-----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, PYqz/GT8gaVh/SSd1thTjIUMfH+Z+no06U0vpJgqwsCEsGKaDIAy3y5gpsfHnklN F1kCu5O4YHmFlcj4OPaylA== 0001015402-00-000796.txt : 20000411 0001015402-00-000796.hdr.sgml : 20000411 ACCESSION NUMBER: 0001015402-00-000796 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIFECELL CORP CENTRAL INDEX KEY: 0000849448 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 760172936 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19890 FILM NUMBER: 582153 BUSINESS ADDRESS: STREET 1: ONE MILLENNIUM WAY CITY: BRANCHBURG STATE: NJ ZIP: 08876 BUSINESS PHONE: 7133675368 MAIL ADDRESS: STREET 1: ONE MILLENNIUM WAY CITY: BRANCHBURG STATE: NJ ZIP: 08876 10-K 1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 0-19890 LIFECELL CORPORATION A DELAWARE IRS EMPLOYER IDENTIFICATION CORPORATION NO. 76-0172936 ONE MILLENNIUM WAY BRANCHBURG, NEW JERSEY 08876 Telephone Number (908) 947-1100 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, $.001 Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of the voting stock (Common Stock and Series B Preferred Stock, assuming conversion of such Preferred Stock into Common Stock at the current conversion rate) held by non-affiliates of registrant as of March 17, 2000: $117,282,428. Number of shares of registrant's Common Stock outstanding as of March 17, 2000: 13,667,361. (If the Series B Preferred Stock had converted into Common Stock as of such date, there would be 17,089,973 shares of Common Stock outstanding.) DOCUMENTS INCORPORATED BY REFERENCE: Portions of registrant's proxy statement relating to the June 2, 2000 annual meeting of stockholders have been incorporated by reference into Part III hereof. - --------------------------------------------------------------------------------
TABLE OF CONTENTS DESCRIPTION Item Page - ---------- ------------------------------------------------------------------------------------- ---- PART I 3 Item 1. Business 3 General 3 Technology 3 Strategy 4 Products and Product Development Activities 5 Marketing 10 Sources of Materials 10 Government Regulation 10 Research and Development 14 Competition 15 Environmental Matters 16 Employees 16 Special Note Regarding Forward-Looking Statements 16 Risk Factors 16 Item 2. Properties 23 Item 3. Legal Proceedings 23 Item 4. Submission of Matters to a Vote of Security Holders 23 PART II 24 Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 24 Dividend Policy 24 Item 6. Selected Financial Data 25 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 26 General and Background 26 Results of Operations 26 Liquidity and Capital Resources 28 Item 7A. Quantitative and Qualitative Disclosure About Market Risk 29 Item 8. Financial Statements and Supplementary Data 29 Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure 29 PART III 29 Item 10. Directors and Executive Officers of the Registrant 29 Item 11. Executive Compensation 29 Item 12. Security Ownership of Certain Beneficial Owners and Management 29 Item 13. Certain Relationships and Related Transactions 30 PART IV 30 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 30
2 PART I This Annual Report on Form 10-K contains, in addition to historical information, "forward-looking statements" (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) that involve risks and uncertainties. See "Business-Special Note Regarding Forward-Looking Statements." ITEM 1. BUSINESS GENERAL LifeCell Corporation is a bioengineering company engaged in the development and commercialization of tissue regeneration and cell preservation products. Our core preservation technology produces an acellular tissue matrix, which retains the essential biochemical and structural components necessary for normal tissue regeneration. We currently market three products based on this technology: AlloDerm(R) for the reconstructive plastic, burn and dental markets; Cymetra(TM), micronized AlloDerm tissue for the reconstructive plastic and dermatology markets; and Repliform(TM)acellular tissue for the urology and gynecology market. We believe that our products are the only commercially available tissue transplant products that provide a complete template for the regeneration of normal human soft tissue. We estimate that AlloDerm has been transplanted in more than 50,000 patients. We also are developing several additional products, including small diameter vascular grafts as an alternative to autografted blood vessels, orthopedic applications of our acellular tissue matrix, and ThromboSol(TM), a formulation for extended storage of platelets ("ThromboSol".) We were incorporated in the State of Delaware in 1992 as the successor to a Delaware corporation that was incorporated in 1986. TECHNOLOGY Our product development programs have been generated from the following proprietary technologies: - a method for producing an extracellular tissue matrix by removing antigenic cellular elements while stabilizing the matrix against damage; - a method for cell preservation by manipulating cells through signal transduction (i.e., manipulation of cellular metabolism) to protect cells during prolonged storage; and - a method for freeze-drying biological cells and tissues without the damaging effects of ice crystals. TISSUE PROCESSING TECHNOLOGY Our tissue processing technology removes antigenic cells from the tissue matrix to eliminate the potential for specific rejection of the transplanted tissue. Our tissue processing technology also - stabilizes the tissue matrix by preserving its natural structure and biochemical properties that promote cell repopulation and - allows for extended storage by freeze-drying the tissue matrix without significant ice crystal damage thus avoiding a non-specific immune response upon transplantation. Soft tissue contains a complex, three-dimensional structure consisting of multiple forms of collagen, elastin, proteoglycans, other proteins, growth factors and blood vessels (the "tissue matrix"). Together, the tissue matrix and the cells that populate it form the soft tissues of the body, such as dermis, heart valves, blood vessels, nerve connective tissue, and other tissue types. As part of the body's natural remodeling process, cells within a tissue continuously degrade and, in the process, replace the tissue matrix. However, in the event that a large portion of the tissue matrix is destroyed or lost because of trauma or surgery, the body cannot regenerate the damaged portion. The only method of replacing large sections of the tissue matrix is through transplantation. Soft tissue transplants from one part of the patient's body to another (autograft) generally are successful; however, the procedure results in the creation of an additional wound site. Historically, the ability to transplant tissue from one person to another (allograft) has been limited because the donor's cells within the transplanted tissue may trigger an immune response, resulting in rejection of the transplanted tissue. We believe that previous attempts to remove cells from soft tissue grafts before performing an allograft transplant have resulted in disruption or damage of the tissue matrix, causing an inflammatory response and rejection of the tissue following transplantation. 3 We believe our tissue processing technology offers the following important benefits: Natural Tissue Regeneration. Tissue grafts produced with our tissue processing technology retain the structural and biochemical properties that stimulate normal cell repopulation and normal soft tissue regeneration. In addition, our clinical studies with dermis and preliminary animal studies with heart valve leaflets, nerve connective tissue grafts, and vascular grafts processed with our technology indicate that such tissues can be remodeled by the recipient's own cells and eventually become the recipient's own tissue. Multiple Potential Applications. We believe that our tissue processing technologies have the potential to generate additional products with multiple applications. In addition to the current commercial applications of AlloDerm (i.e., reconstructive plastic, dental and burn surgery), Repliform and Cymetra, we believe that our acellular tissue matrix may provide additional benefits in neurosurgery and orthopedic surgery. We also are evaluating the applicability of our technologies to other tissues and are conducting animal studies with blood vessels processed with our technology. Safety. Our tissue processing technology is designed to produce products that will revascularize and integrate into the body's own tissues. The patient's immune cells also are able to penetrate into the transplanted tissue and thus aid in preventing infections. In contrast, certain synthetic implants do not allow penetration of the patient's immune cells, thereby compromising the body's natural ability to fight infections. AlloDerm has a proven safety record of over seven years and over 50,000 grafts have been transplanted to date. Prolonged Shelf Life. Our proprietary tissue processing technology allows extended storage and ease of transportation of products. AlloDerm and Repliform are validated for storage at normal refrigerated temperatures for up to two years. In contrast, traditionally processed skin allografts require low temperature (-80 C) storage and shipping with dry ice. Compatibility with Other Technologies. Several types of tissues processed with our technology retain important biochemical components, such as proteoglycans including hyaluronic acid. These biochemical components bind growth factors that stimulate tissue regeneration. Therefore, we believe it may be possible to use our technology to develop tissue-based delivery vehicles for these factors and cells. CELL PRESERVATION TECHNOLOGY Blood cells circulating within the body are exposed to multiple factors that maintain their stability and prevent activation. When blood cells are removed from the body for storage, these stabilizing influences are absent and result in the destabilization and irreversible activation of the cells. These damaging events currently limit the shelf life of transfusable red blood cells to 42 days under refrigeration and blood platelets to five days at room temperature. Our cell preservation technology mimics the stabilizing influences that are present in the body through manipulation of signal transduction mechanisms that control cellular metabolism, combined with either low temperature storage or our patented freeze-drying technology. If successfully implemented, our cell preservation technology could result in multiple products for the preservation of directly transfusable blood cells with extended shelf life, which could be stored in a manner consistent with current blood banking practices. STRATEGY Our vision is to be a leader in the emerging field of regenerative medicine, by developing and marketing biologic solutions for the repair, replacement and preservation of human cells and tissue. Our strategy includes the following principal elements: EXPANDING PENETRATION OF ALLODERM(R) INTO CURRENT TARGET MARKETS Our direct marketing effort focuses on the use of AlloDerm(R) in head and neck, and plastic and reconstructive procedures. We see great opportunity for sales growth in this area, in which AlloDerm is used as an alternative to the current standard of care, autografts. We have initiated numerous programs to achieve this goal. These include: - conducting additional clinical studies to demonstrate the benefits of AlloDerm(R) compared to autografts; - supporting publications in leading scientific journals describing the uses and benefits of AlloDerm; - utilizing our expanded sales and marketing staff to call on a broader audience of hospital-based surgeons; 4 - participating at trade shows and sponsoring educational and surgical training workshops on the use of AlloDerm. We currently market AlloDerm for use in reconstructive plastic and burn surgery in domestic markets through our own sales force. For dental applications and selected international markets, we market through distributors. FULL LAUNCH OF REPLIFORM IN UROGYNECOLOGY MARKET Repliform , introduced in 1999, is the application of our matrix technology within the urology and gynecology market. We market Repliform through our partnership with Boston Scientific, a worldwide developer, manufacturer and marketer of medical devices with a well-established marketing presence in the urology field. In February 2000, we, in conjunction with Boston Scientific, initiated the full launch of Repliform following the successful completion of a targeted introduction of the product to thought leaders in the United States. We intend to increase the penetration of Repliform in this market by demonstrating the benefits of Repliform compared to other products when used as a bladder sling for the treatment of urinary incontinence. LAUNCH CYMETRA(TM) IN RECONSTRUCTIVE PLASTIC AND DERMATOLOGY MARKETS In December 1999, we introduced Cymetra, a micronized AlloDerm tissue to selected plastic and reconstructive surgeons. In February 2000, we announced a co-promotion agreement with Obagi Medical Products ("Obagi") that granted Obagi exclusive promotion rights to market to office-based plastic surgeons and dermatologists. Our sales force will focus its efforts on hospital-based reconstructive plastic surgeons. LEVERAGING TECHNOLOGY PLATFORMS TO DEVELOP NEW PRODUCTS Research continues into uses of our technology in vascular grafts and orthopedics. Our vascular graft research has shown promise in pre-clinical feasibility studies. We intend to seek a corporate partner for the further development and commercialization of this product during 2000. Pre-clinical studies suggest that our acellular tissue matrix may also remodel into tendons, cartilage and bone. We intend to investigate further the use of our acellular tissue and micronized acellular tissue for use in orthopedics. We are using our proprietary cell preservation technology in the development of solutions that would extend the shelf life of platelets and red blood cells. We plan to establish collaborative out-licensing arrangements with appropriate partners to fund the development and commercialization of certain of these products. PRODUCTS AND PRODUCT DEVELOPMENT ACTIVITIES ACELLULAR TISSUE PRODUCTS ALLODERM(R) AlloDerm(R) is acellular tissue processed with our proprietary tissue processing technology using donated human (cadaveric) skin. We believe that AlloDerm is the only transplant tissue product on the market today that promotes the regeneration of normal human soft tissue. Following transplant, the AlloDerm graft becomes repopulated with the patient's own cells and is revascularized (i.e., blood supply is restored), becoming engrafted into the patient. AlloDerm is a versatile tissue and has multiple surgical applications. AlloDerm is predominately used in reconstructive plastic, periodontal and burn surgery. We receive donated human skin from tissue banks in the United States that comply with the FDA's human tissue regulations. In addition, we require supplying tissue banks to comply with procedural guidelines outlined by the American Association of Tissue Banks. We conduct microbiological and other rigorous quality assurance testing before our acellular tissue products are released for shipment. AlloDerm has a proven safety record of over seven years and over 50,000 grafts have been transplanted to date. AlloDerm is shipped at ambient temperature by overnight delivery services and has a two-year refrigerated shelf life. We have established what we believe to be adequate sources of donated skin tissue at acceptable costs to satisfy the foreseeable demand for all of our commercialized tissue products. However, there can be no assurance that the future availability of donated human skin will be sufficient to meet our demand for such materials. 5 RECONSTRUCTIVE PLASTIC SURGERY. AlloDerm is marketed to reconstructive plastic surgeons as an "off-the-shelf" alternative to autograft. Within reconstructive plastic surgery, AlloDerm is used primarily in the following types of surgical procedures: - as an implant for soft tissue reconstruction or tissue deficit correction; - as an interpositional graft for tissue coverage or closure; - as a graft or implant for scar revision or the dermal component of a skin graft; and - as a sling to support tissue following nerve or muscle damage. Based on industry sources, we estimate there are approximately one million reconstructive surgical procedures performed annually in the United States in which AlloDerm could be used. We estimate that our target market for sheet AlloDerm is 241,000 procedures. These procedures include various head and neck aesthetic and reconstructive surgeries, cancer reconstruction, scar revision and oral cavity reconstruction. In these procedures, the greatest competitive pressures to AlloDerm are from autologous tissue, synthetic and biosynthetic materials. The disadvantages of using autologous tissue is the creation of a separate donor site wound and the associated pain, healing, and scarring from this additional wound. The disadvantages of using synthetic materials are the susceptibility of synthetics to infection, the graft moving away from the transplanted area (mobility), and erosion of the graft through the skin (extrusion). Additionally, some biosynthetic materials may include bovine collagen, which requires patient sensitivity testing. PERIODONTAL SURGERY. We began marketing AlloDerm to periodontists in September 1995. Lifecore Biomedical, Inc. is our exclusive distributor in the United States and select international markets of AlloDerm for use in periodontal applications. Periodontal surgeons use AlloDerm to increase the amount of attached gum tissue supporting the teeth. Until the development of AlloDerm, these procedures were predominately performed with autologous tissue excised from the roof of the patient's mouth and then transplanted to the gum. AlloDerm also is used in periodontal procedures for covering exposed tooth roots. This procedure involves placing AlloDerm underneath gum tissue, which is then lifted up to cover the exposed root. AlloDerm allows for the coverage of multiple exposed roots in a single surgery without being limited by the availability of autologous palatal tissue. AlloDerm has been evaluated in a clinical study of 50 patients in which AlloDerm proved equivalent to autologous connective tissue grafts for covering roots. The patients were also spared the pain and discomfort associated with the excision of the palatal autograft. In mid 1998, in association with Lifecore Biomedical, we began marketing AlloDerm for use in root coverage procedures. Based on industry sources, we estimate 250,000 root coverage procedures in which AlloDerm could be used are performed annually in the United States. AlloDerm tissue products also are used as barrier membranes in guided bone regeneration. In this function, the AlloDerm tissue serves as a barrier over allograft bone grafts or bone substitutes, which are used to restore degenerated alveolar bone. According to the most recently published data from the American Dental Association, there were approximately 480,000 soft tissue grafts and 230,000 bone-related grafts performed in 1990 in the United States. Competitive procedures use autologous tissue as well as synthetic material. We believe that AlloDerm has advantages over autologous tissue because of the reduced trauma to the patient, and over certain non-resorbable synthetic materials because it integrates into the patient's tissue and does not require a separate procedure for removal. BURNS. During 1994, we began commercial sales of AlloDerm for use in the treatment of third-degree and deep second-degree burns requiring skin grafting. Skin is the body's largest organ and is the first line of defense against invasion of foreign substances. It contains two functional layers, the upper surface consisting primarily of cells (epidermis) and an underlying foundational layer consisting primarily of extracellular matrix proteins and collagen (dermis). The epidermis functions as a water barrier and maintains hydration. The dermis provides other important skin properties including tensile strength, durability and elasticity. Dermis, like many other tissues of the body, is not capable of de novo regeneration. The most conservative and common surgical treatment of third-degree and deep second-degree burns use split-thickness skin autografts (the epidermal layer and a portion of the dermis) taken from uninjured areas of the patient's body. The surgical procedure when using AlloDerm in treating these patients is to place AlloDerm where the patient is missing dermis and cover the AlloDerm with an ultra-thin split-thickness skin autograft (the epidermal layer and a much thinner portion of the dermis). This procedure has produced comparable results to normal autografts while significantly reducing donor site trauma. 6 The use of AlloDerm in burn grafting has clinically shown performance equivalent to autograft in reducing the occurrence and effects of scar contracture. Scar contracture is a progressive tightening of scar tissue that can cause skin and joint immobility. Severe scar contracture can limit the use and function of all mobile joints, such as the arms, legs, feet, hands and neck. Burn patients commonly undergo or need repetitive reconstructive surgeries for scar contracture. We believe that AlloDerm provides significant therapeutic value when used in burn grafting over a patient's mobile joints. Based on industry sources, we estimate that approximately 80,000 people are hospitalized each year in the United States due to burns and that more than 20,000 of such patients are admitted with major burns requiring skin grafts. We believe AlloDerm could be used effectively with all of these patients. POTENTIAL ORTHOPEDIC APPLICATIONS OF ALLODERM. We have been advised that a small number of surgeons have used AlloDerm to reinforce the capsular ligament surrounding certain joints. Based on these surgeons' preliminary results, a product development plan has been implemented for orthopedic uses of AlloDerm. We intend to conduct pre-clinical studies investigating the potential of our acellular tissue matrix to remodel into orthopedic tissues such as tendon, ligament, cartilage, meniscus and bone. If successfully developed, an acellular tissue product for orthopedics could be used in more than 620,000 procedures. REPLIFORM(TM) UROLOGY AND GYNECOLOGY SURGERY. Since 1997, surgeons have used Repliform or AlloDerm in urological and gynecological procedures in the treatment of urinary incontinence and to repair damaged or inadequate female pelvic tissues. Since March 1999, Boston Scientific has been our exclusive worldwide sales and marketing representative for Repliform for use in urology and gynecology. Urinary incontinence affects approximately 13 million Americans, 85% of whom are women. Fewer than half of these individuals seek treatment due to the combined factors of embarrassment and a lack of acceptable therapeutic options for some types of incontinence. Some forms of urinary incontinence can be treated with a sling procedure, which involves lifting and supporting the bladder neck to provide urethral support and compression. Cystocele, rectocele and other pelvic floor conditions also occur frequently in women and require soft tissue surgical repair. These conditions are particularly common after multiple vaginal births and cause significant discomfort to the patient. It is common that these conditions exist with or cause urinary incontinence. Therefore, it is becoming the current standard of care to correct pelvic floor conditions at the same time as a sling or suspension procedure to ensure that there are no conditions that can adversely affect patient outcome. Currently, materials used for slings and pelvic floor repair surgeries include autologous tissue, synthetic materials and cadaveric fascia. The autologous tissue often is taken from the patient's thigh or abdomen resulting in a painful donor site. The greatest drawback of using synthetic materials is the occurrence of erosion through the urethra or vaginal wall causing pain and infection, necessitating repeat surgery. Cadaveric fascia commonly is used with minimal complications but currently is undergoing supply constraints. We believe that Repliform used as a sling provides a safe and effective alternative that eliminates the need for a donor site, will repopulate as the patient's own tissue, will not erode through the soft pelvic tissues, and is available in adequate supply. Annually in the United States, there are approximately 190,000 retropubic suspensions, bladder neck suspensions, and sling procedures performed of which approximately 75,000 are bladder slings that could use Repliform as the sling material. Also, there are approximately 240,000 pelvic floor procedures performed annually in the United States of which 200,000 could use Repliform for the soft tissue repair. Repliform has already been used in over 300 patients for the treatment of incontinence and various pelvic floor repair surgeries. We believe that the use of Repliform in slings and pelvic floor repair falls within the FDA classification of "human tissue" intended for transplantation. However, there can be no assurance that the FDA would agree. FDA STATUS OF ALLODERM. The FDA has notified us that the use of AlloDerm for replacement or repair of damaged or inadequate integumental tissue is "human tissue" within the meaning of the human tissue for transplantation regulations. The FDA has notified us that AlloDerm should be regulated as a Class II medical device when it is labeled and promoted as a dura mater replacement. However, it is unclear whether the FDA would agree that the following indications for which AlloDerm has been used by physicians (and for which we may want to promote AlloDerm in the future) is human tissue or whether the FDA would regulate AlloDerm under its medical device authorities for these indications: 7 - graft for guided bone regeneration; - oncological reconstruction; - urological and gynecological applications; - orthopedic surgeries; and - general surgeries. There is risk that the FDA will require the submission of premarket approval applications supported by extensive clinical data for the marketing and promotion of some or all of these indications. MICRONIZED ALLODERM PRODUCTS CYMETRA(TM) We have developed Cymetra, the brand name for Micronized AlloDerm(TM) (a particulate form of AlloDerm) for use in multiple applications, including reconstructive and dermatological applications. We believe that the delivery of Cymetra non-surgically will create additional market opportunities that are impenetrable by AlloDerm or Repliform. We have conducted various animal and clinical studies aimed at demonstrating the efficacy and safety of Cymetra. We began marketing Cymetra on a limited basis to thought leaders in the field of reconstructive and facial plastic surgery in December 1999. In February 2000, we signed an agreement granting Obagi Medical Products the exclusive right to promote Cymetra to office-based dermatologists and plastic surgeons. We will market and distribute Cymetra directly to hospitals and a subset of private office accounts through our own sales force. Cymetra offers a new non-surgical alternative in reconstructive plastic and dermatological procedures, such as correction of facial and body soft tissue deficits, the revision of acne scars and wrinkle correction. Unlike intradermal fillers such as bovine and human collagen, Cymetra is delivered subdermally to replace tissue that has been lost or eroded for various reasons. Some of these procedures currently use bovine collagen injections. In 1998 there were over 400,000 collagen injection procedures performed in the United States. This represents a significant market opportunity for Cymetra. The greatest competitive pressure will be from injectable bovine collagen. The disadvantages of bovine collagen include the requirement for pre-procedural sensitivity testing and its limited persistence of two to three months due to resorption. Cymetra will not require sensitivity testing and may potentially persist longer than bovine collagen, offering greater patient and surgeon satisfaction. MICRONIZED ALLODERM(TM) In addition to the applications targeted by Cymetra, we believe that micronized AlloDerm may have urological uses such as for the treatment of urethral sphincter deficiency, a common cause of urinary incontinence, and vesicoureteric reflux, which is the most common cause of renal failure in children. One treatment for these conditions has been injecting bovine collagen to bulk the sphincter muscle or to recreate the proper angle of the urethra or the ureter. Based on an independent market research report, we estimate there were approximately 118,000 injections of bovine collagen in 1996 to treat urinary conditions for 33,000 individuals in the United States. A significant drawback of bovine collagen in these procedures is that the body recognizes the bovine collagen as a foreign material and eventually resorbs the injected material requiring repeated injections to maintain continence or reflux correction. We currently are testing the persistence of micronized acellular tissue in animals for the treatment of urological disorders. The FDA regulatory status of micronized acellular tissue in the United States is uncertain. Although we believe that this form of AlloDerm should be classified as human tissue intended for transplantation, there can be no assurance that the FDA would agree. Additionally, even if some configurations or uses of micronized acellular tissue are classified as human tissue, other configurations such as those packaged to facilitate use by the physician, as well as certain clinical applications, may be regulated by the FDA as a medical device. If the product is classified as a device by the FDA, extensive delays may be encountered before the time, if ever, that the product may be commercially distributed. CARDIOVASCULAR TISSUE PRODUCTS We are conducting pre-clinical studies to evaluate small-diameter vascular graft products for potential use in cardiovascular and vascular surgery. If successfully developed, a vascular graft could be used in coronary artery bypass procedures or used to restore peripheral blood circulation in patients with 8 vascular insufficiency, such as below-knee bypass procedures. According to an independent market research report, replacement vascular conduits are required for the 320,000 coronary artery bypass surgeries and 250,000 peripheral vascular reconstructions that are performed annually in the United States. There are additional requirements for construction of arterio-venous (A-V) fistulas for venous access in hemodialysis, patches for closure following carotid endarterectomy and microvascular conduits for microsurgical repair techniques. Veins harvested from the patient for use as a replacement graft continue to be the mainstay of therapy, yet these vessels are frequently donor site limited as a result of the condition of the patient. When available, autologous vessel harvest leads to significant patient discomfort and an increase in risk for complications. To address these drawbacks, there is a severe requirement for an "off-the-shelf" small diameter vascular graft, which is non-immunogenic, non-thrombotic and has compliance characteristics and handling properties equivalent to native vessels. Our processed grafts are decellularized to circumvent an immune response, and they are freeze-dried to allow shelf storage for immediate use. Handling characteristics and physical properties are equivalent to the native vessel. A pre-clinical study has demonstrated our processed graft has an equivalent patency to the animal's autologous vein. This study also showed the graft was repopulated with the animal's own cells and hence, remodeled into the animal's own tissue. BLOOD CELL PRESERVATION We are developing ThromboSol platelet storage solution to extend the shelf life of transfusable platelets and other methods to extend the shelf life of red blood cells, white blood cells and stem cells. THROMBOSOL(TM) . We are developing ThromboSol; a patented biochemical formulation designed to protect transfusable platelets from damage during storage at low temperatures. The expected use of the product would be by blood banks to increase the safety and extend the shelf-life of transfusable platelets, thereby increasing the supply of available platelets, as well as to store autologous platelets in advance for individuals expecting to undergo surgery or chemotherapy. There were approximately 7.9 million platelet units transfused in the United States in 1994, according to an industry survey. Platelets are blood cells that initiate clotting. Untreated platelets are sensitive to storage at low temperatures and cannot be refrigerated effectively. Presently, platelets are stored at room temperature and, due to the risk of microbial contamination, have a limited shelf life of five days. We have shown in laboratory tests that the addition of ThromboSol solution preserves the in vitro functional aspects of refrigerated platelets for up to nine days and frozen platelets for more than one year. During 1999, we successfully completed biocompatability testing on the ThromboSol solutions. A pilot clinical study under a physician-sponsored Investigational New Drug ("IND") was conducted during 1998 and the study found that ThromboSol treated cryopreserved platelets performed better than standard cryopreserved platelets. A second physician-sponsored IND has been initiated which involves a "standard of care" transfusion of ThromboSol cryopreserved platelets into oncology patients. This study should be completed in 2000. We intend to license this product to major pharmaceutical and or other companies for commercial development. RED BLOOD CELLS. We are conducting research to develop procedures to freeze and freeze-dry red blood cells. Such technology would be used by blood banks for long-term storage of donated units of red blood cells, extending the available blood supply, and for storage of autologous red blood cells for individuals expecting to require blood transfusions as part of planned surgery. Approximately 13 million units of blood are donated each year in the United States. Red blood cells currently may be stored up to 42 days under refrigeration. Current procedures to freeze red blood cells require the use of cryoprotectant solutions that are toxic to the recipient and must be removed by washing the cells prior to transfusion. This removal procedure is labor-intensive and requires the immediate transfusion of the thawed and washed blood. We believe that the successful development of non-toxic low temperature methods of storage could simplify the use of frozen blood and potentially allow widespread storage of autologous blood. Numerous companies are attempting to develop blood substitute products and others are developing simple closed loop cell washing methods or developing technologies to inactivate bacterial or viral contaminants in donated blood. Successful development of these products could affect the demand for any products developed by us. Any product developed will require extensive regulatory approvals, including approval of an IND by the FDA to conduct clinical trials. 9 MARKETING We currently distribute AlloDerm in the United States for reconstructive plastic and burn surgical applications through our network of direct technical sales representatives. Periodontal applications of AlloDerm in the United States are marketed through our exclusive United States distributor, Lifecore Biomedical, Inc. In March 1999, we entered an exclusive agreement with Boston Scientific for the worldwide sales and marketing of Repliform for use in urology and gynecology. In February 2000, we entered an agreement with Obagi Medical Products granting them the exclusive right for promotion of Cymetra to office-based dermatologists and plastic surgeons. For several years before 1999, we used a network of regional and international distributors to augment our sales efforts. We currently maintain a network of international distributors, but during the first quarter of 1999, we eliminated the use of regional distributors in favor of using distributors only on an exclusive field of use basis. We currently intend to develop and commercialize additional tissue products processed from cardiovascular, neurological and other tissues in conjunction with corporate marketing partners. As of March 6, 2000, we had a sales and marketing staff of 39 persons, including 25 domestic sales personnel, and 14 domestic marketing and other personnel. Our sales representatives are responsible for interacting with surgeons, primarily plastic surgeons and burn surgeons and educating them regarding the use and anticipated benefits of AlloDerm. We also participate in national and international conferences and trade shows, participate in or fund certain educational symposia or fellowship programs and advertise in industry trade publications. SOURCES OF MATERIALS We pay a procurement fee to obtain allograft skin and other tissues from contracted tissue banks in the United States. We are expanding our current procurement of skin and other tissues to include any of approximately 150 tissue banks, including approximately 36 skin banks. Procurement of certain human organs and tissue for transplantation is subject to the restrictions of the National Organ Transplant Act, which prohibits purchase and sale of human organs, skin, and related tissue for "valuable consideration." Pursuant to contractual arrangements, we reimburse tissue banks for expenses incurred that are associated with the recovering and shipping of donated human skin suitable for processing into AlloDerm, Repliform, Cymetra and allograft skin as a temporary wound dressing. In obtaining such tissues, we compete with treatment centers that use donated skin for temporary wound dressings. We believe we have established adequate sources of donor skin at acceptable costs to satisfy the foreseeable demand for AlloDerm products during 2000. Although we have not experienced any material difficulty in procuring adequate supplies of donor skin, there is risk that the future availability of donated human skin will not be sufficient to meet our demand for such materials. Any supply shortage of available tissues in the future would likely have a material adverse effect on our financial condition and results of operations. We currently do not have procurement arrangements for other tissues related to products under development, and do not intend to develop such arrangements until the products approach commercialization. We are accredited by the American Association of Tissue Banks ("AATB"). The AATB is recognized for the development of industry standards and its program of inspection and accreditation. The AATB provides a standards-setting function similar to the FDA's quality system regulations for medical device companies, and has procedures for accreditation similar to the International Standards Organization ("ISO") standards. The license was granted to us in 1997 following a detailed audit by the AATB of our operations and procedures. The accreditation must be renewed every three years and is for the processing, storage and distribution of tissue used in AlloDerm, Repliform, Cymetra and allograft skin. GOVERNMENT REGULATION Overview Government regulation, both domestic and foreign, is a significant factor in the manufacturing and marketing of our current and developing products. In the United States, our AlloDerm products are subject to regulation by the United States Food and Drug Administration (the "FDA"). The FDA applies the Federal Food, Drug, and Cosmetics Act (the "FDC Act") and the Public Health Service Act (the "PHS Act"). These rules provide the regulations which apply to the testing, manufacture, labeling, storage, record keeping, approval, advertising and promotion of our products. The FDA does not apply a single regulatory scheme to human tissues and products derived from human tissue. On a case by case basis, FDA may choose to regulate such products as transplanted human tissue, biologics or medical 10 devices. A fundamental difference in the treatment of products under these various classifications is that the FDA generally permits transplanted human tissue to be commercially distributed without premarket approval. In contrast, products regulated as devices or biologics usually require such approval. The process of obtaining premarket approval for a device or biologic is often expensive, lengthy and uncertain. Once on the market, all of our products are subject to pervasive and continuing regulation by the FDA. We are subject to inspection at any time by the FDA and state agencies for compliance with regulatory requirements. FDA may impose a wide of range of enforcement sanctions if we fail to comply, including: - fines, - injunctions, - civil penalties, - recall or seizure of our products, - total or partial suspension of production, - refusal of the government to authorize the marketing of new products or to allow us to enter into supply contracts, and - criminal prosecution. Tissue Regulation In 1996, correspondence from the FDA stated that AlloDerm used for the replacement or repair of damaged or inadequate integumental tissue would be regulated as human tissue under an interim regulation governing human tissue for transplantation then in effect. This letter reversed the FDA's initial position that AlloDerm for these indications should be regulated as a medical device. In 1997, the FDA issued a final regulation that became effective in 1998 regulating "human tissue." The rule defines human tissue as any tissue derived from a human body which is (i) intended for administration to another human for the diagnosis, cure, mitigation, treatment or prevention of any condition or disease and (ii) recovered, processed, stored or distributed by methods not intended to change tissue function or characteristics. The FDA definition excludes, among other things, tissue that currently is regulated as a human drug, biological product or medical device and excludes vascularized human organs. The final tissue rule requires establishments engaged in the procurement, processing, and distribution of human tissue to conduct donor screening and infectious disease testing and to maintain records available for FDA inspection documenting that the procedures were followed. The rule also provides the FDA with authority to conduct inspections of tissue establishments and to detain, recall, or destroy tissue where the procedures were not followed or appropriate documentation of the procedures is not available. Relying on the 1996 letter, we have not obtained prior FDA approval for commercial distribution of AlloDerm for use in the treatment of burns, periodontal surgical procedures (such as free-gingival grafting and guided tissue regeneration), and reconstructive plastic surgery procedures (such as atrophic lip reconstruction and scar revision). We believe that the final tissue regulation did not alter the provisions of the interim regulation that was the foundation of the FDA's decision not to regulate AlloDerm as a device when sold for these indications. Therefore, we continue to believe that AlloDerm for these uses is regulated as human tissue. However, because the FDA's approach to tissue regulation is evolving, we cannot assure you that FDA will adhere to this position. In the future, the FDA could choose to impose device regulation on AlloDerm for these indications. The FDA also stated in the 1996 letter that their decision applied only to AlloDerm when intended for use in transplantation to repair or replace damaged or inadequate integumental tissue and that the regulatory status of the product when it is promoted for other uses, such as a void filler for soft tissue, for cosmetic augmentation or as a wound healing agent, would be determined on a case-by-case basis. After the initial 1996 letter, additional FDA correspondence stated that we would need to seek a regulatory status determination on AlloDerm for any other uses. We recently began marketing Cymetra (a micronized version of AlloDerm) for plastic reconstructive procedures. We also are marketing Repliform (an acellular tissue matrix) for urological and gynecological surgery (bladder sling; pelvic floor repair). We believe that these products all meet the regulatory definition 11 of human tissue, and therefore, have not sought guidance from the FDA. The FDA could choose to regulate any or all of these uses under the device regulations, requiring us to cease marketing and/or recall product already sold until 510(k) clearance or PMA approval is obtained. The FDA also could impose sanctions for our failure to obtain premarket clearance or approval. In May 1998, the FDA issued a proposed rule requiring registration of tissue banking establishments and the listing of tissue products. This proposal (which has not been finalized) may be a first step toward imposing significant additional regulatory requirements upon tissue products. Such requirements could cause us to incur significant additional costs. The National Organ Transplant Act ("NOTA") prohibits the acquisition, receipt or transfer of certain human organs, including skin and heart valves and vascular grafts, for "valuable consideration", but permits the payment of "reasonable" expenses associated with the removal, transportation, processing, preservation, quality control and storage of human tissue and skin. We cannot assure you that NOTA will not be interpreted to limit the prices that we may charge for processing and transporting such products. Our pricing structure for AlloDerm, Repliform and Cymetra also includes certain educational costs associated with the processing and transportation of human tissue. Although we believe that recovery of educational costs is permitted under NOTA, a future inability to pass these costs on could adversely affect our financial condition and operations. We cannot assure you that the government will not adopt interpretations of NOTA that would adversely affect our pricing structure or otherwise call into question one or more aspects of our method of operation. Certain states and foreign countries have laws similar to NOTA. These laws may restrict the amount that we can charge for our products, and may restrict the importation or distribution of AlloDerm, Repliform and Cymetra to licensed not-for-profit organizations. In 1997, the FDA also issued a comprehensive "proposed approach" to the regulation of cellular and tissue-based products, including human tissue for transplantation. The FDA proposal set forth a tiered approach to cell and tissue regulation that ranges from no regulatory requirements for cells or tissue that are removed and transplanted into the same patient in a single surgical procedure to full premarket approval requirements as biologics and medical devices for products that raise potential health, safety or efficacy concerns. Thus, FDA's approach to the regulation of tissue continues to evolve. Medical Device Regulation A medical device generally may be marketed in the United States only with the FDA's prior authorization. Devices classified by the FDA as posing less risk are placed in class I or class II. Class II devices require the manufacturer to seek "510(k) clearance" from the FDA prior to marketing through the filing of a "premarket notification," unless exempted from this requirement by regulation. Such clearance generally is granted based upon a finding that a proposed device is "substantially equivalent" in intended use and safety and effectiveness to a "predicate device," which is a legally marketed class II device that already has 510(k) clearance or a "preamendment" class III device (in commercial distribution prior to May 28, 1976) for which the FDA has not called for PMA applications (defined below). We believe that it usually takes from four to 12 months from the date of submission to obtain 510(k) clearance, but it may take longer. No assurance can be given that any 510(k) submission will ever receive clearance. After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in the intended use of the device, will require a new 510(k) submission. A medical device that does not qualify for 510(k) clearance is placed in class III, which is reserved for devices classified by the FDA as posing the greatest risk (e.g., life-sustaining, life-supporting or implantable devices, or devices that are not substantially equivalent to a predicate device). A class III device generally must undergo the premarket approval ("PMA") process, which requires the manufacturer to prove the safety and effectiveness of the device to the FDA's satisfaction. A PMA application must provide extensive preclinical and clinical trial data and information about the device and its components regarding, manufacturing, labeling and promotion. As part of the PMA review, the FDA will inspect the manufacturer's facilities for compliance with the Quality System Regulation ("QSR"), which includes elaborate testing, control, documentation and other quality assurance procedures. Upon submission, the FDA determines if the PMA application is sufficient to permit a substantive review, and, if so, the application is accepted for filing. The FDA then commences an in-depth review of the PMA application, which we believe typically takes one to three years, but may take longer. If the FDA's evaluation of the PMA application is favorable, the FDA typically issues an "approval letter" requiring the applicant's agreement to comply with specific conditions (e.g., changes in labeling) or to supply specific additional data (e.g., longer patient follow up) or information (e.g., submission of final labeling) in order to secure final approval of the PMA application. Once the approval letter is satisfied, the FDA will issue a PMA order for the approved indications, which can be more limited than those originally sought by the manufacturer. The PMA order can include postapproval conditions that the FDA believes necessary to ensure the safety and effectiveness of the device including, restrictions on labeling, promotion, sale and distribution. Failure to comply with the conditions of approval can result 12 in enforcement action, including withdrawal of the approval. The PMA process can be expensive and lengthy, and no assurance can be given that any PMA application will ever be approved for marketing. Even after approval of a PMA, a new PMA or PMA supplement is required in the event of a modification to the device. A clinical study in support of a PMA application or 510(k) submission for a "significant risk" device requires an Investigational Device Exemption ("IDE") application approved in advance by the FDA for a limited number of patients. The IDE application must be supported by appropriate data, such as animal and laboratory testing results. The clinical study may begin if the FDA and the appropriate institutional review board ("IRB") at each clinical study site approve the IDE application. If the device presents a "nonsignificant risk" to the patient, a sponsor may begin the clinical study after obtaining IRB approval without the need for FDA approval. In all cases, the clinical study must be conducted under the auspices of an IRB pursuant to FDA's regulatory requirements intended for the protection of subjects and to assure the integrity and validity of the data. Once on the market, our medical device products will be subject to pervasive and continuing regulation. We will have to comply with these requirements, including the FDA's labeling regulations, the QSR, the Medical Device Reporting ("MDR") regulations (which require that a manufacturer report to the FDA certain types of adverse events involving its products), and the FDA's general prohibitions against promoting products for unapproved or "off-label" uses. In addition, class II devices can be subject to additional special controls (e.g., performance standards, postmarket surveillance, patient registries, and FDA guidelines) that do not apply to class I devices. In 1997, the FDA told us that NeoDura (an acellular tissue matrix) for use in dura mater replacement procedures would be classified as a medical device requiring 510(k) clearance. In March 1999, we withdrew this 510(k) submission with the intent to submit a new 510(k) notification after we have addressed several issues raised by the FDA. We cannot assure you that we will submit a new 510(k) notice for NeoDura or that it will ultimately receive 510(k) clearance. Based upon relevant precedents, it is not clear whether the FDA will regulate our vascular products now in development as medical devices requiring 510(k) clearance or PMA approval or as human tissue. However, we will seek to persuade the FDA that our vascular products should be regulated as human tissue similar to other vascular products previously marketed. Biologics Regulation Biologic products are regulated under the FDC Act and the Section 351(a) of the PHS Act. The PHS Act imposes a special additional licensing requirement, known as a Biologic License. This license imposes very specific requirements upon the facility and the manufacturing and marketing of licensed products to assure their safety, purity, and potency. Some licensed biological products are also subject to batch release by the FDA. That is, the products from a newly manufactured batch cannot be shipped until the FDA has evaluated either a sample or the specific batch records and given permission to ship the batch of product. The PHS Act also grants the FDA authority to impose mandatory product recalls and provides for civil and criminal penalties for violations. Before conducting the required clinical testing of a biological product, an applicant must submit an investigational new drug application ("IND") to the FDA, containing preclinical data demonstrating the safety of the product for human investigational use, information about the manufacturing processes and procedures and the proposed clinical protocol. Clinical trials of biological products typically are conducted in three sequential phases, but may overlap. Phase 1 trials test the product in a small number of healthy subjects, primarily to determine its safety and tolerance at one or more doses. In Phase 2, in addition to safety, the efficacy, optimal dose and side effects of the product are evaluated in a patient population somewhat larger than the Phase 1 trial. Phase 3 involves further safety and efficacy testing on an expanded patient population at geographically dispersed test sites. All clinical studies must be conducted in accordance with FDA approved protocols and are subject to the approval and monitoring of one or more Institutional Review Boards. In addition, clinical investigators must adhere to good clinical practices. Completion of all three phases of clinical studies may take several years, and the FDA may temporarily or permanently suspend a clinical study at any time. Upon completion and analysis of clinical trials, the applicant assembles and submits a Product License Application and an Establishment License Application or a Biologic License Application containing, among other things, a complete description of the manufacturing process. Before the licenses can be granted, we must undergo a successful establishment inspection. FDA review and 13 approval of a biological product can take several years. We cannot assure you that we will obtain the required approval for ThromboSol platelet storage solution or any other proposed biological products. Other Regulation We are subject to various federal, state and local laws, regulations and recommendations relating to such matters as safe working conditions, laboratory and manufacturing practices, and the use, handling and disposal of hazardous or potentially hazardous substances used and produced in connection with our research and development work. We cannot assure you that we will not incur significant additional costs to comply with these laws or regulations in the future. International Regulation Sales of medical devices and biological products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. Approval of a product by comparable regulatory authorities of foreign countries must be obtained prior to commercialization of the product in those countries. Certain countries regulate AlloDerm as a pharmaceutical product, requiring extensive filings and regulatory approvals to market the product. Certain countries classify AlloDerm as "human tissue transplant" which may restrict its commercialization. Other countries have no applicable regulations regarding the commercialization of products similar to AlloDerm, creating uncertainty about the import or sale of the product. The inability to classify AlloDerm as a medical device has restricted our ability to obtain an appropriate regulatory designation for the product for Western Europe, which would provide a clearer marketing path in the European Union. The time required to obtain foreign approvals may be longer or shorter than that required for FDA approval and there can be no assurance that approvals would be obtained for any of our products. AlloDerm currently is being marketed in certain foreign countries, and we are actively pursuing clearance to market AlloDerm in certain additional countries. There can be no assurance that the uncertainty of regulations in each country will not delay or impede the marketing of AlloDerm or impede our ability to negotiate distribution arrangements on favorable terms. RESEARCH AND DEVELOPMENT We have historically funded the development of our tissue products and blood cell preservation products primarily through external sources, including a corporate alliance and government grants and contracts, as well as through the proceeds from equity offerings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources." Our research and development costs in 1997, 1998 and 1999 for all programs, including those programs funded through corporate and government support, were approximately $2.0 million $3.4 million and $3.9 million respectively. We have received a substantial portion of our government grant funding from the United States government's Small Business Innovation Research ("SBIR") program. The SBIR grant program provides funding to evaluate the scientific and technical merit and feasibility of an idea. To date, we have been awarded approximately $6.3 million through 15 approved SBIR program awards and Department of Defense contracts. We intend to continue to seek funding through the SBIR programs, as well as to pursue additional government grant and contract programs. Generally, we have the right to patent any technologies developed from government grants and contract funding, subject to the United States government's right to receive a royalty-free license for federal government use and to require licensing to others in certain circumstances. PATENTS, PROPRIETARY INFORMATION AND TRADEMARKS Our ability to compete effectively with other companies is dependent materially upon the proprietary nature of our technologies. We rely primarily on patents, trade secrets and confidentiality agreements to protect our technologies. We currently license the exclusive right to nine United States patents and related foreign patents and the non-exclusive right to 14 United States patents. In addition, we have been issued five United States utility patents, one United States design patent and have seven pending United States patent applications. Our technology is protected by three primary families of patents and patent applications. One United States patent covers methods of producing our tissue-based products. Two United States patents and two pending patent applications cover methods of extending the shelf-life of platelets, red blood cells and other blood cells. Nine additional United States patents supplement our other patents and cover methods of freeze-drying without the damaging effects of ice crystal formation. 14 We also have applied for patent protection in several foreign countries. Because of the differences in patent laws and laws concerning proprietary rights, the extent of protection provided by United States patents or proprietary rights owned by or licensed to us may differ from that of their foreign counterparts. In general, the patent position of biotechnology and medical product firms is highly uncertain and involves complex legal, scientific and factual questions. There is risk that other patents may not be granted with respect to the patent applications filed by us. Furthermore, there is risk that one or more patents issued or licensed to the Company will not provide commercial benefit to us or will be infringed, invalidated or circumvented by others. The United States Patent and Trademark Office currently has a significant backlog of patent applications, and the approval or rejection of patents may take several years. Prior to actual issuance, the contents of United States patent applications are generally not made public. Once issued, a patent would constitute prior art from its filing date, which might predate the date of a patent application on which we rely. Conceivably, the issuance of such a prior art patent, or the discovery of "prior art" of which we are currently unaware, could invalidate a patent of ours or our licensor or discourage commercialization of a product claimed within such patent. No assurances may be given that our products or planned products may not be the subject of additional infringement actions by third parties. Any successful patent infringement claim relating to any products or planned products could have a material adverse effect on our financial condition and results of operations. Further, there can be no assurance that any patents or proprietary rights owned by or licensed to us will not be challenged, invalidated, circumvented, or rendered unenforceable based on, among other things, subsequently discovered prior art, lack of entitlement to the priority of an earlier, related application or failure to comply with the written description, best mode, enablement or other applicable requirements. We conduct a cursory review of issued patents prior to engaging in research or development activities. Accordingly, we may be required to obtain a license from others to commercialize any of our products under development. There can be no assurance that any such license that may be required could be obtained on favorable terms or at all. We may decide for business reasons to retain certain knowledge that we consider proprietary as confidential and elect to protect such information as a trade secret, as business confidential information, or as know-how. In that event, we must rely upon trade secrets, know-how and continuing technological innovation to maintain our competitive position. There can be no assurance that others will not independently develop substantially equivalent proprietary information or otherwise gain access to or disclose such information. We have federal trademark or service mark registrations that we currently use for LifeCell , which concerns processing and preserving tissue samples, and AlloDerm , which concerns our commercial acellular dermal graft product. We have filed trademark applications for the protection of the phrases Micronized AlloDerm , the particulate form of AlloDerm, Cymetra , the brand name for Micronized AlloDerm, Repliform , the AlloDerm product designed for urology and gynecology and for NeoDura , the AlloDerm product designed for neurosurgery. COMPETITION The biomedical field is undergoing rapid and significant technological change. Our success depends upon our ability to develop and commercialize our technology. There are many companies and academic institutions that are capable of developing products based on similar technology, and that have developed and are capable of developing products based on other technologies, which are or may be competitive with our products. Many of those companies and academic institutions are well-established, have substantially greater financial and other resources, research and development capabilities and more experience in conducting clinical trials, obtaining regulatory approvals, manufacturing and marketing than us. These companies and academic institutions may succeed in developing competing products that are more effective than our products or that receive government approvals more quickly than our products, which may render our products or technology uncompetitive, uneconomical or obsolete. For most current applications of AlloDerm and Repliform, the principal form of competition is with the use of the patient's autologous tissue. We anticipate direct competition for AlloDerm tissue products and all of our proposed transplantable tissue products, as well as indirect competition from advances in 15 therapeutic agents, such as growth factors now used to enhance wound healing. We believe that therapeutic growth factors may be used in conjunction with our proposed products and may potentially enhance the products' efficacy. There can be no assurance that we will be able to compete effectively with other commercially available products or that development of other technologies will not detrimentally affect our commercial opportunities or competitive advantage. ENVIRONMENTAL MATTERS Our research and development and processing techniques generate waste that is classified as hazardous by the United States Environmental Protection Agency, the Texas Natural Resources Commission and the New Jersey Department of Environmental Protection. We segregate such waste and dispose of it through licensed hazardous waste transporters. Although we believe we are currently in compliance in all material respects with applicable environmental regulations, our failure to comply fully with any such regulations could result in the imposition of penalties, fines or sanctions that could have an adverse effect on our financial condition and results of operations. EMPLOYEES At March 14, 2000, we had 154 full-time and 12 part-time employees of which 39 were employed in sales and marketing, 85 in engineering, production and quality assurance, 17 in research and development and clinical studies, and 25 in administration and accounting. Also, at such date, we employed, full-time, 3 persons with M.D. degrees and 9 persons with Ph.D. degrees. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. All statements other than statements of historical facts included herein, including, without limitation, statements regarding our financial position, business strategy, products, products under development, markets, budgets, plans and objectives of management for future operations and Year 2000 Readiness, are forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from our expectations ("Cautionary Statements") are disclosed under "Risk Factors" and elsewhere herein, including, without limitation, in conjunction with the forward-looking statements included herein. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Cautionary Statements. RISK FACTORS In addition to the other information in this Annual Report on Form 10-K, the following factors should be considered carefully in evaluating the Company. Special Note: Certain statements set forth below constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. WE HAVE A HISTORY OF OPERATING LOSSES AND A SUBSTANTIAL ACCUMULATED EARNINGS DEFICIT Since our inception in 1986, we have generated only limited revenues from product sales and have incurred substantial losses, including losses of approximately $6.1 million, $7.3 million and $9.2 million for the years ended December 31, 1997, 1998, and 1999, respectively. At December 31, 1999, we had an accumulated deficit of approximately $54.4 million. We expect to incur additional operating losses as well as negative cash flow from operations through the middle of 2000 as we continue to use substantial resources to expand our marketing efforts with respect to AlloDerm and to expand our product development programs. Our ability to increase revenues and achieve profitability and positive cash flows from operations will depend on increased market acceptance and sales of AlloDerm, Repliform and Cymetra and commercialization of products under development. WE MAY NEED ADDITIONAL CAPITAL TO MARKET ALLODERM AND DEVELOP NEW PRODUCTS The development and commercialization of new products will require additional development, sales and marketing, manufacturing and other expenditures. We intend to expend substantial funds for: - product research and development, - expansion of sales and marketing activities, - expansion of manufacturing capacity, - product education efforts, and - other working capital and general corporate purposes. 16 We may need additional capital, depending on: - the costs and progress of our research and development efforts; - the number and types of product development programs undertaken; - the costs and timing of expansion of sales and marketing activities; - the costs and timing of expansion of manufacturing capacity; - the amount of revenues from sales of our existing and new products; - changes in, termination of, and the success of existing and new distribution arrangements; - the cost of maintaining, enforcing and defending patents and other intellectual property rights; - competing technological and market developments; - developments related to regulatory and third-party reimbursement matters; and - other factors. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve significant restrictive covenants. Collaborative arrangements, if necessary to raise additional funds, may require us to relinquish our rights to certain of our technologies, products or marketing territories. If adequate funds are not available, we expect that we will be required to delay, scale back or eliminate one or more of our product development programs. OUR FAILURE TO COMPLY WITH APPLICABLE REGULATION COULD LEAD THE FDA TO IMPOSE ENFORCEMENT SANCTIONS. Significant government regulation, both domestic and foreign, applies to the manufacturing and marketing of our current and developing products. In the United States, our AlloDerm products are subject to regulation by the United States Food and Drug Administration. Noncompliance with the FDA's requirements can result in: - fines, - injunctions, - civil penalties, - recall or seizure of products, - total or partial suspension of production, - refusal of the government to authorize the marketing of new products or allow us to enter into supply contracts, and - criminal prosecution. THE FDA MAY DECIDE TO IMPOSE MEDICAL DEVICE REGULATION RULES UPON ALLODERM'S CURRENT TISSUE PRODUCTS FOR RECONSTRUCTIVE PLASTIC SURGERY, PERIODONTAL SURGERY AND BURN GRAFTS, WHICH WOULD REQUIRE US TO OBTAIN 510(K) CLEARANCE OR PMA APPROVAL. The FDA generally permits transplanted human tissue to be commercially distributed without 510(k) clearance or PMA approval. In contrast, products regulated as medical devices usually require such approval. In 1996, the FDA determined that AlloDerm used for the repair or replacement of damaged or inadequate integumental tissue, including gingiva, would be regulated as transplanted human tissue. On that basis, we began commercial distribution of 17 this product for reconstructive plastic surgery, periodontal surgery and burn grafts without 510(k) clearance or PMA approval from the FDA. However, the FDA's regulatory approach to tissue products continues to evolve. There is a risk that the FDA could alter its regulatory approach and decide that this product is more appropriately regulated as a medical device. If so, the FDA could require us to obtain 510(k) clearance or PMA approval for these products. The process of obtaining 510(k) clearance or PMA approval may be expensive, lengthy and unpredictable and/or may require collection of extensive clinical data. THE FDA MAY DECIDE TO REGULATE ALLODERM FOR OTHER USES, INCLUDING MICRONIZED ALLODERM, AS A MEDICAL DEVICE AND COULD ORDER US TO CEASE MARKETING AND/OR RECALL PRODUCT ALREADY SOLD UNTIL 510(K) CLEARANCE OR PMA APPROVAL IS OBTAINED; THE FDA ALSO COULD IMPOSE ENFORCEMENT SANCTIONS FOR MARKETING THESE PRODUCTS WITHOUT CLEARANCE OR APPROVAL. Although the FDA determined that AlloDerm used for the repair or replacement of damaged or inadequate integumental tissue, including gingiva, is regulated as tissue, the agency stated in that decision that the regulatory status of any different uses would need to be determined on a case-by-case basis. In recent months, we began marketing Cymetra (a micronized version of AlloDerm) for plastic and reconstructive procedures. We also began marketing Repliform (an acellular tissue matrix) for urological and gynecological surgery (bladder sling; pelvic floor repair) procedures. Because we believe that these products meet the regulatory definition of human tissue, we have not sought a determination of this question from the FDA. There is a risk that FDA could determine that AlloDerm for one or more of these new uses is more appropriately regulated as a medical device. Pursuant to such a decision, the FDA could require us to cease marketing and/or recall product already sold until 510(k) clearance or PMA approval is obtained. We do not know if such clearance or approval could be obtained in a timely fashion, or at all, or if the FDA would require extensive clinical data to support clearance or approval. The FDA also could seek to impose enforcement sanctions for marketing these products without 510(k) clearance or PMA approval. IF WE DO NOT PASS THE FDA'S INSPECTIONS OF OUR TISSUE FACILITIES, FDA COULD REQUIRE THE RECALL OR DESTRUCTION OF OUR TISSUE PRODUCTS. Our involvement in the processing and distribution of human tissue requires us to ensure that proper donor screening and infectious disease testing is done appropriately and conducted under strict procedures. In addition, we must maintain records, which are available for FDA inspectors documenting that the procedures were followed. The FDA has authority to conduct inspections of tissue establishments and to detain, recall, or destroy tissue if the procedures were not followed or appropriate documentation is not available. THERE IS A RISK THAT LAWS WILL LIMIT OUR ABILITY TO SELL OUR PRODUCTS AT A PROFIT. The National Organ Transplant Act prohibits the acquisition, receipt or transfer of certain human organs, including skin and heart valves and vascular grafts, for valuable consideration, but permits the payment of reasonable expenses associated with the removal, transportation, processing, preservation, quality control and storage of human tissue and skin. We include in our AlloDerm, Repliform and Cymetra pricing structure certain of its educational costs and reasonable processing expenses. There is a risk that NOTA payment allowances may be interpreted differently in the future for our products, and if it is, it would limit profits, by limiting recovery of educational costs and processing expenses. 18 OUR PRODUCTS MAY BE SUBJECT TO EXPORT RESTRICTIONS. FDA export restrictions may apply to our products that have not yet been cleared or approved for domestic distribution. There can be no assurance that we will receive on a timely basis, if at all, any FDA export approvals necessary for the marketing of our products abroad. OUR PROPOSED BLOOD CELL PRESERVATION PRODUCTS WILL BE SUBJECT TO REGULATION AS BIOLOGICS. Biologic products require FDA premarket licensing prior to commercialization in the United States. To obtain licensing approval for these products, we must submit proof of their safety, purity and potency. Testing, preparation of necessary applications and the processing of those applications by the FDA is expensive and time consuming. We do not know if the FDA will act favorably or quickly in making such reviews and significant difficulties or costs may be encountered by us in our efforts to obtain FDA licenses. The FDA may also place conditions on clearances that could restrict commercial applications of such products. Product approvals may be withdrawn if compliance with regulatory standards are not maintained or if problems occur following initial marketing. Delays imposed by the FDA licensing process may materially reduce the period during which we have the exclusive right to commercialize patented products. OUR PRODUCTS ARE SUBJECT TO PERVASIVE AND CONTINUING REGULATION. Products marketed by us pursuant to FDA or foreign approval will be subject to pervasive and continuing regulation. In the United States, devices and biologics must be manufactured in registered establishments and must be produced in accordance with the Quality System Regulation for medical devices or Good Manufacturing Practices regulations for biologics. Tissue establishments must engage in donor screening, infectious disease testing and stringent record keeping. Our facilities and processes are subject to periodic FDA inspection for compliance with all requirements. Labeling and promotional activities are also subject to scrutiny by the FDA and, in certain instances, by the Federal Trade Commission. From time to time, the FDA may modify such requirements, imposing additional or different requirements. Failure to comply with any applicable FDA requirements could result in civil and criminal enforcement actions and other penalties that would have a material adverse effect on us. In addition, there can be no assurance that the various states in which our products are sold will not impose additional regulatory requirements or marketing impediments. We are subject to various federal, state and local laws, regulations and recommendations relating to such matters as safe working condition, laboratory and manufacturing practices, and the use, handling and disposal of hazardous or potentially hazardous substances used and produced in connections with our research and development work. We may incur significant additional costs to comply with these laws or regulations in the future. WE ARE SUBJECT TO VARYING AND EXTENSIVE REGULATION BY FOREIGN GOVERNMENTS. The regulation of AlloDerm outside the United States varies by country. Certain countries regulate AlloDerm as a pharmaceutical product, requiring extensive filings and regulatory approvals to market the product. Certain countries classify AlloDerm as a transplant tissue but may restrict its import or sale. Other countries have no applicable regulations regarding the import or sale of products similar to AlloDerm, creating uncertainty regarding the import or sale of the product. AlloDerm currently is being marketed in certain foreign countries, and we are pursuing clearance to market AlloDerm in additional countries. The 19 uncertainty of the regulations in each country may delay or impede the marketing of AlloDerm or impede our ability to negotiate distribution arrangements on favorable terms. Certain foreign countries have laws similar to the United States' National Organ Transplant Act. These laws may restrict the amount that we can charge for AlloDerm and may restrict the importation or distribution of AlloDerm to licensed not-for-profit organizations. OUR PRODUCTS REPRESENT NEW METHODS OF TREATMENT WHICH MAY NOT BE ACCEPTED BY DOCTORS. Much of our ability to increase revenues and to achieve profitability and positive cash flow will depend on expanding the use and market penetration of our AlloDerm products and the successful introduction of our products in development. Products based on our technologies represent new methods of treatment. Physicians will not use our products unless they determine that the clinical benefits to the patient are greater than those available from competing products or therapies. Even if the advantage of our products is established as clinically significant, physicians may not elect to use such products for any number of reasons. As such, there can be no assurance that any of our AlloDerm products or products under development will gain any significant degree of market acceptance among physicians, health care payers and patients. Broad market acceptance of our products may require the training of numerous physicians and clinicians, as well as conducting or sponsoring clinical studies to demonstrate the benefits of such products. The amount of time required to complete such training and studies could result in a delay or dampening of such market acceptance. Moreover, health care payers' approval of reimbursement for our products in development may be an important factor in establishing market acceptance. WE WILL NEED TO DEVELOP NEW PRODUCTS TO BE SUCCESSFUL. Our growth and profitability will depend, in part, upon our ability to complete development of and successfully introduce new products. We may be required to undertake time-consuming and costly development activities and seek regulatory clearance or approval for new products. Although we have conducted animal studies on many of our products under development which indicate that the product may be feasible for a particular application, results obtained from expanded studies may not be consistent with earlier trial results or be sufficient for us to obtain any required regulatory approvals or clearances. We may experience difficulties that could delay or prevent the successful development, introduction and marketing of new products. Regulatory clearance or approval of these or any new products may not be granted on a timely basis, if ever, and the new products may not adequately meet the requirements of the applicable market or achieve market acceptance. The completion of the development of any of our products under development remains subject to all the risks associated with the commercialization of new products based on innovative technologies, including: - unanticipated technical or other problems, - manufacturing difficulties, and - the possible insufficiency of the funds allocated for the completion of such development. The inability to complete successfully the development of a product or application, or a determination by us, for financial, technical or other reasons, not to complete development of any product or application, particularly in instances in which we have made significant capital expenditures, could have a material adverse effect on our business. WE ARE DEPENDENT ON AGENT AND DISTRIBUTOR SALES. We have engaged Lifecore Biomedical, Inc. as the exclusive distributor for AlloDerm for periodontal applications in the United States; Boston Scientific Corporation as our exclusive worldwide sales and marketing representative for Repliform for use in urology and gynecology; and Obagi Medical Products as the exclusive sales and marketing representative of Cymetra for office-based dermatologists and plastic surgeons. Other distributors also may be granted exclusive distribution rights. To the extent any exclusive distributor fails adequately to promote, market and sell our products, we may not be able to secure a replacement distributor until after the term of the distribution contract is complete or until such contract can otherwise be terminated. WE ARE DEPENDENT ON CERTAIN SOURCES OF MATERIALS. Our business is dependent on the availability of donated human skin and other tissues. A finite supply of donated tissue is available. Although we have established what we believe to be adequate sources of donated human skin to satisfy the expected demand for AlloDerm during in the foreseeable future, we have not yet developed a supply of other tissues and there can be no assurance that the availability of donated human skin and other tissues will be sufficient to meet our demand for such materials. Any significant interruption in supply of such tissue would likely have a material adverse effect on our financial condition and results of operations. 20 We acquire donated human skin from various non-profit organizations which procure skin and other donated human tissue. The procurement of skin generally constitutes a small portion of the operating funds for such non-profit organizations. The development of products that replace the need for donated tissue, such as the development of synthetic bone substitutes to replace allograft bone procured by the organizations, could threaten the existence of the non-profit organizations and, therefore, adversely affect the supply of donated human skin to us or increase the required payments from us. We have performed limited activities to develop products using porcine dermis and other animal tissues as a substitute for donated human skin. If successfully developed, animal tissue could replace the need for human tissue as a raw material. There can be no assurance that such animal tissue products can be successfully developed, that such development and required regulatory approvals could result in timely replacement of human tissue used by us in the event of a reduced supply of human tissue or that the cost of such animal tissue would not materially adversely affect our business, financial condition and results of operations. Donors of organs and tissues, including donated human skin, have various motivations. Although we do not promote the use of AlloDerm for cosmetic applications, AlloDerm has been used by surgeons in a variety of applications that may be considered "cosmetic." Knowledge of such use by potential donors could impact their willingness to donate skin for such uses. WE ARE DEPENDENT ON KEY MANAGEMENT AND PERSONNEL. We are dependent in large part on the efforts of our executive officers, including Paul G. Thomas, President and Chief Executive Officer of the Company, and Stephen A. Livesey, M.D., Ph.D., Executive Vice President and Chief Science Officer and a director of the Company. We have obtained "keyman" life insurance on Dr. Livesey of $3.0 million. Further, our success is also dependent upon our ability to hire and retain qualified operating, marketing and technical personnel. The competition for qualified personnel in the biochemical industry is intense, and accordingly, there can be no assurance that we will be able to hire or retain such personnel. THE BIOMEDICAL FIELD WHICH WE ARE IN IS PARTICULARLY SUSCEPTIBLE TO RAPID CHANGE. The biomedical field is undergoing rapid and significant technological change. Our success depends upon our ability to develop and commercialize efficient and effective products based on our technology. There are many companies and academic institutions that are capable of developing products based on similar technology, and that have developed and are capable of developing products based on other technologies, which are or may be competitive with our products. Many of these companies and academic institutions are well-established, have substantially greater financial and other resources, research and development capabilities and more experience in conducting clinical trials, obtaining regulatory approvals, manufacturing and marketing than us. These companies and academic institutions may succeed in developing competing products that are more effective than our products, or that receive government approvals more quickly than our products, which may render our products or technology uncompetitive, uneconomical or obsolete. THE ABILITY TO OBTAIN THIRD-PARTY REIMBURSEMENT FOR THE COSTS OF NEW MEDICAL TECHNOLOGIES LIKE OURS IS LIMITED. Generally, hospitals, physicians and other health care providers purchase products, such as the products being sold or developed by us, for use in providing care to their patients. These parties typically rely on third-party payers, including Medicare, Medicaid, private health insurance and managed care plans, to reimburse all or part of the costs of acquiring those products and costs associated with the medical procedures performed with those products. Cost control measures adopted by third-party payers in recent years have had and may continue to have a significant effect on the purchasing practices of many health care providers, generally causing them to be more selective in the purchase of medical products. Significant uncertainty exists as to the reimbursement status of newly approved health care products. We believe that certain third-party payers provide reimbursement for medical procedures at a specified rate without additional reimbursement for products, such as those being sold or developed by us, used in such procedures. Adequate third-party payer reimbursement may not be available for us to maintain price levels sufficient for realization of an appropriate return on our investment in developing new products. In addition, government and other third-party payers continue to refuse, in some cases, to provide any coverage for uses of approved products for indications for which the FDA has not granted marketing approval. Many uses of AlloDerm have not been granted such marketing approval and there can be no assurance that any such uses will be approved. Further, certain of our products are used in medical procedures that typically are not covered by third-party payers, such as cosmetic procedures, or for which patients sometimes do not obtain coverage, such as dental procedures. These and future changes in third-party payer reimbursement practices regarding the procedures performed with our products could adversely affect the market acceptance of our products. 21 WE ARE DEPENDENT ON PATENTS AND PROPRIETARY RIGHTS. Our ability to compete effectively with other companies is materially dependent upon the proprietary nature of our technologies. We rely primarily on patents and trade secrets to protect our technologies. We currently license the exclusive right to nine United States patents and related foreign patents and non-exclusive rights to 14 patents. In addition, we have been issued five United States utility patents, one United States design patent and have seven pending United States patent applications. We may not obtain additional patents or other protection. The claims allowed under those patents will be sufficient to protect our technology. Further, any patents or proprietary rights owned by or licensed to us may be challenged, invalidated, circumvented, or rendered unenforceable based on, among other things: - subsequently discovered prior art, - lack of entitlement to the priority of an earlier, related application, or - failure to comply with the written description, best mode, enablement or other applicable requirements. - The invalidation, circumvention or unenforceability of key patents or proprietary rights owned by or licensed to the Company could have a material adverse effect on us. PATENT PROTECTION IN THE BIOTECHNOLOGY FIELD IS HIGHLY UNCERTAIN. In general, the patent position of biotechnology and medical product firms is highly uncertain, still evolving and involves complex legal, scientific and factual questions. We are at risk that: - other patents may be granted with respect to the patent applications filed by us. - any patents issued or licensed to us will provide commercial benefit to us or will not be infringed, invalidated or circumvented by others. The United States Patent and Trademark Office currently has a significant backlog of patent applications, and the approval or rejection of patents may take several years. Prior to actual issuance, the contents of United States patent applications are generally not made public. Once issued, such a patent would constitute prior art from its filing date, which might predate the date of a patent application on which we rely. Conceivably, the issuance of such a prior art patent, or the discovery of "prior art" of which we are currently unaware, could invalidate a patent of ours or our licensor or prevent commercialization of a product claimed therby. We generally conduct a cursory review of issued patents prior to engaging in research or development activities. Accordingly, we may be required to obtain a license from others to commercialize any of our products under development. There can be no assurance that any such license that may be required could be obtained on favorable terms or at all. In addition, if patents that cover our existing activities are issued to other companies, there can be no assurance that we would be able to obtain licenses to such patents at a reasonable cost, if at all, or be able to develop or obtain alternative technology. Any of the foregoing matters could have a material adverse effect on us. In addition, we may be required to obtain a license under one or more patents prior to commercializing any new products developed. Such a license may not be available, or if available, the terms may not be commercially acceptable to the Company. There can be no assurance that we will not be required to resort to litigation to protect our patented technologies or other proprietary rights or that we will not be the subject of additional patent litigation to defend our existing or proposed products or processes against claims of patent infringement or other intellectual property claims. Any of such litigation could result in substantial costs and diversion of resources. We also have applied for patent protection in several foreign countries. Because of the differences in patent laws and laws concerning proprietary rights, the extent of protection provided by United States patents or proprietary rights owned by or licensed to us may differ from that of their foreign counterparts. We may decide for business reasons to retain certain knowledge that we consider proprietary as confidential and elect to protect such information as a trade secret, as business confidential information or as know-how. In that event, we must rely upon trade secrets, know-how and continuing technological innovation to maintain our competitive position. There can be no assurance that others will not independently develop substantially equivalent proprietary information or otherwise gain access to or disclose such information. The independent development or disclosure of our trade secrets could have a material adverse effect on our financial condition and results of operations. 22 OUR PRODUCT LIABILITY INSURANCE MAY BE INADEQUATE. Our business exposes us to potential product liability risks which are inherent in the testing, manufacturing and marketing of medical products. Although we have product liability insurance coverage with an aggregate limit of $8.0 million and a per occurrence limit of $6.0 million, there can be no assurance that such insurance will provide adequate coverage against potential liabilities, that adequate product liability insurance will continue to be available in the future or that it can be maintained on acceptable terms. The obligation to pay any product liability claim in excess of whatever insurance we are able to acquire could have a material adverse effect on our business, financial condition and results of operations. We use donated human skin as the raw material for our acellular tissue products. The non-profit organizations that supply such skin are required to follow FDA regulations and guidelines published by the American Association of Tissue Banks to screen donors for potential disease transmission. Such procedures include donor testing for certain viruses, including HIV. Our manufacturing process also has been demonstrated to inactivate concentrated suspensions of HIV in tissue. While we believe such procedures are adequate to reduce the threat of disease transmission, there can be no assurance that our products will not be associated with transmission of disease or that a patient otherwise infected with disease would not erroneously assert a claim that the use of our acellular tissue products resulted in the disease transmission. Any such transmission or alleged transmission could have a material adverse effect on our ability to manufacture or market our products or could otherwise have a material adverse effect on our financial condition or results of operations. WE ARE LIMITED ON THE USE OF OUR NET OPERATING LOSSES AND RESEARCH AND DEVELOPMENT TAX CREDITS. As of December 31 1999, we had accumulated net operating loss ("NOL") carryforwards for federal income tax purposes of approximately $48.5 million and research and development tax credits of approximately $533,000 and may continue to incur NOL carryforwards. United States tax laws provide for an annual limitation on the use of NOL carryforwards following certain ownership changes and also limit the time during which NOL and tax credit carryforwards may be applied against future taxable income and tax liabilities. The sale of our common stock in a public offering completed in December 1997 resulted in an ownership change for federal income tax purposes. We estimate that the amount of its NOL carryforwards and the credits available to offset taxable income as of December 31, 1999 is approximately $22 million on a cumulative basis. Accordingly, if we generate taxable income in any year in excess of the then cumulative limitation, we may be required to pay federal income taxes even though we have unexpired NOL carryforwards. WE ARE SUBJECT TO EXTENSIVE REGULATION REGARDING DISPOSAL OF HAZARDOUS MATERIALS. Our research and development and processing techniques generate waste that is classified as hazardous by the United States Environmental Protection Agency, the Texas Natural Resources Commission and the New Jersey Natural Resources Commission. We segregate such waste and dispose of it through licensed hazardous waste transporters. Although we believe we are currently in compliance in all material respects with applicable environmental regulations, our failure to comply fully with any such regulations could result in the imposition of penalties, fines or sanctions that could have a material adverse effect on our financial condition and results of operations. ITEM 2. PROPERTIES We lease approximately 60,000 square feet of laboratory, production and office space in Branchburg, New Jersey. In addition we lease 27,000 square feet of laboratory, office and warehouse facilities in The Woodlands, Texas, under lease agreements that expire in January 2001. We are currently in the process of shutting down The Woodlands facility and consolidating operations in the newly completed Branchburg facility. Our monthly rental obligation for facilities is approximately $58,000. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 23 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our Common Stock is listed on the Nasdaq National Market under the symbol "LIFC." On March 22, 2000, the last reported sale price for the Company's Common Stock on The Nasdaq National Market was $8.13 per share. The following table sets forth the high and low sales information for our Common Stock for the periods indicated, as reported by The Nasdaq Stock Market.
High Low 1998 First Quarter $5.19 $4.50 Second Quarter 8.03 5.03 Third Quarter 6.50 3.75 Fourth Quarter 5.50 3.31 1999 First Quarter $4.63 $3.38 Second Quarter 5.50 3.81 Third Quarter 7.25 4.00 Fourth Quarter 6.94 4.19
As of February 29, 2000, there were approximately 362 holders of record of shares of Common Stock and 30 holders of record of shares of Series B Preferred Stock. We estimate that there are in excess of 4,000 beneficial holders of Common Stock. In March 1999, we issued 108,577 shares of Common Stock for consideration of $1 million to Boston Scientific as part of the agreement signed in March 1999. In November 1999, we issued 925,000 shares of Common Stock pursuant to a private placement transaction. None of such issuances involved underwriters. We consider these securities to have been offered and sold in transactions not involving a public offering and, therefore, to be exempted from registration under Section 4(2) of the Securities Act of 1933, as amended. DIVIDEND POLICY We have not paid a cash dividend to holders of shares of Common Stock and do not anticipate paying cash dividends to the holders of our Common Stock in the foreseeable future On February 17, 1998, May 15, 1998, August 15, 1998, and November 15, 1998, the Company paid a per share dividend in shares of its Series B Preferred Stock equivalent to $1.51, $1.48, $1.50 and $1.51, respectively, to the holders of shares of Series B Preferred Stock. On February 15, 1999, May 15, 1999, August 15, 1999 and November 15, 1999, and February 15, 2000, the Company paid a $1.51, $1.48, $1.50, $1.51, and $1.51, respectively, per share dividend in cash to the holders of shares of Series B Preferred Stock. The Series B Preferred Stock bears dividends per share at the annual rate of the greater of (i) $6.00 (subject to adjustment in certain events) and (ii) the per annum rate of dividends per share paid, if applicable, by the Company, on the Common Stock. The dividends may be paid, at the Company's option, in cash or shares of Series B Preferred Stock or in a combination of cash and shares of Series B Preferred Stock. Dividends on the Series B Preferred Stock accrue and are paid quarterly. The Series B Preferred Stock ceases bearing dividends on September 30, 2001. Under the General Corporation Law of the State of Delaware, a corporation's board of directors may declare and pay dividends only out of surplus, including additional paid in capital, or current net profits. 24 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth certain selected financial data of LifeCell for each of the years in the five-year period ended December 31, 1999, derived from the Company's audited financial statements. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and notes thereto included elsewhere in this Annual Report on Form 10-K.
Year Ended December 31, 1995 1996 1997 1998 1999 ------------- ------------- ------------- ------------- ------------- Operations Statement Data: - ------------------------------ Revenues: Product sales . . . . . . . $ 742,238 $ 2,012,205 $ 4,904,971 $ 7,245,102 $ 11,911,497 Research funded by others . 1,064,337 933,365 1,074,954 746,789 764,322 ------------- ------------- ------------- ------------- ------------- Total revenues . . . . . . 1,806,575 2,945,570 5,979,925 7,991,891 12,675,819 ------------- ------------- ------------- ------------- ------------- Costs and expenses: Cost of goods sold . . . . . 925,174 1,281,353 2,540,644 2,837,037 3,452,329 Research and development . . 2,169,764 1,588,186 2,007,062 3,375,545 3,871,062 General and administrative . 1,422,588 1,911,254 3,081,512 3,484,460 4,839,536 Selling and marketing. . . . 1,475,296 2,389,573 4,955,597 6,500,000 7,236,022 Relocation costs . . . . . . -- -- -- -- 2,936,645 ------------- ------------- ------------- ------------- ------------- Total costs and expenses . 5,992,822 7,170,366 12,584,815 16,197,042 22,335,594 ------------- ------------- ------------- ------------- ------------- Loss from operations . . . . . (4,186,247) (4,224,796) (6,604,890) (8,205,151) (9,659,775) Interest income and other, net 280,843 135,082 466,255 863,837 467,579 ------------- ------------- ------------- ------------- ------------- Net loss . . . . . . . . . . . $ (3,905,404) $ (4,089,714) $ (6,138,635) $ (7,341,314) $ (9,192,196) Loss per share(1)-basic and diluted. . . . . . . . . . . $ (1.10) $ (1.14) $ (1.04) $ (0.72) $ (0.83) Shares used in computing loss per share-basic and diluted 4,313,366 4,542,519 6,820,122 11,228,912 11,937,532 ============= ============= ============= ============= ============= As of December 31, 1995 1996 1997 1998 1999 ------------- ------------- ------------- ------------- ------------- Balance Sheet Data: - ------------------------------ Cash and cash equivalents. . . $ 3,015,332 $ 10,748,250 $ 20,781,026 $ 8,025,415 $ 4,736,877 Short-term investments . . . . - - - 4,000,745 315,244 Working capital . . . . . . . 2,888,048 10,884,779 20,515,559 12,596,612 2,541,469 Total assets . . . . . . . . . 4,376,039 12,890,015 24,155,598 17,030,699 18,083,431 Accumulated deficit. . . . . . (24,774,753) (29,310,934) (36,411,480) (44,475,992) (54,378,000) Total stockholders' equity . . 2,093,906 10,197,104 20,259,603 14,260,638 9,248,381 (1) Includes effect of accounting treatment of preferred stock and warrants of $0.19, $0.24, $0.14, $0.07 and $0.07 in 1995, 1996, 1997, 1998 and 1999, respectively.
25 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of operations and financial condition of LifeCell should be read in conjunction with the Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K. Special Note: Certain statements set forth below constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. See "Business-Special Note Regarding Forward-Looking Statements." GENERAL AND BACKGROUND LifeCell Corporation is a bioengineering company engaged in the development and commercialization of tissue regeneration and cell preservation products. Our core preservation technology produces an acellular tissue matrix, which retains the essential biochemical and structural components necessary for normal tissue regeneration. We currently market three products based on this technology: AlloDerm(R) for the reconstructive plastic, burn and dental markets; Cymetra(TM) a micronized version of AlloDerm for the reconstructive plastic and dermatology markets; and Repliform(R) acellular tissue for the urology and gynecology market. We believe that our products are the only commercially available tissue transplant products that provide a complete template for the regeneration of normal human soft tissue. We estimate that AlloDerm has been transplanted in more than 50,000 patients. We also are developing several additional products, including small diameter vascular grafts as an alternative to autografted blood vessels, orthopedic applications of our acellular tissue matrix, and ThromboSol(TM) a formulation for extended storage of platelets. We were incorporated in the State of Delaware in 1992 as the successor to a Delaware corporation that was incorporated in 1986. RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999 AND 1998 The net loss for the year ended December 31, 1999, increased 26% to approximately $9.2 million compared to approximately $7.3 million for 1998. The increase was principally attributable to higher costs associated with the Company's increased marketing activities for its AlloDerm products, increased investment in the Company's product development programs, increased expenditures for the infrastructure to support these activities and relocation costs related to the Company's move to New Jersey. The increase in net loss was offset partially by increased product sales. Total revenues for the year ended December 31, 1999, increased 59% to approximately $12.7 million compared to approximately $8.0 million for 1998. An approximately $4.7 million increase in sales of products was the result of expanded sales and marketing activities and increased distribution activities during 1999. Amounts recognized as revenues under such cost-reimbursement arrangements are for expenses incurred during the respective periods. Cost of goods sold for the year ended December 31, 1999, was approximately $3.5 million, resulting in a gross margin of approximately 71%. The gross margin for the year ended December 31, 1998, was approximately 61%. The increase in gross margin was principally attributable to an increase in sales of certain higher-margin AlloDerm products and an increase in the price of certain AlloDerm products in 1999. Research and development expenses for the year ended December 31, 1999, increased 15% to approximately $3.9 million compared to approximately $3.4 million for 1998. The increase in research and development expense was primarily attributable to increased animal and clinical studies for the expanding uses for AlloDerm . In addition, the Company dedicated increased resources to product development programs such as Micronized AlloDerm(TM). General and administrative expenses for the year ended December 31, 1999, increased 39% to approximately $4.8 million compared to approximately $3.5 million for 1998. The increase was attributable to recruiting and staffing costs incurred in connection with the recruitment of new key members of senior management and professional fees incurred in relation to a distribution agreement entered into during 1999. 26 Selling and marketing expenses increased 11% to $7.2 million for the year ended December 31, 1999, compared to approximately $6.5 million for 1998. The increase was primarily attributable to the addition of domestic sales and marketing personnel and the expansion of marketing activities during 1999. Relocation expenses for the year ended December 31, 1999 were $2.9 million. These costs related to the relocation of the Company's operations from The Woodlands, Texas to Branchburg, New Jersey and included a non-cash charge to abandon assets related to the Company's Texas facility, costs of non-relocating employee retention benefits and the costs of relocating key employees and transporting certain assets to New Jersey. Interest income and other, net decreased 46% to approximately $468,000 for the year ended December 31, 1999, compared to approximately $864,000 for 1998. The decrease was principally attributable to a reduction of funds available for investing activities during 1999. YEARS ENDED DECEMBER 31, 1998 AND 1997 The net loss for the year ended December 31, 1998, increased 20% to approximately $7.3 million compared to approximately $6.1 million for 1997. The increase was principally attributable to higher costs associated with the Company's increased marketing activities for its AlloDerm products, increased investment in the Company's product development programs, increased expenditures for the infrastructure to support these activities and severance costs related to changes in executive management. The increase in net loss was offset partially by increased product sales, as well as higher interest income from investments. Total revenues for the year ended December 31, 1998, increased 34% to approximately $8.0 million compared to approximately $6.0 million for 1997. An approximately $2.4 million increase in sales of products was the result of expanded sales and marketing activities, and increased distribution activities during 1998. This increase was offset in part by an approximately $328,000 decrease in revenues from funded research and development. The research and development funding available to the Company through grants and alliances was lower during 1998 than in 1997. Amounts recognized as revenues under such cost-reimbursement arrangements are for expenses incurred during the periods. Cost of goods sold for the year ended December 31, 1998, was approximately $2.8 million, resulting in a gross margin of approximately 61%. The gross margin for the year ended December 31, 1997, was approximately 48%. The increase in gross margin was principally attributable to the implementation of certain production efficiencies, the allocation of fixed costs to higher volumes of products, an increase in sales of certain higher-margin AlloDerm products and an increase in the price of certain AlloDerm products in 1998. Research and development expenses for the year ended December 31, 1998, increased 68% to approximately $3.4 million compared to approximately $2.0 million for 1997. The increase in research and development expense was primarily attributable to increased animal and clinical studies for the expanding uses for AlloDerm. In addition, the Company dedicated increased resources to product development programs such as Micronized AlloDerm . General and administrative expenses for the year ended December 31, 1998, increased 13% to approximately $3.5 million compared to approximately $3.1 million for 1997. The increase was primarily attributable to severance costs related to a change in executive management. Selling and marketing expenses increased 31% to $6.5 million for the year ended December 31, 1998, compared to approximately $5.0 million for 1997. The increase was primarily attributable to the addition of domestic sales and marketing personnel, expansion of marketing activities as well as severance costs related to changes in executive marketing personnel. Interest income and other, net increased 85% to approximately $864,000 for the year ended December 31, 1998, compared to approximately $466,000 for 1997. The increase was principally attributable to higher funds available for investment during the current period as a result of the $16.0 million net proceeds received from the public offering of Common Stock in December 1997. 27 LIQUIDITY AND CAPITAL RESOURCES Since its inception, LifeCell's principal sources of funds have been equity offerings, debt, product sales, external funding of research activities and interest on investments. LifeCell has historically funded research and development activities for products other than AlloDerm primarily with external funds from its corporate alliance with Medtronic and government grants. In December 1996, LifeCell was awarded a two-year contract of approximately $1.1 million from the United States Army to support the development of vascular graft and other products. In June 1998, LifeCell was awarded a $600,000 contract from the United States Navy related to the development and clinical research of ThromboSol . In September and November 1999, LifeCell was awarded two contracts from the United States Navy related to the preservation of human platelets. Such grants total approximately $1.2 million. In 1994, LifeCell entered into an agreement with Medtronic pursuant to which Medtronic paid LifeCell a license fee of $1.5 million and agreed, subject to certain rights to terminate at Medtronic's discretion, to fund certain costs of the research and development of LifeCell's proprietary tissue processing technology in the field of heart valves. Through December 31, 1998, LifeCell had recognized approximately $2.0 million in revenues for development funding, excluding the initial license fee, for this program. In December 1998, LifeCell and Medtronic mutually agreed to terminate their early stage license and development agreement related to heart valves in order to focus on near-term opportunities. LifeCell regained all rights to its cardiovascular technology. As a result of terminating the agreement, the $1.5 million up-front licensing fee paid by Medtronic to LifeCell in 1994 converted into 310,771 shares of Common Stock. In December 1997, LifeCell received net proceeds of approximately $16.0 million pursuant to a public offering of 4 million shares of Common Stock. In March 1999, the Company received net proceeds of approximately $900,000 from the sale of 108,577 shares of the Company's Common Stock to Boston Scientific in connection with the agreement for worldwide marketing and distribution of its proprietary acellular tissue matrix for applications in urology and gynecology. In November 1999, LifeCell received net proceeds of approximately $3.6 million pursuant to a private placement of 925,000 shares of Common Stock. Also, in December 1999, the Company closed on a debt financing of approximately $6.0 million. As of December 31, 1999, the Company has drawn down $3.0 million of this facility. In February 2000, the company drew-down an additional $2.5 million on the debt facility. LifeCell expects to incur substantial expenses in connection with its efforts to expand sales and marketing of AlloDerm, develop expanded uses for AlloDerm, conduct the Company's product development programs (including costs of clinical studies), prepare and make any required regulatory filings, introduce products, participate in technical seminars and support ongoing administrative and research and development activities. The Company currently intends to fund these activities from its existing cash resources, sales of products and research and development funding received from others. While the Company believes that its existing available funds will be sufficient to meet its present operating and capital requirements through 2000, there can be no assurance that such sources of funds will be sufficient to meet these future expenses. If adequate funds are not available, the Company expects it will be required to delay, scale back or eliminate one or more of its product development programs. The Company's need for additional financing will be principally dependent on the degree of market acceptance achieved by the Company's products and the extent to which the Company can achieve substantial growth in product sales during 2000 and 2001, as well as the extent to which the Company may decide to expand its product development efforts. There can be no assurance that the Company will be able to obtain any such additional financing on acceptable terms, if at all. LifeCell has had losses since its inception and therefore has not been subject to federal income taxes. As of December 31, 1999, LifeCell had net operating loss ("NOL") and research and development tax credit carryforwards for income tax purposes of approximately $48.5 million and $533,000, respectively, available to reduce future income tax and tax liabilities. Federal tax laws provide for a limitation on the use of NOL and tax credit carryforwards following certain ownership changes that could limit LifeCell's ability to use its NOL and tax credit carryforwards. The Company's sale of Common Stock in the 1997 public offering resulted in an ownership change for federal income tax purposes. The Company estimates that the amount of NOL carryforwards and the credits available to offset taxable income subsequent to the offering will be approximately $22 million on a cumulative basis. Accordingly, if LifeCell generates taxable income in any year in excess of its then cumulative limitation, the Company may be required to pay federal income taxes even though it has unexpired NOL carryforwards. 28 YEAR 2000 COMPLIANCE The Year 2000 issues related to the possibility that computer programs and embedded computer chips might be unable to accurately process data with year dates of 2000 and beyond. Prior to December 31, 1999, LifeCell made the necessary revisions or upgrades to its systems to render them year 2000 compliant. Subsequent to December 31, 1999, the Company experienced no significant events, nor received any significant reports indicating any material year 2000 issues. The costs incurred in 1999 to address potential year 2000 issues were not material. We are unaware of any uncorrected problems regarding the year 2000 issue at this time, but will continue to monitor for any potential problems throughout 2000. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to certain market risks associated with interest rates. The Company's revolving loan and term loan borrowings bear interest at variable rates and therefore, changes in U.S interest rates, affect interest expense incurred thereon. Based on debt outstanding at December 31, 1999, a 10% increase in variable interest rates would not have a material adverse effect on the Company's future operations or cash flows. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary financial information required to be filed under this Item are presented commencing on page F-1 of the Annual Report on Form 10-K, and are incorporated herein by reference. ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item will be set forth in the Registrant's Proxy Statement relating to the annual meeting of the Registrant's stockholders scheduled to be held June 2, 2000, under the captions "Election of Directors" and "Executive Compensation," and such information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item will be set forth in the Registrant's Proxy Statement relating to the annual meeting of the Registrant's stockholders scheduled to be held June 2, 2000, under the caption "Executive Compensation," and such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item will be set forth in the Registrant's Proxy Statement relating to the annual meeting of the Registrant's stockholders scheduled to be held June 2, 2000, under the caption "Security Ownership of Certain Beneficial Owners and Management," and such information is incorporated herein by reference. 29 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item will be set forth in the Registrant's Proxy Statement relating to the annual meeting of the Registrant's stockholders scheduled to be held June 2, 2000, under the caption "Certain Relationships and Related Transactions," and such information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) DOCUMENTS INCLUDED IN THIS REPORT:
1. FINANCIAL STATEMENTS PAGE ---- Report of Independent Public Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . F-1 Balance Sheets as of December 31, 1998 and 1999 . . . . . . . . . . . . . . . . . . . . . . F-2 Statements of Operations for the years ended December 31, 1997, 1998 and 1999 . . . . . . . F-3 Statements of Stockholders' Equity for the years ended December 31, 1997, 1998 and 1999 . . F-4 Statements of Cash Flows for the years ended December 31, 1997, 1998 and 1999 . . . . . . . F-6 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
2. FINANCIAL STATEMENT SCHEDULES All other schedules are omitted because they are not applicable, not required, or because the required information is contained in the Company's financial statements and the notes thereto. (B) REPORTS ON FORM 8-K: During the quarter ended December 31, 1999, the Company filed (i) on November 30, 1999, a Current Report on Form 8-K dated as of November 22, 1999, to report the private placement of equity securities of the Company.
EXHIBITS: Exhibits designated by the symbol * are filed with this Annual Report on Form 10-K. All exhibits not so designated are incorporated by reference to a prior filing as indicated. Exhibits designated by the symbol + are management contracts or compensatory plans or arrangements that are required to be filed with this report pursuant to this Item 14. LifeCell undertakes to furnish to any stockholder so requesting a copy of any of the following exhibits upon payment to the Company of the reasonable costs incurred by Company in furnishing any such exhibit. 3.1 Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1998, filed with the Securities and Exchange Commission ("the Commission") on August 10, 1998). 3.2 Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1996, filed with the Commission on August 14, 1996.) 10.1+ LifeCell Corporation Amended and Restated 1992 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1998, filed with the Commission on August 10, 1998). 10.2+ LifeCell Corporation Second Amended and Restated 1993 Non-Employee Director Stock Option Plan, as amended (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, filed with the Commission on March 31, 1997). 30 10.3 Form of Confidentiality/Non-Compete Agreement (incorporated by reference to Exhibit 10.28 to the Company's Registration Statement on Form S-1, Registration No. 33-44969, filed with the Commission on January 9, 1992). 10.4 Lease Agreement dated December 10, 1986, between the Registrant and The Woodlands Corporation, Modification and Ratification of Lease Agreement dated April 11, 1988, between the Registration and The Woodlands Corporation Modification and Ratification of Lease dated August 1, 1992, between the Company and The Woodlands Corporation and Modification, Extension and Ratification of Lease dated March 5, 1993, between the Registrant and The Woodlands Corporation, and Modification and Ratification of Lease Agreement dated December 21, 1995, between the Company and The Woodlands Office Equities -- '95 Limited (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1996). 10.5 Lease Agreement dated September 1, 1988, between the Registrant and The Woodlands Corporation, and Modification of Lease Agreement dated March 5, 1993, between the Registrant and The Woodlands Corporation (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992). 10.6 Securities Purchase Agreement dated November 18, 1996, between LifeCell Corporation and the Investors named therein (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). 10.7 Voting Agreement dated November 18, 1996, as amended as of April 15, 1999 among LifeCell Corporation and certain stockholders named therein (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the Commission on May 17, 1999). 10.8 Registration Rights Agreement dated November 18, 1996, between LifeCell Corporation and certain stockholders named therein (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). 10.9 Form of Stock Purchase Warrant dated November 18, 1996, issued to each of the warrant holders named on Schedule 10.18 attached thereto (incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). 10.10 Stock Purchase Warrant dated November 18, 1996, issued to Gruntal & Co., Incorporated (incorporated by reference to Exhibit 10.19 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 on Form 10-K/A). 10.11+ Agreement dated August 19, 1998, between LifeCell Corporation and Paul M. Frison (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1998 filed with the Commission on November 13, 1998). 10.12+ Agreement dated July 1, 1997, between LifeCell Corporation and Stephen A. Livesey. (incorporated by reference to Exhibit 10.20 to the Company's Registration Statement No. 333-37123 on Form S-2 filed with the Commission on October 3, 1997). 10.13+ Agreement dated October 5, 1998 between LifeCell Corporation and Paul G. Thomas (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed with the Commission on November 13, 1998.) 10.14+ Letter agreement dated September 8, 1998 between LifeCell Corporation and Paul G. Thomas, as amended by letter agreements dated September 9, 1998 and September 29, 1998 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed with the Commission on November 13, 1998.) 10.15 Lease Agreement by and between Maurice M. Weill, Trustee for Branchburg Property and LifeCell Corporation dated June 17, 1999 (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q filed with the Commisssion on November 15, 1999) 10.16 Stock Purchase Warrant dated November 17, 1999, issued to The Tail Wind Fund, Ltd (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-3 (Registration No. 333-94715) filed with the Commission on January 14, 2000.) 31 10.17* Loan Agreement dated December 6, 1999 between LifeCell Corporation and Transamerica Business Credit Corporation. 10.18* Stock Purchase and Registration Rights Agreements dated November 17, 1999 between LifeCell Corporation and The Tail Wind Fund, Ltd. 23.1* Consent of Arthur Andersen LLP. 27.1* Financial data schedule.
32 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LIFECELL CORPORATION (Registrant) By: /s/ Paul G. Thomas ------------------------ Paul G. Thomas, President, Chief Executive Officer and Chairman of the Board of Directors Dated: March 24, 2000. In accordance with the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE - ------------------------ ----------------------------------------------- -------------- /s/ Paul G. Thomas President and Chief Executive March 24, 2000 - ------------------------ Officer (Principal Executive Officer) (Paul G. Thomas) /s/ Fenel M. Eloi Sr. Vice President and Chief Financial Officer March 24, 2000 - ------------------------ (Principal Financial Officer) (Fenel M. Eloi) /s/ David B. Platt Controller March 24, 2000 - ------------------------ (Principal Accounting Officer) (David B. Platt) /s/ Michael E. Cahr Director March 24, 2000 - ------------------------ (Michael E. Cahr) /s/ Peter D. Costantino Director March 24, 2000 - ------------------------ (Peter D. Costantino) /s/ James G. Foster Director March 24, 2000 - ------------------------ (James G. Foster) /s/ Stephen A. Livesey Director March 24, 2000 - ------------------------ (Stephen A. Livesey) /s/ K. Flynn McDonald Director March 24, 2000 - ------------------------ (K. Flynn McDonald) /s/ David A. Thompson Director March 24, 2000 - ------------------------ (David A. Thompson)
33 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To LifeCell Corporation: We have audited the accompanying balance sheets of LifeCell Corporation (a Delaware corporation) as of December 31, 1998 and 1999, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of LifeCell Corporation as of December 31, 1998 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Philadelphia, Pennsylvania February 9, 2000 F-1
LIFECELL CORPORATION BALANCE SHEETS DECEMBER 31, ----------------------------- 1998 1999 -------------- ------------- Assets Current Assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 8,025,415 $ 4,736,877 Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . 4,000,745 315,244 Accounts and other receivables, net of allowance for doubtful accounts $5,915 and $174,578, respectively . . . . . . . . . . . . . . . . . . 1,383,920 2,557,337 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,749,023 3,202,271 Prepayments and other . . . . . . . . . . . . . . . . . . . . . . . . . 207,570 159,664 -------------- ------------- Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . 15,366,673 10,971,393 Fixed assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,388,339 6,547,863 Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,687 564,175 -------------- ------------- Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,030,699 $ 18,083,431 ============== ============= Liabilities and Stockholders' Equity Current Liabilities Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 704,938 $ 741,375 Accrued liablities. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,065,123 4,896,090 Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,792,459 -------------- ------------- Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 2,770,061 8,429,924 -------------- ------------- Deferred Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 405,126 -------------- ------------- Commitments and Contingencies (Note 12) Stockholders' Equity Series B preferred stock, $.001 par value, 182,205 shares authorized, 119,084 and 118,016 issued and outstanding (liquidation preference at December 31, 1999 of $11,801,600) . . . . . . . . . . . 119 118 Undesignated preferred stock, $.001 par value 1,817,795 shares authorized, none issued and outstanding . . . . . . . . . . . . -- -- Common stock, $.001 par value, 48,000,000 shares authorized, respectively, 11,611,852 and 12,899,643 shares issued and outstanding, respectively . . . . . . . . . . . . . . . . . . . . . . . 11,612 12,900 Warrants outstanding to purchase 3,182,188 and 3,466,399 shares of common stock, respectively. . . . . . . . . . . . . . . . . . 298,344 887,812 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 58,426,555 62,725,551 Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . (44,475,992) (54,378,000) -------------- ------------- Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . 14,260,638 9,248,381 -------------- ------------- Total liabilities and stockholders' equity. . . . . . . . . . . . . . $ 17,030,699 $ 18,083,431 ============== =============
The accompanying notes are an integral part of these financial statements. F-2
LIFECELL CORPORATION STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------- 1997 1998 1999 ------------ ------------ ------------ Revenues: Product sales . . . . . . . . . . . . . $ 4,904,971 $ 7,245,102 $11,911,497 Research funded by others. . . . . . . . 1,074,954 746,789 764,322 ------------ ------------ ------------ Total revenues . . . . . . . . . . . . 5,979,925 7,991,891 12,675,819 ------------ ------------ ------------ Costs and Expenses: Cost of goods sold . . . . . . . . . . . 2,540,644 2,837,037 3,452,329 Research and development . . . . . . . . 2,007,062 3,375,545 3,871,062 General and administrative . . . . . . . 3,081,512 3,484,460 4,839,536 Selling and marketing. . . . . . . . . . 4,955,597 6,500,000 7,236,022 Relocation costs . . . . . . . . . . . . -- -- 2,936,645 ------------ ------------ ------------ Total costs and expenses . . . . . . . 12,584,815 16,197,042 22,335,594 ------------ ------------ ------------ Loss From Operations . . . . . . . . . . . (6,604,890) (8,205,151) (9,659,775) Interest income and other, net . . . . . 466,255 863,837 467,579 ------------ ------------ ------------ Net Loss . . . . . . . . . . . . . . . . . (6,138,635) (7,341,314) (9,192,196) Preferred Stock Dividends. . . . . . . . . (961,911) (723,198) (709,812) ------------ ------------ ------------ Net Loss Applicable to Common Stockholders $(7,100,546) $(8,064,512) $(9,902,008) ============ ============ ============ Loss Per Common Share-Basic and Diluted. . $ (1.04) $ (0.72) $ (0.83) ============ ============ ============ Shares Used in Computing Loss Per Common Share-Basic and Diluted . . . . 6,820,122 11,228,912 11,937,532 ============ ============ ============
The accompanying notes are an integral part of these financial statements. F-3
LIFECELL CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY SERIES A SERIES B PREFERRED STOCK PREFERRED STOCK COMMON STOCK ----------------------- ------------------ ------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT --------- ------------ -------- -------- ---------- ------- Balance at December 31, 1996 . . . . . . . . . 260,000 $ 5,291,473 124,157 $ 126 4,899,944 $ 4,900 Stock options exercised . . . . . . . . . . . -- -- -- -- 47,987 48 Warrants exercised . . . . . . . . . . . . . -- -- -- -- 76,813 77 Expiration of warrants . . . . . . . . . . . -- -- -- -- -- -- Redemption of Series A preferred stock. . . . (260,000) (5,200,000) -- -- 1,739,128 1,739 Conversion of Series B preferred stock. . . . -- -- (6,688) (7) 215,729 216 Common stock and cash issued as dividends . . on Series A preferred stock . . . . . . . . -- (195,000) -- -- 33,305 33 Common stock sold in public offering. . . . . -- -- -- -- 4,000,000 4,000 Stock options issued for services . . . . . . -- -- -- -- -- -- Series B preferred stock issued as. . . . . . dividends on Series B preferred stock . . . -- -- 7,972 6 -- -- Dividends accrued on Series B preferred stock -- 103,527 -- -- -- Net Loss -- -- -- -- -- -- --------- ------------ -------- -------- ---------- ------- Balance at December 31, 1997 . . . . . . . . . -- -- 125,441 125 11,012,906 11,013 Stock options exercised . . . . . . . . . . . -- -- -- -- 12,550 13 Warrants exercised . . . . . . . . . . . . . -- -- -- -- 4,965 5 Expiration of warrants. . . . . . . . . . . . -- -- -- -- -- -- Warrants issued to purchase Common Stock. . . -- -- -- -- -- -- Conversion of Series B preferred stock. . . . -- -- (6,357) (6) 205,060 205 Common stock issued for cash, and . . . . . . -- -- -- -- 376,371 376 conversion of license fee Stock options issued for services . . . . . . -- -- -- -- -- -- Dividends paid on Series B preferred stock. . -- -- -- -- -- -- Dividends accrued on Series B preferred stock -- -- -- -- -- -- Net Loss -- -- -- -- -- -- --------- ------------ -------- -------- ---------- ------- Balance at December 31, 1998. . . . . . . . . . -- -- 119,084 119 11,611,852 11,612 Stock options exercised . . . . . . . . . . . -- -- -- -- 219,764 220 Warants issued to purchase Common Stock . . . -- -- -- -- -- -- Conversion of Series B preferred stock . . . -- -- (1,068) (1) 34,450 34 Common stock issued for cash. . . . . . . . . -- -- -- -- 1,033,577 1,034 Dividends paid on Series B preferred stock. . -- -- -- -- -- -- Dividends accrued on Series B preferred stock -- -- -- -- -- -- Net Loss . . . . . . . . . . . . . . . . . . -- -- -- -- -- -- --------- ------------ -------- -------- ---------- ------- Balance at December 31, 1999. . . . . . . . . . -- $ -- 118,016 $ 118 12,899,643 $12,900 ========= ============ ======== ======== ========== =======
(continued) The accompanying notes are an integral part of these financial statements. F-4
LIFECELL CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY-(CONTINUED) WARRANTS TO PURCHASE COMMON STOCK ADDITIONAL TOTAL ---------------------- PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT EQUITY ---------- ---------- ------------ ------------- ------------ Balance at December 31, 1996 . . . . . . . . . 3,378,264 $ 423,218 $33,788,321 $(29,310,934) $10,197,104 Stock options exercised . . . . . . . . . . -- -- 128,719 -- 128,767 Warrants exercised . . . . . . . . . . . . . (89,786) (123,738) 432,527 -- 308,866 Expiration of warrants. . . . . . . . . . . . (125,000) -- -- -- -- Redemption of Series A preferred stock . . . -- -- 5,198,261 -- -- Conversion of Series B preferred stock. . . . -- -- (209) -- -- Common stock and cash issued as dividends . . on Series A preferred stock . . . . . . . . -- -- 129,919 -- (65,048) Common stock sold in public offering. . . . . -- -- 16,018,766 -- 16,022,766 Stock options issued for services . . . . . . -- -- 12,834 -- 12,834 Series B preferred stock issued as . . . . . dividends on Series B preferred stock . . . -- -- 651,327 (669,749) (18,416) Dividends accrued on Series B preferred stock -- -- -- (292,162) (188,635) Net Loss -- -- -- (6,138,635) (6,138,635) ---------- ---------- ------------ ------------- ------------ Balance at December 31, 1997 3,163,478 299,480 56,360,465 (36,411,480) 20,259,603 Stock options exercised -- -- 43,416 -- 43,429 Warrants exercised (11,290) (1,136) 1,125 -- (6) Expiration of warrants (20,000) -- -- -- -- Warrants issued to purchase common stock 50,000 -- -- -- -- Conversion of Series B preferred stock -- -- (199) -- -- Common stock issued for cash, and conversion of license fee . . . . . . . . . -- -- 1,999,929 -- 2,000,305 Stock options issued for services -- -- 21,819 -- 21,819 Dividends paid on Series B preferred stock -- -- -- (542,998) (542,998) Dividends accrued on Series B preferred stock -- -- -- (180,200) (180,200) Net Loss -- -- -- (7,341,314) (7,341,314) ---------- ---------- ------------ ------------- ------------ Balance at December 31, 1998. 3,182,188 298,344 58,426,555 (44,475,992) 14,260,638 Stock options exercised -- -- 670,035 -- 670,255 Warrants issued to purchase common stock 284,211 589,468 (381,927) -- 207,541 Conversion of Series B preferred stock -- -- (33) -- -- Common stock issued for cash -- -- 4,010,921 -- 4,011,955 Dividends paid on Series B preferred stock -- -- -- (531,300) (531,300) Dividends accrued on Series B preferred stock -- -- -- (178,512) (178,512) Net Loss -- -- -- (9,192,196) (9,192,196) ---------- ---------- ------------ ------------- ------------ Balance at December 31, 1999 3,466,399 $ 887,812 $62,725,551 $(54,378,000) $ 9,248,381 ========== ========== ============ ============= ============
The accompanying notes are an integral part of these financial statements. F-5
LIFECELL CORPORATION STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------- 1997 1998 1999 ------------ ------------- ------------ Cash Flows from Operating Activities: - --------------------------------------------------------- Net Loss $(6,138,635) $ (7,341,314) $(9,192,196) Adjustments to reconcile net loss to net cash used in operating activities - Depreciation and amortization 225,092 495,523 411,321 Provision for bad debt 83,690 5,915 174,578 Stock and warrant compensation expense 12,834 21,819 -- Loss on asset disposals -- -- 334,874 Change in assets and liabilities - Increase in accounts and other receivables (742,755) (293,931) (1,347,995) Increase in inventories (96,576) (812,625) (1,453,248) Increase in prepayments and other (45,446) (109,344) (152,225) Increase in accounts payable and accrued liabilities 1,282,357 253,384 2,688,892 Increase (Decrease) in deferred revenues (79,273) (59,519) 405,126 ------------ ------------- ------------ Net cash used in operating activities (5,498,712) (7,840,092) (8,130,873) ------------ ------------- ------------ Cash Flows from Investing Activities: Capital expenditures (597,685) (831,982) (5,885,494) Additions to patents (59,129) (83,524) (108,582) Purchase of short-term investments -- (4,000,745) (315,244) Sales of short-term investments -- -- 4,000,745 ------------ ------------- ------------ Net cash used in investing activities (656,814) (4,916,251) (2,308,575) ------------ ------------- ------------ Cash Flows from Financing Activities: Proceeds from issuance of stock and warrants 16,460,399 543,730 4,682,210 Proceeds from issuance of notes payable -- -- 3,000,000 Dividends paid (272,097) (542,998) (531,300) ------------ ------------- ------------ Net cash provided by financing activities 16,188,302 732 7,150,910 ------------ ------------- ------------ Net Increase (Decrease) in Cash and Cash Equivalents 10,032,776 (12,755,611) (3,288,538) Cash and Cash Equivalents at Beginning of Year 10,748,250 20,781,026 8,025,415 ------------ ------------- ------------ Cash and Cash Equivalents at End of Year $20,781,026 $ 8,025,415 $ 4,736,877 ============ ============= ============ Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest $ 4,583 $ 1,769 $ -- ============ ============= ============ Supplemental Disclosure of Noncash Financing Activities: Common Stock issued as payment of dividends $ 195,000 $ -- $ -- ============ ============= ============ Series B Preferred stock issued as payment of dividends $ 797,200 $ -- $ -- ============ ============= ============ Common Stock issued in exchange for deferred credit $ -- $ 1,500,000 $ -- ============ ============= ============ Fair value of warrants issued in connection with Notes payable $ -- $ -- $ 207,541 ============ ============= ============
The accompanying notes are an integral part of these financial statements. F-6 LIFECELL CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 1. ORGANIZATION: LifeCell Corporation, a Delaware corporation ("LifeCell" or "the Company"), is a bioengineering company engaged in the development and commercialization of tissue regeneration and cell preservation products. The Company was incorporated on January 6, 1992 for the purpose of merging with its predecessor entity, which was formed in 1986. LifeCell began commercial sales of its first product, AlloDerm(R) cellular dermal graft, during 1994. The future operating results of the Company will be principally dependent on the market acceptance of its current product, development of and market acceptance of future products, competition from other products or technologies, protection of the Company's proprietary technology, and access to funding as required. Accordingly, there can be no assurance of the Company's future success. LifeCell expects to incur substantial expenses in connection with its efforts to expand sales and marketing of AlloDerm, develop expanded uses for AlloDerm, conduct the Company's product development programs (including costs of clinical studies), prepare and make any required regulatory filings, introduce products, participate in technical seminars and support ongoing administrative and research and development activities. The Company currently intends to fund these activities from its existing cash resources, sales of products and research and development funding received from others. While the Company believes that its existing available funds will be sufficient to meet its present operating and capital requirements through 2000, there can be no assurance that such sources of funds will be sufficient to meet these future expenses. If adequate funds are not available, the Company expects it will be required to delay, scale back or eliminate one or more of its product development programs. The Company's need for additional financing will be principally dependent on the degree of market acceptance achieved by the Company's products and the extent to which the Company can achieve substantial growth in product sales during 2000 and 2001, as well as the extent to which the Company may decide to expand its product development efforts. There can be no assurance that the Company will be able to obtain any such additional financing on acceptable terms, if at all. 2. ACCOUNTING POLICIES: Cash and Cash Equivalents and Short-term Investments The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Investments with longer maturities that the Company intends to hold to maturity are classified as either current or non-current assets based on the maturity date of the security. As of December 31, 1998 and 1999, the Company held $11,734,522 and $4,736,877 respectively, of interest-bearing money market accounts and A1/P1 commercial paper which were classified as "hold to maturity" securities. The carrying basis of these investments approximated fair value and amortized cost. Inventories Inventories are stated at the lower of cost or market, cost being determined on a first-in, first-out (FIFO) basis. Fixed Assets Fixed Assets are stated at cost. Maintenance and repairs that do not improve or extend the life of the assets are expensed as incurred. Expenditures for renewals and improvements are capitalized. The cost of assets retired and the related accumulated depreciation are removed from the accounts and any gain or loss is included in the results of operations. Depreciation of furniture and equipment is provided on the straight-line method based on the estimated useful lives of the assets of five years. Leasehold improvements are depreciated over the life of the lease. F-7 Accounts Receivable As of December 31, 1997, 1998 and 1999, the allowance for doubtful accounts was $83,690, $5,915 and $174,578 respectively. In 1997, 1998 and 1999, approximately $83,690, $5,915 and $168,663 of write-offs were charged to this allowance in each of the respective years . During 1998, $83,690 was deducted from this allowance. Revenue Recognition Product sales are recognized as revenue when the product is shipped to fill customer orders. Revenues from research funded by others are recognized as the work is performed unless the Company has continuing performance obligations, in which case revenue is recognized upon the satisfaction of such obligations. Revenue received, but not yet earned, is classified as deferred revenue. Research and Development Expense Research and development costs are expensed when incurred. The Company performs research funded by others, as well as its own independent proprietary research, development and clinical testing of its products. Loss Per Common Share Loss per Common share has been computed by dividing net loss, which has been increased for periodic accretion and imputed and stated dividends on outstanding Preferred Stock, by the weighted average number of shares of Common Stock outstanding during each period. In all applicable years, all Common Stock equivalents, including the stock options and warrants, Series A Preferred Stock and the Series B Preferred Stock, were antidilutive and, accordingly, were not included in the computation. During 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share,". The implementation of Statement 128 had no effect on the Company's presentation of earnings per share due to the antidilutive nature of all of the Company's Common Stock equivalents. Diluted loss per Common share is the same as basic loss per share due to the antidilutive nature of all of the Company's Common Stock equivalents. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. New Accounting Pronouncements In December 1999, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). The bulletin draws on existing accounting rules and provides specific guidance on how those accounting rules should be applied, and specifically addresses revenue recognition for non-refundable technology access fees in the biotechnology industry. SAB 101 is effective for fiscal years beginning after December 15, 1999. The Company is evaluating SAB 101 and the effect it may have on its financial statements. At this time, the Company believes that SAB 101 will not have a material impact on its financial position or results of operations. 3. INVENTORIES: Inventories consist of products in various stages produced for sale and includes the costs of raw materials, labor, and overhead. A summary of inventories is as follows: F-8
1998 1999 ------------ ------------ Raw materials used in production. . . . . . . $ 723,921 $ 1,081,449 Work-in-process . . . . . . . . . . . . . . . 423,839 1,214,619 Finished goods. . . . . . . . . . . . . . . . 601,263 906,203 ------------ ------------ Total inventories . . . . . . . . . . . . . $ 1,749,023 $ 3,202,271 4. FIXED ASSETS: A summary of fixed assets is as follows: 1998 1999 ------------ ------------ Machinery and equipment . . . . . . . . . . . $ 1,853,164 $ 2,303,100 Leasehold improvements. . . . . . . . . . . . 465,924 4,966,944 Office furniture and fixtures . . . . . . . . 709,412 869,429 ------------ ------------ 3,028,500 8,139,473 Accumulated depreciation and amortization . . (1,640,161) (1,591,610) ------------ ------------ Net fixed assets. . . . . . . . . . . . . . $ 1,388,339 $ 6,547,863 5. ACCRUED LIABILITIES: Accrued liabilities consist of the following: 1998 1999 ------------ ------------ Employee compensation and benefits. . . . . . $ 403,633 $ 1,094,382 Operating expenses and other. . . . . . . . . 1,052,701 2,484,123 Relocation costs. . . . . . . . . . . . . . . -- 1,079,362 Severance expense . . . . . . . . . . . . . . 608,789 238,223 ------------ ------------ Total accrued liabilities . . . . . . . . . $ 2,065,123 $ 4,896,090 ============ ============
F-9 6. DEFERRED REVENUE In March 1999, in conjunction with the signing of a sales and marketing agreement, the Company issued 108,577 shares of Common Stock at a premium of 154% over the then-prevailing market price. This premium was equal to $506,408 and is being recognized over the 5-year term of the agreement The total equity investment was valued at $1 million less offering costs of $100,000 (see Note 8). 7. NOTES PAYABLE On December 6, 1999 the Company entered into a $6 million credit facility with a financial institution. The loan provides for a revolving portion (the "Revolving Loan") not to exceed $3 million and a term portion (the "Term Loan") not to exceed $3 million. The Revolving Loan bears interest at a rate of prime plus 3% (11.5% at December 31, 1999) with a minimum rate of 9% and matures on December 30, 2000 with provisions for automatic renewal for additional terms of one year each. As of December 31, 1999, $3,000,000 was outstanding on the Revolving Loan. As of December 31, 1999, $15,335 of interest expense has been accrued on the Revolving Loan. The Term Loan bears interest at a rate of 13.23% and is payable in 30 equal monthly installments of principal and interest beginning June 1, 2000 and continuing through and including November 1, 2002. At December 31, 1999, no amounts were outstanding under the Term Loan. This credit facility is secured by assets of the Company and the New Jersey Economic Development Authority Guaranty and the New Jersey Economic Development Authority Participation. In conjunction with this credit facility, the Company also issued warrants to purchase 84,211 shares of the Company's Common Stock at a price of $4.75 per share (see Note 8). The warrants expire on December 6, 2004. The warrants are valued at $207,541 and is recorded in the balance sheet as a reduction of debt outstanding. The value of the warrant will be accreted over the term of the loan agreement as additional interest expense. 8. CAPITAL STOCK: Series A Preferred Stock During November 1994, the Company issued 264,500 shares of Series A Convertible Preferred Stock ("Series A Preferred Stock") and warrants to acquire 264,500 shares of Common Stock for gross proceeds of approximately $5.3 million in a private placement. Each share of Series A Preferred Stock was convertible at any time at the option of the holder into 6.69 shares of Common Stock. During 1997, the Company paid $195,000 in dividends by issuing 33,305 shares of Common Stock and paying a cash dividend of $65,000. Pursuant to provisions in the agreement, during February 1997, the Company called for redemption of all outstanding shares of Series A Preferred Stock. During March 1997 the Company issued 1,739,128 shares of Common Stock to redeem the Series A Preferred Stock. Series B Preferred Stock During November 1996, the Company issued 124,157 shares of Series B Preferred Stock ("Series B Preferred Stock") and warrants to acquire 2,803,530 shares of Common Stock for gross proceeds of approximately $12.4 million in a private placement. Each share of Series B Preferred Stock is initially convertible at any time at the option of the holder into approximately 32.26 shares of Common Stock (3,807,196 shares of Common Stock at December 31, 1999), subject to adjustment for dilutive issuances of securities. The Series B Preferred Stock has a liquidation preference of $100 per share, or $11,801,600 as of December 31, 1999, and shares ratably in any residual assets after payment of such liquidation preference. The Series B Preferred Stock bears cumulative dividends, payable quarterly, for five years at the greater of the annual rate of $6.00 per share or the rate of any dividends paid on other series of stock (effectively $10 per share until the Series A Preferred Stock was redeemed in March 1997). Dividends may be paid in cash, in additional shares of Series B Preferred Stock based on the liquidation value of $100 per share, or any combination of cash and Series B Preferred Stock at the Company's option. On all matters for which the Company's stockholders are entitled to vote, each share of Series B Preferred Stock will entitle the holder to one vote for each share of Common Stock into which the share of Series B Preferred Stock is then convertible. Additionally, the holders of Series B Preferred Stock have the right to elect up to two directors to the Board of Directors of the Company. While the preferred shares are outstanding or F-10 any dividends are owned thereon, the Company may not declare or pay cash dividends on its Common Stock. During 1999, the Company paid cash dividends on the Series B Preferred Stock of $531,300. The Company has accrued a dividend at December 31, 1999, of $178,512. The preferred stock will be automatically converted into Common Stock if (i) the closing price of the Company's Common Stock averages or exceeds $9.30 per share for 30 consecutive trading days. Common Stock In December 1997, the Company issued 4,000,000 shares of Common Stock in a public offering at a price of $4.50 per share. The proceeds of the offering were approximately $16.7 million before deducting offering costs of approximately $717,000. During 1997, the Company issued 33,305 shares of Common Stock as payment of accrued dividends on Series A Preferred Stock. During 1997, the Company issued 74,786 shares of Common Stock upon exercise of certain warrants and 2,027 shares of Common Stock upon the net exercise of warrants to acquire 15,000 shares of Common Stock. In December 1998, as a result of terminating a license and development agreement, the $1.5 million up-front licensing fee paid by Medtronic Inc. to LifeCell in 1994 converted into 310,771 shares of newly issued LifeCell Common Stock. During 1998, the Company issued 4,965 shares of Common Stock upon the net exercise of warrants to acquire 11,290 shares of Common Stock, the Company issued 65,600 shares of Common Stock to an unaffiliated party in connection with the settlement of prior litigation and the Company issued 310,771 shares of Common Stock as a result of the mutually agreed upon termination of the license and development agreement relating to heart valves. In March 1999, the Company issued 108,577 shares of Common Stock in connection with the signing of a distribution agreement at a price of $9.21 per share which represents a 154% premium over the then-prevailing market price. The premium is being recognized over the term of the agreement (see Note 6). The proceeds of this offering were $1,000,000 before deduction offering costs of approximately $100,000. During November 1999 the Company issued 925,000 shares of Common Stock in a private placement at a price of $4.20 per share. The proceeds of the offering were approximately $3.9 million before deducting offering costs of approximately $267,000. Options The Company's Amended and Restated 1992 Stock Option Plan, as amended in 1998 (the "1992 Plan"), provides for the grant of options to purchase up to 2,500,000 shares of Common Stock. Granted options generally become exercisable over a four year period, 25 percent per year beginning on the first anniversary of the date of grant. To the extent not exercised, options generally expire on the tenth anniversary of the date of grant, except for employees who own more than 10 percent of all the voting shares of the Company, in which event the expiration date is the fifth anniversary of the date of grant. All options granted under the plan have exercise prices equal to the fair market value at the dates of grant. The Second Amended and Restated 1993 Non-Employee Director Stock Option Plan, as amended ("Director Plan") was adopted in 1993. A total of 750,000 shares of Common Stock are available for grant under the Director Plan. Upon amendment of the Director Plan in 1996, options to purchase 50,000 shares of Common Stock were granted to each then-current non-employee director of the Company at an exercise price equal to the fair market value of a share of Common Stock on the date of the Director Plan. Options to purchase 25,000 shares of Common Stock will be granted to newly elected directors at an exercise price equal to the fair market value of a share of Common Stock on such election date. The provisions of the Director Plan provide for an annual grant of an option to purchase 10,000 shares of Common Stock to each non-employee director. Options under the Director Plan generally vest one year after date of grant and expire after 10 years. F-11 A summary of stock option activity is as follows:
1992 Stock Option Plan Director Plan -------------------- ------------------ Weighted- Weighted- Avg. Exercise Avg. Exercise Options Price($) Options Price($) ---------- -------- -------- -------- Balance at December 31, 1996 968,820 3.28 75,000 4.11 Granted. . . . . . . . . . . . 131,050 5.21 70,000 5.10 Exercised. . . . . . . . . . . (47,987) 2.68 -- -- Forfeited. . . . . . . . . . . (14,563) 3.75 -- -- ---------- -------- Balance at December 31, 1997 1,037,320 3.54 145,000 4.59 Granted. . . . . . . . . . . . 936,700 5.04 30,000 6.69 Exercised. . . . . . . . . . . (12,550) 3.49 -- -- Forfeited. . . . . . . . . . . (141,767) 5.65 -- -- ---------- -------- Balance at December 31, 1998 1,819,703 4.15 175,000 4.95 Granted. . . . . . . . . . . . 695,000 4.09 80,000 4.22 Exercised. . . . . . . . . . . (154,764) 3.05 (65,000) 3.05 Forfeited. . . . . . . . . . . (158,468) 5.21 -- -- ---------- -------- Balance at December 31, 1999 2,201,471 4.13 190,000 5.29 ========== ======== Exercisable at December 31, 1997 484,427 3.02 100,000 4.05 Exercisable at December 31, 1998 701,528 3.21 145,000 4.59 Exercisable at December 31, 1999 940,958 3.74 110,000 6.07
At December 31, 1999, 80,767 and 490,000 options were available for future grant under the 1992 Plan and the Director Plan, respectively. The exercise prices of options outstanding under the 1992 Plan and the Director Plan at December 31, 1999, range from $0.07 to $6.75 and $2.75 to $11.00, respectively. The weighted average contractual life of options outstanding at December 31, 1999, was 7.91 years for the 1992 Plan and 8.15 years for the Director Plan. In addition to the amounts set forth in the table above, during 1996 the Company granted options to purchase 220,000 shares of Common Stock to directors who resigned upon the closing of the sale of the Series B Preferred Stock in exchange for options previously granted under the Director Plan. These options have provisions identical to the options previously granted under the Director Plan, including exercise prices and vesting periods. The weighted average exercise price of the options granted was $4.14. The weighted average remaining contractual life of the grants was 5.82 years as of December 31, 1999. The Company accounts for its employee stock-based compensation plans under APB No. 25 and its related interpretations. Accordingly, deferred compensation expense is recorded for stock options based on the excess of the market value of the common stock on the date the options were granted over the aggregate exercise price of the options. This deferred compensation is amortized over the vesting period of each option. As the exercise price of options granted under the 1992 Plan and the Director Plan has been equal to or greater than the market price of the Company's stock on the date of grant, no compensation expense related to these plans has been recorded. Had compensation expense for its 1992 Plan and Director Plan been determined consistent with SFAS No. 123, the Company's net loss and loss per share would have been increased to the following pro forma amounts:
1997 1998 1999 ------------ ------------ ------------- Net Loss: As reported . . . . . . . . . . . . $(6,138,635) $(7,341,314) $ (9,192,196) Pro forma . . . . . . . . . . . . . $(7,058,879) $(9,103,482) $(11,145,590) Loss Per Share (Basic and Diluted): As reported . . . . . . . . . . . . $ (1.04) $ (0.72) $ (0.83) Pro forma . . . . . . . . . . . . . $ (1.18) $ (0.81) $ (0.99)
Because the Statement 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. F-12 Under the provisions of SFAS No. 123, the weighted average fair value of options granted in 1997, 1998, and 1999 was $4.24, $3.99, and $2.64 per share, respectively, under the 1992 Plan. The weighted average fair value of options granted in 1997, 1998, and 1999 was $4.08, $5.33, and $2.76 per share, respectively, under the Director Plan. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1997, 1998 and 1999, respectively: a weighted average risk-free interest rate of approximately 4% - 6% percent for all years; no expected dividend yield during the expected life of the option; expected lives of 5 to 6 years for each grant and expected volatility between 64 and 64 and 112 percent. The stock options issued to retiring directors in 1996 had a weighted average fair value of $2.57. The fair values of such options are estimated on the date of grant using Black-Scholes option price model with the following assumptions used: a weighted average risk-free interest rate of 6 percent, expected lives of 3 to 5 years, expected volatility of 99 percent and no expected dividends. Warrants As of December 31, 1999, warrants to acquire a total of 3,466,399 shares of Common Stock were outstanding as set forth below. During 1999, the Company issued warrants to acquire 200,000 shares of Common Stock in conjunction with the sale of the Company's Common Stock at an exercise price of $5.46. These warrants expire on the fourth anniversary of the date of grant. Also, during 1999 the Company issued warrants to acquire 84,211 shares of Common Stock in conjunction with the issuance of notes payable (see Note 7). These warrants are exercisable at a price of $4.75 per share and expire on the fifth anniversary of the date of grant During 1996, the Company issued warrants to acquire 2,803,530 shares of Common Stock in conjunction with the sale of the Series B Preferred Stock (the "1996 Warrants"). The 1996 Warrants are exercisable at an exercise price of $4.13 per share. The warrants expire on the fifth anniversary of the date of grant, are callable if the average closing price of the Company's Common Stock for 30 trading days equals or exceeds three times the then-exercise price, and allow cashless exercise. The warrants also have provisions for adjustment of the exercise price and number of shares for below-exercise price issuance of securities. As of December 31, 1999, the 1996 warrants to acquire 2,717,454 Shares of Common Stock were outstanding. Additionally, the Company issued warrants to acquire 354,734 shares of Common Stock to the placement agent for the Series B Preferred Stock ("Agent Warrant"). The Agent Warrants are exercisable at an exercise price of $4.50 per share. The warrants expire on the fifth anniversary of the date of grant and allows cashless exercise. The warrant also has provisions for adjustment of the exercise price and number of shares for below-exercise price issuance of securities. As of December 31, 1999, additional warrants to acquire 110,000 shares of Common Stock were outstanding with exercise prices ranging from $2.50 to $8.00. Such warrants expire during periods ranging from April 5, 2000, to February 1, 2001. 9. RELOCATION COSTS: In June 1999, management approved plans to relocate the Company's operations from The Woodlands, Texas to Branchburg, New Jersey. Costs charged to operations during the year ended December 31, 1999 included the cost of non-relocating employee benefits, a charge to abandon assets related to the Company's Texas facility and the costs of relocating key employees to New Jersey. The Company anticipates the relocation to be completed by May 31, 2000. Costs recorded during the year ended December 31, 1999 classified as relocation costs in the Statement of Operations are as follows: F-13
Non-relocating employee benefits $ 516,381 Asset abandonment costs. . . . . 334,875 Relocation costs . . . . . . . . 2,085,389 ---------- Total relocation costs . . . . $2,936,645 ==========
10. EMPLOYEE BENEFIT PLANS: The Company maintains a retirement savings plan as described in Section 401(k) of the Internal Revenue Code of 1986, as amended. The Company may, at its discretion, contribute amounts not to exceed each employee's contribution. During February 1998, February 1999 and February 2000, the Company made total contributions of $13,088, $21,387, and $22,955 to the plan for a partial matching of employee contributions during 1997, 1998, and 1999, respectively. During 1996, the Company established an Employee Stock Purchase Plan to allow for the purchase of the Company's Common Stock on the open market using employee and any employer matching contributions. During 1997, 1998, and 1999, the Company contributed $7,631, $13,661, and $13,962, to this plan, respectively. 11. FEDERAL INCOME TAXES: The Company has not made any income tax payments since inception. As of December 31, 1999, the Company has a net operating loss (NOL) carryforward for federal income tax purposes of approximately $48.5 million, subject to the limitations described below, expiring as follows:
YEAR EXPIRES ------------- 2001. . . . $ 500,000 2002. . . . 1,500,000 2003. . . . 2,800,000 2004. . . . 2,200,000 2005. . . . 1,700,000 2006. . . . 1,400,000 2007. . . . 2,400,000 2008. . . . 3,000,000 2009. . . . 2,500,000 2010. . . . 4,000,000 2011. . . . 4,000,000 2012. . . . 5,700,000 2018. . . . 8,200,000 2019. . . . 8,600,000 ------------- 48,500,000
Additionally, the Company has approximately $533,000 of research and development tax credit carryforwards which will expire in varying amounts commencing in 2001. Federal tax laws provide for a limitation on the use of NOL and tax credit carryforwards following certain ownership changes that could limit LifeCell's ability to use its NOL and tax credit carryforwards. The sale of Common Stock in the public offering in December 1997 resulted in an ownership change for federal income tax purposes. The Company estimates that the amount of NOL carryforwards and the credits available to offset taxable income at December 31, 1999, is approximately $22 million on a cumulative basis. Accordingly, if LifeCell generates taxable income in any year in excess of its then cumulative limitation, the Company may be required to pay federal income taxes even though it has unexpired NOL carryforwards. For financial reporting purposes, a valuation allowance of $16,938,000 has been recorded as of December 31, 1999, to fully offset the deferred tax asset related to these carryforwards. The principal components of the deferred tax asset as of December 31, 1998 and 1999, assuming a 34% federal tax rate, are as follows: F-14
1998 1999 ------------- ------------- Temporary differences: Deferred revenue. . . . . . . . . . . . . . . . . . . . $ -- $ 138,000 Restricted stock compensation . . . . . . . . . . . . . -- -- Uniform capitalization of inventory costs . . . . . . . 70,000 147,000 Other items . . . . . . . . . . . . . . . . . . . . . . 16,000 140,000 ------------- ------------- Total temporary differences . . . . . . . . . . . . . . 86,000 425,000 Federal tax losses and credits not currently utilizable 14,301,000 16,513,000 ------------- ------------- Total deferred tax assets 14,387,000 16,938,000 Less valuation allowance. . . . . . . . . . . . . . . . (14,387,000) (16,938,000) ------------- ------------- Net deferred tax asset . . . . . . . . . . . . . . . . . $ -- $ -- ============= =============
The net increase in the deferred tax valuation allowance for 1998 and 1999 was $2,561,000, and $2,551,000 respectively. Other than the net operating loss and tax credit carryforwards, there is no significant difference between the statutory federal income tax rate and the Company's effective tax rate during 1997, 1998 and 1999. 12. COMMITMENTS AND CONTINGENCIES: Litigation The Company is subject to numerous risks and uncertainties and from time to time may be subject to various claims in the ordinary course of its operations. The Company maintains insurance coverage for events and in amounts that it deems appropriate. There can be no assurance that the level of insurance maintained will be sufficient to cover any claims incurred by the Company or that the type of claims will be covered by the terms of insurance coverage. License Agreements The Company has entered into several license agreements, both exclusive and nonexclusive in conjunction with its business. The Company is required to pay royalties on net sales of products encompassing the licensed technologies. For the years ended December 31, 1997, 1998, and 1999, $141,539, $10,248, and $17,311 of expenses were incurred under these agreements, respectively. Leases The Company leases approximately 85,000 square feet for office and laboratory space and has various other operating leases. The future minimum lease payments under noncancelable lease terms in excess of one year as of December 31, 1999, were as follows:
2000. . . . . . . $ 896,944 2001. . . . . . . 573,572 2002. . . . . . . 535,936 2003. . . . . . . 535,936 2004 and beyond 3,490,825 ---------- Total . . . . . $6,033,213 ==========
F-15 13. SEGMENT AND MAJOR CUSTOMER DATA The Company has principally one business segment related to the sale of AlloDerm. Product Sales by geographic area are summarized as follows:
1997 1998 1999 ---------- ---------- ----------- United States $4,401,351 $6,575,206 $11,065,008 Other foreign countries $ 503,620 $ 669,896 $ 846,489 ---------- ---------- ----------- Total Product Sales $4,904,971 $7,245,102 $11,911,497 ========== ========== ===========
During 1999 LifeCell had one customer who comprised greater than 10% of the Company's net product sales. Sales during 1999 to this customer were $1,238,139. 14. SUBSEQUENT EVENT In February 2000, LifeCell entered into a marketing and distribution rights agreement with Obagi Medical Products (OMP). Under the terms of the agreement, OMP will pay a $1 million up-front fee to LifeCell for the licensed marketing and distribution rights. For its efforts, OMP will receive a co-promotion fee based upon a percentage of net sales. LifeCell and OMP will jointly oversee the development and implementation of marketing programs. F-16 EX-10.17 2 - -------------------------------------------------------------------------------- TBCC LOAN AND SECURITY AGREEMENT BORROWER: LIFECELL CORPORATION, A DELAWARE CORPORATION ADDRESS: ONE MILLENIUM WAY BRANCHBURG, NEW JERSEY 08867 DATE: DECEMBER 6, 1999 THIS LOAN AND SECURITY AGREEMENT is entered into as of the above date, between the above borrower(s) (jointly and severally, the "Borrower"), having its chief executive office and principal place of business at the address shown above, and TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware corporation, ("TBCC") having its principal office at 9399 West Higgins Road, Suite 600, Rosemont, Illinois 60018 and having an office at 15260 Ventura Blvd., Suite 1240, Sherman Oaks, CA 91403. The Schedule to this Agreement (the "Schedule") being signed concurrently is an integral part of this Agreement. (Definitions of certain terms used in this Agreement are set forth in Section 9 below.) The parties agree as follows: 1. Loans. ----- 1.1. Loans. TBCC, subject to the terms and condi-tions of this Agreement, ----- agrees to make loans (the "Loans") to Borrower, from time to time during the period from the date of this Agreement to the Maturity Date set forth in the Schedule, at Borrower's request, in an aggregate principal amount at any one time outstanding not to exceed the Credit Limit shown on the Schedule (the "Credit Limit"). If at any time the total outstanding Loans and other monetary Obligations exceed the Credit Limit, Borrower shall repay the excess immediately without demand. Borrower shall use the proceeds of all Loans solely for lawful general business purposes. 1.2. Due Date. The Loans, all accrued interest and all other monetary --------- Obligations shall be payable in full on the Maturity Date. Borrower may bor-row, repay and reborrow Loans (other than any Term Loans), in whole or in part, in accordance with the terms of this Agreement. 1.3. Loan Account. TBCC shall maintain an ac-count on its books in the ------------- name of Borrower (the "Loan Account"). All Loans and advances made by TBCC to Borrower or for Borrower's account and all other monetary Obligations will be Charged to the Loan Account. All amounts received by TBCC from Borrower or for Borrower's account will be credited to the Loan Account. TBCC will send Borrower a monthly statement reflecting the activity in the Loan Account, and each such monthly statement shall be an account stated between Borrower and TBCC and shall be final, conclusive and binding absent manifest error. 1.4. Collection of Receivables. Subject to the Streamline Agreement of --------------------------- even date herewith between the Borrower and TBCC, Borrower shall remit to TBCC all Collections including all checks, drafts and other documents and instruments evidencing remittances in payment (collectively referred to as "Items of Payment") within one Business Day after receipt, in the same form as received, with any necessary indorsements. For purposes of calculating interest due to TBCC, credit will be given for Collections and all other proceeds of Collateral and other payments to TBCC three Business Days after receipt of cleared funds. For all purposes of this Agreement any cleared funds received by TBCC later than 10:00 a.m. (California time) on any Business Day shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. Borrower's Loan Account will be credited only with the net amounts actually received in payment of Receivables, and such payments shall be credited to the Obligations in such order as TBCC shall determine in its discretion. Pending delivery to TBCC, Borrower will not commingle any Items of Payment with any of its other funds or property, but will segregate them from the other assets of Borrower and will hold them in trust and for the account and as the property of TBCC. Borrower hereby agrees to endorse any Items of Payment upon the re-quest of TBCC. * SUBJECT TO THE STREAMLINE AGREEMENT OF EVEN DATE HEREWITH BETWEEN THE BORROWER AND TBCC, -1- TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- 1.6. Term of Revolving Loan Facility and Term of Agreement. -------------------------------------------------------------- (a) Term of Revolving Loan Facility. The period during which Revolving Loans --------------------------------- (as defined in the Schedule) will be made (the "Revolving Loan Period") shall be from the date of this Agreement to the Revolving Loan Maturity Date set forth in the Schedule, unless sooner terminated in accordance with the terms of this Agreement, provided that the Revolving Loan Maturity Date shall automatically be extended for successive addi-tional terms of one year each, unless one party gives written notice to the other, not less than thirty (30)days prior to the next Revolving Loan Maturity Date, that such party elects to terminate the Revolving Loan Period effective on the next Revolving Loan Maturity Date. On and after the Revolving Loan Maturity Date or any earlier termination of this Agreement, no further Revolving Loans will be made. On the Revolving Loan Maturity Date or on any earlier termination of this Agreement, Borrower shall pay in full all outstanding Revolving Loans. * thirty (30) (b) Early Termination of Revolving Loan Facility at Borrower's Option. The ----------------------------------------------------------------- Revolving Loan Period may be termi-nated prior to the Revolving Loan Maturity Date by Borrower, effective three business days after written notice of termination is given by Borrower to TBCC. (c) Term of Agreement. The term of this Agreement shall be from the date ------------------ of this Agreement to the later of the following (the "Maturity Date"): (i) the termination of the Revolving Loan Period, or (ii) the date the last installment of principal on the Term Loan is due. On the Maturity Date or on any earlier termination of this Agreement Borrower shall pay in full all Obligations, and notwithstanding any termination of this Agreement all of TBCC's security interests and all of TBCC's other rights and remedies shall continue in full force and effect until payment and performance in full of all Obligations. (d) Early Termination of Agreement. This Agreement may be termi-nated --------------------------------- prior to the Maturity Date as follows: (i) by Borrower, effective three business days after written notice of termination is given to TBCC; or (ii) by TBCC at any time after the occurrence of an Event of Default, without notice, effective immediately. (e) Termination Fee. If the Revolving Loan Period is termi-nated by ---------------- Borrower under Section 1.6(b), or if this Agreement is termi-nated by Borrower or by TBCC under Section 1.6(d), then Borrower shall pay to TBCC a termination fee (the "Termination Fee") in the amount set forth on the Schedule, which Termination Fee shall be payable on the date of termination. (f) Payment of Obligations. Notwithstanding anything herein to the contrary, ------------------------ Borrower shall have no right to terminate this Agreement at any time that any prin-cipal of, or interest on any of the Loans or any other mone-tary Obligations are outstanding, except upon prepayment of all Obligations and the satisfaction of all other conditions set forth in the Loan Documents. 1.7. Payment Procedures. Borrower hereby authorizes TBCC to charge the ------------------- Loan Account with the amount of all interest, fees, expenses and other payments to be made hereunder and under the other Loan Documents. TBCC may, but shall not be obligated to, discharge Borrower's payment obligations hereunder by so charging the Loan Account. Whenever any payment to be made hereunder is due on a day that is not a Business Day, the payment may be made on the next succeeding Business Day and such extension of time shall be included in the compu-tation of the amount of interest due. 1.8. Conditions to Initial Loan. The obligation of TBCC to make the ----------------------------- initial Loan is subject to the satisfaction of the following conditions prior to or concurrent with such initial Loan, and Borrower shall cause all such conditions to be satisfied by the Closing Deadline set forth in the Schedule: (a) Except for the filing of termination statements under the Code by the existing lender to Borrower whose loans are being repaid with the Loan proceeds, no consent or authorization of, filing with or other act by or in respect of any Governmental Authority or any other Person is required in connection, with the execution, delivery, performance, validity or enforceability of this Agreement, or the other Loan Documents or the consummation of the transactions contemplated hereby or thereby or the continuing operations of the Borrower following the consummation of such transactions. (b) TBCC and its counsel shall have performed (i) a review satisfactory to TBCC of all of the Material Contracts and other assets of the Borrower, the financial condition of the Borrower, including all of its tax, litigation, environmental and other potential contingent liabilities, and the corporate and capital structure of the Borrower and (ii) a pre-closing audit and collateral review, in each case with results satisfactory to TBCC. (c) TBCC shall have received the following, each dated the date of the initial Loan or as of an earlier date acceptable to TBCC, in form and substance satisfactory to TBCC and its counsel: (i) a Depository Account Agreement (as TBCC shall designate), duly executed by the Borrower and its bank on TBCC's standard form; (ii) acknowledgment copies of Uniform Commercial Code financing statements (naming TBCC as secured party and the Borrower as debtor), duly filed in all jurisdictions that TBCC deems necessary or desirable to perfect and protect the Liens created hereunder, and evidence that all other filings, registrations and recordings have been made in the appropriate governmental offices, and all other action has been taken, which shall be necessary to create, in favor of TBCC, a perfected first priority Lien on the Collateral; TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- -2- (iii) the opinion of counsel for the Borrower covering such matters incident to the transactions contemplated by this Agreement as TBCC may specify in its discretion; (iv) certified copies of all policies of insurance required by this Agreement and the other Loan Documents, together with loss payee endorsements for all such policies naming TBCC as lender loss payee and an additional insured; (v) copies of the Borrower's articles or certificate of incorporation, certified as true, correct and complete by the secretary of state of Borrower's state of incorporation within 45 days of the date hereof; (vi) copies of the bylaws of the Borrower and a copy of the resolutions of the Board of Directors of the Borrower authorizing the execution, delivery and performance of this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby, attached to which is a certificate of the Secretary or an Assistant Secretary of the Borrower certifying (A) that such copies of the bylaws and resolutions are true, complete and accurate copies thereof, have not been amended or modified since the date of such certificate and are in full force and effect and (B) the incumbency, names and true signatures of the officers of the Borrower; (vii) a good standing certificate from the Secretary of State of Borrower's state of incorporation and each state in which the Borrower is qualified as a foreign corporation, each dated within ten days of the date hereof; (viii) the additional documents and agreements, if any, listed in the Schedule; and (ix) such other agreements and instruments as TBCC deems necessary in its sole and absolute discretion in connection with the transactions contemplated hereby. 1.9. Conditions to Lending. The obligation of TBCC to make any Loan is ----------------------- subject to the satisfac-tion of the following conditions precedent: (a) There shall be no pending or, to the knowledge of Borrower after due inquiry, threatened litigation, proceeding, inquiry or other action relating to this Agreement, or any other Loan Document, or which could be expected to have a Material Adverse Effect in the judgment of TBCC; (b) Borrower shall be in compliance with all Requirements of Law and Material Contracts, other than such noncompliance that could not have a Material Adverse Effect; (c) The Liens in favor of TBCC shall have been duly perfected and shall constitute first priority Liens, except for Permitted Liens; (d) All representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct on and as of the date of such Loan as if then made, other than representations and warranties that expressly re-late solely to an earlier date, in which case they shall have been true and correct as of such earlier date; (e) No Default or Event of Default shall have occurred and be continuing or would result from the making of the requested Loan as of the date of such request; and (f) No Material Adverse Effect shall have occurred. 2. INTEREST AND FEES. ------------------- 2.1. Interest. Borrower shall pay TBCC interest on all outstanding Loans -------- and other monetary Obligations, at the interest rate set forth in the Schedule. Interest shall be payable monthly in arrears on the first Business Day of each month, and on the Maturity Date. Following the occur-rence and during the continuance of any Event of Default, the interest rate applicable to all Obligations shall be in-creased by two percent per annum. 2.2. Fees. Borrower shall pay TBCC the fees set forth in the Schedule. ---- 2.3. Calculations. All interest and fees under this Agreement shall be ------------ calculated on the basis of a year of 360 days for the actual number of days elapsed in the period for which such interest or fees are payable. 2.4. Taxes. Any and all payments by Borrower under this Agreement or any ----- other Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or with-holdings and penalties, interest and all other liabilities with respect thereto, excluding in the case of TBCC, taxes imposed on its net income and franchise taxes imposed on it by the jurisdiction under the laws of which TBCC is organized or any political subdivision thereof. 3. Security. -------- 3.1. Grant of Security Interest. To secure the payment and performance ----------------------------- when due of all of the Obligations, Borrower hereby grants to TBCC a security interest in all of its present and future Receivables, Investment Property, Inventory, Equipment, Other Property, and other Collateral, wherever located. 3.2. Other Liens; Location of Collateral. Borrower repre-sents, warrants ------------------------------------ and covenants that all of the Collateral is, and will at all times continue to be, free and clear of all Liens, other than Permitted Liens and Liens in favor of TBCC. All Collateral is and will continue to be maintained at the locations shown on the Schedule. 3.3. Receivables. ----------- (a) Schedules and Other Actions. Subject to the Streamline Agreement, as ----------------------------- may from time to time be requested by TBCC, Borrower shall execute and deliver to TBCC written schedules of Receivables (but the failure to execute or deliver any schedule shall not affect or limit TBCC's security interest in all Receivables). On TBCC's request, Borrower shall also furnish to TBCC copies of invoices to customers and shipping and delivery receipts. Borrower shall deliver to TBCC the originals of all letters of credit, notes, and instruments in its favor and such endorsements or assign-ments as TBCC may reasonably request and, upon the request of TBCC, Borrower shall deliver to TBCC all certificated securities with respect to any Investment Property, with all necessary indorsements, and obtain such account control agreements with securities intermediaries and take such other action with respect to any Investment Property, as TBCC shall request, in form and substance satisfactory to TBCC. Upon request of TBCC Borrower additionally shall obtain consents from any letter of credit issuers with respect to the assignment to TBCC of any letter of credit proceeds TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- -3- * Subject to the Streamline Agreement, as (b) Records, Collections. At the request of TBCC, Borrower shall report all --------------------- cus-tomer credits to TBCC, on the regular reports to TBCC in the form from time to time specified by TBCC. * Borrower shall notify TBCC of all re-turns and recoveries of merchandise and of all claims as-serted with respect to merchandise, on its regular reports to TBCC. * Borrower shall not settle or adjust any dis-pute or claim, or grant any discount, credit or allowance or accept any return of merhandise, except in the ordinary course of its business, without TBCC's prior written consent. * At the request of TBCC, 3.4. Inventory. Borrower shall maintain full, accurate and complete --------- records respecting the Inventory describing the kind, type and quantity of the Inventory and Borrower's cost therefor, withdrawals therefrom and addi-tions thereto, including a perpetual inventory for work in process and finished goods. 3.5. Equipment. Borrower shall at all times keep correct and accurate --------- records itemizing and describing the location, kind, type, age and condition of the Equipment, Borrower's cost therefor and accumulated depreciation thereof and re-tirements, sales, or other dispositions thereof. Borrower shall keep all of its Equipment in a satisfactory state of re-pair and satisfactory operating condition in accordance with industry standards, ordinary wear and tear excepted. No Equipment shall be annexed or affixed to or become part of any realty, unless the owner of the realty has executed and delivered a Landlord Waiver in such form as TBCC shall specify. Where Borrower is permitted to dispose of any Equipment under this Agreement or by any consent thereto hereafter given by TBCC, Borrower shall do so at arm's length, in good faith and by obtaining the max-imum amount of recovery practicable therefor and without impairing the operating integrity or value of the remaining Equipment. 3.6. Investment Property. Borrower shall have the right to retain all -------------------- Investment Property payments and distributions, unless and until a Default or an Event of Default has occurred. If a Default or an Event of Default exists, Borrower shall hold all payments on, and proceeds of, and distributions with respect to, Investment Property in trust for TBCC, and Borrower shall deliver all such payments, proceeds and distributions to TBCC, immediately upon receipt, in their original form, duly endorsed, to be applied to the Obligations in such order as TBCC shall determine. Upon the request of TBCC, any such distributions and payments with respect to any Investment Property held in any securities account shall be held and retained in such securities account as part of the Collateral. 3.7 Further Assurances. Borrower will perform any and all steps that TBCC ------------------ may reasonably request to perfect TBCC's security interests in the Collateral, includ-ing, without limitation, executing financing and continuation statements in form and substance satisfactory to TBCC and returning such financing statements to TBCC at the direction of TBCC for filing and other appropriate handling. TBCC is hereby authorized by Borrower to sign Borrower's name or file any financing statements or similar documents or instruments covering the Collateral whether or not Borrower's signature appears thereon. Borrower agrees, from time to time, at TBCC's request, to file notices of Liens, financing statements, similar documents or instruments, and amend-ments, renewals and continuations thereof, and cooperate with TBCC, in connection with the continued perfec-tion and protection of the Collateral. If any Collateral is in the possession or control of any Person other than a public warehouseman where the warehouse receipt is in the name of or held by TBCC, Borrower shall notify such Person of TBCC's security interest therein and, upon request, instruct such Person or Persons to hold all such Collateral for the account of TBCC and subject to TBCC's instructions. If so requested by TBCC, Borrower will deliver to TBCC ware-house receipts covering any Collateral located in warehouses showing TBCC as the beneficiary thereof and will also cause the warehouseman to execute and deliver such agreements as TBCC may request relating to waivers of liens by such warehouseman and the release of the Inventory to TBCC on its demand. Borrower shall defend the Collateral against all claims and demands of all Persons. * and returning such financial statements to TBCC at the direction of TCBB for filing and other appropriate handling 3.8. Power of Attorney. Borrower hereby appoints and constitutes TBCC as ------------------ Borrower's attorney-in-fact (i) to request at any time from account debtors verification of in-formation concerning Receivables and the amount owing thereon, (ii) upon the occurrence and during the continu-ance of an Event of Default, to convey any item of Collateral to any purchaser thereof, (iii) to give or sign Borrower's name to any notices or statements necessary or desirable to create or continue the Lien on any Collateral granted hereunder, (iv) to execute and deliver to any securities intermediary or other Person any entitlement order, account control agreement or other notice, document or instrument with respect to any Investment Property, and (v) to make any payment or take any act necessary or desirable to protect or preserve any Collateral. TBCC's authority hereunder shall include, without limitation, the authority to execute and give receipt for any certificate of ownership or any document, transfer ti-tle to any item of Collateral and take any other actions aris-ing from or incident to the powers granted to TBCC under this Agreement. This power of attorney is coupled with an interest and is irrevocable. 4. Representations and Warranties of Borrower. Borrower represents and -------------------------------------------- warrants as follows: 4.1. Organization, Good Standing and Qualification. Borrower (i) is a ------------------------------------------------- corporation duly organized, validly exist-ing and in good standing under the laws of the State set forth above, (ii) has the corporate power and authority to own its properties and assets and to transact the businesses in which it is TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- -4- engaged and (iii) is duly qualified, authorized to do business and in good standing in each jurisdiction where it is engaged in business, except to the extent that the failure to so qualify or be in good standing would not have a Material Adverse Effect. 4.2. Locations of Offices, Records and Collateral. The address of the ------------------------------------------------ principal place of business and chief executive office of Borrower is, and the books and records of Borrower and all of its chattel paper and records relating to Collateral are maintained exclusively in the possession of Borrower at, the address of Borrower specified in the heading of this Agreement. Borrower has places of business, and Collateral is located, only at such address and at the addresses set forth in the Schedule and at any additional locations reported to TBCC as provided in Section 5.8(c) as to which TBCC has taken all necessary action to perfect and protect its security interests in the Collateral at any such locations. 4.3. Authority. Borrower has the requisite corporate power and authority to --------- execute, deliver and perform its obli-gations under each of the Loan Documents. All corporate action necessary for the execution, delivery and performance by Borrower of the Loan Documents has been taken. 4.4. Enforceability. This Agreement is, and, when exe-cuted and delivered, -------------- each other Loan Document will be, the legal, valid and binding obligation of Borrower enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affect-ing creditors' rights generally and general principles of eq-uity. 4.5. No Conflict. The execution, delivery and perfor-mance of each Loan ------------ Document by Borrower does not and will not contravene (i) any of the Governing Documents, (ii) any Requirement of Law or (iii) any Material Contract and will not result in the imposition of any Liens other than in favor of TBCC. 4.6. Consents and Filings. No consent, authorization or approval of, or -------------------- filing with or other act by, any shareholders of Borrower or any Governmental Authority or other Person is required in connection with the execution, delivery, per-formance, validity or enforceability of this Agreement or any other Loan Document, the consummation of the trans-actions contemplated hereby or thereby or the continuing operations of Borrower following such consummation, except (i) those that have been obtained or made, (ii) the filing of financing statements under the Uniform Commercial Code and (iii) any necessary filings with the U.S. Copyright Office and the U.S. Patent and Trademark Office. 4.7. Solvency. Borrower is Solvent and will be Solvent upon the completion -------- of all transactions contemplated to oc-cur on or before the date of this Agreement (including, without limitation, the Loans to be made on the date of this Agreement). 4.8. Financial Data. Borrower has provided to TBCC complete and accurate --------------- Financial Statements, which have been prepared in accordance with GAAP consis-tently applied throughout the periods involved and fairly present the financial position and results of operations of Borrower for each of the periods covered, subject, in the case of any quarterly financial statements, to normal year end adjustments and the absence of notes. Borrower has no Contingent Obligation or liability for taxes, unrealized losses, unusual forward or long-term commitments or long-term leases, which is not reflected in such Financial Statements or the footnotes thereto. Since the last date covered by such Financial Statements, there has been no sale, transfer or other disposition by Borrower of any mate-rial part of its business or property and no purchase or other acquisition of any business or property (including any capi-tal stock of any other Person) material in relation to the fi-nancial condition of Borrower at said date. Since said date, (i) there has been no change, occurrence, development or event which has had or could reasonably be expected to have a Material Adverse Effect and (ii) none of the capital stock of Borrower has been redeemed, retired, purchased or other-wise acquired for value by Borrower. 4.9. Accuracy and Completeness of Information. All data, reports and -------------------------------------------- information previously, now or hereafter furnished by or on behalf of Borrower to TBCC or the Auditors are or will be true and accurate in all material respects on the date as of which such data, reports and in-formation are dated or certified, and not incomplete by omit-ting to state any material fact necessary to make such data, reports and information not materially misleading at such time. There are no facts now known to Borrower which in-dividually or in the aggregate would reasonably be expected to have a Material Adverse Effect and which have not been disclosed in writing to TBCC. 4.10. No Joint Ventures, Partnerships or Subsidiaries. Borrower is not ----------------------------------------------- engaged in any joint venture or partnership with any other Person. Borrower has no Subsidiaries. 4.11. Corporate and Trade Name. During the past five years, Borrower has ------------------------- not been known by or used any other corporate, trade or fictitious name except for its name as set forth on the signature page of this Agreement and the other names specified in the Schedule. 4.12. No Actual or Pending Material Modification of Business. There exists ------------------------------------------------------- no actual or, to the best of Borrower's knowledge after due inquiry, threatened termina-tion, cancellation or limitation of, or any modification or change in the business relationship of Borrower with any customer or group of customers whose purchases individu-ally or in the aggregate are material to the operation of Borrower's business or with any material supplier. 4.13. No Broker's or Finder's Fees. No broker or finder brought about this -------------------------------- Agreement or the Loans. No broker's or finder's fees or commissions will be payable by Borrower to any Person in connection with the transactions contem-plated by this Agreement. 4.14. Taxes and Tax Returns. Borrower has properly completed and timely ---------------------- filed all income tax returns it is re-quired to file. The information filed is complete and accu-rate in all material respects. All deductions taken in such TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- -5- income tax returns are appropriate and in accordance with applicable laws and regulations, except deductions that may have been disallowed but are being challenged in good faith and for which adequate reserves have been made in accor-dance with GAAP. All taxes, assessments, fees and other governmental charges for periods beginning prior to the date of this Agreement have been timely paid (or, if not yet due, adequate reserves therefor have been established in accordance with GAAP) and Borrower has no liability for taxes in excess of the amounts so paid or reserves so established. No deficiencies for taxes have been claimed, proposed or assessed by any taxing or other Governmental Authority against Borrower and no no-tice of any tax Lien has been filed. There are no pending or threatened audits, investigations or claims for or relating to any liability for taxes and there are no matters under discus-sion with any Governmental Authority which could result in an additional liability for taxes. No extension of a statute of limitations relating to taxes, assessments, fees or other governmental charges is in effect with respect to Borrower. Borrower is not a party to and does not have any obligations under any written tax sharing agreement or agreement regarding payments in lieu of taxes. 4.15. No Judgments or Litigation. Except as set forth in the Schedule, no -------------------------- judgments, orders, writs or decrees are outstanding against Borrower, nor is there now pending or, to the knowledge of Borrower after due inquiry, threatened litigation, contested claim, investiga-tion, arbitration, or governmental proceeding by or against Borrower that (i) could individually or in the aggregate be likely in the reasonable business judgment of TBCC to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of this Agreement, any other Loan Document or the consummation of the transactions contemplated hereby or thereby. 4.16. Investments; Contracts. Borrower (i) has not committed to make any ----------------------- Investment; (ii) is not a party to any indenture, agreement, contract, instrument or lease or subject to any charter, by-law or other corporate restriction or any injunction, order, restriction or decree, which would materially and adversely affect its business, operations, as-sets or financial condition; (iii) is not a party to any take or pay contract as to which it is the purchaser; or (iv) has no material contingent or long-term liability, including management contracts (excluding employment contracts of full-time individual officers or employees), which could have a Material Adverse Effect. 4.17. No Defaults; Legal Compliance. Borrower is not in default under any ----------------------- term of any Material Contract or in vio-lation of any Requirement of Law, nor is Borrower subject to any investigation with respect to a claimed violation of any Requirement of Law. 4.18. Rights in Collateral; Priority of Liens. All Collateral is owned or ----------------------------------------- leased by Borrower, free and clear of any and all Liens in favor of third parties, other than Permitted Liens. The Liens granted to TBCC pur-suant to the Loan Documents constitute valid, enforceable and perfected first-priority Liens on the Collateral, except for Permitted Liens. 4.19. Intellectual Property. Set forth in the written Representations and ---------------------- Warranties of Borrower previously delivered to TBCC is a complete and accurate list of all patents, trademarks, trade names, service marks and copyrights (registered and unregistered), and all applications therefor and licenses thereof, of Borrower. Borrower owns or licenses all material patents, trademarks, service-marks, logos, trade-names, trade secrets, know-how, copyrights, or licenses and other rights with respect to any of the foregoing, which are necessary or advisable for the operation of its business as presently conducted or proposed to be conducted. To the best of its knowledge after due inquiry, Borrower has not in-fringed any patent, trademark, service-mark, tradename, copyright, license or other right owned by any other Person by the sale or use of any product, process, method, sub-stance, part or other material presently contemplated to be sold or used, where such sale or use would reasonably be expected to have a Material Adverse Effect and no claim or litigation is pending, or to the best of Borrower's knowl-edge, threatened against or affecting Borrower that contests its right to sell or use any such product, process, method, substance, part or other material. 4.20. Labor Matters. There are no existing or threatened strikes, lockouts ------------- or other disputes relating to any collective bargaining or similar agreement to which Borrower is a party which would, individually or in the aggregate, be rea-sonably likely to have a Material Adverse Effect. 4.21. Licenses and Permits. Borrower has obtained and holds in full force --------------------- and effect, all franchises, licenses, leases, permits, certificates, authorizations, qualifications, ease-ments, rights of way and other rights and approvals which are necessary or advisable for the operation of its business as presently conducted and as proposed to be conducted, except where the failure to possess any of the foregoing (individually or in the aggregate) would not have a Material Adverse Effect. 4.22. Government Regulation. Borrower is not subject to regulation under ---------------------- the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, the Investment Company Act of 1940, or any other Requirement of Law that limits its ability to in-cur indebtedness or its ability to consummate the transac-tions contemplated by this Agreement and the other Loan Documents. 4.23. Business and Properties. The business of Borrower is not affected by ----------------------- any fire, explosion, accident, strike, lock-out or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casu-alty (whether or not covered by insurance) that could reason-ably be expected to have a Material Adverse Effect. TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- -6- 4.24. Affiliate Transactions. Borrower is not a party to or bound by any ----------------------- agreement or arrangement (whether oral or written) to which any Affiliate of Borrower is a party except (i) in the ordinary course of and pursuant to the reasonable requirements of the business of Borrower and (ii) upon fair and reasonable terms no less favorable to Borrower than it could obtain in a comparable arm's-length transaction with an unaffiliated Person. 4.25. Survival of Representations. All representations made by Borrower in --------------------------- this Agreement and in any other Loan Document executed and delivered by it in connection here-with shall survive the execution and delivery hereof and thereof and the closing of the transactions contemplated hereby and thereby. 5. AFFIRMATIVE COVENANTS OF THE BORROWER. Until termination of this Agreement -------------------------------------- and payment and satis-faction of all Obligations: 5.1. Corporate Existence. Borrower shall (i) maintain its corporate -------------------- existence, (ii) maintain in full force and effect all material licenses, bonds, franchises, leases, trademarks, qualifications and authorizations to do business, and all ma-terial patents, contracts and other rights necessary or advis-able to the profitable conduct of its business, and (iii) continue in, and limit its operations to, the same lines of business as presently conducted by it. 5.2. Maintenance of Property. Borrower shall keep all property useful and ------------------------- necessary to its business in good work-ing order and condition (ordinary wear and tear excepted) in accordance with its past operating practices. 5.3. Affiliate Transactions. Borrower shall conduct trans-actions with any ----------------------- of its Affiliates on an arm's-length basis or other basis no less favorable to Borrower and which are ap-proved by the board of directors of Borrower. 5.4. Taxes. Borrower shall pay when due (i) all tax as-sessments, and other ----- governmental charges and levies im-posed against it or any of its property and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its property; provided, however, that, unless such tax as-sessment, charge, levy or claim has become a Lien on any of the property of Borrower, it need not be paid if it is being contested in good faith, by appropriate proceedings dili-gently conducted and an adequate reserve or other appropriate provision shall have been made therefor as required in accor-dance with GAAP. 5.5. Requirements of Law. Borrower shall comply with all Requirements of -------------------- Law applicable to it, including, without limitation, all applicable Federal, State, local or foreign laws and regulations, including, without limitation, those relating to environmental matters, employee matters, the Employee Retirement Income Security Act of 1974, and the collection, payment and deposit of employees' income, un-employment and social security taxes, provided that Borrower shall not be deemed in violation hereof if Borrower's failure to comply with any of the foregoing would not require more than $50,000 to cure the same. 5.6. Insurance. Borrower shall maintain public liability insurance, --------- business interruption insurance, third party prop-erty damage insurance and replacement value insurance on its assets (including the Collateral) under such policies of insurance, with such insurance companies, in such amounts and covering such risks as are at all times satisfactory to TBCC in its commercially reasonable judgment, all of which policies covering the Collateral shall name TBCC as an additional insured and lender loss payee in case of loss, and contain other provisions as TBCC may reasonably require to protect fully TBCC's interest in the Collateral and any payments to be made under such policies * EXCEPT THAT, PROVIDED NO DEFAULT OR EVENT OF DEFAULT HAS OCCURRED, TBCC SHALL RELEASE TO THE BORROWER INSURANCE PROCEEDS WITH RESPECT TO EQUIPMENT TOTALING LESS THAN $500,000, PROVIDED THAT PROCEDURES, ACCEPTABLE TO TBCC, ARE -------- ESTABLISHED FOR THE USE AND DISBURSEMENT OF SUCH PROCEEDS FOR THE REPLACEMENT OF THE EQUIPMENT WITH RESPECT TO WHICH THE INSURANCE PROCEEDS WERE PAID 5.7. Books and Records; Inspections. Borrower shall (i) maintain books and ------------------------------ records (including computer records) pertaining to the Collateral in such detail, form and scope as is consistent with good business practice and (ii) provide TBCC and its agents access to the premises of Borrower at any time and from time to time, during normal business hours and upon reasonable notice under the cir-cumstances, and at any time on and after the occurrence of a Default or Event of Default, for the purposes of (A) inspecting and verifying the Collateral, (B) inspecting and copying (at Borrower's expense) any and all records per-taining thereto, and (C) discussing the affairs, finances and business of Borrower with any officer, employee or director of Borrower or with the Auditors. Borrower shall reimburse TBCC for the reasonable travel and related expenses of TBCC's employees or, at TBCC's option, of such outside accountants or examiners as may be retained by TBCC to verify or inspect Collateral, records or documents of Borrower on a regular basis or for a special inspection if TBCC deems the same appropriate. If TBCC's own employees are used, Borrower shall also pay therefor $600 per person per day (or such other amount as shall repre-sent TBCC's then current standard charge for the same), or, if outside examiners or accountants are used, Borrower shall also pay TBCC such sum as TBCC may be obligated to pay as fees therefor. 5.8. Notification Requirements. Borrower shall give TBCC the following ------------------------- notices and other documents: (a) Notice of Defaults. Borrower shall give TBCC written notice of any ------------------- Default or Event of Default within two Business Days after becoming aware of the same. (b) Proceedings or Adverse Changes. Borrower shall give TBCC written notice ------------------------------- of any of the following, promptly, and in any event within five Business Days after Borrower becomes aware of any of the following: (i) any proceeding being instituted or threatened by or against it in any federal, state, local or foreign court or before any com-mission or other regulatory body involving a TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- -7- sum, together with the sum involved in all other similar proceedings, in excess of * in the aggregate, (ii) any order, judgment or decree being entered against Borrower or any of its prop-erties or assets involving a sum, together with the sum of all other orders, judgments or decrees, in excess of * in the aggregate, and (iii) any actual or prospective change, de-velopment or event which has had or could reasonably be expected to have a Material Adverse Effect. * $200,000 (c) Change of Name or Chief Executive Office; Opening Additional Places of ----------------------------------------------------------------------- Business. Borrower shall give TBCC at least 30 days prior written notice of any - -------- change of Borrower's corporate name or its chief execu-tive office or of the opening of any additional place of busi-ness. (d) Casualty Loss. Borrower shall (i) provide written notice to TBCC, -------------- within ten Business Days, of any material damage to, the destruction of or any other material loss to any asset or property owned or used by Borrower other than any such asset or property with a net book value (individually or in the aggregate) less than * or any condemnation, confiscation or other taking, in whole or in part, or any event that otherwise diminishes so as to render impracticable or unreasonable the use of such asset or prop-erty owned or used by Borrower together with the amount of the damage, destruction, loss or diminution in value and (ii) diligently file and prosecute its claim or claims for any award or payment in connection with any of the forego-ing. * $100,000 (e) Intellectual Property. Borrower shall give TBCC written ---------------------- notice, on a quarterly basis, of any copyright registration made by it, any rights Borrower may obtain to any copyrightable works, new trademarks or any new patentable inventions, and of any renewal or extension of any trademark registration, or if it shall otherwise become entitled to the benefit of any patent or patent application or trademark or trademark application. (f) Deposit Accounts and Security Accounts. Borrower shall promptly give TBCC written notice of the opening of any new bank account or other deposit account, and any new securities account. * , ON A QUARTERLY BASIS, 5.9. Qualify to Transact Business. Borrower shall qualify to transact ------------------------------- business as a foreign corporation in each jurisdic-tion where the nature or extent of its business or the owner-ship of its property requires it to be so qualified or autho-rized and where failure to qualify or be authorized would have a Material Adverse Effect. 5.10. Financial Reporting. Borrower shall timely deliver to TBCC the -------------------- following financial information: the information set forth in the Schedule, and, when requested by TBCC in its good-faith judgment, any further in-formation respecting Borrower or any Collateral. Borrower authorizes TBCC to communicate directly with its officers, employees and Auditors and to examine and make abstracts from its books and records. Borrower authorizes its Auditors to disclose to TBCC any and all financial statements, work papers and other information of any kind that they may have with respect to Borrower and its busi-ness and financial and other affairs. Borrower shall deliver a letter addressed to the Auditors requesting them to comply with the provisions of this paragraph when requested by TBCC. 5.11. Payment of Liabilities. Borrower shall pay and dis-charge, in the ----------------------- ordinary course of business, all Indebtedness, except where the same may be contested in good faith by appropriate proceedings and adequate reserves with respect thereto have been provided on the books and records of Borrower in accordance with GAAP. 5.12. Patents, Trademarks, Etc. Borrower shall do and cause to be done all ------------------------- things necessary to preserve, maintain and keep in full force and ef-fect all of its registrations of trademarks, service marks and other marks, trade names and other trade rights, patents, copyrights and other intellectual property in accordance with prudent business practices. 5.13. Proceeds of Collateral. * limiting any of the other terms of this ------------------------ Agreement, and without implying any consent to any sale or other transfer of Collateral in viola-tion of any provision of this Agreement, Borrower shall de-liver to TBCC all proceeds of any sale or other trans-fer or disposition of any Collateral, immediately upon re-ceipt of the same and in the same form as received, with any necessary endorsements, and Borrower will not commingle any such proceeds with any of its other funds or property, but will segregate them from the other assets of Borrower and will hold them in trust and for the account and as the property of TBCC. * SUBJECT TO THE TERMS AND CONDITIONS OF THE STREAMLINE AGREEMENT OF EVEN DATE HEREWITH, SALES OF EQUIPMENT AS OTHERWISE PERMITTED HEREUNDER AND SALES OF INVENTORY IN THE ORDINARY COURSE OF BUSINESS, AND WITHOUT 5.14. Solvency. Borrower shall be Solvent at all times. -------- 6. Negative Covenants. Until termination of this Agreement and payment and ------------------- satisfaction of all Obligations: 6.1. Contingent Obligations. Borrower will not, directly or indirectly, ----------------------- incur, assume, or suffer to exist any Contingent Obligation, excluding indemnities given in connection with this Agreement or the other Loan Documents in favor of TBCC or in connection with the sale of Inventory or other asset dispositions permitted hereunder. 6.2. Corporate Changes. Borrower will not, directly or indirectly, merge ----------------- or consolidate with any Person, or liqui-date or dissolve (or suffer any liquidation or dissolution). If TBCC fails to so provide its written consent for any contemplated corporate changes, then such an occurrence shall constitute a "Consent Condition" for purposes of all Term Notes and repayment thereof. * WITHOUT THE WRITTEN CONSENT OF TBCC, ** IF TBCC FAILS TO SO PROVIDE ITS WRITTEN CONSENT FOR ANY CONTEMPLATED CORPORATE CHANGES, THEN SUCH AN OCCURRENCE SHALL CONSTITUTE A "CONSENT CONDITION" FOR PURPOSES OF ALL TERM NOTES AND REPAYMENT THEREOF. TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- -8- 6.3. Change in Nature of Business. Borrower will not at any time make any material change in the lines of its busi-ness as carried on at the date of this Agreement or enter into any new line of business , other than business relating to or arising in connection with the Borrower's current line of business. * , OTHER THAN BUSINESS RELATING TO OR ARISING IN CONNECTION WITH THE BORROWER'S CURRENT LINE OF BUSINESS 6.4. Sales of Assets. Borrower will not, directly or indi-rectly, in any fiscal year, sell, transfer or otherwise dispose of any assets, or grant any option or other right to purchase or otherwise acquire any assets other than (i) Equipment with an aggregate value of less than $100,000 * the proceeds of which shall be paid to TBCC and applied to the Obligations, (ii) sales of Inventory in the ordinary course of business and (iii) licenses or sublicenses on a non-exclusive basis of intellectual property in the ordinary course of Borrower's business. *100,000 6.5. Cancellation of Debt. Borrower will not cancel any claim or debt owed to it, except in the ordinary course of business. 6.6. Loans to Other Persons. Borrower will not at any time make loans or advance any credit (except to trade debtors in the ordinary course of business) to any Person in excess of $25,000 in the aggregate at any time for all such loans. 6.7. Liens. Borrower will not, directly or indirectly, at any time create, incur, assume or suffer to exist any Lien on or with respect to any of the Collateral, other than: Liens created hereunder and by any other Loan Document; and Permitted Liens, provided that the aggregate amount of debt relating to Purchase Money Liens with respect to Equipment shall not exceed $4,000,000 outstanding at any one time. * , PROVIDED THAT THE AGGREGATE AMOUNT OF DEBT RELATING TO PURCHASE MONEY LIENS WITH RESPECT TO EQUIPMENT SHALL NOT EXCEED $4,000,000 OUTSTANDING AT ANY ONE TIME 6.8. Dividends, Stock Redemptions. Borrower will not, directly or indirectly, pay any dividends or distributions on, purchase, redeem or retire any shares of any class of its capi-tal stock or any warrants, options or rights to purchase any such capital stock, whether now or hereafter outstanding ("Stock"), or make any payment on account of or set apart assets for a sinking or other analogous fund for, the pur-chase, redemption, defeasance, retirement or other acquisi-tion of its Stock, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of Borrower, except for dividends paid solely in stock of the Borrower, provided that, so long as no Default or Event of Default is then occurring that relates to or arises from the failure of Borrower to make payment on the Obligations, then Borrower shall be permitted to pay dividends on its preferred stock in an aggregate amount not to exceed $800,000 per calendar year; provided, further, that, in any event, Borrower may issue dividends in common stock of the Borrower without the consent of TBCC * , PROVIDED THAT, SO LONG AS NO DEFAULT OR EVENT OF DEFAULT IS THEN -------- OCCURRING THAT RELATES TO OR ARISES FROM THE FAILURE OF BORROWER TO MAKE PAYMENT ON THE OBLIGATIONS, THEN BORROWER SHALL BE PERMITTED TO PAY DIVIDENDS ON ITS PREFERRED STOCK IN AN AGGREGATE AMOUNT NOT TO EXCEED $800,000 PER CALENDAR YEAR; PROVIDED, FURTHER, THAT, IN ANY EVENT, BORROWER MAY ISSUE DIVIDENDS IN COMMON - -------- ------- STOCK OF THE BORROWER WITHOUT THE CONSENT OF TBCC 6.9. Investments in Other Persons. Without the written consent of TBCC, Borrower will not, directly or indirectly, at any time make or hold any Investment in any Person (whether in cash, securities or other property of any kind) other than Investments in Cash Equivalents. If TBCC fails to so provide its written consent for any contemplated corporate changes, then such an occurrence shall constitute a "Consent Condition" for purposes of all Term Notes and the repayment thereof. * WITHOUT THE WRITTEN CONSENT OF TBCC, ** IF TBCC FAILS TO SO PROVIDE ITS WRITTEN CONSENT FOR ANY CONTEMPLATED CORPORATE CHANGES, THEN SUCH AN OCCURRENCE SHALL CONSTITUTE A "CONSENT CONDITION" FOR PURPOSES OF ALL TERM NOTES AND THE REPAYMENT THEREOF. 6.10. Partnerships; Subsidiaries; Joint Ventures; Management Contracts. Without the written consent of TBCC, Borrower will not at any time cre-ate any direct or indirect Subsidiary, enter into any joint venture or similar arrangement or become a partner in any general or limited partnership or enter into any management contract (other than an employment contract for the em-ployment of an officer or employee entered into in the regu-lar course of Borrower's business) permitting third party management rights with respect to Borrower's business. If TBCC fails to so provide its written consent for any contemplated corporate changes, then such an occurrence shall constitute a "Consent Condition" for purposes of all Term Notes and the repayment thereof. 6.11. Fiscal Year. Borrower will not change its fiscal year. ------------ 6.12. Accounting Changes. Borrower will not at any time make or permit any ------------------ change in accounting policies or reporting practices, except as required by GAAP. 6.13. Broker's or Finder's Fees. Borrower will not pay or incur any ---------------------------- broker's or finder's fees in connection with this Agreement or the transactions contemplated hereby. 6.14. Unusual Terms of Sale. Borrower will not sell goods or products on ---------------------- extended terms, consignment terms, on a progress billing or bill and hold basis, or on any other unusual terms. 6.15. Amendments of Material Contracts. Without the written consent of TBCC -------------------------------- (which will not be unreasonably withheld), Borrower will not amend, modify, cancel or terminate, or permit the amendment, modification, cancellation or termination of, any Material Contract, if such amendment, modification, cancellation or termination could have a Material Adverse Effect. * WITHOUT THE WRITTEN CONSENT OF TBCC (WHICH WILL NOT BE UNREASONABLY WITHHELD), 6.16. Sale and Leaseback Obligations. Borrower will not at any time create, ------------------------------ incur or assume any obligations as lessee for the rental of real or personal property in connection with any sale and leaseback transaction. 6.17. Acquisition of Stock or Assets. Borrower will not acquire or commit ------------------------------ or agree to acquire all or any stock, secu-rities or assets of any other Person other than Inventory and Equipment acquired in the ordinary course of business. TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- -9- 7. Events of Default. ------------------- 7.1. Events of Default. The occurrence of any of the fol-lowing events shall constitute an Event of Default: (a) Borrower shall fail to pay any principal, interest, fees, expenses or other Obligations when payable, whether at stated maturity, by acceleration, or otherwise within 5 calendar days of the date due; or * WITHIN 5 CALENDAR DAYS OF THE DATE DUE (b) Borrower shall default in the performance or ob-servance of any agreement, covenant, condition, provision or term contained in Section 1.1, 1.2, 1.4, 3.3, 5.7, 5.13, 6 (and its Sections and subsections), or 8.1 of this Agreement, or Borrower shall fail to perform any non-monetary Obligation which by its nature cannot be cured; or (c) Borrower shall default in the performance or observance of any other agreement, covenant, condition, provision or term of this Agreement (other than those referred to in Section (d) Borrower or any Guarantor shall dissolve, wind up or otherwise cease to conduct its business; or (e) Borrower or any Guarantor shall become the subject of (i) an Insolvency Event except as set forth in clause (e) of the def-inition of Insolvency Event or (ii) an Insolvency Event as set forth in clause (e) of the definition of Insolvency Event that is not dismissed within sixty days; or (f) any representation or warranty made by or on behalf of Borrower or any Guarantor to TBCC, under this Agreement or oth-erwise, shall be incorrect or misleading in any material re-spect when made or deemed made; or (g) A change in the ownership or control of more than 30% of the voting stock of the Borrower compared to such ownership on the date of this Agreement other than for changes in the foregoing percentages arising from issuances of new equity securities or the conversion of preferred stock of the Borrower to common shares of Borrower; or * 30% ** OTHER THAN FOR CHANGES IN THE FOREGOING PERCENTAGES ARISING FROM ISSUANCES OF NEW EQUITY SECURITIES OR THE CONVERSION OF PREFERRED STOCK OF THE BORROWER TO COMMON SHARES OF BORROWER (h) any judgment or order for the payment of money shall be rendered against Borrower in an aggregate amount of $100,000 or more and shall not be stayed, vacated, bonded or discharged within thirty days, provided that any liens in any Collateral arising from any such judgments or orders do not attain a higher priority than the liens of TBCC therein; or * IN AN AGGREGATE AMOUNT OF $100,000 OR MORE ** , PROVIDED THAT ANY LIENS IN ANY COLLATERAL ARISING FROM ANY SUCH JUDGMENTS OR ORDERS DO NOT ATTAIN A HIGHER PRIORITY THAN THE LIENS OF TBCC THEREIN (i) any defined "Event of Default" shall occur under any other Loan Document; or Borrower or any Guarantor shall deny or disaffirm its obligations un-der any of the Loan Documents or any Liens granted in connection therewith or shall otherwise challenge any of its obligations under any of the Loan Documents; or any Liens granted in any of the Collateral shall be determined to be void, voidable or invalid, are subordinated or are not given the priority contemplated by this Agreement; or (j) any Loan Document shall for any reason cease to create a valid and perfected Lien on the Collateral purported to be covered thereby, of first priority (except for Permitted Liens); or (k) the Auditors for Borrower shall deliver a Qualified opinion on any Financial Statement; or (l) Borrower or any Guarantor (i) shall fail to pay any Indebtedness owing to TBCC under any other agreement with TBCC or note or instrument in favor of TBCC, when due (whether at scheduled maturity or by required prepayment, acceleration, demand or otherwise), or (ii) shall otherwise be in breach of or default in any of its obligations under any such agreement, note or instrument with respect to any such Indebtedness; or (m) Borrower or any Guarantor (i) shall fail to pay any Indebtedness in excess of $200,000 * owing to any Person other than TBCC or any interest or premium thereon, when due (whether at scheduled maturity or by required prepayment, acceleration, demand or otherwise), or (ii) shall otherwise be in breach or default in any of its obligations under any agreement with respect to any such Indebtedness, if the effect of such breach, default or failure to pay is to cause such Indebtedness to become due or redeemed or permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to declare such Indebtedness due or require such Indebtedness to be redeemed prior to its stated maturity; or * $200,000 (n) the occurrence of any event or condition that, in TBCC's judgment, could reasonably be expected to have a Material Adverse Effect. TBCC may cease making any Loans hereunder during any of the above cure periods, and thereafter if any Event of Default has occurred and is continuing. 7.2. Remedies. Upon the occurrence and during the con-tinuance of an Event -------- of Default, TBCC shall have all rights and remedies under applicable law and the Loan Documents, and TBCC may do any or all of the fol-lowing: (a) Declare all Obligations to be imme-diately due and payable (except with respect to any Event of Default with respect to Borrower set forth in Section (b) Cease making any Loans or other extensions of credit to Borrower of any kind; (c) Take possession of all documents, instruments, files and records (including the copying of any computer records) relating to the Receivables or other Collateral and use (at the expense of Borrower) such supplies or space of Borrower at Borrower's places of business necessary to administer and collect the Receivables and other Collateral; TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- -10- (d) Accelerate or extend the time of payment, compro-mise, issue credits, or bring suit on the Receivables and other Collateral (in the name of Borrower or TBCC) and otherwise administer and collect the Receivables and other Collateral; (e) Collect, receive, dispose of and realize upon any Investment Property, including withdrawal of any and all funds from any securities accounts; (f) Sell, assign and deliver the Receivables and other Collateral, with or without advertisement, at public or pri-vate sale, for cash, on credit or otherwise, subject to appli-cable law; (g) Foreclose on the security interests created pursuant to the Loan Documents by any available procedure, take pos-session of any or all of the Collateral, with or without judi-cial process and enter any premises where any Collateral may be located for the purpose of taking possession of or removing the same; and (h) Bid or become a purchaser at any sale, free from any right of redemption, which right is ex-pressly waived by Borrower, if permitted under applicable law. If notice of intended disposition of any Collateral is required by law, it is agreed that ten days' notice shall con-stitute reasonable notification. Borrower will assemble the Collateral and make it available at such locations as TBCC may specify, whether at the premises of Borrower or elsewhere, and will make available to TBCC the premises and facilities of Borrower for the purpose of TBCC's taking possession of or removing the Collateral or putting the Collateral in salable form. (i) Borrower recognizes that TBCC may be unable to make a public sale of any or all of the Investment Property, by reasons of prohibitions contained in applicable securities laws or otherwise, and expressly agrees that a private sale to a restricted group of purchasers for investment and not with a view to any distribution thereof shall be considered a commercially reasonable sale. 7.3. Receivables. Upon the occurrence and during the continuance of an ----------- Event of Default, or at any time that TBCC believes in good faith that fraud has occurred or that Borrower has failed to deliver the proceeds of Receivables or other Collateral to TBCC as may be required by this Agreement from time to time or any other Loan Document, TBCC may (i) settle or adjust disputes or claims di-rectly with account debtors for amounts and upon terms which it considers advisable, and (ii) notify account debtors on the Receivables and other Collateral that the Receivables and Collateral have been assigned to TBCC, and that payments in respect thereof shall be made directly to TBCC. If an Event of Default has occurred and is continuing or TBCC reasonably believes in good faith that fraud has occurred, or that Borrower has failed to deliver the proceeds of Receivables or other Collateral to TBCC as required by this Agreement or any other Loan Document, Borrower hereby irrevocably authorizes and appoints TBCC, or any Person TBCC may designate, as its attorney-in-fact, at Borrower's sole cost and expense, to exercise, all of the following powers, which are coupled with an interest and are irrevocable, until all of the Obligations have been indefeasibly paid and satisfied in full in cash: (A) to receive, take, endorse, sign, assign and de-liver, all in the name of TBCC or Borrower, any and all checks, notes, drafts, and other documents or instruments relating to the Collateral; (B) to receive, open and dispose of all mail addressed to Borrower and to notify postal au-thorities to change the address for delivery thereof to such address as TBCC may designate; and (C) to take or bring, in the name of TBCC or Borrower, all steps, actions, suits or proceedings deemed by TBCC neces-sary or desirable to enforce or effect collection of Receivables and other Collateral or file and sign Borrower's name on a proof of claim in bankruptcy or similar docu-ment against any obligor of Borrower. 7.4. Right of Set off. In addition to all rights of offset that TBCC may ---------------- have under applicable law, upon the occurrence and during the continuance of any Event of Default, and whether or not TBCC has made any de-mand or the Obligations of Borrower have matured, TBCC shall have the right to appropriate and apply to the payment of the Obligations of Borrower all deposits and other obligations then or thereafter owing by TBCC to or for the credit or the account of Borrower. In the event that TBCC exercises any of its rights under this Section, TBCC shall provide notice to Borrower of such exercise, provided that the failure to give such notice shall not affect the validity of the exercise of such rights. 7.5. License for Use of Software and Other Intellectual Property. After the -------------------------------------------------------------- occurrence and during the continuance of an Event of Default, unless expressly prohibited by any licensor thereof, TBCC is hereby granted a license to use all computer software programs, data bases, processes, trademarks, tradenames and materials used by Borrower in connection with its businesses or in connection with the Collateral. 7.6. No Marshalling; Deficiencies; Remedies Cumulative. The net cash -------------------------------------------------- proceeds resulting from TBCC's exercise of any of its rights with respect to Collateral, including any and all Collections (after deducting all of TBCC's reasonable expenses related thereto), shall be applied by TBCC to such of the Obligations in such order as TBCC shall elect in its sole and absolute discretion, whether due or to become due. Borrower shall remain liable to TBCC for any defi-ciencies and TBCC shall remit to Borrower or its successor or assign, any surplus resulting therefrom. The remedies specified in this Agreement are cumulative, may be exercised in such order and with respect to such Collateral as TBCC may deem desirable and are not intended to be exclusive, and the full or partial exercise of any of them shall not preclude the full or partial exercise of any other available remedy under this Agreement, under any other Loan Document, at equity or at law. TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- -11- 7.7. Waivers. Borrower hereby waives any bonds, secu-rity or sureties ------- required by any statute, rule or any other law as an incident to any taking of possession by TBCC of any Collateral. Borrower also waives any damages (direct, consequential or otherwise) occasioned by the en-forcement of TBCC's rights under this Agreement or any other Loan Document including the taking of posses-sion of any Collateral or the giving of notice to any account debtor or the collection of any Receivable or other Collateral (other than damages that are the result of acts or omissions constituting gross negligence or willful miscon-duct of TBCC). These waivers and all other waivers provided for in this Agreement and the other Loan Documents have been negotiated by the parties and Borrower acknowledges that it has been represented by counsel of its own choice and has consulted such counsel with respect to its rights hereunder. 7.8. Right to Make Payments. In the event that Borrower shall fail to ----------------------- purchase or maintain insurance re-quired hereunder, or to pay any tax, assessment, government charge or levy, except as the same may be otherwise permit-ted hereunder, or in the event that any Lien prohibited hereby shall not be paid in full or discharged, or in the event that Borrower shall fail to perform or comply with any other covenant, promise or obligation to TBCC here-under or under any other Loan Document, TBCC may (but shall not be required to) perform, pay, satisfy, discharge or bond the same for the account of Borrower, and all amounts so paid by TBCC shall be treated as a Loan hereunder to Borrower and shall constitute part of the Obligations. 8. Assignments and Participations. -------------------------------- 8.1. Assignments. Borrower shall not assign this Agreement or any right or ----------- obligation hereunder without the prior written consent of TBCC. TBCC may assign (without the consent of Borrower) to one or more Persons all or a portion of its rights and obligations under this Agreement and the other Loan Documents. 8.2. Participations. TBCC may sell participations in or to all or a portion -------------- of its rights and obligations under this Agreement (including, without limitation, all or a por-tion of the Loans); provided, however, that TBCC's obligations under this Agreement shall remain unchanged. 8.3. Disclosure. TBCC may, in connection with any permitted assignment or ---------- participation or proposed as-signment or participation pursuant to this Agreement, dis-close to the assignee or participant or proposed assignee or participant any information relating to Borrower furnished to TBCC by or on behalf of Borrower. 9. DEFINITIONS. ----------- 9.1. General Definitions. As used herein, the following terms shall have -------------------- the meanings herein specified (to be equally applicable to both the singular and plural forms of the terms defined): (a) Affiliate means as to any Person, any other Person who directly or --------- indirectly controls, is under common control with, is controlled by or is a director or officer of such Person. As used in this definition, "control" (including its correlative meanings, "controlled by" and "un-der common control with") means possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of vot-ing securities or partnership or other ownership interests, by contract or otherwise), provided that, in any event, any Person who owns directly or indirectly twenty percent (20%) or more of the securities having ordinary voting power for the election of the members of the board of direc-tors or other governing body of a corporation or twenty per-cent (20%) or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corpo-ration, partnership or other Person. (b) Agreement means this Loan and Security Agreement, as amended, --------- supplemented or otherwise modi-fied from time to time. (c) Auditors means a nationally recognized firm of in-dependent public -------- accountants selected by Borrower and rea-sonably satisfactory to TBCC. (d) Bankruptcy Code means Title 11 of the United States Code entitled ---------------- "Bankruptcy," as that title may be amended from time to time, or any successor statute. (e) Borrowing means a borrowing of Loans. --------- (f) Business Day means any day other than a Saturday, Sunday or any other -------- day on which commercial banks in Chicago, Illinois are re-quired or permitted by law to close. (g) Cash Equivalents means (i) securities issued, guaranteed or insured by --------------- the United States or any of its agencies with maturities of not more than one year from the date acquired; (ii) certificates of deposit with maturities of not more than one year from the date acquired, issued by any U.S. federal or state chartered commercial bank of recog-nized standing which has capital and unimpaired surplus in excess of $100,000,000; (iii) investments in money market funds registered under the Investment Company Act of 1940; and (iv) other instruments, commercial paper or investments acceptable to TBCC in its sole discre-tion. (h) Collateral means Receivables, Investment Property, Inventory, --------- Equipment, and Other Property, and all additions and acces-sions thereto and substitutions and replacements therefor and improvements thereon, and all TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- -12- proceeds (whether cash or other property) and products thereof, including, without lim-itation, all proceeds of insurance covering the same and all tort claims in connection therewith, and all records, files, computer programs and files, data and writings relating to the foregoing, and all equipment containing the foregoing *. * , PROVIDED THAT THE FOREGOING SHALL NOT INCLUDE EQUIPMENT THAT IS THE SUBJECT OF ANY PURCHASE MONEY LIEN TO THE EXTENT THE AGREEMENTS AND CONTRACTS GIVING RISE TO ANY SUCH PURCHASE MONEY LIEN PROHIBIT THE GRANT OF A SECURITY INTEREST THEREIN (i) Collections means all cash, funds, checks, notes, instruments, any ----------- other form of remittance tendered by ac-count debtors in respect of payment of Receivables and any other payments received by Borrower with respect to any other Collateral. (j) Compliance Certificate means a certificate as to compliance with the ----------------------- Obligations, on TBCC's stan-dard form (in effect from time to time). (k) Contingent Obligation means any direct, indirect, contingent or ---------------------- on-contingent guaranty or obligation for the Indebtedness of another Person, except endorsements in the ordinary course of business. (l) Default means any of the events specified in Section 7.1, whether or ------- not any of the requirements for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. (m) [Reserved] -------- (n) [Reserved] -------- (o) Equipment means all machinery, equipment, furniture, fixtures, --------- conveyors, tools, materials, storage and handling equipment, hydraulic presses, cutting equipment, computer equipment and hardware, including central process-ing units, terminals, drives, memory units, printers, key-boards, screens, peripherals and input or output devices, molds, dies, stamps, vehicles, and other equipment of every kind and nature and wherever situated now or hereafter owned by Borrower or in which Borrower may have any in-terest as lessee or otherwise (to the extent of such interest), together with all additions and accessions thereto, all re-placements and all accessories and parts therefor, all manu-als, blueprints, know-how, warranties and records in connec-tion therewith, all rights against suppliers, warrantors, manufacturers, sellers or others in connection therewith, and together with all substitutes for any of the foregoing. (p) Event of Default means the occurrence of any of the events specified in ---------------- Section 7.1. (q) Financial Statements means the balance sheets, profit and loss --------------------- statements, statements of cash flow, and statements of changes in intercompany accounts, if any, for the period specified, prepared in accordance with GAAP and consistent with prior practices. (r) GAAP means generally accepted accounting prin-ciples set forth in the ---- opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pro-nouncements of the Financial Accounting Standards Board that are applicable to the circumstances as of the date of de-termination. Whenever any accounting term is used herein which is not otherwise defined, it shall be interpreted in ac-cordance with GAAP. (s) Good Faith means "good faith" as defined in the Uniform Commercial ---------- Code, from time to time in effect in the State of Illinois. (t) Governing Documents means the articles or cer-tificate of incorporation ------------------- and by-laws of Borrower. (u) Governmental Authority means any nation or government, any state or ----------------------- other political subdivision thereof or any entity exercising executive, legislative, judicial, reg-ulatory or administrative functions thereof or pertaining thereto. (v) Guarantor means any present or future guarantor of any or all of the --------- Obligations. (w) Indebtedness means, with respect to any Person, as of the date of ------------ determination any indebtedness, liability or obligation of such Person (including without limitation obligations under capital leases and Contingent Obligations). (x) Insolvency Event means, with respect to any Person, the occurrence of ---------------- any of the following: (a) such Person shall be adjudicated insolvent or bankrupt, or shall generally fail to pay or admit in writing its inability to pay its debts as they become due, (b) such Person shall seek dissolution or reorganization or the appointment of a re-ceiver, trustee, custodian or liquidator for it or a substantial portion of its property, assets or business or to effect a plan or other arrangement with its creditors, (c) such Person shall make a general assignment for the benefit of its credi-tors, or consent to or acquiesce in the appointment of a re-ceiver, trustee, custodian or liquidator for a substantial por-tion of its property, assets or business, (d) such Person shall file a voluntary petition under any bankruptcy, insol-vency or similar law or take any corporate or similar act in furtherance thereof, or (e) such Person, or a substantial por-tion of its property, assets or business shall become the subject of an involuntary proceeding or petition for its dis-solution, reorganization, and such proceeding is not dis-missed or stayed within sixty days, or the appointment of a receiver, trustee, custodian or liquidator, and such receiver is not dismissed within sixty days. (y) Inventory means all present and future goods in-tended for sale, lease --------- or other disposition by Borrower in-cluding, without limitation, all raw materials, work in pro-cess, finished goods and other retail inventory, goods in the possession of outside processors or other third parties, goods consigned to Borrower to the extent of its interest therein as consignee, materials and supplies of any kind, na-ture or description which are or might be used in connection with the manufacture, packing, shipping, advertising, sell-ing or finishing of any such goods, and all documents of ti-tle or documents representing the same. (z) Investment in any Person means, as of the date of determination ---------- thereof, any payment or contribution, or commitment to make a payment or contribution, by any Person including, without limitation, property contributed or committed to be contributed by any Person, on its ac-count for or in connection with its acquisition of any stock, bonds, notes, debentures, partnership or other ownership in-terest or any other security of the Person in TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- -13- whom such Investment is made or any evidence of indebtedness by rea-son of a loan, advance, extension of credit, guaranty or other similar obligation for any debt, liability or indebtedness of such Person in whom the Investment is made. (aa) Investment Property means any and all investment property of Borrower, ------------------- including all securities, whether certificated or uncertificated, security entitlements, securities accounts, commodity contracts and commodity accounts, and all financial assets held in any securities account or otherwise, wherever located, and whether now existing or hereafter acquired or arising. (bb) Lien means any lien, claim, charge, pledge, secu-rity interest, ---- assignment, hypothecation, deed of trust, mortgage, lease, conditional sale, retention of title or other preferential arrangement having substantially the same eco-nomic effect as any of the foregoing, whether voluntary or imposed by law. (cc) Loan Account has the meaning specified in Section 1.3. ------------ (dd) Loan Documents means this Agreement and all present and future --------------- documets and instruments delivered or to be delivered by Borrower or any of its Affiliates or any Guarantor under, in connection with or relating to this Agreement, or any other present or future instrument or agreement between TBCC and Borrower, as each of the same may be amended, supplemented or otherwise modi-fied from time to time. (ee) Loans means the loans and financial accommoda-tions made by TBCC ----- hereunder. (ff) Material Adverse Effect means (i) a material ad-verse effect on the ------------------------ business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of Borrower, (ii) the impairment of Borrower's ability to perform its obligations under the Loan Documents to which it is a party or of TBCC to en-force the Obligations or realize upon the Collateral or (iii) a material adverse effect on the value of the Collateral or the amount which TBCC would be likely to receive (after giving consideration to delays in payment and costs of en-forcement) in the liquidation of the Collateral. (gg) Material Contract means any contract or other ar-rangement to which ------------------ Borrower is a party (other than the Loan Documents) for which breach, nonperformance, can-cellation or failure to renew could have a Material Adverse Effect. (hh) Obligations means and includes all loans (including the Loans), ----------- advances, debts, liabilities, obliga-tions, covenants and duties owing by Borrower to TBCC of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other in-strument, whether or not arising under or in connection with, this Agreement, any other Loan Document or any other present or future instrument or agreement, whether or not for the payment of money, whether arising by reason of an extension of credit, opening, guaran-teeing or confirming of a letter of credit, loan, guaranty, in-demnification or in any other manner, whether direct or indi-rect (including those acquired by assignment, purchase, dis-count or otherwise), whether absolute or contingent, due or to become due, now due or hereafter arising and however ac-quired (including without limitation all loans previously made by TBCC to Borrower). The term includes, without limitation, all interest (including interest accruing on or after an Insolvency Event, whether or not an allowed claim), charges, expenses, com-mitment, facility, closing and collateral management fees, letter of credit fees, reasonable attorneys' fees, and any other sum properly chargeable to Borrower under this Agreement, the other Loan Documents or any other present or future agreement between TBCC and Borrower. (ii) Other Property means all present and future: in-struments, documents, -------------- documents of title, securities, bonds, notes, promissory notes, drafts, acceptances, letters of credit and rights to receive proceeds of letters of credit, deposit accounts, chattel paper, certificates, insurance policies, insurance proceeds, leases, computer tapes, causes of action, judgments, claims against third par-ties, leasehold rights in any personal property, books, ledgers, files and records, general intangibles (including without limitation, all contract rights, tax refunds, rights to receive tax refunds, patents, patent applications, copyrights (registered and unregistered), royalties, licenses, permits, franchise rights, authorizations, customer lists, rights of in-demnification, contribution and subrogation, computer pro-grams, discs and software, trade secrets, computer service contracts, trademarks, trade names, service marks and names, logos, goodwill, deposits, choses in action, designs, blueprints, plans, know-how, telephone numbers and rights thereto, credits, reserves, and all forms of obligations what-soever now or hereafter owing to Borrower), all property at any time in the possession or under the control of TBCC, and all security given by Borrower to TBCC pursuant to any other Loan Document or agreement. (jj) Permitted Liens means such of the following as to which no ----------------- enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced and be continuing: (i) Liens for taxes, assessments and other gov-ernmental charges or levies or the claims or demands of landlords, carriers, warehousemen, mechanics, laborers, materialmen and other like Persons arising by operation of law in the ordinary course of business for sums which are not yet due and payable, (ii) deposits or pledges to secure the payment of workmen's compensation, unemployment insurance or other social security benefits or obligations, public or statutory obligations, surety or ap-peal bonds, bid or performance bonds, or other obligations of a like nature incurred in the ordinary course of business (but nothing in this clause (ii) shall permit the creation of Liens on Receivables, Investment Property, Inventory or Other Property), (iii) zoning restrictions, easements, encroachments, li-censes, TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- -14- restrictions or covenants on the use of property which do not materially impair either the use of the property in the operation of the business of Borrower or the value of the property, (iv) rights of general application re-served to or vested in any municipality or other governmen-tal, statutory or public authority to control or regulate prop-erty, or to use property in a manner which does not materi-ally impair the use of the property for the purposes for which it is held by Borrower, (v) state and municipal Liens for personal property taxes which are not yet due and payable, and (vi) Purchase Money Liens. (kk) Person means any individual, sole proprietor-ship, partnership, joint ------ venture, limited liability company, trust, unincorporated orga-nization, joint stock company, association, corporation, in-stitution, entity, party or government (including any divi-sion, agency or department thereof) or any other legal en-tity, whether acting in an individual, fiduciary or other ca-pacity, and, as applicable, the successors, heirs and assigns of each. (ll) Plan means any employee benefit plan, program or arrangement ---- maintained or contributed to by Borrower or with respect to which it may incur liability. (mm) Purchase Money Lien means a Lien on any item of Equipment created --------------------- substantially simultaneously with the acquisition of such Equipment for the purpose of financing such acquisition, provided that such Lien shall attach only to the Equipment acquired. (nn) Qualification or Qualified means, with respect to any report of ---------------------------- Auditors covering Financial Statements, a material qualification to such report (i) resulting from a limitation on the scope of examination of such Financial Statements or the underlying data, (ii) as to the capability of Borrower to continue operations as a go-ing concern or (iii) which could be eliminated by changes in Financial Statements or notes thereto covered by such re-port (such as by the creation of or increase in a reserve or a decrease in the carrying value of assets) and which if so eliminated by the making of any such change and after giv-ing effect thereto would result in a Default or an Event of Default. (oo) Receivables means all present and future accounts and accounts ----------- receivable, together with all security therefor and guaranties thereof and all rights and remedies relating thereto, including any right of stoppage in transit. (pp) Requirement of Law means (a) the Governing Documents, (b) any law, ------------------- treaty, rule, regulation, order or determination of an arbitrator, court or other Governmental Authority or (c) any franchise, license, lease, permit, cer-tificate, authorization, qualification, easement, right of way, right or approval binding on Borrower or any of its prop-erty. (qq) Schedule means the Schedule to this Agreement being signed -------- concurrently by Borrower and TBCC, as amended from time to time. (rr) Solvent means when used with respect to any Person that as of the date ------- as to which such Person's sol-vency is to be measured: (a) the fair salable value of its as-sets is in excess of the total amount of its liabilities (including contingent liabilities as valued in accordance with applicable law) as they become absolute and matured; (b) it has sufficient capital to conduct its business; and (c) it is able to meet its debts as they mature. (ss) Subsidiary means, as to any Person, a corpora-tion or other entity in ---------- which that Person directly or indi-rectly owns or controls shares of stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or appoint other managers of such corporation or other entity. 9.2. Accounting Terms and Determinations. Unless oth-erwise defined or -------------------------------------- specified herein, all accounting terms used in this Agreement shall be construed in accordance with GAAP, applied on a basis consistent in all material respects with the Financial Statements delivered to TBCC on or before the date of this Agreement. All accounting deter-minations for purposes of determining compliance with this Agreement shall be made in accordance with GAAP as in ef-fect on the date of this Agreement and applied on a basis consistent in all material respects with the audited Financial Statements delivered to TBCC on or before the date of this Agreement. The Financial Statements required to be delivered hereunder, and all financial records, shall be main-tained in accordance with GAAP. If GAAP shall change from the basis used in preparing the audited Financial Statements delivered to TBCC on or before the date of this Agreement, the Compliance Certificates required to be delivered pursuant to this Agreement shall include calcu-lations setting forth the adjustments necessary to demon-strate how Borrower is in compliance with the Financial Covenants (if any) based upon GAAP as in effect on the date of this Agreement. 9.3. Other Terms; Headings; Construction. Unless otherwise defined herein, ------------------------------------ terms used herein that are defined in the Uniform Commercial Code, from time to time in effect in the State of Illinois, shall have the meanings set forth therein. Each of the words "hereof," "herein," and "hereunder" refer to this Agreement as a whole. The term "including", when-ever used in this Agreement, shall mean "including (but not limited to)". An Event of Default shall "continue" or be "continuing" unless and until such Event of Default has been waived or cured within the grace period specified therefor under Section 7.1. References to Articles, Sections, Annexes, Schedules, and Exhibits are internal ref-erences to this Agreement, and to its attachments, unless otherwise specified. The headings and any Table of Contents are for convenience only and shall not affect the meaning or construction of any provision of this Agreement. This Agreement has been fully reviewed and negotiated between the parties and no uncertainty or ambiguity in any term or provision of this Agreement shall be construed strictly against TBCC or Borrower under any rule of construction or otherwise. 10. GENERAL PROVISIONS. -------------------- TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- -15- 10.1. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS ------------- AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS. 10.2. SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN THE BORROWER AND --------------------------- TBCC, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT TBCC SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED BY TBCC IN GOOD FAITH TO ENABLE TBCC TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF TBCC. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY TBCC. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH TBCC HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS. 10.3. SERVICE OF PROCESS. THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT ------------------ CORPORATION SYSTEM, 1209 ORANGE STREET, WILMINGTON, DELAWARE 19801, AS THE DESIGNEE AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF THE BORROWER, SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. IT IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED ON SUCH AGENT AT ITS ADDRESS WILL BE PROMPTLY FORWARDED BY MAIL TO THE BORROWER, BUT THE FAILURE OF THE BORROWER TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. 10.4. LIMITATION OF LIABILITY. TBCC SHALL HAVE NO LIABILITY TO THE BORROWER ----------------------- (WHETHER SOUNDING IN TORT, CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY THE BORROWER IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OR COURT ORDER OR, IN THE CASE OF A BINDING ARBITRATION PROCEEDING, IF AGREED TO BE ENTERED INTO BY THE PARTIES HERETO IN THE SOLE DISCRETION OF EACH OF THE PARTIES, UPON THE ISSUANCE OF A FINAL AND NONAPPEALABLE DECISION ARISING FROM ANY SUCH PROCEEDING, BINDING ON TBCC THAT THE LOSSES WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF TBCC. THE BORROWER HEREBY WAIVES ALL FUTURE CLAIMS AGAINST TBCC FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES. * OR, IN THE CASE OF A BINDING ARBITRATION PROCEEDING, IF AGREED TO BE ENTERED INTO BY THE PARTIES HERETO IN THE SOLE DISCRETION OF EACH OF THE PARTIES, UPON THE ISSUANCE OF A FINAL AND NONAPPEALABLE DECISION ARISING FROM ANY SUCH PROCEEDING, 10.5. Delays; Partial Exercise of Remedies. No delay or omission of TBCC to ------------------------------------ exercise any right or remedy hereunder shall impair any such right or operate as a waiver thereof. No single or partial exercise by TBCC of any right or remedy shall preclude any other or further exer-cise thereof, or preclude any other right or remedy. 10.6. Notices. Except as otherwise provided herein, all notices and ------- correspondence hereunder shall be in writing and sent by certified or registered mail, return receipt requested, by overnight delivery service, with all charges prepaid, or by telecopier followed by a hard copy sent by regular mail, to the parties at their addresses set forth in the heading to this Agreement. All such notices and correspondence shall be deemed given (i) if sent by certified or registered mail, three Business Days after being postmarked, (ii) if sent by overnight delivery service, when received at the above stated addresses or when delivery is refused and (iii) if sent by telecopier transmission, when receipt of such transmission is acknowledged. Borrower's and TBCC's telecopier numbers for purpose of notice hereunder are set forth in the Schedule; each party's number may be changed by written notice to the other party. 10.7. Indemnification; Reimbursement of Expenses of Collection. Borrower --------------------------------------------------------- hereby indemnifies and agrees, whether or not any of the transactions contemplated by this Agreement or the other Loan Documents are consummated, to defend and hold harmless (on an after-tax basis) TBCC, its successors and assigns and their respective directors, officers, agents, employees, advisors, sharehold-ers, attorneys and Affiliates (each, an "Indemnified Party") from and against any and all losses, claims, damages, liabil-ities, deficiencies, obligations, fines, penalties, actions (whether threatened or existing), judgments, suits (whether threatened or existing) or expenses (including, without limi-tation, reasonable fees and disbursements of counsel, ex-perts, consultants and other professionals) incurred by any of them (collectively, "Claims") (except, in the case of each Indemnified Party, to the extent that any TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- -16- Claim is deter-mined in a final and non-appealable judgment by a court of competent jurisdiction to have directly resulted from such Indemnified Party's gross negligence or willful misconduct) arising out of or by reason of (i) any litigation, investiga-tion, claim or proceeding which arises out of or is related to (A) Borrower, or this Agreement, any other Loan Document or the transactions contemplated hereby or thereby, (B) any actual or proposed use by Borrower of the proceeds of the Loans, or (C) TBCC's entering into this Agreement or any other Loan Document or any other agreements and documents relating hereto, including, with-out limitation, amounts paid in settlement, court costs and the reasonable fees and disbursements of counsel incurred in connection with any such litigation, investigation, claim or proceeding, (ii) any remedial or other action taken by Borrower in connection with compliance by Borrower, or any of its properties, with any federal, state or local envi-ronmental laws, rules or regulations, and (iii) any pending, threatened or actual action, claim, proceeding or suit by any shareholder or director of Borrower or any actual or pur-ported violation of Borrower's charter, by-laws or any other agreement or instrument to which Borrower is a party or by which any of its properties is bound. In addition and with-out limiting the generality of the foregoing, Borrower shall, upon demand, pay to TBCC all reasonable costs and expenses incurred by TBCC (including the reasonable fees and disbursements of counsel and other professionals) in connection with the preparation, execution, delivery, ad-ministration, modification and amendment of the Loan Documents, and pay to TBCC all reasonable costs and expenses (including the reasonable fees and disburse-ments of counsel and other professionals) paid or incurred by TBCC in order to enforce or defend any of its rights under or in respect of this Agreement, any other Loan Document or any other document or instrument now or hereafter executed and delivered in connection herewith, col-lect the Obligations or otherwise administer this Agreement, foreclose or otherwise realize upon the Collateral or any part thereof, prosecute ac-tions against, or defend actions by, account debtors; commence, intervene in, or defend any action or proceed-ing; initiate any complaint to be relieved of the automatic stay in bankruptcy; file or pros-ecute any probate claim, bankruptcy claim, third-party claim, or other claim; exam-ine, audit, copy, and inspect any of the Collateral or any of Borrower's books and records; protect, obtain possession of, lease, dispose of, or otherwise enforce TBCC's secu-rity interest in, the Collateral; and otherwise represent TBCC in any litigation relat-ing to Borrower. Without limiting the generality of the foregoing, Borrower shall pay TBCC a fee with respect to each wire transfer in the amount of $15 plus all bank charges and a fee of $15 for all returned checks plus all bank charges. If either TBCC or Borrower files any lawsuit against the other predicated on a breach of this Agreement, the prevailing party in such action shall be enti-tled to recover its reason-able costs and attorneys' fees, in-cluding (but not limited to) reasonable attorneys' fees and costs incurred in the en-forcement of, execution upon or de-fense of any order, de-cree, award or judgment. If and to the extent that the Obligations of Borrower hereunder are unen-forceable for any reason, Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of the Obligations which is permissible under applicable law. Borrower's obligations under Section 2.4 and this Section shall survive any termination of this Agreement and the other Loan Documents and the payment in full of the Obligations, and are in addition to, and not in substitution of, any of the other Obligations. 10.8. Amendments and Waivers. Any provision of this Agreement or any other ---------------------- Loan Document may be amended or waived if, but only if, such amendment or waiver is in writ-ing and signed by Borrower and TBCC and then any such amendment or waiver shall be effective only to the ex-tent set forth therein. The failure of TBCC at any time or times to require Borrower to strictly comply with any of the pro-visions of this Agreement or any other present or future agreement between Borrower and TBCC shall not waive or diminish any right of TBCC later to demand and re-ceive strict compliance therewith. Any waiver of any de-fault shall not waive or affect any other default, whether prior or subsequent, and whether or not similar. None of the provisions of this Agreement or any other agreement now or in the future executed by Borrower and delivered to TBCC shall be deemed to have been waived by any act or knowledge of TBCC or its agents or employees, but only by a specific written waiver signed by an authorized officer of TBCC and delivered to Borrower. 10.9. Counterparts; Telecopied Signatures. This Agreement and any waiver or ----------------------------------- amendment hereto may be ex-ecuted in counterparts and by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but both of which shall together con-stitute one and the same instrument. This Agreement and each of the other Loan Documents and any notices given in connection herewith or therewith may be executed and deliv-ered by telecopier or other facsimile transmission all with the same force and effect as if the same was a fully executed and delivered original manual counterpart. 10.10. Severability. In case any provision in or obligation under this ------------ Agreement or any other Loan Document shall be invalid, illegal or unenforceable in any jurisdiction, the va-lidity, legality and enforceability of the remaining provi-sions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 10.11. Joint and Several Liability. If Borrower consists of more than one --------------------------- Person, their liability shall be joint and several, and the compromise of any claim with, or the re-lease of, any Borrower shall not constitute a compromise with, or a release of, any other Borrower. 10.12. Maximum Rate. Notwithstanding anything to the contrary contained ------------ elsewhere in this Agreement or in any other Loan Document, the parties hereto hereby agree that all agreements between them under this Agreement and the other Loan Documents, whether now existing or hereafter arising and whether written or oral, are expressly limited so that in no contingency or event whatsoever shall TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- -17- the amount paid, or agreed to be paid, to TBCC for the use, forbearance, or detention of the money loaned to Borrower and evidenced hereby or thereby or for the perfor-mance or payment of any covenant or obligation contained herein or therein, exceed the maximum non-usurious inter-est rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Obligations, under the laws of the State of Illinois (or the laws of any other jurisdiction whose laws may be mandatorily applicable notwithstanding other provisions of this Agreement and the other Loan Documents), or under applicable federal laws which may presently or hereafter be in effect and which allow a higher maximum non-usurious interest rate than under the laws of the State of Illinois (or such other jurisdiction), in any case after taking into ac-count, to the extent permitted by applicable law, any and all relevant payments or charges under this Agreement and the other Loan Documents executed in connection herewith, and any available exemptions, exceptions and exclusions (the "Highest Lawful Rate"). If due to any circumstance what-soever, fulfillment of any provisions of this Agreement or any of the other Loan Documents at the time performance of such provision shall be due shall exceed the Highest Lawful Rate, then, automatically, the obligation to be ful-filled shall be modified or reduced to the extent necessary to limit such interest to the Highest Lawful Rate, and if from any such circumstance TBCC should ever receive anything of value deemed interest by applicable law which would exceed the Highest Lawful Rate, such excessive in-terest shall be applied to the reduction of the principal amount then outstanding hereunder or on account of any other then outstanding Obligations and not to the payment of interest, or if such excessive interest exceeds the principal unpaid balance then outstanding hereunder and such other then outstanding Obligations, such excess shall be refunded to Borrower. All sums paid or agreed to be paid to TBCC for the use, forbearance, or detention of the Obligations and other indebtedness of Borrower to TBCC shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of such indebtedness, until payment in full thereof, so that the actual rate of interest on account of all such indebtedness does not exceed the Highest Lawful Rate throughout the entire term of such indebtedness. The terms and provisions of this Section shall control every other pro-vision of this Agreement, the other Loan Documents and all other agreements between the parties hereto. 10.13. Entire Agreement; Successors and Assigns. This Agreement and the -------------------------------------------- other Loan Documents constitute the en-tire agreement between the parties, supersede any prior writ-ten and verbal agreements between them, and shall bind and benefit the parties and their respective successors and per-mitted assigns. There are no oral under-standings, oral representations or oral agreements - -------------------------------------------------------------------------------- between the par-ties which are not set forth in this Agreement or in other - -------------------------------------------------------------------------------- written agreements signed by the parties in connection herewith. - -------------------------------------------------------------------------------- 10.14. MUTUAL WAIVER OF JURY TRIAl. TBCC and Borrower each hereby waive the ---------------------------- right to trial by jury in any action or proceeding based upon, arising out of, or in any way relating to: (i) this Agreement; or (ii) any other present or future instrument or agreement between TBCC and Borrower; or (iii) any conduct, acts or omissions of TBCC or Borrower or any of their directors, officers, em-ployees, agents, attorneys or any other persons affiliated with TBCC or Borrower; in each of the foregoing cases, whether sounding in contract or tort or otherwise. Borrower: LifeCell Corporation By ------------------------------------ Title ---------------------------- TBCC: TRANSAMERICA BUSINESS CREDIT CORPORATION By ------------------------------------ Title ---------------------------- Form-10 Version: -4 TBCC LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- -18- SCHEDULE - -------------------------------------------------------------------------------- TBCC Schedule to Loan and Security Agreement Borrower: LifeCell Corporation Address: One Millenium Way Branchburg, New Jersey 08867 Date: December 6, 1999 This Schedule is an integral part of the Loan and Security Agreement between TRANSAMERICA BUSINESS CREDIT CORPORATION ("TBCC") and the above borrower ("Borrower") of even date herewith. Credit Limit (Section 1.1): An amount (the "Credit Limit") not to exceed the lesser of $6,000,000 OR the sum of (A) and (B) below: (A) Revolving Loans. Loans (the "Revolving Loans") in an ---------------- amount not to exceed the Applicable Revolving Sublimit (as defined below); PLUS (B) Term Loans. Loans (each a "Term Loan" and collectively ---------- referred to as the "Term Loans") in an amount not to exceed the Applicable Term Sublimit (as defined below) at any one time outstanding. The term "Applicable Revolving Sublimit" shall mean ---------------------------------- $3,000,000. The term "Applicable Term Sublimit" shall mean (a) ----------------------------- $3,000,000, if the NJEDA Guaranty (as defined below) is in effect and has not been revoked and the NJEDA Participation (as defined below) has been effected. The term "NJEDA Guaranty" shall mean a guaranty by the New ----------------- Jersey Economic Development Authority ("NJEDA") in favor of TBCC, in such form, having such provisions and relating to such aggregate amount of Borrower's debt as are acceptable to TBCC in its discretion. The term "NJEDA Participation" shall mean a participation by --------------------- NJEDA in the Term Loans in such amounts and pursuant to such documentation and agreements as are acceptable to TBCC in its discretion. TBCC SCHEDULE TO LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- Term Loans. ----------- Each Term Loan shall be in the minimum amounts established by TBCC from time to time. Term Loans may be drawn down through March 15, 2000 only. Term Loans may not be repaid and reborrowed. Term Loans shall be repaid as follows: (i) interest only for the period from the date on which any portion of the Term Loan is disbursed through May 31, 2000; and (ii) thereafter, with respect to the aggregate principal amount of Term Loans outstanding, 30 equal amortized consecutive monthly installments of principal and interest, commencing on June 1, 2000 and continuing through and including November 1, 2002. Notwithstanding anything herein to the contrary, any unpaid principal balance of the Term Loans and all sums due in connection therewith shall be due in full on any termination of this Loan Agreement for any reason. At the request of TBCC, Borrower shall execute and deliver Notes, on TBCC's standard form, evidencing the Term Loans. 2. Interest. (Section 2.1): Revolving Loans: The interest rate in effect throughout each --------------- calendar month during the term of this Agreement shall be the highest "Base Rate" in effect during such month, plus 3.00% per annum, provided that the interest rate in effect in each month shall not be less than 9.00% per annum, and provided that the interest charged for each month with respect to Revolving Loans shall be a minimum of $5,000, regardless of the amount of the Obligations outstanding. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. "Base Rate" shall mean the higher of (a) the highest prime, base or equivalent rate of interest announced from time to time by Citibank, N.A., First National Bank of Chicago and Bank of America National Trust and Savings Association (which may not be the lowest rate of interest charged by such bank) and (b) the published annualized rate for 90-day dealer commercial paper which appears in the "Money Rates" section of The Wall Street Journal. -2- TBCC SCHEDULE TO LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- Term Loans: The Term Loans shall bear interest at the rate ---------- of 13.23% per annum; provided that TBCC shall have the right to increase said interest rate applicable to a Term Loan, as of the date any Term Loan is made, proportionally to any increase in the weekly average of the interest rates of three-year U.S. Treasury Securities (as published in the Wall St. Journal) from the week ending October 1, 1999 to the week preceding the date of disbursement of such Term Loan. 3. Fees: Loan Fee (Section 2.2): $60,000, payable concurrently herewith. TBCC agrees that any amounts outstanding after the application of the application fee that the Borrower paid to the costs and expenses hereunder shall be applied to the foregoing loan fee. Termination Fee (Section 1.6(b)): An amount equal to $4,000 multiplied by each month (or portion thereof) from the effective date of termination to the Revolving Loan Maturity Date, which Termination Fee shall be payable on the date of termination, provided that the amount thereof shall not exceed $24,000. 4. REVOLVING LOAN Maturity Date (Section 1.6): December 30, 2000 (the "Maturity Date"), subject to automatic renewal and early termination as provided in Section 1.6 above. 5. Reporting (Section 5.10): Borrower shall provide TBCC with the following reports: (a) Quarterly Financial Statements. Quarterly unaudited -------------------------------- financial statements, as soon as available, and in any event within 45 days after the end of each fiscal quarter of Borrower and copies of all statements, reports and notices sent or made available generally by Borrower to its security holders and all reports on Form 10-Q filed with the Securities and Exchange Commission. (b) Annual Financial Statements. As soon as available, but --------------------------- not later than 90 days after the end of the Borrower's fiscal year, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders and all reports on Form 10-K filed with the Securities and Exchange Commission. 6. Borrower Information: (a) Prior Names of Borrower (Section 4.11): None (b) Prior Trade Names of Borrower (Section 4.11): None (c) Existing Trade Names of Borrower (Section 4.11): None (d) Other Places of Business and Locations of Collateral (Section 4.2): None -3- TBCC SCHEDULE TO LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- 7. FACSIMILE NUMBERS: Borrower: To be provided under separate letter TBCC: 860-677-6466 8. CLOSING DEADLINE (Section 1.8): December 15, 1999 9. ADDITIONAL PROVISIONS: (a) Guaranty; Participation. Borrower shall concurrently ------------------------ herewith cause NJEDA to deliver to TBCC the NJEDA Guaranty and the NJEDA Participation. (b) Warrants. The Borrower shall concurrently herewith issue -------- to TBCC or its designee five-year warrants to purchase 84,211 shares of common stock of the Borrower, at an initial exercise price of $4.75 per share, on TBCC's standard form of warrant, together with anti-dilution protection and registration rights relating thereto all as more specifically set forth in such warrant agreement. Borrower: LifeCell Corporation TBCC: ANSAMERICA BUSINESS CREDIT CORPORATION By By ------------------------------- -------------------------------- President or Vice President Title -------------------------------- Form-10 Version: -4 -4- REVOLVING NOTE - -------------------------------------------------------------------------------- REVOLVING CREDIT NOTE $3,000,000 Chicago, Illinois December 6, 1999 FOR VALUE RECEIVED, LifeCell Corporation, a Delaware corporation having its chief executive office and principal place of business at One Millenium Way, Branchburg, New Jersey 08867 (the "Borrower"), hereby unconditionally and absolutely promises to pay to the order of TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware corporation ("TBCC"), on the Maturity Date, at TBCC's office at 9399 West Higgins Road, Suite 600, Rosemont, Illinois 60018, or at such other location as TBCC may from time to time designate, in lawful money of the United States of America and in immediately available funds, the principal amount equal to $3,000,000 or such greater or lesser amount as represents the aggregate unpaid principal amount of all Loans made by TBCC to the Borrower under the revolving credit facility made available pursuant to the Loan and Security Agreement between TBCC and Borrower dated December 6, 1999 (the "Loan Agreement"). The Borrower further promises to pay interest in like money and funds at TBCC's office specified above (or at such other location as TBCC may from time to time designate) on the unpaid principal amount hereof from time to time outstanding from and including the date hereof until paid in full (both before and after judgment) at the rates and on the dates set forth in the Loan Agreement. All capitalized terms used herein which are not defined herein shall have the meanings ascribed to such terms in the Loan Agreement. The holder of this Note is authorized to record the date and amount of each Loan evidenced by this Note, the date and amount of each payment or prepayment of principal hereof and the interest rate with respect thereto on a schedule attached hereto, or on a continuation of such schedule attached hereto and made a part hereof, and any such notation shall be conclusive and binding for all purposes absent manifest error; provided, however, that the failure of TBCC to -------- ------- make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Loan Agreement. Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, the payment may be made on the next succeeding Business Day and such extension of time shall be included in the computation of the amount of interest due hereunder. This Note is entitled to the benefit of all terms and conditions of, and the security of all security interests, liens, mortgages, deeds of trust and rights granted pursuant to, the Loan Agreement and the other Loan Documents, and is subject to optional and mandatory prepayment as provided therein. Upon the occurrence of any one or more Events of Default, all amounts then remaining unpaid on this Note may be declared to be or may automatically become immediately due and payable as provided in the Loan Agreement. The Borrower acknowledges that the holder of this Note may assign, transfer or sell all or a portion of its rights and interests to and under this Note to one or more Persons as provided in the Loan Agreement and that such Persons shall thereupon become vested with all of the rights and benefits of TBCC in respect hereof as to all or that portion of this Note which is so assigned, transferred or sold. In the event of any conflict between the terms hereof and the terms and provisions of the Loan Agreement, the terms and provisions of the Loan Agreement shall control. The Borrower and all other parties that at any time may be liable hereupon in any capacity, jointly or severally, waive presentment, demand for payment, protest and notice of dishonor of this Note and authorize the holder hereof, without notice, to increase or decrease the rate of interest on any amount owing 2 TBCC REVOLVING CREDIT NOTE - -------------------------------------------------------------------------------- under this Note in accordance with the Loan Agreement. The Borrower further waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and any requirement that TBCC exhaust any rights or take any action against any other Person or any collateral. The Borrower further hereby waives notice of or proof of reliance by TBCC upon this Note, and the Obligations shall conclusively be deemed to have been created, contracted, incurred, renewed, extended, amended or waived in reliance upon this Note. The Borrower shall make all payments hereunder and under the Loan Agreement without defense, offset or counterclaim. No failure to exercise and no delay in exercising any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights. This Note may not be changed orally, but only by an agreement in writing, which is signed by the party or parties against whom enforcement of any waiver, change, modification or discharge is sought. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS NOTE AND THE OTHER LOAN DOCUMENTS AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS NOTE, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) AND DECISIONS OF THE STATE OF ILLINOIS. ALL DISPUTES ARISING UNDER OR IN CONNECTION WITH THIS NOTE AND ANY OTHER LOAN DOCUMENT BETWEEN THE BORROWER AND TBCC, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT TBCC SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED BY TBCC IN GOOD FAITH TO ENABLE TBCC TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF TBCC. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY TBCC. THE BORROWER WAIVES ANY OBJECTION THAT THE BORROWER MAY HAVE TO THE LOCATION OF THE COURT IN WHICH TBCC HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS. THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT CORPORATION SYSTEM, 1209 ORANGE STREET, WILMINGTON, DELAWARE 19801 AS THE DESIGNEE AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF THE BORROWER SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS NOTE OR ANY OTHER LOAN DOCUMENT. IT IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED ON SUCH AGENT AT ITS ADDRESS WILL BE PROMPTLY FORWARDED BY MAIL TO THE BORROWER, BUT THE FAILURE OF THE BORROWER TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF TBCC TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. THE BORROWER AND, BY ITS ACCEPTANCE HEREOF, TBCC EACH hereby waive the RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS NOTE; OR (II) ANY OTHER PRESENT OR FUTURE TBCC REVOLVING CREDIT NOTE - -------------------------------------------------------------------------------- INSTRUMENT OR AGREEMENT BETWEEN TBCC AND BORROWER; OR (III) ANY CONDUCT, ACTS OR OMISSIONS OF TBCC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EM-PLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH TBCC OR BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. LifeCell Corporation By: ------------------------------ Title: --------------------------- 3 SCHEDULE TO REVOLVING CREDIT NOTE DATED December 6, 1999 OF LifeCell Corporation TO TRANSAMERICA BUSINESS CREDIT CORPORATION
Date Amount of Loan Interest Rate Amount of Principal Paid Unpaid Principal Balance Notation Made by - ---- -------------- ------------- ------------------------ ------------------------ ----------------
4 TERM NOTE 5 RESOLUTION - -------------------------------------------------------------------------------- CORPORATE RESOLUTION TO BORROW RESOLVED, that this corporation, LIFECELL CORPORATION, a Delaware corporation, borrow from TRANSAMERICA BUSINESS CREDIT CORPORATION ("TBCC"), from time to time, such sum or sums of money as, in the judgment of the officers hereinafter authorized, this corporation may require. RESOLVED FURTHER, that any officer of this corporation (hereinafter "authorized officers") be, and they hereby are authorized, directed and empowered, in the name of this corporation, to execute and deliver to TBCC, and TBCC is requested to accept, the loan agreements, security agreements, notes, financing statements, and other documents and instruments evidencing and/or securing the indebtedness of this corporation for the monies so borrowed, or to be borrowed, with interest thereon, and said authorized officers are authorized from time to time to execute renewals, extensions and/or amendments of said loan agreements, security agreements, and other documents and instruments. RESOLVED FURTHER, that said authorized officers be and they are hereby authorized, directed and empowered, as security for any notes or any other indebtedness of this corporation to TBCC, whether arising pursuant to this resolution or otherwise, to grant, transfer, pledge, mortgage, assign, or otherwise hypothecate to TBCC, or deed in trust for its benefit, any property of any and every kind, belonging to this corporation, including, but not limited to, any and all real property, accounts, inventory, equipment, general intangibles, instruments, documents, chattel paper, notes, money, deposit accounts, furniture, fixtures, goods and all other property, of every kind, and to execute and deliver to TBCC any and all grants, transfers, trust receipts, loan or credit agreements, pledge agreements, mortgages, deeds of trust, financing statements, security agreements and other hypothecation agreements, which said instruments and the note or notes and other instruments referred to in the preceding paragraph may contain such provisions, covenants, recitals and agreements as TBCC may require and said authorized officers may approve, and the execution thereof by said authorized officers shall be conclusive evidence of such approval. RESOLVED FURTHER, that any and all acts of the authorized officers of this corporation done or made heretofore in connection with the borrowing of money from TBCC, including, but not limited to: the execution of all instruments evidencing the indebtedness of this corporation for monies so borrowed and renewals or extensions thereof, and the grant, transfer, pledge, mortgage, assignment, or any other hypothecation, or deed in trust of any property belonging to this corporation as security for the indebtedness of this corporation, to TBCC and the delivery of all instruments related thereto to TBCC, are hereby ratified, approved and confirmed. RESOLVED FURTHER, that any bank, banker or trust company be and it hereby is, authorized and requested to receive for deposit to the credit of TBCC without further inquiry, all checks, drafts and other instruments for the payment of money payable to this corporation or its order, and that said bank, banker, or trust company shall be under no liability to this corporation for the disposition which TBCC may or shall make of said instruments or the proceeds thereof, and that any officer or agent of TBCC is hereby authorized and empowered to endorse the name of this corporation to any and all checks, drafts, and other instruments payable to this corporation or its order. Warrants - -------- RESOLVED FURTHER, that, in connection with the foregoing loans, this corporation shall issue to TBCC Funding Trust II, a Delaware business trust five-year warrants to purchase 84,211 shares of common stock of this corporation, at $4.75 per share, on the terms and provisions of TBCC's standard form Warrant to Purchase Stock and related documents (including without limitation registration rights agreements and anti-dilution agreements), with such changes therein as TBCC and this corporation shall agree; any officer of this corporation is hereby authorized to execute and deliver such Warrant to Purchase Stock and related documents, and all documents and instruments relating thereto, in such form and containing such additional provisions as said authorized officers may approve, and the execution thereof by said authorized officers shall be conclusive evidence of such approval. RESOLVED FURTHER, that TBCC is authorized to act upon this resolution until written notice of its revocation is delivered to, and actually received by, TBCC, and that the authority hereby granted shall apply with equal force and effect to the successors in office of the officers herein named. I, Secretary of LIFECELL CORPORATION, a corporation, incorporated under and by virtue of the laws of the State of Delaware, do hereby certify that the foregoing is a full, true and correct copy of resolutions duly and regularly adopted by the Board of Directors of said corporation as required by law, and by the by-laws of said corporation. I further certify that said resolutions are still in full force and effect and have not been in any way modified, repealed, rescinded, amended or revoked, and that the following are the names and specimen signatures of the officers and agents of said corporation: Name Office Signature - ----------------------- ----------------------- ----------------------------- - ----------------------- ----------------------- ----------------------------- - ----------------------- ----------------------- ----------------------------- - ----------------------- ----------------------- ----------------------------- IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary and affixed the corporate seal of said corporation on December 6, 1999. -------------------------------- Secretary of Said Corporation 13,746 2 OPINION - -------------------------------------------------------------------------------- [FORM OF TERM NOTE] ------------------- PROMISSORY NOTE --------------- $ Date: - ---------------- ----------------- FOR VALUE RECEIVED, the undersigned promises to pay to the order of Transamerica Business Credit Corporation or its assigns (the "Payee") at its office located at Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018, or at such other place as the Payee or the holder hereof may designate in writing, the principal amount of $ ___________ received by the undersigned, plus interest, in lawful money of the United States and in immediately available funds. This Note is executed and delivered pursuant to the Loan and Security Agreement between TBCC and Borrower dated DECEMBER 6, 1999 (as amended from time to time, the "Loan Agreement"). This Note shall be payable commencing with a first installment of $_____________ per month payable on MAY 1, 2000 and continuing on the same day of each succeeding month until DECEMBER 1, 2002, on which date the entire unpaid principal balance of this Note, plus all accrued interest shall be due and payable; provided that the entire unpaid principal balance of this Note, plus all accrued interest shall be due and payable on the date the Loan Agreement terminates by its terms or is terminated by either party. The Borrower further promises to pay interest in like money and funds at TBCC's office specified above (or at such other location as TBCC may from time to time designate) on the unpaid principal amount hereof from time to time outstanding from and including the date hereof until paid in full (both before and after judgment) at the rates and on the dates set forth in the Loan Agreement. All capitalized terms used herein which are not defined herein shall the meanings ascribed to such terms in the Loan Agreement. This Note is one of the Notes regarding Term Loans referred to in the Schedule the Loan and Security Agreement dated as of December 6, 1999 (as amended, supplemented or otherwise modified from time to time, the "Agreement") between the undersigned and the Payee and is subject and entitled to all provisions and benefits thereof. Capitalized terms used but not defined herein shall have the meanings set forth in the Agreement. If any installment of this Note is not paid within five days after its due date, the undersigned agrees to pay on demand, in addition to the amount of such installment, an amount equal to 5% of such installment, but only to the extent permitted by Applicable Law. The undersigned shall have the right to prepay this Note in the aggregate principal amount outstanding hereunder together with all accrued and unpaid interest thereon, fees and all other amounts payable relating thereto plus the following (the "Prepayment Special Amount"): (1) if any such prepayment is made during the first year after the date hereof, the undersigned shall also pay an amount equal to 3% of the principal amount outstanding hereunder; and (2) if any such prepayment is made during the second year after the date hereof, the undersigned shall also pay an amount equal to 2% of the principal amount outstanding hereunder. No Prepayment Special Amount is applicable with the period beginning as of the date of the second anniversary hereof and after. Further, and notwithstanding the foregoing, if the Warrant Special Condition (as defined below) occurs at the time of any such prepayment, then no Prepayment Special Amount is applicable regardless of the date of any such prepayment. As used herein the term "Warrant" shall mean the Stock Subscription Warrant dated December 6, 1999 executed by the undersigned in favor of TBCC Funding Trust II, as amended or otherwise modified from time to time. If the per share current market price of the common stock of the undersigned as of the date of the prepayment is greater than two times the Warrant Price (as defined in the Warrant), then such an occurrence shall constitute the "Warrant Special Condition". Upon the maturity of this Note or the acceleration of the maturity of this Note in accordance with the terms of the Agreement, the entire unpaid principal amount on this Note, together with all interest, fees and other amounts payable hereon or in connection herewith (including without limitation the Prepayment Special Amount referred to in the preceding paragraph), shall be immediately due and payable without further notice or demand, with interest on all such amounts at a rate not to exceed the lawful limit, from the date of such maturity or acceleration, as the case may be, until all such amounts have been paid. If any payment on this Note becomes payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day. The undersigned hereby waives diligence, demand, presentment, protest and notice of any kind, and assents to extensions of the time of payment, release, surrender or substitution of security, or forbearance or other indulgence, without notice. The undersigned agrees to pay all amounts under this Note without offset, deduction, claim, counterclaim, defense or recoupment, all of which are hereby waived. The Payee, the undersigned and any other parties to the Loan Documents intend to contract in strict compliance with applicable usury law from time to time in effect. In furtherance thereof such Persons stipulate and agree that none of the terms and provisions contained in the Loan Documents shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be charged by Applicable Law from time to time in effect. Neither the undersigned nor any present or future guarantors, endorsers, or other Persons hereafter becoming liable for payment of any Obligation shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the maximum amount that may be lawfully charged under Applicable Law from time to time in effect, and the provisions of this paragraph shall control over all other provisions of the Loan Documents which may be in conflict or apparent conflict herewith. The Payee expressly disavows any intention to charge or collect excessive unearned interest or finance charges in the event the maturity of any Obligation is accelerated. If (a) the maturity of any Obligation is accelerated for any reason, (b) any Obligation is prepaid and as a result any amounts held to constitute interest are determined to be in excess of the legal maximum, or (c) the Payee or any other holder of any or all of the Obligations shall otherwise collect amounts which are determined to constitute interest which would otherwise increase the interest on any or all of the Obligations to an amount in excess of that permitted to be charged by Applicable Law then in effect, then all sums determined to constitute interest in excess of such legal limit shall, without penalty, be promptly applied to reduce the then outstanding principal of the related Obligations or, at the Payee's or such holder's option, promptly returned to the undersigned upon such determination. In determining whether or not the interest paid or payable, under any specific circumstance, exceeds the maximum amount permitted under Applicable Law, the Payee and the undersigned (and any other payors thereof) shall to the greatest extent permitted under Applicable Law, (i) characterize any non-principal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and spread the total amount of interest through the entire contemplated term of this Note in accordance with the amount outstanding from time to time thereunder and the maximum legal rate of interest from time to time in effect under Applicable Law in order to lawfully charge the maximum amount of interest permitted under Applicable Law. As used herein, "Applicable Law" means the laws of the State of Illinois (or any other jurisdiction whose laws are mandatorily applicable notwithstanding the parties' choice of Illinois law) or the laws of the United States of America, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future. This Note may not be changed, modified or terminated orally, but only by an agreement in writing signed by the undersigned and the Payee or any holder hereof. The undersigned shall, upon demand, pay to the Payee all costs and expenses incurred by the Payee (including the fees and disbursements of counsel and other professionals) in connection with the preparation, execution and delivery of this Note and all other Loan Documents, and in connection with the administration, modification and amendment of the Loan Documents, and pay to the Payee all costs and expenses (including the fees and disbursements of counsel and other professionals) paid or incurred by the Payee in (A) enforcing or defending its rights under or in respect of this Note or any of the other Loan Documents, (B) collecting any of the liabilities by the undersigned to the Payee or otherwise administering the Loan Documents, (C) foreclosing or otherwise collecting upon any collateral and (D) obtaining any legal, accounting or other advice in connection with any of the foregoing. This Note shall be binding upon the successors and assigns of the undersigned and inure to the benefit of the Payee and its successors, endorsees and assigns. If any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. EACH OF THE UNDERSIGNED AND, BY ITS ACCEPTANCE HEREOF, THE PAYEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES (TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THIS NOTE AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. LifeCell Corporation. By: --------------------------- Name: Title: Form17 - -------------------------------------------------------------------------------- TBCC shall have the right to terminate the Streamlined Provisions, upon ___ days prior written notice to Borrower. In addition, the TBCC STREAMLINED FACILITY AGREEMENT December 6, 1999 LifeCell Corporation One Millenium Way Branchburg, New Jersey 08867 Ladies and Gentlemen: This Streamlined Facility Agreement (this "Agreement") is entered into between Transamerica Business Credit Corporation ("TBCC"), and LifeCell Corporation ("Borrower"), in connection with the Loan and Security Agreement between TBCC and Borrower dated December 6, 1999 (the "Loan Agreement"). (This Agreement, the Loan Agreement, and all other written documents and agreements between TBCC and Borrower are referred to herein collectively as the "Loan Documents". Capitalized terms used but not defined in this Agreement, shall have the meanings set forth in the Loan Agreement.) This will confirm our agreement that the following provisions (the "Streamlined Provisions") shall apply, effective on the date hereof, until terminated as provided below: 1. [Reserved] 2. Delivery of the proceeds of Receivables within one Business Day after receipt, as called for by Section 1.4 of the Loan Agreement, will not be required. 3. TBCC will also not require any Depository Account Agreement or Blocked Account Agreement, as called for by Section 1.8 of the Loan Agreement. In addition, Borrower will not be required to provide TBCC with copies of invoices to customers or shipping and delivery receipts, as called for by Section 3.3(a) of the Loan Agreement, or to report customer credits, returns and recoveries of merchandise as called for by Section 3.3(b) of the Loan Agreement. The Streamlined Provisions shall immediately terminate if any Default or Event of Default occurs and is continuing. Upon any termination of the Streamlined Provisions, without limiting TBCC's other rights and remedies, Borrower shall, then and thereafter, provide TBCC with such other or additional reporting of Receivables as TBCC shall request under Section 3.3(a) of the Loan Agreement, comply in all respects with Section 3.3(b), and deliver all proceeds of Receivables to TBCC, within one Business Day after receipt, as called for by Section 1.4 of the Loan Agreement. Additionally, Borrower and its bank shall execute and deliver a Blocked Account Agreement or Depository Account Agreement (as TBCC shall designate), in form and substance satisfactory to TBCC. Please confirm your agreement to the foregoing by signing the enclosed copy of this Agreement and returning it to us. Sincerely yours, Transamerica Business Credit Corporation By By ------------------------- ------------------------- Title Title ------------------------- ------------------------- Acknowledged and Agreed. LifeCell Corporation By By ------------------------- ------------------------- Title Title ------------------------- ------------------------- SECURITY AGREEMENT IN COPYRIGHTED WORKS This Security Agreement In Copyrighted Works (this "Agreement") is made at Chicago, Illinois as of December 6, 1999, is entered into between LifeCell Corporation, a Delaware corporation ("Grantor"), which has a mailing address at One Millenium Way, Branchburg, New Jersey 08867, and TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware corporation, ("TBCC") having its principal office at 9399 West Higgins Road, Suite 600, Rosemont, Illinois 60018 and having an office at 15260 Ventura Blvd., Suite 1240, Sherman Oaks, California 91403. RECITALS A. TBCC is providing financing to Grantor pursuant to the Loan and Security Agreement of even date herewith between TBCC and Grantor (as amended from time to time, the "Loan Agreement"). Pursuant to the Loan Agreement, Grantor has granted to TBCC a security interest in all of Grantor's present and future assets, including without limitation all of Grantor's present and future general intangibles, and including without limitation the "Copyrights" (as defined below), to secure all of its present and future indebtedness, liabilities, guaranties and other obligations to TBCC. B. To supplement TBCC's rights in the Copyrights, Grantor is executing and delivering this Agreement. NOW, THEREFORE, for valuable consideration, Grantor agrees as follows: 1. Assignment. To secure the complete and timely payment and performance of all "Obligations" (as defined in the Loan Agreement), and without limiting any other security interest Grantor has granted to TBCC, Grantor hereby hypothecates to TBCC and grants, assigns, and conveys to TBCC a security interest in Grantor's entire right, title, and interest in and to all of the following, now owned and hereafter acquired (collectively, the "Collateral"): (a) Registered Copyrights and Applications for Copyright Registrations. All of Grantor's present and future United States registered copyrights and copyright registrations, including, without limitation, the registered copyrights listed in Schedule A to this Agreement (and including all of the exclusive rights afforded a copyright registrant in the United States under 17 U.S.C. 106 and any exclusive rights which may in the future arise by act of Congress or otherwise) and all of Grantor's present and future applications for copyright registrations (including applications for copyright registrations of derivative works and compilations) (collectively, the "Registered Copyrights"), and any and all royalties, payments, and other amounts payable to Grantor in connection with the Registered Copyrights, together with all renewals and extensions of the Registered Copyrights, the right to recover for all past, present, and future infringements of the Registered Copyrights, and all computer programs, computer databases, computer program flow diagrams, source codes, object codes and all tangible property embodying or incorporating the Registered Copyrights, and all other rights of every kind whatsoever accruing thereunder or pertaining thereto. (b) Unregistered Copyrights. All of Grantor's present and future copyrights which are not registered in the United States Copyright Office (the "Unregistered Copyrights"), whether now owned or hereafter acquired, including without limitation the Unregistered Copyrights listed in Schedule B to this Agreement, and any and all royalties, payments, and other amounts payable to Grantor in connection with the Unregistered Copyrights, together with all renewals and extensions of the Unregistered Copyrights, the right to recover for all past, present, and future infringements of the Unregistered Copyrights, and all computer programs, computer databases, computer program flow diagrams, source codes, object codes and all tangible property embodying or incorporating the Unregistered Copyrights, and all other rights of every kind whatsoever accruing thereunder or pertaining thereto. The Registered Copyrights and the Unregistered Copyrights collectively are referred to herein as the "Copyrights." (c) Licenses. All of Grantor's right, title and interest in and to any and all present and future license agreements with respect to the Copyrights, including without limitation the license agreements listed in Schedule C to this Agreement (the "Licenses"). (d) Accounts Receivable. All present and future accounts, accounts receivable and other rights to payment arising from, in connection with or relating to the Copyrights. (e) Proceeds. All cash and non-cash proceeds of any and all of the foregoing. 2. Representations. Grantor represents and warrants that: (a) Each of the Copyrights is valid and enforceable (except to the extent that the Unregistered Copyrights must be registered to be enforced); (b) Except for the security interest granted hereby and the non-exclusive licenses granted to Grantor's licensees with respect to the Copyrights in the ordinary course of business of Grantor, Grantor is (and upon creation of all future Copyrights, will be) the sole and exclusive owner of the entire and unencumbered right, title, and interest in and to each of the Copyrights and other Collateral, free and clear of any liens, charges, or encumbrances; (c) There is no pending claim that the use of any of the Copyrights does or may infringe upon or violate the rights of any third person nor does Grantor have knowledge of any pending or threatened infringement of any of the Copyrights by any third person. (d) Listed on Schedules A and B are all copyrights owned by Grantor, in which Grantor has an interest, or which are used in Grantor's business. (e) Listed on Schedule C are all Licenses to which Grantor is a party. (f) Each employee, agent and/or independent contractor who has participated in the creation of the property constituting the Collateral has either executed an assignment of his or her rights of authorship to Grantor or is an employee of Grantor acting within the scope of his or her employment and was such an employee at the time of said creation. (g) All of Grantor's present and future software, computer programs and other works of authorship subject to United States copyright protection, the sale, licensing or other disposition of which results in royalties receivable, license fees receivable, accounts receivable or other sums owing to Grantor (collectively, "Receivables"), have been and shall be registered with the United States Copyright Office prior to the date Grantor requests or accepts any loan from TBCC with respect to such Receivables and prior to the date Grantor includes any such Receivables in any accounts receivable aging, borrowing base report or certificate or other similar report provided to TBCC, and Grantor shall provide to TBCC copies of all such registrations promptly upon the receipt of the same. 3. Covenants. Until all of the Obligations have been satisfied in full and the Loan Agreement has terminated: (a) Grantor shall not grant a security interest in any of the Copyrights or other Collateral to any other person and shall not enter into any agreement or take any action that is inconsistent with Grantor's obligations hereunder or Grantor's other Obligations or would impair TBCC's rights, under this Agreement or otherwise, without TBCC's prior written consent. (b) Grantor shall ensure that each use of the Copyrights described in Section 1 of this Agreement carries a complete and accurate copyright notice. (c) Grantor shall use its best efforts to preserve and defend Grantor's rights in the Copyrights unless Grantor, with the concurrence of TBCC, reasonably determines that a Copyright is not worth preserving or defending. (d) Grantor shall undertake all reasonable measures to cause its employees, agents and independent contractors to assign to Grantor all rights of authorship to any copyrighted material in which Grantor has or may subsequently acquire any right or interest. 4. License Rights. Grantor may license or sublicense the Copyrights only in the ordinary course of business and only on a non-exclusive basis, and only to the extent of Grantor's rights and subject to TBCC's security interest and Grantor's obligations under this Agreement. 5. TBCC May Supplement. Grantor authorizes TBCC to modify this Agreement by amending Schedule A or B to include any future copyrights to be included in the Copyrights. Grantor shall from time to time update the lists of Registered Copyrights and Unregistered Copyrights on Schedules A and B and lists of License Agreements on Schedule C as Grantor obtains or acquires copyrights or grants or obtains licenses in the future. Notwithstanding the foregoing, no failure to so modify this Agreement or amend Schedules A or B or C shall in any way affect, invalidate or detract from TBCC's continuing security interest in all Copyrights, whether or not listed on Schedule A or B and all license agreements whether or not listed on Schedule C. 6. Default. Upon an Event of Default (as defined in the Loan Agreement) TBCC shall have, in addition to all of its other rights and remedies under the Loan Agreement, all rights and remedies of a secured party under the Uniform Commercial Code (as enacted in any jurisdiction in which the Copyrights or other Collateral are located or deemed to be located) or other applicable law. Upon occurrence of an Event of Default, Grantor shall, upon request of TBCC, give written notice to all parties to the Licenses that all payments thereunder shall be made to TBCC, and TBCC may itself give such notice. 7. Fees and Expenses. On demand by TBCC, without limiting any of the terms of the Loan Agreement, Grantor shall pay all reasonable fees, costs, and expenses (including without limitation reasonable attorneys' fees and legal expenses) incurred by TBCC in connection with (a) preparing this Agreement and all other documents relating to this Agreement, (b) consummating this transaction, (c) filing or recording any documents (including all taxes in connection therewith) in public offices; and (d) paying or discharging any taxes, counsel fees, maintenance fees, encumbrances, or other amounts in connection with protecting, maintaining, or preserving the Copyrights or defending or prosecuting any actions or proceedings arising out of or related to the Copyrights. 8. TBCC's Rights. In the event that Grantor fails to use its best efforts to preserve and defend Grantor's rights in the Copyrights (except as permitted by paragraph 3(c) hereof) within a reasonable period of time after learning of the existence of any actual or threatened infringement thereof, upon twenty (20) days' prior written notice to Grantor, TBCC shall have the right, but shall in no way be obligated to, bring suit or take any other action, in its own name or in Grantor's name, to enforce or preserve TBCC's or Grantor's rights in the Copyrights. Grantor shall at the request of TBCC and at Grantor's expense do any lawful acts and execute any documents requested by TBCC to assist with such enforcement. In the event Grantor has not taken action to enforce or preserve TBCC's and Grantor's rights in the Copyrights and TBCC thereupon takes such action, Grantor, upon demand, shall promptly reimburse and indemnify TBCC for all costs and expenses incurred in the exercise of TBCC's or Grantor's rights under this Section 8. 9. No Waiver. No course of dealing between Grantor and TBCC, nor any failure to exercise nor any delay in exercising, on the part of TBCC, any right, power, or privilege under this Agreement or under the Loan Agreement or any other agreement, shall operate as a waiver. No single or partial exercise of any right, power, or privilege under this Agreement or under the Loan Agreement or any other agreement by TBCC shall preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege by TBCC. 10. Rights Are Cumulative. All of TBCC's rights and remedies with respect to the Copyrights and other Collateral whether established by this Agreement, the Loan Agreement, or any other documents or agreements, or by law shall be cumulative and may be exercised concurrently or in any order. 11. Copyright Office. At the request of TBCC, Grantor shall execute any further documents necessary or appropriate to create and perfect TBCC's security interest in the Copyrights, including without limitation any documents for filing with the United States Copyright Office and/or any applicable state office. TBCC may record this Agreement, an abstract thereof, or any other document describing TBCC's interest in the Copyrights with the United States Copyright Office, at the expense of Grantor. 12. Indemnity. Grantor shall protect, defend, indemnify, and hold harmless TBCC and TBCC's assigns from all liabilities, losses, and costs (including without limitation reasonable attorneys' fees) incurred or imposed on TBCC relating to the matters in this Agreement, including, without limitation, in connection with TBCC's defense of any infringement action brought by a third party against TBCC. 13. Severability. The provisions of this Agreement are severable. If any provision of this Agreement is held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such provision, or part thereof, in such jurisdiction, and shall not in any manner affect such provision or part thereof in any other jurisdiction, or any other provision of this Agreement in any jurisdiction. 14. Amendments; Entire Agreement. This Agreement is subject to modification only by a writing signed by the parties, except as provided in Section 5 of this Agreement. To the extent that any provision of this Agreement conflicts with any provision of the Loan Agreement, the provision giving TBCC greater rights or remedies shall govern, it being understood that the purpose of this Agreement is to add to, and not detract from, the rights granted to TBCC under the Loan Agreement. This Agreement, the Loan Agreement, and the documents relating thereto comprise the entire agreement of the parties with respect to the matters addressed in this Agreement. 15. Further Assurances. At TBCC's request, Grantor shall execute and deliver to TBCC any further instruments or documentation, and perform any acts, that may be reasonably necessary or appropriate to implement this Agreement, the Loan Agreement or any other agreement, and the documents relating thereto, including without limitation any instrument or documentation reasonably necessary or appropriate to create, maintain, perfect, or effectuate TBCC's security interests in the Copyrights or other Collateral. 16. Release. At such time as Grantor shall completely satisfy all of the Obligations and the Loan Agreement shall be terminated, TBCC shall execute and deliver to Grantor all assignments and other instruments as may be reasonably necessary or proper to terminate TBCC's security interest in the Copyrights, subject to any disposition of the Copyrights which may have been made by TBCC pursuant to this Agreement. For the purpose of this Agreement, the Obligations shall be deemed to continue if Grantor enters into any bankruptcy or similar proceeding at a time when any amount paid to TBCC could be ordered to be repaid as a preference or pursuant to a similar theory, and shall continue until it is finally determined that no such repayment can be ordered. 17. True and Lawful Attorney. Grantor hereby appoints TBCC as Grantor's true and lawful attorney, with full power of substitution, to do any or all of the following, in the name, place and stead of Grantor: (a) execute an abstract of this Agreement or any other document describing TBCC's interest in the Copyrights, for filing with the United States Copyright Office; (b) execute any modification of this Agreement pursuant to Section 5 of this Agreement; and (c) following an Event of Default (as defined in the Loan Agreement) execute any assignments, notices or transfer documents for purposes of transferring title or right to receive any of the Copyrights or other Collateral to any person, including without limitation TBCC. 18. Successors. The benefits and burdens of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties; provided that Grantor may not transfer any of the Collateral or any rights hereunder, without the prior written consent of TBCC, except as specifically permitted hereby. 19. Governing Law. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS. ALL DISPUTES BETWEEN THE GRANTOR AND TBCC, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT TBCC SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE GRANTOR OR ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED BY TBCC IN GOOD FAITH TO ENABLE TBCC TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF TBCC. THE GRANTOR AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY TBCC. THE GRANTOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH TBCC HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS. 20. WAIVER OF RIGHT TO JURY TRIAL. TBCC AND GRANTOR EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; OR (II) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN TBCC AND GRANTOR; OR (III) ANY CONDUCT, ACTS OR OMISSIONS OF TBCC OR GRANTOR OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH TBCC OR GRANTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. WITNESS the execution hereof as of the date first written above. Grantor: LifeCell Corporation By: --------------------------------------- Name (please print): ------------------------------------ Title: ------------------------------------ Chairman of the Board, President, or Vice President Accepted. TBCC: TRANSAMERICA BUSINESS CREDIT CORPORATION By: ---------------------------------------- Name (please print): - ------------------------------------------- Title: ------------------------------------- Schedule A to Security Agreement in Copyrighted Works LifeCell Corporation Registered Copyrights U.S. Copyrights TITLE OF WORK/YEAR REGISTRATION DATE OF CREATION NUMBER OF ISSUANCE Schedule B to Security Agreement in Copyrighted Works LifeCell Corporation Unregistered Copyrights (Where No Copyright Application Is Pending) Copyright Description See attached list of software applications. Schedule C to Security Agreement in Copyrighted Works LifeCell Corporation License Agreements - -------------------------------------------------------------------------------- PATENT AND TRADEMARK SECURITY AGREEMENT This PATENT AND TRADEMARK SECURITY AGREEMENT ("Agreement"), dated as of December 6, 1999, is entered into between LifeCell Corporation, a Delaware corporation ("Grantor"), which has a mailing address at One Millenium Way, Branchburg, New Jersey 08867, and TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware corporation, ("TBCC") having its principal office at 9399 West Higgins Road, Suite 600, Rosemont, Illinois 60018 and having an office at 15260 Ventura Blvd., Suite 1240, Sherman Oaks, California 91403. RECITALS A. Grantor and TBCC are, contemporaneously herewith, entering into that certain Loan and Security Agreement ("Loan Agreement") and other instruments, documents and agreements contemplated thereby or related thereto (collectively, together with the Loan Agreement, the "Loan Documents"); and B. Grantor is the owner of certain intellectual property, identified below, in which Grantor is granting a security interest to TBCC. NOW THEREFORE, in consideration of the mutual promises, covenants, conditions, representations, and warranties hereinafter set forth and for other good and valuable consideration, the parties hereto mutually agree as follows: 1. DEFINITIONS AND CONSTRUCTION. 1.1 Definitions. The following terms, as used in this Agreement, have the following meanings: "Code" means the Illinois Uniform Commercial Code, as amended and supplemented from time to time, and any successor statute. "Collateral" means all of the following, whether now owned or hereafter acquired: (i) Each of the trademarks and rights and interest which are capable of being protected as trademarks (including trademarks, service marks, designs, logos, indicia, tradenames, corporate names, company names, business names, fictitious business names, trade styles, and other source or business identifiers, and applications pertaining thereto), which are presently, or in the future may be, owned, created, acquired, or used (whether pursuant to a license or otherwise) by Grantor, in whole or in part, and all trademark rights with respect thereto throughout the world, including all proceeds thereof (including license royalties and proceeds of infringement suits), and rights to renew and extend such trademarks and trademark rights; (ii) Each of the patents and patent applications which are presently, or in the future may be, owned, issued, acquired, or used (whether pursuant to a license or otherwise) by Grantor, in whole or in part, and all patent rights with respect thereto throughout the world, including all proceeds thereof (including license royalties and proceeds of infringement suits), foreign filing rights, and rights to extend such patents and patent rights; (iii) All of Grantor's right to the trademarks and trademark registrations listed on Exhibit A attached hereto, as the same may be updated hereafter from time to time; (iv) All of Grantor's right, title, and interest, in and to the patents and patent applications listed on Exhibit B attached hereto, as the same may be updated hereafter from time to time; (v) All of Grantor's right, title and interest to register trademark claims under any state or federal trademark law or regulation of any foreign country and to apply for, renew, and extend the trademark registrations and trademark rights, the right (without obligation) to sue or bring opposition or cancellation proceedings in the name of Grantor or in the name of TBCC for past, present, and future infringements of the trademarks, registrations, or trademark rights and all rights (but not obligations) corresponding thereto in the United States and any foreign country; (vi) All of Grantor's right, title, and interest in all patentable inventions, and to file applications for patent under federal patent law or regulation of any foreign country, and to request reexamination and/or reissue of the patents, the right (without obligation) to sue or bring interference proceedings in the name of Grantor or in the name of TBCC for past, present, and future infringements of the patents, and all rights (but not obligations) corresponding thereto in the United States and any foreign country; (vii) the entire goodwill of or associated with the businesses now or hereafter con-ducted by Grantor con-nected with and symbol-ized by any of the aforementioned properties and assets; (viii) All general intangibles relating to the foregoing and all other intangible intellectual or other similar property of the Grantor of any kind or nature, associated with or arising out of any of the aforementioned properties and assets and not otherwise described above; and (ix) All products and proceeds of any and all of the foregoing (including, without limitation, license royalties and proceeds of infringement suits) and, to the extent not otherwise included, all payments under insurance, or any indemnity, warranty, or guaranty payable by reason of loss or damage to or otherwise with respect to the Collateral. 1.2 Construction. Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, and the term "including" is not limiting. The words "hereof," "herein," "hereby," "hereunder," and other similar terms refer to this Agreement as a whole and not to any particular provision of this Agreement. Any initially capitalized terms used but not defined herein shall have the meaning set forth in the Loan Agreement. Any reference herein to any of the Loan Documents includes any and all alterations, amendments, extensions, modifications, renewals, or supplements thereto or thereof, as applicable. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against TBCC or Grantor, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by Grantor, TBCC, and their respective counsel, and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of TBCC and Grantor. Headings have been set forth herein for convenience only, and shall not be used in the construction of this Agreement. 2. GRANT OF SECURITY INTEREST. To secure the complete and timely payment and performance of all Obligations, and without limiting any other security interest Grantor has granted to TBCC, Grantor hereby grants, assigns, and conveys to TBCC a security interest in Grantor's entire right, title, and interest in and to the Collateral. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS. Grantor hereby represents, warrants, and covenants that: 3.1 Trademarks; Patents. A true and complete schedule setting forth all federal and state trademark registrations owned or controlled by Grantor or licensed to Grantor, together with a summary description and full information in respect of the filing or issuance thereof and expiration dates is set forth on Exhibit A; and a true and complete schedule setting forth all patent and patent applications owned or controlled by Grantor or licensed to Grantor, together with a summary description and full information in respect of the filing or issuance thereof and expiration dates is set forth on Exhibit B. 3.2 Validity; Enforceability. Each of the patents and trademarks is valid and enforceable, and Grantor is not presently aware of any past, present, or prospective claim by any third party that any of the patents or trademarks are invalid or unenforceable, or that the use of any patents or trademarks violates the rights of any third person, or of any basis for any such claims. 3.3 Title. Grantor is the sole and exclusive owner of the entire and unencumbered right, title, and interest in and to each of the patents, patent applications, trademarks, and trademark registrations, free and clear of any liens, charges, and encumbrances, including pledges, assignments, licenses, shop rights, and covenants by Grantor not to sue third persons. 3.4 Notice. Grantor has used and will continue to use proper statutory notice in connection with its use of each of the patents and trademarks. 3.5 Quality. Grantor has used and will continue to use consistent standards of high quality (which may be consistent with Grantor's past practices) in the manufacture, sale, and delivery of products and services sold or delivered under or in connection with the trademarks, including, to the extent applicable, in the operation and maintenance of its merchandising operations, and will continue to maintain the validity of the trademarks. 3.6 Perfection of Security Interest. Except for the filing of appropriate financing statements (all of which filings have been made) and filings with the United States Patent and Trademark Office necessary to perfect the security interests created hereunder, no authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either for the grant by Grantor of the security interest hereunder or for the execution, delivery, or performance of this Agreement by Grantor or for the perfection of or the exercise by TBCC of its rights hereunder to the Collateral in the United States. 4. AFTER-ACQUIRED PATENT OR TRADEMARK RIGHTS. If Grantor shall obtain rights to any new trademarks, any new patentable inventions or become entitled to the benefit of any patent application or patent for any reissue, division, or continuation, of any patent, the provisions of this Agreement shall automatically apply thereto. Grantor shall give prompt notice in writing to TBCC with respect to any such new trademarks or patents, or renewal or extension of any trademark registration. Grantor shall bear any expenses incurred in connection with future patent applications or trademark registrations. Without limiting Grantor's obligation under this Section 4, Grantor authorizes TBCC to modify this Agreement by amending Exhibits A or B to include any such new patent or trademark rights. Notwithstanding the foregoing, no failure to so modify this Agreement or amend Exhibits A or B shall in any way affect, invalidate or detract from TBCC's continuing security interest in all Collateral, whether or not listed on Exhibit A or B. 5. LITIGATION AND PROCEEDINGS. Grantor shall commence and diligently prosecute in its own name, as the real party in interest, for its own benefit, and its own expense, such suits, administrative proceedings, or other action for infringement or other damages as are in its reasonable business judgment necessary to protect the Collateral. Grantor shall provide to TBCC any information with respect thereto requested by TBCC. TBCC shall provide at Grantor's expense all necessary cooperation in connection with any such suits, proceedings, or action, including, without limitation, joining as a necessary party. Following Grantor's becoming aware thereof, Grantor shall notify TBCC of the institution of, or any adverse determination in, any proceeding in the United States Patent and Trademark Office, or any United States, state, or foreign court regarding Grantor's claim of ownership in any of the patents or trademarks, its right to apply for the same, or its right to keep and maintain such patent or trademark rights. 6. POWER OF ATTORNEY. Grantor hereby appoints TBCC as Grantor's true and lawful attorney, with full power of substitution, to do any or all of the following, in the name, place and stead of Grantor: (a) file this Agreement (or an abstract hereof) or any other document describing TBCC's interest in the Collateral with the United States Patent and Trademark Office; (b) execute any modification of this Agreement pursuant to Section 4 of this Agreement; (c) take any action and execute any instrument which TBCC may deem necessary or advisable to accomplish the purposes of this Agreement; and (d) following an Event of Default (as defined in the Loan Agreement), (i) endorse Grantor's name on all applications, documents, papers and instruments necessary for TBCC to use or maintain the Collateral; (ii) ask, demand, collect, sue for, recover, impound, receive, and give acquittance and receipts for money due or to become due under or in respect of any of the Collateral; (iii) file any claims or take any action or institute any proceedings that TBCC may deem necessary or desirable for the collection of any of the Collateral or otherwise enforce TBCC's rights with respect to any of the Collateral, and (iv) assign, pledge, convey, or otherwise transfer title in or dispose of the Collateral to any person. 7. RIGHT TO INSPECT. Grantor grants to TBCC and its employees and agents the right to visit Grantor's plants and facilities which manufacture, inspect, or store products sold under any of the patents or trademarks, and to inspect the products and quality control records relating thereto at reasonable times during regular business hours. 8. SPECIFIC REMEDIES. Upon the occurrence of any Event of Default (as defined in the Loan Agreement), TBCC shall have, in addition to, other rights given by law or in this Agreement, the Loan Agreement, or in any other Loan Document, all of the rights and remedies with respect to the Collateral of a secured party under the Code, including the following: 8.1 Notification. TBCC may notify licensees to make royalty payments on license agreements directly to TBCC; 8.2 Sale. TBCC may sell or assign the Collateral and associated goodwill at public or private sale for such amounts, and at such time or times as TBCC deems advisable. Any requirement of reasonable notice of any disposition of the Collateral shall be satisfied if such notice is sent to Grantor five (5) days prior to such disposition. Grantor shall be credited with the net proceeds of such sale only when they are actually received by TBCC, and Grantor shall continue to be liable for any deficiency remaining after the Collateral is sold or collected. If the sale is to be a public sale, TBCC shall also give notice of the time and place by publishing a notice one time at least five (5) days before the date of the sale in a newspaper of general circulation in the county in which the sale is to be held. To the maximum extent permitted by applicable law, TBCC may be the purchaser of any or all of the Collateral and associated goodwill at any public sale and shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any public sale, to use and apply all or any part of the Obligations as a credit on account of the purchase price of any collateral payable by TBCC at such sale. 9. GENERAL PROVISIONS. 9.1 Effectiveness. This Agreement shall be binding and deemed effective when executed by Grantor and TBCC. 9.2 Notices. Except to the extent otherwise provided herein, all notices, demands, and requests that either party is required or elects to give to the other shall be in writing and shall be governed by the notice provisions of the Loan Agreement. 9.3 No Waiver. No course of dealing between Grantor and TBCC, nor any failure to exercise nor any delay in exercising, on the part of TBCC, any right, power, or privilege under this Agreement or under the Loan Agreement or any other agreement, shall operate as a waiver. No single or partial exercise of any right, power, or privilege under this Agreement or under the Loan Agreement or any other agreement by TBCC shall preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege by TBCC. 9.4 Rights Are Cumulative. All of TBCC's rights and remedies with respect to the Collateral whether established by this Agreement, the Loan Agreement, or any other documents or agreements, or by law shall be cumulative and may be exercised concurrently or in any order. 9.5 Successors. The benefits and burdens of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties; provided that Grantor may not transfer any of the Collateral or any rights hereunder, without the prior written consent of TBCC, except as specifically permitted hereby. 9.6 Severability. The provisions of this Agreement are severable. If any provision of this Agreement is held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such provision, or part thereof, in such jurisdiction, and shall not in any manner affect such provision or part thereof in any other jurisdiction, or any other provision of this Agreement in any jurisdiction. 9.7 Entire Agreement. This Agreement is subject to modification only by a writing signed by the parties, except as provided in Section 4 of this Agreement. To the extent that any provision of this Agreement conflicts with any provision of the Loan Agreement, the provision giving TBCC greater rights or remedies shall govern, it being understood that the purpose of this Agreement is to add to, and not detract from, the rights granted to TBCC under the Loan Agreement. This Agreement, the Loan Agreement, and the documents relating thereto comprise the entire agreement of the parties with respect to the matters addressed in this Agreement. 9.8 Fees and Expenses. Grantor shall pay to TBCC on demand all costs and expenses that TBCC pays or incurs in connection with the negotiation, preparation, consummation, administration, enforcement, and termination of this Agreement, including: (a) reasonable attorneys' and paralegals' fees and disbursements of counsel to TBCC; (b) costs and expenses (including reasonable attorneys' and paralegals' fees and disbursements) for any amendment, supplement, waiver, consent, or subsequent closing in connection with this Agreement and the transactions contemplated hereby; (c) costs and expenses of lien and title searches; (d) taxes, fees, and other charges for filing this Agreement at the United States Patent and Trademark Office, or for filing financing statements, and continuations, and other actions to perfect, protect, and continue the security interest created hereunder; (e) sums paid or incurred to pay any amount or take any action required of Grantor under this Agreement that Grantor fails to pay or take; (f) costs and expenses of preserving and protecting the Collateral; and (g) costs and expenses (including reasonable attorneys' and paralegals' fees and disbursements) paid or incurred to enforce the security interest created hereunder, sell or otherwise realize upon the Collateral, and otherwise enforce the provisions of this Agreement, or to defend any claims made or threatened against the TBCC arising out of the transactions contemplated hereby (including preparations for the consultations concerning any such matters). The foregoing shall not be construed to limit any other provisions of this Agreement or the Loan Documents regarding costs and expenses to be paid by Grantor. The parties agree that reasonable attorneys' and paralegals' fees and costs incurred in enforcing any judgment are recoverable as a separate item in addition to fees and costs incurred in obtaining the judgment and that the recovery of such attorneys' and paralegals' fees and costs is intended to survive any judgment, and is not to be deemed merged into any judgment. 9.9 Indemnity. Grantor shall protect, defend, indemnify, and hold harmless TBCC and TBCC's assigns from all liabilities, losses, and costs (including without limitation reasonable attorneys' fees) incurred or imposed on TBCC relating to the matters in this Agreement. 9.10 Further Assurances. At TBCC's request, Grantor shall execute and deliver to TBCC any further instruments or documentation, and perform any acts, that may be reasonably necessary or appropriate to implement this Agreement, the Loan Agreement or any other agreement, and the documents relating thereto, including without limitation any instrument or documentation reasonably necessary or appropriate to create, maintain, perfect, or effectuate TBCC's security interests in the Collateral. 9.11 Release. At such time as Grantor shall completely satisfy all of the Obligations and the Loan Agreement shall be terminated, TBCC shall execute and deliver to Grantor all assignments and other instruments as may be reasonably necessary or proper to terminate TBCC's security interest in the Collateral, subject to any disposition of the Collateral which may have been made by TBCC pursuant to this Agreement. For the purpose of this Agreement, the Obligations shall be deemed to continue if Grantor enters into any bankruptcy or similar proceeding at a time when any amount paid to TBCC could be ordered to be repaid as a preference or pursuant to a similar theory, and shall continue until it is finally determined that no such repayment can be ordered. 9.12 Governing Law. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS. ALL DISPUTES BETWEEN THE GRANTOR AND TBCC, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT TBCC SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE GRANTOR OR ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED BY TBCC IN GOOD FAITH TO ENABLE TBCC TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF TBCC. THE GRANTOR AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY TBCC. THE GRANTOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH TBCC HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS. 9.13 Waiver of Right to Jury Trial. TBCC and Grantor each hereby waive the right to trial by jury in any action or proceeding based upon, arising out of, or in any way relating to: (i) this Agreement; or (ii) any other present or future instrument or agreement between TBCC and Grantor; or (iii) any conduct, acts or omissions of TBCC or Grantor or any of their directors, officers, employees, agents, attorneys or any other persons affiliated with TBCC or Grantor; in each of the foregoing cases, whether sounding in contract or tort or otherwise. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first written above. TRANSAMERICA BUSINESS CREDIT LifeCell Corporation CORPORATION By By ------------------------- ------------------------- Title Title ------------------------- ------------------------- Exhibit "A" REGISTERED TRADEMARKS Trademark Registration Date Registration No. - --------- ------------------ ----------------- PENDING TRADEMARKS ------------------ Exhibit "B" PATENTS Patent Description/Title Issue Date Patent No. Name of Inventor - ------------------------- ----------- ----------- ---------------- PATENT APPLICATIONS ------------------- Description Filing Date Serial No. Name of Inventor - ----------- ------------ ----------- ---------------- - -------------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. STOCK SUBSCRIPTION WARRANT To Purchase Common Stock of LifeCell Corporation (the "Company") DATE OF INITIAL ISSUANCE: December 6, 1999 THIS CERTIFIES THAT for value received, TBCC Funding Trust II, a Delaware business trust or its registered assigns (hereinafter called the "Holder") is entitled to purchase from the Company, at any time during the Term of this Warrant, 84,211 shares of common stock, $.001 par value, of the Company (the "Common Stock"), at the Warrant Price, payable as provided herein. The exercise of this Warrant shall be subject to the provisions, limitations and restrictions herein contained, and may be exercised in whole or in part. SECTION 1. Definitions. ----------- For all purposes of this Warrant, the following terms shall have the meanings indicated: Common Stock - shall mean and include the Company's authorized Common ------------- Stock, $.001 par value, as constituted at the date hereof. Exchange Act - shall mean the Securities Exchange Act of 1934, as amended ------------- from time to time. Securities Act - the Securities Act of 1933, as amended. --------------- Term of this Warrant - shall mean the period beginning on the date of ----------------------- initial issuance hereof and ending on December 31, 2004 Warrant Price - $4.75 per share, subject to adjustment in accordance with -------------- Section 5 hereof. Warrants - this Warrant and any other Warrant or Warrants are issued in -------- connection with a Loan and Security Agreement dated December 6, 1999 by and between the Company and Transamerica Business Credit Corporation (the "Loan Agreement") to the original holder of this Warrant, or any transferees from such original holder or this Holder. Warrant Shares - shares of Common Stock purchased or purchasable by the --------------- Holder of this Warrant upon the exercise hereof. SECTION 2. Exercise of Warrant. --------------------- 2.1. Procedure for Exercise of Warrant. To exercise this Warrant in ------------------------------------ whole or in part (but not as to any fractional share of Common Stock), the Holder shall deliver to the Company at its office referred to in Section 13 hereof at any time and from time to time during the Term of this Warrant: (i) the Notice of Exercise in the form attached hereto, (ii) cash, certified or official bank check payable to the order of the Company, wire transfer of funds to the Company's account, or evidence of any indebtedness of the Company to the Holder (or any combination of any of the foregoing) in the amount of the Warrant Price for each share being purchased, and (iii) this Warrant. Notwithstanding any provisions herein to the contrary, if the Current Market Price (as defined in Section 5) is greater than the Warrant Price (at the date of calculation, as set forth below), in lieu of exercising this Warrant as hereinabove permitted, the Holder may elect to receive shares of Common Stock equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the office of the Company referred to in Section 13 hereof, together with the Notice of Exercise, in which event the Company shall issue to the Holder that number of shares of Common Stock computed using the following formula: CS = WCS x (CMP-WP) -------------- CMP Where CS equals the number of shares of Common Stock to be issued to the Holder WCS equals the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation) CMP equals the Current Market Price (at the date of such calculation) WP equals the Warrant Price (as adjusted to the date of such calculation) In the event of any exercise of the rights represented by this Warrant, a certificate or certificates for the shares of Common Stock so purchased, registered in the name of the Holder or such other name or names as may be designated by the Holder, shall be delivered to the Holder hereof within a reasonable time, not exceeding fifteen (15) days, after the rights represented by this Warrant shall have been so exercised; and, unless this Warrant has expired, a new Warrant representing the number of shares (except a remaining fractional share), if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the Holder hereof within such time. The person in whose name any certificate for shares of Common Stock is issued upon exercise of this Warrant shall for all purposes be deemed to have become the holder of record of such shares on the date on which the Warrant was surrendered and payment of the Warrant Price and any applicable taxes was made, irrespective of the date of delivery of such certificate, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. 2.2. Transfer Restriction Legend. Each certificate for Warrant Shares ---------------------------- shall bear the following legend (and any additional legend required by (i) any applicable state securities laws and (ii) any securities exchange upon which such Warrant Shares may, at the time of such exercise, be listed) on the face thereof unless at the time of exercise such Warrant Shares shall be registered under the Securities Act: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold or transferred in the absence of such registration or an exemption therefrom under said Act." Any certificate issued at any time in exchange or substitution for any certificate bearing such legend (except a new certificate issued upon completion of a public distribution under a registration statement of the securities represented thereby) shall also bear such legend unless, in the opinion of counsel for the holder thereof (which counsel shall be reasonably satisfactory to counsel for the Company) the securities represented thereby are not, at such time, required by law to bear such legend. SECTION 3. Covenants as to Common Stock. The Company covenants and agrees that ---------------------------- all shares of Common Stock that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that it will pay when due and payable any and all federal and state taxes which may be payable in respect of the issue of this Warrant or any Common Stock or certificates therefor issuable upon the exercise of this Warrant. The Company further covenants and agrees that the Company will at all times have authorized and reserved, free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant. The Company further covenants and agrees that if any shares of capital stock to be reserved for the purpose of the issuance of shares upon the exercise of this Warrant require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued or delivered upon exercise, then the Company will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be. If and so long as the Common Stock issuable upon the exercise of this Warrant is listed on any national securities exchange, the Company will, if permitted by the rules of such exchange, list and keep listed on such exchange, upon official notice of issuance, all shares of such Common Stock issuable upon exercise of this Warrant. SECTION 4. Adjustment of Number of Shares. Upon each adjustment of the Warrant ------------------------------ Price as provided in Section 5, the Holder shall thereafter be entitled to purchase, at the Warrant Price resulting from such adjustment, the number of shares (calculated to the nearest tenth of a share) obtained by multiplying the Warrant Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Warrant Price resulting from such adjustment. SECTION 5. Adjustment of Warrant Price. The Warrant Price shall be subject to --------------------------- adjustment from time to time as follows: (iii) If, at any time during the Term of this Warrant, the number of shares of Common Stock outstanding is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then, following the record date fixed for the determination of holders of Common Stock entitled to receive such stock dividend, subdivision or split-up, the Warrant Price shall be appropriately decreased so that the number of shares of Common Stock issuable upon the exercise hereof shall be increased in proportion to such increase in outstanding shares. (iv) If, at any time during the Term of this Warrant, the number of shares of Common Stock outstanding is decreased by a combination of the outstanding shares of Common Stock, then, following the record date for such combination, the Warrant Price shall appropriately increase so that the number of shares of Common Stock issuable upon the exercise hereof shall be decreased in proportion to such decrease in outstanding shares. (v) In case, at any time during the Term of this Warrant, the Company shall declare a cash dividend upon its Common Stock payable otherwise than out of earnings or earned surplus or shall distribute to holders of its Common Stock shares of its capital stock (other than Common Stock), stock or other securities of other persons, evidences of indebtedness issued by the Company or other persons, assets (excluding cash dividends and distributions) or options or rights (excluding options to purchase and rights to subscribe for Common Stock or other securities of the Company convertible into or exchangeable for Common Stock), then, in each such case, immediately following the record date fixed for the determination of the holders of Common Stock entitled to receive such dividend or distribution, the Warrant Price in effect thereafter shall be determined by multiplying the Warrant Price in effect immediately prior to such record date by a fraction of which the numerator shall be an amount equal to the difference of (x) the Current Market Price of one share of Common Stock minus (y) the fair market value (as determined by the Board of Directors of the Company, whose determination shall be conclusive) of the stock, securities, evidences of indebtedness, assets, options or rights so distributed in respect of one share of Common Stock, and of which the denominator shall be such Current Market Price. (vi) All calculations under this Section 5 shall be made to the nearest cent or to the nearest one-tenth (1/10) of a share, as the case may be. (vii) For the purpose of any computation pursuant to Section 2 hereof, or this Section 5, the Current Market Price at any date of one share of Common Stock shall be deemed to be the average of the daily closing prices for the 15 consecutive business days ending on the last business day before the day in question (as adjusted for any stock dividend, split, combination or reclassification that took effect during such 15 business day period). The closing price for each day shall be the last reported sales price regular way or, in case no such reported sales took place on such day, the average of the last reported bid and asked prices regular way, in either case on the principal national securities exchange on which the Common Stock is listed or admitted to trading or as reported by Nasdaq (or if the Common Stock is not at the time listed or admitted for trading on any such exchange or if prices of the Common Stock are not reported by Nasdaq then such price shall be equal to the average of the last reported bid and asked prices on such day as reported by The National Quotation Bureau Incorporated or any similar reputable quotation and reporting service, if such quotation is not reported by The National Quotation Bureau Incorporated); provided, however, that if the Common Stock is not traded in such manner that the quotations referred to in this clause (vii) are available for the period required hereunder, the Current Market Price shall be determined in good faith by the Board of Directors of the Company or, if such determination cannot be made, by a nationally recognized independent investment banking firm selected by the Board of Directors of the Company (or if such selection cannot be made, by a nationally recognized independent investment banking firm selected by the American Arbitration Association in accordance with its rules). (viii) Whenever the Warrant Price shall be adjusted as provided in Section 5, the Company shall prepare a statement showing the facts requiring such adjustment and the Warrant Price that shall be in effect after such adjustment. The Company shall cause a copy of such statement to be sent by mail, first class postage prepaid, to each Holder of this Warrant at its, his or her address appearing on the Company's records. Where appropriate, such copy may be given in advance and may be included as part of the notice required to be mailed under the provisions of subsection (x) of this Section 5. (ix) Adjustments made pursuant to clauses (iii), (iv) and (v) above shall be made on the date such dividend, subdivision, split-up, combination or distribution, as the case may be, is made, and shall become effective at the opening of business on the business day next following the record date for the determination of stockholders entitled to such dividend, subdivision, split-up, combination or distribution. (x) In the event the Company shall propose to take any action of the types described in clauses (iii), (iv) or (v) of this Section 5, the Company shall forward, at the same time and in the same manner, to the Holder of this Warrant such notice, if any, which the Company shall give to the holders of capital stock of the Company. (xi) In any case in which the provisions of this Section 5 shall require that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event issuing to the Holder of all or any part of this Warrant which is exercised after such record date and before the occurrence of such event the additional shares of capital stock issuable upon such exercise by reason of the adjustment required by such event over and above the shares of capital stock issuable upon such exercise before giving effect to such adjustment exercise; provided, however, that the Company shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. SECTION 6. Ownership. --------- 6.1. Ownership of This Warrant. The Company may deem and treat the ---------------------------- person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary until presentation of this Warrant for registration of transfer as provided in this Section 6. 6.2. Transfer and Replacement. This Warrant and all rights hereunder -------------------------- are transferable in whole or in part upon the books of the Company by the Holder hereof in person or by duly authorized attorney, and a new Warrant or Warrants, of the same tenor as this Warrant but registered in the name of the transferee or transferees (and in the name of the Holder, if a partial transfer is effected) shall be made and delivered by the Company upon surrender of this Warrant duly endorsed, at the office of the Company referred to in Section 13 hereof. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft or destruction, and, in such case, of indemnity or security reasonably satisfactory to it, and upon surrender of this Warrant if mutilated, the Company will make and deliver a new Warrant of like tenor, in lieu of this Warrant; provided that if the Holder hereof is an instrumentality of a state or local government or an institutional holder or a nominee for such an instrumentality or institutional holder an irrevocable agreement of indemnity by such Holder shall be sufficient for all purposes of this Section 6, and no evidence of loss or theft or destruction shall be necessary. This Warrant shall be promptly cancelled by the Company upon the surrender hereof in connection with any transfer or replacement. Except as otherwise provided above, in the case of the loss, theft or destruction of a Warrant, the Company shall pay all expenses, taxes and other charges payable in connection with any transfer or replacement of this Warrant, other than stock transfer taxes (if any) payable in connection with a transfer of this Warrant, which shall be payable by the Holder. Holder will not transfer this Warrant and the rights hereunder except in compliance with federal and state securities laws. SECTION 7. Mergers, Consolidation, Sales. In the case of any proposed ------------------------------- consolidation or merger of the Company with another entity, or the proposed sale of all or substantially all of its assets to another person or entity, or any proposed reorganization or reclassification of the capital stock of the Company, then, as a condition of such consolidation, merger, sale, reorganization or reclassification, lawful and adequate provision shall be made whereby the Holder of this Warrant shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein, in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable hereunder, such shares of stock, securities or assets as may (by virtue of such consolidation, merger, sale, reorganization or reclassification) be issued or payable with respect to or in exchange for the number of shares of such Common Stock purchasable hereunder immediately before such consolidation, merger, sale, reorganization or reclassification. In any such case appropriate provision shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof shall thereafter be applicable as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of this Warrant. SECTION 8. Notice of Dissolution or Liquidation. In case of any distribution ------------------------------------- of the assets of the Company in dissolution or liquidation (except under circumstances when the foregoing Section 7 shall be applicable), the Company shall give notice thereof to the Holder hereof and shall make no distribution to shareholders until the expiration of thirty (30) days from the date of mailing of the aforesaid notice and, in any case, the Holder hereof may exercise this Warrant within thirty (30) days from the date of the giving of such notice, and all rights herein granted not so exercised within such thirty-day period shall thereafter become null and void. SECTION 9. Notice of Extraordinary Dividends. If the Board of Directors of the --------------------------------- Company shall declare any dividend or other distribution on its Common Stock except out of earned surplus or by way of a stock dividend payable in shares of its Common Stock, the Company shall mail notice thereof to the Holder hereof not less than thirty (30) days prior to the record date fixed for determining shareholders entitled to participate in such dividend or other distribution, and the Holder hereof shall not participate in such dividend or other distribution unless this Warrant is exercised prior to such record date. The provisions of this Section 9 shall not apply to distributions made in connection with transactions covered by Section 7. SECTION 10. Fractional Shares. Fractional shares shall not be issued upon the ----------------- exercise of this Warrant but in any case where the Holder would, except for the provisions of this Section 10, be entitled under the terms hereof to receive a fractional share upon the complete exercise of this Warrant, the Company shall, upon the exercise of this Warrant for the largest number of whole shares then called for, pay a sum in cash equal to the excess of the value of such fractional share (determined in such reasonable manner as may be prescribed in good faith by the Board of Directors of the Company) over the Warrant Price for such fractional share. SECTION 11. Special Arrangements of the Company. The Company covenants and -------------------------------------- agrees that during the Term of this Warrant, unless otherwise approved by the Holder of this Warrant: 11.1. Will Reserve Shares. The Company will reserve and set apart and -------------------- have available for issuance at all times, free from preemptive or other preferential rights, the number of shares of authorized but unissued Common Stock deliverable upon the exercise of this Warrant. 11.2. Will Not Amend Certificate. The Company will not amend its ----------------------------- Certificate of Incorporation to eliminate as an authorized class of capital stock that class denominated as "Common Stock" on the date hereof. 11.3. Will Bind Successors. This Warrant shall be binding upon any ---------------------- corporation or other person or entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. SECTION 12. Registration Rights; etc. -------------------------- 12.1. Certain Definitions. As used in this Section 12, the following -------------------- terms shall have the following respective meanings: "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Registrable Securities" shall mean the Warrant Shares less any Warrant Shares theretofore sold to the public or in a private placement. The terms "register," "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the effectiveness of such registration statement. "Registration Expenses" shall mean all expenses incurred by the Company in compliance with Section 12.2 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company). "Selling Expenses" shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities, all fees and disbursements of counsel for any Holder and any blue sky fees and expenses excluded from the definition of "Registration Expenses." "Holder" shall mean any holder of outstanding Warrant Shares or Registrable Securities which (except for purposes of determining "Holders" under Section 12.5 hereof) have not been sold to the public. "Other Shareholders" shall mean holders of securities of the Company who are entitled by contract with the Company or who are permitted by the Company to have securities included in a registration of the Company's securities. 12.2. Company Registration. --------------------- (a) Notice of Registration. If the Company shall determine to ------------------------ register any of its securities either for its own account or the account of a security holder or holders, other than a registration relating solely to employee benefit plans, or a registration relating solely to a Commission Rule 145 transaction, or a registration on any registration form which does not permit secondary sales, the Company will: (i) promptly give to each Holder written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky or other state securities laws); and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made by any Holder within fifteen (15) days after receipt of the written notice from the Company described in clause (i) above, subject to any limitations on the number of shares as set forth in Section 12.2(b) below. PROVIDED, it is understood and agreed that the registration rights set forth in this section 12.2 shall not apply to any registration occurring within 90 days of the date of this Warrant. (b) Underwriting. If the registration of which the Company gives ------------ notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as part of the written notice given pursuant to Section 12.2(a)(i). In such event, the right of any Holder to registration pursuant to Section 12.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company, directors and officers and the Other Shareholders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for underwriting by the Company. Notwithstanding any other provision of this Section 12.2, if the underwriter determines that marketing factors require a limitation on the number of shares to be underwritten, the underwriter may (subject to the allocation priority set forth below) exclude from such registration and underwriting some or all of the Registrable Securities which would otherwise be underwritten pursuant hereto. The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated in the following manner. The number of shares that may be included in the registration and underwriting on behalf of such Holders, directors and officers and Other Shareholders shall be allocated among such Holders, directors and officers and Other Shareholders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities and other securities which they had requested to be included in such registration at the time of filing the registration statement. If any Holder of Registrable Securities or any officer, director or Other Shareholder disapproves of the terms of any such underwriting, it, he or she may elect to withdraw therefrom by written notice to the Company and the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. 12.3. Registration Rights. In the event that the Company grants -------------------- registration rights, including demand registration rights, to any other holder of securities of the Company, the Company will promptly give to the Holder written notice thereof and, if in the opinion of the Holder such registration rights are more favorable than the registration rights provided under this Warrant, the Holder shall so notify the Company within thirty (30) days of receipt of the foregoing notice from the Company, whereupon such registration rights shall automatically be deemed to be incorporated in this Warrant. 12.4. Expenses of Registration. The Company shall bear all -------------------------- Registration Expenses incurred in connection with any registration, qualification and compliance by the Company pursuant to Section 12.2 hereof. All Selling Expenses shall be borne by the holders of the securities so registered pro rata on the basis of the number of their shares so registered. 12.5. Registration Procedures. In the case of each registration ------------------------ effected by the Company pursuant to this Section 12, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. The Company will, at its expense: (a) keep such registration effective for a period of one hundred twenty (120) days or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; (b) furnish such number of prospectuses and other documents incident thereto as a Holder from time to time may reasonably request; and (c) use its best efforts to register or qualify the Registrable Securities under the securities laws or blue-sky laws of such jurisdictions as any Holder may request; provided, however, that the Company shall not be obligated to register or qualify such Registrable Securities in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in order to effect such registration, qualification or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act or applicable rules or regulations thereunder. 12.6. Indemnification. --------------- (a) The Company, with respect to each registration, qualification and compliance effected pursuant to this Section 12, will indemnify and hold harmless each Holder, each of its officers, directors, partners, and agents, and each party controlling such Holder, and each underwriter, if any, and each party who controls any underwriter, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder, each of its officers, directors, partners, and agents, and each party controlling such Holder, each such underwriter and each party who controls any such underwriter, for any legal and any other expenses incurred in connection with investigating or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based solely upon written information furnished to the Company by such Holder or underwriter, as the case may be, and stated to be specifically for use in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance. (b) Each Holder and Other Shareholder will, if Registrable Securities held by it, him or her are included in the securities as to which such registration, qualification or compliance is being effected, indemnify and hold harmless the Company, each of its directors and officers and each underwriter, if any, of the Company's securities covered by such a registration statement, each party who controls the Company or such underwriter, each other such Holder and Other Shareholder and each of their respective officers, directors, partners, and agents, and each party controlling such Holder or Other Shareholder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and such Holders, Other Shareholders, directors, officers, partners, agents, parties, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document solely in reliance upon and in conformity with written information furnished to the Company by such Holder or Other Shareholder and stated to be specifically for use in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance; provided, however, that the obligations of such Holders and Other Shareholders hereunder shall be limited to an amount equal to the proceeds to each such Holder or Other Shareholder of securities sold as contemplated herein. (c) Each party entitled to indemnification under this Section 12.5 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense (unless the Indemnified Party shall have been advised by counsel that actual or potential differing interests or defenses exist or may exist between the Indemnifying Party and the Indemnified Party, in which case such expense shall be paid by the Indemnifying Party), and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 12. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall provide such information as may be reasonably requested by an Indemnifying Party in order to enable such Indemnifying Party to defend a claim as to which indemnity is sought. 12.7. Information by Holder. Each Holder of Registrable Securities, ----------------------- and each Other Shareholder holding securities included in any registration, shall furnish to the Company such information regarding such Holder or Other Shareholder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Section 12. 12.8. Rule 144 Reporting. With a view to making available the benefits ------------------ of certain rules and regulations of the Commission which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times from and after ninety (90) days following the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; (b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act") at any time after it has become subject to such reporting requirements; and (c) So long as the Holder owns any Registrable Securities, furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after ninety (90) days following the effective date of the first registration statement in connection with an offering of its Securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as the Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing the Holder to sell any such securities without registration. SECTION 13. Notices. Any notice or other document required or permitted to be ------- given or delivered to the Holder shall be delivered at, or sent by certified or registered mail to, the Holder at 15260 Ventura Blvd., Suite 1240, Sherman Oaks, California 91403, with a copy to Holder at Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018, Attention: Legal Department or to such other address as shall have been furnished to the Company in writing by the Holder. Any notice or other document required or permitted to be given or delivered to the Company shall be delivered at, or sent by certified or registered mail to, the Company at One Millenium Way, Branchburg, New Jersey 08867, or to such other address as shall have been furnished in writing to the Holder by the Company. Any notice so addressed and mailed by registered or certified mail shall be deemed to be given when so mailed. Any notice so addressed and otherwise delivered shall be deemed to be given when actually received by the addressee. SECTION 14. No Rights as Stockholder; Limitation of Liability. This Warrant --------------------------------------------------- shall not entitle the Holder to any of the rights of a shareholder of the Company except upon exercise in accordance with the terms hereof. No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the Warrant Price hereunder or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. SECTION 15. Law Governing. THE VALIDITY, INTERPRETATION, AND ENFORCEMENT OF -------------- THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF. SECTION 16. Miscellaneous. (a) This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by both parties (or any respective predecessor in interest thereof). The headings in this Warrant are for purposes of reference only and shall not affect the meaning or construction of any of the provisions hereof (b) All capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer on December 6, 1999. LifeCell Corporation [CORPORATE SEAL] By: -------------------------------------- Title: -------------------------------------- FORM OF NOTICE OF EXERCISE [To be signed only upon exercise of the Warrant] TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THE WITHIN WARRANT The undersigned hereby exercises the right to purchase _________ shares of Common Stock which the undersigned is entitled to purchase by the terms of the within Warrant according to the conditions thereof, and herewith [check one] o makes payment of $ therefor; or --------------- o directs the Company to issue shares, and to withhold shares in lieu of payment of the Warrant Price, as described in Section 2.1 of the Warrant. All shares to be issued pursuant hereto shall be issued in the name of and the initial address of such person to be entered on the books of the Company shall be: The shares are to be issued in certificates of the following denominations: -------------------------------------- [Type Name of Holder] By: -------------------------------------- Title: -------------------------------------- Dated: ----------- FORM OF ASSIGNMENT (ENTIRE) [To be signed only upon transfer of entire Warrant] TO BE EXECUTED BY THE REGISTERED HOLDER TO TRANSFER THE WITHIN WARRANT FOR VALUE RECEIVED hereby sells, assigns and --------------------------- transfers unto all rights of the undersigned ------------------------------- under and pursuant to the within Warrant, and the undersigned does hereby irrevocably constitute and appoint Attorney to ------------------------------- transfer the said Warrant on the books of the Company, with full power of substitution. -------------------------------------- [Type Name of Holder] By: -------------------------------------- Title: -------------------------------------- Dated: ----------- NOTICE The signature to the foregoing Assignment must correspond to the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. FORM OF ASSIGNMENT (PARTIAL) [To be signed only upon partial transfer of Warrant] TO BE EXECUTED BY THE REGISTERED HOLDER TO TRANSFER THE WITHIN WARRANT FOR VALUE RECEIVED hereby sells, assigns and ------------------------- transfers unto (i) the rights of the undersigned ------------------------------- to purchase shares of Common Stock under and pursuant to the within Warrant, --- and (ii) on a non-exclusive basis, all other rights of the undersigned under and pursuant to the within Warrant, it being understood that the undersigned shall retain, severally (and not jointly) with the transferee(s) named herein, all rights assigned on such non-exclusive basis. The undersigned does hereby irrevocably constitute and appoint Attorney to ------------------------------ transfer the said Warrant on the books of the Company, with full power of substitution. -------------------------------------- [Type Name of Holder] By: -------------------------------------- Title: -------------------------------------- Dated: ----------- NOTICE The signature to the foregoing Assignment must correspond to the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. EX-10.18 3 PURCHASE AGREEMENT ------------------ THIS PURCHASE AGREEMENT ("Agreement") is made as of the ____ day of November, 1999 by and between LifeCell Corporation, a Delaware corporation (the "Company"), and the Investors set forth on the signature page affixed hereto (each an "Investor" and collectively the "Investors"). RECITALS A. The Company and the Investors are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Regulation D ("Regulation D"), as promulgated by the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended; B. Each Investor wishes to purchase, and the Company wishes to sell and issue to each Investor, upon the terms and conditions stated in this Agreement, that number of shares of the common stock of the Company, $0.001 par value per share (the "Common Stock") and that number of warrants to purchase Common Stock in the form attached hereto as EXHIBIT A (the "Warrants"), as are --------- set forth on the signature page attached hereto and executed by each such Investor, for an aggregate offering of 925,000 shares of Common Stock and 200,000 Warrants; and C. Contemporaneous with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, in the form attached hereto as EXHIBIT B (the "Registration Rights --------- Agreement"), pursuant to which the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder, and applicable state securities laws; In consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. In addition to those terms defined above and elsewhere ----------- in this Agreement, for the purposes of this Agreement, the following terms shall have the meanings here set forth: 1.1 "Affiliate" means, with respect to any person, any other --------- person which directly or indirectly controls, is controlled by, or is under common control with, such person. 1.2 "Agreements" means this Agreement, the Registration Rights ---------- Agreement, and the Warrants. 1.3 "Closing" means the consummation of the transactions ------- contemplated by this Agreement, and "Closing Date" shall have the meaning set ------------ forth in Section 3, below. 1.4 "Control" means the possession , direct or indirect, of the ------- power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise. 1.5 "Market Price" means the average closing bid price of the ------------- Common Stock in the ten (10) trading days immediately preceding the date on which the calculation is being made. 1.6 "Material Adverse Effect" means a material adverse effect on ------------------------- the (i) condition (financial or otherwise), business, assets, or results of operations of the Company; (ii) ability of the Company to perform any of its material obligations under the terms of this Agreement; or (iii) rights and remedies of the Investor under the terms of this Agreement. 1.7 "Person" means an individual, corporation, partnership, trust, ------ business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein. 1.8 "SEC Filings" has the meaning set forth in Section 4.6. ------------ 1.9 "Securities" means the Shares, the Warrants and the Warrant ---------- Shares (defined below). 1.10 "Shares" means the shares of Common Stock being purchased by ------ the Investors hereunder. 1.11 "Warrant Shares" means the shares of Common Stock issuable --------------- upon exercise of or otherwise pursuant to the Warrants. 1.12 "1933 Act" means the Securities Act of 1933, as amended, and --------- the rules and regulations promulgated thereunder. 1.13 "1934 Act" means the Securities Exchange Act of 1934, as --------- amended, and the rules and regulations promulgated thereunder. 2. Purchase and Sale of the Shares and Warrants. Subject to the terms --------------------------------------------- and conditions of this Agreement, each of the Investors hereby severally, and not jointly, agrees to purchase, and the Company hereby agrees to sell and issue to the Investors, the number of Shares and Warrants to purchase the number of shares of Common Stock set forth on such Investor's signature page attached hereto. The purchase price per share of Common Stock purchased by each Investor hereunder shall be $4.20 (the "Purchase Price"). The exercise price of the Warrants shall be 130% of the Purchase Price, or $5.46 per share. 2 3. Closing. The Company shall promptly deliver to Investors' counsel, ------- in trust, a certificate or certificates, registered in such name or names as the Investors shall have designated, representing all of the Shares and all of the Warrants, with instructions that such certificates are to be held for release to the Investors only upon payment of the Purchase Price to the Company. Upon receipt by counsel to the Investors of the certificates, the Investors shall promptly cause a wire transfer in same day funds to be sent to the account of the Company as instructed in writing by the Company, in an amount representing the entire Purchase Price. On the date the Company receives such funds, the certificates evidencing the Shares and the Warrants shall be released to the Investors (and such date shall be deemed the "Closing Date"). 4. Representations and Warranties of the Company. The Company hereby ----------------------------------------------- represents and warrants to the Investors that: 4.1 Organization, Good Standing and Qualification. The Company is --------------------------------------------- a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now conducted and own its properties. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property makes such qualification or licensing necessary unless the failure to so qualify would not have a Material Adverse Effect. The Company has no subsidiaries. 4.2 Authorization. The Company has the requisite corporate power ------------- and authority and has taken all requisite action on the part of the Company, its officers, directors and stockholders necessary for (i) the authorization, execution and delivery of the Agreements, (ii) authorization of the performance of all obligations of the Company hereunder or thereunder, and (iii) the authorization, issuance (or reservation for issuance) and delivery of the Securities. The Agreements constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors' rights generally. 4.3 Capitalization. Set forth on Schedule 4.3 hereto is (a) the -------------- ------------ authorized capital stock of the Company on the date hereof; (b) the number of shares of capital stock issued and outstanding; (c) the number of shares of capital stock issuable pursuant to the Company's stock plans; and (d) the number of shares of capital stock issuable and reserved for issuance pursuant to securities (other than the Shares and the Warrants) exercisable for, or convertible into or exchangeable for any shares of capital stock. All of the issued and outstanding shares of the Company's capital stock have been duly authorized and validly issued and are fully paid, nonassessable and free of 3 preemptive rights. Except as set forth on Schedule 4.3, no Person is entitled ------------ to preemptive or similar statutory or contractual rights with respect to any securities of the Company. Except as set forth on Schedule 4.3, there are no ------------ outstanding warrants, options, convertible securities or other rights, agreements or arrangements of any character under which the Company is or may be obligated to issue any equity securities of any kind and except as contemplated by this Agreement, the Company is not currently in negotiations for the issuance of any equity securities of any kind. Except as set forth on Schedule 4.3, the ------------ Company has no knowledge of any voting agreements, buy-sell agreements, option or right of first purchase agreements or other agreements of any kind among any of the securityholders of the Company relating to the securities of the Company held by them. Except as set forth on Schedule 4.3, the Company has not granted ------------ any Person the right to require the Company to register any securities of the Company under the 1933 Act, whether on a demand basis or in connection with the registration of securities of the Company for its own account or for the account of any other Person. 4.4 Valid Issuance. The Company has reserved a sufficient number --------------- of shares of Common Stock for the issuance of the Shares pursuant to this Agreement and upon exercise of the Warrants. The Company will take such steps as may be necessary to reserve sufficient shares for issuance pursuant to Section 7 below when such issuance is determinable. The Shares and Warrants are duly authorized, and such Securities, along with the Warrant Shares when issued in accordance herewith and with the terms of the Warrants, will be duly authorized, validly issued, fully paid, non-assessable and free and clear of all encumbrances and restrictions, except for restrictions on transfer imposed by applicable securities laws. 4.5 Consents. The execution, delivery and performance by the -------- Company of the Agreements and the offer, issuance and sale of the Securities require no consent of, action by or in respect of, or filing with, any Person, governmental body, agency, or official other than filings that have been made pursuant to applicable state securities laws and post-sale filings pursuant to applicable state and federal securities laws and the requirements of the Nasdaq Stock Market, which the Company undertakes to file within the applicable time periods. 4.6 Delivery of SEC Filings; Business. The Company has provided ----------------------------------- the Investors with copies of the Company's most recent Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all other reports filed by the Company pursuant to the 1934 Act since the filing of the Annual Report on Form 10-K and prior to the date hereof (collectively, the "SEC Filings"). The Company is engaged only in the business described in the SEC Filings and the SEC Filings contain a complete and accurate description of the business of the Company. 4.7 Use of Proceeds. The proceeds of the sale of the Common Stock --------------- and the Warrants hereunder shall be used by the Company for working capital and general corporate purposes. 4.8 No Material Adverse Change. Since the filing of the Company's -------------------------- most recent Annual Report on Form 10-K or as otherwise identified and described in subsequent reports filed by the Company pursuant to the 1934 Act or as set forth on Schedule 4.8 hereto, there has not been: ------------- (i) any change in the consolidated assets, liabilities, financial condition or operating results of the Company from that reflected in the financial statements included in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30 1999, except changes in the ordinary course of business which have not had, in the aggregate, a Material Adverse Effect; 4 (ii) any declaration or payment of any dividend, or any authorization or payment of any distribution, on any of the capital stock of the Company, or any redemption or repurchase of any securities of the Company; (iii) any material damage, destruction or loss, whether or not covered by insurance to any assets or properties of the Company; (iv) any waiver by the Company of a valuable right or of a material debt owed to it; (v) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and which is not material to the assets, properties, financial condition, operating results or business of the Company taken as a whole (as such business is presently conducted and as it is proposed to be conducted); (vi) any material change or amendment to a material contract or arrangement by which the Company or any of its assets or properties is bound or subject; (vii) any material labor difficulties or labor union organizing activities with respect to employees of the Company; (viii) any transaction entered into by the Company other than in the ordinary course of business; or (ix) any other event or condition of any character that might have a Material Adverse Effect. 4.9 SEC Filings; Material Contracts. ---------------------------------- (a) The SEC Filings complied as to form in all material respects with the requirements of the 1934 Act and did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. (b) During the preceding two years, each registration statement and any amendment thereto filed by the Company pursuant to the 1933 Act and the rules and regulations thereunder, as of the date such statement or amendment became effective, complied as to form in all material respects with the 1933 Act and did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading; and each prospectus filed pursuant to Rule 424(b) under the 1933 Act, as of its issue date and as of the closing of any sale of securities pursuant thereto did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. 5 (c) Except as set forth on Schedule 4.3 hereto, there are no ------------ agreements or instruments currently in force and effect that constitute a warrant, option, convertible security or other right, agreement or arrangement of any character under which the Company is or may be obligated to issue any material amounts of any equity security of any kind, or to transfer any material amounts of any equity security of any kind. 4.10 Form S-3 Eligibility. The Company is currently eligible to ---------------------- register the resale of its Common Stock on a registration statement on Form S-3 under the 1933 Act. 4.11 No Conflict, Breach, Violation or Default. The execution, -------------------------------------------- delivery and performance of the Agreements by the Company and the issuance and sale of the Securities will not conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under (i) the Company's Certificate of Incorporation or the Company's Bylaws, both as in effect on the date hereof (copies of which have been provided to the Investors before the date hereof), or (ii) except where it would not have a Material Adverse Effect, (a) any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any of its properties, or (b) except as set forth on Schedule 4.11, ------------- any agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the properties of the Company is subject. 4.12 Tax Matters. The Company has timely prepared and filed all ------------ tax returns required to have been filed by the Company with all appropriate governmental agencies and timely paid all taxes owed by it. There are no material unpaid assessments against the Company nor, to the knowledge of the Company, any basis for the assessment of any additional taxes, penalties or interest for any fiscal period or audits by any federal, state or local taxing authority except such as which are not material. All material taxes and other assessments and levies that the Company is required to withhold or to collect for payment have been duly withheld and collected and paid to the proper governmental entity or third party when due. There are no tax liens or claims pending or threatened against the Company or any of its respective assets or property. There are no outstanding tax sharing agreements or other such arrangements between the Company and any other corporation or entity. 4.13 Title to Properties. Except as disclosed in the SEC Filings -------------------- or Schedule 4.13, the Company has good and marketable title to all real -------------- properties and all other properties and assets owned by it, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or currently planned to be made thereof by them; and except as disclosed in the SEC Filings, the Company holds any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or currently planned to be made thereof by them. 6 4.14 Certificates, Authorities and Permits. The Company possesses ------------------------------------- adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by it and has not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company, would individually or in the aggregate have a Material Adverse Effect. 4.15 No Labor Disputes. No material labor dispute with the ------------------- employees of the Company exists or, to the knowledge of the Company, is imminent. 4.16 Intellectual Property. The Company has sufficient title or ---------------------- adequate rights or licenses to use the inventions, know-how, patents, copyrights, trademarks, trade names, confidential information and other intellectual property (collectively, "Intellectual Property Rights"), material to and used in the conduct of the business now operated by it, or presently employed by it, and presently contemplated to be operated by it, and the Company has not received any notice of infringement of or conflict with asserted rights of others with respect to any Intellectual Property Rights. To the knowledge of the Company, the Company's patents and other Intellectual Property Rights and the present activities of the Company do not infringe any patent, copyright, trademark, trade name or other proprietary rights of any third party. 4.17 Environmental Matters. The Company is not in violation of ---------------------- any statute, rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "Environmental Laws"), does not own or operate any real property contaminated with any substance that is subject to any Environmental Laws, is not liable for any off-site disposal or contamination pursuant to any Environmental Laws, and is not subject to any claim relating to any Environmental Laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse Effect; and the Company is not aware of any pending investigation that might lead to such a claim. 4.18 Litigation. Except as disclosed in the SEC Filings or on ---------- Schedule 4.18 hereto, there are no pending actions, suits or proceedings against ---------- or affecting the Company or any of its properties that, if determined adversely to the Company, would individually or in the aggregate have a Material Adverse Effect or would materially and adversely affect the ability of the Company to perform its obligations under this Agreement, or which are otherwise material in the context of the sale of the Securities; and to the Company's knowledge, no such actions, suits or proceedings are threatened or contemplated. 4.19 Financial Statements. The financial statements included in --------------------- each SEC Filing present fairly and accurately in all material respects the consolidated financial position of the Company as of the dates shown and its consolidated results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis. Except as set forth in the financial statements of the Company included in the SEC Filings filed prior to the date hereof, to the best of the Company's knowledge, the Company has no liabilities, contingent or otherwise, except those which individually or in the aggregate are not material to the financial condition or operating results of the Company. 7 4.20 Insurance Coverage. The Company maintains in full force and ------------------- effect the insurance coverage set forth on Schedule 4.20, and the Company ------------- reasonably believes such insurance coverage to be adequate against all liabilities, claims and risks against which it is customary for comparably situated companies to insure. 4.21 Compliance with Nasdaq Continued Listing Requirements. The ------------------------------------------------------- Company is in compliance with all applicable Nasdaq continued listing requirements. There are no proceedings pending or to the Company's knowledge threatened against the Company relating to the continued listing of the Company's Common Stock on the Nasdaq National Market and the Company has not received any notice of, nor to the knowledge of the Company is there any basis for, the delisting of the Common Stock from the Nasdaq National Market. 4.22 Brokers and Finders. Except as set forth on Schedule 4.23 --------------------- ------------- hereof, the Company shall have no liability or responsibility for the payment of any commission or finder's fee to any third party in connection with or resulting from this agreement or the transactions contemplated by this Agreement. No agreement by the Company with any third party will give rise to any liability or responsibility of any Investor for a finder's fee or commission related to this Agreement and the transactions contemplated hereby. 4.23 No Directed Selling Efforts or General Solicitation. Neither --------------------------------------------------- the Company nor any Person acting on its behalf has conducted any general solicitation or general advertising (as those terms are used in Regulation D) in connection with the offer or sale of any of the Securities. 4.24 No Integrated Offering. Neither the Company nor any of its ------------------------ Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would adversely affect reliance by the Company on Section 4(2) for the exemption from registration for the transactions contemplated hereby or would require registration of the Securities under the 1933 Act. 4.25 Disclosures. No representation or warranty made under any ----------- Section hereof contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein, in light of the circumstances under which the statements were made, not misleading. 5. Representations and Warranties of the Investor. Each of the --------------------------------------------------- Investors hereby severally, and not jointly, represents and warrants to the Company that: 8 5.1 Organization and Existence. The Investor is a validly ---------------------------- existing corporation or limited liability company and has all requisite corporate or limited liability company power and authority to invest in the Securities pursuant to this Agreement. 5.2 Authorization. The execution, delivery and performance by the ------------- Investor of the Agreements have been duly authorized and the Agreements will each constitute the valid and legally binding obligation of the Investor, enforceable against the Investor in accordance with their terms. 5.3 Purchase Entirely for Own Account. The Securities to be ------------------------------------- received by the Investor hereunder will be acquired for investment for the Investor's own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof, and the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. The Investor is not a registered broker dealer or an entity engaged in the business of being a broker dealer. 5.4 Investment Experience. The Investor acknowledges that it can ---------------------- bear the economic risk and complete loss of its investment in the Securities and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment contemplated hereby. 5.5 Disclosure of Information. The Investor has had an --------------------------- opportunity to receive documents related to the Company and to ask questions of and receive answers from the Company regarding the Company, its business and the terms and conditions of the offering of the Securities. The Investor acknowledges receipt of the SEC Filings and any other filings which it requested be made by the Company with the SEC. Neither such inquiries nor any other due diligence investigation conducted by the Investor shall modify, amend or affect the Investor's right to rely on the Company's representations and warranties contained in this Agreement. 5.6 Restricted Securities. The Investor understands that the ---------------------- Securities are characterized as "restricted securities" under the U.S. federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the 1933 Act only in certain limited circumstances. 5.7 Legends. It is understood that, until registration for resale ------- pursuant to the Registration Rights Agreement, certificates evidencing the Securities may bear one or all of the following legends: (a) "The shares represented by this certificate may not be transferred without (i) the opinion of counsel satisfactory to the corporation that such transfer may lawfully be made without registration under the Securities Act of 1933 or qualification under applicable state securities laws; or (ii) such registration or qualification." 9 (b) If required by the authorities of any state in connection with the issuance of sale of the Securities, the legend required by such state authority. Upon registration for resale pursuant to the Registration Rights Agreement, the Company shall promptly cause certificates evidencing the Shares previously issued hereunder to be replaced with certificates which do not bear such restrictive legends, and each Investor will thereafter sell the Common Stock evidenced by such certificates only pursuant to the Prospectus (as defined in the Registration Rights Agreement) or pursuant to Rule 144(k). 5.8 Accredited Investor. The Investor is an accredited investor -------------------- as defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act. 5.9 No General Solicitation. The Investor did not learn of the ------------------------- investment in the Securities as a result of any public advertising or general solicitation. 5.10 Reliance. The Investor understands and acknowledges that (i) -------- the Securities to be acquired by it hereunder are being offered and sold to it without registration under the 1933 Act in a private placement that is exempt from the registration provisions of the 1933 Act and (ii) the availability of such exemption depends in part on and the Company will rely upon the accuracy and truthfulness of the representations contained herein and the Investor hereby consents to such reliance. 5.11 Transactions in Common Stock. The Investor has not, during ------------------------------ the thirty (30) trading days immediately preceding the date hereof, sold or established a short position in, any shares of Common Stock. 6. Registration Rights Agreement. The parties acknowledge and agree ------------------------------- that part of the inducement for the Investor to enter into this Agreement is the Company's execution and delivery of the Registration Rights Agreement. The parties acknowledge and agree that simultaneously with the execution hereof, the Registration Rights Agreement is being duly executed and delivered by the parties thereto. 7. Covenants and Agreements of the Company. -------------------------------------------- 7.1 Purchase Price Adjustments. ---------------------------- (a) Potential Adjustments. Subject to Section 7.1(e), if the --------------------- Market Price on the first, second or third anniversary of the Closing is lower than $2.60, $4.00 or $4.00, respectively, the Company shall issue to each of the Investors that number of shares of Common Stock at such Market Price equal in value to the difference between such Market Price and $2.60, $4.00 and $4.00, respectively, multiplied by the number of Shares originally acquired by such Investor hereunder. For so long as an Investor owns 65% or more of the Shares originally acquired by such Investor hereunder, which holdings shall be confirmed in writing by the Investor in the form attached as Schedule 7.1, such ------------ Investor shall be entitled to the full benefit of the adjustment required by this Section 7.1(a). In the event an Investor on any anniversary date then owns less than 65% of the Shares acquired by it hereunder, such Investor shall be entitled to additional shares only with respect to the number of Shares then owned by such Investor (i.e., the multiplier shall be only that number of Shares as the Investor still owns). The term "Shares" as used in this Agreement shall include shares issued to the Investors pursuant to this Section 7.1. 10 (b) Adjustment Mechanics. If an adjustment is required --------------------- pursuant to Section 7.1(a), the Company shall deliver to the Investors within twenty (20) business days ("Delivery Date") each Investor's additional shares of Common Stock; provided however, that the Company shall effect such adjustment in cash, in whole or in part, to the extent required by Section 7.1(c). In the event the Company fails to deliver the additional shares (or cash, as the case may be) within ten (10) days of the Delivery Date, the Company shall be liable to the Investors for a penalty equal to 1% of the aggregate adjustment per month (in each instance to such Investor pro rata in accordance with its participation in this offering), payable in Common Stock or cash, at the Company's election. Any adjustment made on the second and third anniversaries of the Closing shall take into account the adjustment(s) made, if any, on the first anniversary and on the first and second anniversaries, respectively, such that the per share cash amount of the adjustment in the second and third years shall be reduced by the per share cash amount of the adjustment in the preceding year(s). By way of illustration, if on the first anniversary the Market Price is $2.00, the Investors will be entitled to a $.60 per share adjustment. If then on the second anniversary, the Market Price is $3.00, the Investors will be entitled to a $.40 per share adjustment (to wit, $1.00 difference from the $4.00 per share target for year two, less $.60 per share adjustment paid on the first anniversary). (c) Limitation on Number of Shares. ---------------------------------- (i) If by way of any adjustment required by this Section 7.1, an Investor would receive a number of shares of Common Stock such that the total number of such shares held by the Investor as of the date of such adjustment would be greater than 9.90% but less than 13.0% of the total outstanding Common Stock of the Company, then the Company shall not effect the adjustment required by this Section to the extent necessary to avoid causing the aforesaid limitation to be exceeded until 120 days following the date such adjustment would have otherwise been made. (ii) If by way of any adjustment required by this Section 7.1, an Investor would receive a number of shares of Common Stock such that the total number of such shares held by the Investor as of the date of such adjustment would equal or exceed 13.0% of the total outstanding Common Stock of the Company, then the Company shall not effect the adjustment required by this Section to the extent necessary to avoid causing the aforesaid limitation to be exceeded until 180 days following the date such adjustment would have otherwise been made. (iii) In the event that the Company would be obligated to issue an amount of shares of Common Stock which, when aggregated with all shares of Common Stock issued to an Investor, would constitute a breach of the Company's obligations under the rules or regulations of Nasdaq as they apply to the Company, or any other principal securities exchange or market upon which the Common Stock is or becomes traded (the "Cap Regulations"), the Company shall not be obligated to issue any such shares of Common Stock. Instead, the Company shall immediately seek shareholder approval of this transaction if such approval would, under the Cap Regulations, permit the Company to issue the shares of Common Stock without violation of the Cap Regulations. If such shareholder approval will not afford a cure of the breach of the Cap Regulations, or if such shareholder approval is not obtained within eighty (80) days, then the Company shall promptly redeem the Investor at a redemption price equal to 105% of the cash value of the adjustment. 11 Only shares acquired pursuant to this Agreement will be included in determining whether the limitations would be exceeded for purposes of this Section 7.1(c). (d) Capital Adjustments. In case of any stock split or -------------------- reverse stock split of the Common Stock, stock dividend on the Common Stock, reclassification of the common stock, recapitalization, merger or consolidation, or like capital adjustment affecting the Common Stock of the Company, the provisions of Section 7.1 shall be applied in a fair, equitable and reasonable manner so as to give effect, as nearly as may be, to the purposes hereof. No adjustment shall be required by reason of stock dividends paid on the Series B Preferred Stock. (e) Early Termination of Potential Adjustment Period. If at ------------------------------------------------- any time prior to the expiration of the three-year period for potential adjustments as contemplated by Section 7.1 (the "Potential Adjustment Period"), the closing bid price for the Common Stock of the Company exceeds $10.00 for twenty (20) consecutive trading days, the Potential Adjustment Period shall thereupon terminate; provided that at all times during such twenty trading days, the Shares were effectively registered for resale by the Investors. 7.2 Limitation on Transactions. ---------------------------- (a) Until the date of effectiveness of the Registration Statement covering the Shares as contemplated by the Registration Rights Agreement, without the prior written consent of the Investors (which consent may be withheld in the Investors' discretion), the Company shall not issue or sell or agree to issue or sell for cash in a non-public offering any equity securities in a capital raising transaction. (b) Until the expiration of the Potential Adjustment Period (or its early termination pursuant to Section 7.1(e)) without the prior written consent of the Investors (which consent may be withheld in the Investors' discretion), the Company shall not issue or sell, or agree to issue or sell, for cash in a non-public Variable Rate Transaction. For the purposes of this Agreement, a "Variable Rate Transaction" shall mean: (A) any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (x) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the Common Stock at any time after the initial issuance of such debt or equity securities, or (y) with a fixed conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock (but excluding standard stock split anti-dilution provisions), or (B) any securities of the Company pursuant to an "equity line" structure which provides for the sale, from time to time, of securities of the Company which are registered for resale pursuant to the 1933 Act; provided, however, that the foregoing limitation on Variable Rate Transactions shall not apply to any such securities with an aggregate face value outstanding at any time equal to or less than seven and one-half percent (7.5%) of the Company's primary market capitalization. 12 7.3 Right of Investors to Participate in Future Transactions. -------------------------------------------------------- Until the expiration of the Potential Adjustment Period (or its early termination pursuant to Section 7.1(e)), or such earlier termination thereof, the Investors will have a right to participate in future capital raising transactions of the Company on the terms and conditions set forth in this Section 7.3. During such period, the Company shall give five (5) business days advance written notice to the Investors prior to any non-public offer or sale of any of the Company's equity securities or any securities convertible into or exchangeable or exercisable for such securities by providing to the Investors a comprehensive term sheet containing all significant business terms of such a proposed transaction. Prior to the closing of any such sale, the Investors shall have the right to participate (pro rata in accordance with each Investor's participation in this offering) in up to 20%, but if such right is exercised not less than an aggregate of 10%, of such new offering. If such offering constitutes a Variable Rate Transaction as defined above, the Investors shall have the right to participate (pro rata in accordance with each Investor's participation in this offering) in up to 50%, but if such right is exercised not less than an aggregate of 10%, of such new offering. The Investor(s)' right hereunder must be exercised in writing by the Investor(s) within five (5) business days following receipt of the notice from the Company. If, subsequent to the Company giving notice to the Investors hereunder but prior to the Investor exercising its right to participate (or the expiration of the five-day period without response from the Investor), the terms and conditions of the proposed third-party sale are changed from that disclosed in the comprehensive term sheet provided to the Investors, the Company shall be required to provide a new notice to the Investors hereunder and the Investors shall have the right, which must be exercised within five (5) business days of such new notice, to exercise its rights to purchase the securities on such changed terms and conditions as provided hereunder. In the event the Investors do not exercise their rights hereunder, or affirmatively decline to engage in the proposed transaction with the Company, then the Company may proceed with such proposed transaction on the same terms and conditions as noticed to the Investors (assuming the Investors have consented to the transaction, if required, pursuant to Section 7.2 of this Agreement). The rights and obligations of this Section 7.3 shall in no way diminish the other rights of the Investor pursuant to this Section 7. 7.4 Opinion of Counsel. On or prior to the Closing Date, the -------------------- Company will deliver to the Investors the opinion of legal counsel to the Company, in form and substance reasonably acceptable to the Investors, addressing those legal matters set forth in Schedule 7.4 hereto. ------------- 13 7.5 Reservation of Common Stock Pursuant to Section 7.1 and -------------------------------------------------------------- Exercise of Warrants. The Company hereby agrees at all times to reserve and ---------------- keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of providing for the exercise of the Warrants, such number of shares of Common Stock as shall from time to time equal the number of shares sufficient to permit the exercise of the Warrants in accordance with the terms of the Warrants. In addition, as soon as such number is determinable, the Company agrees to reserve such shares as may be necessary to permit the issuances to the Investors required by Section 7.1. 7.6 Reports. For so long as the Investors beneficially own any of ------- the Securities, the Company will furnish to the Investors the following reports, each of which shall be provided to the Investors by air mail (within one week of filing with the SEC, in the case of SEC filings): (a) Quarterly Reports. The Company's quarterly report on ------------------ Form 10-Q or, in the absence of such report, consolidated balance sheets of the Company as at the end of such period and the related consolidated statements of operations, stockholders' equity and cash flows for such period and for the portion of the Company's fiscal year ended on the last day of such quarter, all in reasonable detail and certified by a principal financial officer of the Company to have been prepared in accordance with generally accepted accounting principles, subject to year-end and audit adjustments. (b) Annual Reports. The Company's Form 10-K or, in the --------------- absence of a Form 10-K, consolidated balance sheets of the Company as at the end of such year and the related consolidated statements of earnings, stockholders' equity and cash flows for such year, all in reasonable detail and accompanied by the report on such consolidated financial statements of an independent certified public accountant selected by the Company and reasonably satisfactory to the Investor. (c) Securities Filings. Copies of (i) all notices, proxy ------------------- statements, financial statements, reports and documents as the Company shall send or make available generally to its stockholders or to financial analysts, promptly after providing same to the stockholders and (ii) all periodic and special reports, documents and registration statements (other than on Form S-8) which the Company furnishes or files, or any officer or director of the Company (in such person's capacity as such) furnishes or files with the SEC. (d) Other Information. Such other information relating to ------------------ the Company as from time to time may reasonably be requested by the Investors provided the Company produces such information in its ordinary course of business, and further provided that the Company, solely in its own discretion, determines that such information is not confidential in nature and disclosure to the Investor would not be harmful to the Company. 7.7 Press Releases. Any press release or other publicity --------------- concerning this Agreement or the transactions contemplated by this Agreement shall be submitted to the Investors for comment at least two (2) business days prior to issuance, unless the release is required to be issued within a shorter period of time by law or pursuant to the rules of a national securities exchange. 14 7.8 No Conflicting Agreements. The Company will not take any --------------------------- action, enter into any agreement or make any commitment that would conflict or interfere in any material respect with the obligations to the Investors under the Agreements. 7.9 Insurance. So long as the Investors beneficially own any --------- Securities, the Company shall not materially reduce the insurance coverages set forth in Schedule 4.20. -------------- 7.10 Compliance with Laws. So long as the Investors beneficially --------------------- own any Securities, the Company will use reasonable efforts to comply with all applicable laws, rules, regulations, orders and decrees of all governmental authorities, except to the extent non-compliance (in one instance or in the aggregate) would not have a Material Adverse Effect. 7.11 Listing of Underlying Shares and Related Matters. The ------------------------------------------------------ Company hereby agrees, promptly following the Closing of the transactions contemplated by this Agreement, to take such action to cause the Shares and the Warrant Shares to be listed on the Nasdaq National Market as promptly as possible but no later than the effective date of the registration contemplated by the Registration Rights Agreement. The Company further agrees that if the Company applies to have its Common Stock or other securities traded on any other principal stock exchange or market, it will include in such application the Warrant Shares and will take such other action as is necessary to cause such Common Stock to be so listed. For so long as the Investors beneficially own any of the Securities, the Company will take all action necessary to continue the listing and trading of its Common Stock on the Nasdaq National Market and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of such exchange, as applicable, to ensure the continued eligibility for trading of the Shares and the Warrant Shares thereon. 7.12 Corporate Existence. So long as the Investors beneficially -------------------- own any of the Shares or Warrants (but in no event longer than five years), the Company shall maintain its corporate existence, except in the event of a merger, consolidation or sale of all or substantially all of the Company's assets, as long as the surviving or successor entity in such transaction (a) assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith, regardless of whether or not the Company would have had a sufficient number of shares of Common Stock authorized and available for issuance in order to fulfill its obligations hereunder and effect the exercise in full of all Warrants outstanding as of the date of such transaction; (b) has no legal, contractual or other restrictions on its ability to perform the obligations of the Company hereunder and under the agreements and instruments entered into in connection herewith; and (c) (i) is a publicly traded corporation whose common stock and the shares of capital stock issuable upon exercise of the Warrants are (or would be upon issuance thereof) listed for trading on the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange or the American Stock Exchange, or (ii) if not such a publicly traded corporation, then the buyer agrees that it will, at the election of an Investor, purchase such Investor's Shares (and Warrant Shares) within 30 days of such election at a per share purchase price of $4.20. 15 8. Survival. All representations, warranties, covenants and agreements -------- contained in this Agreement shall be deemed to be representations, warranties, covenants and agreements as of the date hereof and shall survive the execution and delivery of this Agreement for a period of two years from the date of this Agreement; provided, however, that the provisions contained in Section 7 hereof shall survive in accordance therewith. 9. Arbitration. ----------- 9.1 Scope. Resolution of any and all disputes arising from or in ----- connection with the Agreements, whether based on contract, tort, common law, equity, statute, regulation, order or otherwise ("Disputes"), shall be exclusively governed by and settled in accordance with the provisions of this Section 9; provided, that the foregoing shall not preclude equitable or other judicial relief to enforce the provisions hereof or to preserve the status quo pending resolution of Disputes hereunder. 9.2. Binding Arbitration. The parties hereby agree to submit all -------------------- Disputes to arbitration for final and binding resolution. Either party may initiate such arbitration by delivery of a demand therefor (the "Arbitration Demand") to the other party. The arbitration shall be conducted in New York, New York by a sole arbitrator selected by agreement of the parties not later than fifteen (15) business days after delivery of the Arbitration Demand, or, failing such agreement, appointed pursuant to the Commercial Arbitration Rules of the America Arbitration Association, as amended from time to time (the "AAA Rules"). If the arbitrator becomes unable to serve, his successor(s) shall be similarly selected or appointed. 9.3. Procedure. The arbitration shall be conducted pursuant to --------- the Federal Arbitration Act and such procedures as the parties may agree or, in the absence of or failing such agreement, pursuant to the AAA Rules. Notwithstanding the foregoing, (a) each party shall have the right to conduct limited discovery of information relevant to the Dispute; (b) each party shall provide to the other, reasonably in advance of any hearing, copies of all documents that a party intends to present in such hearing; (c) all hearings shall be conducted on an expedited schedule; and (d) except as otherwise required by law and as required to conduct the proceedings, all proceedings shall be confidential, except that either party may at its expense make a stenographic record thereof. 9.4. Timing. The arbitrator shall complete all hearings not later ------ than 90 days after his or her selection or appointment, and shall make a final award not later than 30 days thereafter. The arbitrator shall apportion all costs and expenses of the arbitration, including the arbitrator's fees and expenses, and fees and expenses of experts ("Arbitration Costs") between the prevailing and non-prevailing party as the arbitrator shall deem fair and reasonable. In circumstances where a Dispute has been asserted or defended against on grounds that the arbitrator deems frivolous, the arbitrator may assess all Arbitration Costs against the non-prevailing party and may include in the award the prevailing party's attorney's fees and expenses in connection with any and all proceedings under this Section 9. Notwithstanding the foregoing, in no event may the arbitrator award multiple or punitive damages. 16 10. Miscellaneous. ------------- 10.1 Successors and Assigns. This Agreement may not be assigned ------------------------ by a party hereto without the prior written consent of the other party hereto, except that without the prior written consent of the Company, but after notice duly given, an Investor may assign its rights and delegate its duties hereunder to an Affiliate, and without the prior written consent of the Investors, but after notice duly given and in compliance with this Agreement, the Company may assign its rights and delegate its duties hereunder to any successor-in-interest corporation in the event of a merger or consolidation of the Company with or into another corporation, or any merger or consolidation of another corporation with or into the Company that results directly or indirectly in an aggregate change in the ownership or control of more than 50% of the voting rights of the equity securities of the Company, or the sale of all or substantially all of the Company's assets. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 10.2 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.3 Titles and Subtitles. The titles and subtitles used in this --------------------- Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 10.4 Notices. Unless otherwise provided, any notice required or ------- permitted under this Agreement shall be given in writing and shall be deemed effectively given only upon delivery to each party to be notified by (i) personal delivery, (ii) telex or telecopier, upon receipt of confirmation of complete transmittal, or (iii) an internationally recognized overnight air courier, addressed to the party to be notified at the address as follows, or at such other address as such party may designate by ten days' advance written notice to the other party: If to the Company: LifeCell Corporation One Millennium Way Branchburg, NJ 08876 Attn: Fenel M. Eloi Chief Financial Officer Fax: 908-947-1081 If to the Investors, to the addresses set forth on the signature pages hereto. 17 10.5 Fees and Expenses. The parties hereto shall pay their own ------------------- costs and expenses in connection herewith, except that the Company shall pay to Tail Wind, Inc. a sum equal to 1% of the Purchase Price paid by each Investor as and for reimbursement for legal and due diligence expenses incurred in connection herewith and such amount shall be paid at Closing from gross proceeds of the offering. 10.6 Amendments and Waivers. Any term of this Agreement may be ------------------------ amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investors. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Securities purchased under this Agreement at the time outstanding, each future holder of all such securities, and the Company. 10.7 Severability. If one or more provisions of this Agreement ------------ are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 10.8 Entire Agreement. This Agreement, including the Exhibits and ---------------- Schedules hereto, and the Registration Rights Agreement constitute the entire agreement among the parties hereof with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof and thereof. 10.9 Further Assurances. The parties shall execute and deliver ------------------- all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained. 10.10 Applicable Law. This Agreement shall be governed by, and --------------- construed in accordance with, the laws of the State of New York without regard to principles of conflicts of laws. 18 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. The Company: LIFECELL CORPORATION By:_________________________ Name: Title: 19 The Investor: [___________________________] By:_________________________ Name: Title: By:_________________________ Name: Title: Aggregate Purchase Price: __________ Number of Shares of Common Stock: ____________ Number of Warrants: _______________ Effective per share Purchase Price of Shares: $4.20 Exercise price of Warrants: $5.46 Address for Notice: [____________________________] [____________________________] [____________________________] [____________________________] [____________________________] [____________________________] with a copy to: Bryan Cave LLP 700 Thirteenth Street, NW Washington, DC 20005 Attn: LaDawn Naegle Telephone: 202/508-6046 Facsimile: 202/508-6200 20 SCHEDULE 7.1 Date: LifeCell Corporation One Millennium Way Branchburg, NJ 08876 Attn: Fenel M. Eloi Gentlemen: By this letter we represent that on this date we own ___________ shares of LifeCell Corporation common stock. These shares are held in our brokerage account at ________________________________________________. Sincerely, ___________________________________ [Investor] REGISTRATION RIGHTS AGREEMENT ----------------------------- This Registration Rights Agreement (the "Agreement") is made and entered into as of this ____ day of November, 1999 by and between LifeCell Corporation, a Delaware corporation (the "Company"), and the "Investors" named in that certain Purchase Agreement of even date herewith by and between the Company and the Investors (the "Purchase Agreement"). The parties hereby agree as follows: 1. Certain Definitions -------------------- As used in this Agreement, the following terms shall have the following meanings: "Additional Registrable Securities" shall mean the shares of ----------------------------------- Common Stock, if any, issued to the Investors pursuant to Section 7.1 of the Purchase Agreement. "Common Stock" shall mean the Company's Common Stock, par value ------------- $0.001 per share. "Investors" shall mean the purchasers identified in the Purchase --------- Agreement and any affiliate of any Investor who is a subsequent holder of any Warrants, Registrable Securities or Additional Registrable Securities. "Prospectus" shall mean the prospectus included in any ---------- Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities or Additional Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus. "Register," "registered" and "registration" refer to a -------- ---------- ------------ registration made by preparing and filing a registration statement or similar document in compliance with the 1933 Act (as defined below), and the declaration or ordering of effectiveness of such registration statement or document. "Registrable Securities" shall mean the shares of Common Stock ----------------------- issued and issuable to the Investors pursuant to the Purchase Agreement (other than additional shares of Common Stock issuable pursuant to Section 7.1 of the Purchase Agreement) and issuable upon the exercise of the Warrants. "Registration Statement" shall mean any registration statement of ---------------------- the Company filed under the 1933 Act that covers the resale of any of the Registrable Securities or Additional Registrable Securities pursuant to the provisions of this Agreement, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement. "SEC" means the U.S. Securities and Exchange Commission. --- "1933 Act" means the Securities Act of 1933, as amended, and the --------- rules and regulations promulgated thereunder. "1934 Act" means the Securities Exchange Act of 1934, as amended, -------- and the rules and regulations promulgated thereunder. "Warrants" mean the warrants to purchase shares of Common Stock -------- issued to the Investors pursuant to the Purchase Agreement, the form of which is attached to the Purchase Agreement as Exhibit A. 2. Registration. ------------ (a) Registration Statements. ------------------------ (i) Registrable Securities. Promptly following the ----------------------- closing of the purchase and sale of Common Stock and Warrants contemplated by the Purchase Agreement (the "Closing Date") (but no later than thirty (30) days after the Closing Date), the Company shall prepare and file with the SEC one Registration Statement on Form S-3 (or, if Form S-3 is not then available to the Company, on such form of registration statement as is then available to effect a registration for resale of the Registrable Securities, subject to the Investors' consent) covering the resale of the Registrable Securities in an amount equal to the number of shares of Common Stock issued to the Investors on the Closing Date plus the number of shares of Common Stock necessary to permit the exercise in full of the Warrants. Such Registration Statement also shall cover, to the extent allowable under the 1933 Act and the Rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities. The Company shall use its best efforts to obtain from each person who now has piggyback registration rights a waiver of those rights with respect to the Registration Statement. No securities shall be included in the Registration Statement without the consent of each Investor other than the Registrable Securities and the securities subject to piggyback registration rights on the date hereof for which the Company could not obtain waivers. The Registration Statement (and each amendment or supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided in accordance with Section 3(c) to the Investors and their counsel prior to its filing or other submission. 2 (ii) Additional Registrable Securities. Upon the ----------------------------------- written demand of any Investor and following the issuance of any additional shares of Common Stock to such Investor pursuant to Section 7.1 of the Purchase Agreement, the Company shall prepare and file with the SEC a Registration Statement on Form S-3, and any additional Registration Statements on Form S-3 upon the written demand of any Investor pursuant to its rights during the Potential Adjustment Period as that term is defined in the Purchase Agreement (or, if Form S-3 is not then available to the Company, on such form of registration statement as is then available to effect a registration for resale of the Additional Registrable Securities, subject to the Investor's consent), covering the resale of the Additional Registrable Securities in an amount equal to the number of shares of Common Stock issued to and designated in the demand by such Investor. Such Registration Statement also shall cover, to the extent allowable under the 1933 Act and the Rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Additional Registrable Securities. The Company shall use its best efforts to obtain from each person who now has piggyback registration rights a waiver of those rights with respect to the Registration Statement. No securities shall be included in the Registration Statement without the consent of the Investor other than the Registrable Securities and Additional Registrable Securities and the securities subject to piggyback registration rights on the date hereof for which the Company could not obtain waivers. The Registration Statement (and each amendment or supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided in accordance with Section 3(c) to the Investor and its counsel prior to its filing or other submission. (b) Expenses. The Company will pay all its expenses -------- associated with each registration, and the Investors will pay all their expenses subject to the reimbursement provided for in the Purchase Agreement (and to the extent funds have been returned to the Company, in respect thereof, the Company will pay them over subject to receipt of appropriate documentation). In no event will the Company reimburse Investors for discounts, commissions, fees of underwriters, selling brokers, dealer managers or similar securities industry professionals. (c) Effectiveness. ------------- (i) The Company shall use its best efforts to have each Registration Statement declared effective as soon as practicable. If (A) the Registration Statement covering Registrable Securities is not declared effective by the SEC within four (4) months following the Closing Date, or the Registration Statement covering Additional Registrable Securities is not declared effective by the SEC within four (4) months following the demand of an Investor relating to the Additional Registrable Securities covered thereby (each, a "Registration Date"), (B) after a Registration Statement has been declared effective by the SEC, sales cannot be made pursuant to such Registration Statement (by reason of a stop order, or the Company's failure to update the Registration Statement) but except as excused pursuant to subparagraph (ii) below, or (C) the Common Stock generally or the Registrable Securities specifically is not listed or included for quotation on the Nasdaq National Market System, the Nasdaq Small Cap Market, the New York Stock Exchange or the American Stock Exchange, then the Company will make pro-rata payments to each Investor, as liquidated damages and not as a penalty, in an amount equal to 2% of the aggregate amount paid by such Investor on the Closing Date to the 3 Company for shares of Common Stock still held by such Investor for any month or pro rata for any portion thereof following the Registration Date during which any of the events described in (A) or (B) or (C) above occurs and is continuing (the "Blackout Period"). The Blackout Period shall terminate upon (x) the effectiveness of the applicable Registration Statement in the case of (A) and (B) above; (y) listing or inclusion of the Common Stock on the Nasdaq National Market System, the Nasdaq Small Cap Market, the New York Stock Exchange or the American Stock Exchange in the case of (C) above; and (z) in the case of the events described in (A) or (B) above, the earlier termination of the Registration Period (as defined in Section 3(a) below). The amounts payable as liquidated damages pursuant to this paragraph shall be payable, at the option of the Company, in lawful money of the United States or in shares of Common Stock at the Market Price (as that term is defined in the Purchase Agreement), and amounts payable as liquidated damages shall be paid monthly within two (2) business days of the last day of each month following the commencement of the Blackout Period until the termination of the Blackout Period. Amounts payable as liquidated damages hereunder shall cease when an Investor no longer holds Warrants or Registrable Securities, or Additional Registrable Securities, as applicable. Notwithstanding the above, if after twelve (12) months, the Company in good faith determines that it is unable to remedy the events set forth in (A), (B) or (C), the Company may notify the Investors that the liquidated damages will cease to accrue and, at the Investor's election, the Company shall redeem (if and only if permitted under applicable law), in whole or in part, as instructed by the Investor, the shares of Common Stock and Warrants held by such Investor for an amount equal to 100% of the amount originally invested by such Investor. If an Investor does not elect to have its Common Stock and Warrants so redeemed, the Company shall use reasonable efforts to remedy the events set forth in (A), (B) and (C), but the Investor will no longer be entitled to further liquidated damages pursuant to this Agreement. (ii) For not more than thirty (30) consecutive trading days or for a total of not more than forty (40) trading days in any twelve (12) month period, the Company may delay the disclosure of material non-public information concerning the Company and terminate or suspend effectiveness of any registration contemplated by this Section containing such information, if disclosure of such information at the time is not, in the good faith opinion of the Company, in the best interests of the Company (an "Allowed Delay"); provided, that the Company shall promptly (a) notify the Investors in writing of the existence of (but in no event, without the prior written consent of an Investor, shall the Company disclose to such Investor any of the facts or circumstances regarding) material non-public information giving rise to an Allowed Delay, and (b) advise the Investors in writing to cease all sales under the Registration Statement until the end of the Allowed Delay. The duration of the Restricted Period as provided in the Purchase Agreement will be extended by the number of days of any and all Allowed Delays. (d) Underwritten Offering. If any offering pursuant to a ---------------------- Registration Statement pursuant to Section 2(a) hereof involves an underwritten offering, the Company shall have the right to select an investment banker and manager to administer the offering, which investment banker or manager shall be reasonably satisfactory to the Investors; provided, the Investors may only object to such selection by the Company in extreme circumstances. 4 3. Company Obligations. The Company will use its best efforts to -------------------- effect the registration of the Registrable Securities and Additional Registrable Securities in accordance with the terms hereof, and pursuant thereto the Company will, as expeditiously as possible: (a) use its best efforts to cause such Registration Statement to become effective and to remain continuously effective for a period that will terminate upon the earlier of the date on which all Registrable Securities or Additional Registrable Securities, as the case may be, covered by such Registration Statement, as amended from time to time, have been sold or are eligible for sale under Rule 144(k) promulgated under the Securities Act (the "Registration Period"); (b) prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement and the Prospectus as may be necessary to keep the Registration Statement effective for the period specified in Section 3(a) and to comply with the provisions of the 1933 Act and the 1934 Act with respect to the distribution of all Registrable Securities and Additional Registrable Securities; provided that, at least three (3) days prior to the filing of a Registration Statement or Prospectus, or any amendments or supplements thereto, the Company will furnish to the Investors copies of all documents proposed to be filed, which documents will be subject to the comments of the Investors; (c) permit one counsel designated by the Investors to review each Registration Statement and all amendments and supplements thereto no fewer than five (5) days prior to their filing with the SEC and not file any document to which such counsel reasonably objects in a timely manner; (d) furnish to the Investors and their legal counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one copy of any Registration Statement and any amendment thereto, each preliminary prospectus and Prospectus and each amendment or supplement thereto, and each letter written by or on behalf of the Company to the SEC or the staff of the SEC, and each item of correspondence from the SEC or the staff of the SEC, in each case relating to such Registration Statement (other than any portion of any thereof which contains information for which the Company has sought confidential treatment), and (ii) such number of copies of a Prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as each Investor may reasonably request in order to facilitate the disposition of the Registrable Securities and Additional Registrable Securities owned by such Investor; (e) in the event the Company selects an underwriter for the offering, the Company shall enter into and perform its reasonable obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the underwriter of such offering; (f) if required by the underwriter, at the request of the Investors, the Company shall furnish, on the date that Registrable Securities or Additional Registrable Securities, as applicable, are delivered to an underwriter, if any, for sale in connection with the Registration Statement (i) an opinion, dated as of such date, from counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the underwriter and the Investors and (ii) a letter, dated such date, from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriter and the Investors; 5 (g) make effort to prevent the issuance of any stop order or other suspension of effectiveness and, if such order is issued, obtain the withdrawal of any such order at the earliest possible moment (except as allowed under Section 2(c)(ii) hereof); (h) furnish to each Investor a copy of the Registration Statement and any post-effective amendment thereto, including financial statements and schedules by courier pursuant to the notice requirements of Section 10.4 of the Purchase Agreement; (i) use its reasonable best efforts to register or qualify or cooperate with the Investors and their counsel in connection with the registration or qualification of such Registrable Securities or Additional Registrable Securities, as applicable, for offer and sale under the securities or blue sky laws of such jurisdictions as the Investors reasonably request in writing and do any and all other reasonable acts or things necessary or advisable to enable the distribution in such jurisdictions of the Registrable Securities or Additional Registrable Securities covered by the Registration Statement; (j) cause all Registrable Securities or Additional Registrable Securities covered by a Registration Statement to be listed on each securities exchange, interdealer quotation system or other market on which similar securities issued by the Company are then listed; (k) immediately notify the Investors, at any time when a Prospectus relating to the Registrable Securities or Additional Registrable Securities is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the Prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and subject to Section 2(c)(ii), at the request of any such holder, promptly prepare and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such Prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities or Additional Registrable Securities, as applicable, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and (l) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC under the 1933 Act and the 1934 Act, take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities and Additional Registrable Securities, if applicable, hereunder; and make available to its security holders, as soon as reasonably practicable, but not later than the Availability Date (as defined below), an earnings statement covering a period of at least 6 twelve months, beginning after the effective date of each Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act (for the purpose of this subsection 3(m), "Availability Date" means the 45th day following the end of the fourth fiscal quarter that includes the effective date of such Registration Statement, except that, if such fourth fiscal quarter is the last quarter of the Company's fiscal year, "Availability Date" means the 90th day after the end of such fourth fiscal quarter). 4. Obligations of the Investors. ------------------------------- (a) It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities or Additional Registrable Securities, as applicable, that each Investor shall furnish in writing to the Company such information regarding itself, the Registrable Securities or Additional Registrable Securities, as applicable, held by it and the intended method of disposition of the Registrable Securities or Additional Registrable Securities, as applicable, held by it, as shall be reasonably required to effect the registration of such Registrable Securities or Additional Registrable Securities, as applicable, and shall execute such documents in connection with such registration as the Company may reasonably request. At least ten (10) business days prior to the first anticipated filing date of any Registration Statement, the Company shall notify each Investor of the information the Company requires from such Investor if such Investor elects to have any of the Registrable Securities or Additional Registrable Securities included in the Registration Statement. An Investor shall provide such information to the Company at least five (5) business days prior to the first anticipated filing date of such Registration Statement if such Investor elects to have any of the Registrable Securities or Additional Registrable Securities included in the Registration Statement. (b) Each Investor, by its acceptance of the Registrable Securities and Additional Registrable Securities, if any, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of a Registration Statement hereunder, unless such Investor has notified the Company in writing of its election to exclude all of its Registrable Securities or Additional Registrable Securities, as applicable, from the Registration Statement, in which case the Investor shall be deemed to have waived its rights to have Registrable Securities or Additional Registrable Securities, as the case may be, registered under this Agreement, unless the Investor reasonably believes sales of its securities under such Registration Statement may violate federal securities laws. (c) In the event the Company determines to engage the services of an underwriter, each Investor agrees to enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the dispositions of the Registrable Securities or Additional Registrable Securities, as applicable. 7 (d) Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event rendering a Registration Statement no longer effective, such Investor will immediately discontinue disposition of Registrable Securities or Additional Registrable Securities pursuant to the Registration Statement covering such Registrable Securities or Additional Registrable Securities, until the Investor's receipt of the copies of the supplemented or amended prospectus filed with the SEC and declared effective and, if so directed by the Company, the Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in the Investor's possession of the prospectus covering the Registrable Securities or Additional Registrable Securities, as applicable, current at the time of receipt of such notice. (e) No Investor may participate in any underwritten registration hereunder unless it (i) agrees to sell the Registrable Securities or Additional Registrable Securities, as applicable, on the basis provided in any underwriting arrangements in usual and customary form entered into by the Company, (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) agrees to pay its pro rata share of all underwriting discounts and commissions and any expenses in excess of those payable by the Company pursuant to the terms of this Agreement. 5. Indemnification. --------------- (a) Indemnification by Company. The Company agrees to ---------------------------- indemnify and hold harmless, to the fullest extent permitted by law the Investors, each of their officers, directors, partners and employees and each person who controls the Investors (within the meaning of the 1933 Act) against all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorney's fees) and expenses imposed on such person caused by (i) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or any preliminary prospectus or any amendment or supplement thereto or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made, not misleading, except insofar as the same are based entirely upon any information furnished in writing to the Company by such Investors, expressly for use therein, or (ii) any violation by the Company of any federal, state or common law, rule or regulation applicable to the Company in connection with any Registration Statement, Prospectus or any preliminary prospectus, or any amendment or supplement thereto, provided that such violation was not caused by the negligence or willful misconduct of the Investor and shall reimburse in accordance with subparagraph (c) below, each of the foregoing persons for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claims. The foregoing is subject to the condition that, insofar as the foregoing indemnities relate to any untrue statement, alleged untrue statement, omission or alleged omission made in any preliminary prospectus or Prospectus that is eliminated or remedied in any Prospectus or amendment or supplement thereto, the above indemnity obligations of the Company shall not inure to the benefit of any indemnified party if a copy of such corrected Prospectus or amendment or supplement thereto had been made available to such indemnified party and was not sent or given by such 8 indemnified party at or prior to the time such action was required of such indemnified party by the 1933 Act and if delivery of such Prospectus or amendment or supplement thereto would have eliminated (or been a sufficient defense to) any liability of such indemnified party with respect to such statement or omission. Indemnity under this Section 5(a) shall remain in full force and effect regardless of any investigation made by or on behalf of any indemnified party and shall survive the permitted transfer of the Registrable Securities and Additional Registrable Securities. (b) Indemnification by Holder. In connection with any --------------------------- registration pursuant to the terms of this Agreement, each Investor will furnish to the Company in writing such information as the Company reasonably requests concerning the holders of Registrable Securities and Additional Registrable Securities or the proposed manner of distribution for use in connection with any Registration Statement or Prospectus and agrees, severally but not jointly, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors, officers, employees, stockholders and each person who controls the Company (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expense (including reasonable attorney's fees) resulting from (i) any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or preliminary prospectus or amendment or supplement thereto or necessary to make the statements therein in light of the circumstances under which they were made, not misleading, to the extent, but only to the extent that such untrue statement or omission is contained in any information furnished in writing by such Investor to the Company specifically for inclusion in such Registration Statement or Prospectus or amendment or supplement thereto and that such information was substantially relied upon by the Company in preparation of the Registration Statement or Prospectus or any amendment or supplement thereto; or (ii) any violation by the Investor of any federal, state or common law, rule or regulation applicable to the Investor in connection with the Registration Statement, Prospectus or any preliminary prospectus or any amendment or supplement thereto, provided that such violation was not caused by the negligence or willful misconduct of the Company. In no event shall the liability of an Investor be greater in amount than the dollar amount of the proceeds (net of all expense paid by such Investor and the amount of any damages such holder has otherwise been required to pay by reason of such untrue statement or omission) received by such Investor upon the sale of the Registrable Securities or Additional Registrable Securities included in the Registration Statement giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. Any person ----------------------------------------- entitled to indemnification hereunder shall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that any -------- person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses, or (b) the 9 indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such person or (c) in the reasonable judgment of any such person, based upon written advice of its counsel, a conflict of interest exists between such person and the indemnifying party with respect to such claims (in which case, if the person notifies the indemnifying party in writing that such person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such person); and provided, further, that the failure of any indemnified party to give notice as - ------- provided herein shall not relieve the indemnifying party of its obligations hereunder, except to the extent that such failure to give notice shall materially adversely affect the indemnifying party in the defense of any such claim or litigation. It is understood that the indemnifying party shall not, in connection with any proceeding in the same jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys at any time for all such indemnified parties. No indemnifying party will, except with the consent of the indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. (d) Contribution. If for any reason the indemnification ------------ provided for in the preceding paragraphs (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless, other than as expressly specified therein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations. No person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the 1933 Act shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation. In no event shall the contribution obligation of a holder of Registrable Securities or Additional Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such holder and the amount of any damages such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities or Additional Registrable Securities giving rise to such contribution obligation. 6. Miscellaneous. ------------- (a) Amendments and Waivers. This Agreement may be amended ------------------------ only by a writing signed by the parties hereto. The Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of each Investor. (b) Notices. All notices and other communications provided ------- for or permitted hereunder shall be made as set forth in Section 10.4 of the Purchase Agreement. (c) Assignments and Transfers by Investors. This Agreement ---------------------------------------- and all the rights and obligations of the Investors hereunder may not be assigned or transferred to any transferee or assignee except to an affiliate of an Investor who is a subsequent holder of any Warrants, Registrable Securities or Additional Registrable Securities. 10 (d) Assignments and Transfers by the Company. This Agreement ---------------------------------------- may not be assigned by the Company without the prior written consent of each Investor then holding Registrable Securities, except that without the prior written consent of the Investors, but after notice duly given, the Company shall assign its rights and delegate its duties hereunder to any successor-in-interest corporation, and such successor-in-interest shall assume such rights and duties, in the event of a merger or consolidation of the Company with or into another corporation or the sale of all or substantially all of the Company's assets. (e) Benefits of the Agreement. The terms and conditions of --------------------------- this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. (f) Counterparts. This Agreement may be executed in two or ------------ more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (g) Titles and Subtitles. The titles and subtitles used in ---------------------- this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. (h) Severability. If one or more provisions of this ------------ Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms to the fullest extent permitted by law. (i) Further Assurances. The parties shall execute and ------------------- deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained. (j) Entire Agreement. This Agreement is intended by the ----------------- parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. (k) Applicable Law. This Agreement shall be governed by, and -------------- construed in accordance with, the laws of the State of New York without regard to principles of conflicts of law. 11 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. The Company: LIFECELL CORPORATION By:_________________________ Name: Title: The Investors: By:_________________________ Name: Title: By:_________________________ Name: Title: 12 EX-23.1 4 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into LifeCell Corporation's previously filed Registration Statements File No. 33-90740, File No. 333-20093, File No. 333-62701, File No. 333-62491 and File No. 333-94715. /S/ ARTHUR ANDERSEN LLP Philadelphia, Pennsylvania March 29, 2000 EX-27.1 5
5 1 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 4736877 315244 2731915 (174578) 3202271 10971393 8139473 (1591610) 1808341 8429924 0 0 118 12900 887812 18083431 11911497 12675819 3452329 22335594 0 0 0 (9192196) 0 (9192196) 0 0 0 (9192196) (.83) (.83)
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