line of Collagen prior to the Effective Date, prior to the licensing of such Invention by Genotypes to a third party. Technologies agrees that after the Effective Date, it shall forward to Collagen any and all notices that it receives from Genotypes regarding any potential licensing of Inventions to third parties no later than ten (10) days after receipt of such notice from Genotypes. After receipt of such forwarded notice from Technologies, Collagen shall notify Technologies within thirty (30) days as to whether Collagen desires to license such Invention. If Collagen notifies Technologies that it desires to license such Invention, then Technologies shall be obligated to timely exercise its first right of refusal to license such Invention. If both Technologies and Collagen desire rights under the license to the Invention, then Technologies shall grant to Collagen an exclusive sublicense to the Invention in the Collagen Field and retain all other rights to the Invention. If Technologies does not desire rights to the Invention, then Technologies shall sublicense to Collagen all rights under the license to the Invention, and Collagen shall be entitled to exercise all rights under such license consistent with Section 9.1 (Non-Compete provision) of the License Agreement. -7- 8 3.6 GOVERNMENTAL APPROVALS. Subject to Section 2.3, each party shall solely be responsible for obtaining all necessary governmental approvals, including FDA approvals, for the development, testing, production, distribution, sale and use of any of their own Products, including without limitation, performing all required clinical trials therefore. So long as Collagen has a license to Recombinant Technology hereunder, Collagen grants to Technologies a non-exclusive, transferable, fully-paid-up right to reference any and all applicable United States and foreign regulatory registrations, licenses and applications relating to the Recombinant Technology ("Regulatory Materials") in the possession or control of Collagen and solely as such Regulatory Materials relate to Technologies' Products outside the Collagen Field. So long as Collagen has a license to Recombinant Technology hereunder, Technologies grants to Collagen a non-exclusive, transferable, fully-paid-up right to reference any and all Regulatory Materials in the possession or control of Technologies and solely as such Regulatory Materials relate to Collagen's Products in the Collagen Field. The reference rights set forth in this Section 3.6 shall be in addition to the reference rights of the parties set forth in Article V of the License Agreement. ARTICLE IV TERM AND TERMINATION 4.1 TERM. The term of this Agreement shall commence on the Effective Date and continue in full force and effect until the termination by either party pursuant to Sections 4.2 or 4.3 ("Term"). 4.2 TERMINATION FOR CAUSE. 4.2.1 TERMINATION DURING PROJECT. Prior to the attainment of the Bioequivalence Milestone and/or termination pursuant to Section 2.1 for each Approach, either Technologies or Collagen may terminate an Approach in the event the other party shall have breached or defaulted in the performance of any of its material obligations under such Approach as set forth in this Agreement and the Project Plan, provided that the non-breaching party delivers written notice to the defaulting party specifying in reasonable detail the nature of such default or breach and stating its intent to terminate such Approach if such default or breach is not cured. Termination of such Approach shall be effective thirty (30) days after the receipt by the defaulting party of such written notice thereof unless such default or breach is cured by the breaching party prior to the expiration of such thirty (30) day period. If Technologies terminates an Approach pursuant to this Section 4.2.1, Collagen shall not be entitled to the license set forth in Section 3.1 to Recombinant Technology developed from such Approach. If Collagen terminates an Approach pursuant to this Section 4.2.1, then Collagen shall have the license set forth in Section 3.1 to any Recombinant Technology developed from such Approach prior to and up to the date that such termination becomes effective without any royalty obligations (other than Pre-existing Third Party obligations) to Technologies. 4.2.2 TERMINATION AFTER PROJECT. After the attainment of the Bioequivalence Milestone and/or termination of both Approaches pursuant to Section 2.1, either Technologies or Collagen may terminate this Agreement in the event the other party shall have breached or defaulted in the performance of any of its material obligations under this Agreement, -8- 9 provided that the non-breaching party delivers written notice to the defaulting party specifying in reasonable detail the nature of such default or breach and stating its intent to terminate the Agreement if such default or breach is not cured. Termination of this Agreement shall be effective thirty (30) days after the receipt by the defaulting party of such written notice thereof unless such default or breach is cured by the defaulting party prior to the expiration of such thirty (30) day period. If Technologies terminates this Agreement pursuant to this Section 4.2.2, Collagen shall not be entitled to the license set forth in Section 3.1, and if Collagen terminates this Agreement pursuant to this Section 4.2.2, then Collagen shall be entitled to the license set forth in Section 3.1, subject to the provisions of Article III. 4.3 TERMINATION FOR CONVENIENCE. After March 31, 2000, either party may terminate this Agreement by delivery of nine (9) months written notice thereof to the other party; provided, however, in the event of such termination pursuant to this Section 4.3, then Collagen shall be entitled to the license set forth in Section 3.1 to any Recombinant Technology developed prior to and up to the date that such termination becomes effective, subject to the provision of Article III. 4.4 EFFECT OF TERMINATION. Expiration or termination of this Agreement pursuant to the terms and conditions set forth in this Agreement shall not relieve the parties of any obligations, accruing prior to or upon such expiration or termination. 4.5 SURVIVAL OF CERTAIN TERMS. The provisions of Sections 2.1 (solely with respect to the license rights granted to Collagen upon the termination of an Approach in accordance with Section 2.1), 2.5, 4.2, 4.3, 4.4 and 4.5 and Articles III (so long as any license to Recombinant Technology to Collagen hereunder is in effect), V and VI shall survive the expiration or termination of this Agreement for any reason. All other rights and obligations of the parties shall cease upon expiration or termination of this Agreement. ARTICLE V CONFIDENTIALITY The parties agree that Information that is proprietary or confidential to: (i) Collagen prior to the Effective Date; or (ii) to one party and provided to the other party pursuant to or in furtherance of this Agreement after the Effective Date shall be subject to and treated in accordance with Article VIII of the Separation Agreement. ARTICLE VI MISCELLANEOUS This Agreement shall be subject to Article XI of the Separation Agreement, which is hereby incorporated into this Agreement to the extent applicable. -9- 10 IN WITNESS WHEREOF, the parties have caused this Recombinant Technology Development and License Agreement to be executed by their duly authorized representatives. COLLAGEN CORPORATION Dated: March 5, 1998 By: /s/ Gary S. Petersmeyer ------------- --------------------------------- Name: Gary S. Petersmeyer Title: President and CEO COLLAGEN TECHNOLOGIES, INC. Dated: March 5, 1998 By: /s/ David Foster ------------- --------------------------------- Name: David Foster Title: CEO -10- 11 EXHIBIT A Costs Direct Costs include: [*] Indirect Costs allocable percentage of the following costs: [*] [*] Application for an order granting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 has been made. Confidential portions of this document have been redacted and marked with an [*] and have been filed with the Securities and Exchange Commission separately with such application. EX-10.99 6 TAX ALLOCATION & INDEMNITY AGREEMENT 1 EXHIBIT 10.99 TAX ALLOCATION AND INDEMNITY AGREEMENT This TAX ALLOCATION AND INDEMNITY AGREEMENT, effective as of January 1, 1998 (the "Effective Date"), is made by and between COLLAGEN CORPORATION, a Delaware corporation ("Collagen"), and COHESION TECHNOLOGIES, INC., a Delaware corporation formerly known as Collagen Technologies, Inc. ("Technologies"). RECITALS 1. Collagen is the common parent of the Collagen Affiliated Group, and Collagen and various of its direct and indirect subsidiaries are members of the Collagen Unitary Group (as those terms are defined below); 2. As of January 1, 1998, Collagen will contribute assets constituting its Technologies operating group to Technologies in exchange for all of Technologies' capital stock and Technologies thereby will become a member of the Collagen Affiliated Group and Collagen Unitary Group; 3. Collagen intends to distribute its Technologies stock to its stockholders in a transaction intended to qualify for nonrecognition of gain under Section 355 of the Code, at which time Technologies would no longer be a member of the Collagen Affiliated Group and the Collagen Unitary Group; and 4. Collagen, on behalf of itself and the members of the Collagen Subgroup, and Technologies, on behalf of itself and the members of the Technologies Subgroup (as those terms are defined below), intend in this Agreement to provide for the allocation among themselves of Tax liabilities during the period that Technologies and the other members of the Technologies Subgroup are members of the Collagen Affiliated Group and the Collagen Unitary Group; reimbursement for payment of Tax liabilities and use of Tax benefits arising during that period; indemnification and procedures for audits and contests with respect to subsequent adjustments of such Tax liabilities; and cooperation in filing of returns and other matters relating to Taxes; NOW, THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS Except as otherwise defined herein, capitalized terms used herein shall have the meaning set forth in the Separation and Distribution Agreement dated as of January 1, 1998, between Collagen and Technologies (the "Separation Agreement"). In addition, for the purposes of this Agreement, the capitalized terms set forth below shall have the meanings set forth in this Article I: 1.1 "Affiliated Period" means the period during which Technologies or any other member of the Technologies Subgroup is a member of the Collagen Affiliated Group and/or the Collagen Unitary Group. 2 1.2 "Agreement" means this Tax Allocation and Indemnity Agreement, as amended from time to time. 1.3 "Collagen Affiliated Group" means the affiliated group of corporations (within the meaning of Section 1504 of the Code) of which Collagen is the common parent. 1.4 "Collagen Subgroup" means Collagen and all other corporations included in the Collagen Affiliated Group and/or the Collagen Unitary Group other than Technologies and other corporations included in the Technologies Subgroup. 1.5 "Collagen Unitary Group" means any group of corporations including Collagen filing or required to file any Combined Return. 1.6 "Combined Return" means any state, local or, if applicable, foreign income, franchise or similar tax return which has been or will be filed by any Collagen Subgroup member or Technologies Subgroup member on a basis which reports Taxes for two or more members of such subgroup using combined, consolidated or unitary business tax reporting principles. 1.7 "Consolidated Return" means a consolidated U.S. federal income tax return filed by or on behalf of an affiliated group of corporations within the meaning of Section 1504 of the Code. 1.8 "Final Determination" means, with respect to any liability for Taxes for any period, (a) a final, unappealable decision by a court of competent jurisdiction, (b) the expiration of applicable statutes of limitations on assessment of Taxes or filing of claims for refund, (c) the execution of a closing agreement under section 7121 of the Code or the acceptance by the IRS of an offer in compromise pursuant to section 7122 of the Code (or similar agreements with tax authorities entered into under applicable state, local or foreign tax law), (d) a binding agreement without reservation on IRS Form 870-AD or a comparable agreement form under the laws of any other taxing jurisdiction or (e) any other final, irrevocable and unappealable determination of Taxes for such period. 1.9 "IRS" means the United States Internal Revenue Service or any successor thereto. 1.10 "Ruling Request" means a request submitted to the IRS for a ruling that the Distribution meets the requirements for nonrecognition of gain or loss under Section 355 of the Code. 1.11 "Tax" or "Taxes" means any or all taxes, however denominated, including any interest, penalties or other additions to tax that may become payable in respect thereof, imposed by any federal, territorial, state, local or foreign government or any agency or political subdivision of any such government, which taxes shall include, without limiting the generality of the foregoing, all income or profits taxes (including but not limited to, federal, state and foreign income taxes), payroll and employee withholding taxes, unemployment insurance contributions, social security taxes, sales and use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business license taxes, occupation taxes, real and personal property taxes, stamp taxes, -2- 3 environmental taxes, transfer taxes, and other governmental charges or obligations of the same or of a similar nature to any of the foregoing, which are required to be paid, withheld or collected. 1.12 "Technologies Subgroup" means Technologies and all of its direct and indirect subsidiaries, whether currently or hereafter existing, which would be included in an affiliated group of corporations (within the meaning of section 1504 (a) of the Code) and/or combined, consolidated or unitary state or other tax filing groups of corporations of which Technologies would be the ultimate parent corporation if Technologies were not a member of the Collagen Affiliated Group or Collagen Unitary Group, respectively. ARTICLE II FILING OF RETURNS 2.1 Consolidated Returns and Combined Returns. (a) Collagen shall have exclusive authority and responsibility to prepare and file Consolidated Returns and Combined Returns on behalf of the Collagen Affiliated Group and Collagen Unitary Group, respectively (as well as any other documents, statements or elections required to be filed or included with such Consolidated Returns or Combined Returns), for all taxable years (or portions thereof) included in the Affiliated Period. Collagen shall have sole authority and discretion to determine (i) the manner in which such Consolidated Returns and Combined Returns (and related documents) shall be prepared and filed, including without limitation the manner in which any item of income, gain, loss, deduction or credit included in such returns shall be reported and the corporations appropriately included in the Collagen Unitary Group filing a Combined Return, (ii) whether any extensions of time to file a Consolidated Return or Combined Return shall be requested, and (iii) the elections that will be made in such returns on behalf of the Collagen Affiliated Group, the Collagen Unitary Group or any members thereof (including members of the Technologies Subgroup). (b) Technologies and each member of the Technologies Subgroup hereby irrevocably appoint Collagen as their agent and attorney-in-fact to take such actions (including the execution of documents on behalf of Technologies or any other member of the Technologies Subgroup) as may be appropriate to effectuate the filing of such Consolidated Returns and Combined Returns. Technologies and each Technologies Subgroup member agree to file such consents, elections and other documents, provide information as requested by Collagen and otherwise cooperate with Collagen as necessary to carry out the purpose of this section. (c) Collagen shall be liable, and shall indemnify Technologies and each other member of the Technologies Subgroup, for any penalties or other damages attributable to the failure of Collagen to make timely filings of Consolidated Returns or Combined Returns for the Affiliated Period or full and timely payment of all amounts shown to be due thereon, provided that Technologies and the Technologies Subgroup members have complied with their obligations to make Tax payments to, provide information to, and otherwise cooperate on a timely basis with Collagen as provided under the provisions of this Agreement. -3- 4 2.2 Other Returns. (a) Except as otherwise provided herein or as the parties hereto may otherwise agree, Technologies shall have exclusive authority and responsibility to prepare and file all tax returns by or on behalf of it and any member of the Technologies Subgroup, other than Consolidated Returns and Combined Returns subject to the provisions of Section 2.1. Collagen shall provide (and shall cause each Collagen Subgroup member and their representatives to provide) reasonable access to books, records, returns and other information to the extent necessary to permit Technologies timely to prepare and file such tax returns and shall otherwise cooperate as reasonably requested by Technologies in connection with the preparation and filing of such returns. (b) Technologies shall be liable, and shall indemnify Collagen and each other member of the Collagen Subgroup, for any penalties or other damages attributable to the failure of Technologies to make timely filings of tax returns for which it is responsible under this Section 2.2 or full and timely payment of amounts shown to be due thereon, provided that Collagen and the Collagen Subgroup members have complied with their obligations to provide information and otherwise cooperate as provided hereunder. ARTICLE III ALLOCATION OF LIABILITIES FOR TAXES 3.1 Federal Income Taxes for Periods Commencing on and after the Effective Date. (a) For each taxable period commencing on or after the Effective Date in which Technologies and any other members of the Technologies Subgroup are included in the Collagen Affiliated Group, the Technologies Subgroup shall be allocated and Technologies shall pay to Collagen the Technologies Subgroup's federal income Tax liability, if any (including any alternative minimum tax or environmental tax), as determined under this Section 3.1. Such federal Tax liability shall equal the hypothetical separate return tax liability of such subgroup, as determined in accordance with the provisions of Treasury Regulations Section 1.1552-1(a)(2)(ii) (treating references to a "member" therein as references to the Technologies Subgroup, and including the adjustments under clauses (a) - (i) thereof) as if the Technologies Subgroup had filed a separate consolidated federal income tax return. If the Technologies Subgroup's federal Tax liability as so determined is zero, then Collagen shall pay to Technologies the excess, if any, of the Collagen Subgroup's federal income Tax liability, determined as if the Collagen Subgroup had filed a separate consolidated federal income tax return for such taxable period or portion thereof (and any taxable year of the Collagen Subgroup to which a net operating loss or other tax item of the Technologies Subgroup is carried) under the same principles as set forth in the preceding sentence, over the actual federal income Tax liability of the Collagen Affiliated Group for such taxable period or portion thereof (or such year to which such item is carried). (b) For purposes of determining allocation of Tax liabilities and payment obligations for tax periods commencing on or after the Effective Date, (i) except as provided in subsection (c) below, any Taxes attributable to the formation and capitalization of Technologies or the Distribution being treated as taxable events to Collagen shall be allocated to the Collagen -4- 5 Subgroup, (ii) any Taxes attributable to the restoration of an excess loss account or intercompany gain in connection with the Distribution or other event causing termination of membership by Technologies and other members of the Technologies Subgroup in the Collagen Affiliated Group shall be allocated to whichever subgroup includes the corporation required to restore such item under applicable Treasury Regulations pursuant to Section 1502 of the Code, (iii) the benefit of the graduated Tax rates provided under Section 11 of the Code and any alternative minimum tax exemption amount under Section 55 of the Code shall be allocated to the Technologies Subgroup in proportion to the ratio of the Technologies Subgroup's federal Tax liability to the total federal Tax liability of the Collagen Affiliated Group (computed without regard to such benefit), and (iv) items not otherwise specifically addressed hereunder shall be allocated between the Technologies Subgroup and the Collagen Subgroup in such manner that reasonably reflects the provisions and purposes of this Agreement. (c) Notwithstanding subsection (b)(ii) above, Technologies shall be allocated, and shall indemnify and hold harmless Collagen and each member of the Collagen Subgroup from, any Taxes attributable to the Distribution being treated as a taxable event to Collagen if and to the extent that such Taxes result from any of the following: (i) within two years after the date of the Distribution (or within any period of time following the Distribution if a plan to do any of the following existed at or before the time of the Distribution), (A) capital stock representing a 50 percent or greater interest of Technologies or any member of the Technologies Subgroup is acquired in a transaction described in Section 355(e)(2) of the Code, (B) Technologies has voluntarily ceased to engage in the active conduct of a trade or business within the meaning of Section 355(b)(2) of the Code, (C) Technologies or any member of the Technologies Subgroup makes a material sale, exchange, distribution or other disposition of assets or capital stock to a transferee that is not a member of the Technologies Subgroup (other than transfers or distributions in the ordinary course of business, issuances by Technologies of its own stock following the Distribution in aggregate amounts less than 50% of Technologies' outstanding capital stock immediately following the Distribution, or transactions disclosed in the Ruling Request), and (D) Technologies makes any repurchases of its capital stock (other than repurchases in connection with employee benefit plans permitted under Revenue Procedure 91-63), unless Technologies obtains a supplemental ruling from the IRS (or opinion of counsel reasonable satisfactory to Collagen in lieu of such supplemental ruling) that any transaction described in (A), (B), (C) or (D) would not cause the Distribution to fail to qualify for nonrecognition of gain under Section 355 of the Code; (ii) a failure by Technologies or any member of the Technologies Subgroup to comply in all material respects with each written representation and statement regarding Technologies or a member of the Technologies Subgroup made in the Ruling Request or in a certificate to counsel in connection with such counsel's issuance of an opinion that the Distribution will qualify for nonrecognition of gain under Section 355 of the Code, or (iii) any untrue or misleading statement of a material fact contained in the Ruling Request (or certificate provided to counsel) regarding Technologies or a member of the Technologies Subgroup, provided in the case of clauses (ii) and (iii) that an authorized representative of Technologies reviewed and approved inclusion of the statement or representation in the Ruling Request (or certificate). (d) The Technologies Subgroup's federal Tax liability for the taxable year during or with which the Affiliated Period ends shall be determined in accordance with the -5- 6 provisions of Treasury Regulations Section 1.1502-76(b)(2) by closing the books of Technologies and the Technologies Subgroup members as of the end of the last day of the Affiliated Period and taking into account only items accruing during the portion of the taxable year ending on such date in computing such liability. Items shall not be pro-rated in accordance with clauses (ii) or (iii) of such section of the treasury regulations except to the extent Collagen in its discretion determines that it is impracticable to allocate particular items in accordance with the preceding sentence. (e) The parties acknowledge that the allocation of federal Tax liability provided for by this Section 3.1 is for purposes of determining the parties' actual payment obligations to each other with respect to Taxes of the Collagen Affiliated Group for the Affiliated Period and not for purposes of computing earnings and profits pursuant to Section 1552 of the Code and recognize that such allocation may differ from the allocation provided by Section 1552 for earnings and profits purposes. 3.2 State Income and Franchise Taxes for Periods Commencing on or after the Effective Date. (a) For each taxable period commencing on or after the Effective Date for which Technologies and/or any other members of the Technologies Subgroup are included in any Combined Return filed by the Collagen Unitary Group, the Technologies Subgroup shall be allocated and Technologies shall pay to Collagen the state income Tax liability of Technologies and/or such other Technologies Subgroup members that are so included, as determined under this Section 3.2. Such state income Tax liability shall equal the hypothetical state income tax liability of the Technologies Subgroup members so included, computed as if they filed a Combined Return (or if only one such member is so included, a separate state income or franchise tax return) including only such included member(s). To the extent that the same or analogous federal consolidated reporting principles as are referred to in Section 3.1 apply for purposes of filing such Combined Returns, then such principles shall also apply for purposes of determining the Technologies Subgroup's state Tax liability in respect of any Combined Return of the Collagen Unitary Group. If the state income Tax liability of the Technologies Subgroup as so determined is zero, then Collagen shall pay to Technologies the excess, if any, of the Collagen Subgroup's state income Tax liability, determined as if the Collagen Subgroup had filed a separate Combined Return not including any Technologies Subgroup members, over the actual state income Tax liability of the Collagen Unitary Group. Collagen shall have the discretion to make determinations of each subgroup's liability for Taxes under this Section 3.2(a) in any manner that is reasonable in light of the applicable state and local Tax reporting principles and the purposes of this Agreement. (b) Technologies shall be responsible for payment of any state Taxes due from it or any members of the Technologies Subgroup, and Collagen shall be responsible for payment of any state Taxes due from Collagen or any members of the Collagen Subgroup, in connection with state income or franchise tax returns that are not Combined Returns. 3.3 Other Taxes for Periods Commencing on or after the Effective Date. Any Taxes for taxable periods commencing on or after the Effective Date, other than Taxes allocated under Sections 3.1 and 3.2, shall be the responsibility of the party incurring such Tax under applicable -6- 7 law. Notwithstanding the foregoing, in the event that the applicable law of any foreign taxing jurisdiction provides for filing of Combined Returns including one or more members of each of the Technologies Subgroup and the Collagen Subgroup, then principles similar to those set forth above in Section 3.2(a) shall be applied for purposes of determining an appropriate allocation of Taxes required to be reported with such Combined Returns. 3.4 Deficiencies for Collagen Taxes Arising before the Effective Date. Any deficiencies for Taxes of Collagen or any member of the Collagen Affiliated Group or Collagen Unitary Group attributable to transactions or events arising before the Effective Date shall be allocated 100% to Collagen, and Collagen shall indemnify and hold harmless Technologies and the members of the Technologies Subgroup for any such deficiencies. ARTICLE IV PAYMENT AND INDEMNIFICATION OF TAXES 4.1 Estimated Tax Payments. Collagen shall have the right to assess Technologies for the Technologies Subgroup's share of any estimated Tax payment liability incurred by the Collagen Affiliated Group or the Collagen Unitary Group for any taxable year (or portion thereof) included in the Affiliated Period, as determined by Collagen in its reasonable discretion applying the principles of Sections 3.1 and 3.2. For this purpose, Technologies' share of each such estimated Tax payment liability shall not exceed the Collagen Affiliated Group's or Collagen Unitary Group's actual estimated Tax payment liability for the relevant period and Collagen shall have no obligation to make any payment to Technologies. Collagen shall provide Technologies with notice of its estimated Tax payment obligation hereunder at least five days prior to the due date thereof as specified in such notice, together with a summary of the basis for the calculation of such obligation, and Technologies shall pay the amount owed no later than such due date. Any payments made by Technologies under this Section 4.1 shall be credited against the final Tax payment obligations due for the entire taxable year (or portion thereof) under Section 4.2. 4.2 Final Tax Payments. As soon as practicable after the end of each taxable year (or portion thereof) included in the Affiliated Period, but in no event later than 30 days prior to the due date (including extensions) for filing the applicable Consolidated Return or Combined Return therefor, Collagen shall prepare and submit to Technologies a statement setting forth the final amount determined by Collagen to be due from Technologies or Collagen, as the case may be, in accordance with the provisions of Sections 3.1 and 3.2, taking into account any amounts credited to Technologies under Section 4.1. Such statement shall include sufficient supporting information to show the basis for the amount determined. Unless Technologies objects to the amount determined, such amount shall be paid no later than five days thereafter. In the event of a dispute, such dispute shall be resolved by a nationally recognized independent accounting firm selected by Collagen and approved by Technologies, which approval shall not be unreasonably withheld. 4.3 Indemnification. Provided that Technologies has made the payments to Collagen required under this Agreement, Collagen shall be responsible for, shall protect, indemnify and hold harmless Technologies and each Technologies Subgroup member from, and shall be entitled to any refunds of (i) any Taxes imposed on the Collagen Affiliated Group or the Collagen Unitary -7- 8 Group (or any member thereof), including without limitation any obligation to contribute to the payment of any such Taxes (other than as provided in this Agreement) and any liability arising from the several liability for Taxes of an affiliated group under Treasury Regulations Section 1.1502-6 or any analogous provisions of other applicable law, and (ii) any other Taxes imposed on Collagen or any member of the Collagen Subgroup arising before, during or after the Affiliated Period. Except as provided in the preceding sentence, Technologies shall be responsible for, shall protect, indemnify and hold harmless Collagen and each Collagen Subgroup member from, and shall be entitled to any refunds of, Taxes imposed on the Technologies Subgroup or any member thereof. ARTICLE V SUBSEQUENT ADJUSTMENTS 5.1 Subsequent Adjustments. In the event that a Final Determination adjusts any items of income, gain, loss, deduction or credit of the Collagen Affiliated Group, the Collagen Unitary Group or any member thereof for any taxable year (or portion thereof) included in the Affiliated Period, then the payment obligations under Article III of this Agreement shall be redetermined to reflect such adjustments and Collagen shall pay Technologies or Technologies shall pay Collagen, as the case may be, the difference between the amounts owed under such section as so adjusted and the amounts owed as originally determined, together with an appropriate share of any interest actually due or received in respect of such adjustment. Any payment required pursuant to this Article V shall be made promptly after the occurrence of such Final Determination. ARTICLE VI CONTROVERSIES 6.1 Taxes of Collagen Affiliated Group or Unitary Group. Subject to the remaining provisions of this Section 6.1, Collagen shall have authority to represent Technologies and each Technologies Subgroup member in any audit, examination or other controversy before the IRS or any other governmental authority or court regarding the Taxes of the Collagen Affiliated Group or Collagen Unitary Group for all taxable years or portions thereof included in or prior to the Affiliated Period. Technologies shall be permitted, on behalf of itself any the members of the Technologies Subgroup, to consult with Collagen and participate in the conduct of such controversies to the extent the controversies relate to items of the Technologies Subgroup or items for which Technologies is or may be obligated to indemnify Collagen or a member of the Collagen Subgroup hereunder, and Collagen shall not enter into any settlement of such items without the prior written consent of Technologies. Collagen shall timely notify Technologies of any controversy relating to Tax items of Technologies or any other member of the Technologies Subgroup (or items for which Technologies may otherwise be required to indemnify Collagen or a Collagen Subgroup members hereunder) and promptly provide Technologies with copies of all correspondence relating to such controversy. 6.2 Other Taxes. Except as the parties may otherwise agree, each of Collagen and Technologies shall have exclusive authority to represent itself and its respective subgroup -8- 9 members in any controversies relating to Taxes of its respective subgroup (or any members thereof), other than Taxes referred to in Section 6.1. 6.3 Cooperation. Collagen and Technologies shall cooperate with each other, and shall cause their respective subgroup members and representatives also to cooperate, in the conduct of any controversy relating to Taxes. Such cooperation shall include, without limitation, (a) execution of powers of attorney or other documents, making elections, filing claims for refund, and receiving funds, and (b) making available to the other party, during normal business hours and on reasonable terms, all books, records (including, but not limited to, workpapers and schedules), information and employees reasonably requested and necessary or useful in connection with such controversy. 6.4 Records. Collagen and Technologies agree that all records, including but not limited to, tax returns, supporting schedules, workpapers, correspondence and other documents within their possession or the possession of the members of their respective subgroups and relating to Taxes arising during the Affiliated Period, shall be retained for as long as such records may be material to the determination of liabilities or refunds of such Taxes and shall be made reasonably available to the other party upon request during normal business hours for inspection and copying. Prior to destroying any such records, the party in possession thereof shall notify the other of such intent and shall offer to deliver such records to the other. ARTICLE VII CARRYBACKS 7.1 Carrybacks. If any deduction, loss, or credit of Technologies or any other member of the Technologies Subgroup arising in a period after the Affiliated Period is carried back to a Consolidated Return or Combined Return of the Collagen Affiliated Group or Collagen Combined Group for a taxable year (or portion thereof) occurring during the Affiliated Period, Collagen shall pay Technologies the amount of any reduction of Taxes actually realized by the Collagen Affiliated Group or Collagen Combined Group (or any member thereof) as a result of such carryback, as determined by Collagen in its sole discretion. Technologies shall be entitled to determine whether or not to waive the right to carry back such item. ARTICLE VIII MISCELLANEOUS This Agreement shall be subject to and incorporate the terms and provisions contained in Article X of the Separation Agreement to the extent applicable. -9- 10 IN WITNESS WHEREOF, the parties hereto have caused this Tax Allocation Agreement to be executed by their duly authorized representatives. COLLAGEN CORPORATION By: /s/ GARY S. PETERSMEYER ---------------------------------------- Name: Gary S. Petersmeyer -------------------------------------- Title: President and CEO ------------------------------------- COHESION TECHNOLOGIES, INC. By: /s/ DAVID FOSTER ---------------------------------------- Name: David Foster -------------------------------------- Title: CEO ------------------------------------- -10- EX-10.100 7 SERVICES AGREEMENT 1 EXHIBIT 10.100 SERVICES AGREEMENT This SERVICES AGREEMENT (the "Agreement"), effective as of January 1, 1998 (the "Effective Date"), is made by and between COLLAGEN CORPORATION, a Delaware corporation ("Collagen"), and COHESION TECHNOLOGIES, INC., a Delaware corporation formerly known as Collagen Technologies, Inc. ("Technologies"). RECITALS 1. Technologies is a wholly-owned subsidiary of Collagen. 2. Collagen intends (subject to certain conditions) to distribute pro rata to its stockholders as a dividend its shares of stock of Technologies by means of a tax-free distribution (the "Distribution"). 3. In connection with the Distribution, Collagen and Technologies wish to provide for certain covenants and agreements relating to services to be provided by Collagen to Technologies and by Technologies to Collagen, in each case on the terms set forth below. NOW, THEREFORE, the parties agree as follows: ARTICLE I PROVISION OF SERVICES 1.1 SERVICES TO BE PROVIDED BY TECHNOLOGIES. During the term of this Agreement or for such shorter period as is specified on Exhibit A hereto, Technologies shall provide or cause to be provided to Collagen (and, upon request of Collagen, to any member of the Collagen Group, as defined in the Separation and Distribution Agreement effective as of January 1, 1998 between Collagen and Technologies (the "Separation Agreement")), if, when and to the extent requested by Collagen, the services described in Exhibit A hereto (the "Technologies Services"); provided, however, that (a) Collagen provides reasonable advance notice of its requirements for such Technologies Services, (b) Technologies shall have the right to designate and select its employees and facilities which will be used to provide such Technologies Services, (c) Technologies will not be obligated to assign employees or facilities to perform such Technologies Services if such assignment would unreasonably interfere with the obligations or business of Technologies and (d) Technologies will be obligated to provide, and Collagen will be obligated to accept and pay for, investor relations services hereunder representing 50% of the investor relations services capacity of Technologies. 1.2 SERVICES TO BE PROVIDED BY COLLAGEN. During the term of this Agreement or for such shorter period as is specified on Exhibit B hereto, Collagen shall provide or cause to be provided to Technologies (and, upon request of Technologies, to any member of the Technologies Group, as defined in the Separation Agreement), if, when and to the extent requested by Technologies, the services described in Exhibit B hereto (the "Collagen Services," and collectively with the Technologies Services, the "Services"); provided, however, that (a) Technologies provides reasonable advance notice of its requirements for such Collagen 2 Services, (b) Collagen shall have the right to designate and select its employees and facilities which will be used to provide such Collagen Services, (c) Collagen will not be obligated to assign employees or facilities to perform such Collagen Services if such assignment would unreasonably interfere with the operations or business of Collagen, (d) Collagen will not be obligated to provide any legal services hereunder if there is a current or potential conflict of interest (as determined by the General Counsel of Collagen) between Collagen and Technologies with respect to such services, (e) Collagen will not be obligated to provide legal services hereunder representing more than 20% of the legal services capacity of Collagen and (f) Collagen will not be obligated to provide regulatory services hereunder representing more than 20% of the regulatory services capacity of Collagen. 1.3 CHARGES FOR TECHNOLOGIES SERVICES. Up to and including the last day of the calendar quarter in which the Distribution Date (as defined in the Separation Agreement) occurs (the "Pricing Date") (i) for all costs and expenses, including third-party charges, incurred by Technologies in providing Technologies Services to Collagen or any member of the Collagen Group that are separately identifiable, Collagen shall pay to Technologies the actual cost thereof and (ii) for all costs and expenses, including third-party charges, incurred by Technologies in providing Technologies Services to Collagen or any member of the Collagen Group that are not separately identifiable, Collagen shall pay to Technologies that portion of such actual costs and expenses reasonably attributable to Collagen or any member of the Collagen Group, based on such methodology (consistent with generally accepted accounting principles) as Technologies determines to be appropriate (subject to the approval of Collagen, which approval shall not be unreasonably withheld). Subsequent to the Pricing Date, (i) for all salary and related costs (including benefits but excluding bonuses and other incentive payments) incurred by Technologies for personnel time spent in providing Technologies Services to Collagen or any member of the Collagen Group that are separately identifiable, Collagen shall pay to Technologies 120% of the actual cost thereof, (ii) for all salary and related costs (including benefits but excluding bonuses and other incentive payments) incurred by Technologies for personnel time spent in providing Technologies Services to Collagen or any member of the Collagen Group that are not separately identifiable, Collagen shall pay to Technologies 120% of that portion of such actual salary and related costs (including benefits but excluding bonuses and other incentive payments) reasonably attributable to Collagen or any member of the Collagen Group, based on such methodology (consistent with generally accepted accounting principles) as Technologies determines to be appropriate (subject to the approval of Collagen, which approval shall not be unreasonably withheld), (iii) for all other costs and expenses, including third-party charges, incurred by Technologies in providing Technologies Services to Collagen or any member of the Collagen Group that are separately identifiable, Collagen shall pay to Technologies the actual cost thereof and (iv) for all other costs and expenses, including third-party charges, incurred by Technologies in providing Technologies Services to Collagen or any member of the Collagen Group that are not separately identifiable, Collagen shall pay to Technologies 100% of that portion of such actual costs and expenses reasonably attributable to Collagen or any member of the Collagen Group, based on such methodology (consistent with generally accepted accounting principles) as Technologies determines to be appropriate (subject to the approval of Collagen, which approval shall not be -2- 3 unreasonably withheld). Charges for services will be determined in accordance with the methodology set forth on Exhibit C hereto. 1.4 CHARGES FOR COLLAGEN SERVICES. Up to and including the Pricing Date, (i) for all costs and expenses, including third-party charges, incurred by Collagen in providing Collagen Services to Technologies or any member of the Technologies Group that are separately identifiable, Technologies shall pay to Collagen the actual cost thereof and (ii) for all costs and expenses, including third-party charges, incurred by Collagen in providing Collagen Services to Technologies or any member of the Technologies Group that are not separately identifiable, Technologies shall pay to Collagen that portion of such actual costs and expenses reasonably attributable to Technologies or any member of the Technologies Group, based on such methodology (consistent with generally accepted accounting principles) as Collagen determines to be appropriate (subject to the approval of Technologies, which approval shall not be unreasonably withheld). Subsequent to Pricing Date, (i) for all salary and related costs (including benefits but excluding bonuses and other incentive payments), incurred by Collagen for personnel time spent in providing Collagen Services to Technologies or any member of the Technologies Group that are separately identifiable, Technologies shall pay to Collagen 120% of the actual cost thereof, (ii) for all salary and related costs (including benefits but excluding bonuses and other incentive payments), incurred by Collagen for personnel time spent in providing Collagen Services to Technologies or any member of the Technologies Group that are not separately identifiable, Technologies shall pay to Collagen 120% of that portion of such actual salary and related costs (including benefits but excluding bonuses and other incentive payments), reasonably attributable to Technologies or any member of the Technologies Group, based on such methodology (consistent with generally accepted accounting principles) as Collagen determines to be appropriate (subject to the approval of Technologies, which approval shall not be unreasonably withheld), (iii) for all other costs and expenses, including third-party charges, incurred by Collagen in providing Collagen Services to Technologies or any member of the Technologies Group that are separately identifiable, Technologies shall pay to Collagen the actual cost thereof and (iv) for all other costs and expenses, including third-party charges, incurred by Collagen in providing Collagen Services to Technologies or any member of the Technologies Group that are not separately identifiable, Technologies shall pay to Collagen 100% of that portion of such actual costs and expenses reasonably attributable to Technologies or any member of the Technologies Group, based on such methodology (consistent with generally accepted accounting principles) as Collagen determines to be appropriate (subject to the approval of Technologies, which approval shall not be unreasonably withheld). Charges for services will be determined in accordance with the methodology set forth on Exhibit C hereto. 1.5 INDEPENDENT CONTRACTORS. Each of Collagen and Technologies will provide Services to the other party under this Agreement as an independent contractor and not as the other party's agent or employee. Employees of Technologies providing Technologies Services shall at all times remain employees of Technologies. Employees of Collagen providing Collagen Services shall at all times remain employees of Collagen. Technologies shall have the exclusive right to determine and shall be solely responsible for the salaries, wages and benefits of its employees providing Technologies Services under this Agreement. Collagen shall have the -3- 4 exclusive right to determine and shall be solely responsible for the salaries, wages and benefits of its employees providing Collagen Services under this Agreement. ARTICLE II PAYMENTS 2.1 INVOICES AND PAYMENT. Each party shall submit to the other (i) by the 15th day of the first month of each calendar quarter an invoice for all charges associated with Services for the preceding quarter and any adjustments for prior quarters and (ii) from time to time upon receipt by such party of an invoice relating to third-party charges payable by such party on account of the other party, an invoice for such third-party charges. All invoices shall describe in reasonable detail (a) the Services provided during the preceding quarter and the charges (including third-party charges) associated therewith and (b) any prior quarter adjustments. Except as provided in Section 2.2 hereof, each party shall remit payment to the other in full within 30 days after the date on which the invoice is received. 2.2 DISPUTED AMOUNTS. In the event of a dispute as to an invoiced amount, the invoiced party shall promptly pay all undisputed amounts, but shall be entitled to withhold amounts in dispute. Each party shall promptly notify the other party of any such dispute. Each party will provide the other sufficient records and information to resolve any such dispute and, without limiting the rights and remedies of the parties hereunder, will negotiate in good faith a resolution thereto. 2.3 METHOD OF PAYMENT. Transfer of funds pursuant to this Agreement shall be made in U.S. dollars by wire transfer of immediately available funds to an account or accounts specified by the party receiving such payment. 2.4 RECORDS. Each party shall keep complete and accurate books, records and accounts of all transactions pertaining to Services provided to such party pursuant to this Agreement, including the identity of employees providing Services, the amount of time devoted by such employees to such Services, directly assignable expenses incurred in providing such Services and other matters reasonably necessary to calculate amounts to be paid for such Services pursuant to this Agreement. Each party shall make such books, records and accounts available to the other for its inspection upon reasonable notice and shall answer questions concerning such books, records and accounts. Such books, records and accounts shall be retained by a party in accordance with the document retention policies of such party in effect from time to time. ARTICLE III PERFORMANCE OF SERVICES 3.1 DEGREE OF CARE. Each party shall perform the Services with the same degree of care, skill and prudence customarily exercised by it in respect of its own business, operations and affairs. -4- 5 3.2 CERTAIN INFORMATION. Each party shall provide any information needed by the other party to perform the Services pursuant hereto. If the failure to provide such information renders the performance of any requested Service impossible or unreasonably difficult, the performing party may, upon reasonable notice to the other party, refuse to provide such Services. 3.3 ACCESS TO FACILITIES AND EMPLOYEES. Each party and its representatives shall have reasonable access to facilities and employees of the other party in connection with Services provided pursuant to this Agreement. Each party will cooperate with the other party in maintaining and making available necessary records, facilities and personnel required by such party in obtaining Food and Drug Administration and other regulatory approvals for its products. ARTICLE IV LIMITATIONS ON LIABILITY 4.1 LIMITATIONS ON LIABILITY. Nothing in this Agreement shall be construed as a guaranty or warranty of any type on the part of Collagen or Technologies with respect to the adequacy of any Services or the skill or fitness of personnel performing Services under this Agreement for any particular job. Neither party shall have any liability under this Agreement (including any liability for its own negligence) for damages, losses or expenses suffered by the other party or its subsidiaries as a result of the performance or non-performance of such party's obligations hereunder, unless such damages, losses or expenses are caused by or arise out of the willful misconduct or gross negligence of such party or a breach by such party of any of the express provisions hereof. In no event shall either party have any liability to the other party for indirect, incidental or consequential damages that such other party or its subsidiaries or any third party may incur or experience on account of the performance or non-performance of such party's obligations hereunder. Furthermore, neither party shall be liable to the other party or to any third party with respect to obligations or liabilities incurred by either party in connection with their separate businesses unrelated to the matters related to this Agreement. ARTICLE V TERM AND TERMINATION 5.1 TERM OF AGREEMENT. This Agreement shall become effective on the Effective Date and shall terminate on June 30, 1999; provided, however, that the term of this Agreement may be extended with respect to one or more Services with the mutual written agreement of the parties. In addition, either party may terminate the purchase of any Service or Services from the other party upon six months' prior written notice, or such shorter period as agreed upon by the parties. 5.2 TERMINATION FOR DEFAULT. Either party may terminate this Agreement and its obligations hereunder if the other party has failed to perform a material obligation under this Agreement and has not corrected such failure within 30 days after receipt of written notice from the non-defaulting party describing such failure. -5- 6 5.3 TERMINATION FOR BANKRUPTCY. Either party may terminate this Agreement upon written notice to the other party if the other party becomes involved in any voluntary or involuntary bankruptcy or other insolvency proceeding (including an assignment for the benefit of creditors) and such proceeding is not dismissed within 60 days following its commencement. 5.4 TERMINATION UPON CHANGE OF OWNERSHIP. This Agreement shall automatically terminate if, prior to the Distribution, a person or organization (other than Collagen) or series of related persons or organizations acquires more than 20% of the voting securities of Technologies without the consent of the Board of Directors of Collagen. 5.5 EFFECT OF TERMINATION. Any termination of this Agreement shall not affect or discharge the obligation of any party to pay amounts owed to the other party prior to such termination. Nothing in this Agreement shall limit any remedies which either party may have concerning the default of the other, except in no event shall either party be liable to the other for any incidental or consequential damages or lost profits with respect to any failure to perform obligations pursuant to this Agreement. 5.6 SURVIVAL OR PROVISIONS. The rights and obligations of the parties pursuant to Article IV shall survive termination of this Agreement. ARTICLE VI MISCELLANEOUS This Agreement shall be subject to the terms and provisions of Article XI of the Separation Agreement, which are hereby incorporated into this Agreement to the extent applicable. -6- 7 IN WITNESS WHEREOF, the parties hereto have caused this Services Agreement to be executed by their duly authorized representatives. COLLAGEN CORPORATION By: /s/ Gary S. Petersmeyer ------------------------------- Name: Gary S. Petersmeyer Title: President and CEO COHESION TECHNOLOGIES, INC. By: /s/ David Foster ------------------------------- Name: David Foster Title: CEO -7- 8 EXHIBIT A Technologies Services 1. Facilities (for 1850 Embarcadero Road, Palo Alto, California facility only): (a) Maintenance and repair of buildings and leasehold improvements, intra-building moves and security system (alarm and card key). (b) Environmental health and safety, including employee training and monitoring, obtaining and maintaining permits and government plan compliance. (c) For so long as Collagen occupies the facility located at 1850 Embarcadero Road, Palo Alto, California or any other facility owned or leased by Technologies, provision of property and casualty insurance coverage, including listing Collagen as a named insured, claims processing, premium administration and contract negotiation and renewal. 2. Administrative: (a) Provision of library services, including data-base maintenance and literature search services. (b) Provision of investor relations services, including drafting and issuing of press releases and other corporate communications, organizing and participating in conferences and general investor communications activities. 3. Equipment: (a) For so long as Collagen occupies the facility located at 1850 Embarcadero Road, Palo Alto, California or any other facility owned or leased by Technologies, telephone-related services, including maintenance and repair, usage monitoring and allocation. 4. Research and Development, Clinical and Regulatory: (a) Provision of research and development services, including animal studies, histology, serology, analytical chemistry, formulation and process improvement activities, to the extent that such services are not provided for by a separate development agreement. (b) Provision of clinical and regulatory services related to the human placental collagen and collagen polymer programs and other matters upon request of Collagen management and agreement of Technologies management. 9 EXHIBIT B Collagen Services 1. Financial and Tax: (a) Payroll administration. (b) Preparation and filing of all consolidated tax and combined income returns. (c) Assistance with state and local property tax and sales tax compliance. (d) Assistance with financial accounting for taxes. (e) Supervision of all federal, state and local tax audits, protests, administrative proceedings and litigation. (f) Preparation and submission of all tax ruling requests. (g) Rendering and obtaining all tax opinions. (h) Provision of general financial reporting and accounting services, including collection of accounts receivable, billing, payables and fixed asset administration, preparation of monthly financial statements and assistance in preparation of SEC reports and filings. 2. Human Resources: (a) Health and welfare benefits (including medical, dental, disability, life and other insurance available to employees of Technologies) administration, including enrollment, claims administration and withdrawals. (b) New employee orientation. (c) Administration of the Collagen Corporation 401(k) Savings Plan, including loan approval and administration, monthly reconciliation, enrollment, withdrawals and rollovers, fund oversight and customer service monitoring, for so long as employees of Technologies or any member of the Technologies Group are eligible to, and do, participate in such plan. 3. Legal Services: (a) Relating to: (i) Collagen Corporation v. Matrix Pharmaceuticals, Inc., Case No. CV746197, settled on May 23, 1997; and 10 (ii) Collagenesis v. Charles Williams, Cohesion Corporation and Collagen Corporation, Case No. 97-582A, pending in the Superior Court, Commonwealth of Massachusetts. (iii) Environmental claim regarding the Ramp Industries site. (b) Employment-related matters. (c) Other matters, upon request of Technologies management. 4. Administrative: (a) Receptionist services, mail service and maintenance of office equipment. (b) Purchasing services. (c) Prior to the Distribution (or for such shorter period of time as is mutually agreed upon by Collagen and Technologies), provision of director and officer liability, comprehensive general liability, product liability and employer liability insurance coverage and other insurance coverage maintained by Collagen as of the Effective Date and not otherwise specifically addressed in this Agreement, the Separation Agreement or the other Ancillary Agreements, (as defined in the Separation Agreement), including listing Technologies as a named insured, claims processing, premium administration and contract negotiation and renewal. 5. Regulatory Services: (a) Preparation, filing and maintenance of regulatory filings with the United States Food and Drug Administration and state and international regulatory agencies or bodies with respect to Collagraft(R) bone anchor products, recombinant collagen and related products, Persistent Collagen (as defined in the Separation Agreement) and related products, osteoarthritis products, ophthalmologic products and other matters upon request of Technologies management. 6. Quality Assurance Services: (a) Provision of services with respect to obtaining and maintaining ISO 9000 certification of Technologies. (b) Other matters upon request of Technologies management and agreement of Collagen management. 7. Medical Affairs: (a) Receive questions or complaints concerning Collagraft(R) bone graft matrix implant and Collagraft(R) bone graft matrix strip (collectively, "Collagraft bone graft products"), conduct follow-up inquiries and investigations, maintain the 11 product complaint database and prepare all required reports to state, federal and international regulatory agencies with respect to product complaints and adverse events concerning the Collagraft bone graft products. 8. Manufacturing and Related Services: (a) Upon request of Technologies management and agreement of Collagen management, manufacturing and related services with respect to production/manufacturing, quality control, distribution/logistics and inventory control, validation, process development and packaging development, but only to the extent that such services are not provided for in the Collagen Supply Agreement by and between Collagen and Technologies or the Collagraft Supply Agreement by and between Collagen and Technologies. 12 EXHIBIT C Definition Of Cost Service costs, including all general and administrative expenses, will be invoiced from Aesthetics to Collagen or Collagen to Aesthetics, for the following: 1. All identifiable out-of-pocket costs solely related to the other entity will be invoiced to the entity that solely benefits. 2. Identifiable costs that benefit both entities will be billed based upon the estimated percentage of benefit. Examples of costs that benefit both entities could include the following types of expenditures: audit fees, tax fees, consultants, temporary help, office supplies and travel and entertainment expenses. Specific costs are to be agreed upon by the service provider and each entity prior to the beginning of each fiscal year or prior to the service being provided. 3. Salaries and related costs for time spent on performing services for the other entity, plus, after the Pricing Date, 20%. Such costs will be allocated based on a department by department estimate of time spent performing services related to the other entity, as opposed to vouchering time via payroll timecards. Note: Costs related to buildings/facilities and utilities will not be billed to the other entity. EX-10.101 8 BENEFITS AGREEMENT 1 EXHBIT 10.101 BENEFITS AGREEMENT This BENEFITS AGREEMENT (this "Agreement"), effective as of January 1, 1998 (the "Effective Date), is made by and between COLLAGEN CORPORATION, a Delaware corporation ("Collagen"), and COHESION TECHNOLOGIES, INC., a Delaware corporation formerly known as Collagen Technologies, Inc. ("Technologies"). RECITALS 1. Collagen is currently the owner of all outstanding shares of common stock of Technologies. 2. Collagen intends to transfer the assets and liabilities, including employees, of certain product lines to Technologies, as more fully described in the Separation and Distribution Agreement, effective as of January 1, 1998, between Collagen and Technologies (the "Separation Agreement"). 3. Collagen and Technologies intend that certain employee benefits be provided to certain employees of Collagen and Technologies under certain employee benefit plans or programs following the Effective Date; and 4. Collagen and Technologies intend to cause certain of their respective plans to transfer accrued liabilities and assets relating to such liabilities between such plans. NOW, THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS Except as otherwise defined herein, capitalized terms used herein shall have the meanings given to them in the Separation Agreement. In addition, for the purposes of this Agreement, the capitalized terms set forth below shall have the meanings set forth in this Article I: 1.1 "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and any applicable state law requiring continuation coverage under a medical plan. 1.2 "Collagen 401(k) Plan" means the Collagen Corporation 401(k) Savings Plan. 1.3 "Collagen ESPP" means the Collagen Corporation 1985 Employee Stock Purchase Plan. 1.4 "Collagen Plan" means any employee benefit plan or program maintained by Collagen. 2 1.5 "Collagen Stock Options" means options to purchase shares of Collagen Common Stock granted prior to the Distribution Date pursuant to the Collagen Corporation 1984 Incentive Stock Option Plan, as amended, the Collagen Corporation 1990 Directors' Stock Option Plan, as amended or the Collagen Corporation 1994 Stock Option Plan, as amended. 1.6 "Collagen Welfare Plans" means the Collagen medical plan, dental benefit plan, vision plan, Employee Assistance Program, life insurance plan, AD&D insurance plan, long term disability insurance plan, supplemental life insurance plan, personal time program, medical reimbursement plan and dependent care reimbursement plan. 1.7 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 1.8 "Fair Market Value" means, as of any date, the fair market value of a share of Common Stock of Collagen or Technologies, as applicable, determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system including without limitation the National Market of the National Association of Securities Dealers, Inc. Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported), as quoted on such system or exchange, or the exchange with the greatest volume of trading in Common Stock for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is quoted on the Nasdaq System (but not on the National Market thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board of Directors of the issuing company. 1.9 "Technologies 401(k) Plan" means the Cohesion Technologies, Inc. 401(k) Savings Plan to be adopted by Technologies after the Effective Date. 1.10 "Technologies Medical Plans" means the medical, dental and vision plans established by Technologies which provide benefits which are comparable to the benefits provided under the medical, dental and vision plans that are Collagen Welfare Plans. 1.11 "Technologies Plan" means any employee benefit plan or program maintained by Technologies. -2- 3 1.12 "Technologies Welfare Plans" means the welfare benefit plans established by Technologies which correspond to benefits provided under the Collagen Welfare Plans. 1.13 "Transferred Technologies Employee" means any person whose relationship with Collagen or a member of the Collagen Group, prior to the Effective Date, under common law is that of an employee and who, as of the Effective Date, is transferred to, and becomes an employee of, Technologies or a Technologies Subsidiary as set forth on Schedule 2.4 of the Separation Agreement. 1.14 "Unvested Collagen Stock Options" means Collagen Stock Options that, as of the applicable date, are not exercisable to purchase shares of Collagen Common Stock. 1.15 "Vested Collagen Stock Options" means Collagen Stock Options that, as of the applicable date, are exercisable to purchase shares of Collagen Common Stock ARTICLE II EMPLOYEE BENEFITS 2.1 PROVISION OF EMPLOYEE BENEFITS. The employee benefits described in Articles IV, V and VI of this Agreement shall be provided by Collagen for the time periods provided in such Articles to any person who is a Transferred Technologies Employee or who, on or after the Effective Date is or becomes an employee of Technologies or a member of the Technologies Group, subject to such employee's satisfaction of each Collagen Plan's eligibility requirements, the terms and conditions of each such plan and the terms and conditions of such Articles. The stock option benefits described in Article III shall be provided by Collagen and Technologies, as applicable, subject to each optionee's satisfaction of applicable eligibility requirements and the other terms and conditions of the relevant option plan, the provisions of applicable laws and regulations and the terms and conditions of Article III. 2.2 CORPORATE ACTION. Collagen and Technologies shall each take all action necessary, pursuant to the terms of the Collagen Plans or otherwise, to cause Technologies and any member of the Technologies Group to continue as a participating employer in the Collagen Plans, and permit the participation by employees of Technologies and members of the Technologies Group in such plans, to the extent described in this Agreement. 2.3. LEGAL REQUIREMENTS. Notwithstanding any other provision of this Agreement to the contrary, Collagen may restrict any employee of Technologies or any member of the Technologies Group from participating in or may limit such employee's benefits under any Collagen Plan if Collagen determines in good faith (and without disadvantaging employees of Technologies in favor of employees of Collagen) that such restriction or limitation is reasonably necessary to preserve the tax-favored status of such plan or to maintain such plan's compliance with ERISA or any other applicable legal requirement (including any non-discrimination requirement). Collagen shall promptly notify Technologies if Collagen is considering any such action. -3- 4 2.4 COLLAGEN'S RIGHT TO AMEND PLANS. Except to the extent limited by law, nothing contained in this Agreement shall preclude Collagen from amending any Collagen Plan; provided, however, that Collagen may not amend any Collagen Plan in order to avoid its obligations under this Agreement. Prior to adopting any amendment to any Collagen Plan, representatives of Collagen will consult with representatives from Technologies with respect to such amendment, but if the representatives of Collagen and Technologies do not agree with respect to such amendment, the decision of the representatives of Collagen shall prevail and Collagen shall have the right to effect such amendment, provided that the conditions set forth in the first sentence of this Section 2.4 are satisfied. Collagen shall provide notice to Technologies if Collagen adopts any material amendment to any Collagen Plan during the period in which Technologies or any member of the Technologies Group is a participating employer in such plan and where such amendment applies to employees of Technologies or any member of the Technologies Group. ARTICLE III STOCK OPTIONS 3.1 EMPLOYEES AND CONSULTANTS. (a) Each employee (including officers) and consultant of Collagen or any Subsidiary of Collagen who, immediately prior to the Distribution Date, holds a Vested Collagen Stock Option will, in connection with the Distribution, receive two new options in replacement of the original Vested Collagen Stock Option, one to acquire shares of Collagen Common Stock and the other to acquire shares of Technologies Common Stock. The number of shares subject to each new option will be determined pursuant to a formula agreed upon by the Boards of Directors (or any committee thereof) of Collagen and Technologies, after consultation with legal and accounting advisors. The exercise prices of each of the new options will be determined using a formula intended to preserve any spread between the exercise price of the Vested Collagen Stock Option and the Fair Market Value of Collagen Common Stock prior to the Distribution. All other terms of the new options will be substantially identical to those of the Vested Collagen Stock Option; provided, however, that each of the new options will terminate within a specified number of days (as set forth in the original Vested Collagen Stock Option) following termination of the optionee's employment or consulting relationship with the entity (Collagen or Technologies) by which such optionee shall be employed or retained as a consultant following the Distribution. At the option of the respective Board of Directors (or any committee thereof), out-of-the-money options may be treated differently. (b) Each employee (including officers) and consultant of Collagen or any Subsidiary of Collagen who, immediately prior to the Distribution Date, holds an Unvested Collagen Stock Option will, in connection with the Distribution, receive a new option in replacement of the Unvested Collagen Stock Option to acquire shares of Common Stock of the entity (Collagen or Technologies) by which such optionee shall be employed or retained as a consultant following the Distribution. The number of shares subject to the new option will be determined pursuant to a formula agreed upon by the Boards of Directors (or any committee thereof) of Collagen and Technologies, after consultation with legal and accounting advisors. The exercise price of the -4- 5 new option will be determined using a formula intended to preserve that portion of any spread between the exercise price of the Unvested Collagen Stock Option and the Fair Market Value of Collagen Common Stock prior to the Distribution that is attributable to the entity issuing the new option. All other terms of the new option, including vesting, will be substantially identical to those of the Unvested Collagen Stock Option; provided, however, that the new option will terminate within a specified number of days (as set forth in the original Unvested Collagen Stock Option) following termination of the optionee's employment or consulting relationship with the entity (Collagen or Technologies) by which such optionee shall be employed or retained as a consultant following the Distribution. At the option of the respective Board of Directors (or any committee thereof), out-of-the-money options may be treated differently. (c) The exercise price of each new option received by employees and consultants pursuant to Sections 3.1(a) and 3.1(b) will generally be determined based on a percentage of the post-Distribution Fair Market Value of either a Collagen or Technologies share of Common Stock, as applicable, equal to a pro rata percentage of the exercise price of the original option compared to the Fair Market Value of a share of Collagen Common Stock prior to the Distribution (i.e. a pro rata adjustment to the exercise price based on the relationship between the Fair Market Value of the underlying stock immediately before and after the Distribution). (d) Following the Distribution, the Boards of Directors (or any committee thereof) of Collagen and Technologies may, at their discretion, grant additional options to their respective employees (including officers) and consultants at such time or times and having such terms as are determined by the respective Board of Directors (or any committee thereof). 3.2 NON-EMPLOYEE DIRECTORS. (a) Each non-employee director of Collagen who, immediately prior to the Distribution Date, holds a Vested Collagen Stock Option will, in connection with the Distribution, receive two new options in replacement of the original Vested Collagen Stock Option, one to acquire shares of Collagen Common Stock and the other to acquire shares of Technologies Common Stock. The number of shares subject to each new option will be determined pursuant to a formula agreed upon by the Boards of Directors (or any committee thereof) of Collagen and Technologies, after consultation with legal and accounting advisors. The exercise prices of each of the new options will be determined using a formula intended to preserve any spread between the exercise price of the Vested Collagen Stock Option and the Fair Market Value of Collagen Common Stock prior to the Distribution. All other terms of the new options will be substantially identical to those of the Vested Collagen Stock Option; provided, however, that each of the new options will terminate within a specified number of days (as set forth in the original Vested Collagen Stock Option) following termination of the optionee's service as a director of the entity (Collagen or Technologies) for which such optionee shall serve as a director following the Distribution. At the option of the respective Board of Directors (or any committee thereof), out-of-the-money options may be treated differently. (b) Each non-employee director of Collagen who, immediately prior to the Distribution Date, holds an Unvested Collagen Stock Option will, in connection with the -5- 6 Distribution, receive a new option in replacement of the Unvested Collagen Stock Option to acquire shares of Common Stock of the entity (Collagen or Technologies) for which such optionee shall serve as a director following the Distribution. The number of shares subject to the new option will be determined pursuant to a formula agreed upon by the Boards of Directors (or any committee thereof) of Collagen and Technologies, after consultation with legal and accounting advisors. The exercise price of the new option will be determined using a formula intended to preserve that portion of any spread between the exercise price of the Unvested Collagen Stock Option and the Fair Market Value of Collagen Common Stock prior to the Distribution that is attributable to the entity issuing the new option. All other terms of the new option, including vesting, will be substantially identical to those of the Unvested Collagen Stock Option; provided, however, that the new option will terminate within a specified number of days (as set forth in the original Unvested Collagen Stock Option) following termination of the optionee's service as a director of the entity (Collagen or Technologies) for which such optionee shall serve as a director following the Distribution. At the option of the respective Board of Directors (or any committee thereof), out-of-the-money options may be treated differently. (c) The exercise price of each new option received by non-employee directors pursuant to Sections 3.2(a) and 3.2(b) will generally be determined based on a percentage of the post-Distribution Fair Market Value of either a Collagen or Technologies share of Common Stock, as applicable, equal to a pro rata percentage of the exercise price of the original option compared to the Fair Market Value of a share of Collagen Common Stock prior to the Distribution (i.e. a pro rata adjustment to the exercise price based on the relationship between the Fair Market Value of the underlying stock immediately before and after the Distribution). (d) Either or both of the 1998 Director Stock Option Plans adopted by Collagen and Technologies may provide for additional automatic grants to non-employee directors at the time of the Distribution. Following the Distribution, each non-employee director of Collagen and Technologies will be eligible to participate in the 1998 Director Stock Option Plan adopted by the company for which he or she serves as a director and to receive automatic annual option grants pursuant to such plan. 3.3 REGISTRATION OF SHARES. Collagen will use its best efforts to register under the Securities Exchange Act of 1934, as amended, and applicable state securities laws the shares of Collagen Common Stock issuable upon exercise of the options issued pursuant to Sections 3.1 and 3.2. Technologies will use its best efforts to register under the Securities Exchange Act of 1934, as amended, and applicable state securities laws the shares of Technologies Common Stock issuable upon exercise of the options issued pursuant to Sections 3.1 and 3.2 -6- 7 ARTICLE IV 401(k) PLAN 4.1 PARTICIPATION IN COLLAGEN 401(k) PLAN. For the period beginning on the Effective Date and ending on the earlier of (a) the date on which Technologies adopts the Technologies 401(k) Plan or (b) the date on which Technologies and each member of the Technologies Group no longer qualify as participating employers in the Collagen 401(k) Plan, Technologies and each member of the Technologies Group shall be participating employers in the Collagen 401(k) Plan. Upon agreement by Collagen and Technologies, Technologies shall take all action necessary to establish the Technologies 401(k) Plan (including, but not limited to, all action necessary to enable Technologies to administer such plan and to obtain a favorable determination letter from the Internal Revenue Service with respect to such plan) as soon as administratively practicable. Upon the effective date of the Technologies 401(k) Plan, Technologies and members of the Technologies Group shall no longer be participating employers in the Collagen 401(k) Plan and shall take all action necessary to effectuate their withdrawal as participating employers under the terms of the Collagen 401(k) Plan and to have the accounts, including outstanding loan balances, of all individual participants who are employees of Technologies or a member of the Technologies Group transferred to the Technologies 401(k) Plan. During the period when Technologies or any member of the Technologies Group is a participating employer in the Collagen 401(k) Plan, the Board of Directors of Technologies will determine the timing and extent of any matching contribution to be made on behalf of employees of Technologies or any member of the Technologies Group participating in the Collagen 401(k) Plan and Technologies shall bear all costs of making any such matching contribution (including, without limitation, the amount of any such matching contribution). ARTICLE V WELFARE BENEFITS 5.1 WELFARE BENEFITS PROVIDED UNDER COLLAGEN PLANS. During the period beginning on the Effective Date and ending on the earlier of (a) the date on which Technologies adopts a plan or program similar to the applicable Collagen Welfare Plan or (b) the date on which Technologies and each member of the Technologies Group no longer qualify as participating employers in the applicable Collagen Welfare Plan, Technologies and each member of the Technologies Group shall continue to be participating employers in each Collagen Welfare Plan. Technologies and each member of the Technologies Group shall take all action necessary to terminate its participation in and to withdraw as a participating employer under a Collagen Welfare Plan as of the earlier of (a) the date on which Technologies adopts a plan or program similar to the applicable Collagen Welfare Plan or (b) the date on which Technologies and each member of the Technologies Group no longer qualify as participating employers in the applicable Collagen Welfare Plan. Effective at such time after the Effective Date as is determined by the Board of Directors of Technologies, Technologies shall establish the Technologies Medical Plans. Any Technologies employee who is covered under the Collagen medical plan, the Collagen dental -7- 8 plan or the Collagen vision plan on the date of establishment of the applicable Technologies Medical Plan, shall not be excluded from coverage under any Technologies Medical Plan due to a preexisting condition limitation under such Technologies Medical Plan to the extent such limitation would entitle such employee to elect COBRA coverage under the Collagen medical plan, the Collagen dental plan or the Collagen vision plan, as applicable. 5.2 PAYMENT OF WELFARE PLAN COSTS. (a) With respect to each Transferred Technologies Employee and each employee of Technologies or any member of the Technologies Group who participates in the Collagen Welfare Plans, Technologies shall pay Collagen the costs described in Section 7.3 of this Agreement. Technologies shall pay all costs associated with the provision after the Effective Date of long-term disability benefits to any Transferred Technologies Employee and any employee of Technologies or any member of the Technologies Group. Technologies shall not pay Collagen any amount with respect to the provision of benefits under its or Collagen's personal time program, but instead shall pay directly the costs of providing such benefits. Technologies shall pay all costs associated with the provision of benefits to any dependent of any Transferred Technologies Employee or any employee of Technologies or any member of the Technologies Group to the extent Technologies or any member of the Technologies Group is required to pay costs as an employer associated with the provision of welfare benefits to such Transferred Technologies Employee or employee of Technologies or any member of the Technologies Group. Any amounts paid by a Transferred Technologies Employee or an employee of Technologies or any member of the Technologies Group for dependent coverage shall, to the extent not paid directly to Technologies or the applicable member of the Technologies Group, be transferred or credited to Technologies or the applicable member of the Technologies Group. Collagen shall pay all costs as an employer associated with the provision of benefits to any dependent of any employee or former employee to the extent Collagen is required to pay costs as an employer associated with the provision of welfare benefits to such employee or former employee. (b) Notwithstanding the foregoing: (i) Collagen shall pay all costs under the Collagen medical plan, the Collagen dental plan and the Collagen vision plan which as of the Effective Date have been incurred but not reported relating to any Transferred Technologies Employee and any employee of Technologies or any member of the Technologies Group, but only if claims for such costs are submitted in written form to Collagen within 365 days after the Effective Date. (ii) Collagen shall pay all costs associated with the provision of long-term disability benefits through the Effective Date to any Transferred Technologies Employee and any employee of Technologies or any member of the Technologies Group who as of the Effective Date is receiving long-term disability benefits under any Collagen Welfare Plan. -8- 9 5.3 TERMS OF COLLAGEN WELFARE PLANS. For so long as Technologies or any member of the Technologies Group is a participating employer in any Collagen Welfare Plan, a representative of Collagen and a representative of Technologies shall together negotiate the terms, including, without limitation, premiums, extent of coverage and available options, of any Collagen Welfare Plan that is subject to renewal, or that such representatives agree should be renegotiated. If the representatives of Collagen and Technologies do not agree with respect to any terms subject to negotiation, the decision of the representative of Collagen shall prevail. 5.4 TERMS OF TECHNOLOGIES WELFARE PLANS. For so long as the Collagen or any member of the Collagen Group is a participating employer in any Technologies Welfare Plan, a representative of Technologies and a representative of Collagen shall together negotiate the terms, including, without limitation, premiums, extent of coverage and available options, of any Technologies Welfare Plan that is subject to renewal, or that such representatives agree should be renegotiated. If the representatives of Collagen and Technologies do not agree with respect to any terms subject to negotiation, the decision of the representative of Technologies shall prevail. ARTICLE VI MISCELLANEOUS PLANS AND AGREEMENTS 6.1 COLLAGEN EMPLOYEE STOCK PURCHASE PLAN. The Board of Directors of Collagen has designated Technologies and each Technologies Subsidiary as a "designated subsidiary" under the Collagen ESPP as of the Effective Date. The Collagen ESPP and the offering period that commenced on January 1, 1998 under the Collagen ESPP will terminate one week prior to the record date for the Distribution and all employee contributions through such date will be used to purchase shares of Collagen Common Stock. Each of Collagen and Technologies will adopt a new 1998 Employee Stock Purchase Plan, having such terms as are approved by the respective Board of Directors, and the initial offering periods under each such plan shall commence on or shortly after the Distribution Date. 6.2 WORKERS' COMPENSATION. (a) Collagen shall retain the responsibility for all costs relating to Technologies employees and former Technologies employees relating to incidents occurring up to and including the Effective Date (including, but not limited to, workers' compensation claims which are filed after the Effective Date but which relate to incidents occurring on or prior to the Effective Date). Any amount by which actual expenses vary from the reserve established by Collagen for such expenses for periods prior to the Effective Date shall be retained by Collagen. (b) Technologies shall assume responsibility for all workers' compensation claims relating to Transferred Technologies Employees, Technologies employees and former employees relating to incidents beginning after the Effective Date. Technologies shall take all action necessary to effect timely return to work for all Transferred Technologies Employees, Technologies employees and former Technologies employees who are on a leave of absence from employment during which they were entitled to receive workers' compensation (including, -9- 10 but not limited to, persons with respect to whom Collagen has the liability to pay workers' compensation claims). 6.3 PERSONAL TIME PROGRAM. After the Effective Date, it is expected that Technologies shall maintain for its employees a personal time program. After the Effective Date, Technologies shall be responsible for costs incurred to provide personal time to Transferred Technologies Employees whether accrued before, on or after the Effective Date. ARTICLE VII ADMINISTRATION OF PLANS 7.1 PLAN ADMINISTRATION. Technologies and each member of the Technologies Group shall provide Collagen and its consultants and advisors whatever information or assistance is reasonably requested by Collagen from an employer participating in the Collagen Plans. 7.2 INFORMATION TO BE PROVIDED TO COLLAGEN. To the extent not contrary to law, Technologies shall provide any information which Collagen may request, including but not limited to information relating to dates of termination of employment, in order to provide benefits to any eligible employee of Technologies or any member of the Technologies Group under the terms and conditions described in this Agreement and under the applicable Collagen Plans. Any such information relating to an employee's termination of employment shall be provided by Technologies to Collagen as soon as available to Technologies. Notwithstanding anything in this Agreement to the contrary, Collagen shall not be responsible for the payment of benefits to the extent Technologies does not disclose any information needed by Collagen to provide such benefits until Collagen receives such information. 7.3 EXPENSES. Technologies shall pay the amounts necessary to cover (a) all ordinary claims costs that Collagen incurs in providing benefits after the Effective Date under any Collagen Plan for the Transferred Technologies Employees or any employees of Technologies or any member of the Technologies Group and (b) Technologies' pro rata share of ordinary administration and plan asset management expenses incurred in the operation of all Collagen Plans with respect to the period after the Effective Date in which Technologies or any member of the Technologies Group is a participating employer in such plans. Collagen and Technologies shall share equally any extraordinary costs, expenses or liabilities incurred by Collagen and relating to events occurring prior to the Distribution Date in connection with administration of the Collagen Plans on behalf of Technologies or any member of the Technologies Group, including, but not limited to, costs of amending plans to reflect coverage of the employees of Technologies or any member of the Technologies Group, costs of any conversion of any Collagen Plan to multiple employer plan status and costs of preparing any extraordinary communications to Transferred Technologies Employees or any employees or Technologies or any member of the Technologies Group concerning their employee benefits. Technologies shall pay any such extraordinary costs incurred by Collagen and relating to events occurring on or after the Distribution Date. Collagen shall obtain Technologies' written approval prior to incurring any such extraordinary costs, expenses or liabilities which are discretionary. -10- 11 7.4 PAYMENT TERMS. Technologies shall pay the amounts owed to Collagen pursuant to Section 7.3 on a quarterly basis, within 30 days after receipt by Technologies of a detailed invoice for such expenses. ARTICLE VIII SERVICE CREDIT; NO RIGHTS TO EMPLOYMENT 8.1 SERVICE CREDIT. Each Transferred Technologies Employee shall receive credit for service provided as an employee of Collagen or any Affiliate of Collagen prior to the Effective Date for purposes of all Collagen Plans and Technologies Plans described in this Agreement. 8.2 NO RIGHTS. This Agreement shall not give any employee or any person any right to continued employment or to any employee benefits. This Agreement shall not give any person other than a party any rights, including in particular any third-party beneficiary or other right, to enforce any provision of this Agreement or to receive damages for a breach of any such provision. Nothing in this Agreement shall obligate Collagen, Technologies or any of their respective direct or indirect Subsidiaries to assist any Technologies employee to enforce any rights such employee may have with respect to any of the employee benefits described in this Agreement. ARTICLE IX MISCELLANEOUS 9.1 MISCELLANEOUS PROVISIONS. This Agreement shall be subject to the terms and provisions set forth in Article XI of the Separation Agreement, which are hereby incorporated into this Agreement to the extent applicable. -11- 12 IN WITNESS WHEREOF, the parties hereto have caused this Benefits Agreement to be executed by their duly authorized representatives. COLLAGEN CORPORATION By: /s/ Gary S. Petersmeyer ------------------------------- Name: Gary S. Petersmeyer Title: President and CEO COHESION TECHNOLOGIES, INC. By: /s/ David Foster ------------------------------- Name: David Foster Title: CEO -12- EX-10.102 9 VITROGEN INTERNATIONAL DISTRIBUTION AGREEMENT 1 EXHIBIT 10.102 VITROGEN INTERNATIONAL DISTRIBUTION AGREEMENT This VITROGEN INTERNATIONAL DISTRIBUTION AGREEMENT ("Agreement"), effective as of January 1, 1998 (the "Effective Date"), is made by and between COLLAGEN INTERNATIONAL, INC., a Delaware corporation ("CII"), and COHESION TECHNOLOGIES, INC., a Delaware corporation formerly known as Collagen Technologies, Inc. ("Technologies"). RECITALS 1. CII is a wholly owned subsidiary of Collagen Corporation ("Collagen"). 2. Technologies and Collagen have entered into a relationship whereby certain assets and liabilities are being transferred from Collagen to Technologies as further described in the Separation and Distribution Agreement effective as of January 1, 1998 between Collagen and Technologies (the "Separation Agreement") and in the Ancillary Agreements. 3. Technologies wishes to appoint CII as a non-exclusive distributor in the Territory for certain products defined herein, and CII wishes to accept such appointment; NOW, THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS Except as otherwise defined herein, capitalized terms used herein shall have the meanings given to them in the Separation Agreement. In addition, for the purposes of this Agreement, the capitalized terms set forth below shall have the meanings set forth in this Article I. 1.1 "Product" shall mean the product currently known as Vitrogen(TM), the specifications which are attached hereto as Exhibit A ("Specifications"). 1.2 "Net Sale Price" shall mean the gross invoiced price for Products received by CII and/or its Affiliates for the sale of Product in the Territory less deductions made in the normal course of business for: (a) commercially reasonable quantity, trade and cash discounts or rebates, recalls, credits or allowance and adjustments separately and actually credited to customers for rejections and returns of Product; (b) charges for freight, postage, transportation, insurance, third party distribution costs and other distribution or delivery costs not otherwise charged to the customer and actually paid by CII and/or its Affiliates; and (c) any export, import, sales, use, withholding or excise tax, VAT, duties, tariffs, federal, state or local tax, or any other taxes or other government charges levied on the use, sale, transportation or delivery of Product and borne by CII and/or its Affiliates except any tax based on the net income of CII or its Affiliates. 1.3 "Territory" shall mean Germany. -1- 2 ARTICLE II DISTRIBUTION 2.1 APPOINTMENT. Subject to the terms and conditions in this Agreement, Technologies hereby appoints CII as a non-exclusive distributor and reseller for the Product in the Territory, and CII hereby accepts such appointment; provided, however, that the parties specifically agree that CII shall have no duty to advertise, market or promote the Product in the Territory so as to increase or maintain Product sales in the Territory. 2.2 ORDER AND ACCEPTANCE. No later than ninety (90) days prior to the beginning of each calendar quarter, representatives from each party shall meet, or communicate via telephone conference, to agree upon a forecast, of the projected sales for the Product in the Territory for such quarter ("Forecast"). Based on such Forecast, CII shall deliver to Technologies a written purchase order for Product no later than sixty (60) days prior to the beginning of such quarter specifying Product quantity and delivery date for such quarter. Purchase orders may initially be placed by telephone or telecopy; provided, however, that a signed confirming purchase order is received in writing (which may include telecopy transmission) by Technologies. Upon receipt, Technologies shall promptly accept such purchase order and return a signed acceptance thereof to CII. Notwithstanding anything herein to the contrary, no order shall be binding upon either party until accepted by Technologies in writing. Once accepted, each party may cancel or reschedule purchase orders for Product only with prior written approval of the other party. 2.3 DELIVERY. Technologies shall ship (or shall direct Collagen to ship) Product to the address specified in the applicable purchase order submitted by CII by the scheduled delivery date specified therein; provided that Technologies shall have no liability for any delay in shipment that is due to Collagen's actions or failures to act. Technologies shall deliver Product to CII packaged and labeled in such form as to be ready for direct shipment to end users. All shipments shall be F.O.B. CII's receiving facilities in Munich, Germany, and Technologies shall bear the risk of loss and cost of transportation of the Product to CII's receiving facilities. All shipping, freight and insurance shall be paid by Technologies. 2.4 PURCHASE PRICE. CII and/or its Affiliates shall pay to Technologies the Net Sale Price actually received by CII and/or its Affiliates for Product sold by CII and/or its Affiliates in the Territory. 2.5 INVOICING AND REPORTING. 2.5.1 Technologies shall invoice CII for each shipment of Product based on the Technologies' direct cost of procuring the Product ("Cost of Goods") contained in such shipment. All invoices shall be sent via first class mail or by telecopy to CII's address for notices hereunder. 2.5.2 Within sixty (60) days after the last day of each calendar quarter, CII shall provide Technologies with a written report ("Sales Report") setting forth: -2- 3 (i) the quantity of Product sold by CII and/or its Affiliates in such quarter; and (ii) the gross invoiced sales price and corresponding Net Sales Price received by CII and/or its Affiliates therefore in the currency in which such sale was made. 2.6 PAYMENT AND AUDIT. CII shall pay Technologies for all invoiced amounts for Cost of Goods within thirty (30) days of receipt of Technologies' invoice. In addition, on the same day as the Sales Report is delivered for a quarter, CII shall pay Technologies an amount equal to the Net Sales Price less the Cost of Goods paid by CII for all Product sold during such quarter. All payments shall be made to Technologies in U.S. Dollars. The exchange rate to be used for all currency conversions shall be the rate as reported in the Wall Street Journal (Western Edition) on the last business day of the quarter for which such payment is due. Upon reasonable notice to CII, Technologies shall have the right to have an independent certified public accountant, selected by Technologies and reasonably acceptable to CII, audit CII's records during normal business hours to verify CII's calculation of the Net Sales Price for Product; provided, however, that such audit shall not take place more frequently than once a year and shall not cover such records for more than the preceding two (2) years. The accountant shall only report to Technologies to the accuracy of the amounts payable by CII to Technologies for Product, and in the event of any inaccuracy, the correct amounts thereof. Technologies shall promptly refund to CII the amount of any overpayment determined in such audit, and CII shall promptly pay to Technologies the amount of any underpayment. Such audit shall be at Technologies' expense unless such audit indicates greater than five percent (5%) underpayment by CII, in which case such audit shall be at CII's expense. CII shall preserve and maintain all such records and accounts required for audit for a period of two (2) years after the calendar quarter for which the record pertains. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 BY BOTH PARTIES. Each party represents and warrants to the other that: (i) it has full power and authority to execute, deliver and perform this Agreement; and (ii) the execution, delivery and performance by such party of this Agreement does not contravene any law, regulation, rule or order binding on such party and do not contravene the provisions of or constitute a default under any contract or other agreement binding on such party. 3.2 REGULATORY APPROVALS. Technologies warrants to CII that any and all required government approvals, including any approvals under applicable health and safety laws and regulations, to import, register, market, distribute and sell the Product in the Territory, have been secured as of the Effective Date and shall be maintained during the Term of this Agreement, and Technologies shall indemnify CII for any liabilities and damages to CII arising from any breach of the foregoing warranty. -3- 4 ARTICLE IV TERM AND TERMINATION 4.1 TERM. The term of this Agreement ("Term") shall commence on the Effective Date and continue in full force and effect until June 30, 1999. 4.2 TERMINATION FOR CAUSE. Either party shall have the right to terminate this Agreement following any material breach or default in performance under this Agreement by the other party upon sixty (60) days prior written notice to the breaching party specifying the nature of the breach or default. Unless the breaching party has cured the breach or default prior to the expiration of the sixty (60) day period, the non-breaching party, at its sole option, may terminate this Agreement upon written notice to the breaching party. Termination of this Agreement shall become effective upon receipt of such second notice by the breaching party. 4.3 EFFECT OF TERMINATION. Expiration or termination of this Agreement shall not relieve the parties of any right or obligation, including but not limited to any payment obligations, accruing prior to or upon such expiration or termination. The provisions of Sections 2.5, 2.6, 3.2 and 4.3 and Articles V and VI shall survive the expiration or termination of this Agreement for any reason. All other rights and obligations of the parties shall cease upon expiration or termination of this Agreement. ARTICLE V LIMITATION OF LIABILITY IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY TO THE OTHER PARTY OR ANY OTHER THIRD PARTY FOR ANY LOST OPPORTUNITY OR PROFITS, COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OR FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES ARISING OUT OF THIS AGREEMENT, UNDER ANY CAUSE OF ACTION OR THEORY OF LIABILITY (INCLUDING NEGLIGENCE), AND WHETHER OR NOT SUCH PARTY TO THIS AGREEMENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF THE ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. ARTICLE VI MISCELLANEOUS 6.1 GOVERNING LAW. This Agreement shall be governed, controlled, interpreted and defined by and under the laws of the State of California and the United States without regard to that body of law known as conflicts of law. The parties specifically disclaim application of the Convention on Contracts for the International Sale of Goods to this Agreement. 6.2 SECTION HEADINGS. The article and section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. -4- 5 6.3 NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be sent by prepaid registered or certified mall, return receipt requested, internationally recognized courier or personal delivery, addressed to the other party at the address below or at such other address for which such party gives notice hereunder. Collagen International, Inc. Attn: _________________________ _______________________________ Fax number: ___________________ Collagen Technologies, Inc. Attn: _________________________ 2500 Faber Place Palo Alto, CA 94303 Fax number: ___________________ Such notice shall be deemed to have been given when delivered or, if delivery is not accomplished by some fault of the addressee, when tendered. 6.4 FORCE MAJEURE. Neither party shall be considered in default of performance of its obligations under this Agreement to the extent that performance of such obligations is delayed by force majeure or contingencies or causes beyond the reasonable control of such party or its suppliers, including but not limited to strike, fire, flood, earthquake, windstorm, governmental acts or orders or restrictions, failure of suppliers, or any other reason to the extent that the failure to perform is beyond the reasonable control and not caused by the negligence or willful misconduct of the nonperforming party. 6.5 NONASSIGNABILITY AND BINDING EFFECT. Each party agrees that its rights and obligations under this Agreement may not be transferred or assigned directly or indirectly without the prior written consent of the other party, which consent shall not be unreasonably withheld, except in connection with the sale of all or substantially all of the assigning party's related business. Subject to the foregoing sentence, this Agreement shall be binding upon and inure to, the benefit of the parties hereto, their successors and assigns. 6.6 PARTIAL INVALIDITY. If any provision of this Agreement is held to be invalid by a court of competent jurisdiction, then the remaining provisions shall remain, nevertheless, in full force and effect. The parties agree to renegotiate in good faith any term held invalid and to be bound by the mutually agreed substitute provision in order to give the most approximate effect intended by the parties. 6.7 NO WAIVER. No waiver of any term or condition of this Agreement shall be valid or binding on either party unless agreed in writing by the party to be charged. The failure of either party to enforce at any time any of the provisions of the Agreement, or the failure to require at any time performance by the other party of any of the provisions of this Agreement, -5- 6 shall in no way be construed to be a present or future waiver of such provisions, nor in any way affect the validity of either party to enforce each and every such provision thereafter. 6.8 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 6.9 ENTIRE AGREEMENT. This Agreement, including the Exhibits attached hereto, constitutes the entire agreement of the parties with respect to the subject matter hereof, and supersedes all prior or contemporaneous understandings or agreements, whether written or oral, between CII and Technologies with respect to such subject matter. No amendment or modification hereof shall be valid or binding upon the parties unless made in writing and signed by the duly authorized representatives of both parties. -6- 7 IN WITNESS WHEREOF, the parties hereto have caused this Vitrogen International Distribution Agreement to be executed by their duly authorized representatives. COLLAGEN INTERNATIONAL, INC. Dated: March 5, 1998 By: /s/ Gary S. Petersmeyer ------------- -------------------------------- Name: Gary S. Petersmeyer ------------------------------ Title: President and CEO ------------------------------ COHESION TECHNOLOGIES, INC. Dated: March 5, 1998 By: /s/ David Foster ------------- -------------------------------- Name: David Foster ------------------------------ Title: CEO ------------------------------ -7- 8 EXHIBIT A SPECIFICATIONS Vitrogen(TM) Collagen Corporation Part No. 07010702 EX-10.103 10 ASSIGNMENT AND LICENSE AGREEMENT 1 EXHIBIT 10.103 ASSIGNMENT AND LICENSE AGREEMENT This ASSIGNMENT AND LICENSE AGREEMENT (the "Agreement"), effective as of January 1, 1998 ("Effective Date"), is made by and between COLLAGEN CORPORATION ("Collagen"), a Delaware corporation and COHESION TECHNOLOGIES, INC., a Delaware corporation formerly known as Collagen Technologies, Inc. ("Technologies"). RECITALS 1. Collagen and Technologies have entered into a relationship whereby certain assets and liabilities are transferred from Collagen to Technologies, as further described in the Separation and Distribution Agreement effective as of January 1, 1998 between Technologies and Collagen (the "Separation Agreement") and in the Ancillary Agreements. 2. Technologies desires to obtain from Collagen, and Collagen is willing to assign to Technologies, all intellectual property rights owned by Collagen as of the Effective Date, other than breast implant technology and intellectual property rights pertaining thereto, the ownership of which shall be retained by Collagen. 3. Collagen desires to license from Technologies, on a worldwide basis, all intellectual property rights owned or controlled by Technologies, relating to the fields of human aesthetics products, technologies, and treatments. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS Except as otherwise defined herein, capitalized terms used herein shall have the meanings given to them in the Separation Agreement. In addition, for the purposes of this Agreement, the capitalized terms set forth below shall have the meanings set forth in this Article I. 1.1 "Assigned Copyrights" shall mean those United States and foreign copyrights, including any and all registrations, applications for registration, common law rights, restoration rights, and all other rights related thereto, other than the Retained Copyrights, that are owned by Collagen or the Collagen Group as of the Effective Date, or which Collagen or any member of the Collagen Group has the right to assign to Technologies hereunder. 1.2 "Assigned Patents" shall mean all Patents, other than the Retained Patents, that are owned by Collagen or the Collagen Group as of the Effective Date, or which Collagen or any member of the Collagen Group has the right to assign to Technologies hereunder. A list of the Assigned Patents is set forth on the Schedule of Assigned Patents delivered and executed by the parties at the time of execution of this Agreement, as such may be amended and updated by the parties upon mutual agreement. -1- 2 1.3 "Assigned Trademarks" shall mean all United States and foreign trademarks, trade names, logos, service marks, and trade dress rights, including any and all registrations, applications for registration, common law rights, renewal rights that are set forth on the Schedule of Assigned Trademarks delivered and executed by the parties at the time of execution of this Agreement (as such may be amended and updated by mutual agreement of the parties) and any and all goodwill of Collagen's business connected with the use of and symbolized by such marks, that are owned by Collagen or the Collagen Group as of the Effective Date or which Collagen has the right to assign to Technologies hereunder. 1.4 "Improvements" shall mean any and all inventions, discoveries, derivatives, know-how, improvements, technology, works of authorship and expressions (excluding Recombinant Technology and Persistence Technology as defined in the Separation Agreement, irrespective of whether the Recombinant Agreement and Persistence Agreement are executed by the parties) made by Collagen, Technologies, or their Affiliates after the Effective Date. 1.5 "Improvement Period" shall mean the period from the Effective Date of this Agreement up to January 1, 1999. 1.6 "Intellectual Property Rights" shall mean trade secrets, Patents, copyrights, trademarks, know-how, moral rights and similar rights of any type under the laws of any governmental authority, domestic or foreign, including all applications and registrations relating to any of the foregoing. 1.7 "Know-how" shall mean any and all secret, proprietary or confidential information, experience, trade secrets, formulas, designs, techniques, applications, processes, ideas, or concepts, whether or not reduced to practice, whether or not reduced to writing and whether or not patentable, owned or controlled by Collagen or the Collagen Group as of the Effective Date, or to which Collagen or any member of the Collagen Group has the rights to license or assign, as applicable, hereunder. 1.8 "Licensed Technology" shall mean the Assigned Patents and related Know-how, the Assigned Trademarks and Assigned Copyrights licensed by Technologies to Collagen hereunder. 1.9 "Non-Compete Period" shall mean the period extending from the Effective Date of this Agreement up to March 15, 2004. 1.10 "Patents" shall mean all United States and foreign patents and patent applications, substitutions, extensions, reissues, reexaminations, renewals, divisions, utility models, continuations, or continuations-in-part anywhere in the world. 1.11 "Retained Copyrights" shall mean those United States and foreign copyrights, including any and all registrations, applications for registration, common law rights, restoration rights, and all other rights related thereto in and to any promotional, marketing, labeling, and other printed or other materials relating solely to the use, marketing, sale, or distribution of Technology in the Collagen Field. -2- 3 1.12 "Retained Patents" shall mean those Patents set forth on the Schedule of Retained Patents delivered and executed by the parties at the time of execution of this Agreement, as such may be amended and updated by mutual agreement of the parties. 1.13 "Retained Trademarks" shall mean those United States and foreign trademarks, trade names, logos, service marks, and trade dress rights, including any and all registrations, applications for registration, common law rights and renewal rights that are owned by Collagen or the Collagen Group as of the Effective Date other than the Assigned Trademarks and any and all goodwill of the Collagen Business connected with the use of and symbolized by such marks. 1.14 "Retained Technology" shall mean all Retained Patents, any Know-how not assigned to Technologies pursuant to Section 2.1, Retained Trademarks, and Retained Copyrights. 1.15 "Technology" shall mean any: (i) product, device, formulation, composition, or component thereof; or (ii) any process, method or treatment, that in either event, is currently in existence, under development, or which comes into existence in the future, including, without limitation, those products set forth in Exhibit A attached hereto, which embodies all or a portion of Transferred Technology or Retained Technology. 1.16 "Transferred Technology" shall mean all Assigned Patents, the Know-how assigned to Technologies pursuant to Section 2.1 hereof, the Assigned Copyrights and the Assigned Trademarks. ARTICLE II PATENT AND KNOW-HOW ASSIGNMENT AND LICENSE GRANT AND IMPROVEMENT LICENSE GRANT 2.1 ASSIGNMENT. Collagen hereby sells, transfers, assigns, and irrevocably sets over to Technologies, and Technologies hereby purchases and accepts assignment of, Collagen's entire right, title, and interest in and to: (i) the Assigned Patents; (ii) any and all Know-how, other than Know-how solely relating to the Retained Patents; and (iii) all rights and standing to sue for past, present, and future infringement of such Assigned Patents and misappropriation of such Know-how. 2.2 LICENSE GRANT. Subject to the terms and conditions hereof, Technologies hereby grants to Collagen, to the extent that Technologies has the right to grant such rights and licenses hereunder, a worldwide, irrevocable, transferable, perpetual, fully paid-up, right and license, solely in the Collagen Field, including the right to grant sublicenses in the Collagen Field, under the Assigned Patents and related Know-how, to use, manufacture, have manufactured, sell, have sold, distribute, have distributed, market and promote, have marketed and promoted, import and export, and have imported and exported, Technology solely in the Collagen Field. The licenses granted pursuant to this Section 2.2 are exclusive with respect to the Assigned Patents and non-exclusive with respect to the related Know-how. -3- 4 2.3 IMPROVEMENTS BY TECHNOLOGIES. Technologies hereby grants to Collagen, to the extent that Technologies has the right to grant such rights and licenses hereunder, a worldwide, exclusive, irrevocable, transferable, perpetual, royalty-free, right and license, including the right to grant sublicenses in the Collagen Field, under all Intellectual Property Rights thereto, solely in the Collagen Field, to use, modify, have modified, manufacture, have manufactured, sell, have sold, distribute, have distributed, market and promote, have marketed and promoted, import and export, and have imported and exported, the Improvements conceived, developed, or reduced to practice by Technologies or its Affiliates during the Improvement Period. 2.4 IMPROVEMENTS BY COLLAGEN. Collagen hereby grants to Technologies, to the extent that Collagen has the right to grant such rights and licenses hereunder, a worldwide, exclusive, irrevocable, transferable, perpetual, royalty-free, right and license, including the right to grant sublicenses outside the Collagen Field, under all Intellectual Property Rights thereto, solely outside the Collagen Field, to use, modify, have modified, manufacture, have manufactured, sell, have sold, distribute, have distributed, market and promote, have marketed and promoted, import and export, and have imported and exported, the Improvements conceived, developed, or reduced to practice by Collagen or its Affiliates during the Improvement Period. 2.5 ALL NECESSARY ACTIONS. In furtherance of the sale, transfer, assignment, and setting over of the Assigned Patents and Know-how pursuant to Section 2.1 hereto, Collagen shall execute and deliver to Technologies on the Effective Date an executed assignment in the form attached hereto as Exhibit B. Collagen further agrees to promptly review, execute, and deliver any and all additional documents as Technologies may deem reasonably necessary or desirable to effectuate the sale, transfer, assignment and setting over of the Assigned Patents and related Know-how. 2.6 LICENSE TO TECHNOLOGIES. Subject to the terms and conditions hereof, Collagen hereby grants to Technologies, a world-wide, irrevocable, non-exclusive, royalty free, perpetual right and license, with the right to grant sublicenses, under any Retained Technology (and notwithstanding any exclusive rights or licenses granted by Technologies to Collagen hereunder), to use, modify, have modified, manufacture, have manufactured, sell, have sold, distribute, have distributed, market and promote, have marketed and promoted, import and export, and have imported and exported any: (i) Technology outside the Collagen Field; and (ii) Technology within the Collagen Field as provided in Article 2 of the Collagen Supply Agreement, Article 2 of the Collagraft Supply Agreement, or in connection with performing Technologies' obligations under the Persistence Agreement or Recombinant Agreement if such agreements are entered into by the parties. ARTICLE III TRADEMARK ASSIGNMENT AND LICENSE GRANT 3.1 ASSIGNED MARKS. Collagen hereby sells, transfers, assigns, and irrevocably sets over to Technologies, and Technologies hereby purchases and accepts, as a successor to the portion of Collagen's business to which such Assigned Trademarks pertain, the assignment of -4- 5 Collagen's entire right, title, and interest, including all associated goodwill to the extent applicable, in and to the Assigned Trademarks, and including all rights and standing to sue for past, present, and future infringement of such Assigned Trademarks. 3.2 LICENSE GRANT. Subject to the terms and conditions hereof, Technologies hereby grants to Collagen a worldwide, exclusive, transferable, fully paid-up, right and license, including the right to grant sublicenses in the Collagen Field, to use, reproduce, and have reproduced, solely in conjunction with the sale, marketing, and distribution of Technology, and Improvements thereto in the Collagen Field, those Assigned Trademarks that as of the Effective Date, were: (i) used in connection with Technology in the Collagen Field, and (ii) used by Collagen in connection with Technology outside the Collagen Field. 3.3 COLLAGEN HELIX LOGO. Subject to the terms and conditions hereof, Collagen hereby grants to Technologies a worldwide, exclusive, non-transferable, irrevocable, perpetual, fully paid-up, right and license, including the right to grant sublicenses outside the Collagen Field, to use, reproduce, and have reproduced the Collagen helix logo mark, as set forth in the Schedule of Trademarks, solely in conjunction with the sale, marketing, and distribution of Technology and Improvements, outside the Collagen Field. 3.4 ALL NECESSARY ACTIONS. In furtherance of the sale, transfer, assignment, and setting over of the Assigned Trademarks pursuant to Section 3.1 hereto, Collagen shall execute and deliver to Technologies on the Effective Date an executed assignment in the form attached hereto as Exhibit C. Collagen further agrees to promptly review, execute, and deliver any and all additional documents as Technologies may deem reasonably necessary or desirable to effectuate the sale, transfer, assignment, setting over, prosecution, and maintenance of the Assigned Trademarks, including any power of attorney by Collagen to Technologies or any designated agent of Technologies relating to the prosecution or maintenance of such Assigned Trademarks. 3.5 COMPLIANCE WITH GUIDELINES. Collagen's use of the Assigned Trademarks licensed under Section 3.2 hereof, shall comply with the existing guidelines observed by Collagen on the Effective Date and any additional guidelines set forth in writing from time to time by Technologies with respect to the style, appearance, and manner of use of such Assigned Trademarks. One copy of any and all materials, including promotional, marketing, labeling, packaging, and other marking for Technology and any Improvements licensed to Collagen hereunder shall be provided by Technologies to Collagen promptly, without charge, upon request by Collagen. Technologies' use of the Collagen helix logo mark licensed under Section 3.3 hereto shall comply with the existing guidelines observed by Collagen on the Effective Date and any additional guidelines set forth in writing from time to time by Collagen with respect to the style, appearance, and manner of use of the Collagen helix logo mark. ARTICLE IV COPYRIGHTS ASSIGNMENT AND LICENSE GRANT -5- 6 4.1 ASSIGNED COPYRIGHTS. Collagen hereby sells, transfers, assigns, and irrevocably sets over to Technologies, and Technologies hereby purchases and accepts, the assignment of Collagen's entire right, title, and interest, in and to the Assigned Copyrights, and including all rights and standing to sue for past, present, and future infringement of such Assigned Copyrights. 4.2 LICENSE GRANT. Subject to the terms and conditions hereof, Technologies hereby grants to Collagen, to the extent that Technologies has the right to grant such rights and licenses hereunder, a worldwide, exclusive, transferable, fully paid-up, right and license, including the right to grant sublicenses in the Collagen Field, to use, reproduce, have reproduced, and create derivative works, solely in conjunction with the sale, marketing, and distribution of Technology in the Collagen Field, those Assigned Copyrights in and to any promotional, marketing, labeling, and other printed or other materials as of the Effective Date relating to both: (i) the use, marketing, sale, or distribution of Technology in the Collagen Field; and (ii) the use, marketing, sale, or distribution by Collagen of Technology outside the Collagen Field. 4.3 ALL NECESSARY ACTIONS. Collagen agrees to promptly review, execute, and deliver any and all documents as Technologies may deem reasonably necessary or desirable to effectuate the sale, transfer, assignment, setting over, prosecution, and maintenance of the Assigned Copyrights, including any power of attorney by Collagen to Technologies or any designated agent of Technologies relating to the prosecution or maintenance of such Assigned Copyrights. 4.4 COPYRIGHT DELIVERABLES. After the Effective Date of this Agreement, each party shall, upon the request of the other party, promptly provide the requesting party with all materials relating to the Assigned Copyrights as necessary for the parties to exercise fully their respective rights in the Assigned Copyrights granted under this Article 4.0. ARTICLE V OWNERSHIP; REGULATORY 5.1 OWNERSHIP OF IMPROVEMENTS. During and after the expiration of the Improvement Period, each party shall own all rights, title, and interest in and to all Improvements made by such party. Neither party hereto has any accounting, reporting, or licensing obligations to the other party with respect to improvements, modifications, derivative works, inventions, know-how, or technology made after expiration of the Improvement Period. 5.2 PATENTABILITY OF IMPROVEMENTS. The following terms are intended to avoid inventions covered by Assigned Patents or Retained Patents from being prior art under 35 U.S.C. Sections 102(e), (f) or (g) to Improvements, which would otherwise be patentable under 35 U.S.C. Section 103 over inventions covered by Assigned Patents or Retained Patents. Technologies and Collagen agree that, to the extent possible, such Improvements will be combined with existing patent applications within Assigned Patents or Retained Patents and filed as a continuation-in-part application, and that such existing patent applications will be abandoned in favor of said continuation-in-part applications. Further, Technologies and Collagen agree that -6- 7 any such Improvements shall, at the time they are made, be commonly owned by the owner of the application to which the Improvement pertains, and be assigned to such owner, provided, however, that the ownership of any Improvements that would be patentable under 35 U.S.C. Section 103 over such application in the absence of common ownership between the Improvement and the application shall be owned in accordance with Section 5.1. 5.3 REGULATORY MATERIALS. After the Effective Date, the ownership of the United States and foreign regulatory registrations, licenses, and applications in existence and owned by Collagen prior to the Effective Date ("Regulatory Materials") shall be as set forth in the Separation Agreement. Collagen hereby grants to Technologies a non-exclusive, perpetual, irrevocable, transferable, fully-paid-up right to reference any and all Regulatory Materials owned by Collagen, solely as such relates outside the Collagen Field. Technologies hereby grants to Collagen a non-exclusive, perpetual, irrevocable, transferable, fully-paid-up right to reference any and all Regulatory Materials owned by Technologies solely as such relates to the Collagen Field. To the extent that any Regulatory Materials owned by a party pertain to Improvements made by the other party, the party who owns such Regulatory Materials shall, on behalf and upon the other party's request and expense, make such Regulatory Material available solely to the appropriate regulatory authorities and not to the other party. ARTICLE VI MAINTENANCE OF LICENSED TECHNOLOGY After the Effective Date, Technologies has the right to file, prosecute and maintain, at its expense, the Transferred Technology in any and all countries and at Technologies' sole discretion; provided, however, that except as otherwise provided in this Article VI, Technologies shall use its commercially reasonable efforts to file, prosecute, and maintain Assigned Patents licensed to Collagen hereunder in such countries and territories as reasonably requested by Collagen, and to maintain all Intellectual Property Rights in and to the Licensed Technology as reasonably requested by Collagen. In filing and prosecuting Assigned Patents, Technologies shall in good faith prosecute the Assigned Patents licensed to Collagen hereunder with the same degree of care and diligence that it accords to prosecution of patents that Technologies commercially exploits for itself. Collagen will cooperate fully with Technologies in connection with all filings, prosecution and maintenance of the Licensed Technology. Upon Collagen's request, Technologies will make available to Collagen any relevant and non-privileged correspondence with patent agencies relating to such filing, prosecution and maintenance of all Licensed Technology which Collagen shall keep confidential in accordance with Article VII hereto. Technologies will also provide to Collagen a copy of the updated docket sheet in the form of the Schedule of Assigned Patents with respect to all issued or pending patents and all pending patent applications at least once each calendar quarter during the Term of this Agreement. In addition, commencing from the Effective Date through the Improvement Period, Collagen shall be entitled to have a representative on Technologies' patent review committee. Technologies will solely be responsible for filing, prosecuting and maintaining the Licensed Technology; provided, however, that with respect to the Assigned Patents licensed by Technologies to Collagen hereunder, Technologies shall provide Collagen with at least ninety (90) days prior notice in accordance with the Separation Agreement before the applicable -7- 8 deadline if Technologies should elect not to file, prosecute or maintain any such Assigned Patent in any territory in the world. If Technologies makes such election as to any territory in the world, then Collagen may elect to file, prosecute, or maintain such Assigned Patent in such territory, at Collagen's own expense, and Technologies will cooperate with Collagen's filing, prosecution and/or maintenance, as applicable, and shall assign, subject to its ability to do so, all of Technologies' rights, title, and interest in and to such Assigned Patent in such territory to Collagen at no additional fee. As to any such Assigned Patent for any territory that is assigned to Collagen pursuant to this Article VI, Technologies shall be entitled to thereafter exercise those license rights set forth in Section 2.6 hereof with respect to such Assigned Patent as if it were Retained Technology. Collagen will solely be responsible for filing, prosecuting and maintaining the Collagen helix logo; provided, however, that with respect to the Collagen helix logo licensed by Collagen to Technologies hereunder, Collagen shall provide Technologies with at least ninety (90) days prior notice in accordance with the Separation Agreement before the applicable deadline if Collagen should elect not to file, prosecute or maintain such Collagen helix logo in any territory in the world. If Collagen makes such election as to any territory in the world, then Technologies may elect to file, prosecute, or maintain such Collagen helix logo in such territory, at Technologies' own expense, and Collagen will cooperate with Technologies' filing, prosecution and/or maintenance, as applicable, and shall assign, subject to its ability to do so, all of Collagen's rights, title, and interest in and to such Collagen helix logo in such territory to Technologies at no additional fee. As to the rights to the Collagen helix logo for any territory that is assigned to Technologies pursuant to this Article VI, Collagen shall be entitled to thereafter exercise those license rights set forth in Section 3.2 hereof with respect to such Collagen helix logo as if it were an Assigned Trademark. ARTICLE VII CONFIDENTIALITY The parties agree that Information that is proprietary or confidential to: (i) Collagen prior to the Effective Date; or (ii) to one party and provided to the other party pursuant to or in furtherance of this Agreement after the Effective Date shall be subject to and treated in accordance with Article VIII of the Separation Agreement. ARTICLE VIII TERMINATION 8.1 TERM. This Agreement will become effective on the Effective Date and will continue until terminated as provided in Section 8.2 herein (the "Term"). 8.2 TERMINATION FOR CAUSE. Either party shall have the right to terminate this Agreement following any material breach or default in performance under this Agreement by the other party upon sixty (60) days prior written notice to the breaching party specifying the nature of the breach or default. Unless the breaching party has cured the breach or default prior to the expiration of the sixty (60) day period, the non-breaching party, at its sole option, may terminate this Agreement upon written notice to the breaching party. Termination of this Agreement shall become effective upon receipt of such second notice by the breaching party. -8- 9 8.3 EFFECT OF TERMINATION. Upon termination of this Agreement each party shall return to the other party all copies of any and all Confidential Information, received by the other party during the term of this Agreement. 8.4 SURVIVAL OF CERTAIN TERMS. The following provisions will survive any expiration or termination of the AGREEMENT: (i) Sections 2.2, 2.3, 2.4, 2.6, 3.2, 3.3, 3.5 and 4.2 to the extent any license pursuant to any such section was in effect as of the date of such termination; and (ii) Sections 2.1, 3.1, 4.1, 8.3 and 9.1 and Articles 1, 5, 6 and 7. ARTICLE IX ADDITIONAL OBLIGATIONS OF THE PARTIES 9.1 NON-COMPETE. During the Non-Compete Period, Technologies agrees that it will not market, sell, or distribute, either directly or indirectly, any Technology, or any products or processes for use in the Collagen Field. During the Non-Compete Period, Collagen agrees that it will not market, sell, or distribute, either directly or indirectly, any Technology, products or processes for use outside the Collagen Field. In addition, during the Improvement Period, each party agrees to refrain from soliciting for the purposes of obtaining services from any then-current employee of the other party, or for a period of ninety (90) days after termination of employment any former employee of the other party, without the other party's prior written consent. 9.2 RIGHT OF FIRST DISCUSSION. Subject to the terms and conditions herein, Collagen may exercise a right of first negotiation for a license agreement with Technologies with respect to any Improvements in the Collagen Field and made by Technologies during the period beginning on January 1, 1999, and ending on March 15, 2004, and Technologies may exercise a right of first negotiation for a license agreement with Collagen with respect to any Improvements outside the Collagen Field and made by Collagen during the period beginning on January 1, 1999, and ending on March 15, 2004. Each party shall promptly notify the other party of any such Improvements, and the other party shall have thirty (30) days to deliver a "Written Notice of Exercise." The parties shall negotiate diligently and in good faith the terms of any license agreement for a period of no more than ninety (90) days following a party's delivery of a Written Notice of Exercise ("Negotiation Period"). If the parties fail to execute a license agreement to such Improvements prior to the end of the Negotiation Period, or the end of any mutually agreed to written extension thereof, then the party holding the rights to such Improvements shall be entitled, subject to Section 9.1, to enter into agreements with third parties with respect to the subject matter of such negotiations. 9.3 PERSISTENCE TECHNOLOGY. The parties agree that the collagen persistence project known as the collagen polymer or CP1/2 program ("CP1/2 Program") performed by Collagen before the Effective Date does not appear viable and should no longer be pursued after the Effective Date. Commencing from the execution of this Agreement until January 1, 2002, a designated representative from each party shall meet with the other party's designated representative (initially the representatives shall be the Co-chairs of the Recombinant Technology Project as defined in the Recombinant Agreement) semi-annually to discuss the -9- 10 feasibility of developing a persistent collagen product for use in the Collagen Field, whether based on novel ideas or improvements to the CP1/2 Program. If prior to January 1, 2002, such representatives identify an approach to developing a persistent collagen product for use in the Collagen Field that has a reasonable chance of success, the representatives shall notify the parties in writing, and Technologies shall, within thirty (30) days of such notice, submit to Collagen a proposed development plan for the development of persistent collagen from such identified approach ("Proposal"). Collagen shall have 180 days from the receipt of such Proposal from Technologies to enter into a definitive agreement with Technologies for the development and commercialization of a persistent collagen product in accordance with such Proposal in substantially the same form as the draft Persistence Agreement attached as Exhibit A to the Separation Agreement. ARTICLE X MISCELLANEOUS This Agreement shall be subject to the terms and provisions of Article XI of the Separation Agreement, which are hereby incorporated into this Agreement to the extent applicable. -10- 11 IN WITNESS WHEREOF, the parties have caused this Assignment and License Agreement to be executed by their duly authorized representatives. COLLAGEN CORPORATION Dated: March 5, 1998 By: /s/ Gary S. Petersmeyer ------------- -------------------------------- Name: Gary S. Petersmeyer ------------------------------ Title: President and CEO ------------------------------ COHESION TECHNOLOGIES, INC. Dated: March 5, 1998 By: /s/ David Foster ------------- -------------------------------- Name: David Foster ------------------------------ Title: CEO ------------------------------ 12 EXHIBIT A PRODUCTS Zyderm(R) I implant Zyderm(R) II implant Zyplast(R) implant Trilucent(R) breast implant Contigen(R) Bard Collagen implant Refinity(TM) SoftForm(R) facial implant 13 EXHIBIT B PATENT ASSIGNMENT DOCUMENT [SEE ATTACHED DOCUMENT.] 14 PATENT ASSIGNMENT This PATENT ASSIGNMENT (the "Assignment") is made from Collagen Corporation a Delaware corporation (the "Assignor"), to Collagen Technologies, Inc., a Delaware corporation (the "Assignee"). Assignor desires to assign to Assignee all of Assignor's right, title and interest in and to the patents and/or inventions (the "Patents") set forth on Exhibit A attached hereto. In consideration for entering into the Assignment and License Agreement, effective as of January 1, 1998, by and between Assignor and Assignee, and for other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, Assignor has sold, assigned, transferred, and set over, and by these presents does hereby sell, assign, transfer and set over, to Assignee, its successors, legal representatives and assigns, the entire right, title and interest in and to the Patents, and any and all applications, including provisional applications, therefor, in the United States of America and all foreign countries which may be granted therefor and thereon, and in and to any and all divisions, continuations, and continuations-in-part of said application, and reissues and extensions of said Patents, and all rights under the International Convention for the Protection of Industrial Property, the same to be held and enjoyed by said Assignee, for its own use and behalf and the use and behalf of its successors, legal representatives and assigns, to the full end of the term or terms for which Patents may be granted, as fully and entirely as the same would have been held and enjoyed by the Assignor, had this sale and assignment not been made. AND said Assignor hereby requests the Commissioner of Patents to issue said Patents of the United States to said Assignee as the Assignee of said inventions and the Patents to be issued thereon for the sole use and behalf of said Assignee, its successors, legal representatives and assigns. Dated:__________________________ COLLAGEN CORPORATION By:_________________________________ Name:_______________________________ Title:______________________________ 15 EXHIBIT A (to Patent Assignment) See Schedule of Assigned Patents 16 EXHIBIT C TRADEMARK ASSIGNMENT DOCUMENT [SEE ATTACHED DOCUMENT.] 17 TRADEMARK ASSIGNMENT This Trademark Assignment (the "Assignment") is made from Collagen Corporation, a Delaware corporation (the "Assignor"), to Collagen Technologies, Inc., a Delaware corporation (the "Assignee"). Assignor desires to assign to Assignee all of Assignor's right, title and interest in and to the trademarks and/or service marks (the "Marks") set forth on Exhibit A attached hereto, together with the goodwill of the business pertaining thereto. In consideration for entering into the Assignment and License Agreement, effective as of January 1, 1998 by and between Assignor and Assignee, and for other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, Assignor does hereby assign, transfer, grant, sell and otherwise convey to Assignee all of Assignor right, title and interest in and to the Marks, including all common law rights therein, applications to register therefor, together with the goodwill of the business symbolized by the Marks and all claims for damages by reason of past infringements of the Marks with the right to sue for and collect the same for its own use and benefit, and for the use and on behalf of its successors, assigns and other legal representatives. Dated: ____________ COLLAGEN CORPORATION By: _________________________________ Name: _______________________________ Title: ______________________________ 18 EXHIBIT A (to Trademark Assignment) See Schedule of Trademarks EX-10.104 11 COLLAGRAFT SUPPLY AGREEMENT 1 EXHIBIT 10.104 Application for an order granting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 has been or be timely made. Confidential portions of this document have been redacted and marked with an [*] and have been filed with the Securities and Exchange Commission separately with such application. COLLAGRAFT SUPPLY AGREEMENT This SUPPLY AGREEMENT (the "Agreement"), effective as of January 1, 1998 (the "Effective Date"), is made by and between COLLAGEN CORPORATION, a Delaware corporation ("Collagen"), and COHESION TECHNOLOGIES, INC., a Delaware corporation formerly known as Collagen Technologies, Inc. ("Technologies"). RECITALS 1. Technologies and Collagen have entered into a relationship whereby certain assets and liabilities are being transferred from Collagen to Technologies, as further described in the Separation and Distribution Agreement effective as of January 1, 1998 between Collagen and Technologies (the "Separation Agreement") and in the Ancillary Agreements. 2. Technologies is in the business of developing products and processes utilizing innovative collagen-based technology and novel biomaterials. 3. Collagen is in the business of developing, manufacturing and selling human aesthetic and reconstructive medical technology products. 4. Collagen has entered into agreements with Zimmer, Inc. ("Zimmer") to supply Zimmer's requirements for a hydroxylapatite-collagen product, which agreements have been or will be assigned to Technologies. 5. Technologies wishes to purchase from Collagen its requirements for such hydroxylapatite-collagen product to fulfill its supply obligations to Zimmer, and Collagen wishes to supply Technologies' requirements. NOW, THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS Except as otherwise defined herein, capitalized terms used herein shall have the meanings given to them in the Separation Agreement. In addition, for the purposes of this Agreement, the capitalized terms set forth below shall have the meanings set forth in this Article I. 1.1 "Direct Costs" shall mean the direct costs to Collagen related to manufacturing the Product, as defined in Exhibit A hereto. 2 1.2 "FDA" shall mean the United States Food and Drug Administration or any successor agency thereof. 1.3 "Intellectual Property Rights" shall mean trade secrets, patents, copyrights, trademarks, know-how, moral rights and similar rights of any type under the laws of any governmental authority, domestic or foreign, including all applications and registrations relating to any of the foregoing. 1.4 "Product" shall mean the product described in Exhibit B attached hereto. 1.5 "Requirements" shall mean the quantity of Product required for Technologies to meet its obligations to supply Product to Zimmer pursuant to the Zimmer Agreement; 1.6 "Specifications" shall mean the intermediate and finished goods specifications for the following product codes: [*] 1.7 "Zimmer Agreement" shall mean the Supply Agreement between Technologies and Zimmer, with an effective date of January 18, 1985, and which is in full force and effect as of the Effective Date of this Agreement. ARTICLE II SUPPLY 2.1 COLLAGEN SUPPLY OBLIGATION. Subject to the terms and conditions herein, Collagen shall manufacture for and supply to Technologies all Technologies' Requirements for the Product. Technologies shall be responsible for procuring for Collagen at its sole expense any and all licenses and rights to any Intellectual Property Rights, third party or otherwise, necessary for Collagen to perform under the Agreement. 2.2 TECHNOLOGIES PURCHASE OBLIGATION. Subject to the terms and conditions herein, Technologies shall purchase all Requirements for the Product from Collagen. 2.3 RELEASE FROM REQUIREMENTS OBLIGATION. Technologies shall have no obligation pursuant to Section 2.2 to purchase its requirements for Product from Collagen in the event that: (i) Collagen shall fail to deliver Product within ninety (90) days of Collagen's receipt of a firm purchase order issued by Technologies and acknowledged by Collagen (unless the scheduled delivery date set forth in such purchase order is more than ninety (90) days from Collagen's receipt thereof) or shall fail on two (2) consecutive occasions or three (3) occasions in any one hundred eighty (180) day period to deliver Product within fifteen (15) days of the scheduled delivery date therefor as set forth in a firm purchase order issued by Technologies and acknowledged by Collagen; (ii) Collagen shall have manufactured any Product not in conformance with Section 4.3, except as otherwise requested by Technologies; or (iii) the quantity of Product supplied by Collagen is not sufficient to meet Technologies' Requirements. [*] Application for an order granting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 has been made. Confidential portions of this document have been redacted and marked with an [*] and have been filed with the Securities and Exchange Commission separately with such application. -2- 3 ARTICLE III TERMS OF PURCHASE 3.1 ORDER AND ACCEPTANCE. As soon as practicable, Technologies shall pass to Collagen all purchase orders for Product received by Technologies from Zimmer pursuant to the Zimmer Agreement. Upon receipt thereof, Collagen shall promptly accept such purchase order and return a signed acceptance thereof to Technologies. Notwithstanding anything herein to the contrary, no order shall be binding upon Collagen until accepted by Collagen in writing. Each party may cancel or reschedule purchase orders for Product only with prior written approval of the other party. 3.2 FORECASTING. Technologies shall send to Collagen, a copy of all Product forecasts received by Technologies from Zimmer pursuant to the Zimmer Agreement promptly upon receipt thereof by Technologies. 3.3 PURCHASE PRICE. The purchase price to Technologies for the Product shall be equal to [*]. The list price shall equal the greater of: (i) [*] percent ([*]%) of Zimmer's U.S. Net Selling Price for the Product as defined in the Zimmer Agreement ("U.S. Net Selling Price"); or (ii) Collagen's Direct Costs for manufacturing the Product plus [*] percent ([*]%). The parties agree that to the extent that the purchase prices hereunder are based on Collagen's Direct Costs, Collagen may not increase its Direct Costs by more than [*] percent ([*]%) from one fiscal year to the next. Collagen shall provide Technologies with an updated price list upon execution of this Agreement for the fiscal year ending June 30, 1998 and at the beginning of each fiscal year, i.e., July 1, which shall be effective for such fiscal year. Collagen will review such updated price list with Technologies and shall provide supporting documentation therefor similar to those provided for the fiscal year 1998 price list. Payment by Technologies to Collagen of the purchase prices pursuant to this Section 3.3 shall constitute payment in full for the Product, including without limitation, payment for manufacturing, distribution, order entry and accounts receivables services performed in connection therewith. Collagen shall use reasonable commercial efforts to efficiently manufacture the Product and pursue manufacturing cost reductions without compromising the quality or function of the Product. 3.4 INVOICING. Collagen shall submit an invoice to Technologies upon each shipment of Product ordered by Technologies based on Zimmer's most recent U.S. Net Selling Price for the Product. Technologies agrees to promptly provide Collagen with information regarding Zimmer's actual U.S. Net Selling Price for such shipment of Product when such information is received by Technologies. Within sixty (60) days of the receipt of information regarding Zimmer's actual U.S. Net Selling Price, Collagen will submit to Technologies an accounting of any discrepancy between the invoiced prices and the prices pursuant to Section 3.3. Within thirty (30) days after such accounting is delivered by Collagen to Technologies: (i) Technologies shall pay any balance owed to Collagen; or (ii) Collagen shall pay to Technologies any overpayment based on such accounting. All invoices and other [*] Application for an order granting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 has been made. Confidential portions of this document have been redacted and marked with an [*] and have been filed with the Securities and Exchange Commission separately with such application. -3- 4 shipping documents shall be sent by first class mail or fax to Technologies' address for notices hereunder, [*] Application for an order granting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 has been made. Confidential portions of this document have been redacted and marked with an [*] and have been filed with the Securities and Exchange Commission separately with such application. -4- 5 without regard to the actual shipping address. Each such invoice shall state the aggregate and unit invoice price for Product in a given shipment. In addition, if Zimmer should request that Collagen procure Product packaging materials directly, the parties agree that Collagen may submit invoices for such Product packaging costs directly to Zimmer. 3.5 DELIVERY. Collagen shall ship Product to the address set forth in the applicable purchase order for delivery on the scheduled delivery date specified in the applicable purchase order; provided, however, that such scheduled delivery date shall not be less than ninety (90) days from the date of receipt by Collagen of such purchase order. All shipments shall be F.O.B. Collagen's manufacturing facilities in Fremont, and Technologies shall bear the risk of loss and cost of transportation of the Product upon delivery by Collagen to the carrier identified by Technologies. Collagen shall suitably pack the Product for delivery by surface or air, at Technologies' discretion, in Collagen's standard shipping cartons. Collagen shall ship the Product using the carrier specified in Technologies' purchase order; provided, however, that if Technologies does not provide instructions with respect to the carrier to be used, Collagen shall select the carrier. Collagen shall use commercially reasonable efforts to ship Product with a shelf life no shorter than the shelf life for such Product (as set forth in the Specifications therefor) less thirty (30) days, unless otherwise agreed to in writing by the parties. Product shall be deemed delivered by Collagen and accepted by Technologies upon: (i) the receipt by Technologies of a Certificate of Analysis based on the Specifications; and (ii) the review and approval by Technologies of the information contained in the alert notices and deviation reports. 3.6 PAYMENT AND AUDIT. Technologies shall make payment to Collagen for each shipment of Product within ten (10) days of receipt by Technologies of payment from Zimmer. If payment is sent by Zimmer to Collagen, then Collagen shall forward the amount net of the purchase price pursuant to Section 3.3 to Technologies within ten (10) days of receipt by Collagen of payment from Zimmer. To the extent the purchase price for Product is based upon Collagen's Direct Costs, upon reasonable notice to Collagen, Technologies shall have the right to have an independent certified public accountant, selected by Technologies and reasonably acceptable to Collagen, audit Collagen's records pertaining to the calculation of Collagen's Direct Costs during normal business hours to verify Collagen's Direct Costs; provided, however, that such audit shall not take place more frequently than once a year and shall not cover such records for more than the preceding two (2) years. The accountant shall only report to Technologies as to the accuracy of Collagen's Direct Costs, and in the event of any inaccuracy, the correct amounts thereof. Collagen shall promptly refund to Technologies the amount of any overpayment, and Technologies shall promptly pay to Collagen the amount of any underpayment determined in such audit. Such audit shall be at Technologies' expense unless such audit indicates greater than five percent (5%) overpayment by Technologies based on invoices submitted by Collagen, in which case such audit shall be at Collagen's expense. Collagen shall preserve and maintain all such records and accounts required for audit for a period of two (2) years after the calendar quarter for which the record applies. 3.7 PRODUCT PACKAGING AND LABELING. Collagen shall package and label the Product as directed by Technologies. Technologies shall be responsible for designing and determining the form and format of Product and packaging labels. -5- 6 ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1 BY BOTH PARTIES. Technologies (on behalf of itself and each member of the Technologies Group) and Collagen (on behalf of itself and each member of the Collagen Group), represents and warrants to the other that: (i) it has full power and authority to execute, deliver and perform this Agreement; and (ii) the execution, delivery and performance by such party of this Agreement does not contravene any law, regulation, rules or order binding on such party and do not contravene the provisions of or constitute a default under any contract or other agreement binding on such party. 4.2 REGULATORY APPROVALS. Technologies represents and warrants to Collagen that any and all required government approvals, including any approvals under applicable health and safety laws and regulations, to import, register, market, distribute and sell the Product pursuant to a purchase order issued by Technologies shall have been secured for every jurisdiction into which the Product is shipped or sold in accordance with such purchase order. The parties agree to cooperate with each other and perform all necessary actions to obtain and maintain any CE mark and ISO certification for the Product. 4.3 GMP. Except as otherwise requested by Technologies in writing, Collagen shall manufacture the Product in accordance with: (i) GMP, as required by the United States Food and Drug and Cosmetic Act (the "Act"); (ii) all pertinent rules and regulations of the FDA; (iii) the laws of the United States of America and all local laws; and (iv) all other laws, regulations and guidelines including without limitation regulations of the European Union and any jurisdiction herein to the extent the same are applicable; provided, however, that nothing contained in this Agreement is intended to render applicable any laws other than the Act, FDA regulations and United States law. Collagen represents and warrants that no Product delivered by Collagen under this Agreement will be adulterated or misbranded by Collagen within the meaning of the Act, or within the meaning of any other applicable law in which the definitions of adulteration or misbranding are substantially the same as those contained in the Act, as such laws are constituted and effective at the time of such shipment or delivery, or as an article which may not, under the provisions of Section 404 or 505 of the Act, be introduced into interstate commerce. 4.4 LIMITED WARRANTY. Collagen represents and warrants that the Product supplied by it to Technologies under this Agreement shall conform to the Specifications and shall be free from defects in material and workmanship for the shelf life of the Product as set forth in the Specifications of the Product ("Warranty Period"). Technologies' exclusive remedy and sole liability for breach of the foregoing warranty shall be the remedy as set forth in this Section 4.4. 4.4.1 RETURN OF DEFECTIVE PRODUCT. In the event that any Product purchased by Technologies from Collagen fails to conform to the warranty set forth in this Article 4.4, Collagen's sole and exclusive liability and Technologies' exclusive remedy shall be to replace the Product, or if, at Collagen's sole determination, replacement is not practicable, refund Technologies for the amount actually paid by Technologies for any such Product; -6- 7 provided, however, that: (i) Technologies promptly notifies Collagen in writing that such Product failed to conform, furnishes a detailed explanation of any alleged nonconformity, and requests a return material authorization number; and (ii) such Product is returned to Collagen by Technologies F.O.B. Collagen's shipping location in Fremont, California, during the Warranty Period, with the return material authorization number affixed prominently to the outside packaging. If such Product fails to so conform, Collagen will reimburse Technologies for shipment charges for return of the nonconforming Product. 4.4.2 RECALL; MDR; FIELD CORRECTION. Should any defect in the Product or any governmental action require: (i) the recall, destruction or withholding from market ("Recall"); (ii) issuance of a Medical Device Report within the meaning of the Act ("MDR"); or (iii) institution of a field correction ("Field Correction") for the Product, Collagen shall bear the costs and expenses of such Recall, MDR or Field Correction to the extent such Recall, MDR or Field Correction is the result of any non-conformance to Specifications due to a fault or omission attributable to Collagen, and Technologies shall bear the costs and expenses of such Recall, MDR or Field Correction to the extent such Recall, MDR or Field Correction is the result of any fault or omission attributable to Technologies. Should such Recall, MDR or Field Correction result from the fault of both parties, the parties shall share such costs and expenses in accordance with their proportionate fault. Collagen shall provide adverse event response support for the Product consistent with its obligations under the Services Agreement dated as of the Effective Date. ARTICLE V COOPERATION Collagen shall otherwise reasonably cooperate with Technologies to fulfill Technologies' obligations under the Zimmer Agreement. ARTICLE VI TERM AND TERMINATION 6.1 TERM. The Term shall commence on the Effective Date and continue in full force and effect until the expiration or termination of the Zimmer Agreement ("Term"). 6.2 TERMINATION FOR CAUSE. Technologies may terminate this Agreement upon a material breach or default in performance under this Agreement by Collagen, and Collagen may terminate this Agreement upon the failure by Technologies to make payments to Collagen in accordance with this Agreement. The non-breaching party shall give written notice to the breaching party of such breach or default, and unless the breaching party shall have cured the breach or default within sixty (60) days, the non-breaching party, at its sole option, may terminate this Agreement upon written notice to the breaching party. Termination of this Agreement shall become effective upon receipt of such second notice by the breaching party. -7- 8 6.3 TERMINATION BY TECHNOLOGIES. Technologies may terminate its obligations under this Agreement with respect to the Product, by delivering to Collagen twelve (12) month notice thereof. 6.4 EFFECT OF TERMINATION. Upon expiration under Section 6.1 or termination under Sections 6.2 or 6.3, Collagen: (i) hereby grants to Technologies a non-exclusive, non-transferable, royalty-free, perpetual, irrevocable, world-wide, right and license (with the right to sublicense) to any Manufacturing Improvements; and (ii) shall deliver to Technologies a copy of any written materials embodying such Manufacturing Improvements as reasonably necessary for Technologies to manufacture or have manufactured the Product. For purposes of this Agreement, the term "Manufacturing Improvements" shall mean any modifications, improvements, enhancements, and other revisions to manufacturing processes or materials, solely as related to the Product, that are made by Collagen during the Term of this Agreement. Expiration or termination of this Agreement pursuant to the terms and conditions set forth in this Agreement shall not relieve Technologies of any payment obligations to Collagen, accruing prior to or upon such expiration or termination. 6.5 LIMITATION OF LIABILITY UPON TERMINATION. A PARTY SHALL NOT BE LIABLE TO THE OTHER PARTY, OR ANY OF ITS EMPLOYEES, AGENTS, OR CUSTOMERS, FOR DAMAGES OF ANY KIND, INCLUDING DIRECT, INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, ON ACCOUNT OF THE TERMINATION OR EXPIRATION OF THIS AGREEMENT IN ACCORDANCE WITH THIS ARTICLE VI. EACH PARTY HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO RECEIVE ANY COMPENSATION OR REPARATIONS ON TERMINATION OR EXPIRATION OF THIS AGREEMENT UNDER LAW OTHER THAN AS EXPRESSLY PROVIDED HEREIN. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY ON ACCOUNT OF TERMINATION OR EXPIRATION OF THIS AGREEMENT FOR REIMBURSEMENT OR DAMAGES FOR THE LOSS OF GOODWILL, PROSPECTIVE PROFITS OR ANTICIPATED INCOME, OR ON ACCOUNT OF ANY EXPENDITURES, INVESTMENTS, LEASES OR COMMITMENTS MADE BY THE OTHER PARTY OR FOR ANY OTHER REASON WHATSOEVER. EACH PARTY ACKNOWLEDGES THAT IT HAS NO EXPECTATIONS AND HAS RECEIVED NO ASSURANCES FROM THE OTHER PARTY THAT ANY INVESTMENT BY IT IN THE DISTRIBUTION, PROMOTION, OR SALE OF THE PRODUCTS WILL BE RECOVERED OR RECOUPED OR THAT IT WILL OBTAIN ANY ANTICIPATED AMOUNT OF PROFITS BY VIRTUE OF THIS AGREEMENT. THE PARTIES ACKNOWLEDGE THAT THIS SECTION HAS BEEN INCLUDED AS A MATERIAL INDUCEMENT FOR THEM TO ENTER INTO THIS AGREEMENT AND THAT THEY WOULD NOT HAVE ENTERED INTO THIS AGREEMENT BUT FOR THE LIMITATIONS OF LIABILITY AS SET FORTH HEREIN. 6.6 SURVIVAL OF CERTAIN TERMS. The provisions of Section 3.6, 4.4, 6.4, 6.5, and 6.6 and Articles VII and VIII shall survive the expiration or termination of this Agreement for any reason. All other rights and obligations of the parties shall cease upon expiration or termination of this Agreement. -8- 9 ARTICLE VII CONFIDENTIALITY The parties agree that Information that is proprietary or confidential to (i) Collagen prior to the Effective Date; or (ii) to one party and provided to the other party pursuant to or in furtherance of this Agreement after the Effective Date shall be subject to and treated in accordance with Article VII of the Separation Agreement. ARTICLE VIII MISCELLANEOUS This Agreement shall be subject to the terms and provisions of Article XI of the Separation Agreement, which are hereby incorporated into this Agreement to the extent applicable. -9- 10 IN WITNESS WHEREOF, the parties hereto have caused this Collagraft Supply Agreement to be executed by their duly authorized representatives. COLLAGEN CORPORATION Dated: March 5, 1998 By: /s/ Gary S. Petersmeyer ------------- --------------------------------- Name: Gary S. Petersmeyer Title: President and CEO COHESION TECHNOLOGIES, INC. Dated: March 5, 1998 By: /s/ David Foster ------------- --------------------------------- Name: David Foster Title: CEO -10- 11 EXHIBIT A Direct Costs Direct Costs shall include the following expense types incurred by the cost centers directly involved in manufacturing the Product. Type of expenses or costs: [*] Cost centers: [*] Direct Costs shall specifically exclude the following types of costs and expenses: [*] [*] Application for an order granting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 has been made. Confidential portions of this document have been redacted and marked with an [*] and have been filed with the Securities and Exchange Commission separately with such application. 12 EXHIBIT B Product EX-27 12 FINANCIAL DATA SCHEDULE
5 9-MOS JUN-30-1998 JUL-01-1997 MAR-31-1998 15,755 0 11,515 0 13,612 51,426 15,418 0 169,874 25,938 0 0 0 110 109,822 169,874 63,067 63,067 20,922 20,922 61,160 0 (50) (4,856) 651 (5,469) 0 0 0 (5,469) (.61) (.61)
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