-----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, DQbOHymIcVW5WOIQI9lmFCOmyle8LBpcffutrbr60On92m6JpGjEBtM+xktV63QM r9q8vmwIh2a49WqQPdb4+w== 0000891618-99-002328.txt : 19990518 0000891618-99-002328.hdr.sgml : 19990518 ACCESSION NUMBER: 0000891618-99-002328 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLLAGEN AESTHETICS INC 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: 99628129 BUSINESS ADDRESS: STREET 1: 2500 FABER PL CITY: PALO ALTO STATE: CA ZIP: 94303 BUSINESS PHONE: 4158560200 FORMER COMPANY: FORMER CONFORMED NAME: COLLAGEN CORP /DE DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q FOR PERIOD ENDED MARCH 31, 1999 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 ended March 31, 1999 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ______ to ______. Commission File Number: 0-10640 COLLAGEN AESTHETICS, INC. (Exact name of registrant as specified in its charter) Delaware 94-2300486 ---------------------- ---------------------------------- State of Incorporation I.R.S. Employer Identification No. 1850 Embarcadero Road, Palo Alto, California 94303 Telephone: (650) 856-0200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of April 30, 1999, Registrant had outstanding 8,560,211 shares of common stock, exclusive of 2,454,000 shares held by the Registrant as treasury stock. 1 2 COLLAGEN AESTHETICS, INC. INDEX
PART I. Financial Information Page No. - ------- --------------------- -------- Condensed Consolidated Balance Sheets - March 31, 1999 and June 30, 1998 3 Condensed Consolidated Statements of Operations - Three and nine months ended March 31, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows - Nine months ended March 31, 1999 and 1998 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 AESTHETICS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share and per share amounts)
March 31, June 30, 1999 1998 * --------- --------- ASSETS Current assets: Cash and cash equivalents $ 10,980 $ 7,916 Short-term investments 2,014 8,011 Accounts receivable, net 15,068 13,764 Inventories, net 11,898 12,101 Inventories of discontinued operations, net -- 417 Other current assets, net 10,927 11,016 --------- --------- Total current assets 50,887 53,225 Property and equipment, net 12,412 14,448 Intangible assets and goodwill, net 7,324 6,861 Investment in Boston Scientific Corporation -- 73,979 Other investments and assets, net 3,799 17,826 --------- --------- $ 74,422 $ 166,339 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,048 $ 3,561 Accrued compensation 2,869 4,749 Accrued liabilities and other 8,550 14,020 Income taxes payable 10,693 10,606 Liabilities of discontinued operations, net -- 781 --------- --------- Total current liabilities 28,160 33,717 Long-term liabilities: Deferred income taxes -- 30,589 Other long-term liabilities 1,224 1,393 --------- --------- Total long-term liabilities 1,224 31,982 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value, authorized: 5,000,000 shares, none issued and outstanding -- -- Common stock, $.01 par value, authorized: 28,950,000 shares, issued: 11,010,711 shares at March 31, 1999 (10,937,830 shares at June 30, 1998), outstanding: 8,556,711 shares at March 31, 1999 (8,864,930 shares at June 30, 1998) 111 109 Additional paid-in capital 55,632 69,619 Retained earnings 38,432 32,128 Accumulated other comprehensive income: Cumulative translation adjustment (2,193) (2,030) Unrealized gains on available-for-sale investments -- 43,833 Treasury stock, 2,454,000 shares at March 31, 1999 (2,072,900 shares at June 30, 1998) (46,944) (43,019) --------- --------- Total stockholders' equity 45,038 100,640 --------- --------- $ 74,422 $ 166,339 ========= =========
*Amounts derived from audited financial statements at the date indicated which includes Cohesion Technologies, Inc. The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 3 4 COLLAGEN AESTHETICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts)
Three Months Ended Nine Months Ended March 31, March 31, ------------------------ ------------------------ 1999 1998* 1999* 1998* -------- -------- -------- -------- Revenues: Product sales $ 21,057 $ 19,232 $ 62,156 $ 60,040 Costs and expenses: Cost of sales 6,166 5,567 17,509 17,570 Selling, general and administrative 9,856 10,360 31,014 30,065 Research and development 1,937 5,866 7,002 16,078 Acquired in-process research and development -- -- -- 10,530 -------- -------- -------- -------- Total operating costs and expenses 17,959 21,793 55,525 74,243 -------- -------- -------- -------- Income (loss) from operations 3,098 (2,561) 6,631 (14,203) Other income (expense): Net gain on investments, principally Boston Scientific Corporation through August 18, 1998 -- 4,964 3,721 13,739 Equity in losses of affiliates, net -- (83) (35) (232) Interest income 143 164 473 702 Interest expense (6) (15) (62) (50) -------- -------- -------- -------- Income (loss) before income taxes, minority interest and discontinued operations 3,235 2,469 10,728 (44) Provision for income taxes 1,193 77 4,424 1,910 Minority interest -- (11) 1 (38) -------- -------- -------- -------- Income (loss) from continuing operations 2,042 2,403 6,303 (1,916) Discontinued operations: Loss from operations -- (1,060) -- (4,079) Benefit from income taxes -- 327 -- 1,258 -------- -------- -------- -------- Loss from discontinued operations net of taxes -- (733) -- (2,821) -------- -------- -------- -------- Net income (loss) $ 2,042 $ 1,670 $ 6,303 $ (4,737) ======== ======== ======== ======== Net income (loss) per share - Basic Continuing operations $ 0.24 $ 0.27 $ 0.73 $ (0.21) Discontinued operations -- (0.08) -- (0.32) -------- -------- -------- -------- Net income (loss) per share -- Basic $ 0.24 $ 0.19 $ 0.73 $ (0.53) ======== ======== ======== ======== Net income (loss) per share - Diluted Continuing operations $ 0.24 $ 0.26 $ 0.72 $ (0.21) Discontinued operations -- (0.08) -- (0.32) -------- -------- -------- -------- Net income (loss) per share - Diluted $ 0.24 $ 0.18 $ 0.72 $ (0.53) ======== ======== ======== ======== Shares used in calculating net income (loss) per share - Basic 8,546 8,989 8,678 8,901 ======== ======== ======== ======== Shares used in calculating net income (loss) per share - Diluted 8,639 9,071 8,711 8,901 ======== ======== ======== ========
*Includes results of Cohesion Technologies, Inc. through August 18, 1998. The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 4 5 COLLAGEN AESTHETICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (Unaudited) (In thousands)
Nine Months Ended March 31, ----------------------- 1999 1998 -------- -------- Cash flows from operating activities: Net income (loss) $ 6,303 $ (4,737) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Acquired in-process research and development -- 10,530 Depreciation and amortization 3,671 3,627 Equity in losses of affiliates 35 232 Gain on investments, net of taxes paid of $1.6 million and $0 in 1999 and 1998, respectively (2,121) (13,739) Net changes in assets and liabilities of discontinued operations -- (430) Other adjustments related to changes in assets and liabilities (3,595) 1,321 -------- -------- Net cash provided by (used in) operating activities 4,293 (3,196) -------- -------- Cash flows from investing activities: Net proceeds from sales of Boston Scientific Corp. stock, net of taxes paid 2,065 14,716 Net proceeds from sale of other affiliate stock, net of taxes paid 508 704 Proceeds from sales and maturities of short-term investments 8,888 7,898 Purchases of short-term investments (3,907) (5,324) Expenditures for property and equipment (2,560) (3,279) Increase in intangible and other assets (2,767) -- Equity investments and loans to affiliates -- (1,125) Acquisition of Cohesion Corporation -- (10,530) -------- -------- Net cash provided by investing activities 2,227 3,060 -------- -------- Cash flows from financing activities: Repurchase of common stock (3,924) (441) Net proceeds from issuance of common stock 818 1,698 Cash dividends paid (896) (1,773) Cohesion Technologies, Inc. Spinoff 546 -- Repayments of bank loans -- (2,031) -------- -------- Net cash used in financing activities (3,456) (2,547) -------- -------- Net increase (decrease) in cash and cash equivalents 3,064 (2,683) Cash and cash equivalents at beginning of period 7,916 18,381 -------- -------- Cash and cash equivalents at end of period $ 10,980 $ 15,698 ======== ========
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 5 6 COLLAGEN AESTHETICS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of Collagen Aesthetics, Inc. (formerly Collagen Corporation) ("Collagen" or the "Company"), a Delaware corporation, and its wholly owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company operates in one industry segment focusing on the development, manufacturing, and sale of medical devices and aesthetic products. The condensed consolidated balance sheet as of March 31, 1999, the condensed consolidated statements of operations for the three and nine months ended March 31, 1999 and 1998, and the condensed consolidated statements of cash flows for the nine months ended March 31, 1999 and 1998, 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, 1999, and for all periods presented. Interim results are not necessarily indicative of results for a full fiscal year. The consolidated balance sheet as of June 30, 1998, has been derived from the audited consolidated financial statements at that date. On August 18, 1998, the Company spun off, in a one-for-one distribution ("the Distribution") of common stock to the Company's stockholders (the "Spinoff"), Cohesion Technologies, Inc. ("Cohesion"), which prior to the Spinoff was a wholly-owned subsidiary of the Company. The transaction resulted in the distribution of 100% of the outstanding shares of Cohesion. In accordance with a ruling from the Internal Revenue Service ("IRS"), the Spinoff did not result in recognition of taxable income or loss to the Company or the Company's stockholders for U.S. Federal income tax purposes. Subsequent to the Distribution, Cohesion has been traded on the NASDAQ National Market under the ticker symbol of CSON. For the first nine months of fiscal year 1999, the Company included Cohesion's results through August 18, 1998 (approximately six weeks), compared to the inclusion of nine months of Cohesion's results in fiscal year 1998. Net sales for the nine months ended March 31, 1999, reflect a reduction of $2.3 million in sales related to the repurchase of product inventory per the terms of an agreement with Lederle, the Company's former distributor in Japan. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended June 30, 1998. Beginning with fiscal year 1998, basic earnings per share (EPS) and diluted EPS are computed using the methods required by Statement of Financial Accounting Standards No. 6 7 128, Earnings Per Share ("SFAS 128"). Under SFAS 128, basic EPS is calculated using the weighted average number of common shares outstanding for the period. The computation of diluted EPS includes the effects of stock options, warrants and convertible preferred stock, if such effect is dilutive. Prior period amounts have been restated to conform with the presentation requirements of SFAS 128. Below is a reconciliation between the basic and diluted weighted average common and common-equivalent shares for the three and nine months ended March 31, 1999 and 1998:
Three Months Ended Nine Months Ended March 31, March 31, ---------------- ---------------- (in thousands) 1999 1998 1999 1998 ----- ----- ----- ----- Basic (weighted average common Shares outstanding) 8,546 8,989 8,678 8,901 Weighted average common stock options outstanding 93 82 33 -- ----- ----- ----- ----- Diluted weighted average shares outstanding 8,639 9,071 8,711 8,901 ===== ===== ===== =====
New Accounting Standards Comprehensive Income. As of July 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("Statement 130"), "Reporting Comprehensive Income". Statement 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net income or stockholders' equity. Statement 130 requires unrealized gains or losses on the Company's available-for-sale securities and foreign currency translation adjustments, which prior to adoption were reported separately in stockholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of Statement 130. During the three months ended March 31, 1999 and 1998, total comprehensive income amounted to $1.4 million and $7.4 million, respectively, and income of $6.1 million compared to a loss of $9.6 million for the nine months ended March 31, 1999 and 1998, respectively. The components of comprehensive income, net of related tax, for the three and nine month periods ended March 31, 1999 and 1998, are as follows (in thousands):
Three Months Ended Nine Months Ended March 31, March 31, ----------------------- ----------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Net income (loss) $ 2,042 $ 1,670 $ 6,303 $ (4,737) Change in unrealized losses on securities -- 6,016 -- (4,263) Foreign currency translation adjustments (633) (298) (163) (597) -------- -------- -------- -------- Comprehensive income (loss) $ 1,409 $ 7,388 $ 6,140 $ (9,597) ======== ======== ======== ========
The movement in unrealized losses on securities in the nine months ended March 31, 1999, relates to the investments in Boston Scientific Corporation ("Boston Scientific") and 7 8 Innovasive Devices Inc. ("Innovasive Devices") which were retained by Cohesion following the Spinoff from the Company. 2. Inventories Inventories consist of the following (in thousands):
March 31, June 30, 1999 1998 --------- -------- Raw materials $ 1,804 $ 1,765 Work-in-process 2,622 3,948 Finished goods 7,472 6,388 ------- ------- $11,898 $12,101 ======= =======
3. Sale of LipoMatrix, Inc. On November 9, 1998, the Company announced the sale of its LipoMatrix, Inc. ("LipoMatrix") subsidiary, manufacturer of the Trilucent(R) breast implant ("Trilucent implant"), to Sierra Medical Technologies ("Sierra") of Carson City, Nevada. Consideration to the Company included a cash payment and the right to receive royalties on future worldwide breast implant sales. Sierra also was granted the right to purchase the U.S. Trilucent implant patent portfolio and marketing rights for additional cash consideration. The Company has accounted for LipoMatrix as a discontinued operation in fiscal year 1998 and this transaction is expected to have no material impact on the Company's fiscal year 1999 business, operating results or financial condition. In connection with the operations of LipoMatrix through the date of sale and in connection with the recording of the sale transaction, there were no material adjustments to the provision for discontinued operations that had been established in the quarter ended June 30, 1998. On March 8, 1998 the United Kingdom Medical Devices Agency ("MDA") announced the voluntary suspension of marketing and voluntary withdrawal of the Trilucent implant in the United Kingdom. The MDA stated that its actions were taken for precautionary reasons and did not identify any immediate hazard associated with the use of the product. Subsequently, LipoMatrix's notified body in Europe suspended the product's CE Mark pending further assessment of the long-term safety of the product. Sierra has since stopped sales of the product. 8 9 The Company retains responsibility for Trilucent implants sold prior to November 6, 1998. The Company has agreed with the United Kingdom National Health Service for a specified period of time to perform certain product surveillance with respect to United Kingdom patients implanted with the Trilucent implant. In the ordinary course of its business, the Company is involved in product liability claims arising from the Trilucent implant and its other medical device products. While the outcome of such matters is currently not determinable, the Company does not expect that such claims, when considered in relation to the Company's product liability insurance coverage, will result in a material adverse effect on the Company's consolidated financial position or results of its operations. 4. Restructuring of Collagen International, Inc. In June 1998, the Company recorded a pre-tax restructuring charge of $1.5 million to cover the direct cost of restructuring its domestic and international operations to improve its operational efficiency by reducing costs and facilitating a product refocus. The international effort included moving the Company's European headquarters from Switzerland to the United Kingdom and terminating the employment of eleven employees. The domestic effort was substantially smaller and included the reorganization of the North American sales force and termination of one employee. The Company began implementation of its restructuring plan in the fourth quarter of fiscal 1998 and has substantially completed the implementation at March 31, 1999. The major aspects of the restructuring plan and remaining amounts in accrued liabilities are discussed below. The components of the restructuring charge, charges against the reserve during the nine months ended March 31, 1999, and remaining accrued restructuring expense as of March 31, 1999, are as follows:
Remaining Incurred to Accrual at Restructuring March 31, March 31, Accrual 1999 Transfers 1999 ----------- ----------- ----------- ----------- Severance $ 734,449 $ (856,260) $ 151,811 30,000 Move costs and other 280,791 (147,837) (65,106) 67,848 Lease commitments 450,714 (305,283) (145,431) -- Other 74,989 (118,715) 58,726 15,000 ----------- ----------- ----------- ----------- $ 1,540,943 $(1,428,095) $ -- $ 112,848 =========== =========== =========== ===========
As of March 31, 1999, the European headquarters relocation was substantially complete. 5. Income Taxes The provision for income taxes for the nine months ended March 31, 1999 and 1998, was computed by applying the estimated annual income tax rate to income before taxes. The estimated annual effective income tax rate considers non-deductible items such as goodwill amortization and excludes losses from certain foreign subsidiaries. 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 of growth of new markets, potential unfavorable publicity regarding Collagen Aesthetics, Inc. (the "Company") or their products, among other matters discussed in this report. Actual results are subject to risks and uncertainties and actual events and results may differ significantly from the discussion of such matters in the forward-looking statements. Such differences may be based upon factors within the Company's control, such as strategic planning decisions by management and reallocation of internal resources, or on factors outside of the Company's control, such as scientific advances by third parties, introduction of competitive products and delays by regulatory and tax authorities, as well as those factors under the heading "Factors That May Affect Future Results of Operations" set forth below, those in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, and those in the Company's Form 10-Q for the quarter ended December 31, 1998. The Company The Company designs, develops, manufactures and markets on a worldwide basis biomedical devices for the treatment of defective, diseased, traumatized or aging human tissues. The Company's core products are used principally in facial aesthetic applications and the treatment of stress urinary incontinence. The Company markets its facial aesthetic products directly and through a network of international distributors and its stress urinary incontinence product through a marketing partner. Spinoff On August 18, 1998, the Company spun off, in a one-for-one distribution ("the Distribution") of common stock to the Company's stockholders (the "Spinoff"), Cohesion Technologies, Inc. ("Cohesion"), which prior to the Spinoff was a wholly-owned subsidiary of the Company. The transaction resulted in the distribution of 100% of the outstanding shares of Cohesion. In accordance with a ruling from the Internal Revenue Service ("IRS"), the Spinoff did not result in recognition of taxable income or loss to the Company or the Company's stockholders for U.S. Federal income tax purposes. Subsequent to the Distribution, Cohesion has been traded on the NASDAQ National Market under the ticker symbol of CSON. For the first nine months of fiscal year 1999 the Company included Cohesion's operating results through August 18, 1998 (approximately six weeks), compared to the inclusion of nine months of Cohesion's operating results in fiscal year 1998. 10 11 Sale of LipoMatrix, Inc. On November 9, 1998, the Company announced the sale of its LipoMatrix, Inc. ("LipoMatrix") subsidiary, manufacturer of the Trilucent(R) breast implant ("Trilucent implant"), to Sierra Medical Technologies ("Sierra") of Carson City, Nevada. Consideration to the Company include a cash payment and the right to receive royalties on future worldwide breast implant sales. Sierra was also granted the right to purchase the U.S. Trilucent implant patent portfolio and marketing rights for additional cash consideration. On March 8, 1998 the United Kingdom Medical Devices Agency ("MDA") announced the voluntary suspension of marketing and voluntary withdrawal of the Trilucent implant in the United Kingdom. The MDA stated that its actions were taken for precautionary reasons and did not identify any immediate hazard associated with the use of the product. Subsequently, LipoMatrix's notified body in Europe suspended the product's CE Mark pending further assessment of the long-term safety of the product. Sierra has since stopped sales of the product. The Company retains responsibility for Trilucent implants sold prior to November 6, 1998. The Company has agreed with the United Kingdom National Health Service for a specified period of time to perform certain product surveillance with respect to United Kingdom patients implanted with the Trilucent implant. In the ordinary course of its business, the Company is involved in product liability claims arising from the Trilucent implant and its other medical device products. While the outcome of such matters is currently not determinable, the Company does not expect that such claims, when considered in relation to the Company's product liability insurance coverage, will result in a material adverse effect on the Company's consolidated financial position or results of its operations. U.S. Launch of Refinity(TM) Medical Skin Solutions In December 1998, the Company launched the Refinity Medical Skin Solutions line of high-performance alphahydroxy acid ("AHA") skin care products ("Refinity skin solution products") to U.S. dermatologists and plastic surgeons. The Refinity Medical Skin Solutions line contains a novel and patented anti-irritant, Cosmederm-7(TM), which enables Refinity to deliver an unprecedented combination of comfort and efficacy. The Refinity products are available only through physician offices, and include an in-office peel containing glycolic acid and home-use products containing lactic acid. Both the in-office and home-use products diminish the appearance of fine lines and wrinkles, and improve skin texture and tone. Unsolicited Proposal by Mentor Corporation In February 1999, Mentor Corporation (traded on The Nasdaq Stock Market under the symbol MNTR) made an unsolicited proposal to acquire the Company. In consultation with its financial advisor, the Company will undertake an evaluation of strategic alternatives available to the Company with the objective of maximizing shareholder value, including possible sale or merger of the Company. 11 12 Results of Operations The following table shows for the periods indicated the percentage relationship to product sales of certain items in the Condensed Consolidated Statements of Operations.
PERCENT OF PRODUCT PERCENT OF PRODUCT SALES SALES Three Months Ended Nine Months Ended March 31, March 31, ------------------------- ------------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Product sales 100% 100% 100% 100% Costs and expenses: Cost of sales 29% 29% 28% 29% Selling, general and administrative 47% 54% 50% 50% Research and development 9% 31% 11% 27% Acquired in-process R&D -- -- -- 18%
Product sales. Product sales of $21.1 million in the three months ended March 31, 1999, increased approximately $1.8 million or 9% compared to product sales of $19.2 million for the same prior year period. Product sales of $62.2 million in the nine months ended March 31, 1999, increased approximately $2.1 million or 4% compared to product sales of $60.0 million for the same prior year period. The increase in sales for the three and nine months ended March 31, 1999, compared with the same period in the prior year, primarily was due to increased sales of injectable collagen products, Hylaform(R) viscoelastic gel ("Hylaform gel") and sales of Refinity, partially offset by lower Contigen sales. Worldwide sales of facial aesthetic products for the three and nine months ended March 31, 1999, were $17.5 million and $50.1 million, respectively, compared to $14.2 million and $45.6 million for the same periods in the prior year. The increase in worldwide sales for the three months ended March 31, 1999, primarily was due to an increase in U.S. sales of injectable collagen products, an increase in international sales of Hylaform gel and sales of Refinity, partially offset by lower sales of SoftForm. The increase in worldwide sales for the nine months ended March 31, 1999, primarily was due to an increase in U.S. sales of injectable collagen products, an increase in international sales of Hylaform gel and sales of Refinity. The Company anticipates dollar growth in worldwide product sales of facial aesthetic products during fiscal year 1999. During the three and nine months ended March 31, 1999, pursuant to the Company's sales agreement with C.R. Bard ("Bard"), the Company recorded revenue of $1.4 million and $5.2 million, respectively, from Bard based on Bard's direct sales of Bard Contigen(R) implant ("Contigen implant") to physician customers, compared to revenue of $2.1 million and $5.6 million, respectively, in the same periods in the prior year. In addition, the Company recorded $1.8 million and $6.0 million, respectively, of revenue from shipments of Contigen implant to Bard in the three and nine months ended March 31, 1999, compared to $2.7 million and $7.4 12 13 million, respectively, for the same periods in the prior year. The Company expects that revenues from Contigen implant sales in fiscal year 1999 will be slightly lower than sales in fiscal year 1998. A number of uncertainties exist surrounding the marketing and distribution of Contigen implant. The Company's primary means of distribution for this product is through a third party firm, Bard. The Company's business and financial results could be adversely affected in the event that this party is unable to market the product effectively, anticipate customer demand accurately, or effectively manage industry-wide pricing and cost containment pressures in health care. Sales of Collagraft(R) bone graft matrix and Collagraft(R) bone graft matrix strip ("Collagraft bone graft products") to Cohesion's marketing partner, Zimmer, Inc. ("Zimmer"), were $45,000 for the nine months ended March 31, 1999, compared to $1.1 million for the same prior year period. The decrease in sales resulted from recording approximately six weeks of sales for the nine months ended March 31, 1999, due to the Spinoff of Cohesion on August 18, 1998, compared to nine months of recorded sales in the same prior year period. Cost of sales. Cost of sales as a percentage of product sales was 29% and 28%, respectively, for the three and nine months ended March 31, 1999, compared with 29% for the same prior year periods. The lower cost of sales as a percentage of product sales in the nine months ended March 31, 1999, primarily was due to recording approximately six weeks of cost of sales for Cohesion products, which have lower margins, compared to nine months of cost of sales for Cohesion products in the same prior year period and selling more collagen-based injectable products, which have higher gross margins than the Company's other product offerings. The Company anticipates that cost of sales as a percentage of sales may increase slightly as a result of introducing additional product line extensions, having higher costs per unit, partially offset by lower manufacturing costs per unit for collagen-based injectable products and the Spinoff. SG&A. Selling, general, and administrative ("SG&A") expenses were $9.9 million for the three months ended March 31, 1999, a decrease of 5% over $10.4 million for the same prior year period. SG&A expenses were $31.0 million for the nine months ended March 31, 1999, an increase of 3% over $30.1 million for the same prior year period. SG&A expenses as a percentage of product sales were 47% and 50% for the three and nine months ended March 31, 1999, compared to 54% and 50% for the same prior year periods. The decrease in SG&A expenses in dollars and as a percentage of sales in the three months ended March 31, 1999, primarily resulted from no Cohesion SG&A expenses, lower U.S. and international spending, partially offset by costs related to the U.S. launch of Refinity skin solution products, costs related to the international launch of SoftForm implant and increased spending in Japan. The increase in SG&A expenses in dollars for the nine months ended March 31, 1999, primarily resulted from costs related to the U.S. launch of Refinity, increased spending in Japan and increased international spending, partially offset by recording six weeks of Cohesion expenses compared to nine months in the prior year period. The Company expects SG&A expenses in fiscal year 1999 as a percentage of product sales to be at levels lower than those of fiscal year 1998. R&D. Research and development ("R&D") expenses, which include expenditures for regulatory compliance, were $1.9 million and $7.0 million (9% and 11% of product sales) for the three and nine months ended March 31, 1999, a decrease of 67% and 56% over $5.9 million and $16.1 million (31% and 27% of product sales), for the same prior year periods. The decrease in R&D spending in the three and nine months ended March 31, 1999, primarily was attributable to the inclusion of approximately six weeks of Cohesion R&D expenses in July and August of fiscal year 1999, compared to three and nine months in fiscal year 1998, respectively. The Company 13 14 expects R&D spending in fiscal year 1999 to be at levels lower than fiscal year 1998 as a result of the Spinoff. Acquired in-process research and development. The charge for the acquired in-process research and development ("in-process R&D") of $10.5 million in the 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. Income (loss) from operations. Income from operations was $3.1 million for the three months ended March 31, 1999, compared with a loss from operations of $2.6 million for the same prior year period. Income from operations was $6.6 million for the nine months ended March 31, 1999, compared with a $14.2 million loss from operations for the same prior year period. The increase in income in the three months ended March 31, 1999, primarily was due to recording no R&D expenses for Cohesion, compared to a full quarter for the same prior year period, increased revenues primarily resulting from U.S. sales of injectable collagen products and international sales of Hylaform gel, partially offset by increased marketing expenses related to the U.S. launch of Refinity skin solution products and to the international launch of SoftForm implant and increased spending in Japan. The increase in income in the nine months ended March 31, 1999, primarily was due to recording no acquired in-process R&D charges for Cohesion, recording approximately six weeks of Cohesion R&D expenses for the nine months ended March 31, 1999, compared to nine months of expenses in the same prior year period, increased revenues primarily resulting from U.S. sales of injectable collagen products and international sales of Hylaform gel, partially offset by increased marketing expenses related to the U.S. launch of Refinity skin solution products, the international launch of SoftForm implant, increased spending in Japan and lower sales in Japan resulting from the $2.3 million reduction in sales in fiscal 1999. The impact of foreign exchange rates on operating income for the three and nine months ended March 31, 1999 was immaterial. Until December 1994, the Company's policy was to hedge material foreign currency transaction exposures. At March 31, 1999 and June 30, 1998, no foreign currency transaction exposures were hedged. Unhedged net foreign assets were $6.3 million and $6.5 million at March 31, 1999 and June 30, 1998, respectively. Net gain on investments, principally Boston Scientific Corporation. In the three months ended March 31, 1999, the Company did not record a gain on investments, compared to $5.0 million, primarily resulting from the sale of 90,000 shares of Boston Scientific Corporation ("Boston Scientific") common stock, in the same prior year period. In the nine months ended March 31, 1999, the Company recorded a pre-tax gain on investments of $3.7 million primarily resulting from the sale of approximately 50,000 shares of Boston Scientific common stock compared to $13.7 million, primarily resulting from the sale of approximately 247,340 shares of Boston Scientific common stock in the nine months ended March 31, 1998. The Company's investment in Boston Scientific common stock was transferred to Cohesion in connection with the Spinoff. 14 15 Equity in losses of affiliates, net. In the three months ended March 31, 1999, the Company did not record any equity in losses of affiliate companies, compared to equity in losses of affiliates of approximately $83,000 recorded in the same prior year period. For the nine months ended March 31, 1999, equity in losses of affiliate companies was $35,000 compared with losses of $232,000 for the same prior year period. Interest income. Interest income was $143,000 and $473,000 for the three and nine months ended March 31, 1999, respectively, compared to $164,000 and $702,000 for the same periods in the prior year. The decrease in the three and nine months ended March 31, 1999, was due to lower average monthly balances of cash, cash equivalents and short-term investments. Provision for income taxes. The provision for income taxes was approximately 37% and 41% of pretax income for the three and nine months ended March 31, 1999, respectively, compared to 43% for the corresponding periods in 1998 excluding the tax effect of the loss from discontinued operations of LipoMatrix and the non-deductible charge for in-process R&D. Liquidity and Capital Resources At March 31, 1999, the Company's cash, cash equivalents and short-term investments were $13.0 million compared to $15.9 million at June 30, 1998. Net cash provided by operating activities was approximately $4.3 million in the nine months ended March 31, 1999, compared to approximately $3.2 million of net cash used in operating activities for the same prior year period. The $4.3 million of net cash provided by operating activities in the nine months ended March 31, 1999, primarily was attributable to: net income of $7.9 million adjusted for gain on investments (net of taxes paid), depreciation and amortization expense and equity in losses of affiliates, partially offset by a net $3.6 million related to changes in assets and liabilities. The $1.2 million of net cash used in investing and financing activities in the nine months ended March 31, 1999, primarily was due to payments of approximately $3.9 million to repurchase 381,100 shares of the Company's common stock, payments of $3.9 million to purchase short-term investments, an increase in intangible and other assets of $2.8 million, capital expenditures of approximately $2.6 million and payments of cash dividends of approximately $0.9 million to the Company's stockholders in July 1998, partially offset by proceeds of $8.9 million received from the sale of short-term investments, proceeds of $2.1 million (net of taxes paid) from the sale of 50,000 shares of common stock of Boston Scientific by the Company, proceeds of $0.8 million from the issuance of 47,076 shares of the Company's common stock, proceeds of $0.5 million resulting from the Spinoff of Cohesion Technologies, Inc., and proceeds of $0.5 million from the sale of other affiliate stock (net of taxes paid). The Company anticipates capital expenditures, equity investments in, and loans to affiliate companies to be approximately $4.0 million in fiscal year 1999. As of March 31, 1999, the Company's capital expenditures, equity investments in, and loans to affiliate companies totaled approximately $2.6 million. In August 1998, the Board of Directors authorized the Company to repurchase an additional 500,000 shares of the Company's common stock in the open market, of which the Company has repurchased 331,100 shares as of March 31, 1999. At March 31, 1999, 168,900 shares remain to be repurchased according to the Board of Directors' authorization. Subsequent to June 30, 1998, the Company has not declared a cash dividend on its common stock and does not anticipate paying cash dividends in the foreseeable future. 15 16 The Company's principal sources of liquidity include cash generated from operations and its cash, cash equivalents, and short-term investments. The Company believes that the above sources of liquidity should be adequate to fund its anticipated cash needs through at least the next twelve months. Factors That May Affect Future Results of Operations A large portion of the Company's revenues in recent years has come from its international operations. As a result, the Company's operations and financial results could be significantly affected by international factors, including numerous regulatory agencies, changes in foreign currency exchange rates and foreign economic and political conditions generally. The Company's results of operations could be significantly affected by fluctuations in foreign currency exchange rates or disruptions in shipments. Sales of the Company's collagen-based injectable products, Zyderm(R) and Zyplast(R) collagen implants ("Zyderm implants" and "Zyplast implants"), SoftForm implant as well as Contigen implant, accounted for approximately 86% of consolidated product sales for the quarter ended March 31, 1999, and 89% of consolidated product sales for the nine months ended March 31, 1999. The Company's product sales may continue to consist primarily of sales of these principal products. Factors such as adverse rulings by regulatory authorities, product liability lawsuits, the introduction of competitive products by third parties, other loss of market acceptance or other adverse publicity for these principal products may significantly and adversely affect the Company's sales of these products and, as a result, also adversely affect the Company's business, financial condition or results of operations. The Company's quarterly operating results may vary significantly in the future depending upon factors such as the timing of significant orders and shipments, changes in pricing policies by the Company and its competitors, increased competition, demand for the Company's products, the number, timing and significance of new product and product enhancement announcements by the Company and its competitors, the ability of the Company to develop, introduce and market new and enhanced versions of the Company's products on a timely basis, the mix of direct and indirect sales, the timing of investments in affiliate companies and general economic factors, among others. If revenue levels are below expectations, operating results are likely to be materially adversely affected. In particular, because only a small portion of the Company's expenses varies with revenue in the short term, net income may be disproportionately affected by a reduction in revenue. All of the Company's manufacturing capacity for collagen products, the majority of its research and development activities, its corporate headquarters, and other critical business functions are located near major earthquake faults. In addition, all of the Company's manufacturing capacity for collagen-based products is located in one primary facility with the Company currently maintaining only limited amounts of finished product inventory. While the Company has some limited protection in the form of disaster recovery programs and basic insurance coverage, the Company's business, financial condition or operating results would be materially adversely affected in the event of a major earthquake, fire or other similar calamity, affecting its manufacturing or other facilities. The Company is involved in various legal actions arising in the course of business, some of which involve product liability claims. The Company operates in an industry susceptible to 16 17 claims that may allege that the use of the Company's technology or products has resulted in adverse effects or infringes on third-party technology. With respect to product liability claims, such risks will exist even with respect to those products that have received, or in the future may receive, regulatory approval for commercial sale. It is possible that adverse product liability or intellectual property actions could negatively affect the Company's business, financial condition or results of operations. The Company has been, and may in the future, be the subject of negative publicity, which can arise from various sources, ranging from the news media on cosmetic procedures in general to legislative and regulatory investigations specific to the Company concerning, among other things, the safety and efficacy of its products. There can be no assurance that such investigations or negative publicity from such investigations or from the news media will not result in a material adverse effect on the Company's business, financial position, its results of operations or the market price of its stock. In addition, significant negative publicity could result in an increased number of product liability claims. The Company's manufacturing activities and products sold in the United States are subject to extensive and rigorous regulations by the Food and Drug Administration ("FDA") and by comparable agencies in certain foreign countries where these products are manufactured or distributed. The FDA regulates the manufacture and sale of medical devices in the United States, including labeling, advertising and record keeping. Failure to obtain, or delays in obtaining, the required regulatory approvals for new products, as well as product recalls, both inside and outside of the United States could adversely affect the Company's business, financial condition or results of operations. Due to the factors noted above, as well as other factors that may affect the Company's operating results, the Company's future earnings and stock price may be subject to significant volatility, particularly on a quarterly basis. Any shortfall in revenue or earnings from levels expected by securities analysts could have an immediate and significant adverse effect on the trading price of the Company's common stock in any given period. Additionally, the Company may not learn of, or be able to confirm, such shortfalls until late in the fiscal quarter, or following the end of the quarter, which could result in an even more immediate and adverse effect on the trading price of the Company's common stock. Finally, the Company participates in a highly dynamic industry, which often results in significant volatility of the Company's common stock. Year 2000. The information provided herein related to the Year 2000 risks constitutes a "Year 2000 Readiness Disclosure" for purposes of the Year 2000 Readiness Disclosure Act. The "Year 2000" issue results from the use in computer hardware and software of two digits rather than four digits to define the applicable year. When computer systems must process dates both before and after January 1, 2000, two-digit year "fields" may create processing ambiguities that can cause errors and system failures. The results of these errors may range from minor undetected errors to complete shutdown of an affected system. These errors or failures may have limited effects, or the effects may be widespread, depending on the computer chip, system or software, and its location and function. The effects of the Year 2000 problem are exacerbated because of the interdependence of computer and telecommunications systems in the United States and throughout the world. Because of this interdependence, the failure of one system may lead to the failure of many other systems even though the other systems are themselves "Year 2000 compliant." The Company has reviewed the Year 2000 issue as it may affect the Company's business activity. The Company has implemented a Year 2000 plan (the "Plan") which is designed to cover the Company's business-critical activities. The Plan will be modified as circumstances 17 18 change and the Company becomes aware of both hardware and software modifications that must be made to systems that are non-Year 2000 compliant. Under the Plan, the Company is using a five-phase methodology for addressing the issue. The phases are Awareness, Assessment, Renovation, Validation and Implementation. A heightened emphasis on completion will continue through the next quarter. Awareness consists of defining the Year 2000 problem and gaining executive level support and sponsorship. A Year 2000 program team has been established and an overall strategy created. Our Year 2000 project team has been in place for nearly two years and is engaged in a company-wide project using a combination of internal and external resources in an effort to optimize the renovation process, maximize benefits, and lower risk. Members of the team include information systems staff, information technology staff, business analysts, auditing and quality insurance staff, and various other client user groups. This project team reports to executive management. During Assessment, business-critical internal systems, products and supply chain partners are inventoried and prioritized for renovation. The Company believes it has completed a majority of the Awareness and Assessment phases, however, ongoing work will be required in these areas as the Company completes its assessment of existing supply chain partners and enters into new supply chain relationships in the ordinary course of business. Renovation consists of converting, replacing, upgrading or eliminating systems that have Year 2000 problems. Renovation has been completed on most of our business-critical systems and is targeted for completion by July 1999. Validation involves ensuring that hardware and software fixes will work properly in 1999 and beyond and can occur both before and after implementation. Validation began in the second quarter of fiscal year 1999 on most of our business-critical systems and will continue through June 1999 to allow for thorough testing before the Year 2000. Implementation is the installation of hardware and software components in a production environment. The Company is in the final stages of the Implementation phase and is targeted for completion by September 1999. The Impact of Year 2000 issues on the Company will depend not only on corrective actions that the Company takes, but also on the way in which Year 2000 issues are addressed by governmental agencies, business and other third parties that provide services or data to, or receive services or data from, the Company, or whose financial condition or operational capability is important to the Company. To reduce this exposure, the Company has an ongoing process of identifying and contacting business-critical third party vendors and other significant third parties to determine their Year 2000 plans and target dates. Risks associated with any such third parties located outside the United States may be higher insofar as it is generally believed that non-U.S. businesses may not be addressing their Year 2000 issues on as timely a basis as U.S. businesses. Notwithstanding the Company's efforts, there can be no assurance that the Company, business-critical third party vendors or other significant third parties will adequately address their Year 2000 issues. The Company is developing contingency plans for implementation in the event that the Company, business-critical third party vendors or other significant third parties fail to adequately address Year 2000 issues. Such plans principally involve identifying alternative vendors or internal remediation. There can be no assurance that any such plans will fully mitigate any such failures or problems. Furthermore, there may be certain business-critical third parties, such as utilities, telecommunication companies, or material vendors where alternative arrangements or sources are limited or unavailable. Although it is difficult to estimate the total costs of implementing the Plan, through June 1999 and beyond, the Company's preliminary estimate is that such costs will total approximately $600,000, which does not include the costs to redeploy existing staff. However, although management believes its estimates are reasonable, there can be 18 19 no assurance, for the reasons stated in the next paragraph, that the actual costs of implementing the Plan will not differ materially from the estimated costs. Through March 31, 1999, the Company has incurred approximately $475,000 on this project of which $400,000 has been capitalized and $75,000 has been expensed. The remaining $125,000 is expected to be expensed by December 31, 1999. The Company does not believe that the redeployment of existing staff will have a material adverse effect on its business, results of operations or financial position. Incremental expenses related to the Year 2000 project are not expected to materially impact operating results in any one period. The extent and magnitude of the Year 2000 Problem as it will affect the Company, both before and for some period after January 1, 2000, is difficult to predict or quantify for a number of reasons. Among the most important are lack of control over systems that are used by third parties who are critical to the Company's operation, dependence on third party software vendors to deliver Year 2000 upgrades in a timely manner, complexity of testing inter-connected networks and applications that depend on third party networks and the uncertainty surrounding how others will deal with liability issues raised by Year 2000 related failures. There can be no assurance for example, that systems used by third parties will be adequately remediated so that they are Year 2000 ready by January 1, 2000, or by some earlier date, so as not to create a material disruption to the Company's business. Moreover, the estimated costs of implementing the Plan do not take into account the costs, if any, that might be incurred as a result of Year 2000 related failures that occur despite the Company's implementation of the Plan. Although the Company is not aware of any material operational issues associated with preparing its internal systems for the Year 2000, or material issues with respect to the adequacy of mission-critical third party systems, there can be no assurance that the Company will not experience material unanticipated negative consequences and/or material costs caused by undetected errors or defects in such systems or by the Company's failure to adequately prepare for the results of such errors or defects, including costs of related litigation, if any. The impact of such consequences could have a material adverse effect on the Company's business, financial condition or results of operations. For a more complete discussion of risks and uncertainties involving the Company's business, please see the risk factors described under the heading "Factors That May Affect Future Results of Operations" set forth in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, and those set forth in the Form 10-Q for the quarter ended December 31, 1998. 19 20 PART II. OTHER INFORMATION COLLAGEN AESTHETICS, INC. Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None 20 21 Item 6. Exhibits and Reports on Form 8-K A. Exhibits Exhibit 3.6 By-Laws of Collagen Aesthetics, Inc. Exhibit 10.107* License and Distribution Agreement effective as of January 27, 1999 by and between Arthrocare Corporation and Collagen Aesthetics, Inc. Exhibit 10.108* Distribution and Loan Agreement executed on January 11, 1999 by and between Collagen Aesthetics International and BioPharmex S.A. Exhibit 27 Financial Data Schedule B. Reports on Form 8-K None *Confidential treatment requested. 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 AESTHETICS, INC. Date: May 13, 1999 /s/ Gary S. Petersmeyer ------------ ------------------------------------ Gary S. Petersmeyer President and Chief Executive Officer Date: May 13, 1999 /s/ Michael A. Bates ------------ ------------------------------------ Michael A. Bates Vice President Finance and Chief Financial Officer 22 23 COLLAGEN AESTHETICS, INC. INDEX TO EXHIBITS
Exhibit Number Description - -------------- ----------- Exhibit 3.6 By-Laws of Collagen Aesthetics, Inc. Exhibit 10.107* License and Distribution Agreement effective as of January 27, 1999 by and between Arthrocare Corporation and Collagen Aesthetics, Inc. Exhibit 10.108* Distribution and Loan Agreement executed on January 11, 1999 by and between Collagen Aesthetics International and BioPharmex S.A. Exhibit 27 Financial Data Schedule
*Confidential treatment requested. 23 EX-3.6 2 BY-LAWS OF COLLAGEN AESTHETICS, INC. 1 EXHIBIT 3.6 BY-LAWS OF COLLAGEN AESTHETICS, INC. 2 BY-LAWS OF COLLAGEN AESTHETICS, INC. TABLE OF CONTENTS
Page ---- ARTICLE I CORPORATE OFFICES ............................................ 1 1.1 Registered Office .......................................... 1 1.2 Other Offices .............................................. 1 ARTICLE II MEETINGS OF STOCKHOLDERS .................................... 1 2.1 Place of Meetings .......................................... 1 2.2 Annual Meeting ............................................. 1 2.3 Special Meeting ............................................ 1 2.4 Notice of Stockholders' Meetings ........................... 2 2.5 Advance Notice of Stockholder Nominees ..................... 2 2.6 Manner of Giving Notice; Affidavit of Notice ............... 3 2.7 Quorum ..................................................... 3 2.8 Adjourned Meeting; Notice .................................. 3 2.9 Conduct of Business ........................................ 3 2.10 Voting .................................................... 4 2.11 Waiver of Notice .......................................... 4 2.12 Stockholder Action by Written Consent Without a Meeting ... 5 2.13 Record Date For Stockholder Notice; Voting; Giving Consents 5 2.14 Proxies ................................................... 6 2.15 List of Stockholders Entitled to Vote ..................... 6 ARTICLE III DIRECTORS .................................................. 7 3.1 Powers ..................................................... 7 3.2 Number of Directors ........................................ 7 3.3 Election, Qualification and Term of Office of Directors .... 7 3.4 Resignation And Vacancies .................................. 7 3.5 Place of Meetings; Meetings by Telephone ................... 8 3.6 Regular Meetings ........................................... 9 3.7 Special Meetings; Notice ................................... 9 3.8 Quorum ..................................................... 9 3.9 Waiver of Notice ........................................... 9 3.10 Board Action by Written Consent Without a Meeting ......... 10 3.11 Fees and Compensation of Directors ........................ 10 3.12 Approval of Loans to Officers ............................. 10 3.13 Removal of Directors ...................................... 10 3.14 Chairman of the Board of Directors ........................ 11 ARTICLE IV COMMITTEES .................................................. 11 4.1 Committees of Directors .................................... 11 4.2 Committee Minutes .......................................... 12
3 BY-LAWS OF COLLAGEN AESTHETICS, INC. TABLE OF CONTENTS (continued)
Page ---- 4.3 Meetings and Action of Committees .......................... 12 ARTICLE V OFFICERS ..................................................... 12 5.1 Officers ................................................... 12 5.2 Appointment of Officers .................................... 12 5.3 Subordinate Officers ....................................... 13 5.4 Removal and Resignation of Officers ........................ 13 5.5 Vacancies in Offices ....................................... 13 5.6 President .................................................. 13 5.7 Vice Presidents ............................................ 14 5.8 Secretary .................................................. 14 5.9 Chief Financial Officer .................................... 14 5.10 Representation of Shares of Other Corporations ............ 15 5.11 Authority and Duties of Officers .......................... 15 ARTICLE VI INDEMNITY ................................................... 15 6.1 Third Party Actions ........................................ 15 6.2 Actions By or in the Right of the Corporation .............. 16 6.3 Successful Defense ......................................... 16 6.4 Determination of Conduct ................................... 16 6.5 Payment of Expenses in Advance ............................. 17 6.6 Indemnity Not Exclusive .................................... 17 6.7 Insurance Indemnification .................................. 17 6.8 The Corporation ............................................ 17 6.9 Employee Benefit Plans ..................................... 18 6.10 Continuation of Indemnification and Advancement of Expenses 18 ARTICLE VII RECORDS AND REPORTS ........................................ 18 7.1 Maintenance and Inspection of Records ...................... 18 7.2 Inspection by Directors .................................... 19 7.3 Annual Statement to Stockholders ........................... 19
ii 4 BY-LAWS OF COLLAGEN AESTHETICS, INC. TABLE OF CONTENTS (continued)
Page ---- ARTICLE VIII GENERAL MATTERS ........................................... 19 8.1 Checks ..................................................... 19 8.2 Execution of Corporate Contracts and Instruments ........... 19 8.3 Stock Certificates; Partly Paid Shares ..................... 19 8.4 Special Designation on Certificates ........................ 20 8.5 Lost Certificates .......................................... 21 8.6 Construction; Definitions .................................. 21 8.7 Dividends .................................................. 21 8.8 Fiscal Year ................................................ 21 8.9 Seal ....................................................... 21 8.10 Transfer of Stock ......................................... 22 8.11 Stock Transfer Agreements ................................. 22 8.12 Registered Stockholders ................................... 22 ARTICLE IX AMENDMENTS .................................................. 22
iii 5 BY-LAWS OF COLLAGEN AESTHETICS, INC. ARTICLE I CORPORATE OFFICES 1.1 Registered Office The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is The Corporation Trust Company. 1.2 Other Offices The board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 Place of Meetings Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the corporation. 2.2 Annual Meeting The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. At the meeting, directors shall be elected and any other proper business may be transacted. 2.3 Special Meeting A special meeting of the stockholders may be called at any time by the board of directors, or by the chairman of the board, or by the president. 2.4 Notice of Stockholders' Meetings All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these by-laws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 6 2.5 Advance Notice of Stockholder Nominees Only persons who are nominated in accordance with the procedures set forth in this Section 2.5 shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 2.5. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 60 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the corporation which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the corporation's books, of such stockholder and (ii) the class and number of shares of the corporation which are beneficially owned by such stockholder. At the request of the Board of Directors any person nominated by the Board of Directors for election as a Director shall furnish to the Secretary of the corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a Director of the corporation unless nominated in accordance with the procedures set forth in this Section 2.5. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the By-Laws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. 2.6 Manner of Giving Notice; Affidavit of Notice Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 7 2.7 Quorum The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the Chairman of the meeting or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. 2.8 Adjourned Meeting; Notice When a meeting is adjourned to another time or place, unless these by-laws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.9 Conduct of Business The Chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business. 2.10 Voting The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.14 of these by-laws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as provided in the last paragraph of this Section 2.11, or as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. At a stockholders' meeting at which directors are to be elected, each stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such stockholder normally is entitled to cast) if the candidates' names have been properly placed in nomination (in accordance with these by-laws) prior to commencement of the voting and the stockholder requesting cumulative 8 voting has given notice prior to commencement of the voting of the stockholder's intention to cumulate votes. If cumulative voting is properly requested, each holder of stock, or of any class or classes or of a series or series thereof, who elects to cumulate votes shall be entitled to as many votes as equals the number of votes which (absent this provision as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected by him, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them, as he may see fit. 2.11 Waiver of Notice Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these by-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these by-laws. 2.12 Stockholder Action by Written Consent Without a Meeting Unless otherwise provided in the certificate of incorporation, any action required by this chapter to be taken at any annual or special meeting of stockholders of the corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. 9 2.13 Record Date For Stockholder Notice; Voting; Giving Consents In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the board of directors does not so fix a record date: (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (ii) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed. (iii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 2.14 Proxies Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(c) of the General Corporation Law of Delaware. 10 2.15 List of Stockholders Entitled to Vote The officer who has charge of the stock ledger of a corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. ARTICLE III DIRECTORS 3.1 Powers Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these by-laws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 Number of Directors The Board of Directors shall consist of five persons until changed by a proper amendment of this Section 3.2. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 Election, Qualification and Term of Office of Directors Except as provided in Section 3.4 of these by-laws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these by-laws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Elections of directors need not be by written ballot. 11 3.4 Resignation And Vacancies Any director may resign at any time upon written notice to the attention of the Secretary of the corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. Unless otherwise provided in the certificate of incorporation or these by-laws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these by-laws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 Place of Meetings; Meetings by Telephone The board of directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware. 12 Unless otherwise restricted by the certificate of incorporation or these by-laws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 Regular Meetings Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 3.7 Special Meetings; Notice Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two (2) directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.8 Quorum At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 13 3.9 Waiver of Notice Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these by-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these by-laws. 3.10 Board Action by Written Consent Without a Meeting Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. 3.11 Fees and Compensation of Directors Unless otherwise restricted by the certificate of incorporation or these by-laws, the board of directors shall have the authority to fix the compensation of directors. 3.12 Approval of Loans to Officers The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.13 Removal of Directors Unless otherwise restricted by statute, by the certificate of incorporation or by these by-laws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that, so long as shareholders of the corporation are entitled to cumulative voting, if less than the entire board is to be removed, no director may be removed without cause if the votes cast against his removal would be 14 sufficient to elect him if then cumulatively voted at an election of the entire board of directors. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. 3.14 Chairman of the Board of Directors The corporation may also have, at the discretion of the board of directors, a chairman of the board of directors who shall not be considered an officer of the corporation. ARTICLE IV COMMITTEES 4.1 Committees of Directors The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in the by-laws of the corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, (iv) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (v) amend the bylaws of the corporation; and, unless the board resolution establishing the committee, the by-laws or the certificate of incorporation expressly so provide, no such committee shall have the power or 15 authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 Committee Minutes Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. 4.3 Meetings and Action of Committees Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these by-laws, Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting), with such changes in the context of those by-laws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these by-laws. ARTICLE V OFFICERS 5.1 Officers The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these by-laws. Any number of offices may be held by the same person. 5.2 Appointment of Officers The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these by-laws, shall be appointed by the board of directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 Subordinate Officers The board of directors may appoint, or empower the president to appoint, such other officers and agents as the business of the corporation may require, each of whom 16 shall hold office for such period, have such authority, and perform such duties as are provided in these by-laws or as the board of directors may from time to time determine. 5.4 Removal and Resignation of Officers Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 Vacancies in Offices Any vacancy occurring in any office of the corporation shall be filled by the board of directors. 5.6 President Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or these by-laws. 5.7 Vice Presidents In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these by-laws, the president or the chairman of the board. 17 5.8 Secretary The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these by-laws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these by-laws. 5.9 Chief Financial Officer The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all his transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the board of directors or the by-laws. 5.10 Representation of Shares of Other Corporations The chairman of the board, the president, any vice president, the treasurer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person 18 authorized to do so by proxy or power of attorney duly executed by such person having the authority. 5.11 Authority and Duties of Officers In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors or the stockholders. ARTICLE VI INDEMNITY 6.1 Third Party Actions The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 6.2 Actions By or in the Right of the Corporation The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the 19 extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. 6.3 Successful Defense To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. 6.4 Determination of Conduct Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that the indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made (1) by the Board of Directors or the Executive Committee by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding or (2) or if such quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. 6.5 Payment of Expenses in Advance Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article VI. 6.6 Indemnity Not Exclusive The indemnification and advancement of expenses provided or granted pursuant to the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. 6.7 Insurance Indemnification The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation, as a director, officer, 20 employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. 6.8 The Corporation For purposes of this Article VI, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, office, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under and subject to the provisions of this Article VI (including, without limitation the provisions of Section 6.4) with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. 6.9 Employee Benefit Plans For purposes of this Article VI, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article VI. 6.10 Continuation of Indemnification and Advancement of Expenses The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 21 ARTICLE VII RECORDS AND REPORTS 7.1 Maintenance and Inspection of Records The corporation shall, either at its principal executive offices or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these by-laws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. 7.2 Inspection by Directors Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 7.3 Annual Statement to Stockholders The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. 22 ARTICLE VIII GENERAL MATTERS 8.1 Checks From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.2 Execution of Corporate Contracts and Instruments The board of directors, except as otherwise provided in these by-laws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 Stock Certificates; Partly Paid Shares The shares of a corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall 23 declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 Special Designation on Certificates If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 24 8.5 Lost Certificates Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 Construction; Definitions Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these by-laws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.7 Dividends The directors of the corporation, subject to any restrictions contained in (i) the General Corporation Law of Delaware or (ii) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies. 8.8 Fiscal Year The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors. 8.9 Seal The corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any other manner reproduced. 8.10 Transfer of Stock Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new 25 certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.11 Stock Transfer Agreements The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.12 Registered Stockholders The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE IX AMENDMENTS The by-laws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal by-laws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal by-laws. EX-10.107 3 LICENSE AND DISTRIBUTION AGREEMENT 1 EXHIBIT 10.107 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. [LOGO] LICENSE AND DISTRIBUTION AGREEMENT This License and Distribution Agreement (the "Agreement") effective as of January 27, 1999 (the "Effective Date") is entered into by and between ArthroCare Corporation, on its own behalf and on behalf of its Affiliates ("ArthroCare"), a Delaware corporation having an address at 595 North Pastoria Avenue, Sunnyvale, California 94086, and Collagen Aesthetics, Inc., on its own behalf and on behalf of its Affiliates ("Collagen"), a Delaware corporation having an address at 1850 Embarcadero Road, Palo Alto, California 94303. BACKGROUND A. ArthroCare owns certain Patent Rights (as defined in Article 1.21) relating to radio frequency ("RF") energy; B. Collagen is a worldwide leader in marketing products for dermatology, facial plastic surgery, cosmetic and aesthetic surgery; C. Collagen desires to obtain a license under the Patent Rights in order to commercialize Licensed Products in the Field, and ArthroCare desires to grant such a license to Collagen, all on the terms and conditions set forth herein; and D. ArthroCare shall be Collagen's exclusive third party contract manufacturer for certain Licensed Products and/or components of such Licensed Products, all on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, the parties agree as follows: ARTICLE 1 DEFINITIONS 1.1 * 1.2 "Affiliate" means any corporation or other entity which is directly or indirectly controlling, controlled by or under the common control with a party hereto. For the purpose of -1- 2 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. this Agreement, "control" shall mean the direct or indirect ownership of at least 50% of the outstanding shares or other voting rights of the subject entity to elect directors, or if not meeting the preceding definition, any entity owned or controlled by or owning or controlling at the maximum control or ownership right permitted in the country where such entity exists. 1.3 * 1.4 * 1.5 * 1.6 "Co-exclusive ENT License Rights" shall mean a co-exclusive, non-transferable, worldwide license under the Patent Rights and the Trademark Rights, with the right to use, market, sell and distribute Licensed Products in the "ENT Field". The term "co-exclusive" shall mean that only Collagen and one other party (which may include ArthroCare) shall have such rights. 1.7 "Competent Authority" shall mean an EU Member States' public officer with jurisdiction to appoint a body to test or audit medical devices for conformity to EU registration laws. 1.8 "Confidential Information" shall mean any: (i) information or material in tangible form disclosed hereunder that is marked as "Confidential" at the time it is delivered to the receiving party; or (ii) information disclosed orally hereunder which is identified as confidential or proprietary when disclosed. 1.9 "Controller(s)" shall mean an RF power supply. 1.10 "Disposable Wand(s)" shall mean medical instruments and components of such medical instruments certain of which may have one or more electrode(s) and electrical connection(s) for coupling the electrode(s) to a Controller 1.11 "ENT" shall mean ear, nose and throat. 1.12 * 1.13 "Exclusive ENT License Rights" shall mean an exclusive, non-transferable, worldwide license under the Patent Rights and the Trademark Rights, with the right to use, market, sell and distribute Licensed Products in the ENT Field. 1.14 "FDA" shall mean the U.S. Food and Drug Administration. 1.15 * -2- 3 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. 1.16 * 1.17 "Marketing Authorizations" shall mean any regulatory approvals or authorizations required by the FDA, Competent Authority or other regulatory bodies to comply with the laws and regulations of any country or other jurisdiction for sale, marketing and distribution of the Licensed Products. 1.18 * 1.19 "Net Sales" shall mean the invoice price of Licensed Products sold by Collagen to unaffiliated third parties (including sales made in connection with clinical trials), less, to the extent included in such invoice price the total of: (1) ordinary and customary trade discounts actually allowed; (2) credits, rebates and returns (including, but not limited to, wholesaler and retailer returns); (3) freight, postage, insurance and duties paid for and separately identified on the invoice or other documentation maintained in the ordinary course of business, and (4) excise taxes, other consumption taxes, customs duties and compulsory payments to governmental authorities actually paid and separately identified on the invoice or other documentation maintained in the ordinary course of business. Net Sales shall also include the fair market value of all other consideration received by Collagen in respect of Licensed Products, whether such consideration is in cash, payment in kind, exchange or another form. 1.20 "Notified Body" shall mean that body appointed by a Competent Authority to test or audit medical devices for conformity with EU registration laws. 1.21 "Patent Rights" shall mean all patents and patent applications in the Field owned by or licensed to ArthroCare, including, but not limited to, the patent applications and patents listed on Exhibit A hereto; all priority applications, divisionals, continuations, continuations-in-part, and substitutions thereof; all patent applications and patents relating to improvements thereof; all foreign patent applications corresponding to the preceding applications; and all U.S. and foreign patents issuing on any of the preceding applications, including extensions, reissues, and re-examinations. In addition, the term "Patent Rights" includes any and all, inventions, discoveries, know-how, trade secrets, data, information, technology, processes, formulas, drawings, designs, computer programs, and licenses of ArthroCare which are necessary or useful for designing, developing, manufacturing, using or selling Licensed Products within the Field, and all amendments, modifications, and improvements to any of the foregoing * 1.22 * 1.23 "RF" shall mean radiofrequency. 1.24 "Trademark Rights" shall mean all registered trademarks, trademark applications, common law trademarks, domestic or foreign, to the marks listed in Exhibit E, all foreign -3- 4 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. trademark applications or registrations corresponding to the preceding applications, and all marks similar thereto. 1.25 * ARTICLE 2 LICENSE 2.1 Exclusive License Grant. Subject to the terms and conditions of this Agreement, ArthroCare and its Affiliates hereby grant to Collagen and its Affiliates an exclusive, non-transferable, worldwide license under the Patent Rights, to import, have imported, use, offer for sale and sell Licensed Products in the Field. ArthroCare hereby grants to Collagen and its Affiliates an exclusive, non-transferable, worldwide license under the Trademark Rights to use marks and tradenames within the Trademark Rights in connection with the sale of Licensed Products in the Field. * 2.2 No Implied Rights. Only the licenses granted pursuant to the express terms of this Agreement shall be of any legal force or effect. No other license rights shall be granted or created by implication, estoppel or otherwise. 2.3 Exclusive to ArthroCare. Under the exclusive license granted by ArthroCare to Collagen in section 2.1, ArthroCare shall not have the right to import, have imported, use, offer for sale or sell Licensed Products in the Field during the Term of this Agreement and any renewals thereof; * 2.4 * ARTICLE 3 APPOINTMENT AND AUTHORITY OF COLLAGEN 3.1 Exclusive Distributor. Subject to the terms and conditions herein, ArthroCare hereby appoints Collagen as ArthroCare's authorized exclusive worldwide sales distributor for the Licensed Products in the Field, and Collagen hereby accepts such appointment. Collagen's sole authority shall be to purchase Licensed Products from ArthroCare and to promote, market and resell such Licensed Products in the Field in accordance with the terms of this Agreement. 3.2 * -4- 5 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. 3.3 Reservation of Rights; No Rights Beyond Licensed Products. Except as expressly provided in this Article 3, and by the license granted in Article 2, no right, title, or interest is granted, whether express or implied, by ArthroCare to Collagen, and nothing in this Agreement shall be deemed to grant to Collagen rights in any Licensed Products or technology other than the Licensed Products, nor shall any provision of this Agreement be deemed to restrict ArthroCare's rights to exploit technology, know-how, patents or any other intellectual property rights relating to the Licensed Products outside of the Field. 3.4 Sale Conveys No Right to Manufacture or Copy. The Licensed Products are offered for sale and are sold by ArthroCare subject in every case to the condition that such sale does not convey any license, expressly or by implication, to manufacture, duplicate or otherwise copy or reproduce any of the Licensed Products. 3.5 * 3.6 * ARTICLE 4 ENT RIGHTS 4.1 Exclusive ENT License Rights. In addition to the above rights and licenses, if ArthroCare is able to, ArthroCare will offer the "Exclusive ENT License Rights" to Collagen. In such event, Collagen will accept such rights * If ArthroCare offers and Collagen accepts the Exclusive ENT License Rights, Collagen will have, in combination with the rights granted in section 2, an exclusive, non-transferable, worldwide license under the Patent Rights and the Trademark Rights, with the right to use, market, sell and distribute Licensed Products to all physicians in the Field and the ENT Field. In addition, if ArthroCare offers and Collagen accepts the Exclusive ENT License Rights, Collagen's minimum annual royalty payments for Disposable Wands and minimum purchase requirements for the Licensed Products will be increased pursuant to sections 5.3(b) and 7.5(b), respectively. 4.2 Co-exclusive ENT License Rights. In addition to the above rights and licenses, if ArthroCare is able to, ArthroCare will offer the "Co-exclusive ENT License Rights" to Collagen. In such event, Collagen will accept such rights * In addition, if ArthroCare offers and Collagen accepts the Co-exclusive ENT License Rights, Collagen's minimum annual royalty payments for Disposable Wands and minimum purchase requirements for the Licensed Products will be increased pursuant to sections 5.3(c) and 7.5(c), respectively. -5- 6 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. ARTICLE 5 CONSIDERATION 5.1 License Fee. In partial consideration for the license granted herein, Collagen shall pay ArthroCare a license fee of * in accordance with the schedule set forth in Section 5.1(b). (a) The parties hereto acknowledge and agree that Collagen has paid and ArthroCare has accepted * of such license fee. (b) License Payment Schedule. Within three (3) days following the Effective Date of this Agreement, Collagen shall make a payment to ArthroCare of *. In addition, within thirty (30) days following the achievement by ArthroCare of each of the following milestones, Collagen shall pay to ArthroCare the applicable payments below: * 5.2 Royalties. As additional consideration for the rights and licenses granted by ArthroCare to Collagen herein, Collagen shall pay to ArthroCare running royalties on * (a) * 5.3 Minimum Royalties. (a) If ArthroCare does not offer to Collagen either the Exclusive ENT License Rights or the Co-exclusive ENT License Rights pursuant to sections 4.1 and 4.2, respectively, then, in addition to the license payments made by Collagen pursuant to Section 5.1, Collagen's minimum annual royalty payments for the Licensed Products * (b) If ArthroCare offers to Collagen, and Collagen accepts, the Exclusive ENT License Rights pursuant to section 4.1, then, in addition to the license payments made by Collagen pursuant to Section 5.1, Collagen's minimum annual royalty payments for the Licensed Products * (c) If ArthroCare offers to Collagen, and Collagen accepts, the Co-exclusive ENT License Rights pursuant to section 4.2, then, in addition to the license payments made by Collagen pursuant to Section 5.1, Collagen's minimum annual royalty payments for the Licensed Products * (d) * (e) In the event the Agreement is renewed pursuant to Section 18.1, the minimum annual royalty for each renewal year will be mutually agreed upon in writing by the parties. If -6- 7 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. the new minimums cannot be agreed upon by the parties, an arbitrator will be appointed by the parties to determine the new minimums according to Article 21. (f) * ARTICLE 6 * ARTICLE 7 MANUFACTURE; PURCHASE OF LICENSED PRODUCTS 7.1 Product Manufacture. ArthroCare shall manufacture and sell to Collagen, and Collagen agrees to exclusively purchase from ArthroCare, Collagen's requirements for Licensed Products in the Field. ArthroCare will manufacture Licensed Products in accordance with ISO 9000 Standards, EN 46000 Standards, FDA Quality Systems Regulations (including Current Good Manufacturing Practices), and requirements of the Medical Device Directives ("MDD") and the then-current product specifications, as may be modified from time to time by the mutual written consent of the parties hereto. 7.2 Product Development. During the Term of this Agreement, ArthroCare, at its expense and initiative, will continue to pursue clinical studies and product development efforts in collaboration with Collagen. ArthroCare shall supply Collagen with any improvements and upgrades to the Licensed Products developed by ArthroCare for use in the Field. ArthroCare agrees that any substantial change to the Licensed Products during the Term shall be subject to Collagen's prior written approval, which shall not be unreasonably withheld. * ArthroCare agrees to supply Collagen documentation or information as requested for such changes to the Licensed Products in meeting regulatory compliances. 7.3 Terms and Conditions. All product purchases hereunder shall be subject to the terms and conditions of this Agreement. Unless otherwise agreed in writing, nothing contained in any purchase order or other document submitted pursuant to this Agreement shall in any way modify or add to the terms and conditions contained in this Agreement. 7.4 Order and Acceptance. All orders shall be by means of signed written purchase orders, sent to ArthroCare at ArthroCare's address for notice hereunder and requesting a delivery date that is consistent with the Forecasts and not less than thirty (30) days after ArthroCare's receipt of such purchase order. Orders may initially be placed by telephone or telecopy, provided that a signed written confirming purchase order is received by ArthroCare within ten (10) days after such telephonic or telegraphic order. ArthroCare shall use reasonable best efforts to fulfill purchase orders submitted in accordance with ArthroCare's lead times, it being understood that -7- 8 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. no purchase order shall be binding upon ArthroCare until accepted by ArthroCare by telecopy or in writing, and ArthroCare shall have no liability to Collagen with respect to purchase orders that are not accepted. ArthroCare shall acknowledge each Order in writing within 10 business days of receipt. By written notice given within such 10-day period, ArthroCare may reject any Order, but only to the extent that the Order exceeds the applicable, then-current Forecast, consistent with Section 8.1. Notice of rejection must be given within 10 days to Collagen by telex or fax, followed by notification in writing. Once an Order is accepted by ArthroCare, Collagen may cancel or reschedule such Order only with approval of ArthroCare. 7.5 Minimum Purchase Requirements. (a) If ArthroCare does not offer to Collagen either the Exclusive ENT License Rights or the Co-exclusive ENT License Rights pursuant to sections 4.1 and 4.2, respectively, then, in addition to the minimum royalty payments made by Collagen pursuant to Section 5.3, Collagen's minimum annual purchase requirements for the Licensed Products * (b) If ArthroCare offers to Collagen, and Collagen accepts, the Exclusive ENT License Rights pursuant to section 4.1, then, in addition to the minimum royalty payments made by Collagen pursuant to Section 5.3, Collagen's minimum annual purchase requirements for the Licensed Products * (c) If ArthroCare offers to Collagen, and Collagen accepts, the Co-exclusive ENT License Rights pursuant to section 4.2, then, in addition to the minimum royalty payments made by Collagen pursuant to Section 5.3, Collagen's minimum annual purchase requirements for the Licensed Products * (d) * (e) In the event the Agreement is renewed pursuant to Section 18.1, the minimum annual purchase requirements for each renewal year will be mutually agreed upon in writing by the parties. If the new minimums cannot be agreed upon by the parties, an arbitrator will be appointed by the parties to determine the new minimums according to Article 21. (f) * 7.6 * -8- 9 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. FORECASTS; NO BACKORDERS 8.1 Forecasts. Commencing no later than thirty (30) days after the achievement by ArthroCare of milestone one (1) in section 5.1(b), Collagen shall furnish ArthroCare a 6-month Forecast with estimated purchase dates and quantities of Licensed Products, and shall deliver an updated forecast on a rolling basis on the first day of each month. Such forecasts shall include monthly delivery schedules. Based on the then current Forecast, ArthroCare will maintain its production capability and adequate materials and labor to meet the forecasted monthly delivery schedule for Licensed Products. ArthroCare shall release Licensed Products in accordance with the delivery schedule set forth on the then current Forecast; * 8.2 * 8.3 * ARTICLE 9 PAYMENTS 9.1 Prices. All prices shall be F.C.A. ArthroCare's facility currently located at the address listed for ArthroCare at the beginning of this Agreement ("F.C.A. Point"). ArthroCare may, upon thirty (30) days' notice to Collagen, designate another facility as the F.C.A. Point. The difference between Collagen's purchase price and Collagen's price to its Customers shall be Collagen's sole remuneration for the sale of the Licensed Products. The initial price to Collagen for each Licensed Product shall be as set forth in Exhibit B attached hereto. Collagen's sales prices to its customers shall be subject to Collagen's sole discretion. 9.2 Taxes. Collagen's purchase price shall not include any government taxes (including, without limitation, sales, use, excise, withholding, and value-added taxes) or duties imposed by any governmental agency that are applicable to the export, import, license or purchase of the Licensed Products (other than taxes on the income of ArthroCare), and Collagen shall bear all such taxes and duties. When ArthroCare has the legal obligation to collect and/or pay such taxes, the appropriate amount shall be added to Collagen's invoice and paid by Collagen, unless Collagen provides ArthroCare with a valid tax exemption certificate authorized by the appropriate taxing authority. 9.3 Invoicing. ArthroCare shall submit an invoice to Collagen upon shipment of each Licensed Product ordered by Collagen. Each such invoice shall state Collagen's aggregate and unit purchase price for Licensed Products in a given shipment, plus any freight, taxes or other costs incident to the purchase or shipment initially paid by ArthroCare but to be borne by Collagen hereunder. -9- 10 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. 9.4 Payment and Terms. Collagen shall make payments to ArthroCare under this Agreement by wire transfer or check in United States dollars in immediately available funds to a bank designated by ArthroCare. Payment shall be * 9.5 Shipping. All Licensed Products delivered pursuant to the terms of this Agreement shall be suitably packed for shipment in ArthroCare's standard shipping cartons, marked for shipment at Collagen's address set forth above (unless otherwise agreed in writing by both parties), and delivered to Collagen or its carrier agent at the F.C.A. Point, at which time risk of loss shall pass to Collagen. The Licensed Products will be produced to the final saleable form with Collagen's trade address, tradenames, and all language compliant labeling, instructions for use and carton labeling affixed by ArthroCare. Unless otherwise instructed in writing by Collagen, ArthroCare shall select the carrier. Collagen agrees to undertake all import formalities required to import the Licensed Products into the territory. All customs, freight, insurance, and other shipping expenses, as well as any special packing expense, shall be paid by Collagen. Collagen shall also bear all applicable taxes, duties, and similar charges that may be assessed against the Licensed Products after delivery to the carrier at the F.C.A. Point. All shipments and freight charges shall be deemed correct unless ArthroCare receives from Collagen * after the shipping date of a given shipment, a written notice specifying the shipment, the purchase order number, and the exact nature of the discrepancy between the order and shipment or discrepancy in the freight cost, as applicable. 9.6 Records; Audit. Collagen shall keep complete, true and accurate books of account and records for the purpose of determining the amounts payable under Article 5 and Exhibit B. Such books and records shall be kept at Collagen's principal place of business for at least three (3) years following the end of the calendar quarter to which they pertain. Such records will be open for inspection during such three (3)-year period by a representative or agent of ArthroCare for the purpose of auditing sales and inventory records and for verifying the amounts payable under Article 5. Upon prior written notice, Collagen shall provide reasonable access to such records during normal business hours at Collagen's business locations, no more than twice each calendar year. 9.7 Returns. Except as set forth in Section 10.3, Collagen may return Licensed Products only with ArthroCare's prior written approval. Licensed Products returned to ArthroCare other than under Section 10.3 shall be returned F.C.A. the destination point designated by ArthroCare * ARTICLE 10 WARRANTY 10.1 Standard Limited Warranty. ArthroCare warrants to Collagen that, subject to the exclusions set forth in Section 10.2 below, at the time of shipment, the Licensed Products * -10- 11 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. Collagen's exclusive remedy and ArthroCare's sole liability for breach of the foregoing warranty shall be the remedy set forth in Section 10.3. All defective Licensed Products shall be returned to ArthroCare in accordance with Section 10.3. Collagen shall not pass on to its Customers a warranty or limitation of liability which is more protective of such Customers than the warranty (including the limited remedy and exclusions) set forth in this Article 10 and the limitation of liability set forth in Article 19. 10.2 Warranty Limitations. The warranties in Section 10.1 are contingent upon * 10.3 Return of Defective Product. In the event that any Licensed Product purchased by Collagen from ArthroCare fails to conform to the warranty set forth in Section 10.1, ArthroCare's sole and exclusive liability and Collagen's exclusive remedy shall be, * 10.4 Exclusion of Other Warranties. Except for the limited warranty provided in section 10.1 above, ArthroCare grants no other warranties or conditions, express or implied, by statute, in any communication with Collagen or the customer, or otherwise, regarding the Licensed Products, their fitness for any purpose, their quality or their merchantability. ARTICLE 11 ADDITIONAL OBLIGATIONS OF COLLAGEN 11.1 Registrations, Licenses and Permits. * 11.2 Product Complaints. (a) Collagen will receive locally, and promptly investigate and monitor, all Customer complaints and/or correspondence concerning the use of the Licensed Products worldwide. Collagen will maintain complaint files during the course of this Agreement, its extensions and for a period of * (b) Collagen shall advise ArthroCare of all complaints relating to the Licensed Products as promptly as possible but not more than * following the date Collagen receives such complaint. In addition, within * following the date Collagen receives such complaint, Collagen shall also provide ArthroCare with a written or electronic report of such complaint. Upon ArthroCare's request, Collagen shall either: (1) investigate and gather any reasonable additional information regarding such complaints that is requested by ArthroCare; or (2) provide ArthroCare with the relevant Customer names, phone numbers and/or addresses so that ArthroCare may gather this information. Any notice to ArthroCare under this Section 11.2 shall be sent via facsimile and overnight delivery service to the attention of ArthroCare's Vice -11- 12 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. President of Quality and Regulatory Affairs at (408) 736-0224 or to such other address or person as ArthroCare may designate by notice. Collagen shall also provide to ArthroCare a written quarterly listing of Customer and/or regulatory complaints received by Collagen during the previous quarter. (c) * 11.3 Corrections, Withdrawals, and Alert Notices. In the event that ArthroCare is required by any regulatory agency to recall the Licensed Products or if ArthroCare voluntarily initiates a correction, withdrawal of alert notice for the Licensed Products, Collagen shall, at ArthroCare's expense, cooperate with and assist ArthroCare in locating and retrieving, if necessary, the recalled Licensed Products from the Customers. ArthroCare shall give prompt notice to Collagen of any such correction, withdrawal or alert notice, along with details of the concern and instructions for the recall. Except as required by applicable law, Collagen shall not initiate any correction, withdrawal or alert notice without the prior written consent of ArthroCare. 11.4 Materials. * 11.5 Product Packaging and Labeling. In addition, except for the addition of information required by applicable laws and regulations, Collagen shall not relabel Licensed Products supplied to Collagen by ArthroCare hereunder without the prior written consent of ArthroCare. * 11.6 Proprietary Notices. Collagen shall not remove, alter, cover or obfuscate any logo, trademark notice or other proprietary rights notices placed or embedded by ArthroCare on or in any package or any of the items contained therein. 11.7 Reporting Requirements. Pursuant to the FDA's medical device reporting (MDR) Regulations, ArthroCare may be required to report to the FDA information that reasonably suggests that a Licensed Product may have caused or contributed to death or serious injury or has malfunctioned and that the device would be likely to cause or contribute to a death or serious injury if the malfunction were to recur. The parties hereto agree to supply to the other any such information twenty-four (24) hours after becoming aware of it so that each can comply with governmental reporting requirements. In the event that ArthroCare is required by any regulatory agency to correct or withdraw the Licensed Products or if ArthroCare voluntarily initiates such correction or withdrawal, Collagen shall cooperate with and assist ArthroCare in locating and retrieving if necessary, the recalled Products from Collagen's customers. Collagen shall maintain all records of Licensed Products sales to customer by lot number, and/or serial number in the event of a Licensed Product recall or other quality related issue. Collagen shall only be required to make such sales records available to ArthroCare in the event of a Product correction, withdrawal, alert notice or other quality related issue. -12- 13 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. ARTICLE 12 ADDITIONAL OBLIGATIONS OF ARTHROCARE 12.1 Promotional Materials. ArthroCare shall make available to Collagen English language samples of promotional support materials, in quantities deemed reasonable by ArthroCare, at ArthroCare's standard charges to distributors for such items. Such materials shall include, without limitation, marketing and technical information concerning the Licensed Products, brochures, advertising literature, and other product data. 12.2 Telephone Marketing and Technical Support. ArthroCare shall provide a reasonable level of telephone marketing and technical support to employees of Collagen who have been trained by ArthroCare and/or customers of Collagen to answer Collagen's questions related to Licensed Products. * 12.3 Books and Records. ArthroCare agrees to keep documented records of all repairs and servicing provided by ArthroCare by product number, serial number, and description of each Licensed Product and to identify the type of repair or service completed on the Licensed Product, inclusive of the name of the individual servicing, the date of the service/repair, and test and inspection data as required by 21 C.F.R. Section 820.200. During the Term * 12.4 Registrations, Licenses and Permits. (a) ArthroCare shall maintain all regulatory approvals in ArthroCare's name for the marketing of the Licensed Products for the Term of this Agreement. (b) ArthroCare will maintain the "Technical File" required by MDD 93/42 EEC (Medical Device Directives), design history records, device master records, and history records, and the quality system records for the Licensed Products for the period of time required by the directives of its Notified Body and other regulatory agencies requirements. (c) ArthroCare will maintain for the period of this Agreement and its extensions a certified quality system in compliance with and maintain certifications with its Notified Body for valid standing to CE conformity of its manufacturing facility and the Licensed Products. ArthroCare shall use best efforts to supply to Collagen the information necessary to fulfill any request by the EC Competent Authority or Notified Body to Collagen for information contained in the records within the requested time period. Changes in Specifications, manufacturing, including change of sterilization process or provider, labeling, or packaging agreed to by Collagen and ArthroCare may result in amendments to the Technical File. ArthroCare will provide to Collagen a copy of any FDA or other regulatory agency correspondence within seven (7) days of receipt that is directly relating to the Licensed Products -13- 14 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. which are reasonably necessary to Collagen's performance under this Agreement or which could adversely affect Collagen or its Customers. (d) ArthroCare understands that Collagen or any government regulatory agency or third party observers may send representatives to ArthroCare's facility to observe, inspect and audit the production facilities related to the Licensed Products. ArthroCare will allow such representatives reasonable access to all manufacturing facilities and records for the Licensed Products so as to ensure applicable regulations are in compliance. Collagen will provide at least ten (10) days advance notice of such observation and provide the names, meeting agenda and provide proper identification of such representatives. ArthroCare will use reasonable commercial efforts to correct any material non-compliance brought to its attention as a result of such inspections and audits. * Collagen understands that ArthroCare or any government regulatory agency or third party observers may send representatives to Collagen's facility to observe, inspect and audit promotional, advertising and educational materials and programs, and other literature relating to the sales and marketing to the Licensed Products. Collagen will allow such representatives reasonable access to all such promotional literature for the Licensed Products so as to ensure applicable regulations are in compliance. ArthroCare will provide at least ten (10) days advance notice of such observation and provide the names, meeting agenda and provide proper identification of such representatives. Collagen will use reasonable commercial efforts to correct any material non-compliance brought to its attention as a result of such inspections and audits. ARTICLE 13 ADDITIONAL COVENANTS OF ARTHROCARE 13.1 Financial Statements. From time to time as requested by Collagen (but not more frequently than once per calendar year), ArthroCare will provide Collagen with copies of audited financial statements and such other information reasonably requested by Collagen to demonstrate ArthroCare's financial ability to perform under this Agreement. From time to time as requested by ArthroCare (but not more frequently than once per calendar year), Collagen will provide ArthroCare with copies of audited financial statements and such other information reasonably requested by ArthroCare to demonstrate Collagen's financial ability to perform under this Agreement. All information provided to either party under this Section 13.1 will be treated confidentially, unless such information is otherwise publicly available. 13.2 Exclusivity. Unless otherwise agreed by the parties, during the term of this Agreement, ArthroCare shall not be involved with the design, manufacture and/or sale, to or on behalf of any other person or entity, of any Licensed Products intended for use in procedures in the Field. 13.3 ArthroCare's Assets. With the exception of standard financing mechanisms, ArthroCare shall not sell, transfer, assign, pledge, grant a security interest in, or otherwise -14- 15 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. encumber or allow any third party to obtain an interest in, any prints, designs, tools, fixtures, raw materials, moldings or other equipment used or useful in manufacturing and/or supplying the Products without giving Collagen at least sixty (60) days prior written notice. ARTICLE 14 INTELLECTUAL PROPERTY 14.1 Enforcement. In the event that any Patent Right necessary for use and sale of a Licensed Product is infringed or misappropriated by a third party in any country or is subject to a declaratory judgment action arising from such infringement or misappropriation in such country, or is the subject of an interference, re-examination, reissue or opposition proceeding, the party becoming aware thereof shall promptly notify the other party hereto. * 14.2 * 14.3 ArthroCare Trademarks. During the Term of this Agreement, Collagen shall have the right to advertise and promote the Licensed Products under ArthroCare's trademarks and tradenames initially identified in Exhibit E ("ArthroCare Marks"). ArthroCare reserves the right to modify the ArthroCare Marks or substitute alternative marks for any or all of the ArthroCare Marks at any time upon thirty (30) days prior written notice. Collagen shall have the right to use any marketing materials in its possession to depletion. The rights granted under this Section 14.3 shall automatically terminate on termination or expiration of this Agreement. * 14.4 Limitations. Except as set forth in this Agreement, nothing contained in this Agreement shall grant to Collagen any right, title, or interest in or to the ArthroCare Marks, whether or not specifically recognized or perfected under applicable laws, and Collagen irrevocably assigns to ArthroCare all such right, title, and interest, if any, in any ArthroCare Marks that are used in conjunction with the Licensed Products (other than Collagen Marks). At no time during or after the Term of this Agreement shall Collagen challenge or assist others to challenge ArthroCare Marks or the registration thereof or attempt to register any trademarks, marks, or trade names confusingly similar to ArthroCare Marks. All representations of ArthroCare Marks that Collagen intends to use shall first be submitted to ArthroCare for approval (which shall not be unreasonably withheld) of design, color, and other details, or shall be exact copies of those used by ArthroCare. In addition, Collagen shall fully comply with all reasonable guidelines, if any, communicated by ArthroCare concerning the use of ArthroCare Marks. 14.5 Collagen Trademarks. During the Term of this Agreement, subject to the limitations in section 14.3, * (the "Collagen Marks"). Nothing in this Agreement shall be deemed to grant to ArthroCare any right, title, or interest in or to Collagen Marks. At no time during or after the Term of this Agreement shall ArthroCare challenge or assist others to -15- 16 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. challenge Collagen Marks or the registration thereof or attempt to register any trademarks, marks, or tradenames confusingly similar to Collagen Marks. 14.6 * 14.7 * ARTICLE 15 * ARTICLE 16 CONFIDENTIALITY 16.1 Confidential Information. Except as expressly provided herein, the parties agree that, for the term of this Agreement and for five years thereafter, the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose except for the purposes contemplated by this Agreement any Confidential Information furnished to it by the disclosing party hereto, except that to the extent that it can be established by the receiving party by written proof that such Confidential Information: (i) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; (ii) was available to the public or otherwise part of the public domain at the time of its disclosure to the receiving party; (iii) became available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving party in breach of this Agreement; (iv) was subsequently lawfully disclosed to the receiving party by a person other than a party hereto; or (v) was independently developed by a person having no knowledge of or access to any of the other party's Confidential Information. 16.2 Permitted Use and Disclosures. Each party hereto may use or disclose information disclosed to it by the other party to the extent such use or disclosure is reasonably necessary in complying with applicable law or governmental regulations, conducting clinical trials, or exercising its rights hereunder to develop or commercialize Licensed Products, provided -16- 17 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. that if a party is required to make any such disclosure of another party's confidential information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the latter party of such disclosure and, will use its best efforts to secure confidential treatment of such information prior to its disclosure (whether through protective orders or otherwise). 16.3 Confidential Terms. Except as expressly provided herein, each party agrees not to disclose any terms of this Agreement to any third party without the consent of the other party; provided, disclosures may be made as required by securities or other applicable laws, or to Affiliates, or to a party's accountants, attorneys and other professional advisors provided that such accountants, attorneys and other professional advisors are bound to retain the terms of this Agreement as confidential. Disclosure to prospective corporate partners or Affiliates is prohibited absent written consent from the non-disclosing party. Neither party shall issue a press release or other public announcement concerning this Agreement, the transactions contemplated herein or the relationship between Collagen and ArthroCare without the prior written consent of an authorized representative of the other party. ARTICLE 17 INDEMNIFICATION 17.1 Indemnification of Collagen. (a) ArthroCare shall indemnify, defend, and hold harmless Collagen, and its affiliates and their respective directors, officers, employees, and agents, and the successors and assigns of any of the foregoing (the "Collagen Indemnitees") from and against all claims, losses, costs, and liabilities (including, without limitation, payment of reasonable attorneys' fees and other expenses of litigation), and shall pay any damages (including settlement amounts) finally awarded with respect to claims, suits, or proceedings (any of the foregoing, a "Claim") brought by third parties against a Collagen Indemnitee, caused by (i) * (b) * 17.2 Indemnification of ArthroCare. Collagen shall indemnify, defend, and hold harmless ArthroCare, and its Affiliates and their respective directors, officers, employees and agents, and the successors, and assigns of any of the foregoing (the "ArthroCare Indemnitees") from and against all claims, losses, costs, and liabilities (including, without limitation, payment of reasonable attorneys' fees and other expenses of litigation), and shall pay any damages (including settlement amounts) finally awarded with respect to a Claim brought by third parties against an ArthroCare Indemnitee, arising out of or relating to * 17.3 Indemnification Procedures. A party (the "Indemnitee") that intends to claim indemnification under this Article 17 shall promptly notify the other party (the "Indemnitor") in writing of any claim in respect of which the Indemnitee or any of its directors, officers, -17- 18 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. employees, agents, licensors, successors, or assigns intends to claim such indemnification. The parties will then determine whether complete or partial indemnification is appropriate in such event. If the parties are unable to mutually agree on whether the Indemnitee should be completely or partially indemnified by the Indemnitor, the parties shall appoint an arbitrator to make a binding ruling on this issue. The arbitrator will be appointed according to Section 21. If the parties or the arbitrator determine that indemnification is appropriate, the Indemnitor shall have sole control of the defense and/or settlement thereof, provided that the indemnified party may participate in any such proceeding with counsel of its choice at its own expense. The indemnity agreement in this Article 17 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld unreasonably. The failure to deliver written notice to the Indemnitor within a reasonable time after the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Article 17, but the omission to so deliver written notice to the Indemnitor shall not relieve the Indemnitor of any liability that it may otherwise have to any Indemnitee than under this Article 17. The Indemnitee under this Article 17, its employees and agents, shall cooperate fully with the Indemnitor and its legal representatives and provide full information in the investigation of any Claim covered by this indemnification. Notwithstanding anything to the contrary contained in this Article 17, neither party shall be liable for any costs or expenses incurred without its prior written authorization. 17.4 * ARTICLE 18 TERM, CONVERSION AND TERMINATION 18.1 Term. The initial Term of this Agreement shall commence on the Effective Date and continue in force until * 18.2 Termination for Cause. Either ArthroCare or Collagen may terminate this Agreement by written notice stating each 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 such default shall have continued for sixty (60) days after written notice thereof was provided to the breaching party by the non-breaching party. 18.3 Termination for Bankruptcy. Either party may terminate this Agreement effective upon written notice to the other party in the event the other party declares bankruptcy or becomes the subject of any voluntary or involuntary proceeding under the U.S. Bankruptcy Code or any state insolvency proceeding, and such proceeding is not terminated within one hundred twenty (120) days of its commencement. -18- 19 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. 18.4 Effect of Termination. (a) Accrued Obligations. Termination shall not relieve either party of obligations incurred prior to the effective date of such termination. (b) Return of Materials. All trademarks, marks, trade names, patents, copyrights, designs, drawings, formulas or other data, photographs, samples, literature, and sales and promotional aids of every kind shall remain the property of ArthroCare. Within thirty (30) days after the termination or expiration of this Agreement, Collagen shall destroy all tangible items bearing, containing, or contained in, any of the foregoing, in its possession or control and provide written certification of such destruction, or prepare such tangible items for shipment to ArthroCare, as ArthroCare may direct, at ArthroCare's expense. Collagen shall not make or retain any copies of any confidential items or information which may have been entrusted to it. Effective upon the termination of this Agreement, Collagen shall cease to use all trademarks and trade names of ArthroCare and ArthroCare shall cease to use all trademarks and trade names of Collagen with the limited exception of repurchased Licensed Products pursuant to Section 18.4(c). During the Term and after any termination or expiration of this Agreement, ArthroCare shall have the right to continue to use and disclose for any purpose Customer lists, Customer data and other Customer information and any and all clinical trial results and other data relating to the Licensed Products and provided by Collagen to ArthroCare during the Term. (c) Limitation on Liability. In the event of termination by either party in accordance with any of the provisions of this Agreement, neither party shall be liable to the other, because of such termination, for compensation, reimbursement or damages on account of the loss of prospective profits or anticipated sales or on account of expenditures, investments, leases, inventory or commitments in connection with the business or goodwill of ArthroCare or Collagen. (d) Transition. Upon termination of this Agreement, Collagen shall diligently cooperate with ArthroCare to effect a smooth and orderly transition in the sale of the Licensed Products. From the time that a notice of termination is received by either party until the effective termination date, Collagen shall refer all Product inquiries to ArthroCare, shall support ArthroCare's existing Customers (but shall not sell them new Licensed Products), and shall cooperate fully with any newly appointed distributors. (f) Survival. The provisions of Sections 3.5, 9.4, 9.6, 9.7, 11.1, 11.2, 11.3, 12.3, 14.4, 14.5, 18.4 and 22.1 and Articles 10, 16, 17, 19 and 21 shall survive the expiration or termination of this Agreement for any reason. All other rights and obligations of the parties shall cease upon termination of this Agreement. 18.6 * -19- 20 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. ARTICLE 19 LIMITED LIABILITY TO COLLAGEN AND OTHERS WITH THE SOLE EXCEPTION OF ARTICLE 17 AND NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, ARTHROCARE'S LIABILITY ARISING OUT OF THIS AGREEMENT AND/OR SALE OF THE LICENSED PRODUCTS SHALL BE LIMITED TO THE AMOUNT PAID BY COLLAGEN FOR THE PRODUCT. IN NO EVENT SHALL ARTHROCARE BE LIABLE TO COLLAGEN OR ANY OTHER ENTITY FOR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS, LOST PROFITS, OR ANY OTHER SPECIAL, CONSEQUENTIAL, OR INCIDENTAL DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY ARISING OUT OF THIS AGREEMENT WHETHER BASED IN CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE. THESE LIMITATIONS SHALL APPLY WHETHER OR NOT ARTHROCARE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED HEREIN OR IN THE WARRANTY FOUND IN THE LICENSED PRODUCTS. ARTICLE 20 REPRESENTATIONS AND WARRANTIES 20.1 Representations and Warranties. ArthroCare represents and warrants, to the best of its knowledge, that: * 20.2 Disclaimer. Except as expressly provided in this Agreement, nothing in this Agreement is or shall be construed as: (i) a warranty or representation by ArthroCare as to the validity or scope of any claim or patent within the Patent Rights; (ii) a warranty or representation that anything made, used, sold, or otherwise disposed of under any license granted in this Agreement is or will be free from infringement of any patent rights or other intellectual property right of any third party; or (iii) granting by implication, estoppel, or otherwise any licenses or rights under patents or other rights of ArthroCare or third parties, regardless of whether such patents or other rights are dominant or subordinate to any patent within the Patent Rights. -20- 21 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. ARTICLE 21 ARBITRATION (a) If a dispute arises between the parties relating to the interpretation or performances of this Agreement or the grounds for the termination thereof, representatives of the parties with decision-making authority shall meet to attempt in good faith to negotiate a resolution of the dispute prior to pursuing other available remedies. If within sixty (60) days after such meeting the parties have not succeeded in negotiating a resolution of the dispute, such dispute shall be submitted to final and binding arbitration under the then current Commercial Arbitration Rules of the American Arbitration Association ("AAA"), by one (1) arbitrator in Santa Clara County, California; provided, however, California Code of Civil Procedure Section 1283.05 shall apply to any such proceeding. Such arbitrator shall be selected by the mutual agreement of the parties or, failing such agreement, shall be selected according to the AAA rules. The parties shall bear the costs of arbitration equally and shall bear their own expenses, including professional fees. The decision of the arbitrator shall be final and non-appealable and may be enforced in any court of competent jurisdiction. * ARTICLE 22 MISCELLANEOUS PROVISIONS 22.1 Governing Law; Venue. This Agreement and any dispute, including without limitation any arbitration, arising from the performance or breach hereof shall be governed by and construed and enforced in accordance with the laws of the state of California, without reference to conflicts of laws principles. 22.2 * 22.3 Waiver. No waiver of any rights, shall be effective unless consented to in writing by the party to be charged and the waiver of any breach of default shall not constitute a waiver of any other right hereunder or any subsequent breach or default. 22.4 Severability. In the event that any provisions of this Agreement are determined to be invalid or unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall remain in full force and effect without said provision. -21- 22 22.5 Notices. All notices, requests and other communications hereunder shall be in writing and shall be personally delivered or sent by telecopy or other electronic facsimile transmission or by certified mail-return receipt requested, postage prepaid, or delivered by a nationally recognized courier who guarantees next-day delivery in each case to the respective address specified below, or such other address as may be specified in writing to the other parties hereto: Collagen: Collagen Aesthetics, Inc. 1850 Embarcadero Road Palo Alto, California 94303 Attn: Gary S. Petersmeyer Fax: (650) 354-4375 with a copy to: Charlene A. Friedman, Esq. Collagen Aesthetics, Inc. 1850 Embarcadero Road Palo Alto, California 94303 Fax: (650) 354-4751 ArthroCare: ArthroCare Corporation 595 North Pastoria Avenue Sunnyvale, California 94086 Attn: Michael A. Baker Fax: (408) 732-2752 with a copy to: John T. Raffle, Esq. ArthroCare Corporation 595 North Pastoria Avenue Sunnyvale, California 94086 Fax: (408) 530-9143 22.6 Independent Contractors. Both parties are independent contractors under this Agreement. Nothing contained in this Agreement is intended nor is to be construed so as to constitute ArthroCare or Collagen as partners or joint venturers with respect to this Agreement. Neither party shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or to bind the other party to any other contract, agreement, or undertaking with any third party. -22- 23 22.7 Patent Marking. Collagen agrees to mark (or give directions to ArthroCare to mark) all Licensed Products sold pursuant to this Agreement in accordance with the applicable statute or regulations relating to patent marking in the country or countries of manufacture and sale thereof. 22.8 Compliance with Laws. In performing their respective obligations under this Agreement, the parties shall fully comply in all material respects with the requirements of any and all applicable laws, regulations, rules and orders of any governmental body having jurisdiction over the exercise of rights under this Agreement. 22.9 Use of Name. Other than as expressly set forth in this Agreement or the License Agreement, neither party shall use the name or trademarks of the other party without the prior written consent of such other party. 22.10 Entire Agreement; Amendment. This Agreement constitutes the entire and exclusive Agreement between the parties with respect to the subject matter hereof and supersedes and cancels all previous discussions, agreements, commitments and writings in respect thereof except for the License Agreement. No amendment or addition to this Agreement shall be effective unless reduced to writing and executed by the authorized representatives of the parties. 22.11 Counterparts. This Agreement may be executed in any number of counterparts and on separate signature pages by each party, each copy of which shall for all purposes be deemed an original. 22.12 Force Majeure. Neither party shall be liable for any failure to perform or delay in performance hereunder where such failure or delay is occasioned by circumstances beyond the party's control, including, without limitation, fire, explosion, storms, interruption of utility services, strikes or labor disputes, water, acts of God, war, civil disturbances, acts of civil or military authorities, inability to secure raw materials or transportation facilities, fuel or energy shortages, acts or omissions of communications carriers, or other causes beyond the party's control whether or not similar to the foregoing. IN WITNESS WHEREOF, ArthroCare and Collagen have executed this Agreement in duplicate originals by duly authorized officers. ARTHROCARE CORPORATION COLLAGEN AESTHETICS INC. -23- 24 By:________________________________ By:________________________________ Print Name:________________________ Print Name:________________________ Title:_____________________________ Title:_____________________________ -24- 25 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. EXHIBIT A * -25- 26 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. EXHIBIT B PRODUCT PRICES Licensed Product Price Per Unit Disposable Wand Transfer Price: - ------------------------------------------------------------------------------- TYPE OF DISPOSABLE PRICE - ------------------------------------------------------------------------------- * * - ------------------------------------------------------------------------------- * * - ------------------------------------------------------------------------------- * * - ------------------------------------------------------------------------------- -26- 27 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. EXHIBIT C WARRANTY PERIODS PRODUCT PERIOD Controller * Cable/Handpiece * Disposable Wands * Adaptors * -27- 28 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. EXHIBIT D * -28- 29 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. EXHIBIT E U.S. TRADEMARK RIGHTS Trademark Application No. * * * * * * * * * * Trademark Registration No. * * -29- 30 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. EXHIBIT F * -30- EX-10.107 4 DISTRIBUTION AND LOAN AGREEMENT 1 Translated from the French EXHIBIT 10.108 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. AGREEMENT THIS AGREEMENT ENTERED INTO ON JANUARY 28, 1999 BY AND BETWEEN: COLLAGEN AESTHETICS INTERNATIONAL, an American company organized under the laws of Delaware, duly represented by Mr. Gary Petersmeyer, acting to the extent necessary in its name to the benefit of its subsidiaries and more generally of all the Collagen group member companies (hereinafter referred to as "COLLAGEN"), AND BIOPHARMEX S.A., a Luxembourgeois company, having its registered office in Luxemburg, 38 avenue du 10 Septembre, 2550 Luxemburg, duly represented by Mr. Guy Feite, duly qualified for the purposes hereof, pursuant to the minutes dated January, 20, 1999, a copy of which is enclosed (hereinafter referred to as "BIOPHARMEX") RECITALS A. Biopharmex is the owner of an exclusive manufacturing and/or distribution license for the BIO-PLA Product, more fully described in Schedule 1 hereto (hereinafter "THE PRODUCT(S)"), granted by Biopharmex Holding, the holder of all of the rights to the patent and trademark relating to said Product. Pursuant to such license, Biopharmex is duly authorized to grant sublicenses for authorizing the distribution of the Product in the Territory. B. Collagen is a company with experience and an international reputation in the field of the distribution of products for the esthetic medical markets. C. Pursuant to the Memorandum of Understanding of January 11, 1999 (hereinafter "THE MEMORANDUM"), the parties have agreed to enter into an agreement pursuant to which Collagen agrees to ensure the distribution of the BIO-PLA product in the Territory. D. This Agreement entails the express confirmation of the Memorandum between the parties of January 11, 1999, and more specifically the condition precedent for this Agreement entering into effect. 2 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. NOW, THEREFORE, THE PARTIES HERETO HAVE AGREED AS FOLLOWS: 1. GRANT 1.1 Biopharmex hereby grants to Collagen, which accepts, the exclusive right to distribute and sell the Products in the Territory, directly or indirectly through one of its subsidiaries or more generally any Collagen group affiliated company, pursuant to the terms and conditions below. 1.2 In enjoyment of its rights by virtue of this Agreement Collagen agrees to make best efforts in a loyal, vigorous and diligent manner to promote the sales of the Products in the Territory. 1.3 Each of the parties agrees to independently exercise the rights and obligations conferred on it pursuant to this Agreement in good faith. 2. EXCLUSIVE NATURE 2.1 Pursuant to this Agreement Collagen shall have the exclusive right to distribute the Product to doctors in the Territory. Biopharmex shall not grant equivalent rights or rights of the same nature to any third parties throughout the term of this Agreement with the exception of the 21 countries appearing in Article 2.2 below. 2.2 The exclusive distribution rights granted to Collagen shall be exercised in the Territory which shall be the whole world with the exception of the 21 following countries: Argentina, Belize, Bolivia, Brazil, Chile, Costa Rica, Colombia, Cuba, Ecuador, Guatemala, Guyana, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, San Salvador, Surinam, Uruguay, Venezuela. Biopharmex shall maintain control of the distribution process of the Products in each of these 21 countries; Biopharmex shall therefore be free to appoint third-party distributors in these countries to the extent that such appointment does not interfere with the rights granted to Collagen hereunder. Consequently, Biopharmex agrees to not negotiate or enter into any agreement granting exclusive rights before July 1, 1999. The parties agree that beginning on * they shall negotiate in good faith to attempt to enter into an agreement as of * extending this Agreement to each of the 21 countries appearing above in Article 2.2, paragraph 1 of this Agreement. 3. CONDITION PRECEDENT Pursuant to the terms and conditions of the Memorandum, the performance of this Agreement is subject to the fulfillment of the condition precedent of obtaining satisfactory technical and scientific information and results with respect to the Product within the framework of the due diligence mission in progress on the date of the execution of this Agreement. 2 3 The terms and conditions of the due diligence mission are described in the Memorandum. This condition shall run in favor of Collagen, which alone may rely on the non-fulfillment of this condition precedent. Collagen shall notify its intention to Biopharmex by sending a facsimile within the week following April 11, 1999 confirmed by certified letter, bill of receipt requested. (a) If this condition precedent has not been fulfilled and Collagen notifies Biopharmex that it intends to rely thereon this Agreement shall become void, subject to the provisions of article 18.4 of this Agreement. (b) If this condition precedent is fulfilled thereby allowing Collagen to undertake the distribution of the Product in the Territory, without modification of the quotas, the condition precedent shall be acknowledged as having been fulfilled and this Agreement shall be deemed retroactively entered into as of January 11, 1999. The Memorandum shall automatically expire at the same time. (c) If this condition precedent is fulfilled and Collagen is desirous of exercising its right to revise the quotas proposed by Biopharmex on the conditions provided for in Article 9 of this Agreement, the parties shall negotiate the revision of these quotas in good faith within a maximum time period of seven (7) business days as from expiration of the due diligence as defined in the memorandum, or as from April 11, 1999, at the latest; Biopharmex shall then have the right to refuse the quotas proposed by Collagen. If Biopharmex does not agree to the revision of these quotas, the Memorandum and the Distribution Agreement shall be automatically terminated and shall not entitle either one of the parties hereto to claim damages from the other party. 4. TERM This Agreement shall be effective for an initial period of ten years beginning retroactively on January 11, 1999 and automatically terminating on January 10, 2009. This Agreement may be tacitly and automatically renewed for successive periods of three (3) years absent notice to terminate by either one of the parties by certified letter, bill of receipt requested sent 12 months in advance. The renewal of this Agreement as from January 11, 2009 for an initial three-year period shall entail the parties' obligation to revise the financial terms and conditions of this Agreement in good faith by entering into a written addendum to be appended to this Agreement. The nonrenewal by Biopharmex of this Agreement at any one of its expiration dates pursuant to the terms and conditions above: (a) shall create a preferential right in favor of Collagen which shall be valid for six consecutive months following the expiration date of this Agreement, allowing Collagen to refuse or accept to distribute the Products in the Territory (or in any country belonging to the Territory) under terms and conditions identical to those proposed by Biopharmex to a third party; and 3 4 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. (b) shall oblige the parties to negotiate the terms and conditions for purchasing or clearing the inventory in Collagen's possession in good faith. (c) shall oblige Biopharmex to purchase the promotional material in Collagen's possession, for up to [*], provided said material may be reused (if necessary, by Biopharmex adding an adhesive). Non renewal by Collagen of this Agreement on any one of its expiration date on the conditions specified above with respect to form and deadlines shall trigger the consequences provided for in Article 8.3 (vii), shall prohibit Collagen for exercising its preferential rights and shall not give rise to the purchase of the promotional material in Collagen's possession. 5. APPROVALS 5.1 European approval European approval of the Products includes the authorization of the "EC" marking of the Products as well as the vetting of the clinical studies which form an integral part thereof pursuant to the provisions of EU Directive No. 93/42 of June 14, 1993, in its most recent version in force on the date of the request for approval of the Products. European approval of the Products shall be carried out by Biopharmex in its name and at its expense and shall be available, by September 1, 1999 at the latest, in order to allow for the marketing of the Products in Europe. However, this deadline may be extended until January 1, 2000 in the event of requests for additional information by the competent authorities. Biopharmex shall keep Collagen informed in writing, on a monthly basis, of the progress in obtaining European approval. The absence of European approval of the Products shall entail Collagen's right, on the one hand, to terminate this Agreement on the terms and conditions provided in Article 8 of this Agreement and, on the other, to be immediately reimbursed for all amounts paid in the form of a loan on the conditions provided in Article 6 of this Agreement. 5.2 Approvals outside of Europe 5.2.1 The parties agree that the approval requests for countries outside of the European Union shall be carried out by Collagen in the name of Biopharmex to the extent permitted by the laws and national and international regulations. Failing this, the parties agree to proceed with the approval of the Products in the following order of priority: (i) approval carried out jointly in the names of Biopharmex and Collagen, at Collagen's expense, 4 5 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. (ii) approval carried out in the name of Collagen at Collagen's expense, (iii) approval carried out in the name of the subdistributor appointed by Collagen, at Collagen's expense. 5.2.2. Approvals in the United States and in Japan The approval process for the Product in the United States and in Japan will be carried out by Collagen, in its own name and at its own expense. By mutual agreement of the parties, on the date upon which Collagen receives the final notice of approval for the Product in each of these countries: (i) Biopharmex undertakes to reimburse Collagen for all of the external expenses met by the latter. The expression `external expenses' refers to all expenses relating to the involvement of third party to this Agreement, with proof provided in the form of corresponding invoices, a copy of which Collagen shall submit to Biopharmex, should the latter so request; (ii) the period of validity of the distribution rights granted to Collagen in the United States and Japan under this Agreement, and of all the rights and obligations arising therefrom, is extended automatically and with full legality for an additional term of (5) five years, i.e. until January 11th 2014; (iii) the rate of royalties applicable for the sale of the Product in the United States and Japan is as defined in Article 7.4 of this Agreement. 5.3 Effects of approval Approval shall entail Collagen's automatic authorization to distribute the Products in the Territory. 5.3.1 The parties agree that the Products shall be marketed in France according to the following timetable: - In France: within [*] as from the date on which Collagen receives notice of the European approval of the Products; - In Belgium, Spain and Italy: within [*] as from the date on which Collagen receives notice of the European approval of the Products; - In the other member states of the European Union: within [*] as from the date on which Collagen receives notice of the European approval of the Products; 5.3.2 Collagen shall distribute the products outside the European Union within [*] as from the final approval date in each country in question. 5.4 Ownership of the approvals The approvals shall remain the property of Biopharmex. Consequently, in the event of early termination of this Agreement, Collagen shall make its best efforts in order to ensure the transfer to Biopharmex of the approvals obtained by Collagen or by one of 5 6 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. its subdistributors to the extent permitted by national laws and/or regulations.. The costs connected to such transfers shall be borne by Biopharmex alone. 6. FINANCIAL CONDITIONS 6.1 Representations Biopharmex represents and warrants to Collagen that it is a resident company of Luxembourg within the meaning of Article II of the Double Taxation Treaty between the United States and Luxembourg of December 18, 1962. Biopharmex also represents and warrantees (i) that Biopharmex is not a "holding company" within the meaning of Article XV of said treaty, (ii) that it has the certificates and documents attesting to the fact that it is entitled to the application of this treaty and shall furnish said certificates and documents to Collagen by January 27, 1999 at the latest and periodically thereafter in accordance with the regulatory requirements in force. 6.2 Marketing (entrance) In consideration for the distribution rights to the Products in the Territory granted to Collagen by virtue of this Agreement, Collagen shall pay Biopharmex compensation for a total amount of [*]. Such compensation shall be payable in three installments: the first installment shall be for a total amount of [*], which shall be at first granted in the form of a loan, a second installment for a total amount of [*], also granted in the form of a loan together with a conversion option on the conditions provided in Article 6.4 and lastly a third and last installment for a total amount of [*] payable on the conditions provided in Article 6.6. Given that Collagen's consent is conditioned, on the one hand, on the satisfactory results of the due diligence mission and, on the other, by the actual granting of a European approval which is indispensable for the marketing of the Products, the compensation payable to Biopharmex shall not be due pursuant to this Agreement before the actual fulfillment of these two conditions. Consequently, on the one hand, the two first installments shall be payable in the form of a loan together with a conversion option on the conditions specified below in Article 6.4 and, on the other, the last installment shall not be due to Biopharmex unless the Products are lawfully marketed in France by Collagen, on the conditions specified in Article 6.6 below. 6.3 Loan 6.3.1 Pursuant to the terms and conditions of the Memorandum and, more specifically, Schedule 2 and, in consideration for the rights granted to Collagen pursuant to the due diligence mission, Collagen has granted Biopharmex a loan for a total amount of [*]. 6 7 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. 6.3.2 The parties agree that on the date of execution of this Agreement, provided that Collagen has previously obtained the personal security from Dr. Laugier-Laglenne pursuant to the terms and conditions of Schedule 3 to this Agreement, Collagen shall grant to Biopharmex a second loan for a total amount of [*]. The terms and conditions for the granting of this new loan are set forth in Schedule 3 to this Agreement. 6.4 Conversion The approval date of the Product in Europe under the conditions provided for in Article 5.1 of this Agreement shall entail the conversion of the two first installments paid in the form of a loan into compensation in favor of Biopharmex. The conversion shall become effective within seven (7) days as from the date of the receipt by Collagen of the notification by Biopharmex of the European approval of the Product by the competent authorities as defined in Article 5.1 of this Agreement. The tax consequences related, more particularly, to withholding tax liable to be claimed by virtue of the conversion of the two installments paid in the form of a loan into compensation in favor of Biopharmex shall be borne by Biopharmex, which alone shall be liable therefor. 6.5 Non-conversion 6.5.1 Pursuant to the terms and conditions of Article 3(a) of the Memorandum, Collagen shall have the full and unrestricted right to place on record the non-fulfillment of the condition precedent of obtaining satisfactory technical and scientific results with respect to the Product within the framework of the due diligence, and to not distribute the Product. Such decision shall automatically entail: (a) the rescission of the Memorandum without either party being liable therefor nor entitling either one of the parties hereto to claim damages from the other party. (b) this Agreement becoming void ab initio for non-fulfillment of the aforementioned condition precedent, without either party being liable therefor nor entitling either one of the parties hereto to claim damages from the other party. (c) the non-conversion of the two loan agreements corresponding to the two installments for a total amount of [*]. The terms and conditions for the repayment of these two (2) loans within one (1) year, i.e., on January 11, 2000 for the first loan and on January 27, 2000 for the second loan are those set forth in Schedule 3 to this Agreement. 6.5.2 Likewise, the absence of final approval of the Product shall result in Biopharmex's obligation to repay the first two installments paid by Collagen 7 8 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. within 12 months as from the date on which each of these loans has been granted, i.e., respectively, January 11, 2000 and January 27, 2000. 6.6 Third installment The date of the first marketing of the Product in France by Collagen shall give right to payment of the third installment to Biopharmex. The third installment shall be payable within twelve (12) months as from the date of the first French marketing of the Product by Collagen. 7. INVOICING - PAYMENTS For the purpose of this Agreement, "sales price" refers to the price of the Product sold by Biopharmex to Collagen and "resale price" refers to the price of the Product sold by Collagen to its clientele comprised exclusively of doctors. 7.1 Biopharmex's sales price per Product unit to Collagen is [*], ex-VAT, payable upon invoicing, 60 days following delivery, on the conditions set forth in Article 10 of this Agreement. This price may be revised by mutual agreement between the parties once a year in order to meet cost developments, the request of customers, the economic conjuncture or where monetary circumstances would adversely affect the original equilibrium of the Agreement. 7.2 Collagen may freely set the resale price of the Product to its customers (i.e. exclusively in this case to doctors) in the Territory. 7.3 In order to ensure the proper distribution of the Products and in light of its knowledge of the potential market for the Products in certain European countries, Biopharmex recommends that for its launching the maximum unit price for Products sold in Belgium, Italy, Spain and France by Collagen be approximately [*], ex-VAT. Biopharmex also recommends that Collagen not exceed this maximum resale price during approximately three years in the absence of a significant evolution in the market for the Product. In all other countries in the Territory, Collagen shall evaluate an optimal maximum price for launching the Products in light of the markets involved on the basis of its international experience. 7.4 During the initial term of the Agreement (i.e. ten years), if Collagen resells the Product to the final customer in all or part of the Territory at the maximum recommended price of [*], the parties agree that the following terms shall apply: - Collagen shall pay Biopharmex for each sale of the Product made outside of the United States and Japan a royalty at the rate of [*] applied to the fraction of the price exceeding [*], i.e.: 8 9 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. (Collagen resale price, [*]) x [*] - Taking into account the approval costs incurred by Collagen in the United States and Japan, the rate in these countries shall be [*], i.e.: (Collagen resale price, [*]) x [*] 7.5 Collagen shall, on the one hand, keep Biopharmex informed on a quarterly basis of the sales made by country in the Territory and, on the other, shall ensure the annual certification of Collagen's accounts by a Statutory Auditor. Biopharmex may, if necessary, audit Collagen's accounts relative to the sale of the Products at its expense, provided that it has previously notified its intent to carry out such audit to Collagen in writing making reference to this article. 8. VOIDING OF AGREEMENT - TERMINATION 8.1 Voiding of Agreement This Agreement shall be automatically void with immediate effect for any one of the reasons described in Article 3 or Article 5.1 upon receipt of notice sent by Collagen by certified letter, bill of receipt requested and shall not entitle either one of the parties hereto to claim damages or compensation from the other party. This Agreement shall also be void in accordance with the same terms and conditions in the event of the permanent withdrawal of approval of the "EC" marking of the Products, by the competent authorities. 8.2 Early termination Absent a contrary provision appearing in Article 8.1, either one of the parties may terminate this Agreement forthwith in the event of a material breach by the other party of any one of its obligations pursuant to this Agreement. Termination shall be made by prior notice to the other party which shall be deemed validly given by certified letter, bill of receipt requested containing a description of the alleged breach, making reference to this article. Termination shall become effective only upon expiration of a period of ninety (90) days as from receipt of such notice during which the other party must cure such breach. If the defaulting party fails to cure such breach upon expiration of this 90-day period, and the termination of this Agreement shall become immediately effective without any other notice. 8.3 Termination of this Agreement shall entail: 9 10 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. (i) the immediate discontinuation of deliveries, excepting deliveries corresponding to orders accepted by Biopharmex before notice of breach; (ii) the complete return by Collagen of the approval files, the promotional materials and the available samples of the Products belonging to Biopharmex and the return of the results of the clinical tests conducted on the Product on the conditions described in Article 12 of this Agreement; (iii) the repayment of any amounts due by Biopharmex to Collagen (in principal and interest), and more specifically, the repayment of the loans made in the conditions provided in Article 6.5.1 and Schedule 3 hereof only if such termination occurs before their conversion pursuant to Article 6.4. (iv) the accounting and rapid payment of all money credits of either one of the parties; (v) Collagen shall thereafter refrain from adopting, using, registering or otherwise relying on or holding rights to and over the trademarks, drawings or models for the packaging or labels for the Products belonging to Biopharmex, its parent company or affiliated companies, in the Territory; (vi) the early termination of this Agreement by Biopharmex shall entail Biopharmex's obligation to purchase the inventory of the Products in the possession of Collagen or its subdistributors on the effective date of termination, at landed cost, as well as the promotional materials in Collagen's possession, up to [*], provided said material may be reused (if necessary by Biopharmex adding an adhesive); (vii) the early termination of this Agreement by Collagen shall entail Collagen's express authorization to sell the Products until the clearing of the inventory in its possession, but shall not give rise to the purchase of the promotional material in Collagen's possession. 9. QUOTAS 9.1 Collagen agrees to comply with the following minimum sales quotas for the first three sales years for the Products in the Territory: - 1st year: [*] - 2nd year: [*] - 3rd year: [*] However, if in the 1st year sales by Collagen exceed more than 50% of the minimum quotas set for this 1st year, the minimum for the 2nd year shall be equal to the sales for the 1st year. The same principle shall apply for the 2nd year. The fact that Collagen does not attain these quotas shall constitute a legitimate reason for the loss of territorial exclusivity in its favor. The loss of territorial exclusivity shall be notified to Collagen by certified letter, bill of receipt requested and shall become 10 11 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. effective upon expiration of a 90-day period as from the date of receipt of advice of the notification. 9.2 The above quotas are not final. The parties agree that Collagen may revise such quotas within the week following the expiration of the due diligence and propose new quotas to Biopharmex. Biopharmex may refuse the revision of the quotas as proposed by Collagen. The failure by the parties to agree on the final quotas shall automatically and immediately entail termination of all agreements between the parties on the conditions provided in Article 3 (c) of this Agreement. 9.3 Failing an Agreement by the parties with respect to the quotas, the two loans made to Biopharmex on the conditions provided for in Article 6 and Schedule 3 shall become automatically due and owing, within one (1) year as from the date on which each loan was made, i.e., respectively January 11, 2000 for the first loan and January 27, 2000 for the second. 10. INVENTORY - DELIVERY 10.1 Inventory (minimum - Product specifications) 10.1.1 Minimum inventory During the first three years of this Agreement Biopharmex shall maintain a minimum volume of "buffer" inventory as follows: - during the first year: the greater of [*] of Collagen forecast orders or [*]; - during the second year: the greater of [*] of Collagen forecast orders or [*]; or half of the units sold by Collagen during the first year; - during the third year: the greater of [*] of Collagen forecast orders or [*], or half of the units sold by Collagen during the second year. 10.1.2 Product Specifications Biopharmex agrees to deliver Products to Collagen whose remaining shelf life shall be equal to or greater than three-quarters of its total shelf life. 10.1.3 Manufacture The manufacture of the Products shall be carried out under the responsibility and control of Biopharmex and shall give rise to a warranty on the conditions provided for below in Article 14 of this Agreement. In order to ensure the availability of inventory of the Products, Biopharmex and Collagen shall, within six months as from the date of the European approval of the Products, identify a second potential manufacturer who shall be duly certified by the FDA, and more particularly for its GMP. This second manufacturer shall be used by 11 12 Biopharmex under its control and responsibility, in order to ensure the continuity of manufacture of the Products in the event of the failure of the present manufacturer. 10.2 Delivery The products shall be made available to Collagen at Biopharmex's warehouse (Luxembourg), located at the following address: 38, avenue du 10 septembre, 2550 Luxembourg. The risks shall be transferred to Collagen upon taking of delivery by Collagen or by a third party appointed by Collagen in accordance with the ex-warehouse conditions which are identical to the ex-works conditions of the Incoterms, (ICC), 1990 publication. The Products shall remain Biopharmex's property until full payment of the price by Collagen on the due date appearing on the invoice. 10.3 Storing of the Product Biopharmex shall continuously maintain the necessary services for the storage of a volume of adequate inventory in order to meet Collagen's product orders. Consequently, the closing of Biopharmex's warehouse for any reason whatsoever shall be notified in advance to Collagen within two (2) months before the actual closing date. Biopharmex shall then take all necessary measures in order to ensure the continuous storage service for the Products under its responsibility and at its expense. Pursuant to this Agreement, Collagen may make all necessary inspections of Biopharmex's warehouse at any time during the term of this Agreement, provided that it has previously informed Biopharmex within a reasonable period of its intention to make such inspection. 11. NON-COMPETITION Collagen's non-competition commitments shall be those which are limitatively described below in this article. 11.1 Manufacturing During a period of three (3) years following the date of expiration of this Agreement for any reason whatsoever, Collagen agrees to neither manufacture nor use any and all of the intellectual property rights belonging to Biopharmex including, more particularly, the rights relating to Biopharmex's patents and know-how covering: another product, if said product could reasonably be considered as being both competing with and similar to the Product. It is precised that the Product refers to: polylactid acid in the form of microspheres, microparticles, or fragments suspended in a gel or in a gel of synthetic or natural origin whose reabsorbability is time controlled and whose durability is at least 18 months. 12 13 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. For the purpose of this Agreement, by way of example (without limit), the following products shall not be considered as similar and competing with the Product: injectable Collagen - Zyderm; Zyplast; Collagen; Hylaform gel; Botulinum Toxine; Softform implant. 11.2 Distribution The distribution non-competition commitment (prohibiting Collagen from distributing products which compete with and are similar to the product as defined in Article 11.1 above) shall be deemed nonexistent in any one of the following cases: (a) Final approval refusal of the Product in Europe by the competent governmental authorities; in such case, Collagen shall not be bound by any non-competition obligation. (b) Upon expiration of the distribution agreement on its expiration date, Collagen shall not be bound by any non-competition obligation for the distribution of the Product. (c) In the case of termination for serious fault by Biopharmex, Collagen shall not be bound by any non-competition obligation relating to the distribution of the Product. Nevertheless Collagen agrees to not distribute products which are both competing with and similar to the Product as defined in Article 11.1 above during 24 months in the two following cases: (d) In the event that Collagen decides to not continue the project following due diligence as from the placing on record of the non-fulfillment of the condition precedent. (e) In the event that Biopharmex refuses the modified quotas proposed by Collagen, in accordance with the time periods and conditions provided in Article 3(c) . 11.3 "Similar and competing Product" Collagen's decision to distribute a product which is similar and competing with the Product as defined in Article 11.1 above during the term of this Agreement may give rise, at Biopharmex's election, to either (i) withdrawal of the exclusivity for the distribution of the Product for the remainder of the term of this Agreement; or (ii) the granting of royalties in an amount of [*] of the sales of this other product during the remainder of the term of this Agreement. 12. CLINICAL TRIALS 12.1 For the purpose of this Agreement, Collagen is expressly authorized, on the one hand, to conduct clinical trials for a total number of two hundred (200) patients identified by Collagen and, on the other, to constitute an objective clinical database relating to the Product capable of being used for ensuring the proper promotion of the Product. 13 14 These clinical trials shall be conducted in accordance with the conditions to be determined by Collagen in its own protocol. Biopharmex shall supply all Products necessary for conducting these trials, free of charge. This Agreement shall become effective before the date that these trials are completed. 12.2 In the event any defect whatsoever in the Product is notified to Collagen within the framework of these tests, Collagen shall immediately inform Biopharmex thereof Biopharmex shall thereafter take all necessary and useful measures. 12.3 In the event of the early termination of this Agreement, Biopharmex shall have access to the results of the clinical tests conducted by Collagen according to Collagen's protocol on the conditions set forth in Article 12 of this Agreement. 13. INDUSTRIAL AND INTELLECTUAL PROPERTY Biopharmex represents that it is the sole owner of all the industrial and intellectual property rights to the Product on the date of execution of this Agreement. Biopharmex undertakes to indemnify and hold harmless Collagen against any claims by third parties with respect to the extent or lawfulness of all of these rights. 13.1 Trademarks Collagen's right to distribute the Products pursuant to this Agreement entails the right and obligation to use the "BIO-PLA" trademark belonging to Biopharmex relating to the Product exclusively for the purposes of its distribution and marketing. The parties agree that Collagen may market the Product under a trademark other than "BIO-PLA", with Biopharmex's prior consent; it is agreed, however, that the identification of this new trademark shall be made by mutual agreement of the parties. The filing of the new trademark shall be carried out by Collagen and shall be its exclusive property. The parties agree that in event of termination of non renewal of this Agreement, Collagen shall transfer ownership of the new trademark to Biopharmex. In accordance with the laws of the Territory, Collagen and Biopharmex shall make reference to the registration of the trademarks on all the promotional material and documents involved related to the Products. Furthermore, Collagen shall inform Biopharmex of any act of which it is aware liable to infringe or otherwise interfere with Biopharmex's rights to the trademarks, the brand names of the Products or their packaging and shall immediately inform Biopharmex of any infringement of said trademark of which it is aware. The defense of Biopharmex's trademarks before the court shall be freely decided by Biopharmex; Collagen shall apply its assistance for said defense in the manner requested by Biopharmex. 14 15 Biopharmex represents that it has all the intellectual property rights allowing it to validly enter into the Distribution Agreement. Biopharmex shall indemnify and hold harmless Collagen against any claims liable to be made by third parties for patent infringement resulting from the marketing of the Product in the Territory and to provide it with all necessary assistance in order to defend its interests. 13.2 Patents Biopharmex represents that Biopharmex is the lawful owner and lawfully exploits the patent rights for the Product. Throughout the term of this agreement, Biopharmex shall indemnify and hold harmless Collagen against any claim liable to be made by a third party for patent infringement resulting from the marketing of the Product in the Territory by Collagen or any one of its subdistributors. 14. PRODUCT LIABILITY Biopharmex shall be liable in its capacity as manufacturer of the Products. Biopharmex shall justify that its activities are duly covered by an insurance policy at the latest on the date of the marketing of the Product. As manufacturer, Biopharmex warrants that the Products conform to the specifications and their approval file and that the Products are free of any manufacturing and material defects or latent defects on the date of their delivery and shall indemnify and hold harmless Collagen in this regard. Collagen shall assume liability resulting from the warehousing and distribution of the Product for which Collagen has taken out an insurance policy. The parties agree to keep each other mutually informed in writing of any "undesirable effects" of which they are aware. In the event that the Product must be withdrawn from any one of the markets in the Territory due to inherent defects in the Product, Biopharmex shall bear all costs and expenses resulting from such withdrawal. Biopharmex shall be responsible for its "material post marketing monitoring" duties in the European union. 15. PERSONAL NATURE OF THE AGREEMENT/ASSIGNABILITY 15.1 This Agreement is personal in nature. Neither one of the parties may assign its rights, duties or obligations arising from this Agreement to any third party whatsoever without the prior written consent of the other party. 15.2 The assignment of all of Biopharmex's rights and obligations by virtue of this Agreement to any third party, whether for consideration or free of charge, shall first give right to an exclusive right in favor of Collagen to exercise a preferential right on conditions which are identical to those provided in Article 4 (a) of this Agreement. 15 16 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. Collagen's decision to not exercise its preferential right shall constitute the condition precedent authorizing Biopharmex to assign all of its rights and obligations hereunder in favor of a third party. Biopharmex shall guarantee to Collagen that the assignee shall assume all of the obligations incumbent upon Biopharmex pursuant to this Agreement. 15.3 Any change liable to alter Biopharmex's control and, more particularly, any transfer of shares or change in the stated capital liable to confer on any third party other than the persons specified at Article 15.4 of this Agreement the right to [*] of Biopharmex's stated capital, (whether in one or successive transactions), shall be subject to Collagen's prior written consent. 15.4 The transfers of shares inuring exclusively to the members of Dr. Laugier-Laglenne's direct family, that is, in a limited manner, in favor of her spouse and/or children, may be freely made without Collagen's prior approval. Biopharmex shall keep Collagen informed of any such transfers throughout the term of this Agreement. 16. PACKAGING - PROMOTION - PROMOTIONAL MATERIAL 16.1 Packaging The packaging, labeling and directions for use of the Products for their marketing in the European Union shall be performed under Biopharmex's exclusive responsibility. The packaging, labeling and directions for use of the Products for their marketing outside of the European Union shall be performed by Biopharmex, at its own expense in accordance with the written recommendations transmitted by Collagen. Collagen shall therefore transmit to Biopharmex information relating to the applicable laws and regulations in the countries involved. 16.2 Promotional activities In order to support Collagen's promotional policy, Dr. Laugier-Laglenne agrees to be available thirty (30) business days per year at a date mutually determined by the parties, taking into account Dr. Laugier-Laglenne's availability. Dr. Laugier-Laglenne's transportation and lodging and meal costs shall be reimbursed by Collagen to Biopharmex upon presentation of supporting documents. Within the framework of specific promotional activities with large injectors, Collagen shall deliver Products free of charge based on the volume of orders to be mutually determined by the parties. These Products shall be supplied free of charge by Biopharmex to Collagen. Each introduction of the Products on a market in the Territory made by visits to doctors shall give rise to the delivery by Collagen of free samples to the doctors. Biopharmex shall make available to Collagen one free sample unit per perspective customer. 16 17 16.3 Promotional Material The preparation of material necessary for the promotion of the Products shall be carried out in accordance with a mutual agreement between the parties in compliance with applicable laws and regulations. In the event of the early termination of this Agreement by Biopharmex, Biopharmex shall purchase the promotional material on the conditions set forth in Article 8.3 (vi) of this Agreement. Early termination by Collagen shall trigger the application of Article 8.3 (vii) of this Agreement. In the event of non renewal of this Agreement, the terms and conditions of Article 4 (c) of this Agreement shall apply with regard to the promotional material in the possession of Collagen. 17. SUBDISTRIBUTORS Collagen is expressly authorized to appoint third-party subdistributors in all the countries where Collagen does not have a permanent installation (branch, permanent establishment or subsidiary) without prior authorization. Collagen shall transmit to Biopharmex the list of subdistributors that it intends to appoint in the Territory at the end of the due diligence at the latest. Collagen shall keep Biopharmex informed of each new appointment of a third-party subdistributor in the Territory. 18. CONFIDENTIALITY 18.1 The negotiations which have been held or which shall be held between the parties are deemed confidential. 18.2 The parties acknowledge that within the framework of their discussions and agreements they shall exchange information relating not only to the Product but also to their activity, strategy, and technology, including without limitation their know-how and all other industrial and/or intellectual property rights, as well as scientific and technical information, and industrial and business secrets which are confidential per se and the disclosure of which to a third party would irremediably affect the value thereof. 18.3 Consequently, the parties agree to keep strictly confidential and to not use, copy or reproduce this information, whether directly or indirectly, for any other purposes than those which are strictly necessary pursuant to this Agreement without the prior written consent of the other party. Moreover, each party shall make its best efforts in order to ensure compliance with this confidentiality obligation by its employees, agents, representatives or experts to which the disclosure of such information is necessary. 18.4 The confidentiality of the information exchanged pursuant to this Agreement shall survive for three (3) years as from the date of expiration of this Agreement regardless of the reason. 17 18 19. FORCE MAJEURE The total or partial non performance by either one the parties of one of its obligations hereunder, due to any cause beyond its control which is insurmontable, shall excuse such performance to the extent of such obstacle, difficulty or delay, for a duration equal to that of the case of force majeure.In the event that the delay continues for one hundred twenty (120) days or more, the other party (during this period that the obstacle, difficulty or delay continues), may terminate this Agreement, at its election, by giving sixty (60) days written notice to the defaulting party. Pursuant to this Agreement, any decision from competent authorities liable to suspend authorization to manufacture, sell and/or distribute the Products in any part of the Territory shall constitute a case of force majeure. 20 TAX OBLIGATIONS Each of the parties shall be solely liable for its own taxes. Consequently, the parties agree that Biopharmex shall pay all the withholdings which may be due as a result of payments made by Collagen under this Agreement and any subsequent commercial transactions between the parties. 21. LAW - JURISDICTION 21.1 The parties expressly agree that the provisions of the United Nations Convention for the International Sales of Goods dated April 11, 1980 shall not be applicable to this Agreement. All the rights, obligations and constructions resulting from this Agreement shall be governed exclusively by the laws of France. 21.2 Any dispute relating to the performance, construction or termination of this Agreement if not amicably settled between the parties shall be submitted to ICC arbitration in Paris in accordance with the ICC rules of arbitration. 22. LANGUAGE OF THE AGREEMENT This Agreement is drawn up in the French language to which is attached an official translation in the English language made by a firm of sworn translators. The parties expressly agree that they shall not make any claim resulting purely and simply from differences related to or resulting from the use of the two different languages. 23. INDEPENDENCE OF PROVISIONS In case any one of the provisions contained in this Agreement shall be held to be void or unenforceable by an enforceable decision of a tribunal, court or any other authority whose jurisdiction has not been challenged, and which decision binds the party such invalidity or unenforceability shall not affect any other provisions thereof nor render 18 19 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. them unenforceable. Moreover, the parties agree to replace such void or unenforceable provisions by provisions which shall allow to the extent possible to obtain the economic and business objectives connected to the provisions which have been held void or unenforceable. 24. ELECTION OF DOMICILE - NOTICES 24.1 Notices to the parties All notices exchanged between the parties pursuant to this Agreement shall be made in writing and sent: [*] for Biopharmex, to the following address: BIOPHARMEX 38, Avenue du 10 Septembre, L2550 Luxembourg A l'attention de : Monsieur Guy Feite [*] for Collagen, to the following address: COLLAGEN Aesthetics International 1850 Embarcadero Road Palo Alto, CA 94303, USA A l'attention de : Mme Charleene Friedman Such notice shall be effectively made or validly delivered in the case of a facsimile or telex or similar transmission at the time of its receipt or in the case of a certified letter, bill of receipt upon receipt of the postal advice. Each party may change the aforementioned address by giving written and express notice of its new address to the other party. 24.2 This Agreement includes four Schedules, numbered one (1) to four (4) and constitutes the final and complete agreement between the parties on the date of its execution. Consequently, with the exception of the Memorandum and its schedules, this Agreement cancels and supersedes all prior written or oral agreements between Biopharmex and Collagen. The terms and conditions of this Agreement shall be the only terms and conditions applicable to the sale of the Products, to the exclusion of any other terms and conditions which may, more particularly, appear in Biopharmex's general conditions of sale. All Schedules and documents attached hereto form an integral part of this Agreement. Executed in two original copies in the French language and two original copies in the English language. Each of the parties acknowledges being in possession of this Agreement in the French language and in the English language. At ______, on January 28, 1999 19 20 FOR BIOPHARMEX FOR COLLAGEN AESTHETICS INTERNATIONAL Mr. Guy Feite Mr. Gary Petersmeyer 20 21 -------------------------------- SCHEDULE 1 -------------------------------- - - The BIO PLA product is defined as follows (hereinafter the "Product"): - - Polyactid acid in the form of microspheres, microparticles, or fragments suspended in a gel or in a gel of synthetic or natural origin whose reabsorbability is time controlled and whose durability is at least 18 months. - - The Product unit is defined as the quantity necessary to be diluted in 3 cc of Product. 2. The Field of Application of the Product that is the object of the present Contract is defined as follows: 2.1. Medicine and aesthetic surgery (as of now, smoothing out wrinkles and cutaneous depressions over the entire human body), dermatology, plastic surgery, maxillo-facial surgery. 2.2. Hence Biopharmex shall be free to make and market a product having the same composition for any field of application other than the one defined above (2.1.), as long as it sees to it that the said product is exploited and/or marketed under some other name and trademark than BIO-PLA. 2.3. In addition, Biopharmex undertakes, on one hand, not to exploit and/or market the said product in one of the fields reserved for Collagen under the present Contract, and on the other hand to refrain from any practice of such nature as to create an economic disparity because of the respective prices of each of the products in the Territory. 2.4. Starting on 1 July 1999, Biopharmex undertakes to negotiate in good faith with Collagen on possible extension of the field of application of the present Contract to the field of urology, with a view to reaching agreement within a period of 6 months, or by 31 December 1999. The fact that the parties do not conclude a contract in this field on the 21 22 agreed date shall have no consequence for performance of the present Contract and may not give rise to any request for indemnity whatsoever. 22 23 -------------------------------- SCHEDULE 2 -------------------------------- MEMORANDUM EXECUTED BY THE PARTIES ON JANUARY 11, 1999 23 24 -------------------------------- SCHEDULE 3 -------------------------------- 3.1 LOAN AGREEMENT 3.2 SECURITY 24 25 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. LOAN CONTRACT The present loan contract is signed this very day, 28 January 1999, between: COLLAGEN Aesthetics International, a company operating under the laws of the State of Delaware, having its principal establishment at 1850 Embarcadero Road, Palo Alto, CA 94303, United States of America, Represented by Mr. Gary Petersmeyer, its duly authorized legal representative, (hereinafter the "Lender") and: BIOPHARMEX S.A., a company under Luxembourg law, having its registered office at 38, avenue du 10 septembre, L-2550 Luxembourg, Represented by Mr. Guy Feite, its duly authorized legal representative, (hereinafter the "Borrower"). THE PARTIES SET FORTH THE FOLLOWING PREMISES: The Lender wishes to make available to the Borrower, which accepts, a second loan in an amount [*], in order to finance development of what are called "BIO-PLA" products (hereinafter the "Products"), which the Lender plans to distribute, by virtue of a distribution contract signed this very day between the parties (hereinafter the "Distribution Contract". NOW THEREFORE THE PARTIES HEREBY ENTER INTO THE FOLLOWING AGREEMENT: ARTICLE 1 - LOAN 1.1. Amount In the light of the rights granted to the Lender by virtue of the Distribution Contract, the Lender grants a second loan (the "Loan") to the Borrower in an amount of [*]. The Loan shall be made available all at once by means of a transfer initiated within five (5) days following 25 26 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. signature of these presents. The date of availability of the funds shall be called the "Effective Date". 1.2. Use The Borrower shall have to use the amount of the Loan solely for financing development of the Products. 1.3. Duration The Loan is concluded for a duration of one (1) year starting with the Effective Date, subject to the provisions of Article 5 below. 1.4. Interest The interest rate applicable to the present Loan shall be equal to [*]. The interest shall be calculated on the basis of the exact number of days elapsing on the basis of a year of 365 days, and shall be paid quarterly. The global effective rate ("TEG") of the present Loan is [*]. ARTICLE 2 - REPAYMENT 2.1. Repayment The Loan amount shall be repaid all at once on the first anniversary of the Effective Date (the "Repayment Date"), subject to the provisions of Articles 2.3 and 5 below. 2.2. Prepayment The Borrower shall have the option of prepaying the entire Loan without indemnity. 2.3. Offsetting In case of European approval of the Product under the conditions of Article 5.1 of the Distribution Contract, the Loan shall be repaid by offsetting against the first and the second admission fees ("first and second milestone payments"), pursuant to the provisions of Article 6.4 of the Distribution Contract, the said offsetting being effective seven days following the date on which COLLAGEN receives the notification of the above-mentioned approval. 26 27 ARTICLE 3 - PAYMENT Any payment by the Borrower shall have to be made net of any deductions or withholdings of any nature whatsoever. If the Borrower is required to make such a deduction, withholding or subtraction, it shall have to pay any additional amount to the Lender such that the said Lender receives a net amount equal to the one it would have received in the absence of such deduction, withholding or subtraction. In addition, the Borrower shall have to supply the Lender with any justification relating to the said deduction or withholding. If payment of such an additional amount is not legally authorized, the Borrower shall have to repay the Loan balance without delay, as well as all interest relating thereto. ARTICLE 4 - CERTIFICATIONS AND GUARANTEES The Borrower hereby certifies the following, to the Lender's benefit: (i) it is validly constituted under Luxembourg law, (ii) it is duly authorized to sign the present Loan, which constitutes valid obligations for it which are fully applicable to it, (iii) signature of these presents is not contrary to any legislative or regulatory provision whatsoever or to the Borrower's Articles, or to any other contract or undertaking to which the Borrower is a party, (iv) any approvals required for purposes of signing the present Loan and performing the obligations thereof have been duly obtained, (v) the interest payable by virtue of these presents is not subject to withholding in Luxembourg. 27 28 ARTICLE 5 - PREPAYABILITY Any amounts in terms of principal lent by virtue of these presents as well as any interest relating thereto shall be payable by right in advance, and the Loan shall be canceled, without any need for advance warning in case of occurrence of one of the following events: 5.1. Non-performance by the Borrower of a substantial obligation resulting from the present Loan or from the Distribution Contract, and inability to remedy it within a period of two weeks starting with the date of a warning sent by the Lender to that effect; 5.2. An amount due from the Borrower to the Lender is not paid at due date; 5.3. Insolvency or cessation of payments of the Borrower; 5.4. A procedure of court reorganization or liquidation filed against the Borrower, as well as a search for or obtaining by court action or by its creditors' agreement of a delay of due date or of a reduction of its debts. Moreover, and without prejudice to the other provisions of the present Loan Contract, the Borrower shall have to indemnify the Lender for all losses or expenditures incurred because of the occurrence of one of the above-mentioned events. ARTICLE 6 - SURETY In order to warrant proper performance of the present Contract and repayment of the Loan in terms of principal, interest, expenses and incidentals, Dr. LAUGIER-LAGLENNE agrees, in a separate document dated this very day, to be answerable, as joint surety, for repayment of the Loan in terms of principal, interest, expenses and incidentals. ARTICLE 7 - MISCELLANEOUS PROVISIONS 7.1. Notification Any notification, request or communication that can or must be made in performance of these presents shall have to be made by registered mail with receipt sent to the following addresses: 28 29 For the Borrower: BIOPHARMEX Attention: Mr. Guy Feite 38, avenue du 10 septembre L-2550 Luxembourg For the Lender: COLLAGEN Aesthetics International Attention: Mrs. Charlene Friedman 1850 Embarcadero Road Palo Alto, CA 94303 USA 7.2. Inapplicability Illegality or inapplicability of a provision of the Loan Contract under the terms of law of a jurisdiction shall not affect its validity by virtue of the law of another jurisdiction, and shall not affect the validity of the other provisions of the Loan Contract. 7.3. Applicable law and competent courts It is explicitly agreed that the present Contract is subject to French law. Any dispute shall be subject to the sole jurisdiction of the Courts of Paris. 7.4. Contract Language The present Contract is drawn up in the French language, and an official translation into the English language is attached thereto, made by a sworn translation firm. It is explicitly agreed that the parties shall refrain from making any claim resulting purely and simply from differences connected with or resulting from the use of two different languages. Signed in ________ on 28 January 1999. 29 30 In two originals in French and in two originals in English, each of the parties acknowledging that it is in possession of the present Contract in the French language and in the English language. The Lender The Borrower Represented by Mr. Gary Petersmeyer Represented by Mr. Guy Feite ___________________________________ ___________________________________ Doctor LAUGIER-LAGLENNE (as surety) ___________________________________ 30 31 SURETY I the undersigned, Dr. Elisabeth LAUGIER-LAGLENNE, residing at 11, rue de Portalis, 75008 Paris, France, hereby declare that I will act as personal, joint and indivisible surety vis-a-vis the company COLLAGEN Aesthetics International (the "Beneficiary"), having its main establishment at 1850 Embarcadero Road, Palo Alto, CA 94303, United States of America, for repayment by the BIOPHARMEX SA Company, a company under Luxembourg law having its registered office at 38 avenue du 10 septembre, L - 2550 Luxembourg, of any amount due or to become due in terms of principal, interest, expenditures and incidentals from BIOPHARMEX to the Beneficiary, by virtue of a Loan Contract of which I am fully and entirely aware, concluded this very day between BIOPHARMEX SA and the Beneficiary. I commit myself up to an amount in terms of principal [*], to be increased by any interest at a rate of [*], expenses and incidentals. The present Surety may be called upon at any time. It shall become enforceable by right and without warning as soon as the Beneficiary's claim against BIOPHARMEX SA becomes payable. In case of default by BIOPHARMEX SA for any reason whatsoever, I undertake to pay, to the Beneficiary, what BIOPHARMEX SA owes it, including the amounts that have become prepayable. As surety, I may not call upon any payment extensions that may be granted to BIOPHARMEX SA explicitly or tacitly. My assigns, particularly my heirs, shall be jointly and indivisibly liable vis-a-vis the Beneficiary for performance of the present Surety. I shall act as surety of BIOPHARMEX SA Company as long as it has not paid the amounts due to the Beneficiary in full. In any event, the present surety is granted for a maximum duration of two (2) years starting with the date of these presents. I explicitly waive beneficium excussionis and beneficium divisionis. Hence the Beneficiary shall be entitled to apply to me for any payment in connection with the present undertaking without first having to take proceedings against BIOPHARMEX SA. 31 32 Application for an order granting confidential treatment pursuant to Rule 24-b-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 an application. To obtain payment in connection with the present undertaking, the Beneficiary shall be entitled to take legal proceedings against all of my movables and immovables, present or future. It is understood that any total or partial payment made in connection with these presents shall reduce my undertaking to that extent. All of the provisions of the present undertaking shall retain their full effect, whatever changes may occur in the financial or legal situation or the legal form of BIOPHARMEX SA. I intend to personally monitor the situation of BIOPHARMEX SA, and I dispense the Beneficiary from any notice of extension or of non-payment. The Beneficiary shall have no obligation to supply me with information in connection with these presents. All of the expenses, the fees and penalties to which the present undertaking and performance thereof give rise shall be paid by me, including the recording expenses in case that formality is carried out. The present Surety is drawn up in the French language, and an official translation into the English language is attached thereto, made by a sworn translation firm. It is explicitly agreed that the parties shall refrain from making any claim resulting purely and simply from differences connected with or resulting from the use of two different languages. The present Surety is subject to French law. For any difficulty that may arise from performance of these presents and/or from their construction, sole jurisdiction is assigned to the competent Courts of Paris. Signed in Paris on 28 January 1999 ___________________________________ Doctor LAUGIER-LAGLENNE Have the signature preceded by the following handwritten indication: "Read and approved, accepted for personal, joint and individual surety in an amount [*] in principal, to be increased by any interest at an annual rate of [*], expenses and incidentals, with waiver of beneficium divisionis and beneficium excussionis". 32 33 -------------------------------- SCHEDULE 4 -------------------------------- TIMETABLE OF APPROVALS BY COUNTRY To be submitted by Collagen before April 11, 1999 33 EX-27 5 FINANCIAL DATA SCHEDULE
5 9-MOS JUN-30-1999 JUL-01-1998 MAR-31-1999 10,980 0 15,068 0 11,898 50,887 12,412 0 74,422 28,160 0 0 0 111 44,927 74,422 62,156 62,156 17,509 17,509 38,016 0 62 10,728 4,424 6,303 0 0 0 6,303 0.73 0.72 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
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