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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-3390
UNIMED PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
22-1685346
(I.R.S. Employer
Identification Number)
2150 E. LAKE COOK RD.,
BUFFALO GROVE, ILLINOIS
(Address of principal executive offices)
60089
(Zip Code)
Registrant's telephone number, including area code: (847) 541-2525
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS ON WHICH REGISTERED NAME OF EACH EXCHANGE
--------------------------------------- ---------------------
<S> <C>
None None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.25 PAR VALUE
(TITLE OF CLASS)
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. [ ]
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK, AS OF
FEBRUARY 28, 1997 -- 8,783,499.
THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT, BASED UPON THE CLOSING PRICE ON FEBRUARY 28,
1997 WAS $42,774,745.
DOCUMENTS INCORPORATED BY REFERENCE
THE DEFINITIVE PROXY STATEMENT (TO BE FILED PURSUANT TO REGULATION 14A) FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 24, 1997 IS INCORPORATED BY
REFERENCE IN PART III.
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PART I
ITEM 1. BUSINESS.
Unimed Pharmaceuticals, Inc. and its consolidated subsidiary (the
"Company") develop and market prescription pharmaceutical products. Currently
the Company promotes two approved drugs and is developing others targeted for
the HIV/AIDS, infectious diseases, endocrinology, urology, oncology and
hematology markets. The Company developed and promotes Marinol(R), an appetite
stimulant and antiemetic drug, through a specialty sales force in the U.S.
primarily to AIDS-treating physicians. Marinol is distributed in international
markets through foreign licensees. In February 1997, the Company acquired from
G.D. Searle & Co., the long-term, exclusive U.S. marketing and distribution
rights for Maxaquin(R) (lomefloxacin), a fluoroquinolone antibiotic used in the
urology and infectious disease markets. The Company is a Delaware corporation
incorporated in 1948.
The Company's business strategy is to license and develop drugs that have
successfully completed milestones leading to human clinical testing. The Company
expects to build a diversified portfolio of products in several therapeutic
areas. During 1996, the Company completed Phase II clinical development on three
new drugs that were licensed in 1995. The Company has initiated Phase III
clinical trials on two of these compounds, and expects to begin a Phase III
trial on the third by mid-1997.
The Company is concentrating on "niche" markets in which relatively few
physicians treat affected patients. The Company believes a small specialized
sales force can reach targeted physicians. The Company has expanded and expects
to further expand the sales and marketing organization as new products are added
and new business opportunities arise. In addition, the Company intends to work
closely with managed care providers to ensure formulary listing of its approved
drugs.
The Company's products and clinical supplies are manufactured through
contractors, although certain specialized equipment is owned and maintained by
the Company. The Company believes that qualified contract manufacturers are
available to produce both currently marketed drugs and those now under
development, and expects to continue to utilize contract manufacturing in the
foreseeable future.
MARINOL (DRONABINOl)
Marinol was approved for marketing by the Food and Drug Administration
(FDA) in 1985 for treating nausea and vomiting associated with cancer
chemotherapy in patients failing to respond adequately to conventional
antiemetic drug therapy. In 1992, the FDA approved a second indication for
Marinol: treating anorexia associated with weight-loss in patients with AIDS.
Marinol is supplied as round soft gelatin capsules containing either 2.5mg,
5mg or 10mg dronabinol.
Use of Marinol in Cancer
Marinol is a safe and effective oral antiemetic (relieving drug-induced
nausea and vomiting) based on numerous clinical studies in cancer patients
undergoing chemotherapy. The drug is believed to exert its antiemetic effects
through binding with cannabinoid receptor sites in the brain. Marinol has been
shown effective when used as a single agent or in combination with other
antiemetic therapies for mild to moderate nausea associated with cancer
chemotherapy.
Use of Marinol in AIDS
Infection from the human immunodeficiency virus (HIV) has a largely
irreversible and progressive effect on the nutritional status of the patient.
Eventually the compromised status of the patient leads to profound weight-loss,
known as HIV wasting syndrome. Studies of individuals with AIDS have shown a
high correlation between weight-loss and death, hence treatment that can improve
caloric intake and/or stimulate appetite may be clinically beneficial in this
patient population.
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Weight-loss observed in AIDS is due to one or more of four primary
mechanisms: poor intestinal absorption, abnormal cellular utilization, increased
energy requirements due to HIV and opportunistic infections, and inadequate
caloric intake (leading to clinical malnutrition). In addition, recent studies
suggest a high correlation between endocrine dysfunction (low testosterone serum
levels) and weight-loss.
In 1987, the Company initiated clinical development of Marinol in treatment
of weight-loss in cancer patients. The emerging AIDS pandemic led the Company to
expand the clinical program and then to concentrate on an AIDS application. A
subsequent Phase III multi-center double-blind, placebo-controlled trial in AIDS
patients with anorexia and weight-loss demonstrated statistically significant
improvement in appetite by the fourth week of therapy. Patients in the study
were permitted to continue treatment in an open-label study, in which there was
sustained improvement in appetite. Treatment was well tolerated by most
patients. The incidence of side-effects was decreased by dose reduction. This
pivotal study also demonstrated clinical trends toward improvement in the
patients' weight, mood and reduced nausea. The Company completed the
multi-center Phase III clinical trial in early 1992, filed a New Drug
Application in August 1992, and received approval to market from the FDA in
December 1992.
In spite of a growing arsenal of pharmacological agents to treat HIV
infection (e.g., protease inhibitors; reverse transcription inhibitors), the
Company believes that the need for Marinol as an appetite stimulant will
continue to grow as AIDS becomes a chronic disease and individuals who are HIV
positive, but asymptomatic for AIDS, develop the disease. The Company believes
that Marinol can be safely and effectively used in combination with the wide
variety of drugs currently used to treat AIDS and related opportunistic
infections.
Potential Use of Marinol in Alzheimer's Disease
During 1996, the Company completed a pilot study exploring use of Marinol
in Alzheimer patients as an appetite stimulant. Alzheimer's disease is believed
to afflict an estimated 4 million Americans with a projected annual increase of
400,000 new cases per year. Although the six-week pilot study was primarily
undertaken to investigate the effect of Marinol on appetite, patients were found
to have a significant reduction in disturbed behavior compared to patients on
placebo.
A Phase II trial was initiated in December 1996 to further evaluate the
clinical effects of Marinol doses on the behavior of patients with Alzheimer's
disease. Pending positive results from this study, the Company intends to
conduct additional trials in Alzheimer patients.
MAXAQUIN (LOMEFLOXACIN HCl)
In February 1997, the Company entered into a long-term exclusive agreement
with G.D. Searle & Co. (Searle), a wholly-owned subsidiary of the Monsanto
Company, for U.S. marketing and distribution rights to Maxaquin, a
fluoroquinolone antibiotic. Fluoroquinolone sales in the U.S. are in excess of
$1 billion annually. The acquisition of this product is part of the Company's
strategy to establish a presence in the urology and infectious disease
therapeutic markets.
Maxaquin was originally approved by the FDA in February 1992. Currently it
is indicated for: (1) lower respiratory tract infections, (2) complicated and
uncomplicated urinary tract infections, (3) preoperatively for the prevention of
infection in transrectal prostate biopsy and, (4) preoperatively for the
prevention of infection in transurethral surgical procedures. A supplemental NDA
is pending at the FDA for the three-day use of Maxaquin to treat uncomplicated
urinary tract infections.
The Company intends to focus initial sales and marketing programs in
markets where historically Maxaquin sales have been strong. The Company intends
to expand its capacity to sell and promote Maxaquin to its target markets both
directly to physicians and to managed care providers. The Company expects
Maxaquin to be one of several Unimed products marketed to urologists (see
discussion on Androgel products under "Product Development").
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PRODUCT DEVELOPMENT
The Company has four drugs under development: Nitazoxanide (NTZ), a
therapeutic treatment for cryptosporidiosis; Androgel and Androgel-DHT, for
therapeutic replacement and supplementation of testosterone; and SERC, for
treatment of vestibular vertigo. The status of each drug is discussed below.
NITAZOXANIDE
In June 1995, the Company entered into an exclusive licensing agreement
with Romark Laboratories, L.C., Tampa, Florida ("Romark"), to develop and market
oral dosage formulations of the anti-parasitic drug, nitazoxanide ("NTZ"), for
human use in the U.S., Canada, Australia and New Zealand. The agreement provides
for rights to oral and intravenous administration for treatment of
cryptosporidiosis. In addition, the Company has marketing rights to oral uses of
NTZ for all indications and is investigating other therapeutic applications of
the drug.
Individuals with AIDS and others with compromised immune function are at
high risk of prolonged and potentially life-threatening infections from
Cryptosporidium parvum (C. parvum) -- a food and waterborne parasite for which
there is no effective treatment. C. parvum inhabits the respiratory and
gastrointestinal tracts of animals and, increasingly, humans. In 1982, according
to the Centers for Disease Control (CDC), the number of cases of C. parvum
significantly increased, which was later determined to be related to the AIDS
epidemic. The parasite is highly contagious through contact with infected
humans.
Symptoms of cryptosporidiosis include diarrhea, nausea, vomiting and
weight-loss. Severity of symptoms varies with the degree of immunosuppression.
In healthy people, the infection is self-limiting, lasting from a few days to
several weeks. Patients with AIDS are often carriers of C. parvum for months or
even years. There is no FDA approved drug to treat cryptosporidiosis.
A Phase II clinical trial was completed in 1996 in 28 patients with AIDS
and cryptosporidiosis at Cornell Medical Center, in New York City and at Kaiser
Permanente Research Center in San Francisco, CA. Patients received up to 2,000mg
(milligrams) per day of NTZ for eight weeks. A favorable clinical response was
observed in 58% of the patients. Complete or partial reduction in the frequency
of diarrhea was observed in 50% of the patients while 36% had complete or
partial reduction of C. parvum. One third of patients experienced a reduction in
both diarrhea and parasitic burden.
In early 1997, the AIDS Clinical Trials Group (ACTG), a clinical research
cooperative supported by the National Institute of Allergy and Infectious
Diseases, initiated a Phase II/III placebo controlled study of NTZ to treat AIDS
patients with cryptosporidiosis.
The ACTG trial is a nine-week double-blind, placebo-controlled trial
designed to determine the efficacy and safety of NTZ in AIDS patients with
cryptosporidiosis. After the nine weeks, all patients will be randomized to
active therapy at different doses for six months. The study is expected to
enroll 60 HIV positive patients with cryptosporidiosis at several study sites
across the U.S. The Company anticipates that data from this trial will be
sufficient to support the filing of an NDA.
The Company provides NTZ free of charge under an FDA-sponsored
compassionate use program for patients not meeting the clinical entry criteria
in company-sponsored studies or not in geographic proximity to the Company or
government-sponsored trials. Data gathered from these patients will be used to
support a Company NDA filing. Results obtained to date are consistent with the
Phase I/II findings and provide further evidence of NTZ's safety and
effectiveness in these patients.
The Company's agreement with Romark, among other things, obligates the
Company to use its best efforts, consistent with reasonable business judgment,
to prosecute FDA approval of an initial NTZ product. The Company is in ongoing
discussions with Romark addressing the performance of its obligations under the
agreement.
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ANDROGEL(TM) AND ANDROGEL(TM)-DHT
In 1995, the Company acquired exclusive rights from Laboratoires Besins
Iscovesco S.A. ("Besins") in the U.S., Canada and Mexico to topical gel
formulations of two male hormones -- testosterone and dihydrotestosterone (DHT).
The gels are applied to the arms or abdomen and gradually absorbed into the
blood stream. DHT has been marketed in France and Belgium as treatment for low
testosterone levels (hypogonadism) for over 10 years. Low testosterone is
associated with a variety of adverse effects, including: impotence; lack of sex
drive; diminished energy; muscle weakness; and low bone mineral density.
Hypogonadism has also been implicated as a potential factor in the etiology of
HIV wasting syndrome.
Hypogonadism can result from a number of causes, including congenital
abnormalities (e.g., Klinefelter's syndrome -- a condition in male newborns
having an extra X chromosome); disease or injuries affecting the pituitary
gland, hypothalamus or testes; chronic illnesses (e.g., diabetes, kidney
failure, AIDS); or declining testosterone production associated with aging
(geriatric hypogonadism). Testosterone levels in men may decline 30-40%
beginning in their late 40s to their early 70s. Because of this, androgen
supplementation in aging men may prove to be beneficial.
The Company initiated a Phase II clinical trial in 1996 evaluating the
safety and efficacy of Androgel(TM)-DHT (dihydrotestosterone gel) for treating
patients with HIV wasting syndrome. Shortly thereafter, a Phase II clinical
trial began in geriatric hypogonadism (deficient levels of testosterone due to
aging, also known as andropause). This trial was completed by year-end. In
mid-1996, the Company also initiated and later completed a Phase I/II
pharmacokinetics trial, testing Androgel(TM) (testosterone gel) in men with
classic hypogonadism. In March 1997 the Company began a pivital Phase III human
clinical trial with androgel for the treatment of testoterone difficiency in
men.
SERC(R)
SERC (betahistine HCl) was developed by the Company in the 1960s, and is
widely distributed by others around the world for treatment of vestibular
vertigo and Meniere's syndrome. SERC generates an estimated $80 million in sales
to foreign manufacturers, primarily Solvay-Duphar, a Netherlands-based
pharmaceutical company. Through 1995, the Company generated royalty income from
SERC through distributors in Canada, Australia and South Africa. SERC is not
approved for sale in the United States.
In December 1995, the Company licensed back from Solvay-Duphar rights to
proprietary know-how and manufacturing which may be used to develop SERC in the
U.S. Unimed sold its rights and trademarks in Canada, Australia and South Africa
to Solvay-Duphar. Solvay-Duphar made a $1.4 million payment to Unimed.
Solvay-Duphar will also supply SERC to Unimed. Unimed will pay a royalty to
Solvay-Duphar on sales of SERC in the U.S., should the drug be approved.
MARKETING AND DISTRIBUTION
The Company's sales force details Marinol primarily to AIDS-treating
physicians under a co-promotional agreement with Roxane Laboratories, Inc.
(Roxane), a member of the Boehringer Ingelheim group of companies. Sales
territories are located throughout the U.S. in cities with a high incidence of
AIDS. In March 1997, the Company began to distribute Maxaquin. Initially, the
Company will detail Maxaquin in the urology market and to high prescribing
infectious disease physicians. The Company expects to expand its sales force as
the marketing strategy is implemented.
The Company intends to develop a portfolio of proprietary drugs to
distribute in niche markets -- therapeutic areas such as HIV/AIDS, urology and
endocrinology where fewer than 10,000 physicians manage the majority of
patients. The Company believes it can obtain new FDA approvals from the current
clinical development program and that this will result in substantial revenue
growth. The Company intends to focus on U.S. markets and to pursue partnerships
and corporate alliances to market its products abroad.
In 1996, Marinol was approved for use as an antiemetic in South Africa and
is under regulatory review for use as an appetite stimulant. The product was
launched in 1996 and is being marketed and sold in South Africa by Pharmacare
Ltd.
In 1996, the Company sublicensed to BioChem Pharma International Inc. the
right to register, market and distribute in Canada NTZ, Adrogel and Adrogel-DHT.
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MANUFACTURING
Manufacture of the Company's products and drugs under development is
performed on a contract basis by third parties.
The NORAC Company, Inc. (NORAC) supplies THC (tetrahydrocannabinol), the
active ingredient in Marinol, to the Company on an exclusive basis, through
December 31, 1999, subject to an automatic annual renewal thereafter. The
Company owns the principal equipment used by NORAC to manufacture THC. THC is
synthesized and purified through a complex and time-consuming process. The loss
of NORAC as a supplier could have a material adverse effect on the Company.
Currently, the Company maintains a three-year supply of THC.
Under the terms of the Unimed/G.D. Searle & Co. Distribution Agreement,
Searle will continue to manufacture Maxaquin and supply it to Unimed.
The Company has supply agreements with Romark for NTZ, Besins for Androgel
and Androgel-DHT, and Solvay-Duphar for SERC. Under these agreements, the
Company purchases clinical supplies, and after approval by the FDA, will
purchase finished drug products in accordance with the Company's specifications.
COMPETITION
There are many companies, both public and private, including well-known
pharmaceutical companies, chemical companies and specialized genetic engineering
companies, engaged in developing pharmaceuticals and biotechnology compounds for
human therapeutic applications. Most of these companies have substantially
greater financial, research and development, manufacturing, marketing and human
resources than the Company, and represent significant competition. Such
companies may succeed in developing products that are more effective or less
costly than any developed by the Company and may also prove to be more
successful in manufacturing and marketing. The Company does not have a
significant position in the pharmaceutical market.
Recent passage of legislation in California and Arizona legalizing the use
of marijuana for medical purposes could result in competition for Marinol since
THC is a synthetic version of the active component of marijuana. However, the
Company does not expect that efforts to promote the use of marijuana as a
therapuetic will adversely impact Marinol sales for several reasons. These
reasons include the fact that there are no clinical trials establishing the
safety or efficacy of marijuana for any medical use, the potency and purity of
marijuana are not assured, the fact that the cost of Marinol is eligible for
Medicaid reimbursements, unlike marijuana, and the fact that the illegal status
of marijuana under federal law presents a barrier to many physicians prescribing
it to patients.
GOVERNMENT REGULATION
The FDA and comparable agencies in other countries impose substantial
requirements on the introduction of therapeutic pharmaceutical products through
lengthy and detailed laboratory and clinical testing procedures and other costly
and time-consuming procedures. Satisfaction of these requirements typically
takes a number of years and varies substantially based upon the type, complexity
and novelty of the product. In general, the FDA approval process for
pharmaceuticals involves the submission of an Investigational New Drug (IND)
application following preclinical studies, clinical trials in humans to
demonstrate the safety and efficacy of the product under the protocols set forth
in the IND, and submission of preclinical and clinical data as well as other
information to the FDA in an New Drug Application (NDA). The conduct of clinical
trials requires substantial time and expense, and there is no assurance that the
results of the trials will be sufficient to support the submission or the
approval of an NDA. The failure of Unimed to receive FDA approval for its
products under development would preclude the Company from marketing and selling
newly developed products in the United States.
Pharmaceutical manufacturers are subject to extensive regulation by federal
and state regulatory agencies. The Federal Food, Drug and Cosmetic Act, the
Controlled Substance Act, and other federal statutes and regulations govern or
influence the testing, manufacture, safety, labeling, storage, record-keeping,
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approval, advertising and promotion of pharmaceutical products. Noncompliance
with applicable requirements can result in fines, recall and seizure of
products, total or partial suspension of production, and governmental refusal to
approve new products or indications. The manufacture and sale of Marinol also is
regulated by the Drug Enforcement Agency (DEA) and by statutes and regulations
promulgated by a number of states and foreign countries.
PATENTS AND PROPRIETARY RIGHTS
In 1991, Marinol was designated as an Orphan Drug by the FDA for use as an
appetite stimulant in patients with AIDS. Under the Orphan Drug Act of 1983, the
Company was granted seven years of marketing exclusivity for this use in the
U.S. The seven-year period began with receipt of marketing approval from the FDA
in December 1992.
In February 1997, Unimed acquired from G.D. Searle & Co. long-term
exclusive U.S. marketing and distribution rights to Maxaquin, which is the
subject of a U.S. patent. Maxaquin was approved by the FDA in February 1992 for
the following indications: (1) lower respiratory tract infections, (2)
complicated and uncomplicated urinary tract infections, (3) preoperatively for
the prevention of infection in transrectal prostate biopsy, and (4)
preoperatively for the prevention of infection in transurethral surgical
procedures. The Maxaquin trademark registration is valid and subsisting in the
U.S., and as part of the marketing and distribution agreement the Company has
the exclusive right to use the trademark in the United States. Searle holds its
rights to maxaquin under a license agreement with a third party.
The Company requested and was notified by the FDA that Androgel-DHT
qualifies as an Orphan Drug for treating weight-loss in AIDS patients. In
addition, the Company may receive proprietary protection from a patent should it
be issued, relating to the use of Androgel-DHT in treating geriatric
hypogonadism, pursuant to its license agreement with Laboratoires Besins
Iscovesco S.A.
The Drug Price Competition and Patent Restoration Act of 1984 (commonly
known as the "Waxman-Hatch Act") provides market exclusivity for drug products
that have received FDA market approval based on an NDA that includes data from
pivotal clinical studies conducted by the applicant. In the case of the Company,
both Androgel and Androgel-DHT will be protected against competition (for a
period of three and five years, respectively) from any company that is able to
obtain approval of an abbreviated NDA (ANDA) for a generic copy of either
Company product.
Nitazoxanide, when combined with a wetting agent, and optionally, a starch
derivative, in an oral composition, is the subject of certain patents held by
its licensor, Romark Laboratoires, L.C. Unimed has the right to use and practice
those patents under its license agreement with Romark; however, Unimed does not
hold any NTZ-related patents directly. The Company has obtained an Orphan Drug
Designation for the use of NTZ in the treatment of cryptosporidiosis in patients
with AIDS.
The Company owns the Marinol, SERC, Androgel and Androgel-DHT trademarks in
the U.S.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
TERM OF
NAME AGE POSITION OFFICE BUSINESS EXPERIENCE
---- --- -------- ------- -------------------
<S> <C> <C> <C> <C>
Robert E. Dudley Ph.D.......... 42 Chief Executive Officer 1997 Chief Executive Officer of Unimed
Pharmaceuticals, Inc. since
January 1997 and Vice President
of Clinical and Regulatory
Affairs from December 1994
through December 1996; Vice
President of Clinical Development
of Bio-Technology General Corp.,
a biotechnology company, from
August 1993 through November
1994; Vice President of Research
and Development of Gynex
Pharmaceuticals, Inc., a pharma-
ceutical company, from May 1989
through August 1993.
</TABLE>
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<TABLE>
<CAPTION>
TERM OF
NAME AGE POSITION OFFICE BUSINESS EXPERIENCE
---- --- -------- ------- -------------------
<S> <C> <C> <C> <C>
David E. Riggs................. 45 Senior Vice President, 1997 Senior Vice President since
CFO, Secretary, October, 1994 and Vice President,
Treasurer CFO, Secretary and
Treasurer of Unimed
Pharmaceuticals, Inc. since May
1992; CFO of NeoPharm, Inc. since
October 1995; CFO and Secretary
of VideoCart, Inc., a micro-
marketing media company, from
1990 through 1991; Treasurer and
Director of Financial Planning
for Lyphomed, Inc., a
pharmaceutical company, from 1986
through 1990.
John E. Lee.................... 48 Vice President 1997 Vice President of Commercial
Commercial Development Development since July 1996;
principal of Alexander Group, a
consulting company from September
1992 through January 1996;
several positions at G.D. Searle
& Company, a pharmaceutical
company, from March 1975 through
September 1992, most recently
Senior Director U.S. Operations.
</TABLE>
EMPLOYEES
The Company has 23 full-time employees and one part-time employee. Unimed
expects to add technical, sales and marketing and administration staff to
support development of the business. The Company believes employee relations are
satisfactory and that it will be able to attract additional personnel as needed.
ITEM 2. PROPERTIES.
The Company leases approximately 5,000 square feet of executive office
space in Buffalo Grove, Illinois, at an annualized cost of approximately
$165,000, under a lease that expires in 1998. See "Note 14 -- Subsequent Events"
in Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded on the over-the-counter market. Its
Common Stock is quoted on the NASDAQ National Market System (NMS) under the
symbol UMED. The following table lists the high and low closing prices of the
Common Stock for the two most recent fiscal years.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C> <C> <C>
1995 (January 1 -- December 31)
First Quarter............................................. 4 3/8 2 3/8
Second Quarter............................................ 6 3 1/2
Third Quarter............................................. 6 3/4 4 3/4
Fourth Quarter............................................ 7 5/8 5 1/8
1996 (January 1 -- December 31)
First Quarter............................................. 8 6 1/8
Second Quarter............................................ 9 1/2 6 3/8
Third Quarter............................................. 8 13/16 5 5/8
Fourth Quarter............................................ 8 3/8 6 1/4
</TABLE>
The Company had approximately 1,128 holders of record of Common Stock on
February 28, 1997. Unimed's Board of Directors anticipates the retention of all
available earnings to support expected growth and does not anticipate payment of
dividends in the foreseeable future.
In February 1996, the Company issued 1.4 million and 800,000 shares of
Common Stock pursuant to a private placement and the exercise of the John N.
Kapoor Trust warrants, respectively. In addition, 50,771 shares of Common Stock
were issued to BioChem Pharma (International) Inc., in connection with a product
license agreement.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------
12/31/96 12/31/95 12/31/94 12/31/93 9/30/92
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales........................ $ 7,648,599 $ 7,320,052 $ 7,387,860 $ 6,875,678 $ 3,615,381
Income (Loss) from continuing
operations..................... 1,522,143 625,062 40,708 (852,294) (3,829,177)
(Loss) from discontinued
operations..................... -- -- -- -- (380,634)
Net income (loss)................ 1,522,143 625,062 40,708 (852,294) (4,209,811)
Total assets..................... 30,746,875 16,305,181 11,804,781 11,662,035 12,174,796
----------- ----------- ----------- ----------- -----------
PER SHARE COMMON STOCK DATA:
Income (Loss) from continuing
operations..................... $.17 $.09 $.01 $(0.14) $(0.72)
Net income (loss)................ $.17 $.09 $.01 $(0.14) $(0.79)
Dividends paid................... $ -- $ -- $ -- $ -- $ --
</TABLE>
Selected financial data for all periods prior to December 31, 1995 have
been restated to conform to the 1996 presentation. These restatements had no
effect on net income (loss).
Results for the fiscal year ended September 30, 1992, include a $2.5
million restructuring charge.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
The Company develops and markets proprietary pharmaceutical products in
niche medical markets, consisting of approximately 10,000 or fewer physicians.
During 1996, sales and cash flow from Marinol were used to fund product
development programs. The Company is actively pursuing acquisition of commercial
products and expects to purchase or acquire rights to additional pharmaceutical
products under late-stage development or already on the market. In 1996,
Unimed's net sales were $7.6 million, a 4% increase over 1995 net sales of $7.3
million. Marinol(R) net sales increased by 27% over 1995 due to growth in
domestic sales and the launch of Marinol in South Africa. Higher Marinol sales
offset the effect of products discontinued at the end of 1995.
The Company reported net income of $.17 per share in 1996 compared to net
income of $.09 per share in 1995 and $.01 per share in 1994.
The Company generated cash flow from operations of $3,045,000 compared to
$1,640,000 in 1995 due to significantly higher Marinol sales. The Company
reported year-end cash, cash equivalents and short-term investments of
$20,830,000 compared with $8,401,000 at year-end 1995. This increase was
generated from a private placement of common stock completed in the first
quarter of 1996, the exercise of stock warrants and options, and from
internally generated cash from operations.
REVENUE
Fiscal 1996 net sales of Marinol(R), marketed as a refractory antiemetic in
cancer chemotherapy and an appetite stimulant in anorexia associated with weight
loss in AIDS, increased 27% over 1995 levels, ending the year at $7,649,000.
This compares with a 5% increase in Marinol net sales growth for 1995 to
$6,031,000 and a 5% increase in net Marinol sales from 1994 ($5,755,000) to
1995. For the year ended December 31, 1995 and for all prior periods presented,
the Company reclassified, for financial reporting purposes, a normally recurring
provision for estimated Medicaid rebates on Marinol sales. This provision for
Medicaid rebates, previously reported as a cost of sales, has been reclassified
as a reduction to gross sales. This change had no effect on gross profit or net
income. Marinol is marketed by the Company's licensee, Roxane Laboratories, Inc.
(Roxane). The Company reports the royalty income it receives from Roxane as
revenues from Marinol sales. In 1996, Marinol was approved for use as an
antiemetic in South Africa and is currently under regulatory review for use as
an appetite stimulant. The antiemetic approval resulted in launching the product
in South Africa in July 1996. Marinol sales to countries outside the United
States totaled approximately $812,000 in 1996 and $134,000 in 1995.
SERC(R) is marketed by other pharmaceutical companies in Canada and several
international markets to treat recurrent vertigo. During 1995, SERC was marketed
by Sanofi Winthrop in Canada. In December 1995, Unimed entered into an agreement
with Solvay Duphar whereby Unimed licensed the rights to proprietary know-how
and manufacturing for the drug SERC in the U.S. As part of the agreement, the
Company received a $1.4 million payment for product development and for Unimed's
product and trademark rights to SERC in Canada, Australia and South Africa.
Royalties from SERC sales in Canada amounted to zero in 1996, $1,049,000 in 1995
and $1,060,000 in 1994.
During 1994, the Company terminated promotion of over-the-counter (OTC)
products which had been marketed directly to patients, specialty pharmacies and
physicians. The OTC products, consisting of ONDROX and the MouthKote product
line, generated net sales of $240,000 during 1995 and $573,000 during 1994.
Total revenue for 1996 was $8,213,000, representing 11% growth over
$7,412,000 in 1995. Higher Marinol sales, combined with research and development
revenues of $564,000 compared to research and development revenues of $92,000 in
1995, were able to offset the effect of the OTC products discontinued at the end
of 1995. The Company deferred the recognition of revenue on unconditional cash
payments made from corporate partners which will be applied to development of
the Company's product portfolio. The Company expects that this deferred revenue
will be utilized in 1997. Approximately $1,600,000 of R & D expenditures are
expected to be offset by deferred R & D revenues in 1997.
9
<PAGE> 11
Other income (net of other expenses) increased to $1,550,000 in 1996
primarily due to the growth in interest income. Interest income increased to
$1,068,000 due to significantly higher cash balances from the private placement
of Common Stock and the exercise of outstanding stock warrants and options and
higher interest rates on short-term holdings. Other income includes
approximately $311,000 in 1996 from the gain on a product sublicense and
$200,000 from a gain on the sale of a trademark. Other income was 253,624 in
1994 and was comprised entirely of interest income.
COSTS AND EXPENSES
Cost of sales improved by 4% from $3,201,000 in 1995 to $3,087,000 in 1996.
The lower cost of sales in 1996 was due to lower Marinol raw material costs.
1995 cost of sales was slightly higher than 1994 cost of sales ($2,958,000) and
was related primarily to product sales growth.
Research and development expenses increased 139% from $710,000 in 1995 to
$1,699,000 in 1996 with completion of three human clinical studies and
initiation of several toxicology studies. In 1994, research and development
expenses totaled $362,000.
Sales and marketing expenses increased 20% as the Company added a
commercial development function to distribute new products. Sales and marketing
expenses decreased between 1995 and 1994, due to the termination of active
promotion of the OTC portfolio. Marinol promotional programs were unaffected by
these reductions.
Operating and administrative expenses were $2,183,000 in 1996, a slight
increase compared with $2,129,000 in 1995. Operating and administrative expenses
decreased 3% from 1994 to 1995. Operating and administrative expenses as a
percent of net sales were 29% in both 1996 and 1995. Operating and
administrative expenses were $2,780,000 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had cash and cash equivalents and
short-term investments of $20,830,000, compared with $8,401,000 at December 31,
1995. During 1996, Unimed generated cash from operations of $3,045,000. Working
capital increased from $8,423,000 to $18,901,000. The Company expects to
increase research and development expenditures in 1997 due to the development of
the Company's three drugs in Phase III clinical trials. The Company will require
a higher investment in working capital in order to fund accounts receivable and
inventories.
During 1996, the Company received approximately $711,000 from the exercise
of stock options. Net proceeds of $7,215,000 were obtained from a private
placement of common stock completed in February 1996. Also in February 1996,
stock warrants to purchase 800,000 shares of Common Stock were exercised,
generating $1.7 million.
Inventories increased $857,000 in 1996 over 1995 levels, as raw material
production of THC by NORAC was expanded. The Company's distributor, Roxane,
advances funds to Unimed to maintain Marinol inventories. The current
liability, due to Roxane, is relieved on a quarterly basis through the
reduction of royalties payable to the Company. The reduction in the quarter's
royalty payment primarily corresponds to the cost of Marinol inventory sold
during the quarter.
The Company maintains cash reserves and short-term investments to meet
anticipated working capital, capital expenditures, research and development and
other investment opportunities. The Company intends to acquire other product
licenses which may reduce cash balances.
ACCOUNTING PRONOUNCEMENTS
The FASB recently issued SFAS No. 128, "Earnings per Share," which
establishes standards for computing and presenting earnings per share (EPS) and
applies to entities with publicly held common stock or potential common stock.
This Statement simplifies the standards for computing earnings per share and
replaces the presentation of primary EPS with a presentation of basic EPS. The
Company will adopt this
10
<PAGE> 12
Standard during the first quarter of 1997. The impact of the adoption has not
yet been determined by the Company's management.
BACKLOG, SEASONALITY AND IMPACT OF INFLATION
Sales orders are typically filled shortly after receipt. In general, the
Company's products experience minor seasonal fluctuations. While raw materials
included in certain products are subject to price escalation, due to a limited
number of suppliers, the complexity of manufacturing processes and regulatory
procedures, the Company does not attribute this to inflation and does not
anticipate inflation to have a significant impact on costs in the near future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and supplementary data are listed
under Item 14 in this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K under the captions "Business"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations", as well as oral statements that may be made by the Company or
officers, directors or employees of the Company acting on the Company's behalf,
that are not historical fact constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that could cause the actual results of the Company to be
materially different from the historical results or from any results expressed
or implied by such forward-looking statements. Such factors include, among
others, the following:
Uncertainty of Product Development. A substantial amount of the Company's
resources have been, and for the foreseeable future will continue to be,
dedicated to the Company's acquisition of rights to and the development of
potential products. There can be no assurance that the Company's activities will
lead to the development or commercialization of any product.
Regulatory and Technology Uncertainty. The Company is engaged in the
biopharmaceuticals field, which is characterized by extensive research and rapid
technological change. There can be no assurance that research and discoveries by
others will not render some or all of the Company's products non-competitive or
obsolete.
Dependence on Others. The Company's strategy for development and
commercialization of its products is to rely, in part, on various arrangements
with licensors, licensees, exclusive manufacturers and suppliers and others and,
therefore, is dependent upon the success of these outside parties in the
performance of their duties. There can be no assurance that the Company will be
able to negotiate acceptable arrangements or product distribution arrangements.
There can be no assurance that the Company, at all times, will be in compliance
with the material terms and conditions of all its licensing arrangements, which
could lead to periodic renegotiations of terms.
Substantial Competition and Technological Change. Many companies engage in
developing pharmaceutical products for human therapeutic applications. Most of
these companies have substantially greater capital, research and development and
human resources and experience than the Company and represent significant
long-term competition for the Company. In addition, many of these competitors
have a significantly greater experience that the Company in undertaking the
development of new pharmaceutical products and in obtaining regulatory approval.
Other companies may succeed in developing products that are more effective or
less costly than any that may be developed by the Company and may also prove to
be more successful than the Company in production and marketing.
11
<PAGE> 13
Dependence on Qualified Personnel. The Company's success is highly
dependent upon its ability to attract and retain qualified administrative,
product developement and technical personnel. The loss of key personnel would
be detrimental to the Company and there can be no assurance that these
employees will remain with the Company.
Uncertain Availability of Health Care Reimbursement. The Company may be
materially adversely affected by the continuing efforts of government and third
party payers to contain or reduce the cost of health care through various means.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item as to the Directors of the Company is
hereby incorporated by reference from the information appearing under the
caption "Members of the Board of Directors" in the Company's definitive Proxy
Statement which is to be filed with the Securities and Exchange Commission (the
"Commission") within 120 days of the Company's fiscal year ended December 31,
1996.
The information required by this item as to the Executive Officers of the
Company appears in Part I, Item 2 under the caption "Executive Officers".
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item as to executive compensation is
hereby incorporated by reference from the information appearing under the
captions "Executive Compensation", "Compensation of Directors", in the Company's
definitive Proxy Statement which is to be filed with the Commission within
120 days of the Company's fiscal year ended December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item as to the ownership of management and
others of securities of the Company is hereby incorporated by reference from the
information appearing under the caption "Ownership of Shares" in the Company's
definitive Proxy Statement which is to be filed with the Commission within 120
days of the Company's fiscal year ended December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item as to certain business relationships
and transactions with management and other related parties of the Company is
hereby incorporated by reference from the information appearing under the
caption "Certain Transactions" in the Company's definitive Proxy Statement which
is to be filed with the Commission within 120 days of the Company's fiscal year
ended December 31, 1996.
12
<PAGE> 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K.
(a) and (d) Financial Statements
See Index to Consolidated Financial Statements and Schedules on page F-1.
(b) Reports on Form 8-K
None
(c) Exhibits
<TABLE>
<S> <C> <C>
3-A -- Certificate of Incorporation of the Registrant, as amended
(filed by reference to Exhibits 3(a) through 3(c) to
Registration Statement No. 2-19352, Exhibit 3(c)(i) to
Registration Statement No. 2-21680, Exhibit 3(a) (i) to
Registration Statement No. 2-42398, Exhibit 3(a) to Current
Report on Form 8-K, dated January 27, 1981, Exhibit 3-A(ii)
to Annual Report on Form 10-K for the fiscal year ended
September 30, 1985 and Exhibit 3.1 to Registration Statement
No. 33-10975).
3-B(i) -- Amendment to Certificate of Incorporation, dated March 27,
1991 (filed by reference to Exhibit 3-B to Post-Effective
Amendment No. 3 to Registration Statement No. 33-10975).
3-B(ii) -- Amendment to Certificate of Incorporation, adopted by
stockholders on May 2, 1994 (filed by reference to Exhibit
3-B[ii] to Annual Report on Form 10-K for the fiscal year
ended December 31, 1994).
*3-B(iii) -- Amendment to Certificate of Incorporation adopted by
stockholders on May 2, 1996.
3-C -- By-laws of the Registrant, as amended (filed by reference to
Exhibit 3-B to Annual Report on Form 10-K for fiscal year
ended September 30, 1989).
3-D -- Amendment to the By-laws of the Company, dated May 5, 1991
(filed by reference to Exhibit 3-D to the Post-Effective
Amendment No. 3 to Registration Statement No. 33-10975).
4-A -- Specimen Common Stock Certificates (filed by reference to
Exhibit 4 to the Annual Report on Form 10-K for the fiscal
year ended September 30, 1991).
4-C -- Stock Registration Rights Agreement, dated March 27, 1991,
between the John N. Kapoor Trust and the Company (filed by
reference to Post-Effective Amendment No. 3 to Registration
Statement No. 33-10975).
4-D -- Stock and Warrant Agreement, dated as of August 11, 1995,
between the Company and Laboratoires Besins Iscovesco S.A.
4-E -- Warrant, dated August 11, 1995, for 72,550 shares of Common
Stock, issued to Laboratoires Besins Iscovesco S.A.
4-F -- Registration Rights Agreement, dated August 11, 1995,
between the Company and Laboratoires Besins Iscovesco S.A.
4-G -- Warrant, dated February 29, 1996, for 140,000 shares of
Common Stock, issued to Sunrise Securities Corp.
4-H -- Registration Rights Agreement, dated February 29, 1996,
between the Company and certain holders of Common Stock.
*4-I -- Stock Purchase Agreement dated May 9, 1996 between the
Company and BioChem Pharma (International) Inc.
*4-J -- Registration Rights Agreement dated May 9, 1996 by and
between the Company and BioChem Pharma (International) Inc.
10-B(i) -- Agreement between Roxane Laboratories, Inc. and the Company,
dated February 12, 1986 (filed as Exhibit 10 to the
Company's Current Report on Form 8-K dated February 12,
1986).
</TABLE>
13
<PAGE> 15
10-B(ii) -- Agreement between Roxane Laboratories, Inc. and the Company,
dated April 1, 1987 (filed as Exhibit 28.1 to the Company's
Current Report on Form 8-K dated April 28, 1987).
10-B(iii) -- Agreement between Roxane Laboratories, Inc. and the Company,
dated January 20, 1995, (filed by reference to Exhibit
10-B(iii) to Annual Report on Form 10-k for fiscal year
ended December 31, 1995).
10-D(i) -- Forms of Graduated Vesting Non-qualified Stock Option
Agreement (filed by reference to Exhibit 10-G[iv] to
Registration Statement No. 33-43838).
10-D(ii) -- Form of Immediate Vesting Non-qualified Stock Option
Agreement (filed by reference to Exhibit 10-G[v] to
Registration Statement No. 33-43838).
10-D(iii) -- Form of Incentive Stock Option Agreement (filed by reference
to Exhibit 10-G[vi] to Registration Statement No. 33-43838).
*10-K -- Unimed Pharmaceuticals, Inc. 1991 Stock Option Plan, as
amended through May 2, 1996.
*10-L -- Agreement for Manufacture and Sale of THC, dated as of
January 1, 1995, by and between The NORAC Company, Inc. and
the Company.
10-N -- Employment Agreement, dated as of November 3, 1994 between
the Company and Robert E. Dudley (filed by reference to
Exhibit 10-N to Annual Report on Form 10-k for fiscal year
ended December 31, 1995).
*10-R -- Distribution Agreement dated February 14, 1997 by and
between the Company and G.D. Searle & Co.
*10-S -- Consulting Agreement dated July 23, 1996 by and between the
Company and E.J. Financial Enterprises, Inc.
*11 -- Computation of Income per Share
*27 -- Financial Data Schedule
- -------------------------
* Filed herewith.
14
<PAGE> 16
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Financial Statements:
Consolidated Balance Sheets at December 31, 1996 and
December 31, 1995...................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994....................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994....................... F-6
Notes to Consolidated Financial Statements................ F-7
Report of Independent Accountants on Financial Statement
Schedule.................................................. S-1
Financial Statement Schedule:
Valuation and Qualifying Accounts (Schedule II)........... S-2
</TABLE>
F-1
<PAGE> 17
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Unimed Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of Unimed
Pharmaceuticals, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1996, 1995 and 1994. 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 consolidated financial position of Unimed
Pharmaceuticals, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
consolidated results of their operations and cash flows for the years ended
December 31, 1996, 1995 and 1994, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
February 14, 1997
F-2
<PAGE> 18
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 4,458,889 $ 7,011,843
Short-term investments...................................... 16,370,897 1,388,756
Receivables:
Trade, less allowances of $39,390 in 1996 and $43,000 in
1995...................................................... 1,876,807 1,548,148
Other....................................................... 78,109 535,104
----------- -----------
Total receivables.................................... 1,954,916 2,083,252
Inventories................................................. 4,184,855 3,327,939
Prepaid expenses............................................ 108,457 276,043
----------- -----------
Total current assets................................. 27,078,014 14,087,833
----------- -----------
Equipment and leasehold improvements, at cost............... 2,035,807 1,922,006
Less accumulated depreciation and amortization......... 1,227,790 1,050,866
----------- -----------
Net.................................................... 808,017 871,140
----------- -----------
Investment in and subordinated debenture from Romark
Laboratories, L.C......................................... 2,275,910 600,000
Other assets................................................ 584,934 746,208
----------- -----------
Total assets......................................... $30,746,875 $16,305,181
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 376,761 $ 416,705
Accrued liabilities......................................... 1,210,664 531,446
Due to Roxane Laboratories.................................. 4,945,801 3,716,633
Deferred research and development revenues.................. 1,643,887 1,000,000
----------- -----------
Total current liabilities.............................. 8,177,113 5,664,784
----------- -----------
Commitments and contingencies (Notes 11 and 12)
Stockholders' equity:
Common stock, $.25 par value; authorized 30,000,000 and
12,000,000 shares; issued and outstanding: 8,775,499 and
6,270,886................................................. 2,193,875 1,567,722
Additional paid-in capital.................................. 27,340,665 17,559,861
Accumulated deficit......................................... (7,005,726) (8,527,869)
Accumulated foreign currency translation adjustment......... 40,948 40,683
----------- -----------
Total stockholders' equity........................... 22,569,762 10,640,397
----------- -----------
Total liabilities and stockholders' equity........... $30,746,875 $16,305,181
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 19
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales................................................ $7,648,599 $7,320,052 $7,387,860
Research and development revenue......................... 564,327 92,334 33,889
---------- ---------- ----------
Total revenue............................................ 8,212,926 7,412,386 7,421,749
Cost of sales............................................ 3,086,713 3,201,014 2,957,602
---------- ---------- ----------
Gross profit............................................. 5,126,213 4,211,372 4,464,147
---------- ---------- ----------
Operating and administrative............................. 2,183,229 2,129,140 2,195,829
Sales and marketing...................................... 1,271,566 1,059,215 2,112,826
Research and development................................. 1,699,304 710,353 362,256
---------- ---------- ----------
Total expenses........................................... 5,154,099 3,898,708 4,670,911
---------- ---------- ----------
(Loss) Income from operations............................ (27,886) 312,664 (206,764)
Interest income.......................................... 1,067,975 430,098 253,624
Other, net............................................... 482,054 (106,000) --
---------- ---------- ----------
Income before income taxes............................... 1,522,143 636,762 46,860
Income tax provision..................................... -- 11,700 6,152
---------- ---------- ----------
Net income............................................... $1,522,143 $ 625,062 $ 40,708
========== ========== ==========
Net income per share:
Primary................................................ $ .17 $ .09 $ .01
========== ========== ==========
Fully diluted.......................................... $ .17 $ .09 $ --
========== ========== ==========
Weighted average number of common and common equivalent
shares outstanding:
Primary................................................ 8,896,876 7,030,553 6,401,066
========== ========== ==========
Fully diluted.......................................... 9,054,847 7,300,921 --
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 20
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
------------ PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
------ ------ ---------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1993.......... 6,127,161 $1,531,790 $17,052,661 $(9,193,639) $38,595 $ 9,429,407
Net income.......... -- -- -- 40,708 -- 40,708
Foreign currency
translation
gain.............. -- -- -- -- 446 446
--------- ---------- ----------- ----------- ------- -----------
Balance at December
31, 1994.......... 6,127,161 1,531,790 17,052,661 (9,152,931) 39,041 9,470,561
Net income.......... -- -- -- 625,062 -- 625,062
Exercise of common
stock options..... 71,125 17,782 232,681 -- -- 250,463
Issuance of common
stock for product
licenses.......... 72,600 18,150 274,519 -- -- 292,669
Foreign currency
translation
gain.............. -- -- -- -- 1,642 1,642
--------- ---------- ----------- ----------- ------- -----------
Balance at December
31, 1995.......... 6,270,886 1,567,722 17,559,861 (8,527,869) 40,683 10,640,397
--------- ---------- ----------- ----------- ------- -----------
Net income.......... -- -- -- 1,522,143 -- 1,522,143
Exercise of common
stock options..... 181,342 45,335 665,485 -- -- 710,820
Issuance of common
stock for product
licenses.......... 123,271 30,818 750,373 -- -- 781,191
Issuance of common
stock in private
placement, net.... 1,400,000 350,000 6,864,946 -- -- 7,214,946
Exercise of
warrants.......... 800,000 200,000 1,500,000 -- -- 1,700,000
Foreign currency
translation
gain.............. -- -- -- -- 265 265
--------- ---------- ----------- ----------- ------- -----------
Balance at December
31, 1996.......... 8,775,499 $2,193,875 $27,340,665 $(7,005,726) $40,948 $22,569,762
========= ========== =========== =========== ======= ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 21
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows provided by operations:
Net income............................................ $ 1,522,143 $ 625,062 $ 40,708
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization....................... 176,924 108,012 105,537
Other............................................... 38,344 107,601 --
Decrease (Increase) in receivables.................. 128,336 (435,007) (85,392)
Decrease in notes receivable........................ -- -- 35,032
(Increase) Decrease in inventories.................. (856,916) (812,994) 220,769
Decrease in prepaid expenses and other assets....... 167,586 9,028 175,700
Increase in accounts payable and accrued
liabilities...................................... 639,274 203,582 126,779
Increase (Decrease) in due to Roxane................ 1,229,168 1,834,717 (25,187)
------------ ----------- ----------
Net cash flows provided by operating
activities................................ 3,044,859 1,640,001 593,946
Cash flows (used in) provided by investing activities:
Proceeds on disposition of equipment................ 6,124 63,063 --
Purchases of equipment.............................. (129,039) (25,969) (36,409)
Purchase of short-term investments.................. (48,736,422) (877,393) --
Sale of short-term investments...................... 33,754,281 -- 256,258
Investment in Medisperse............................ -- (39,456) (40,927)
Investment in and subordinated debenture from Romark
Laboratories, L.C................................ (1,675,910) (600,000) --
------------ ----------- ----------
Net cash (used in) provided by investing
activities................................ (16,780,966) (1,479,755) 178,922
Cash flows provided by financing activities:
Proceeds from exercise of stock options............. 710,820 250,463 --
Proceeds from exercise of warrants.................. 1,700,000 -- --
Proceeds from issuance of common stock for product
licenses......................................... 781,191 -- --
Proceeds from issuance of common stock in private
placement, net................................... 7,214,946 -- --
Collection of note receivable....................... 132,252 -- --
Deferred research and development, net.............. 643,888 500,000 --
------------ ----------- ----------
Net cash flows provided by financing
activities................................ 11,183,097 750,463 --
Effect of exchange rate changes on cash............. 56 41 80
------------ ----------- ----------
Net change in cash and cash equivalents............... (2,552,954) 910,750 772,948
Cash and cash equivalents at beginning of year........ 7,011,843 6,101,093 5,328,145
------------ ----------- ----------
Cash and cash equivalents at end of year.............. $ 4,458,889 $ 7,011,843 $6,101,093
============ =========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes........................................ $ 11,700 $ 1,663 $ 1,605
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 22
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unimed Pharmaceuticals, Inc. (the Company) and its subsidiary develop and
market proprietary ethical pharmaceutical products in niche medical markets.
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiary after elimination of intercompany balances and transactions.
(B) TRANSLATION OF FOREIGN CURRENCY AND RELATED MATTERS
The financial statements of the Company's foreign subsidiary have been
translated into U.S. dollars. Assets and liabilities of the subsidiary have been
translated using exchange rates in effect at the balance sheet date. The
statements of operations have been translated using the average rates of
exchange for the year. Adjustments resulting from the translations are
accumulated in the stockholders' equity section of the consolidated balance
sheets. Exchange gains or losses arising from the settlement of foreign currency
transactions during the year are reflected in the consolidated statements of
operations.
(C) CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents and short-term investments include liquid
instruments purchased with an original maturity of 90 or fewer days.
The Company has investments in short-term debt securities that have been
classified under the provisions of SFAS No. 115 as held-to-maturity. The
carrying amount of the investments approximate fair market value. Accordingly,
these investments are measured at amortized cost and temporary unrealized gains
or losses are not recognized. The Company's short-term investments are intended
to be applied in part to the cost of product research and development.
(D) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market.
(E) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Depreciation is provided on a straight-line basis over the estimated useful
lives of the applicable assets. Amortization of leasehold improvements is
provided on a straight-line basis over the lesser of the estimated useful lives
of improvements or the terms of the related leases. Expenditures for repairs and
maintenance are charged to operations; replacements, renewals and betterments
are capitalized. The cost and accumulated depreciation of assets retired or
otherwise disposed of are eliminated from the accounts and any gains or losses
on such dispositions are reflected in operations.
(F) INCOME TAXES
The consolidated financial statements reflect the application of Statement
of Financial Accounting Standards ("SFAS") No. 109 "Accounting For Income
Taxes". The Company files a consolidated federal income tax return.
(G) REVENUE RECOGNITION
Revenue is recognized as earned in accordance with specific terms of each
distribution, royalty and licensing agreement.
F-7
<PAGE> 23
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(H) INCOME PER SHARE
Primary net income per share is computed by dividing net income by the
weighted average number of common stock and common stock equivalents (when
dilutive). Common stock equivalents include unexercised stock options and
warrants. Fully diluted net income per share is computed based on the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period, as if the common stock equivalents were converted
into common stock at the beginning of the period.
(I) MANAGEMENT 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 liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
(J) STOCK-BASED COMPENSATION
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). As provided by SFAS 123, the Company has elected to continue to account
for its stock-based compensation programs according to the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Accordingly, compensation expense has been recognized to the extent
of employee or director services rendered based on the intrinsic value of
compensatory options or shares granted under the plans. The Company has adopted
the disclosure provisions required by SFAS 123 (see "Note 9 -- Stock Options" in
Notes to Consolidated Financial Statements).
(K) RECLASSIFICATIONS
Certain amounts for 1995 and 1994 were reclassified to conform to the
current year presentation.
(L) LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", which requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be fully recoverable. In the event that facts and circumstances indicate that
the cost of any long-lived assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset would be compared to
the asset's carrying amount to determine if a write-down to market value or
discounted cash flow value is required. The adoption did not have a material
effect on the Company's financial position or results of operations.
(2) INVENTORIES
A summary of inventory components at December 31 follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Finished products..................................... $ 367,124 $ 368,636
Raw materials......................................... 3,817,731 2,959,303
---------- ----------
$4,184,855 $3,327,939
========== ==========
</TABLE>
F-8
<PAGE> 24
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
A summary of equipment and leasehold improvements at December 31 follows:
<TABLE>
<CAPTION>
ESTIMATED
1996 1995 USEFUL LIFE
---- ---- -----------
<S> <C> <C> <C>
Equipment, furniture and fixtures.......... $1,997,888 $1,884,087 5-10 years
Leasehold improvements..................... 37,919 37,919 10 years
---------- ----------
$2,035,807 $1,922,006
========== ==========
</TABLE>
The Company has purchased and retains title to the majority of the
equipment used by The NORAC Company, Inc. (NORAC) to manufacture Marinol(R)
(dronabinol). As of December 31, 1996 and 1995, the equipment had a net book
value of $408,902 and $490,285, respectively.
(4) PRODUCT DEVELOPMENT, LICENSING AND OTHER AGREEMENTS
Solvay Duphar
The Company entered into an agreement in January 1996 with Solvay Duphar of
The Netherlands. Unimed licensed the rights to proprietary know-how and
manufacturing for the drug SERC (betahistine hydrochloride) in the United
States. As part of the agreement, the Company received a $1.4 million payment to
help fund product development and for Unimed's product and trademark rights to
SERC in Canada, Australia and South Africa. The Company will buy all
requirements of SERC from Solvay Duphar, and will pay a royalty on sales of SERC
in the United States, if the drug is approved for marketing.
BioChem Pharma (International) Inc.
In May 1996, the Company signed a Collaboration Agreement with BioChem
Pharma (International) Inc., under which the Company sublicensed product rights
in Canada to NTZ, Androgel and Androgel-DHT. Successful development of the
Androgel(TM) products may result in additional equity investment and milestone
payments from BioChem Pharma (International) Inc. The sublicense fee was
$311,000. Concurrently, BioChem Pharma purchased for $489,000, 50,771 shares of
the Company's Common Stock.
Romark Laboratories, L.C.
In July 1996, the Company acquired an interest-bearing
convertible-subordinated debenture from Romark Laboratories, L.C. for $1.5
million and has accounted for this investment utilizing the cost method. The
debenture has a five-year term with interest payable to Unimed annually at the
rate of 7.5% per annum. Unimed has obtained an exclusive license to develop and
market oral dosage formulations of NTZ for human use in the U.S., Canada,
Australia and New Zealand from Romark Laboratories, L.C., Tampa, Florida.
(5) SHORT-TERM INVESTMENTS
Short-term investments in debt securities were as follows:
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS
HELD-TO-MATURITY
------------------------
1996 1995
---- ----
<S> <C> <C>
Obligations of corporations.......................... $16,370,897 $1,138,756
Obligations of U.S. government agencies.............. -0- 250,000
----------- ----------
$16,370,897 $1,388,756
=========== ==========
</TABLE>
F-9
<PAGE> 25
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
CURRENT 1996 1995 1994
------- ---- ---- ----
<S> <C> <C> <C>
Federal................................................ $-- $ -- $ --
State.................................................. -- 11,700 6,152
Foreign................................................ -- -- --
-- ------- ------
Total........................................ $-- $11,700 $6,152
== ======= ======
</TABLE>
Income tax provisions from continuing operations differed from the taxes
calculated at the statutory federal rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Taxes at the statutory rate................... $ 517,400 $ 216,500 $ 16,400
Utilization of tax loss carryforward.......... (518,000) (217,100) (17,000)
State income taxes............................ -- 11,700 6,152
Foreign loss.................................. 600 600 600
Valuation allowance........................... -- -- --
--------- --------- --------
Totals.............................. $ -- $ 11,700 $ 6,152
========= ========= ========
</TABLE>
At December 31, 1996, the Company has a tax loss carryforward of
approximately $8,402,000 for federal income tax purposes, which expires in the
years 2001 through 2010. The Company has available a research and development
credit carryforward at December 31, 1996, of approximately $430,000, which
expires in the years 2003 through 2010. Management has recorded a 100% valuation
allowance against deferred tax assets since future taxable income is uncertain.
The components of deferred taxes are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward................... $ 3,361,000 $ 4,013,000
Research tax credit carryforward.................. 430,000 430,000
Sales returns and allowances...................... 15,000 16,000
Inventory......................................... 4,500 22,000
Accrued liabilities............................... 22,000 32,000
Other............................................. 1,000 1,000
Valuation allowance............................... (3,620,500) (4,342,000)
----------- -----------
Total..................................... $ 213,000 $ 172,000
----------- -----------
Deferred tax liabilities:
Depreciation...................................... 213,000 172,000
----------- -----------
Net....................................... $ 0 $ 0
=========== ===========
</TABLE>
(7) DISTRIBUTION, RESEARCH, ROYALTY AND LICENSING AGREEMENTS
In February 1986, the Company entered into a distribution agreement with
Roxane Laboratories, ("Roxane"), making Roxane the Company's exclusive
distributor of Marinol in the United States. The Company and Roxane subsequently
agreed that Puerto Rico is not part of the United States territory. Roxane
distribution of Marinol began in July 1986 in the United States. From October
1991 through March 1993,
F-10
<PAGE> 26
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Boehringer Ingelheim distributed Marinol in Canada. In March 1993, Sanofi
Winthrop started to distribute Marinol in Canada under a separate agreement. The
Roxane Marinol agreement sets forth a formula for the royalties paid on net
sales of Marinol on an equal basis. The Sanofi agreement pays a royalty-based
commission on net sales of 55% to Sanofi Winthrop and 45% to Unimed. Marinol net
sales were $7,648,599 (1996), $6,030,892 (1995) and $5,754,968 (1994). As of
December 31, 1996 and 1995, trade receivables included $1,557,403 and
$1,468,040, respectively, due from Roxane. Under a separate contract, Roxane has
agreed to reimburse the Company for half of the external research costs incurred
in further clinical development of Marinol. Roxane and Unimed have agreed to
fund additional Marinol clinical trials for which budgeted costs have been
mutually agreed upon. Such reimbursements shall not exceed $3 million without
prior written approval by the parties. Roxane paid $27,746 (1996), $92,334
(1995) and $33,889 (1994) of these costs, which is included in research and
development revenues.
In November 1990, the Company entered into an inventory agreement with
Roxane, under which Roxane will advance funds at no interest to the Company for
the purpose of producing and maintaining a three-year raw material inventory of
Marinol. Roxane advances funds to the Company for the Marinol encapsulation
process as capsules are produced. Advances are offset as inventory is sold by
Roxane.
The Company has various other licensing, marketing and distribution
agreements typical to its business. See "Note 14 -- Subsequent Events" in Notes
to Consolidated Financial Statements.
(8) WARRANTS
In March 1991, The John N. Kapoor Trust (the Trust) purchased for $1.5
million, 1.2 million shares of the Company's Common Stock and warrants to
purchase 800,000 shares of the Company's Common Stock at an exercise price of
$2.125 per share. These warrants, which would have expired March 31, 1996,
contained certain antidilution provisions for adjustment of the exercise price
and the number of warrants. In February 1996, the Trust exercised the
aforementioned warrants to purchase 800,000 shares of the Company's Common
Stock, yielding $1.7 million to the Company.
In April 1992, the Company granted to LifeScience Corporation warrants to
purchase 50,000 shares of Common Stock at an exercise price of $8.375 per share,
with an expiration date of April 1, 1997. As of December 31, 1996, the 50,000
share warrant had not been exercised.
In August 1995, the Company granted to Besins Iscovesco of Paris, France,
warrants to purchase 72,550 shares of Common Stock at an exercise price of $8.00
per share, with an expiration date of August 11, 2005. As of December 31, 1996,
the 72,550 share warrant had not been exercised.
In February 1996, the Company granted to Sunrise Securities Corp. warrants
to purchase 140,000 shares of Common Stock at an exercise price of $7.20 per
share, with an expiration date of February 28, 2001. As of December 31, 1996,
the 140,000 share warrant had not been exercised.
(9) STOCK OPTIONS
The Company has established certain stock-based compensation plans for the
benefit of its officers, directors, employees and consultants. The plans
generally include vesting requirements from 0 to 4 years and option lives to 10
years. Options are granted with an exercise price that approximates the market
price of the Common Stock at the date of grant. For the years ended December 31,
1996 and 1995, the 1991 Stock Option Plan was the only plan that granted
options.
(A) 1991 STOCK OPTION PLAN
The 1991 Stock Option Plan (the Plan) was amended by the Board of Directors
in March 1996 and approved by the stockholders in May 1996. This amendment
increased to 1,800,000 the number of shares of
F-11
<PAGE> 27
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Common Stock reserved for issuance under the Plan, an increase of 800,000 shares
of Common Stock reserved for granting stock options to directors, officers, and
key employees and consultants of the Company and its subsidiary. The holder of
the option must remain in the continuous employ of the Company for at least one
year from the date the option is granted before exercising any part of the
option. Options expire 10 years from the date of grant or 90 days after
termination of employment.
Option activity for the 1991 Plan for the years ended December 31, 1994,
1995, 1996 was as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE OPTIONS
SHARES EXERCISE PRICE EXERCISABLE
------ ---------------- -----------
<S> <C> <C> <C>
Balance at January 1, 1994................. 499,688 $6.16 22,500
Options granted............................ 440,500 3.45
Options exercised.......................... -- --
Options forfeited.......................... 420,438 3.51
------- ------ ------
Balance at December 31, 1994............... 519,750 6.01 22,500
------- ------ ------
Options granted............................ 854,754 3.31 --
Options exercised.......................... 12,125 2.64 --
Options forfeited.......................... 457,875 3.02 --
------- ------ ------
Balance at December 31, 1995............... 904,504 3.50 45,000
------- ------ ------
Options granted............................ 155,140 7.43 --
Options exercised.......................... 43,187 3.09 --
Options forfeited.......................... 31,000 8.24 --
------- ------ ------
Balance at December 31, 1996............... 985,457 $4.15 60,000
------- ------ ------
</TABLE>
The following table summarizes the status of outstanding stock options as
of December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
NUMBER OF REMAINING WEIGHTED NUMBER OF WEIGHTED
RANGE OF OPTIONS CONTRACTUAL LIFE AVERAGE OPTIONS AVERAGE
EXERCISE PRICES OUTSTANDING (IN YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
2.75 - 4.88 622,079 7.8 2.93 47,000 3.59
5.25 - 6.75 185,828 7.8 5.51 15,000 6.75
7.13 - 8.25 177,550 8.4 7.54 22,500 7.75
----------- ------- --- ---- ------ ----
-- 985,457 7.9 4.24 84,500 5.24
----------- ------- --- ---- ------ ----
</TABLE>
Had the Company elected to apply the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS
123) regarding recognition of compensation expense to the extent of the
calculated fair value of stock options granted in 1995 and 1996, reported net
income and earnings per share would have been reduced as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income, as reported................................. $1,522,143 $625,062
Pro forma net income.................................... $1,169,032 $420,546
Earnings per share, as reported......................... $ .17 $ .09
Pro forma net income.................................... $ .13 $ .06
</TABLE>
The effects of applying SFAS 123 in the above pro forma disclosure are not
likely to be representative of the effects disclosed in future years because the
proforma calculations exclude stock options granted before 1995.
F-12
<PAGE> 28
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For purposes of the SFAS 123 pro forma net income and earnings per share
calculation, the fair value of each option grant is estimated as of the date of
grant using the Black-Scholes option-pricing model. The weighted-average
assumptions used in determining fair value as disclosed for SFAS 123 are shown
in the following table:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Risk-free interest rate..................................... 6.16% 7.34%
Dividend yield.............................................. 0.00% 0.00%
Option life (years)......................................... 4.7 4.11
Stock price volatility...................................... 58.16% 57.12%
</TABLE>
(B) OTHER STOCK OPTIONS
In November 1986, reflecting employment contracts with certain executives,
the Company granted to these executives nonqualified options to purchase 220,000
shares of Common Stock through March 1999 at $15.00 per share as adjusted and
amended. In January 1988, the exercise price of these options was changed to
$5.38. In March 1991, the exercise price of those options was changed to $4.36,
and the number of options was adjusted to 271,216 shares of Common Stock
pursuant to certain antidilution provisions discussed below. In addition during
March 1991, the Board of Directors extended the expiration date of the
outstanding options to March 1999. Through December 31, 1996, options to
purchase 143,280 shares of Common Stock had been exercised, none had been
canceled, and options to purchase 127,936 shares of Common Stock were
outstanding.
In March 1987, the Company granted to non-officer members of the Board of
Directors nonqualified options to purchase an aggregate of 50,000 shares of
Common Stock at $8.50 per share. In January 1988, the exercise price of these
options was changed to $5.38. During fiscal 1991 and fiscal 1990, the options to
purchase 10,000 and 20,000 of these shares, respectively, were canceled. In
March 1991, the exercise price of those options remaining was changed to $4.36
and the number of options was adjusted to 24,656 shares of Common Stock,
reflecting certain antidilution provisions discussed below. In addition, during
March 1991, the Board of Directors extended the expiration date of the
outstanding options to March 1999. There were no exercises or cancellations
during 1994, 1995 or 1996.
In November 1989, additional nonqualified options to purchase 20,000 shares
of Common Stock at $2.63 per share were granted to non-officer members of the
Board. During fiscal 1991, the option to purchase 10,000 of these shares was
canceled. In March 1991, the exercise price of the remaining options was changed
to $2.35 and the number of options remaining was adjusted to 11,170 shares of
Common Stock pursuant to certain antidilution provisions discussed below. In
addition, during March 1991, the Board extended the expiration date of the
outstanding options to March 1999. There were no exercises or cancellations
during 1994, 1995 or 1996.
In March 1991, the Company granted to employees nonqualified options to
purchase 120,000 shares of Common Stock at $3.00 per share. A majority of these
options vest over four years. The option price was below the market price at the
date of grant, and the Company has recognized the pro rata compensation expense
representing the difference between the option price and fair market value at
the date of grant of approximately $27,000 in 1993. As of December 31, 1996,
options to purchase 67,500 shares of Common Stock had been exercised, 51,500 had
been canceled and options to purchase 1,000 shares of Common Stock were
outstanding.
In March 1991, the Company granted to past and present members of the Board
nonqualified options to purchase 20,000 shares of Common Stock at $3.00 per
share for prior years of service. The grant price was below the market price.
The Company recognized a compensation expense at the date of grant of $35,000.
As
F-13
<PAGE> 29
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of December 31, 1996, options to purchase 10,000 shares of Common Stock had been
exercised, none had been canceled and options to purchase 10,000 shares of
Common Stock were outstanding.
In March 1991, the Company granted to non-employee members of the Board
nonqualified options to purchase 20,000 shares of Common Stock at $4.75 per
share. As of December 31, 1996, options to purchase 5,000 shares of Common Stock
had been exercised, none had been canceled and options to purchase 15,000 shares
of Common Stock were outstanding.
In addition during April, May and October 1991, the Company granted to
employees nonqualified options to purchase 26,000 shares of Common Stock with
exercise prices ranging from $4.25 to $7.75. As of December 31, 1996, options to
purchase 8,750 shares of Common Stock had been exercised, 15,000 had been
canceled and options to purchase 2,250 shares of Common Stock were outstanding.
In August 1992, the Company granted to John Kapoor, Chairman of the Board,
nonqualified options to purchase 200,000 shares of Common Stock at $7.75 per
share. There were no exercises or cancellations during 1994, 1995 or 1996.
The exercise price and number of shares of Common Stock which can be
purchased upon the exercise of the nonqualified stock options are adjusted in
the event of stock dividends, split-ups, combinations or exchanges of shares by
recapitalization or reclassification. The exercise price and number of shares of
Common Stock purchasable upon the exercise of certain nonqualified stock options
also are adjusted in the case of the issuance of Common Stock by the Company
(other than pursuant to the grant of stock options and restricted stock grants)
below the then existing exercise price.
There are 392,012 shares of the Company's Common Stock reserved for these
arrangements as of December 31, 1996.
(C) INCENTIVE STOCK OPTION PLAN
The following summarizes transactions under the 1981 Incentive Stock Option
Plan for the periods ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
<S> <C>
Outstanding at December 31, 1993............................ 12,500
Canceled.................................................. (3,750)
-------
Outstanding at December 31, 1994............................ 8,750
Canceled.................................................. (8,750)
-------
Outstanding at December 31, 1995 and 1996................... --
=======
</TABLE>
As of December 31, 1996, there were no stock options exercisable under the
Plan.
(10) RETIREMENT PLAN
The Company offers a discretionary 401(k)Plan (the Plan) to its employees.
Under the Plan, employees may defer income on a tax exempt basis, subject to IRS
limitation. All employees are eligible to participate in the Plan. Under the
Plan, the Company may make discretionary matching contributions. Company
contributions expensed in 1996 and 1995 totaled $55,278 and $42,901,
respectively. There were no Company contributions to the Plan in 1994.
(11) COMMITMENTS
The Company is obligated for rental payments under a noncancellable
operating lease relating to an office facility. Real estate taxes, insurance and
maintenance expenses generally are Company obligations. Rental
F-14
<PAGE> 30
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expenses charged to operations were approximately $143,000 in 1996, $193,000 in
1995 and $225,000 in 1994. At December 31, 1996, approximate amounts committed
for future fiscal years are as follows:
<TABLE>
<S> <C>
1997........................................................ $145,000
1998........................................................ 61,000
</TABLE>
Management expects that in the normal course of business, leases that
expire will be renewed or replaced by other leases. See "Note 14 - Subsequent
Events" in Notes to Consolidated Financial Statements.
The Company entered into a new agreement with NORAC for NORAC to supply and
the Company to purchase THC, the raw material in Marinol, through December 31,
1999. THC is synthesized and purified through a complex and time-consuming
process. NORAC is the Company's sole supplier of THC. Currently, the Company
maintains a three-year supply of THC.
(12) CONTINGENCIES
The pharmaceutical industry has traditionally experienced difficulty in
maintaining product liability insurance coverage at desired levels. To date, no
significant product liability suit has ever been filed against the Company.
However, if a suit were filed and a judgment entered against the Company that
significantly exceeded the policy limits, it could have a material adverse
effect upon the Company's operations and financial condition.
(13) RELATED PARTIES
EJ Financial Enterprises, Inc. (EJ) is a healthcare investment and
consulting company owned by the Company's chairman, an indirect majority
stockholder. In addition to the distribution, research, royalty and licensing
agreements which were terminated, the Company and EJ currently have a consulting
agreement, which provides for EJ's assistance in the Company's product
licensing, development and marketing efforts. The agreement can be canceled by
either party upon 30 days prior written notice. Expenditures under this
agreement totaled approximately $50,000 (1996 and 1995) and $106,250 (1994).
(14) SUBSEQUENT EVENTS
(A) MANAGEMENT CHANGE
In January 1997, Stephen M. Simes resigned as President/CEO and Director of
the Company to pursue other business interests. Dr. Robert E. Dudley, Vice
President of Clinical and Regulatory Affairs, was appointed CEO.
(B) MAXAQUIN(R) MARKETING AND DISTRIBUTION AGREEMENT
The Company entered into an agreement on February 14, 1997 with G.D. Searle
& Co. to acquire long-term exclusive U.S. marketing and distribution rights for
Maxaquin(R) (lomefloxacin), a fluoroquinolone anti-infective drug. As a result
of the Maxaquin agreement, the Company entered into an agreement with a third
party logistical company to provide warehousing, distribution and certain other
requirements for Maxaquin.
(C) NEW LEASE COMMITMENT
Effective February 1, 1997 the Company entered into a lease thereby
expanding their leased premises by 9,323 square feet to a total of 14,334 square
feet. Approximately one third of the leased premises will be
F-15
<PAGE> 31
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subleased to an already identified sub-tenant. The new lease extends through
January 31, 2002 and post-sub lease results in an approximate annual rental
expense as follows:
<TABLE>
<S> <C>
1997...................................................... $163,000
1998...................................................... 168,000
1999...................................................... 171,000
2000...................................................... 175,000
2001...................................................... 178,000
2002...................................................... 22,000
</TABLE>
F-16
<PAGE> 32
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors
Unimed Pharmaceuticals, Inc.
Our report on the consolidated financial statements of Unimed
Pharmaceuticals, Inc. and Subsidiaries is included on page F-2 of this Form
10-K. In connection with our audits of such financial statements, we have also
audited the related financial statement schedule listed in the index on page F-1
of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
February 14, 1997
S-1
<PAGE> 33
SCHEDULE II
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and returns:
1994.............................................. $298,000 $270,000 $ 28,000
======== ======== ========
1995.............................................. $ 28,000 $ 15,000 $ 43,000
======== ======== ========
1996.............................................. $ 43,000 $ 9,436 $ 13,046 $ 39,390
======== ======== ======== ========
Reserve for inventory obsolescence:
1994.............................................. $250,000 $250,000
======== ========
1995.............................................. $250,000 $195,298 $ 54,702
======== ======== ========
1996.............................................. $ 54,702 $241,107 $284,529 $ 11,280
======== ======== ======== ========
</TABLE>
S-2
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the Undersigned, thereunder duly authorized.
UNIMED PHARMACEUTICALS, INC.
By: /s/ ROBERT E. DUDLEY
------------------------------------
Robert E. Dudley
Chief Executive Officer
March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME CAPACITY(IES) DATE
---- ------------- ----
<C> <S> <C>
/s/ DR. JOHN N. KAPOOR Chairman and Director March 28, 1997
- ------------------------------------------------
Dr. John N. Kapoor
/s/ ROBERT E. DUDLEY Chief Executive Officer March 28, 1997
- ------------------------------------------------
Robert E. Dudley
/s/ DAVID E. RIGGS Senior Vice President, Chief March 28, 1997
- ------------------------------------------------ Financial Officer, Secretary and
David E. Riggs Treasurer
/s/ FRED HOLUBOW Director March 28, 1997
- ------------------------------------------------
Fred Holubow
/s/ JAMES J. LEMPENAU Director March 28, 1997
- ------------------------------------------------
James J. Lempenau
/s/ ROLAND WEISER Director March 28, 1997
- ------------------------------------------------
Roland Weiser
</TABLE>
S-3
<PAGE> 35
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER
- --------------
<C> <S>
11 Computation of Income (Loss) per Share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
UNIMED LOGO
UNIMED PHARMACEUTICALS, INC.
2150 EAST LAKE COOK ROAD
BUFFALO GROVE, IL 60089
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 2, 1996
------------------------
The Annual Meeting of Stockholders of UNIMED Pharmaceuticals, Inc. (the
"Company"), a Delaware corporation, will be held at The Hyatt Deerfield Hotel,
1750 Lake Cook Road, Deerfield, Illinois 60015 on May 2, 1996, at 10:00 A.M.,
for the following purposes:
1. PROPOSAL NO. 1 -- ELECTION OF DIRECTORS. To elect Stephen M. Simes as a
director for a term of three years (expiring in 1999) and until his
successor is duly elected and qualified.
2. PROPOSAL NO. 2 -- APPROVAL OF AMENDMENTS 1991 STOCK OPTION PLAN. To
approve amendments to the Corporation's 1991 Stock Option Plan to
increase the number of shares covered thereby by 800,000 shares, and to
make certain other changes to the Plan.
3. PROPOSAL NO. 3 -- APPROVAL OF AN AMENDMENT TO THE CORPORATION'S
CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK. To
approve an amendment to the Company's Certificate of Incorporation to
increase the Company's authorized Common Stock from 12,000,000 shares to
30,000,000 shares.
4. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEE LISTED IN PROPOSAL
NO. 1, FOR PROPOSAL NO. 2 AND FOR PROPOSAL NO. 3.
The Board of Directors has fixed March 8, 1996, as the record date for the
Meeting. Only holders of the Company's Common Stock of record at the close of
business on such date will be entitled to notice of, and to vote at, the Annual
Meeting. The stock transfer books will not be closed.
By Order of the Board of Directors,
DAVID E. RIGGS,
Secretary
Dated: April 10, 1996
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED. PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD IN THE
POSTAGE PAID ENVELOPE PROVIDED. YOUR PROMPT RESPONSE WILL ASSURE A QUORUM AT THE
MEETING, THEREBY SAVING YOUR COMPANY THE EXPENSE OF FURTHER SOLICITATION OF
PROXIES.
<PAGE> 2
UNIMED LOGO
UNIMED PHARMACEUTICALS, INC.
2150 EAST LAKE COOK ROAD
BUFFALO GROVE, IL 60089
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 2, 1996
GENERAL INFORMATION
The Board of Directors of the Company solicits the proxies of the holders
of its Common Stock for use at the Annual Meeting of Stockholders of the Company
to be held at The Hyatt Deerfield Hotel, 1750 Lake Cook Road, Deerfield,
Illinois 60015 on May 2, 1996, and any and all adjournments thereof. A form of
proxy is enclosed herewith. The Proxy Statement and the form of proxy enclosed
herewith were first sent to stockholders on or about April 10, 1996. Any
stockholder who executes and delivers a proxy may revoke it by written
communication at any time prior to its use or by voting in person at the Annual
Meeting.
The cost of soliciting proxies will be borne by the Company. Directors,
officers and regular employees of the Company may solicit proxies by telephone,
telegram or personal interview. The Company may also hire a proxy Solicitor. The
Company also will bear the expense of brokers who at the request of the Company
mail to their customers copies of the enclosed Annual Report, Notice of Meeting
and Proxy Statement, and enclosed form of Proxy.
Only holders of issued and outstanding shares of the Company's Common Stock
of record at the close of business on March 8, 1996, are entitled to notice of,
and to vote at, the Annual Meeting. The number of shares of Common Stock
outstanding on March 8, 1996, was 8,570,886. The presence in person or by
properly executed proxy of the holders of a majority of the outstanding shares
of Common Stock entitled to vote is necessary to constitute a quorum. A
plurality of the votes cast in person or by proxy is necessary to elect the one
director, a majority of the votes cast in person or by proxy is necessary to
approve the amendments to the 1991 Stock Option Plan and a majority of the
issued and outstanding shares of Common Stock entitled to vote is necessary to
approve the Amendment to the Certificate of Incorporation.
The stockholders vote at the annual meeting by casting ballots (in person
or by proxy) which are tabulated by a person who is appointed by the Company
before the meeting to serve as the inspector of election at the meeting and who
has executed and verified an oath of office. Abstentions and broker non-votes
are included in the determination of the number of shares present at a meeting
for quorum purposes but are not counted in the tabulations of the votes cast for
the nominee or for the proposals to approve the amendments to the 1991 Stock
Option Plan or the Certificate of Incorporation.
<PAGE> 3
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes in accordance with
Article FIFTEENTH of the Company's Certificate of Incorporation, as amended. The
class of directors (Class I) whose term will expire at the 1996 Annual Meeting
currently consists of two directors: Stephen M. Simes and Roland Weiser. Mr.
Simes is nominated for election for a term of three years and until his
successor is duly elected and qualified. Mr. Weiser, whose term also expires at
the 1996 annual meeting of stockholders, has agreed to fill the position which
will be vacated by Mr. Hunter upon his retirement, effective at the 1996 annual
meeting. Consequently, Mr. Weiser is not a nominee for election at the 1996
annual meeting. Pursuant to the bylaws, the Board of Directors has set the
number of directors of the Company at 5, and the number of Class I directors to
one, effective at the 1996 annual meeting. In the event that Mr. Simes should
become unavailable for election for any presently unforeseen reason, the persons
named in the form of proxy will vote for any nominee who shall be designated by
the present Board of Directors.
The information set forth below as to the ages and principal occupations of
these nominees and the other members of the Board of Directors, and the numbers
of shares of Common Stock of the Company beneficially owned by them, directly or
indirectly, has been furnished to the Company by such nominees or directors.
MEMBERS OF THE BOARD OF DIRECTORS*
DIRECTORS WHOSE TERMS EXPIRE IN 1996
(Class I)
<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE
(IF OVER 1%) OF
SHARES OF COMMON
DIRECTOR STOCK BENEFICIALLY
NAME AGE PRINCIPAL OCCUPATION SINCE OWNED AS OF 3/8/96+
- ------------------------- --- --------------------------------- -------- ---------------------
<S> <C> <C> <C> <C>
Stephen M. Simes......... 44 President and Chief Executive 1994 112,500(1)
Officer of the Company since
October, 1994; Senior Vice
President, Bio-Technology General
Corp., 1993-1994. Gynex
Pharmaceuticals, Inc. 1984
through 1993, various positions,
most recently Chairman, President
and Chief Executive Officer.
Roland Weiser(2)......... 65 President of Intervista, an 1989 45,950(1)
international pharmaceutical
consulting firm, since 1985;
Senior Vice President of
Schering-Plough Corp.
(International) from 1980 to
1984; Director, GAM Funds, Inc.
</TABLE>
- ---------------
* Footnotes follow table.
2
<PAGE> 4
DIRECTORS WHOSE TERMS EXPIRE IN 1997
(Class II)
<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE
(IF OVER 1%) OF
SHARES OF COMMON
DIRECTOR STOCK BENEFICIALLY
NAME AGE PRINCIPAL OCCUPATION SINCE OWNED AS OF 3/8/96+
- ------------------------- --- --------------------------------- -------- ---------------------
<S> <C> <C> <C> <C>
Robert D. Hunter(2)...... 71 Founding and Executive partner of 1984 47,528(1)(3)
R.D. Hunter & Company, Certified
Public Accountants, since 1956.
John N. Kapoor, Ph.D..... 52 Chairman of the Board of UNIMED 1991 2,332,429(1)(4)
Pharmaceuticals, Inc. since May, 25.7%
1992, and Chief Executive Officer
from May 1992 through October,
1993; Chairman of Option Care,
Inc., a franchisor of home
infusion therapy businesses,
since October 1990; President of
EJ Financial Enterprises, Inc., a
consulting and private investment
firm, since 1990; Chairman of
Lyphomed, Inc., a pharmaceutical
company, from 1983 to 1990;
Director of Lunar Corp., a
manufacturer and marketer of
X-ray and ultrasound systems;
Director of Akorn, Inc., an
ophthalmic company and NeoPharm,
Inc., an oncology company.
</TABLE>
DIRECTORS WHOSE TERMS EXPIRE IN 1998
(Class III)
<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE
(IF OVER 1%) OF
SHARES OF COMMON
DIRECTOR STOCK BENEFICIALLY
NAME AGE PRINCIPAL OCCUPATION SINCE OWNED AS OF 3/8/96+
- ------------------------- --- --------------------------------- -------- ---------------------
<S> <C> <C> <C> <C>
Fred Holubow............. 57 Founder and Vice President of 1995 27,500(1)
Pegasus Associates, a registered
investment adviser, since 1982;
Director and Vice Chairman,
Jefferson State Bank, an Illinois
State Bank, and Director of
ThermoRemediation and
Bio-Technology General Corp.
James J. Lempenau........ 66 Chartered Financial Analyst; 1983 57,328(1)
President and Director since 1981
of The Income Builder, Inc.,
investment advisors.
</TABLE>
- ---------------
+ Beneficial and percentage ownership have been determined pursuant to Rule
13d-3 under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), as required by Regulation 14A of the Exchange Act.
3
<PAGE> 5
(1) Includes incentive stock options and nonqualified stock options exercisable
within 60 days of March 8, 1996, to purchase 160,000, 112,500, 42,328,
42,328, 41,170 and 17,500 shares of Common Stock held by directors Kapoor,
Simes, Lempenau, Hunter, Weiser and Holubow, respectively.
(2) Mr. Hunter will retire from the Board, effective at the 1996 annual meeting
of stockholders. Mr. Weiser will fill the balance of Mr. Hunter's term of
office (to the 1997 annual meeting of stockholders). The Company has agreed
to retain Mr. Hunter as a consultant for a period of one year, beginning
after the annual meeting, for cash compensation of $7,000 and grant an
option to purchase 15,000 shares of Company Common Stock at the closing
price on May 2, 1996. That option will be exercisable until August 1, 1997,
but only if the amendment to the stock option plan (Proposal No. 2) is
approved by the stockholders, and two options now held by him for an
aggregate of 15,000 shares are not exercised.
(3) Includes 2,100 shares of Common Stock owned of record by Mr. Hunter's wife.
(4) Includes 1,667,429 shares of Common Stock beneficially owned by the John N.
Kapoor Trust (the "Trust"), an affiliate of Dr. Kapoor. Includes 505,000
shares of Common Stock held by a limited partnership created for the
benefit of Dr. Kapoor's family members, of which Dr. Kapoor is the General
Partner.
The Board of Directors of the Company held four meetings during the 1995
fiscal year. The Company has an Audit Committee and a Salary and Compensation
Committee. During the 1995 fiscal year the Audit Committee met once and the
Salary and Compensation Committee met once. The Compensation Committee also
conferred numerous times by telephone during the year. The Audit Committee
consists of Robert D. Hunter (Chairman), Fred Holubow and James J. Lempenau. The
Audit Committee acts as a liaison between the Company and its independent
auditors and reports on matters pertaining to the Company's independent audit
and the Company's accounting policies. The Salary and Compensation Committee,
which consists of Roland Weiser (Chairman), Fred Holubow and James J. Lempenau,
was formed to evaluate executive officer compensation, and determines the
compensation of the executive officers of the Company for each year. The Company
does not have a nominating committee.
The Trust has the right to nominate two persons to the Board of Directors
as long as the Trust owns beneficially 880,000 shares of securities of the
Company entitled to vote for the election of directors (the "Voting
Securities"). The Trust may continue to nominate one person as long as the Trust
owns beneficially less than 880,000 shares, but at least 220,000 shares, plus an
additional number of shares equal to 5% of future issuances of Voting Securities
(other than shares issued upon the exercise of options and warrants outstanding
on the date the Trust agreed to purchase Common Stock of the Company). Dr.
Kapoor is the Trust's representative on the Board of Directors.
The Company's By-laws permit any stockholder to nominate one or more
persons for election as directors at an Annual Meeting of stockholders, provided
such stockholder's intent to make such nomination(s) has been personally
delivered or mailed to the Secretary of the Company no later than 60 days in
advance of the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE RE-ELECTION OF
STEPHEN M. SIMES TO THE COMPANY'S BOARD OF DIRECTORS.
4
<PAGE> 6
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation for services to the Company
for the fiscal year ended December 31, 1995, by the chief executive officer and
two highly compensated senior executive officers (the "Named Executive
Officers"). No other person who served as an executive officer of the Company in
fiscal 1995 received more than $100,000 in salary and bonus in fiscal 1995.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION --------------------
-------------------------------------- RESTRICTED
OTHER ANNUAL STOCK OTHER
SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR $ $ $(1) $ #(2) $(3)
- ----------------------------- ---- ------- ------ ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen M. Simes(4).......... 1995 200,000 80,000 9,890 0 360,000(5) 10,570
President and Chief 1994 37,712 0 1,700 0 300,000(5) 0
Executive Officer
David E. Riggs(6)............ 1995 114,583 42,917 6,600 0 90,000(7) 4,620
Senior Vice 1994 112,984 0 7,200 0 80,000(7) 0
President, CFO, 1993 105,333 13,333 7,200 0 0 0
Secretary and Treasurer
Robert E. Dudley(8).......... 1995 140,000 42,000 7,200 0 100,000 51,765
Vice President 1994 8,227 0 300 0 0 0
</TABLE>
- ---------------
(1) Represents the compensation portion of car allowances advanced.
(2) The stock options become exercisable 25% on the anniversary date of the date
of grant and an additional 25% on each anniversary date thereafter until
exercisable in full. Exercisability will be accelerated in the event of a
"change of control."
(3) Represents the matching contribution ($4,620 per officer) made by the
Company to its 401(k) Plan for each of the executive officers listed above.
In addition to the 401(k) matching contribution, for Mr. Simes this amount
represents insurance premiums paid ($4,018) and the taxes associated with
these premiums ($1,932). For Dr. Dudley, this number represents the Company
401(k) matching contribution, expenses paid by the Company related to Dr.
Dudley's relocation ($35,469) and the taxes associated with those relocation
expenses($11,676).
(4) Mr. Simes joined the Company on October 25, 1994. An employment agreement
entered into between Mr. Simes and the Company provides for severance
payments, upon termination, of one year of base salary.
(5) The 360,000 options granted to Mr. Simes in 1995 represent 60,000 new
options and a repricing of the 300,000 options granted to him in 1994. Of
the 300,000 options granted to Mr. Simes in 1994, 50,000 options vested one
day after grant and 250,000 options will vest under the schedule described
in note (2) above. It was an additional condition of the exercise of 100,000
of these 250,000 options that the price of the Company's stock shall have
equalled or exceeded $5.00 per share for ten consecutive trading days. This
condition was satisfied on June 22, 1995.
(6) Effective November 1, 1995, Mr. Riggs began devoting 50% of his time to the
Company.
(7) Options granted to Mr. Riggs in 1994 represent 30,000 new options and a
repricing of the 50,000 options granted to him in 1992. Options granted to
Mr. Riggs in 1995 represent 10,000 new options, and a repricing of the
options granted and repriced in 1994.
(8) Dr. Dudley joined the Company in December 1994. An employment agreement
entered into between Dr. Dudley and the Company provides for severance
payments, upon termination, equal to 75% of his annual salary.
5
<PAGE> 7
The Company and EJ Financial Enterprises, Inc. ("EJ Financial"), an
affiliate of Dr. John N. Kapoor, entered into an agreement, terminating in March
1996, pursuant to which EJ Financial provides independent consulting services to
the Company at a fee to be determined on a yearly basis. The Company paid
$50,000 to EJ Financial under the contract with respect to fiscal 1995, $106,250
for fiscal 1994 and $150,000 for fiscal 1993. The agreement is terminable by
either party upon thirty days' prior written notice. EJ Financial principally
provides consulting support on strategic corporate objectives and operations,
including sales and marketing strategies, new product strategies and key
contacts within the industry and financial community. EJ Financial is engaged in
a number of business activities, including consulting services to the Company
and the payment to EJ Financial is not intended primarily to furnish
compensation to Dr. Kapoor.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to grants of
options to purchase Common Stock granted to the Named Executive Officers during
the fiscal year ended December 31, 1995:
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATES
OF
STOCK PRICE
PERCENT OF APPRECIATION
TOTAL OPTIONS FOR OPTION TERM
OPTIONS GRANTED TO EXERCISE -----------------------
GRANTED EMPLOYEES PRICE EXPIRATION 5% 10%
NAME # IN FISCAL YEAR $/SH DATE $ $
- ------------------------------ ------- -------------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Stephen M. Simes.............. 300,000 38.03 2.75 1/19/05 518,838 1,314,838
60,000 7.61 5.25 9/22/05 348,102 652,029
David E. Riggs................ 80,000 10.14 2.75 1/19/05 138,357 350,623
10,000 1.27 5.25 9/22/05 58,017 108,671
Robert E. Dudley.............. 60,000 7.61 2.75 1/19/05 103,768 262,968
40,000 5.07 5.25 9/22/05 232,068 434,686
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR,
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to stock options
exercised during the fiscal year ended December 31, 1995, and the value at
December 31, 1995, of unexercised stock options held by the Named Executive
Officers:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED OPTIONS
OPTIONS IN-THE-MONEY
AT FISCAL AT FISCAL
YEAR-END YEAR END*
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME # $ # $
- ------------------------------------- --------------- -------- --------------- -------------------
<S> <C> <C> <C> <C>
Stephen M. Simes..................... 0 0 112,500/247,500 435,938/809,063
David E. Riggs....................... 0 0 45,000/45,000 174,375/149,375
Robert E. Dudley..................... 0 0 0/100,000 0/287,500
</TABLE>
- ---------------
* Represents the fair market value at December 31, 1995, of the Common Stock
underlying the options minus the exercise price.
6
<PAGE> 8
COMPENSATION OF DIRECTORS
Directors who are not officers of the Company receive an annual stipend of
$6,000 for serving on the Board and its committees, an additional $1,000 for
each directors' meeting which they attend (excluding meetings held by
telephone), $500 for each committee meeting they attend (excluding meetings held
by telephone) and reimbursement of out-of-pocket expenses in connection with
their attendance at directors' meetings. The 1991 Stock Option Plan provides for
a grant of options to purchase 10,000 shares of Common Stock to each new
director who is not an officer on the date he first becomes a director, and
annual stock option grants of 7,500 shares of Common Stock to directors who are
not officers.
SALARY AND COMPENSATION COMMITTEE REPORT
The Salary and Compensation Committee of the Board of Directors, consisting
of three outside directors, Mr. Roland Weiser, Chairman, Mr. Fred Holubow and
Mr. James J. Lempenau, has issued the following report with respect to Executive
Compensation:
The Company's compensation policies applicable to its executive officers
are administered by the Compensation Committee of the Board of Directors. All
members of the Committee are non-employee directors. These policies are designed
to strengthen the capabilities and financial performance of the Company by
aligning the financial interests of its executive officers with those of its
stockholders.
The three primary components of executive compensation are base salary,
incentive bonuses and long-term compensation consisting of stock option grants.
All three are administered according to Compensation Guidelines approved by the
Board of Directors. These guidelines provide that a significant portion of
management's compensation be tied to the performance of the Company. Base
salaries are expected to be in the upper half of comparable companies. Bonuses,
in cash or shares, are awarded at the discretion of the Board, in reward for the
achievement of yearly goals, which move the Company towards its longer term
strategic directives. Such bonuses are calculated on the basis of measurable
goals, some quantitative, and others related to strategic objectives (for the
President/CEO) or functional goals (for the other officers). Options for Company
stock are long-term incentives at the discretion of the Board, that benefit
management only if the stockholders benefit by higher prices of the Company
stock.
The Committee recommends the salaries of the executive officers, the yearly
incentive bonus program and administers the 1991 amended stock option plan under
which the employee stock options are granted. All components of executive
compensation are reviewed for competitiveness by referring to a survey prepared
by an independent professional organization. The 1995 survey used by the
Committee, was prepared by executive compensation consultants and covered 60
public companies in the biotechnology industry, all being below the 25 largest
companies, in terms of market capitalization.
BASE SALARY
The 1994 salaries reported for officers of the Company were negotiated for
new hires, on the basis of previous salary, experience and competitive data. For
the other officers, increases were granted on merit. Since those salaries were
set in the fall of 1994, there were no changes for 1995. For 1996 the new salary
for the President/CEO was determined by the Committee, considering the
performance of the Company in 1995. This determination and recommendation to the
Board was made out of the presence of the CEO. The Committee also reviewed the
salaries recommended by the CEO for the executive officers reporting to him and
recommended these for approval to the Board. All these salaries were evaluated
for competitiveness to the previously mentioned industry survey.
INCENTIVE BONUS AWARDS
Bonus awards for 1995 were granted on the basis of financial goals and new
product acquisition objectives established in early 1995. For the CEO, the
Committee considered the potential impact of the goals achieved, and recommended
to the Board that the maximum 40% bonus be granted. The CEO was not present at
these meetings. For the other officers, bonus awards were reviewed by the
Committee as recommended by the CEO
7
<PAGE> 9
for approval by the Board in January 1996. At this time also the Board, with the
Committee's recommendations, set the 1996 Incentive Bonus Criteria, giving
priority to corporate development and certain key financial goals.
STOCK OPTION PLAN GRANTS
The Board has determined that all employees should have an interest in the
Company and its stock. Therefore, options are granted to every employee at the
time of hire. The number of options granted to new employees varies directly
with responsibilities and salary level. Awards are normally made annually at
fair market value at the time of grant.
In September 1995, the Board recommended to the Committee that a pool of
shares be set aside each year, and as a guideline this pool will be equal to a
maximum of 1% of the outstanding stock of the Corporation. This pool is to be
used as an allotment for existing employees, with option grants to new employees
and others exempt from this established annual pool. However, the Committee may
use another percentage from time to time, as may be confirmed by the Board.
In September also, the Committee granted options to employees using the new
guidelines and determined that the next regular grant of stock options to
existing employees take place in January 1997.
REPRICING OF EXISTING OPTIONS
In January 1995, and as part of the redirection of the Company's resources
and the installation of new management, additional options were granted to the
field force and key executives and existing options to employees were replaced
with new options priced to current market levels. To provide strong motivating
incentives to the employees concerned, the Committee, on recommendation of
management, determined on March 15, 1995, that it is in the best interest of the
Company to accelerate the vesting of the replacement stock options granted in
January to these employees, so that the options granted in replacement would
vest on the same dates as the options they had replaced.
The following table sets forth information with respect to stock options
granted to the Named Executive Officers where the exercise price has been
adjusted (repriced) during the fiscal year ended December 31, 1995 and with
respect to all repricings of options held by any current executive officers
during the last ten completed fiscal years:
<TABLE>
<CAPTION>
MARKET PRICE LENGTH OF
NUMBER OF SECURITIES OF STOCK AT EXERCISE PRICE ORIGINAL OPTION
UNDERLYING OPTIONS TIME OF AT TIME OF NEW EXERCISE TERM REMAINING AT
NAME DATE REPRICED(#) REPRICING($) REPRICING($) PRICE($) DATE OF REPRICING
- ------------------- -------- -------------------- ------------ -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Stephen M. Simes... 1/19/95 300,000 2.75 3.38 2.75 9.75 Years
David E. Riggs..... 1/19/95 80,000 2.75 3.38 2.75 9.75 Years
David E. Riggs..... 10/11/94 20,000 3.38 7.75 3.38 7.83 Years
10/11/94 30,000 3.38 8.00 3.38 7.58 Years
</TABLE>
The Committee was pleased to welcome Mr. Fred Holubow as a new member in
1995.
Respectfully submitted,
Salary and Compensation Committee
Fred Holubow
James J. Lempenau
Roland Weiser (Chairman)
8
<PAGE> 10
PERFORMANCE GRAPH
The following performance graph is a line graph comparing the yearly
percentage change in the Company's cumulative total shareholder return on the
Company's Common Stock against the cumulative return of the NASDAQ (U.S.) Stock
Market Index and the NASDAQ Pharmaceutical Stock Index for the five fiscal years
ended December 31, 1995.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG
UNIMED PHARMACEUTICALS, INC., NASDAQ (US) STOCK MARKET INDEX
AND NASDAQ PHARMACEUTICALS STOCK INDEX
LOGO
ASSUMES $100 INVESTED ON DECEMBER 31, 1990 IN UNIMED
PHARMACEUTICALS COMMON
STOCK, NASDAQ (US) STOCK MARKET INDEX AND NASDAQ PHARMACEUTICAL
INDEX
*TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS
9
<PAGE> 11
OWNERSHIP OF SHARES
No person is known to the Company to be the beneficial owner of more than
5% of the Company's Common Stock except as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT OF
TITLE OF CLASS BENEFICIAL HOLDER OF BENEFICIAL OWNERSHIP CLASS
- -------------- ------------------------------- ----------------------- ----------
<S> <C> <C> <C>
Common Stock John N. Kapoor, Ph.D. 2,332,429(1)(2) 25.7%
EJ Financial Enterprises, Inc.
225 E. Deerpath, Suite 250
Lake Forest, IL 60045
</TABLE>
- ---------------
(1) Includes 1,667,429 shares of Common Stock beneficially owned by the John N.
Kapoor Trust, an affiliate of Dr. Kapoor. Includes 505,000 shares of Common
Stock held by a limited partnership created for the benefit of Dr. Kapoor's
family, of which he is the general partner, and 160,000 subject to options
which are exercisable or become exercisable within 60 days of March 8, 1996.
Set forth below is information concerning the number of shares of the
Company Common Stock owned beneficially by all Company directors and executive
officers (8 individuals) as a group as of March 8, 1996, and by the Named
Executive Officers who own shares of Common Stock, except with respect to Dr.
John N. Kapoor, whose individual share ownership is reported both in the table
immediately above and in the information on directors under the heading
"Election of Directors":
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP CLASS
------------------------------------------------------- ----------------------- ----------
<S> <C> <C>
All Directors and Executive Officers as group
(8 individuals)...................................... 2,683,235(1) 29.5%
Stephen M. Simes....................................... 112,500(2) (3)
David E. Riggs......................................... 45,000(2) (3)
Robert E. Dudley....................................... 15,000(2) (3)
</TABLE>
- ---------------
(1) Includes shares beneficially owned by Dr. Kapoor (as shown both in the table
above and under the section entitled "Election of Directors"), and shares
beneficially owned by other directors as described under that section.
Includes an aggregate of 475,826 shares subject to exercisable options or
options which become exercisable within 60 days of March 8, 1996.
(2) Includes nonqualified stock options exercisable and to become exercisable
within 60 days of March 8, 1996 for 112,500 shares for Mr. Simes, 45,000
shares for Mr. Riggs, and 15,000 shares for Dr. Dudley.
(3) Less than 1%.
PROPOSAL NO. 2
APPROVAL OF AMENDMENTS TO 1991 STOCK OPTION PLAN
TO INCREASE SHARES COVERED THEREUNDER
BY 800,000 SHARES, AND TO MAKE
CERTAIN OTHER AMENDMENTS TO THE PLAN
The 1991 Stock Option Plan (the "Option Plan") permits the grant of options
to officers, directors and employees of the Company and to consultants who
render bona fide consulting services not related to raising capital. The Option
Plan was originally approved by the stockholders at the 1991 annual meeting. The
Option Plan was amended in 1992 to increase the shares reserved thereunder from
250,000 to 1,000,000, and to make other changes, and in 1994 to add consultants
to the list of persons eligible to receive option grants, and such amendments
were approved by the stockholders at the 1993 and 1994 annual meetings. At March
8, 1996, 18,625 shares had been issued upon exercise of options granted under
the Option Plan, options covering 981,204 shares were outstanding and only 171
shares remained available for grant under the Option Plan.
10
<PAGE> 12
The Option Plan was amended by the Board of Directors in March 1996,
subject to approval of the stockholders. The amendments increase to 1,800,000
the number of shares of Common Stock reserved for issuance under the Option
Plan, an increase of 800,000 shares of Common Stock, permit the Board of
Directors to specify, at the time of grant, varying vesting schedules for
options granted to persons other than outside directors, and specify that the
fair market value for purposes of the Plan will be determined at the closing
price of the stock on such date with respect to securities traded on NASDAQ (of
which the Company is one). Assuming the amendments are approved, the 800,000
shares of Common Stock underlying the options issuable under the Option Plan
would have had a market value of $5,700,000 on March 8, 1996, based upon the
closing price of the Common Stock as reported on the NASDAQ national market
system on that date. The Option Plan and the reasons for the proposed amendments
are discussed below.
The Board of Directors believes that to continue to implement the Company's
business strategy, it will be necessary to attract additional employees as the
Company grows, and to continue significant incentives to the core group of
employees who are now with the Company, and that stock options are an essential
element to attracting and keeping those key employees. Furthermore, stock
options enable employees to share in the success of the Company and, as an
alternative to additional cash compensation, conserve the Company's working
capital. Since there are only 171 shares available, the Board of Directors has
increased the shares reserved by 800,000 shares.
The Option Plan is administered by a committee of "disinterested directors"
within the meaning of Rule 16b-3(c)(2)(i) under the Securities Exchange Act of
1934, as amended. If any options expire or terminate for any reason without
having been exercised in full, the unpurchased shares subject thereto shall
again be available for the purposes of the Option Plan.
The exercise price of an option is determined by the committee on the date
the option is granted. The exercise price of an Incentive Option may not be less
than 100% of the fair market value per share of the Common Stock on the date of
the grant. In the case of a participant who owns more than 10% of the total
combined voting power of the Common Stock at the time an Incentive Option is
granted, the option price will not be less than 110% of the fair market value of
a share of Common Stock on the date of grant. The exercise price of a
Non-Qualified Option may not be less than 85% of the fair market value per share
on the date of grant. In the case of a participant who is an Outside Director,
the initial per share option price will be 100% of the fair market value per
share on the date of grant. With respect to Incentive Options, in general the
aggregate fair market value of shares with respect to which the Incentive
Options will become exercisable for the first time during any calendar year by
any optionee cannot exceed $100,000; however, to the extent this limit is
exceeded, an Incentive Option will be treated as a Non-Qualified Option.
The exercise price of an option is payable in full in cash or, to the
extent of 50% of the exercise price, Common Stock of the Company. The Company
has the right to delay issuance of shares upon exercise of a Non-Qualified
Option of an employee until the optionee makes appropriate arrangements with the
Company to satisfy all applicable tax withholding obligations.
A participant may exercise 25% of the shares of Common Stock subject to an
option on the anniversary date of the grant and an additional 25% on each
successive anniversary date until the option is fully exercisable. Options will
be granted for such term as the committee shall determine, not in excess of ten
years. In the case of a participant who owns more than 10% of the total combined
voting power of the Common Stock at the time an Incentive Option is granted, the
term will not exceed five years. The term of each option granted to an Outside
Director will be up to ten years. The Option Plan provides that, in the event of
termination of employment for reasons other than death or discharge for cause,
Incentive Options and Non-Qualified Options granted under the Option Plan will
terminate three months following such termination of employment. In such case,
options granted under the Option Plan are only exercisable to the extent that
they were exercisable on such termination date. If termination of employment
occurs because of death, all options will be immediately exercisable in full
upon the death of a participant, Incentive Options will terminate one year
following such termination of employment and Non-Qualified Options will remain
exercisable for the term of the original grant. Options granted under the Option
Plan are non-transferable, and except in the case of death, may be exercised
only by the optionee. In the case of death, options may be exercised by the
person
11
<PAGE> 13
or persons to whom the option holder's rights in the options have passed by will
or by laws of descent and distribution.
The Option Plan now permits the committee administering the Option Plan to
accelerate the exercisability of options and extend the period during which
options are exercisable, except in the case of options granted to Outside
Directors. However, the Option Plan does not provide that the committee may
determine varying exercisability provisions at the time of grant. Consequently,
although the committee has the authority under the Option Plan to change any
vesting schedules, it cannot do so until after an option is granted. The Board
believes that the committee should have the same authority at the time an option
is granted as it has immediately after the option is granted, and has amended
the Option Plan to so provide.
The Option Plan terminates on October 31, 2001 or at such earlier time as
the Board may determine. Any option outstanding under the Option Plan at the
time of the termination of the Option Plan shall remain in effect until such
option shall have been exercised or shall have expired in accordance with its
terms.
The Option Plan provides that in the event of any change in the number or
kind of outstanding shares of the Company's Common Stock by reason of
reorganization, merger, recapitalization, reclassification, stock dividend,
stock split, exchange or combination of shares, or other similar transactions,
in which the Company is the survivor, appropriate adjustment will be made in the
number and kind of shares to which outstanding options relate and in the
exercise price per share. In the event of the execution of a definitive
agreement for the sale by the Company of all or substantially all of its assets
to any person, the consolidation of the Company with any person, or the merger
of the Company with any person as a result of which the Company is not the
surviving entity as a publicly held corporation, each option shall become
immediately exercisable in full.
In addition, each option will become immediately exercisable in full if:
(a) one or more individuals is elected to the Board which election results in a
majority of the directors of the Company consisting of individuals who have not
been directors of the Company for at least two years, unless such individuals
have been nominated as directors by three-fourths of the directors of the
Company who have been directors of the Company for at least two years; (b) the
Company and/or any one or more of its stockholders sells or transfers, in one or
more transactions, related or unrelated, to one or more persons under
circumstances whereby any person and its affiliates own, after such sales and
transfers, at least 20%, but less than 40%, of the shares of the Company having
voting power for the election of directors, unless such sale or transfer has
been approved in advance by three-fourths of the directors of the Company who
have been directors of the Company for at least two years; (c) the Company
and/or any one or more of its stockholders sells or transfers, in one or more
transactions, related or unrelated, to one or more persons under circumstances
whereby any person and its affiliates own, after such sales and transfers, at
least 40% of the shares of the Company having voting power for the election of
directors; or (d) a person commences a "tender offer" (as defined in Section
14(d)(1) of the Securities Exchange Act of 1934, as amended), other than a self
tender by the Company, for a portion of the shares of the Company having voting
power for the election of directors, which, taken together with shares owned by
such acquirer, and giving effect to all rights to acquire shares, will represent
ownership of at least 20% of the shares of the Company having voting power for
the election of directors, unless such "tender offer" has been approved in
advance by three-fourths of the directors of the Company who have been directors
of the Company for at least two years.
The Company has an effective registration statement under the Securities
Act of 1933, as amended, covering the 1,000,000 shares to be issued pursuant to
options issuable under the Option Plan, and expects to file a new registration
statement covering the additional 800,000 shares, if this Proposal No. 2 is
approved by the stockholders.
The following table sets forth the number of options which are required to
be granted in the future under the Option Plan. This table assumes automatic
grants through 2001 to each of the three non-executive directors who will
continue in office after the 1996 annual meeting, and a grant of 15,000 options
to Robert D.
12
<PAGE> 14
Hunter in connection with his consulting agreement. All other grants are
discretionary and are not determinable at this time.
<TABLE>
<CAPTION>
NAME AND POSITION NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Non-executive Directors as a group (4 members)....................... 150,000
</TABLE>
The Board may not without further approval of the holders of a majority of
the shares of the Common Stock present in person or by proxy at any special or
annual meeting of the stockholders increase the number of share as to which
options may be granted or change the manner in which the initial option prices
are determined.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Options. The Company believes that with respect to Incentive
Options granted under the Option Plan, no income will be recognized by an
optionee for federal income tax purposes at the time such an option is granted
or at the time it is exercised. However, the amount by which the fair market
value of the shares at the time of exercise exceeds the exercise price will be
an adjustment for purposes of calculating the optionee's alternative minimum
taxable income; accordingly, optionees will be required to include such excess
as alternative minimum taxable income in the taxable year of exercise.
If the optionee makes no disposition of Incentive Option shares within two
years from the date the Incentive Option was granted and one year from the
receipt of the option shares pursuant to the exercise of the Incentive Option
(the "applicable holding period"), any gain recognized upon disposition of the
shares will be long-term capital gain.
If the optionee disposes of shares acquired by exercise of an Incentive
Option before the expiration of the applicable holding period, the optionee will
recognize ordinary income in an amount equal to the difference between the fair
market value of the shares on the date of exercise less the purchase price paid
for the shares or, if less, the difference between the amount received on
disposition of the shares and the adjusted basis of the shares. Any additional
gain on such disposition will be long-term or short-term capital gain, depending
on the holding period of the shares.
If the optionee holds Incentive Option shares for the applicable holding
period, the Company will not be allowed a deduction for federal income tax
purposes with respect to an Incentive Option. However, if the optionee does not
hold his shares for the applicable holding period, the Company will be entitled
to a deduction for the amount received by the optionee to the extent that such
amount is taxable to the optionee as ordinary income.
If an optionee makes payment of the option price by delivering shares of
the Common Stock, he generally will not recognize any gain as a result of such
delivery, but the amount of gain, if any, which is not so recognized will be
excluded from his basis in the new shares received. However, the use by an
optionee of shares previously acquired pursuant to the exercise of an Incentive
Option to exercise an Incentive Option will be treated as a taxable disposition
of the transferred shares were not held by the optionee for the applicable
holding period.
Non-Qualified Options. The grant of a Non-Qualified Option is not subject
to federal income tax. Upon exercise, the optionee will recognize as ordinary
income, and the Company is entitled to a corresponding deduction for federal
income tax purposes, in an amount equal to the difference between the fair
market value of the shares on the date of exercise and the exercise price. As to
options held by employees, this ordinary income will constitute wages subject to
the withholding of income tax and the Company will make arrangements to ensure
that the amount of the tax required is withheld.
When an optionee disposes of shares received on exercise of a Non-Qualified
Option, the optionee will recognize capital gain or loss (long-term or
short-term, depending on the period the optionee holds the shares) in an amount
equal to the difference between the selling price and the optionee's tax basis
in the shares (generally, the amount of ordinary income the optionee previously
recognized with respect to the shares plus the exercise price the optionee paid
for the shares).
13
<PAGE> 15
If any optionee makes payment of the option price by delivering shares of
Common Stock, he generally will not recognize any gain as a result of such
delivery, but the amount of gain, if any, which is not so recognized will be
excluded from his basis in the new shares received.
The foregoing general discussion of the federal income tax consequences of
the granting and exercise of options under the Option Plan, and the sale of
Common Stock acquired, is based on an analysis of the Code, as currently in
effect, existing laws, judicial decisions and administrative rulings and
regulations, all of which are subject to change. In addition to being subject to
the federal income tax consequences described above, an optionee may also be
subject to state and/or local income tax consequences in the jurisdiction in
which he or she works and/or resides.
APPROVAL OF THE AMENDMENTS TO THE OPTION PLAN
Each holder of outstanding shares of Common Stock of the Company of record
at the close of business on March 8, 1996, is entitled to one vote per share
held with respect to the adoption of the amendments to the Option Plan. The
affirmative votes of a majority of the votes cast by the holders of shares of
Common Stock of the Company entitled to vote thereon are necessary for adoption
of the amendments to the Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE
AMENDMENTS TO THE 1991 STOCK OPTION PLAN.
PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
The Board of Directors has declared advisable an amendment to the Company's
Certificate of Incorporation, as amended (the "Certificate") to increase the
aggregate number of authorized shares of Common Stock from 12,000,000 to
30,000,000 (the "Amendment") and has directed that the Amendment be submitted to
the Stockholders at the annual meeting. The Certificate presently authorizes the
issuance of 12,000,000 shares of Common Stock. The Amendment would increase the
authorized number of shares of Common Stock to 30,000,000.
If the Amendment is approved, the text of the first paragraph of Article
Fourth of the Certificate would read in its entirety as follows:
FOURTH: The total number of shares of stock which the corporation shall
have the authority to issue is thirty million (30,000,000) shares of Common
Stock, of the par value of $.25 per share.
Of the Company's 12,000,000 authorized shares of Common Stock, 8,570,886
were issued and outstanding as of the record date and 11,072,013 were reserved
for issuance (including the 800,000 shares reserved for the amendment to the
Option Plan), leaving only a limited number of authorized but unissued shares
available for issuance. The Board of Directors is concerned that there is not
presently authorized a sufficient number of shares of Common Stock to give the
Company the flexibility it needs in today's competitive, fast changing
environment. The Board considers it desirable that the Company have a reasonable
amount of Common Stock available for issuance for possible stock offerings,
stock dividends, stock splits, employee benefit plans, corporate mergers,
acquisitions of property and other corporate purposes, although there are no
present agreements, understandings or plans for the issuance of any of the
additional shares that would be authorized by the Amendment. Having the
additional shares available for issuance, without the expense and delay of
obtaining the approval of stockholders at a special meeting, will afford the
Company greater flexibility.
Adoption of the Amendment would enable the Board from time to time to issue
additional shares of Common Stock for such purposes and such consideration as
the Board may approve, without further approval of the Company's stockholders
except as may be required by law or the rules of any national securities
exchange on which the shares of Common Stock are at the time listed. As is true
for shares presently authorized, Common Stock authorized by the Amendment could
be issued in connection with defending the
14
<PAGE> 16
Company against a hostile takeover bid, and the issuance of shares authorized by
the Amendment may, among other things, have a dilutive effect on earnings per
share and on the equity and voting power of existing holders of Common Stock.
There are no preemptive rights with respect to Common Stock. The additional
authorized shares of Common Stock would have the identical powers, preferences
and rights as the shares now authorized. Under Delaware law, stockholders will
not have any dissenters' or appraisal rights in connection with the Amendment.
If the Amendment is approved by the stockholders, it will become effective upon
executing, acknowledging, filing and recording a Certificate of Amendment
required by the General Corporation Law of Delaware.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION.
CERTAIN TRANSACTIONS
EJ Financial has a consulting agreement with the Company. See "EXECUTIVE
COMPENSATION".
In February 1996, the Trust exercised warrants to purchase 800,000 shares
of the Company's Common Stock at an exercise price of $2.125 for an aggregate
purchase price of $1,700,000. These warrants were issued in March 1991, and were
to expire on March 31, 1996. The Company paid the Trust $22,714 in connection
with the early exercise of the warrants, which amount was determined by
multiplying the exercise price of the warrants by an annual interest rate of 1%
over the prime rate for the number of days of the early exercise.
Mr. Fred Holubow and Mr. Roland Weiser each purchased shares of the
Company's Common Stock (10,000 shares and 2,000 shares, respectively) in the
Company's private placement of 1,400,000 shares completed on February 29, 1996.
The price of the shares in the private placement was $6.00 per share. The
closing price on February 29, 1996, for the Common Stock, as reported by NASDAQ,
was $7.125. The shares are restricted, but the Company has agreed to register
all of the shares sold in the private placement for resale, including the shares
purchased by the directors.
Dr. Robert E. Dudley, Vice President, Clinical and Regulatory Affairs, was
required to file a Form 3 report with the Securities and Exchange Commission
within ten days of his appointment to that position. Dr. Dudley began in his
position on December 12, 1994. That report was not filed as required nor was it
reported in a Form 5 report for 1994. Outside directors are automatically
granted options for 7,500 shares under the Corporation's stock option plan at
the conclusion of each annual meeting. Mr. Holubow was appointed as a director
in January 1995, and effective on such appointment, he was granted options for
10,000 shares under the nonqualified stock option plan. Neither the appointment
nor the grant was reported as required. The options so granted to Messrs.
Holubow, Weiser, Lempenau and Hunter at the 1995 annual meeting were not
reported as required. All filings not made, described in this paragraph, have
now been made.
RELATIONSHIP WITH INDEPENDENT AUDITORS
The firm of Coopers & Lybrand was the Company's independent public
accountant for the 1995 fiscal year. A representative from the Company's
independent public accountants customarily attends the Annual Meeting and has
the opportunity to make a statement if he so desires. This representative also
is available to respond to appropriate questions. The Company has not yet
selected its independent public accountant for the 1996 fiscal year.
MISCELLANEOUS
As of the date of this Proxy Statement, management does not know of any
other matters that will come before the Annual Meeting. In the event that any
other matter properly comes before the Annual Meeting, the persons named in the
enclosed form of proxy intend to vote all proxies in accordance with their best
judgment on such matters.
15
<PAGE> 17
It is the intention of the persons named in the enclosed form of proxy,
unless otherwise directed by stockholders executing proxies, to vote all proxies
received by them in time FOR the election of Stephen M. Simes into the class of
directors whose term will expire in 1999, FOR APPROVAL OF the amendments to the
Company's stock option plan, described in PROPOSAL NO. 2 and FOR APPROVAL OF the
amendment to the Company's Amended Certificate of Incorporation, described in
PROPOSAL NO. 3.
All shares represented by proxies to be voted at the Annual Meeting will be
voted if received in time.
A COPY OF THE COMPANY'S FORM 10-K ANNUAL REPORT FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1995 IS AVAILABLE WITHOUT CHARGE FROM THE CORPORATE SECRETARY,
UNIMED PHARMACEUTICALS, INC., 2150 EAST LAKE COOK ROAD, BUFFALO GROVE, ILLINOIS
60089, TELEPHONE: (847) 541-2525.
1997 ANNUAL MEETING
Proposals of stockholders intended to be represented at the next Annual
Meeting of Stockholders to be held in 1997 must be received by the Company on or
before December 5, 1996 for inclusion in the Company's Proxy Statement and form
of proxy relating to that Annual Meeting.
UNIMED PHARMACEUTICALS, INC.
DAVID E. RIGGS
Secretary
Dated: April 10, 1996
PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD NOW
16
<PAGE> 1
EXHIBIT 4-I
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
STOCK PURCHASE AGREEMENT
Dated as of May 9, 1996
between
Unimed Pharmaceuticals, Inc.
and
BioChem Pharma (International) Inc.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. DEFINITIONS 1
Affiliate 1
Closing 1
Collaboration Agreement 1
First Closing 1
Governmental Body 2
Material Adverse Effect 2
Notice of Compliance 2
Person 2
Registration Rights Agreement 2
SEC 2
Second Closing 2
Securities Act 2
Shares 2
Subsidiary 2
2. SALE OF SHARES 3
2.1 Sale of Shares 3
2.2 Closings 3
3. CONDITIONS TO AND DELIVERIES AT CLOSINGS 3
3.1 Deliveries 3
(a)Company Deliveries at First Closing 3
(b)Company Deliveries at Second Closing 4
(d)Investor Deliveries at Second Closing 4
3.2 Conditions to Investor's Obligations at Closings 4
(a)Delivery 5
(b)First Closing as a Condition to Second Closing 5
(c)Representations and Warranties True 5
(d)Consents Obtained 5
(e)No Material Adverse Change 5
(f)Absence of Litigation, Etc 5
(g)Compliance with Collaboration Agreement 5
3.3 Effect of Breach of Warranty or Failure of Condition 5
3.4 Conditions to Company's Obligations at Closings 6
(a)Delivery 6
(b)First Closing as a Condition to Second Closing 6
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C>
(c)Representations and Warranties True 6
(d)Consents Obtained 6
(e)Absence of Litigation, Etc 6
(f)Compliance with Collaboration Agreement 6
4. REPRESENTATIONS AND WARRANTIES 6
4.1 Representations and Warranties of the Company at Each Closing 6
(a)Existence and Power 7
(b)Subsidiaries 7
(c)Authority, Execution, Delivery and Enforceability 7
(d)Capital Stock 7
(e)Valid Issuance of Shares 7
(f)No Conflicts 8
(g)No Consents Required 8
(h)Compliance with Laws 8
(i)SEC Reports 8
(j)No Material Adverse Change 9
(k)Litigation and Adverse Facts 9
(l)Exemption From Federal and State Securities Laws 9
(m)Absence of Default on Material Contracts 9
(n)Broker's Fees 10
(o)Registration Rights 10
(p)Collaboration Agreement 10
4.2 Representations and Warranties of The Investor 10
(a)Power, Authority and Authorization 10
(b)Purchase Entirely for Own Account 10
(c)Disclosure of Information 10
(d)Investment Experience 11
(e)Accredited Investor 11
(f)Restricted Securities 11
(g)Further Limitations on Disposition 11
(h)Legends 12
(i)Broker's Fees 12
5. COVENANTS 12
5.1 Maintain Exchange Act Registration and Listing 12
5.2 Perfect Securities Act and Blue Sky Exemptions 12
5.3 Limitation on Other Registration Rights 13
6. MISCELLANEOUS 13
6.1 Assignments 13
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
<S> <C>
6.2 Notices 13
6.3 Execution in Counterparts 14
6.4 Headings 14
6.5 Exhibit and Schedule References 14
6.6 Publicity 14
6.7 Binding Effect; Governing Law 15
6.8 No Third Party Beneficiaries 15
6.9 Severability 15
6.10Submission to Jurisdiction 15
</TABLE>
EXHIBITS
Exhibit A - Registration Rights Agreement
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
as of this 9th day of May 1996, between UNIMED PHARMACEUTICALS, INC., a
Delaware corporation (the "Company") and BIOCHEM PHARMA (INTERNATIONAL) INC., a
corporation organized under the laws of Canada (the "Investor")
R E C I T A L S:
WHEREAS, the Company and the Investor intend to enter into an agreement
under which the Company will sublicense certain products to the Investor, and
the Investor will undertake certain obligations seeking to obtain registration
of such products in Canada; and
WHEREAS, Investor desires to acquire an equity interest in the Company;
and
WHEREAS, the Company is willing to sell shares of its common stock to the
Investor, subject to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, and other good and valuable consideration the receipt
and sufficiency of which is hereby acknowledged, Investor and the Company
hereby agree as follows:
ARTICLE 1.
DEFINITIONS
In addition to the terms defined elsewhere in this Agreement, the
following terms shall have the meanings indicated for purposes of this
Agreement:
Affiliate shall mean any Person which is directly or indirectly controlled
by, controlling, controlled by, or under common control with, that Person.
Closing means the First (closing or the Second Closing, as the case may
be.
Collaboration Agreement means that certain Collaboration Agreement dated
the date hereof, between the Company and the Investor.
First Closing is defined in Section 2.2.
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Governmental Body means any federal, state, local, foreign or other
governmental administrative body, instrumentality, department agency, court,
tribunal, administrative hearing body, arbitration panel, commission or other
similar dispute-resolving panel or body.
Material Adverse Effect means, with respect to the Company or any of its
Subsidiaries, any material adverse change (after giving effect to the
transactions contemplated hereby) in the business, operations, prospects,
condition (financial or otherwise), properties or assets of the Company and its
Subsidiaries, taken as a whole, when any such material adverse change is taken
individually or in the aggregate with all other instances in which the
definition of "Material Adverse Effect" is applicable.
Notice of Compliance means a Notice of Compliance issued by the Canadian
Health Protection Branch to Investor or one of its Affiliates with respect to
any of the products of the Company sublicensed to the Investor under the
Collaboration Agreement.
Person means an individual, partnership, corporation (including business
trust), joint stock company, trust, unincorporated association, financial
institution, joint venture or other entity, or a government or any politic&l
subdivision or agency thereof
Registration Rights Agreement shall mean that certain Registration Rights
Agreement between the Investor and the Company, in substantially the form of
Exhibit A attacher hereto.
SEC means the Securities and Exchange Commission.
Second Closing is Refined in Section 2.2.
Securities Act means the Securities Act of 1933, as amended.
Shares mean the shares of common stock, par value $0.25 par share, of the
Company,
Subsidiary of any Person means any corporation, partnership, limited
liability company or other loyal entity of which more than 50% of the
outstanding capital stools or other securities having ordinary voting power to
elect a majority of the Board of Directors (or other similar governing body) of
such entity (irrespective of whether at the time securities of any other class
or classes of such entity shall or might have voting power upon tho occurrence
of any contingency) is at the time directly or indirectly owned by such Person,
by such Person and one or more of such Person other Subsidiaries or by one or
more of such Person's other Subsidiaries.
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ARTICLE 2.
SALE OF SHARES
2.1 SALE OF SHARES. Subject to the terms and conditions of this Agreement,
the Investor agrees to purchase from the Company, and the Company agrees to
sell to the Investor, that number of Shares which can be purchased with the sum
of four hundred eighty-nine thousand dollars ($489,000) at the First Closing
and that number of Shares of the Company which can be purchased with the sum of
[XXXXXXXXXXXXX] at the Second Closing. The per Share price at the First Closing
shall be equal to one hundred fifteen percent (115%) of the greater of (a.) the
average closing sale prices for the Shares for the ten (10) trading days
preceding the date of execution of this Agreement or (b.) the closing sale
price on the last trading day immediately prior to the date of execution of
this Agreement. The per Share price at the Second Closing shall be equal to
[XXXXXXXXXXX].
2.2 CLOSINGS. The "First Closing" shall be the time at which the Investor
makes its first purchase of Shares hereunder, which shall occur five (5) days
after execution of this Agreement, or on such other date as the Investor and
the Company may jointly determine. The "Second Closing" shall be the time at
which the Investor purchases the balance of the Shares to be purchased by it
hereunder, which shall occur on the day on which is five (5) days after the
issuance of a Notice of Compliance, or if such day is not a business day, on
the next business day. Each Closing shall take place at the offices of the
Company, 2150 East Lake Cook Road, Buffalo Grove, IL at 10:00 am local time on
each Closing, or at such other time and place as the Company and Investor
mutually agree upon orally or in writing.
ARTICLE 3.
CONDITIONS TO AND DELIVERIES AT CLOSINGS
3.1 DELIVERIES. The parties shall make the following deliveries:
(a) COMPANY DELIVERIES AT FIRST CLOSING. At the First Closing, the
Company shall deliver to the investor the following:
(i) Certificates representing the Shares to be issued at the
First Closing, issued in the name of the Investor;
(ii) Fully executed counterparts of the Registration Rights
Agreement;
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(iii) Fully executed counterparts of the Collaboration
Agreement;
(iv) A certificate of the Company, signed by the Secretary on
behalf of the Company, as to resolutions of the Company, adopting
and approving this Agreement and the exhibits hereto, and the
transactions contemplated hereby and thereby; and
(v) A certificate signed by the Chief Executive Officer and
Chief Financial Officer of the Company, with respect to the matters
set forth in Section 3.2.c.
(b) COMPANY DELIVERIES AT SECOND CLOSING. At the Second Closing, the
Company shall deliver to the Investor the following:
(i) Certificates representing the Shares to be issued at the
Second Closing in the name of the Investor; and
(ii) A certificate signed by the Chief Executive Officer and
Chief Financial Officer of the Company, with respect to the matters
set forth in Section 3.2.c.
(c) INVESTOR DELIVERIES AT FIRST CLOSING. At the First Closing, the
Investor shall deliver to the Company the following:
(i) Fully executed counterparts of the Registration Rights
Agreement;
(ii) Fully executed counterparts of the Collaboration
Agreement;
(iii) The purchase price for the Shares to be purchased at the
First Closing, in immediately available funds in U.S. Dollars, in
Chicago, Illinois, at a financial institution to be designated by
the Company, or by such other method of payment as agreed to by the
parties.
(d) INVESTOR DELIVERIES AT SECOND CLOSING. At the Second Closing,
the Investor shall deliver to the Company the purchase price for the
Shares to be purchased at the Second Closing, in immediately available
funds in U.S. Dollars, in Chicago, Illinois, at a financial institution
to be designated by the Company, or by such other method of payment as
agreed to by the parties.
3.2 CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSINGS. The obligation of the
Investor to consummate the transactions contemplated by each Closing is subject
to the satisfaction of each of the following conditions precedent:
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(a) DELIVERY. The Investor shall have received the items required to
be delivered by the Company at such Closing.
(b) FIRST CLOSING AS A CONDITION TO SECOND CLOSING. With respect to
the Second Closing, the First Closing shall have occurred.
(c) REPRESENTATIONS AND WARRANTIES TRUE. (i) The representations and
warranties made by the Company herein and in the Registration Rights
Agreement shall be true and correct in all material respects on each
Closing and (ii) all covenants contained herein and in the Registration
Rights Agreement to be performed by the Company prior to each Closing
shall have been performed to the reasonable satisfaction of or waived by
the Investor.
(d) CONSENTS OBTAINED. All consents required to be obtained as a
condition to each Closing shall have been obtained.
(e) NO MATERIAL ADVERSE CHANGE. Since December 31, 1995, no event
shall have occurred which would have a Material Adverse Effect with
respect to the Company or its assets or business.
(f) ABSENCE OF LITIGATION, ETC. No action, suit, investigation,
proceeding or counterclaim of or before any Governmental Authority or
other Person is pending or threatened against the Company or the Investor
challenging this Agreement or the transactions contemplated hereby or
seeking any material damages in connection herewith or any judgment,
order or injunction that would restrain, prohibit or impose materially
adverse conditions on the stock purchase transactions contemplated
hereby.
(g) COMPLIANCE WITH COLLABORATION AGREEMENT. As a condition to the
Investor's obligations at the Second Closing, the Company shall be in
compliance with the Collaboration Agreement in all material respects and
the Collaboration Agreement shall not have been terminated.
3.3 EFFECT OF BREACH OF WARRANTY OR FAILURE OF CONDITION. In the event of
any breach of representation or warranty by the Company prior to a Closing, of
which the Investor has knowledge, or in the event of a failure to satisfy any
condition to Investor's obligation to such Closing, Investor shall have the
option of waiving such breach or failure of condition and closing the
transactions contemplated hereby, or terminating this Agreement. If Investor
chooses to terminate this Agreement, the Company shall not have any obligation
or liability hereunder (except with respect to the Shares, if any, purchased by
the Investor hereunder prior to such termination and any rights under the
Registration Rights Agreement with respect thereto.) If the Investor elects to
purchase the Shares at such Closing, notwithstanding such breach of warranty
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or failure of condition, then Investor shall not have any claim against
the Company for breach hereunder with respect to the matter so waived with
respect to such purchase.
3.4 CONDITIONS TO COMPANY'S OBLIGATIONS AT CLOSINGS. The obligation of the
Company to consummate the transactions contemplated by each Closing is subject
to the satisfaction of each of the following conditions precedent:
(a) DELIVERY. The Company shall have received the items required to
be delivered by the Investor at such Closing.
(b) FIRST CLOSING AS A CONDITION TO SECOND CLOSING. With respect to
the Second Closing, the First Closing shall have occurred.
(c) REPRESENTATIONS AND WARRANTIES TRUE. (i) The representations and
warranties made by the Investor herein and in the Registration Rights
Agreement shall be true and correct in all material respects on each
Closing and (ii) all covenants contained herein and in the Registration
Rights Agreement to be performed by the Investor prior to each Closing
shall have been performed to the reasonable satisfaction of, or waived
by, the Company.
(d) CONSENTS OBTAINED. All consents required to be obtained as a
condition to each Closing shall have been obtained.
(e) ABSENCE OF LITIGATION, ETC. No action. suit, investigation.
proceeding or counterclaim of or before any Governmental Authority or
other Person is pending or threatened against the Company or the Investor
challenging this Agreement or the transactions contemplated hereby or
seeking any material damages in connection herewith or any judgment,
order or injunction that would restrain, prohibit or impose materially
adverse conditions on the transactions contemplated hereby.
(f) COMPLIANCE WITH COLLABORATION AGREEMENT. As a condition to the
Company's obligations at the Second Closing, the Investor shall be in
compliance with the Collaboration Agreement in all material respects and
the Collaboration Agreement shall not have been terminated.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AT EACH CLOSING. The
Company represents and warrants to Investor that on the date hereof and at each
Closing:
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(a) EXISTENCE AND POWER. The Company (i) is a corporation duly
formed, validly existing and in good standing in the jurisdiction of its
formation, (ii) has all powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business
as now conducted and as proposed to be conducted, except where the
failure to do any of the above would not have a Material Adverse Effect
and (iii) is duly qualified and authorized to do business and in good
standing in all jurisdictions where the failure to do so would have a
Material Adverse Effect.
(b) SUBSIDIARIES. Except as set forth in Schedule 4.1.b, each
Subsidiary of the Company is a corporation duly organized, validly
existing, and in good standing under the laws of the state of its
respective incorporation; and each Subsidiary is duly qualified and in
good standing as a foreign corporation authorized to do business in each
jurisdiction where the failure to so qualify would have a Material
Adverse Effect.
(c) AUTHORITY, EXECUTION, DELIVERY AND ENFORCEABILITY. The Company
has the necessary corporate authority to execute, deliver and perform its
obligations under this Agreement and the Registration Rights Agreement
and to consummate the transactions contemplated thereby and hereby. The
Company has taken all necessary corporate action to authorize the
execution, delivery and performance of this Agreement and the
Registration Rights Agreement. This Agreement and the Registration Rights
Agreement constitute, the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their
respective terms.
(d) CAPITAL STOCK. At March 8, 1996, the capital stock of the
Company consisted of 12,000,000 shares of authorized common stock, par
value $0.25 per share, of which 8,570,886 shares were duly and validly
issued, fully paid and nonassessable. As of such date, the Company had
issued options, warrants and convertible securities covering an
additional 718,292 shares of common stock, and had reserved for issuance
to present and former officers, directors, employees and consultants a
total of 1,000,000 shares pursuant to stock option plans (which number of
reserved shares under stock option plans includes options issued and
which may be issued in the future under such plan.) Except with respect
to such options, warrants and convertible securities and antidilution
provisions in such options, warrants and convertible securities
(including options covering such shares so reserved), the Company had no
agreement or commitments to issue any additional shares of common stock
or any securities exercisable or exchangeable for any shares of common
stock.
(e) VALID ISSUANCE OF SHARES. The Shares to be issued at each
Closing, when issued, sold and delivered in accordance with the
provisions of this Agreement, will be duly and validly issued, fully paid
and nonassessable.
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(f) NO CONFLICTS. Except as set forth on Schedule 4.1.f, neither the
execution, delivery or performance by the Company of this Agreement and
the Registration Rights Agreement nor the compliance by the Company with
any of its obligations hereunder or thereunder, nor the consummation of
any of the transactions contemplated hereby or thereby will (i) conflict
with the Company's Certificate of Incorporation or By-laws or (ii)
conflict with or result in a breach of, or constitute a default under, or
result in the creation or imposition of, any Lien upon any of the
Company's or its Subsidiaries' property or assets under (A) any
indenture, mortgage, deed of trust or other instrument or agreement to
which the Company or its Subsidiaries may be or become bound or to which
any of the Company's property or assets may be or become subject or (B)
any applicable law, rule, regulation, judgment, writ, order or decree of
any Governmental Authority having jurisdiction over the Company's or its
Subsidiaries' properties or assets.
(g) NO CONSENTS REQUIRED. Except as set forth on Schedule 4.1.g, no
order, license, consent, authorization or approval of, or exception by,
or notice to or registration with, any Governmental Authority or any
other Person, and no filing, recording, publication or registration of
any kind, other than those which shall have been obtained or given at or
prior to such Closing, is necessary or advisable in connection with the
execution, delivery and performance by the Company of this Agreement or
the Registration Rights Agreement or for the legality, validity, binding
effect or enforceability thereof.
(h) COMPLIANCE WITH LAWS. Except as set forth in Schedule 4.1.h,
neither the Company nor any of its Subsidiaries is in violation of any
law, ordinance, rule, regulation, order, policy, guideline or other
requirement of any Governmental Authority, which violation would have a
Material Adverse Effect and no such violation has been alleged and the
Company and the Subsidiaries (i) have filed in a timely manner all
reports, documents and other materials required to be filed by it with
any Governmental Authority and the information contained in each of such
filings is true, correct and complete in all material respects, except
where failure to make such filings would not have a Material Adverse
Effect and (ii) have retained all records and documentary evidence
required to be retained by it pursuant to any law, ordinance, rule,
regulation, order, policy, guideline or other requirement of any
Governmental Authority, except where failure to retain such records would
not have a Material Adverse Effect.
(i) SEC REPORTS. The Company has furnished to Investor copies of its
Annual Report for the fiscal year ended December 31, 1995, its Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, two Form
10-C reports with regard to events in February, 1996, its definitive
proxy statement for the 1996 annual meeting of stockholders and a Form
S-3 registration statement covering the proposed sale by stockholders of
the Company of an aggregate of 1,590,000 shares of common stock of the
Company, each filed with the SEC (all of such documents being
collectively called
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the "SEC Documents") each as filed with the SEC. The SEC Documents
constitute all of the documents that the Company was required to file
with the SEC and those which it filed, between December 31, 1995, and the
date hereof. Each of the SEC Documents has been duly filed and when filed
was in compliance in all material respects with the requirements of the
Securities Exchange Act of 1934, to the extent applicable, the Securities
Act of 1933, as amended, and the applicable rules and regulations of the
SEC, except as set forth in Schedule 4.1.h. At the time each of the SEC
Documents did not contain any untrue statement of a material fact or omit
to state a 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. Except to the extent
information contained in any SEC Documents has been revised or superseded
by a later filed SEC Document, none of the SEC Documents currently
contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein, or necessary in order to
make the statements made therein. not misleading.
(j) NO MATERIAL ADVERSE CHANGE. Since December 31, 1995, there has
been no adverse change in the Company s financial condition, business,
operations or properties which would have a Material Adverse Effect,
except as disclosed in this Agreement or in a Schedule hereto.
(k) LITIGATION AND ADVERSE FACTS. Except as set forth on Schedule
4.1.k, there is no action, suit, proceeding, investigation or
administrative proceeding or arbitration by any Governmental Authority or
other Person (including, without limitation, derivative actions) pending
or known by the Company to be threatened with respect to the Company or
any of its Subsidiaries or assets of any of the foregoing or any of the
stock purchase transactions contemplated hereby as to which there is a
probable likelihood of a Material Adverse Effect.
(l) EXEMPTION FROM FEDERAL AND STATE SECURITIES LAWS. Based upon the
representations of the Investor, the offer, sale and issuance of the
Shares to be issued at the Closing are exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof, are
exempt from the qualification provisions of the state securities laws of
the State of Illinois (the "Blue Sky Laws") by virtue of sections 4C, 4G
and 4Q thereof, and assuming no change in the Securities Act or Blue Sky
Laws between the date hereof and the date of the Second Closing, the
issuance and sale of those Shares which may be issued at the Second
Closing shall also be exempt from the Securities Act and such Blue Sky
Laws under such sections.
(m) ABSENCE OF DEFAULT ON MATERIAL CONTRACTS. Neither the Company
nor its Subsidiaries is in material default under any contract or
contracts which in the aggregate would have a Material Adverse Effect
including, but not limited to, the Collaboration Agreement (with respect
to the Second Closing.)
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(n) BROKER'S FEES. No agent, broker, investment banker, Person, or
firm acting on behalf of the Company is or will be entitled to any
broker's or finder's fee or any other similar commission or similar fee,
directly or indirectly, from any of the parties hereto in connection with
any of the transactions contemplated herein.
(o) REGISTRATION RIGHTS. Except as set forth on Schedule 4.1.o, the
Company has not granted or agreed to grant any registration rights,
including piggyback rights, to any Person other than to Investor.
(p) COLLABORATION AGREEMENT. With respect to the Second Closing, the
Company has met its obligations and is not in default in any material
respect under the Collaboration Agreement.
4.2 REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor represents
and warrants to the Company that on the date hereof and at each Closing:
(a) POWER, AUTHORITY AND AUTHORIZATION. The Investor has the
necessary corporate authority to execute, deliver and perform its
obligations under this Agreement and the Registration Rights Agreement
and to consummate the transactions contemplated hereby and thereby. The
Investor has taken all necessary corporate action to authorize the
execution, delivery and performance of this Agreement and the
Registration Rights Agreement. This Agreement and the Registration Rights
Agreement constitute the legal, valid and binding obligations of the
Investor, enforceable against the Investor in accordance with their
respective terms.
(b) PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
Investor in reliance upon the Investor's representation to the Company,
which by the Investor's execution of this Agreement the Investor hereby
confirms, that the Shares will be acquired for investment for the
Investor's own account, not as a nominee or agent. and not with a present
view to the resale or distribution of any part thereof, and that the
Investor has no present intention of selling, granting any participation
in, or otherwise distributing the same. By executing this Agreement,
Investor further represents that Investor does not have any contract,
undertaking, agreement or arrangement with any Person to sell, transfer
or grant participations to such Person or to any third Person, with
respect to any of the Shares; provided, however that Investor may
transfer the Shares, or any part thereof, subject to the provisions of
this Agreement, to any wholly-owned subsidiary, and such transfer shall
not be deemed to be a distribution by Investor, or a violation of its
representations set forth herein.
(c) DISCLOSURE OF INFORMATION. Investor believes it received all the
information it considers necessary or appropriate for deciding whether to
acquire the Shares. Investor further represents that it has had an
opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the acquisition
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by it of the Shares. Investor represents to the Company that Investor has
made its own independent investigation and analysis of the Company, and
that in making its decision to purchase the Shares, it has relied in part
on that analysis and not solely on the SEC Documents.
(d) INVESTMENT EXPERIENCE. Investor can bear the economic risk of
its investment in the Company and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits
and risks of the investment in the Shares. Investor also represents it
has not been organized for the purpose of acquiring the Shares.
(e) ACCREDITED INVESTOR. Investor is an "accredited investor" within
the meaning of SEC Rule 501 of Regulation D, as presently in effect.
(f) RESTRICTED SECURITIES. Investor understands that the Shares are
characterized as "restricted securities" under the 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 Securities Act only in certain limited circumstances. In this
connection, Investor represents that it is familiar with SEC Rule 144, as
presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act.
(g) FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, Investor further agrees not to make
any transfer of all or any portion of the Shares (including any transfer
to an Affiliate) unless and until:
(i) A. Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed
disposition; B. the transferee shall have agreed in writing for the
benefit of the Company to be bound by the provisions of this
Agreement applicable to such Shares, and any applicable agreement
to which Investor is a party, including, without limitation, the
Registration Rights Agreement and C. if reasonably requested by the
Company, Investor shall have furnished the Company with an opinion
of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of the Shares under the
Securities Act; or
(ii) There is then in effect a Registration Statement under
the Securities Act covering such proposed disposition and such
disposition is made in accordance with such Registration Statement;
or
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(iii) Investor shall have complied with Rule 144 or Rule 144A
with respect to such transaction, and shall have furnished the
Company with such evidence thereof as the Company shall reasonably
require.
(h) LEGENDS. The certificates evidencing the Shares to be issued at
each Closing may bear one or all of the following legends:
(i) "The securities represented hereby have not been
registered under the Securities Act of 1933, as amended. They may
not be sold, offered for sale, pledged, hypothecated or transferred
in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required
or unless sold pursuant to Rule 144 of such Act."
(ii) Any legend which, in the opinion of counsel for the
Company, is required or appropriate under any state or Federal
securities laws, rules or regulations.
(i) BROKER'S FEES. No agent, broker, investment banker, Person, or
firm acting on behalf of the Investor is or will be entitled to any
broker's or finder's fee or any other similar commission or similar fee,
directly or indirectly, from any of the parties hereto in connection with
any of the transactions contemplated herein.
ARTICLE 5.
COVENANTS
5.1 MAINTAIN EXCHANGE ACT REGISTRATION AND LISTING. At all times when the
Investor is holding Shares which it received under this Agreement, the Company
shall maintain its registration of such Shares under the Securities Exchange
Act of 1934 (the "Exchange Act"), shall make all filings required under the
Exchange Act and shall use its best efforts to have the Shares continue to be
listed on the NASDAQ national market list, or on some other comparable
exchange. The Company shall not voluntarily withdraw its Shares from
registration under the Exchange Act or withdraw the Shares from such listing.
5.2 PERFECT SECURITIES ACT AND BLUE SKY EXEMPTIONS. The Company will make
all filings required under the Securities Act and the state securities laws of
the State of Illinois, if any, to obtain, secure or perfect applicable
exemptions for the issuance of the Shares to be issued at each Closing
hereunder.
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5.3 LIMITATION ON OTHER REGISTRATION RIGHTS. The Company will not grant to
any Person any registration rights, the effect of which is to restrict,
prohibit, limit or make subordinate the registration rights granted to the
Investor under the Registration Rights Agreement, except pursuant to the grant
of rights to Persons which rights are pari passu with the rights of the
Investor, based upon either the total number of shares of common stock owned
(including those subject to exercisable warrants or convertible securities) or
the number of shares of common stock proposed to be sold by each such party
holding registration rights.
ARTICLE 6.
MISCELLANEOUS
6.1 ASSIGNMENTS. The Investor shall not assign this Agreement, or any of
its rights hereunder, other than to a party to whom it could assign the Shares
directly under Section 4.2.g. Upon any permitted assignment of this Agreement,
the Investor and the assignee shall satisfy the requirements of Section 4.2.g,
as though such assignment were a direct assignment of the Shares. The
assignment of this Agreement shall not release the Investor from its
obligations hereunder. The Company shall not assign this Agreement, or any of
its rights hereunder.
6.2 NOTICES. Any notice, request, delivery, approval or consent required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been sufficiently given if delivered personally, transmitted by
telecopier (confirmation of receipt by confirmed facsimile transmission being
deemed receipt of communication sent by telecopy) or five days after it was
sent, by registered letter (or its equivalent) to the party to which it is
directed at its address shown below or such other address as such party shall
have last given by notice delivered in accordance herewith to the other party:
(a) If to the Investor, addressed to:
BIOCHEM PHARMA (INTERNATIONAL) INC.
275 Armand-Frappier Boulevard
Laval, Quebec, Canada
H7V 4A7
Attention: Mr. Michael Grey
Telecopier: (514) 978-7767
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With a copy to:
BIOCHEM PHARMA INC.
at the same address
Attention: Mr. Charles Tessier,
VP, Legal Affairs and Corporate Secretary
Telecopier: (514) 978-7755;
(b) If to the Company, addressed to:
UNIMED PHARMACEUTICALS, INC.
2150 East Lake Cook Road
Buffalo Grove, Illinois USA 60089-1862
Attention: Stephen M. Simes, President & CEO
Telecopier: (847) 541 -2533
with a copy to:
Stephen E. Goodman
Schwartz & Freeman
401 N. Michigan Ave.
Suite 1900
Chicago IL USA 60611
Telecopier: (312) 222-0818
6.3 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
6.4 HEADINGS. The Article, Section and subsection headings are inserted for
convenience only and shall not be deemed to constitute part of this Agreement
or to affect the construction hereof.
6.5 EXHIBIT AND SCHEDULE REFERENCES. Any item or matter disclosed in one
Section, Exhibit or Schedule to this Agreement shall be deemed disclosed in any
other Section, Exhibit or Schedule where such disclosure is relevant even if
there is no express cross-reference, provided that the relevance of the
disclosure is reasonably apparent. Disclosure of items that may or may not be
required to be disclosed by this Agreement does not mean that such items are
material or create a standard of materiality.
6.6 PUBLICITY. either party wishes to make a public disclosure concerning
this Agreement or the terms hereof, the other party shall be provided with an
advance copy of the
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<PAGE> 19
proposed disclosure and shall have three (3) business days within which to
approve or disapprove thereof. Absent approval, no public disclosure concerning
this Agreement or the terms hereof shall be made by either party, except to the
extent required by law or except to the extent that the information to be
disclosed has previously been the subject of an approved disclosure.
6.7 BINDING EFFECT; GOVERNING LAW. This Agreement shall be binding upon and
inure to the benefit of the Company and the Investor and their respective
successors and assigns. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without giving effect to
its conflicts of laws principles.
6.8 NO THIRD PARTY BENEFICIARIES. Except as specifically provided in this
Agreement, no Person not a party to this Agreement, including any employee of
any party to this Agreement, shall have or acquire any rights by reason of this
Agreement, nor shall any party hereto have any obligation or liabilities to
such other Person solely by reason of this Agreement.
6.9 SEVERABILITY. The invalidity of any provision of this Agreement or
portion of a provision shall not affect the validity of any other portion of
this Agreement or the remaining portion of the applicable provision.
6.10 SUBMISSION TO JURISDICTION. The Company and the Investor hereby
irrevocably submit to the jurisdiction and exclusive venue of any state or
Federal court located in the State of Delaware over any action or proceeding to
enforce or defend any right under this Agreement or the Registration Rights
Agreement, or under any amendment, instrument, document, or agreement
delivered, or that may in the future be delivered, in connection herewith or
therewith, and the Company and the Investor hereby irrevocably agree that all
claims in respect of any such action or proceeding may be heard and determined
in such state or Federal court. The Company and the Investor hereby irrevocably
waive, to the fullest extent they may effectively do so, the defense of an
inconvenient forum to the maintenance of any such action or proceeding. The
Company and the Investor agree that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. The Company and
the Investor agree not to institute any legal action or proceeding against the
Company, the Investor or any of their directors, officers, employees, agents or
properties, arising out of or relating to this agreement or any of the
documents referred to above, in any court other than one hereinabove specified
in this Section 6.10. Nothing in this Section 6.10 shall affect the right of
the Company or the Investor to serve legal process in any other manner
permitted by law, or the right of the Company or the Investor to bring any
action or proceeding against the property of the Company or the Investor in the
courts of any other jurisdictions.
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<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement, or caused
this Agreement to be executed by their respective officers thereunto duly
authorized, as the case may be, as of the date first above written.
THE COMPANY:
UNIMED PHARMACEUTICALS, INC.,
By:
Name and Title:
INVESTOR:
BIOCHEM PHARMA (INTERNATIONAL) INC.
By:
Name and Title:
By:
Name and Title:
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<PAGE> 21
SCHEDULES
Schedule 4.1.b Exceptions to due organization, qualification of Subsidiaries
Schedule 4.1.f Conflicts with corporate documents, loans, etc. resulting from
this Agreement
Schedule 4.1.g Consents required
Schedule 4.1.h Violations of law, failure to file reports, failure to retain
required records.
Schedule 4.1.m Defaults under contracts.
Schedule 4.1.o Registration rights granted to other parties
<PAGE> 22
SCHEDULE 4.1.B
EXCEPTIONS TO DUE ORGANIZATION, QUALIFICATION OF SUBSIDIARIES
None
<PAGE> 23
SCHEDULE 4.1.F
CONFLICTS WITH CORPORATE DOCUMENTS, LOANS, ETC. RESULTING FROM THIS AGREEMENT
None
<PAGE> 24
SCHEDULE 4.1.G
CONSENTS REQUIRED
None
<PAGE> 25
SCHEDULE 4.1.H
VIOLATIONS OF LAW, FAILURE TO FILE REPORTS, FAILURE TO RETAIN REQUIRED RECORDS.
The Company failed to file two reports with the Securities and Exchange
Commission as required. These reports were two Form 10-C reports, to report an
increase of 5% or more of the issued and outstanding common stock of the
Company, one of which should have been filed in February 1996. and the other of
which should have been filed in March 1996. Those reports have now been filed.
<PAGE> 26
SCHEDULE 4.1.M
DEFAULTS UNDER CONTRACTS.
None
<PAGE> 27
SCHEDULE 4.1.O
REGISTRATION RIGHTS GRANTED TO OTHER PARTIES
The Company has granted registration rights to John Kapoor and The John N.
Kapoor Trust with respect to the shares of common stock. warrants and options
held by them.
The Company has issued a warrant to Life Sciences Corporation covering 50,000
shares. This warrant grants to the holder the right to put the warrant to the
Company, in which case the Company is required to pay the holder the equity in
the Warrant. This put expires in the event that the Company registers the
shares subject to the Warrant. The Company has filed a registration statement
with the SEC covering the resale of such Shares, which has not become
effective.
The Company has granted to Laboratories Besins Iscovesco, S. A. rights to have
shares issued to it registered under a Registration Rights Agreement dated as
of August 11, 1995.
The Company has granted to a group of investors who purchased an aggregate of
1,400,000 Shares the right to have such shares registered, pursuant to a
registration rights agreement dated as of February 29, 1996. The Company has
filed a registration statement with the SEC covering such Shares, which has not
become effective. The registration of such shares will not terminate the
registration rights of the holders of such shares, unless the shares are
actually sold pursuant to the registration statement.
The Company has granted to Sunrise Securities Corp. the right to have an
aggregate of 140,000 Shares which may be issued to it upon exercise of warrants
issued on February 29, 1996. The Company has filed a registration statement
with the SEC covering such Shares, which has not become effective. The
registration of such shares will not terminate the registration rights of the
holders of such shares, unless the shares are actually sold pursuant to the
registration statement.
<PAGE> 1
Exhibit 4-J
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the _ day of May, 1996,
by and between UNIMED PHARMACEUTICALS, INC, a Delaware corporation (the
"Company") and BIOCHEM PHARMA (INTERNATIONAL) [NC., a corporation organized
under the laws of Canada (the "Holder").
RECITALS
WHEREAS, the Company and the Holder have entered into an agreement
providing for the purchase by the Holder of shares of common stock of the
Company; and
WHEREAS, the Holder wishes to have the right to require the Company to
register the shares of common stock which it has agreed to purchase; and
WHEREAS, the Company is willing to grant those rights, subject to certain
terms and conditions;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS. For purposes of this Agreement:
(a) The term "Stock Purchase Agreement" means that certain Stock
Purchase Agreement, dated as of May 9, 1996, between the Company and the
Holder.
(b) The term "Securities Act" means the Securities Act of 1933, as
amended.
(c) The term "Blue Sky laws" means the applicable state securities
laws and regulations.
(d) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act.
(e) The term "Registrable Securities" means any and all shares of
Common Stock purchased by the Holder pursuant to the Stock Purchase
Agreement, and any additional shares of Common Stock issued to the Holder
as a dividend or other distribution with respect to, or in exchange for
or in replacement of, such Common
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Stock, excluding in all cases, however, any Registrable Securities sold
by a person in a transaction in which his rights under Section 2 are not
assigned.
(f) The term "SEC" means the Securities and Exchange Commission.
(g) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are Registrable Securities as of the time such
determination is made.
2. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
2.1 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after the second
anniversary of the date hereof and (i) within sixty (60) days of
the end of any of its first three fiscal quarters of each fiscal
year or (ii) within one hundred twenty (120) days of the end of any
fiscal year, a written request from the Holder that the Company
file a registration statement under the Securities Act covering the
registration of at least fifty percent (50%) of the Registrable
Securities then outstanding and which represents an amount of
Registrable Securities that would result in a sale by the Holder of
the lesser of all Registrable Securities received by the Holder
under the Stock Purchase Agreement for an aggregate offering price
in excess of $200,000, then the Company shall, subject to the
limitations of subsection 2.1(d), effect as soon as practicable.
and in any event shall use its best efforts to file with the SEC
within forty-five (45) days after the end of the fiscal quarter or
fiscal year, as the case may be, in which such request was made,
the registration under the Securities Act of all Registrable
Securities which the Holder requests to be registered, and after
such filing use its best efforts to cause such registration to be
declared effective as soon as practicable; provided, however, that
the rights of the Holder under this Section 2 shall be temporarily
suspended during any period following a notice from the Company to
such Holder under Section 2.2 with respect to a firm commitment
underwriting, until such proposed registration shall have become
effective, or shall be abandoned.
(b) If the Holder intends to distribute the Registrable Securities
covered by its request by means of an underwriting, it shall so advise
the Company as a part of its request made pursuant to this Section 2.1.
The underwriter will be selected by the Holder and shall be acceptable to
the Company, but the Company shall not unreasonably withhold such
acceptance. The Holder shall (together with the Company as provided in
subsection 2.3(e)) enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by
the Holder.
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(c) The Company is obligated to effect only one (1) such
registration pursuant to this Section 2.1 (counting for these purposes
only a registration which has been declared effective and pursuant to
which all Registrable Securities included in such registration have been
sold).
(d) Notwithstanding the foregoing, if the Company shall furnish to
the Holder a certificate signed by an appropriate officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be detrimental to the Company and its stockholders for
such registration statement to be filed and it is therefore appropriate
to defer the filing of such registration statement, the Company shall
have the right to defer such filing for a period of not more than 60 days
after receipt of the request of the Holder, and during such 60 day
period, the Holder shall not request any additional registration;
provided, however, that the Company may not utilize this right more than
once in any twelve month period.
2.2 THE COMPANY REGISTRATION. If (but without any obligation to do so) at
any time after the second anniversary of the date hereof the Company proposes
to register (including for this purpose a registration effected by the Company
for stockholders other than the Holder) any of its stock or other securities
under the Securities Act in connection with the public offering by the Company
of such securities solely for cash (other than a registration relating solely
to the sale of securities to participants in a stock plan of the Company, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give the Holder written notice of such registration. Upon the
written request of the Holder given within twenty (20) days after mailing of
such notice by the Company, the Company shall, subject to the provisions of
Sections 2.7 and 3.1 and the rights of such other stockholders, cause to be
registered under the Securities Act all of the Registrable Securities that such
Holder has requested to be registered.
2.3 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 2 to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of
the Holder, keep such registration statement effective for up to one
hundred eighty (180) days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
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(c) Furnish to the Holder such numbers of conformed copies of such
registration statement and each amendment and supplement thereto
(together with all exhibits filed therewith), such numbers of copies of a
prospectus. including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by it.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by
the Holder, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file
a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. The
Holder shall also enter into and perform its obligations under such an
agreement. The Holder may require that any and all representations given
for the benefit of the underwriters also be given to the Holder.
(f) Notify the Holder at any time when a prospectus relating thereto
is required to be delivered under the Securities Act of 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 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.
(g) Furnish, at the request of the Holder, on the date that such
Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to Section 2, if such securities
are being sold through underwriters, or, if such securities are not being
sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated
such date, of the counsel representing the Company for the purposes of
such registration, in form and substance the Holders or underwriters may
reasonably request, addressed to the underwriters, if any, and to the
Holder and (ii) a letter dated such date, from the independent public
accountants of the Company, in form and substance as is customarily given
by independent public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the
Holder.
2.4 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 2 with
respect to the Registrable Securities that the Holder shall furnish to the
Company such information regarding itself, the Registrable Securities held by
it, and the intended method of disposition of such securities as shall be
required to effect the registration of the Holder's Registrable Securities.
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<PAGE> 5
2.5 EXPENSES OF DEMAND REGISTRATION. All expenses (other than legal
fees and expenses of counsel for the Holder and underwriting discounts and
commissions) incurred in connection with registrations, filings or
qualifications pursuant to Section 2.1, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for the Company shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 2.1 if
the registration request is subsequently withdrawn at the request of the
Holder, unless the Holder agrees to forfeit its right to such demand
registration pursuant to Section 2.1; provided further, however, that if at the
time of such withdrawal, the Holder has learned of a material adverse change in
the condition, business, or prospects of the Company from that known to the
Holder at the time of its request and has withdrawn the request with reasonable
promptness following disclosure by the Company of such material adverse change,
then the Holder shall not be required to pay any of such expenses and shall
retain its rights pursuant to Section 2.1.
2.6 EXPENSES OF THE COMPANY REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 2.2 for the Holder, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto, but excluding legal fees and expenses of
counsel for the Holder, underwriting discounts and commissions relating to
Registrable Securities, and those fees, if any, which are required by applicable
Blue Sky laws or regulations to be borne by Holder as a condition to
qualification.
2. 7 UNDERWRITING REQUIREMENTS. In connection with any offering involving
an underwriting of shares of the Company's capital stock, the Company shall not
be required under Section 2.2 to include any of the Holder's securities in such
underwriting unless it accepts the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it (or by other persons
entitled to select the underwriters), and then only in such quantity as the
underwriters determine in their sole discretion will not, jeopardize the success
of the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by stockholders to be included in such
offering exceeds the amount of securities to be sold, other than by the Company,
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not jeopardize
the success of the offering of the securities so included to be apportioned,
subject to the prior rights, if any, of the stockholders other than the Holder,
pro rata among the selling stockholders according to the total amount of
securities entitled to be included therein owned by each selling stockholder or
in such other proportions as shall mutually be agreed to by such selling
stockholders. For purposes of the preceding parenthetical concerning
apportionment, for any selling stockholder which is a Holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and
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<PAGE> 6
stockholders of such holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "selling stockholder", and any
pro-rata reduction with respect to such "selling stockholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling stockholder", as defined in
this sentence.
2.8 DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of Section 2.
2.9 INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under Section 2:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless the Holder, any underwriter (as defined in the Securities
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses,
claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities for
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the 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 (iii) any
violation or alleged violation by the Company of the Securities Act, the
1934 Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the 1934 Act or any state securities law, and
the Company will pay to the Holder, underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement
contained in this subsection 2.9(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage. liability, or action if such
settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable he
any such case for any such loss, claim, damage, liability, or action to
the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by any
such Holder, underwriter or controlling person, or in a situation in
which the Violation was caused by the intentional act or omission of such
Holder acting either in his individual capacity, or in the capacity as an
officer of the Company.
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(b) To the extent permitted by law, the Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers
who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any
underwriter, any other person selling securities in such registration
statement and any controlling person of any such underwriter or other
person, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under
the Securities Act, the 1934 Act or other Federal or state law insofar as
such losses, claims, damages, or liabilities for actions in respect
thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by
such Holder expressly for use in connection with such registration; and
the Holder will pay, as incurred, any legal or other expenses reasonably
incurred by any person intended to be indemnified pursuant to this
subsection 2.9(b), in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 2.9(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld, nor shall the
Holder be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon
a Violation which occurs in reliance by the Holder upon and in conformity
with written information, if any, furnished by the Company or any
underwriter or person controlling the Company expressly to the Holder for
use in connection with such registration.
(c) Promptly after receipt by an indemnified party under this
Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section
2.9, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in ( at participant's own expense), and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented
without conflict by one counsel) shall have the right to retain one
separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve
an indemnifying party of liability for indemnification hereunder, except
to the extent that the indemnifying party is actually prejudiced by such
failure, but in any event the omission so to deliver written
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notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under
this Section 2.9.
(d) If the indemnification provided for in this Section 2.9 is held
by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying
such indemnified party hereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect
the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or
omissions that resulted in such loss. liability, claim, damage, or
expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party
shall be determined by reference to, among other things. whether the
untrue or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the indemnifying
party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent
such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in
the underwriting agreement shall control.
(f) No person shall be entitled to indemnification or contribution
hereunder if such person shall have been finally determined to have been
guilty of fraudulent misrepresentation under Section I l(f) of the
Securities Act.
(g) The obligations of the Company and Holder under this Section 2.9
shall survive the completion of any offering of Registrable Securities in
a registration statement under Section 2, and otherwise.
2.10 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making
available to the Holder the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit the Holder to sell securities of the Company to the public without
registration, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the 1934
Act; and
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<PAGE> 9
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC
Rule 144, the Securities Act and the 1934 Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information
as may be reasonably requested in availing the Holder of any rule or
regulation of the SEC which permits the selling of any such securities
without registration or pursuant to such form, but only if such
information is necessary in order to determine whether the exemption is
available, or in order to utilize the exemption.
2.11 "MARKET STAND-OFF" AGREEMENT. The Holder hereby agrees that,
during the period of duration, not to exceed ninety (90) days, specified by the
Company and an underwriter of Common Stock or other securities of the
Company, following the effective date of a registration statement of the
Company filed under the Securities Act, it shall not, to the extent requested
by the Company and such underwriter, directly or indirectly sell, offer to
sell, contract to sell (including, without limitation, any short sale), grant
any option to purchase or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any securities of the Company held by
it at any time during such period except Common Stock included in such
registration; provided, however, that the period of duration specified above
may be shortened with the prior written consent of the underwriter and the
Company. In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of the
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
2.12 WITHDRAWAL RIGHTS REALLOCATION. If the Holder disapproves of the
terms of any such underwriting, it may elect to withdraw therefrom by written
notice to the Company and the underwriters.
3. MISCELLANEOUS.
3.1 LIMITATION OF REGISTRATION RIGHTS. Any provision herein to the
contrary notwithstanding, the Holder shall not have any registration rights
hereunder (including rights under Sections 2.1 and 2.2), and all rights to
registration hereunder shall terminate and shall be of no further force or
effect if (a) the Holder is permitted to sell all of its Registrable Securities
at the same time without restriction under Rule 144 and (b) the average weekly
trading volume of shares of the same class as the Registrable Securities during
the three (3) month period immediately prior to the date on which the Holder
wishes to exercise its registration rights is equal to or greater than the
number of Registerable Securities owned by such Holder.
3.2 COORDINATION WITH OTHER RIGHTS. This Agreement, and the rights of the
Holder, are subject to the rights of other holders of securities of the Company
in effect on the date hereof, which are described on a Schedule to the Stock
Purchase Agreement. Without limitation
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<PAGE> 10
of the foregoing, the rights of the Holder to a demand registration and to
be included in other registrations may be superseded by the rights and actions
of such other holders to have their securities registered and to be included in
registration statements filed by the Company at its own initiative or pursuant
to demand registration rights of others. By execution hereof, the Holder
consents and agrees to all of such prior rights. Notwithstanding the foregoing,
in no event shall the prior rights of any person have the effect of depriving
the Holder of its one demand registration right, and if as a result of the
exercise of any such prior rights, the Holder is unable to include in its
demand registration all of the Registrable Securities which it wants to
include, its demand registration rights shall continue, notwithstanding the
exercise of such one demand, until the earlier of the time when all of the
Registrable Securities requested to be included in such demand registration
shall have been sold in transactions under which the purchasers are not further
restricted from sales of such securities, or registration rights are otherwise
terminated under the provisions of this Agreement.
3.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). 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. Any provision herein to the contrary
notwithstanding, it the Holder shall transfer any of the Registrable Securities,
then the rights hereunder may also be transferred with such Registrable
Securities, but in such event, the Holder and such assignees shall have no
greater rights, as a group, than the Holder had under this Agreement prior to
such transfer, and the Holder and each such assignee shall appoint one person
who shall act hereunder on behalf of the Holder and all of the assignees.
3.4 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without giving effect to
its conflicts of laws principles.
3.5 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.
3.6 NOTICES. Any notice, request, delivery, approval or consent required
or permitted to be given under this Agreement shall be in writing and shall be
deemed to have been sufficiently given if delivered personally, transmitted by
telecopier (confirmation of receipt by confirmed facsimile transmission being
deemed receipt of communication sent by telecopy) or five days after it was
sent, by registered letter (or its equivalent) to the party to which it is
directed at its address shown below or such other address as such party shall
have last given by notice delivered in accordance herewith to the other party:
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<PAGE> 11
(a) If to the Investor, addressed to:
BIOCHEM PHARMA (INTERNATIONAL) INC.
275 Armand-Frappier Boulevard
Laval, Quebec, Canada
H7V 4A7
Attention: Mr. Michael Grey
Telecopier: (514) 978-7767
With a copy to:
BIOCHEM PHARMA INC.
at the same address
Attention: Mr. Charles Tessier, VP, Legal Affairs and
Corporate Secretary
Telecopier: (514) 978-7755;
(b) If to the Company, addressed to:
UNIMED PHARMACEUTICALS, INC.
2150 East Lake Cook Road
Buffalo Grove, Illinois USA 60089-1862
Attention: Stephen M. Simes, President & CEO
Telecopier: (847) 541 -2533
with a copy to:
Stephen E. Goodman
Schwartz & Freeman
401 N. Michigan Ave.
Suite 1900
Chicago IL USA 60611
Telecopier: (312) 222-0818
3.7 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 the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
3.8 SUBJECT TO STOCK PURCHASE AGREEMENT. This Agreement is subject to the
terms and conditions of the Stock Purchase Agreement. In the event of any
inconsistency between this Agreement and the Stock Purchase Agreement, the
terms of Stock Purchase Agreement shall govern. Capitalized terms used herein
which are not defined herein shall have the definitions ascribed to them in the
Stock Purchase Agreement.
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<PAGE> 12
3.9 SUBMISSION TO JURISDICTION. The Company and the Holder hereby
irrevocably submit to the jurisdiction and exclusive venue of any state or
Federal court located in the State of Delaware over any action or proceeding,
to enforce or defend any right under this Agreement or the Stock Purchase
Agreement, or under any amendment, instrument, document, or agreement
delivered, or that may in the future be delivered, in connection herewith or
therewith, and the Company and the Holder hereby irrevocably agree that all
claims to respect of any such action or proceeding may be heard and determined
in such state or Federal court. The Company and the Holder hereby irrevocably
waive, to the fullest extent they may effectively do so, the defense of an
inconvenient forum to the maintenance of any such action or proceeding. The
Company and the Holder agree that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. The Company and
the Holder agree not to institute any legal action or proceeding against the
Company, the Holder or any of their directors, officers, employees, agents or
properties, arising out of or relating to this agreement or any of the
documents referred to above, in any court other than one hereinabove specified
in this Section 3.9. Nothing in this Section 3.9 shall affect the right of the
Company or the Holder to serve legal process in any other manner permitted by
law, or the right of the Company or the Holder to bring any action or
proceeding against the Property of the Company or the Holder in the courts of
any other jurisdictions.
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<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Amendment as of the date first above written.
THE COMPANY:
UNIMED PHARMACEUTICALS, INC.,
By:
Name and Title:
HOLDER:
BIOCHEM PHARMA (INTERNATIONAL) INC.
By:
Name and Title:
By:
Name and Title:
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<PAGE> 1
EXHIBIT 10-K
UNIMED PHARMACEUTICALS, INC.
1991 STOCK OPTION PLAN
(as amended through March 29, 1996)
1. Purpose.
The purpose of the 1991 Stock Option Plan (the "Plan") is to induce
employees and directors (each an "Outside Director") of Unimed Pharmaceuticals,
Inc. (the "Company") who are not employees of the Company or its present and
future subsidiary corporations (each a "Subsidiary"), as defined in Section
425(f) of the Internal Revenue Code of 1986, as amended (the "Code"), to remain
in the employ or service of the Company and its Subsidiaries, to attract new
employees and Outside Directors and to encourage such employees and Outside
Directors to secure or increase on reasonable terms their stock ownership in
the Company. The Board of Directors of the Company (the "Board") believes that
the granting of stock options (the "Options") under the Plan will promote
continuity of management and increased incentive and personal interest in the
welfare of the Company by those who are or may become primarily responsible for
shaping and carrying out the long range plans of the Company and securing its
continued growth and financial success. Options granted hereunder are intended
to be either (a) "incentive stock options" (which term, when used herein, shall
have the meaning ascribed thereto by the provisions of Section 422(b) of the
Code) or (b) options which are not incentive stock options ("non-incentive
stock options") or (c) a combination thereof, as determined by the Committee
(the "Committee") referred to in Section 5 hereof at the time of the grant
thereof.
2. Effective Date of the Plan.
The Plan became effective on November l, 1991, by resolution of the Board,
subject to ratification of the Plan by the vote of the holders of a majority of
all of the outstanding shares of the common stock of the Company (the "Common
Stock") present in person or by proxy at the 1992 Annual Meeting of the
Stockholders of the Company, and the Plan was ratified by the Stockholders at
that meeting.
3. Stock Subject to Plan.
1,800,000 of the authorized but unissued shares of the Common Stock are
hereby reserved for issue upon the exercise of Options granted under the Plan;
Provided, however, that the number of
<PAGE> 2
shares so reserved may from time to time be reduced to the extent that
a corresponding number of issued and outstanding shares of the Common Stock
are purchased by the Company and set aside for issue upon the exercise of
Options; Provided, further, however, that the number of shares issued upon the
exercise of Options granted under the Plan shall be determined without giving
effect to the use by a Participant of the right set forth in paragraph C of
Section 10 hereof to deliver shares of the Common Stock in payment of up to 50%
of the option price with respect to an Option. If any Options expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for the purposes of the Plan.
4. Administration.
The Plan shall be administered by the Committee referred to in Section 5
hereof. Subject to the express provisions of the Plan, the Committee shall
have complete authority, in its discretion, to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, to determine
the terms and provisions of the respective option agreements or certificates
(which need not be identical), to determine the individuals (each a
"Participant") to whom and the times and the prices at which Options shall be
granted, the periods during which each Option shall be exercisable, the number
of shares of the Common Stock to be subject to each Option and whether such
Option shall be an incentive stock option or a non-incentive stock option and
to make all other determinations necessary or advisable for the administration
of the Plan. In making such determinations, the Committee may take into
account the nature of the services rendered by the respective employees, their
present and potential contributions to the success of the Company and the
Subsidiaries and such other factors as the Committee in its discretion shall
deem relevant. The Committee's determination on the matters referred to in
this Section 4 shall be conclusive. Any dispute or disagreement which may arise
under or as a result of or with respect to any Option shall be determined by
the Committee, in its sole discretion, and any interpretations by the Committee
of the terms of any Option shall be final, binding and conclusive.
5. Committee.
The Committee shall consist of two or more members of the Board both or
all of whom shall be "disinterested persons" within the meaning of Rule
16b-3(c)(2)(i) promulgated under the Securities Exchange Act of 1934, as
amended. The Committee shall be appointed annually by the Board, which may at
any time and from time to time remove any members of the Committee, with or
without cause, appoint additional members to the Committee and fill vacancies,
however caused, in the Committee. A majority of the members of the Committee
shall constitute a quorum. All determinations of the Committee shall be made
by a majority of its members present at a
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<PAGE> 3
meeting duly called and held except that the Committee may delegate to
any one of its members the authority of the Committee with respect to the grant
of Options to persons who shall not be officers and/or directors of the
Company. Any decision or determination of the Committee reduced to writing and
signed by all of the members of the Committee (or by the member of the
Committee to whom authority has been delegated) shall be fully as effective as
if it had been made at a meeting duly called and held.
6. Eligibility.
An Option may be granted only to an employee of the Company or a
Subsidiary or an Outside Director of the Company. The term "employee" as used
herein shall include consultants to the Company, provided bona fide services
are rendered by such consultants to the Company, and such services are not in
connection with the offer or sale of securities in a capital-raising
transaction.
7. Option Prices.
A. The initial per share option price of any Option which is an incentive
stock option shall not be less than the fair market value of a share of the
Common Stock on the date of grant; provided, however, that, in the case of a
Participant who owns more than 10% of the total combined voting power of the
Common Stock at the time an Option which is an incentive stock option is
granted to him, the initial per share option price shall not be less than 110%
of the fair market value of a share of the Common Stock on the date of grant.
B. The initial per share option price of any Option which is a
non-incentive stock option shall not be less than 85% of the fair market value
of a share of the Common Stock on the date of grant; provided, however, that, in
the case of a Participant who is an Outside Director, the initial per share
option price shall be 100% of the fair market value of a share of the Common
Stock on the date of the grant.
C. For all purposes of the Plan, the fair market value of share of the
Common Stock on any date shall be equal to (i) the closing price, as reported by
NASDAQ, of the Common Stock on such date or (ii) if the Common Stock shall be
listed on a national securities exchange other than the NASDAQ national market
list, or any other exchange maintained by or as a part of NASDAQ, the mean
between the high and low sales prices of the Common Stock on such exchange on
such date. If a date is a date for which no trading is so reported, the fair
market value of a share of the Common Stock on such date shall be determined as
of the next preceding date for which trading is so reported.
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<PAGE> 4
8. Option Term.
A. Except as otherwise provided in paragraph A of this Section 8,
Participants shall be granted options for such term as the Committee shall
determine, not in excess of ten years from the date of the granting thereof;
provided, however, that, in the case of a Participant who owns more than 10% of
the total combined voting power of the Common Stock at the time an Option which
is an incentive stock option is granted to him, the term with respect to such
Option shall not be in excess of five years from the date of the granting
thereof.
B. The term of each Option granted to an Outside Director shall be ten
years from the date of the granting thereof.
C. On the date of the first meeting of the Board on or after the date on
which an Outside Director has been elected to the Board for the first time,
such Outside Director shall be granted an Option to purchase 10,000 shares of
the Common Stock.
D. Each Outside Director also shall be granted an Option to purchase 7,500
shares of Common Stock on August 6, 1992, and shall be granted, on the date of
the meeting of the Board of Directors next following the Annual Meeting of
Stockholders each year commencing in 1993 and until the expiration date of the
Plan, an Option to purchase an additional 7,500 shares of Common Stock.
9. Limitation on Amount of Incentive Stock Options Granted.
The aggregate fair market value of the shares of the Common Stock for
which any Participant may be granted Options which are incentive stock options
which are exercisable for the first time in any calendar year (whether under
the terms of the Plan or any other stock option plan of the Company) shall not
exceed $100,000.
10. Exercise of Options.
A. Unless otherwise determined by the Committee at the time of the grant of
any Option or subsequent to the date of any grant, a Participant may not
exercise an Option during the period commencing on the date of the granting of
such Option to him and ending on the day next preceding the first anniversary
of such date, except as otherwise provided in Sections 10D, 10E and 12C.
Subject to the foregoing, a Participant may (i) during the period commencing on
the first anniversary of the date of the granting of an Option to him and
ending on the day next preceding the second anniversary of such date, exercise
such Option with respect to one-quarter of the shares granted thereby minus the
number of shares with respect to which such Option shall have theretofore been
exercised, (ii) during the period commencing on such second anniversary and
ending on the day next preceding the third anniversary of the date of the
granting of such Option, exercise
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<PAGE> 5
such Option with respect to one-half of the shares granted thereby minus the
number of shares with respect to which such Option shall have theretofore been
exercised, (iii) during the period commencing on such third anniversary and
ending on the day next preceding the fourth anniversary of the date of the
granting of such Option, exercise such Option with respect to three quarters of
the shares granted thereby minus the number of shares with respect to which
such Option shall have theretofore been exercised, and (iv) during the period
commencing on such fourth anniversary, exercise such Option with respect to all
of the shares granted thereby minus the number of shares with respect to which
such Option shall have theretofore been exercised. The foregoing
notwithstanding, each Outside Director may exercise in full the Options granted
pursuant to paragraph D of Section 8 hereof commencing on the anniversary date
of the date of grant.
B. Except as hereinbefore otherwise set forth, an Option may be exercised
either in whole at any time or in part from time to time.
C. An Option may be exercised only by a written notice of intent to
exercise such Option with respect to a specific number of shares of the Common
Stock and payment to the Company of the amount of the option price for the
number of shares of the Common Stock so specified; provided, however, that up
to 50% of such payment may be made in kind by the delivery of shares of
the Common Stock having a fair market value equal to the portion of the option
price so paid; provided, further, however, that, subject to the requirements of
Regulation T (as in effect from time to time) promulgated under the Securities
Exchange Act of 1934, as amended, the Committee may implement procedures to
allow a broker chosen by a Participant to make payment of all or any portion of
the option price payable upon the exercise of an Option and receive, on behalf
of such Participant, all or any portion of the shares of the Common Stock
issuable upon such exercise.
D. Except in the case of an Option granted to an Outside Director, the
Board may, in its discretion, permit any Option to be exercised, in whole or in
part, prior to the time when it would otherwise be exercisable and to extend
the period during which an Option is exercisable.
E. I. Notwithstanding the provisions of paragraph A of this Section 10, in
the event that a Change in Control shall occur, then, each Option theretofore
granted to any Participant which shall not have theretofore expired or
otherwise been cancelled or become unexercisable shall become immediately
exercisable in full. For the purposes of this paragraph E, a "Change in
Control" shall be deemed to occur upon (a) the election of one or more
individuals to the Board which election results in a majority of the directors
of the Company consisting of individuals who have not been directors of the
Company for at least two years, unless such
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<PAGE> 6
individuals have been nominated as directors by three-fourths of the
directors of the Company who have been directors of the Company for at least
two years; (b) the execution of a definitive agreement for the sale by the
Company of all or substantially all of its assets to any Person, the
consolidation of the Company with any Person, the merger of the Company with
any Person as a result of which the Company is not the surviving entity as a
publicly held corporation; (c) the Company and/or any Person acquires, sells or
transfers, in one or more transactions, related or unrelated, under
circumstances whereby any Person and its Affiliates shall own, after such
acquisition, sale or transfer, at least 20%, but less than 40%, of the shares
of the Company having voting power for the election of directors, unless such
acquisition, sale or transfer has been approved in advance by three-fourths of
the directors of the Company who have been directors of the Company for at
least two years; or (d) the Company and/or any Person acquires, sells or
transfers, in one or more transactions, related or unrelated, under
circumstances whereby any Person and its Affiliates shall own, after such
acquisition, sale or transfer, at least 40% of the shares of the Company having
voting power for the election of directors; or (e) a "tender offer" (as defined
in Section 14(d)(1) of the Securities Exchange Act of 1934, as amended), other
than a self tender by the Company, for a portion of the shares of the
Company having voting power for the election of directors, which, taken
together with shares owned by such acquirer, and giving effect to all rights to
acquire shares, will represent ownership of at least 20% of the shares of the
Company having voting power for the election of directors, unless such "tender
offer" has been approved in advance by three-fourths of the directors of the
Company who have been directors of the Company for at least two years. For the
purposes of this division I, (A) the term "Affiliate" shall mean any Person
that directly, or indirectly through one or more intermediaries, controls, or
is controlled by, or is under common control with, any other Person, (B) the
term "Person" shall mean any individual, partnership, firm, trust, corporation
or other similar entity, and (C) when two or more Persons act as a partnership,
limited partnership, syndicate or other group for the purpose of acquiring,
holding or disposing of securities of the Company, such partnership, limited
partnership, syndicate or group shall be deemed a "Person".
II. In the event that a Change of Control shall occur, then, from
and after the time of such event, neither the provisions of this paragraph E
nor any of the rights of any Participant thereunder shall be modified or
amended in any way.
F. Notwithstanding any other provision of the Plan to the contrary, if a
Participant has effected a "hardship withdrawal" from a "401(k) Plan"
maintained by the Company and/or any of the Subsidiaries, he may not exercise
any Option for a period of twelve months after the date of such "hardship
withdrawal". For the purposes of this paragraph F, (1) a Participant shall be
deemed to
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<PAGE> 7
have effected a "hardship withdrawal" from a "401(k) Plan" if he has
received a distribution from such "401(k) Plan" on account of his "hardship"
within the meaning of Reg. 1.401(k)-l(d)(2) promulgated under Section 401(k) of
the Code and (2) a "401(k) Plan" is a profit-sharing or stock bonus plan which
satisfies the requirements of Section 401(a) of the Code and includes a
"qualified cash or deferred arrangement" within the meaning of Section
401(k)(2) of the Code.
11. Transferability.
No Option shall be assignable or transferable except by will and/or by the
laws of descent and distribution and, during the life of any Participant, each
Option granted to him may be exercised only by him.
12. Termination of Employment or Service.
A. In the event an employee who is a Participant leaves the employ of the
Company and its Subsidiaries, whether voluntarily or otherwise but other than
by reason of his death or discharge for cause, each Option theretofore granted
to him which shall not have theretofore expired or otherwise been cancelled
shall be exercisable to the extent it was exercisable on the date on which he
shall cease to be an employee and shall, to the extent not theretofore
exercised, terminate upon the earlier to occur of the expiration of three
months after the date on which he shall cease to be an employee and the date
specified in such Option.
B. In the event an Outside Director ceases to be an Outside Director,
whether voluntarily or otherwise but other than by reason of his death or
discharge for cause, each Option theretofore granted to him which shall not
have theretofore expired or otherwise been cancelled shall be
exercisable to the extent it was exercisable on the date on which he shall
cease to be an Outside Director and shall, to the extent not theretofore
exercised, terminate upon the earlier to occur of the expiration of three
months after the date on which he shall cease to be an Outside Director and the
date specified in such Option.
C. In the event a Participant's employment or service with the Company and
its Subsidiaries terminates by reason of his death, each Option theretofore
granted to him which shall not have theretofore expired or otherwise been
cancelled shall become immediately exercisable in full by the person or persons
to whom his rights under such Option shall pass by will or the laws of descent
and distribution. Each Option which is an incentive stock option will remain
in full force and effect for a period of one year from the date of death, and
each Option which is a non-incentive stock option shall remain in full force
and effect and exercisable by such person or persons, to the extent not
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<PAGE> 8
theretofore exercised, until the date originally specified in such Option as
the date on which such Option is no longer exercisable.
D. In the event a Participant's employment or service with the Company and
its Subsidiaries terminates by reason of his discharge for cause, each Option
theretofore granted to him which shall not have theretofore expired or
otherwise been cancelled shall terminate immediately. For the purposes of this
Section 12, a "discharge for cause" shall be deemed to occur only after a good
faith determination by the Board that the termination of the employment or
service by the Company and/or a Subsidiary of the Participant is necessary or
desirable by reason of (i) the commission by the Participant of any act which,
if successfully prosecuted by the appropriate authorities, would constitute a
felony under state or federal law, (ii) the improper disclosure by the
Participant of material secrets of the Company and/or a Subsidiary or (iii) the
knowing violation by the Participant of the Company's and/or a Subsidiary's
conflicts of interest policy, unless, in any case, the Participant performed
such act, made such disclosure or violated said policy in good faith and in a
manner the Participant reasonably believed to be in or not opposed to the best
interests of the Company and its Subsidiaries.
13. Adjustment of Number of Shares.
In the event that a dividend shall be declared upon the Common Stock
payable in shares of the Common Stock, the number of shares of the Common Stock
then subject to any Option, the number of shares of the Common Stock reserved
for issuance in accordance with the provisions of the Plan but not yet covered
by an Option and the number of shares of the Common Stock to be subject to an
Option to be issued to an Outside Director shall be adjusted by adding to each
share the number of shares which would be distributable thereon if such shares
had been outstanding on the date fixed for determining the stockholders
entitled to receive such stock dividend. In the event that the outstanding
shares of the Common Stock shall be changed into or exchanged for a different
number or kind of shares of stock or other securities of the Company or of
another corporation, whether through reorganization, recapitalization, stock
split-up, combination of shares, sale of assets, merger or consolidation in
which the Company is the surviving corporation, then, there shall be
substituted for each share of the Common Stock then subject to any Option and
for each share of the Common Stock reserved for issuance in accordance with the
provisions of the Plan but not yet covered by an Option, the number and kind of
shares of stock or other securities into which each outstanding share of the
Common Stock shall be so changed or for which each such share shall be
exchanged. In the case of any substitution or adjustment in accordance with
the provisions of this Section 13, the option price in each stock option
agreement or certificate for each share covered thereby prior to such
substitution or adjustment shall be the option price for all shares
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<PAGE> 9
of stock or other securities which shall have been substituted for such
share or to which such share shall have been adjusted in accordance with the
provisions of this Section 13. No adjustment or substitution provided for in
this Section 13 shall require the Company to sell a fractional share under any
stock option agreement or certificate. In the event of the dissolution or
liquidation of the Company, or a merger, reorganization or consolidation in
which the Company is not the surviving corporation, then, except as otherwise
Provided in the second sentence of this Section 13, each Option, to the extent
not theretofore exercised, shall terminate on fifteen days notice from the
Company.
14. Purchase for Investment, Withholding and Waivers.
A. Unless the shares to be issued upon the exercise of an Option by a
Participant shall be registered prior to the issuance thereof under the
Securities Act of 1933, as amended, such Participant will, as a condition of
the Company's obligation to issue such shares, be required to give a
representation in writing that he is acquiring such shares for his own account
as an investment and not with a view to, or for sale in connection with, the
distribution of any thereof.
B. In the event of the death of a Participant, a condition of exercising
any Option shall be the delivery to the Company of such tax waivers and other
documents as the Committee shall determine.
C. In the case of each non-incentive stock option, a condition of
exercising the same shall be the entry by the Participant exercising the same
into such arrangements with the Company with respect to income tax withholding
as the Committee may determine.
15. No Stockholder Status.
Neither any Participant nor his legal representatives, legatees or
distributees shall be or be deemed to be the holder of any share of the Common
Stock covered by an Option unless and until a certificate for such share has
been issued. Upon payment of the purchase price thereof, a share issued upon
exercise of an Option shall be fully paid and non-assessable.
16. No Restrictions on Corporate Acts.
Neither the existence of the Plan nor any Option shall in any way affect
the right or power of the Company or its stockholders to make or authorize any
or all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or
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<PAGE> 10
dissolution or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding
whether of a similar character or otherwise.
17. No Employment or Service Right.
Neither the existence of the Plan nor the grant of any Option shall
require the Company or any Subsidiary to continue any Participant in the employ
or service of the Company or such Subsidiary.
18. Termination and Amendment of the Plan.
A. The Board may at any time terminate the Plan or make such modifications
of the Plan as it shall deem advisable; provided, however, that the Board may
not without further approval of the holders of a majority of the shares of the
Common Stock present in person or by proxy at any special or annual meeting of
the stockholders increase the number of shares as to which Options may be
granted under the Plan (as adjusted in accordance with the provisions of Section
13 hereof) or change the manner of determining the initial option prices.
Except as otherwise provided in Section 13 hereof, no termination or amendment
of the Plan may, without the consent of the Participant to whom any Option shall
theretofore have been granted, adversely affect the rights of such Participant
under such Option.
B. The provisions of this Section 18 may not be amended except by the vote
of the majority of the members of the Board and by the vote of the majority of
the members of the Board who are not Outside Directors, and the provisions of
the Plan shall not be amended more than once every six months, other than to
comport with changes in the Code, the Employee Retirement Income Security Act of
1974 or the Rules and Regulations thereunder.
19. Expiration and Termination of the Plan.
The Plan shall terminate on October 31, 2001 or at such earlier time as
the Board may determine. Options may be granted under the Plan at any time and
from time to time prior to its termination. Any Option outstanding under the
Plan at the time of the termination of the Plan shall remain in effect until
such Option shall have been exercised or shall have expired in accordance with
its terms.
-10-
<PAGE> 1
Exhibit 10-L
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
NORAC AGREEMENT FOR MANUFACTURE AND SALE OF THC
This AGREEMENT FOR MANUFACTURE AND SALE OF THC (this "Agreement") is made
as of January 1, 1995, by and between THE NORAC COMPANY, INC., a New Jersey
corporation ("NORAC"), and UNIMED PHARMACEUTICALS, INC., a Delaware
corporation ("UNIMED"), with reference to the following facts:
WHEREAS, pursuant to an Agreement for Manufacture and Sale of THC dated
September 9, 1992 (the "Prior Contract"), UNIMED contracted with NORAC for the
manufacture by NORAC of D-9-tetrahydrocannabinol (the "product" or "THC") to
UNIMED'S specifications from the starting raw materials of olivetol and
paramenthadienol, and the sale of the completed product to UNIMED; and
WHEREAS, the Prior Contract has been completed; and
WHEREAS, NORAC and UNIMED wish to enter into a new contract for NORAC to
manufacture the product and sell it to UNIMED;
NOW, THEREFORE, in consideration of the covenants herein contained and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. MANUFACTURE AND SALE OF PRODUCT. During the term of this Agreement,
NORAC agrees to manufacture and sell THC to UNIMED only, and UNIMED agrees to
purchase THC from NORAC only, all on the terms and subject to the conditions
of this Agreement. The term of this Agreement shall commence as of January 1,
1995 and terminate on December 31, 1999; provided, however, that this
Agreement shall be automatically renewed for additional one-year periods
unless either party has given the other party hereto at least one year's prior
written notice of its intention not to renew this Agreement.
1.1 1995 AND 1996 OUANTITIES AND PRICE. UNIMED ordered from NORAC a
target quantity of [XXXX] of product with an estimated delivery date of
December 31, 1995. Such order was delivered. UNIMED also ordered from
NORAC a target quantity of [XXXXX] with an estimated delivery date of
December 31, 1996, at the following purchase prices per kilogram of
product:
<PAGE> 2
QUANTITY PRICE PER KG.
OF PRODUCT FOR 1996 ORDER
------------------ --------------
First [XXXXX]/yr. [XXXXX]
Next [XXXXX]/yr. [XXXXX]
After [XXXXX] /yr. [XXXXX]
UNIMED's orders are firm and may not be cancelled unless this Agreement
is otherwise terminated in accordance with the terms hereof.
1.2 QUANTITIES AND PRICES AFTER 1996. [XXXXX]
1.3 CPI INCREASE. [XXXXX]
1.4 PAYMENT OF PURCHASE PRICE FOR PRODUCT; REQUEST FOR RETAINS;
ABANDONMENT OF BATCH.
1.4.1 Payment. [XXXXX]
1.4.2 REQUEST FOR RETAIN OF PRODUCT. UNIMED may, within ten
(10) days following NORAC's notification of the occurrence of milestone
3 described in Section 1.4.1 for each batch of the product, request
delivery of one Retain of the product (as defined below) for UNIMED's
analysis and approval (which approval shall not be unreasonably
withheld), provided that UNIMED or a laboratory designated by UNIMED
("Licensed Laboratory") has all licenses and approvals required by
applicable laws and regulatory authorities to accept delivery and
analyze the product. ("Retain" for purposes of this Agreement shall
mean a representative sample of any given batch of the product.) NORAC
shall deliver a Retain of the product to UNIMED or the Licensed
Laboratory designated by UNIMED within twenty (20) days following the
date NORAC is notified of UNIMED's request for such Retain pursuant to
this Section. If UNIMED elects to analyze the product, UNIMED shall
notify NORAC of its approval within twenty-one (21) days following the
receipt by UNIMED or the Licensed Laboratory designated by UNIMED of
the Retain; alternatively, UNIMED shall notify NORAC within such
twenty-one (21) day period of its reasons for not approving the Retain.
In the event that UNIMED approves of the Retain, UNIMED shall deliver
to NORAC the payment of the installment of the purchase price for the
product with respect to milestone 3 prior to the expiration of the
twenty-one (21) day approval period specified herein. In the event that
UNIMED disapproves of the Retain and NORAC agrees with the reasons for
such disapproval, NORAC may, at its option, either (i) correct the
deficiencies in the
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<PAGE> 3
unfinished product identified by UNIMED, notify UNIMED of such
correction and send a new Retain of the unfinished product to UNIMED or
the Licensed Laboratory designated by UNIMED for analysis and approval
by UNIMED in accordance with this Section (i.e., a new twenty-one (21)
day approval period shall apply), or (ii) abandon the product pursuant
to Section 1.4.3, in which case the provisions of Section 1.4.3
shall apply. In the event that UNIMED disapproves of the Retain and
NORAC disagrees with the reasons for such disapproval, the dispute
shall be resolved by an independent testing organization of recognized
repute within the U.S. pharmaceutical industry agreed upon by the
parties (which agreement shall not be unreasonably withheld or delayed
by either party), provided that such organization has all licenses and
approvals required by applicable laws and regulatory authorities to
accept delivery and analyze the product. The cost of such determination
shall be borne by the party against whom the decision is made.
1.4.3 ABANDONMENT OF BATCH. NORAC may abandon the manufacture
of any batch of the product at any time prior to the issuance by
NORAC's laboratory of a Certificate of Analysis with respect to such
batch. In the event of the abandonment of the manufacture of any batch
("Abandoned Batch"), NORAC shall notify UNIMED of such abandonment and,
at NORAC's option, (i) commence the manufacture of a new batch
("Replacement Batch"); or (ii) return to UNIMED all installments of the
purchase price for the Abandoned Batch received prior to the date of
abandonment. In the event that NORAC elects to commence the manufacture
of a Replacement Batch following the abandonment of an Abandoned Batch,
(a) all installments of the purchase price previously received by NORAC
with respect to the Abandoned Batch shall be credited against the
installments of the purchase price payable with respect to the
Replacement Batch, and (b) UNIMED shall not be required to pay any
installments of the purchase price for the Replacement Batch until the
Replacement Batch reaches the same stage in the manufacturing process
as the Abandoned Batch had reached at the time of its abandonment at
which time UNIMED shall be required to pay any and all additional
installments of the purchase price with respect to the Replacement
Batch in accordance with Sections 1.4.1 and 1.5. NORAC may use all or
any portion of an Abandoned Batch in the manufacture of a Replacement
Batch.
1.5 DELIVERY. Upon the purification and distillation of the product
(milestone 6 described in Section 1.4.1) and the issuance of a Certificate
of Analysis by NORAC's laboratory, NORAC shall notify UNIMED of same and,
if so requested by UNIMED within ten (10) days of such notification, NORAC
shall send a Retain of the product to UNIMED or the Licensed Laboratory
designated by UNIMED for analysis and approval by UNIMED (which approval
shall not be unreasonably withheld), provided that UNIMED or
the Licensed Laboratory designated by UNIMED, as the case may be,
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<PAGE> 4
has all licenses and approvals required by applicable laws and regulatory
authorities to accept delivery and analyze the product. If UNIMED elects
to analyze the product, UNIMED shall notify NORAC of its approval within
twenty-one (21) days following the receipt of the Retain by UNIMED or the
Licensed Laboratory designated by UNIMED; alternatively, UNIMED shall
notify NORAC within such twenty-one (21) day period of its reasons for not
approving the Retain. In the event that UNIMED disapproves of the Retain
and NORAC agrees with the reasons for such disapproval, NORAC may, at its
option, either (i) correct the deficiencies in the product identified by
UNIMED, notify UNIMED of such correction and send a new Retain of the
product to UNIMED or the Licensed Laboratory designated by UNIMED for
analysis and approval by UNIMED in accordance with this Section (i.e., a
new twenty-one (21) day approval period shall apply), or (ii) abandon the
product pursuant to Section 1.4.3, in which case the provisions of Section
1.4.3 shall apply. In the event that UNIMED disapproves of the Retain and
NORAC disagrees with the reasons for such disapproval, the dispute shall
be resolved by an independent testing organization of recognized repute
within the U.S. pharmaceutical industry agreed upon by the parties (which
agreement shall not be unreasonably withheld or delayed by either party),
provided that such organization has all licenses and approvals required by
applicable laws and regulatory authorities to accept delivery and analyze
the product. The cost of such determination shall be borne by the party
against whom the decision is made. The sixth installment of the purchase
price for such batch shall be due and payable concurrently with UNIMED's
approval; provided, however, in the event that UNIMED does not have, and
UNIMED does not designate, a Licensed Laboratory which has all licenses
and approvals required by applicable laws and regulatory authorities to
accept delivery and analyze the Retain at the time of NORAC's notification
to UNIMED of the issuance of a Certificate of Analysis for a batch of the
product by NORAC's laboratory, the sixth installment of the purchase price
for such batch of the product shall be due and payable within ten (10)
days following such notification. Upon receipt by NORAC of UNIMED's
approval and the sixth installment of the purchase price for such batch,
the finished product shall be placed in UNIMED's safe at NORAC's plant in
Azusa, California (or if already in UNIMED's safe, shall be segregated
therein). Title to the product shall pass to UNIMED upon placement or
segregation, as the case may be, of the product in UNIMED's safe following
approval and payment, which act shall constitute delivery to UNIMED and
the date of which shall be herein referred to as the "date of delivery."
UNIMED may remove the finished and paid for product from its safe at any
time on or after the date of delivery, provided that UNIMED has all
licenses and approvals required by applicable laws and regulatory
authorities to take possession of the product. Within a reasonable period
following notification by NORAC that NORAC's reasonable storage capacity
for product has been reached, UNIMED shall remove sufficient delivered
product from NORAC's premises to allow NORAC to continue production and
delivery of the product. Within thirty (30) days following the termination
of this Agreement, UNIMED shall remove all delivered product from NORAC's
premises.
4
<PAGE> 5
2. COMMERCIALLY REASONABLE EFFORTS BV NORAC; DELAYS IN DELIVERY. The
parties acknowledge and agree that the manufacture of THC is a complicated
process and that unexpected problems can arise during its production. Such
problems can include, but are not limited to, total or partial failure of
batches, shortages in batches, inability to manufacture or deliver the product
or delays in such manufacture or delivery (whether caused by inability or
delay in obtaining approvals from the DEA or other regulatory agencies or
caused by other factors), and the inability to obtain raw materials. NORAC
will use commercially reasonable efforts in meeting agreed production and
delivery schedules for the product as provided in this Agreement and in all
construction and manufacturing activities under this Agreement. NORAC will not
be liable for any damages of any nature or character whatsoever (including,
but not limited to any increased cost of obtaining replacement product, lost
profits, and incidental and consequential damages) suffered by UNIMED by
reason of the failure of NORAC to manufacture and deliver the product in the
amounts and at the times agreed upon by the parties; provided, however, that
the sole and exclusive remedies of UNIMED shall be as provided in Section 7.3
hereof and the remaining sentences of this Section 2, to the extent that each
is applicable. In the event that at least two-thirds (2/3) of the full amount
of product ordered by UNIMED is not delivered within ninety (90) days (or such
longer period as UNIMED approves in writing) after the delivery date specified
for such order, there shall be refunded to UNIMED, as its sole remedy, all
installment payments made for product not delivered. NORAC will keep UNIMED
informed of any potential delays in delivery and the parties agree to discuss
possible mutually agreeable solutions to any such problems. UNIMED may, at its
option, elect to extend any delivery period in writing. If such failure to
deliver at least two-thirds (2/3) of the full amount of product is due to
NORAC's material breach of its obligation to make a commercially reasonable
effort to produce and deliver the product (subject to Section 10.5), the sole
remedy (in addition to a refund on installment payments for THC not delivered
and the remedy provided by Section 7.3 below) which UNIMED shall have, in law
or in equity, is that UNIMED, at its option, may terminate this Agreement by
notification to NORAC within thirty (30) days after such ninety (90) day
period.
3. OBLIGATIONS OF NORAC.
3.1 SAMPLES AND BATCH RECORDS. During the term hereof, NORAC shall
prepare and maintain batch records and a file sample, properly stored,
from each batch of product manufactured. Upon termination of this
Agreement, NORAC shall offer such file samples to UNIMED, provided that
NORAC shall thereafter have access to same if required for regulatory or
other purposes required by law.
3.2 VISITS BY UNIMED. Subject to Section 10.16, NORAC shall permit
UNIMED's designated representatives to visit NORAC's facility at which the
product is manufactured from time to time for the purpose of determining
compliance with this Agreement, provided such inspections shall occur
after reasonable notice during regular business hours and each visitor
shall comply with NORAC's security procedures.
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<PAGE> 6
3.3 CHANGES BY NORAC. During the term hereof, NORAC may make material
modifications to the manufacturing equipment, or to the portion of its
manufacturing facility at which the product is manufactured, only after
providing written notice to UNIMED, and then only if such modifications
are in compliance with regulations and orders of the U.S. Food and Drug
Administration ("FDA"). NORAC may, without further investigation,
conclusively rely on any written notice by UNIMED that any such
modifications are in compliance with FDA regulations and orders, which
notification by UNIMED shall not be unreasonably withheld or delayed by
UNIMED.
3.4 INSPECTIONS BV GOVERNMENT AGENCIES. NORAC shall promptly notify
UNIMED of any inspections by federal, state or local regulatory
representatives of the parties of its manufacturing facility at which the
product is manufactured and the results of any such inspections, including
actions taken by NORAC to remedy conditions cited in such inspections.
3.5 PERMITS. NORAC shall obtain and maintain all licenses, permits and
registrations necessary for NORAC to manufacture and supply the product
hereunder, provided that there can be no assurances that DEA allotments
will remain available in any specific amount that may be desired by
Unimed; further provided, that NORAC agrees to use its commercially
reasonable efforts to obtain such allotment in the amount requested by
UNIMED from time to time and that UNIMED agrees to use its commercially
reasonable efforts to assist NORAC and Banner (or such other packaging
company engaged by UNIMED) in obtaining such allotment in the amount
requested by UNIMED from time to time.
3.6 ACCESS TO RECORDS. During the term hereof and for such longer
period as may be required by law, NORAC shall maintain, and (subject to
Section 10.16) shall grant UNIMED reasonable access to, all books and
records (including, but not limited to, batch records) related to the
manufacture of the product as may be necessary to determine compliance
with this Agreement or for such other purpose as may be required by law.
4. NORAC'S COVENANTS AND WARRANTIES. NORAC hereby covenants, represents
and warrants that:
4.1 COMPLIANCE WITH NDA. All product manufactured for UNIMED pursuant
to this Agreement shall, upon delivery to UNIMED, meet all pertinent
specifications in New Drug Application No. 18-651 (together with all
amendments and supplements thereto, if any) (the "NDA"), copies of which
specifications have been provided by UNIMED to NORAC, and any other
specifications for the product mutually agreed upon in writing by NORAC
and UNIMED.
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<PAGE> 7
4.2 COMPLIANCE WITH LAWS. NORAC will store all raw materials and will
manufacture and store the product in compliance with all then applicable
laws, rules, orders and regulations, including all then current Good
Manufacturing Practices of the FDA.
4.3 COMPLIANCE WITH THE ACT. As of the time of delivery of the product
to UNIMED, such shipment will not be, in whole or in part, (i) adulterated
within the meaning of the federal Food, Drug and Cosmetic Act (the "Act"),
or any applicable state law with a substantially similar definition of
adulteration; or (ii) an article which may not, under the provisions of
Section 404 or 505 of the Act, be introduced into interstate commerce.
4.4 TITLE TO THE PRODUCT. NORAC will have good title to all product
sold hereunder, which title shall pass to UNIMED as provided herein free
and clear of any lien or other conflicting interest of any kind of any
person claiming through NORAC.
4.5 NO OTHER WARRANTIES. Except as expressly set forth in this Section
4, NO OTHER WARRANTY IS EXPRESS OR IMPLIED. NORAC SPECIFICALLY DISCLAIMS
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. The provisions of Sections 4.1, 4.2 and 4.3 shall expire, and
have no further force and effect, with any respect to any particular batch
of product upon the delivery thereof to UNIMED.
5. UNIMED COVENANTS AND WARRANTIES. UNIMED hereby covenants,
represents and warrants that:
5.1 PERMITS. UNIMED will use commercially reasonable efforts to
maintain the NDA in effect.
5.2 FDA. UNIMED shall promptly notify NORAC of any additions to or
changes in FDA or other laws, rules, orders or regulations or to the
NDA which would affect the manufacture or storage of the product.
5.3 NO INFRINGEMENT. The product, when manufactured in accordance with
the specifications set forth in the NDA, does not infringe the patent or
other rights of any third person.
6. USE OF EQUIPMENT; CONSTRUCTION.
6.1 UNIMED EQUIPMENT. UNIMED has previously provided certain
equipment to NORAC for use by NORAC at its plant in Azusa, California in
connection with the manufacture of the product. UNIMED agrees that NORAC
may continue to use
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such equipment, together with all equipment subsequently added pursuant to
this Section 6 (collectively, the "UNIMED Equipment"), without rent or
other charge, throughout the duration of this Agreement exclusively for
the manufacture and sale of the product to UNIMED. Upon termination
of this Agreement, all of the UNIMED Equipment shall, subject to Section
6.4 hereof, be returned to UNIMED at UNIMED's expense.
6.2 FURTHER WORK. All costs, including but not limited to labor,
supplies, equipment and building permits, incurred in connection with the
acquisition of further equipment, construction projects and other work,
all of which must be expressly approved in advance in writing by UNIMED,
shall be paid by UNIMED. Details of costs shall be provided to UNIMED upon
request.
6.3 COSTS OF CONSTRUCTION. Costs of work undertaken pursuant to Section
6.2 shall include, but not be limited to, the following:
6.3.1 LABOR. All construction labor, other than normal
maintenance, shall be reimbursed by UNIMED at three (3) times the
direct hourly wage of each employee involved.
6.3.2 CONTRACTORS. All outside contractors engaged by NORAC to
assist in construction or other work shall be reimbursed by UNIMED at
cost plus ten percent (10 %).
6.3.3 MATERIALS AND EQUIPMENT. NORAC shall be reimbursed by
UNIMED for all materials and equipment purchased by NORAC for work
requested or approved by UNIMED, at the identified cost therefor, plus
ten percent (10%) to cover the cost of miscellaneous supplies and
materials.
6.4 NORAC'S RIGHT OF FIRST REFUSAL. In the event that during the term
of this Agreement UNIMED desires to sell or otherwise transfer all or any
part of the UNIMED Equipment, UNIMED shall first offer in writing to sell
such equipment to NORAC at the same price and on the same terms as offered
by a bona fide purchaser offering to purchase such equipment (the
"Offer"). Such notice to NORAC shall be accompanied by a copy of the
Offer. NORAC shall have ten (10) days following the date of such notice to
elect to exercise its right of first refusal by so notifying UNIMED in
writing and by payment for such equipment at the price and on the terms
specified in the Offer within thirty (30) days after the expiration of
such ten (10) day period. If NORAC shall fail to so notify UNIMED within
the said ten (10) day period, it shall be deemed to have rejected said
offer. In that event, UNIMED may sell or transfer such equipment to said
bona fide purchaser provided that such equipment is sold at a price at
least equal to the price stated in the Offer and in accordance with the
other terms stated
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therein, and the provisions of this Section 6.5 shall not thereafter apply
to any subsequent sales or other transfers of such equipment. If, however,
no such sale or transfer is consummated within one hundred twenty (120)
days from the date of the original Offer, the foregoing requirement that
the UNIMED first offer to sell such equipment to NORAC shall again apply.
7. DEFAULT
7.1 EVENT OF DEFAULT. It shall constitute an event of default by a
party under this Agreement if such party is in material breach of its duties
and obligations under this Agreement (including, but not limited, to any
failure to pay money when due) and fails to cure the same within thirty (30)
days after written notice thereof is given by the other party.
7.2 TERMINATION. Upon the occurrence hereunder of any event of default
by a party hereto, (which event of default has not been cured within the thirty
(30) day period described in Section 7.1), the other party may, upon notice to
the defaulting party, and in addition to all other rights and remedies
available to it under this Agreement or at law or in equity (except as
otherwise expressly provided in this Agreement), terminate this Agreement
within a reasonable time after the occurrence of such event of default.
7.3 TRANSFER OF TECHNOLOGY.
7.3.1 WRONGFUL TERMINATION OR FAILURE TO USE COMMERCIALLY
REASONABLE EFFORTS. In the event that NORAC either (i) terminates this
Agreement other than in accordance with any of the provisions of this
Agreement, or (ii) materially breaches its obligation to make a
commercially reasonable effort to produce and deliver the product
pursuant to this Agreement, then NORAC shall immediately grant to
UNIMED a perpetual, royalty free license to all manufacturing know-how
and technology used by NORAC to manufacture THC. The foregoing license
(i) shall be exclusive to UNIMED, with the right to grant sublicenses,
with respect to the use of such know-how and technology to manufacture
THC, and (ii) shall permit UNIMED and its sublicensees to use such
know-how and technology only to manufacture THC and for no other
purpose. NORAC shall retain all rights to use such know-how and
technology (including the right to grant sublicenses) for the
manufacture of products other than THC.
7.3.2 OTHER TERMINATION. In the event of any termination of
this Agreement that occurs other than as described in clauses (i) or
(ii) of Section 7.3.1 above, and other than by reason of a breach of
this Agreement by UNIMED, the parties agree to discuss a grant by NORAC
to UNIMED of a license to use all of its manufacturing know-how and
technology used by NORAC
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to manufacture the product for UNIMED, for such consideration as the
parties may mutually agree.
8. INSURANCE.
8.1 PROPERTY AND CASUALTY INSURANCE. UNIMED shall provide property
insurance coverage for UNIMED's equipment and finished product at NORAC's
facility in accordance with standard practice in the industry. UNIMED and
NORAC shall be shown as loss payees thereunder as their interests may
appear. NORAC shall provide adequate property insurance for the
replacement cost of NORAC'S plant and equipment, to the extent utilized in
the production of the product. NORAC shall be reimbursed, in accordance
with Section 6.2 and other provisions of this Agreement, for any
out-of-pocket or labor costs it incurs in rebuilding, repairing or
replacing UNIMED's equipment or property used in the production of the
product.
8.2 LIABILITY INSURANCE OF UNIMED. UNIMED shall procure and maintain in
effect at all times during and after the term of this Agreement, at
UNIMED's sole cost and expense, a commercial general liability policy of
insurance in the minimum amount of $1,000,000, combined single limit, and
a products liability policy of insurance in the minimum amount of
$3,000,000, combined singly limit, insuring against personal injury and
property damage caused by storage after delivery, distribution, sale, or
use of the product, and contractual liability. Each of such insurance
policies shall (i) either be written on a claims made or occurrence basis,
at UNIMED's option; (ii) be obtained from an insurer reasonably acceptable
to NORAC; (iii) name NORAC as an additional insured; (iv) contain a waiver
of subrogation clause; (v) contain a cross-liability endorsement or
severability of interest clause in favor of NORAC and UNIMED, including a
waiver of any exclusion of liability arising from a claim by one named
insured against another named insured; (vi) include broad form contractual
liability coverage insuring UNIMED's obligation to indemnify NORAC
pursuant to Section 9.1; (vii) be reasonably satisfactory to NORAC in
form and content; (viii) state that it is primary and not contributing
with any other insurance maintained by NORAC; and (ix) require that NORAC
be given at least thirty (30) days' prior written notice of the
modification, cancellation or expiration thereof. Concurrently with its
execution of this Agreement, UNIMED shall deliver to NORAC a certificate
of insurance evidencing such insurance policy and a copy of such insurance
policy. The provisions of this Section 8.2 shall survive the expiration or
termination of this Agreement.
8.3 LIABILITY INSURANCE OF NORAC. NORAC shall procure and maintain in
effect at all times during the term of this Agreement and for a period of
one (1) year thereafter, at NORAC's sole cost and expense, a commercial
general liability policy of insurance in the amount of $1,000,000,
combined single limit, insuring against personal injury and property
damage caused by the manufacture of the product and storage thereof
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<PAGE> 11
prior to delivery. NORAC shall not be obligated to approve or maintain
products liability insurance coverage. The commercial general liability
insurance policy required to be maintained by NORAC hereunder shall (i) be
written on a claims made or occurrence based policy, at NORAC's option;
(ii) be obtained from an insurer reasonably acceptable to UNIMED; (iii)
name UNIMED as an additional insured; (iv) contain a waiver of subrogation
clause; (v) contain a cross-liability endorsement or severability of
interest clause in favor of UNIMED and NORAC, including a waiver of any
exclusion of liability arising from a claim by one named insured against
another named insured; (vi) be reasonably satisfactory to UNIMED in form
and content; (vii) state that it is primary and not contributing with any
other insurance maintained by UNIMED; and (vii) require that UNIMED be
given at least thirty (30) days' prior written notice of the modification,
cancellation or expiration thereof. Concurrently with its execution of
this Agreement, NORAC shall deliver to UNIMED a certificate of insurance
evidencing such insurance policy and a copy of such insurance policy.
8.4 WORKERS' COMPENSATION OF NORAC. NORAC shall procure and maintain in
effect at all times during the term hereof workers' compensation insurance
policy, including employer's liability coverage in accordance with
applicable laws.
9. INDEMNIFICATION.
9.1 INDEMNIFICATION BY UNIMED. UNIMED agrees to indemnify and defend
NORAC and hold it harmless from and against any and all claims, damage,
liability, loss, cost or deficiency (including, but not limited to,
reasonable attorneys' fees and other costs and expenses incident to any
suit, action, proceeding, inquiry or investigation or the defense of any
claim or for enforcing this indemnification provision) and to pay NORAC on
demand the full amount of any expenses, claims, liabilities or other sums
which NORAC pays or becomes obligated to pay on account of, arising from
or related to the storage after delivery, distribution, sale or use of the
product hereunder, including but not limited to breach of warranty, strict
liability or product liability claims (except to the extent that NORAC is
obligated with respect to such claims under Section 9.2). The provisions
of this Section 9.1 shall survive the termination of this Agreement.
9.2 LIMITATION OF LIABILITY OF NORAC; INDEMNIFICATION BY NORAC.
9.2.1 LIMITATION OF LIABILITY OF NORAC. UNIMED acknowledges and
agrees that notwithstanding any other provisions of this Agreement,
NORAC's liability hereunder and to third parties shall be limited to
claims, damages, losses, liabilities, costs or deficiencies (including,
but not limited to reasonable attorneys' fees), arising from or related
to the manufacture of the product or storage thereof prior to delivery
solely to the extent that the injuries or damages giving rise to such
claims occur and are actually known by NORAC during the period of
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manufacture of the product and storage thereof prior to delivery and
shall exclude any and all products liability claims; provided,
however, that this Section 9.2.1 shall not be construed to negate or
supersede UNIMED's remedies set forth in Sections 2 and 7.3 hereof
under certain circumstances specifically set forth therein. Nothing in
this Section is intended to affect any other limitations on the
liability of NORAC under any other provision of this Agreement or
otherwise. The limitation on NORAC's liability hereunder is a material
consideration for NORAC entering into this Agreement, it being the
understanding of the parties that UNIMED is providing NORAC with the
specifications for the manufacture of the product and the approval of
the product by UNIMED pursuant to Section 1.5 shall constitute UNIMED's
agreement and approval that the product conforms to such specifications
and the full and complete release of NORAC and its directors, officers,
employees, agents and shareholders with respect to any and all claims,
damages, losses, costs or deficiencies, known and unknown, arising from
or relating to the manufacture or storage of the product.
9.2.2 INDEMNIFICATION BY NORAC. NORAC agrees to indemnify and
defend UNIMED and hold it harmless from and against any and all claims,
damage, liability, loss, cost or deficiency (including, but not limited
to, reasonable attorneys' fees and other costs and expenses incident to
any suit, action, proceeding, inquiry or investigation or the defense
of any claim or for enforcing this indemnification provision) and to
pay UNIMED on demand the full amount of any expenses, claims,
liabilities or other sums which UNIMED pays or becomes obligated to pay
on account of, arising from or related to the manufacture of the
product or storage thereof prior to delivery solely to the extent that
the injuries or damages giving rise to such claims occur and are
actually known by NORAC during the period of manufacture of the product
or storage thereof prior to delivery (except to the extent that such
claims arise from UNIMED's gross negligence or willful misconduct). In
no event shall NORAC's indemnification obligations hereunder apply to
any products liability claims.
9.2.3 SURVIVAL. The provisions of this Section 9.2 shall
survive the termination of this Agreement.
10. MISCELLANEOUS.
10.1 WAIVER. AMENDMENTS AND MODIFICATIONS. Any of the terms or
conditions of this Agreement may be waived at any time by the party which
is entitled to the benefit thereof only by a writing executed by the
waiving party. This Agreement may be amended or modified at any time, in
whole or in part, only by a writing executed by the respective parties.
The provisions of this Section 10 shall survive the termination of this
Agreement.
12
<PAGE> 13
10.2 NOTICES. All notices, requests and other communications required
or permitted hereunder shall be in writing, addressed to the respective
parties as follows:
NORAC
The NORAC Company, Inc.
405 South Motor Avenue
Azusa, California 91702
Attention: President
UNIMED
Unimed Pharmaceuticals, Inc.
2150 E. Lake Cook Road,
Suite 210
Buffalo Grove, Illinois 60089
Attention: Stephen M. Simes, President
Any notice or other communication sent by registered or certified mail,
return receipt requested, shall be effective on the date of receipt or
refusal of delivery by the addressee, as specified on the return receipt
therefor. Notice given in any other manner shall be effective upon actual
receipt by the addressee. Any party may change its address for
purposes of this Section by giving notice to the other party as provided
in this Section.
10.3 ASSIGNMENT.
10.3.1 This Agreement shall not be assignable by either party
without the prior written consent of the other. Notwithstanding the
foregoing, NORAC may, upon UNIMED's prior written consent which shall
not be unreasonably withheld, assign this Agreement and delegate its
performance hereunder to a wholly-owned subsidiary of NORAC, and
thereupon NORAC shall have no further obligations under this Agreement,
except in the event of the breach by such subsidiary of any of its
obligations under Section 1.4 to deliver to UNIMED any batch of product
and the failure by such subsidiary to return to UNIMED any and all
installments of the purchase price for such batch previously paid by
UNIMED pursuant to Section 1.4, NORAC shall be obligated to return any
such installments to UNIMED and NORAC shall have no further obligations
under this Agreement.
10.3.2 Notwithstanding the foregoing Section 10.3.1, either
party may assign its rights and obligations hereunder to a successor by
merger or to a purchaser of all or substantially all of its business to
which this Agreement relates (provided, however, that this section
shall not affect the provisions set forth in Section 10.4 or the
subsections thereof or the protections to UNIMED described therein).
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<PAGE> 14
10.4 UNIMED'S RIGHT OF FIRST REFUSAL. NORAC and its shareholders, as
an inducement to UNIMED to enter into this Agreement, agree as follows:
10.4.1 The shareholders of NORAC agree that during the term of
this Agreement they shall not sell or otherwise transfer a controlling
interest in NORAC (as "control" is defined in Section 10.4.5) to a
direct competitor of UNIMED (as such term is defined in Section
10.4.5), other than in accordance with this Section 10.4.
10.4.2 NORAC agrees that during the term of this Agreement it
shall not sell or otherwise transfer that portion of its manufacturing
facility in Azusa, California at which the product is manufactured
(such portion of the manufacturing facility being herein referred to as
the "Plant") other than in accordance with the provisions of this
Section 10.4. Notwithstanding the foregoing:
(i) A sale or other transfer of the Plant to any person or
entity which controls, is controlled by or is under common control
with NORAC (as "control" is defined in Section 10.4.5) (such person
or entity being herein referred to as a "Control Person") shall not
be subject to the provisions of this Section 10.4; provided,
however, any further sale or other transfer of the Plant (except to
another Control Person) shall continue to be subject to the
provisions of this Section 10.4.
(ii) The foregoing provisions of this Section 10.4.2 shall not
apply to any sale or other transfer of all or substantially all of
NORAC's manufacturing facility in Azusa, California, of which the
Plant is a portion; provided, however, that it shall be a condition
of such sale or other transfer that any purchaser or other
transferee shall assume the obligations of NORAC under this
Agreement.
10.4.3 If NORAC or its shareholders, as the case may be
("Offeror"), desire to sell or otherwise transfer a Subject Interest
(as defined in Section 10.4.5), as provided in Sections 10.4.1 or
10.4.2, the Offeror shall first offer in writing to sell the Subject
Interest to UNIMED at the same price and on the same terms as offered
by a bona fide purchaser offering to purchase the Subject Interest (the
"Offer"). Such notice to UNIMED shall be accompanied by a copy of the
Offer. UNIMED shall have ten (10) days following the date of such
notice to elect to exercise its right of first refusal by so notifying
the Offeror in writing and by payment for such Subject Interest at the
price and on the terms specified in the Offer within thirty (30) days
after the expiration of such ten (10) day period.
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<PAGE> 15
10.4.4 If UNIMED shall fail to so notify the Offeror within the
said ten (10) day period, it shall be deemed to have rejected said
offer. In that event, the Offeror may sell or transfer the Subject
Interest to said bona fide purchaser provided that the Subject Interest
is sold at a price at least equal to the price stated in the Offer and
in accordance with the other terms stated therein, and the provisions
of this Section 10.4 shall not thereafter apply to any subsequent sales
or other transfers of any Subject Interest. If, however, no such sale
or transfer is consummated within one hundred twenty (120) days from
the date of the original Offer, the foregoing requirement that the
Offeror first offer to sell the Subject Interest to UNIMED shall again
apply.
10.4.5 As used in this Section 10.4, the following terms shall
have the meanings specified in this Section 10.4.5:
"Control" shall mean having the power to direct or cause
direction of the management and policies of NORAC.
A "direct competitor of UNIMED" shall mean an entity that sells
a pharmaceutical product which directly competes with Marinol.
"Subject Interest" shall mean either a controlling interest in
NORAC (provided that it is sold or otherwise transferred to a direct
competitor of UNIMED) or the Plant.
10.5 Force Majeure.
10.5.1 No party shall be liable for any failure to perform its
obligations hereunder where such failure results from causes beyond the
reasonable control of such party, including, without limitation,
strikes, lockouts, labor disputes, embargoes, acts of God, inability to
obtain labor or materials, governmental restrictions, governmental
regulations, governmental orders, judicial orders, enemy or hostile
governmental action, civil commotion, earthquake, fire or other
casualty, provided that the party claiming the force majeure has given
prompt notice thereof to the other party. Performance by the party
claiming the force majeure shall be suspended for the duration of the
force majeure, subject to Section 10.5.2 below.
10.5.2 Notwithstanding the foregoing, in the event the claimed
force majeure prevents NORAC from commencing manufacture of the product
within six (6) months from the occurrence of the event of force
majeure, either party may terminate this Agreement and cancel all
orders for product hereunder not yet delivered immediately upon written
notice to the other. Upon notice of such termination, and cancellation,
NORAC shall immediately refund to UNIMED any
15
<PAGE> 16
and all amounts paid by UNIMED hereunder for product not yet delivered.
NORAC will, if requested, assist UNIMED in finding alternative
sources of supply for the product.
10.6 PARTIES. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any person, other than the parties hereto and
their successors and permitted assigns, any rights or remedies under or by
reason of this Agreement.
10.7 ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement, or the breach or interpretation thereof, shall be
resolved by binding arbitration in Los Angeles County, California. The
arbitrator, who shall be a retired judge of the Superior Court, shall be
selected jointly by the parties, or if the parties fail to do so, shall be
appointed by Judicial Arbitration and Mediation Services, Inc. The
arbitration shall be conducted in accordance with the provisions of Part
3, Title 9 (Section 1280 et seq.) of the California Code of Civil
Procedure. The provisions of Section 1283.05 of the California Code of
Civil Procedure, which provides for certain discovery procedures, is by
this reference made a part hereof. A judgment upon the award rendered in
the arbitration may be entered in any court having jurisdiction thereof.
Neither the provisions of this Section nor the exercise of any rights
hereunder shall limit the right of any party to institute and maintain
litigation in order to obtain, at any time, provisional or ancillary
remedies including, without limitation, attachment and injunctive relief;
the institution and maintenance of such litigation shall not constitute a
waiver of the right of any party to submit any controversy or claim to
arbitration as herein provided. In any action or arbitration proceeding
brought under or arising out of or relating to this Agreement, or the
breach or interpretation thereof, each party hereby consents to the
jurisdiction of any competent court within the State of California and to
service of process by any means authorized by California law.
10.8 ATTORNEYS' FEES. If any proceeding (including any arbitration
proceeding) is brought for the enforcement of this Agreement, or because
of an alleged dispute, breach, default or misrepresentation in connection
with the provisions hereof, the successful or prevailing party in such
proceeding shall be entitled to recover its reasonable attorneys' fees and
other costs incurred in such proceeding.
10.9 LATE PAYMENT. If any amount is not paid when due under this
Agreement, interest shall thereafter accrue on such amount at a rate of
three percentage points (3%) in excess of the "prime rate" as reported in
The Wall Street Journal (or if more than one prime rate is reported, the
highest thereof) until such payment is received by the party to whom such
payment is owed (the "payee"), and, in addition, in the event that the
person obligated to make such payment (the "payor") fails to make payment
to the payee
16
<PAGE> 17
within twenty-one (21) days following the delivery to the payee of written
notice of nonpayment, the payee shall be entitled to receive a late charge
in an amount equal to ten percent (10%) of the overdue amount. The parties
recognize that a default in making payments as provided herein will
require the payee to incur additional costs and expenses and that the
damages caused thereby would be extremely difficult and impractical to
ascertain. The parties agree that an amount equal to the late charge plus
the accrual of interest at the prime rate plus 3% is a reasonable estimate
as of the date hereof of the damage to the payee in the event of late
payment.
10.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute only one instrument.
10.11 INTERPRETATION. The section headings of this Agreement are for
the convenience of reference only and shall not be deemed to alter or
affect the meaning of any provision hereof. This Agreement has been
reviewed by both parties and their respective counsel, and as a result,
shall be given a fair and reasonable interpretation without consideration
or weight being given to its having been drafted by any one party or its
counsel.
10.12 ENTIRE AGREEMENT. This Agreement hereto constitutes the final,
complete and exclusive agreement between the parties and supersedes any
and all prior negotiations, discussions, understandings and agreements
between the parties relating to the subject matter hereof (including, but
not limited to the Prior Contract).
10.13 TIME OF ESSENCE. Time is of the essence in the observation and
performance of the provisions of this Agreement.
10.14 SEVERABILITY. In case one or more of the provisions contained in
this Agreement shall be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired hereby.
10.15 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of California,
without regard to principles of conflicts of laws.
10.16 CONFIDENTIALITY. The parties agree that all information obtained
by them pursuant to Sections 3.2 or 3.6 or otherwise shall remain strictly
confidential and shall not be used or disclosed by either party for any
purpose other than to determine compliance with this Agreement or for such
other purpose as may be required by law. In the event that disclosure is
required by law, the recipient will be advised of the
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<PAGE> 18
confidential nature of such information and a confidentiality agreement or
protective order maintaining the confidentiality of such information will
be obtained to the maximum extent possible.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it
as of the day and year first above written.
UNIMED PHARMACEUTICALS, INC. THE NORAC COMPANY, INC.
By: _______________________ By: _______________________
Stephen M. Simes, Title: __________________
President & CEO
By: _______________________ By: _______________________
Title: ____________________ Title: __________________
The undersigned, shareholders of NORAC holding a controlling interest (as
defined above) therein, hereby join in the foregoing agreement solely for
purposes of Section 10.4 thereof.
______________________________
______________________________
______________________________
18
<PAGE> 1
Exhibit 10-R
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 PROMULGATED
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is entered into as of the ______ day of
February, 1997 but effective as of the close of business on February 28, 1997
("Effective Date") between UNIMED PHARMACEUTICALS, INC., a Delaware corporation
("Distributor") and G. D. SEARLE & CO., a Delaware corporation ("Company").
WHEREAS, Company has heretofore, directly and/or through others, promoted,
marketed and sold its Product (as hereinafter defined) in various countries in
the world;
WHEREAS, Distributor has the necessary facilities and resources to develop
the market for such Product in the Territory (as hereinafter defined), as well
as to carry out the duties hereinafter specified and is desirous of being
granted the right to sell such Product in the Territory; and
WHEREAS, Company is willing to grant such right to Distributor upon the
terms and conditions herein set forth;
NOW, THEREFORE, it is mutually agreed by the Company and Distributor as
follows:
1. APPOINTMENT AND ACCEPTANCE; CONTINGENCY.
(a) Subject to the following terms and conditions, Company hereby appoints
Distributor as Company's exclusive distributor (exclusive even as to the
Company and its affiliates and subsidiaries) in the United States excluding its
territories and possessions (the "Territory") of the product described in
Exhibit A (the "Product") for sale under the trademark "MAXAQUIN" (the
"Trademark") to any and all customers and accounts. Distributor hereby accepts
such appointment. The Company will not, directly or indirectly, use the
Trademark in the Territory during the term of this Agreement. [XXXXX] The
parties will review sales information on a periodic basis during the term of
the Agreement and if they determine that there is any violation of the
territorial limitation of this license by either party, appropriate action will
be taken to prevent such violation in the future.
(b) It is understood and agreed by the Company and Distributor, that
Distributor may from time to time find it convenient, for the discharge of its
obligations hereunder, to appoint subdistributors, agents or dealers within the
Territory. Distributor shall be entitled to appoint subdistributors, agents or
dealers only if the following conditions have been satisfied:
<PAGE> 2
(i) Distributor shall have notified the Company in writing of the
name, address, and commercial experience of such prospective
subdistributor, agent or dealer and the Company shall have approved such
subdistributor, agent or dealer (which approval will not be unreasonably
withheld); and
(ii) Distributor shall have secured the enforceable written
agreement, in form and substance satisfactory to the Company, of any
subdistributor, agent or dealer that the latter:
(A) shall look solely and exclusively to Distributor for any
compensation of any kind and shall not have any claim or right to
any compensation of any kind whatsoever from the Company, in
particular, termination indemnities, payments, compensations or
other benefits; and
(B) shall have no rights with respect to the distribution of
the Product within the Territory greater than the rights of
Distributor under this Agreement.
(c) Distributor agrees that it shall be responsible for the full and
faithful performance of any duty or obligation under this Agreement delegated,
expressly or by implication, by Distributor to any subdistributor, agent or
dealer and shall indemnify and hold harmless the Company against any liability,
termination indemnity, loss, injury, claim, cost, or expense incurred by the
Company as a result of Distributor's appointment of any subdistributor, agent
or dealer. In particular, Distributor agrees to indemnify the Company for any
liabilities, claims, losses or any other costs or expenses which Company may
incur as a result of any claim by any such subdistributor, agent or dealer
during the term or after the expiration or other termination of this Agreement.
(d) Company represents and warrants to Distributor that it is the licensee
under a License Agreement (the "Master License") dated April 30, 1987, as
amended, between Company and Hokuriku Seiyaku Co., Ltd. (the "Licensor") to
certain patents relating to the Product (the "Patents"). Company has received
no notice of any outstanding dispute with the Licensor under the Master
License. Company further represents and warrants that the rights grant by this
Agreement to Distributor do not violate the license granted to Company under
the Master License. Company will use all reasonable efforts (other than the
payment of money not required under the express terms of the Master License) to
maintain the Master License in full force and effect for the term thereof.
Distributor acknowledges and agrees that the distribution rights granted
under this Agreement are subject to, and limited by, the terms and conditions
of the Master License, including any termination rights thereunder.
2
<PAGE> 3
(e) Distributor further acknowledges and agrees that Company and its
Affiliates and Company's Licensor are the exclusive owners of the
quali/quantitative formula and all other information and know-how related to
the Product, and that they shall retain full rights to same.
2. DUTIES OF DISTRIBUTOR.
(a) Distributor accepts the foregoing appointment and agrees to provide
all of the usual and customary services of a distributor in the Territory,
which shall include, without limitation, the following:
(i) Distributor shall use all reasonable efforts to distribute and
sell and diligently promote the Product in the Territory. In this
regard, Distributor shall provide and maintain an aggressive and
efficient sales organization adequate for the needs of the Territory.
(ii) Distributor agrees to sell and distribute Product in a
professional and responsible manner.
(iii) Distributor agrees not to knowingly sell and distribute
counterfeit Company products or Product which has been misbranded or
adulterated or which is otherwise illicit.
(iv) Distributor agrees to include the Product at frequent intervals
in lists, bulletins or catalogs, as they may be issued by Distributor to
its customers, and agrees to check such customers' supplies of Product
regularly to insure adequate stocking and that the Product is in saleable
condition.
(v) Distributor agrees not to sell the Product outside the Territory
or knowingly sell the Product to customers in the Territory intending to
or who do resell outside the Territory.
(vi) Distributor agrees to store and ship the Product strictly in
accordance with the specifications in Exhibit A ("Specifications") and
Company's instructions and as otherwise required by law.
(vii) Distributor agrees not to make any warranty, guarantee, claim
or representation in connection with the Product, unless authorized by
Company or contained in written materials forwarded by Company to
Distributor.
(viii) Distributor agrees to keep Company periodically and regularly
apprised of the state of the market for the Product in the Territory.
3
<PAGE> 4
(ix) Distributor shall promptly forward to Company any known Product
related complaints (whether of a medical nature, including adverse
reactions and events, or product quality nature) and will assist Company
in resolving such complaints.
(b) Nothing contained in this Agreement shall be construed to restrict
Company's right, in its sole discretion, to discontinue manufacturing (or
having the Product manufactured on its behalf) or distributing the Product
within the Territory at any time, immediately upon prior written notice to
Distributor if in Company's reasonable scientific or medical judgment (based
upon medical or scientific reasons or on information or circumstances not known
or existing as of the date hereof by Company's senior medical officer), further
sale of the Product in the Territory is not advisable.
(c) Distributor warrants and agrees that it is not now selling and will
not during the term hereof sell in the Territory any goods directly competitive
with the Product. "Directly competitive" means a fluroquinolone product.
(d) Distributor also agrees to grant Company and its designated
representatives access from time to time as requested, during normal business
hours and upon reasonable notice, to all relevant packaging, advertising and
sales records, and to the premises at which Distributor stores any of the
Product.
3. PURCHASE OF PRODUCT.
(a) Distributor shall place purchase orders with Company for, and will
purchase and warehouse, such quantities of the Product as Distributor believes
may from time to time be required to meet trade requirements in the Territory.
(b) Distributor shall submit written purchase orders to the Company for
the Product and Company shall accept such orders to the extent that they meet
the other requirements of this paragraph (b) and do not exceed Company's
capacity to produce Product. All sales hereunder shall be subject to the terms
and conditions of this Agreement, except for quantity and delivery date terms
which may be specified in any purchase order hereunder; provided that, delivery
shall in no event be required in less than ninety (90) days from Company's
receipt of the applicable purchase order. In the event of any conflict, the
terms of this Agreement shall prevail over those contained in purchase orders
or any other documents submitted by Distributor in connection with this
Agreement. Concurrently with the execution of this Agreement, Distributor will
provide Company a forecast of estimated requirements for Product during the
following six (6) calendar quarters. Distributor shall exert all reasonable
efforts to make each forecast as accurate as possible and shall update such
forecast at the end of each calendar quarter for the following six (6) calendar
quarters. Company shall accept and fill orders to the extent they do not
exceed one hundred and twenty percent (120%) of Distributor's forecast for the
applicable calendar quarter and use all reasonable efforts to fill any portion
of such orders in excess of such amount. Unless the parties subsequently agree
to the contrary, Company's obligation to supply
4
<PAGE> 5
Product shall cease the earlier of ten (10) years after the date of
execution of this Agreement or, if Distributor's purchases in any calendar year
after 1996 are less than [XXXXX] tablets [XXXXX] tablets in 1997], upon the
expiration of two (2) years' notice given by Company at any time thereafter.
By the end of seven (7) years after the date of execution of this Agreement, if
Company does not agree to extend its obligation to supply Product as described
above, Company will provide reasonable assistance to Distributor to find an
alternative source of supply.
(c) The Product shall meet the Specifications, as the same may be amended
from time to time by agreement of the parties or by requirement of the U.S.
Food and Drug Administration ("FDA").
(d) Sales by Company to Distributor shall be made FOB shipping point
(Incoterms 1990) at Company's plant in Caguas, Puerto Rico (or such other
shipping point as may be agreed between the parties), initially at the prices
specified in Exhibit B, subject to Company's right, at any time and from time
to time, to modify such prices pursuant to the formula as set forth in Exhibit
B. All sales, use, gross receipts, added-value and other taxes, and similar
charges, shall be borne by Distributor. Title to the Product and risk of loss
or damage to the Product shall pass to Distributor upon delivery to the common
carrier at the shipping point.
(e) All payments by Distributor for Product shall be made in United States
dollars to Company's affiliate, Searle & Co. (or other designated affiliate),
by wire transfer to the bank account designated by such affiliate from time to
time, in a written notice to Distributor. Payment shall be due thirty (30)
days (sixty (60) days for the initial shipment) from the date of shipment. It
is understood and agreed that Distributor shall not be obligated to pay for any
shipment, or portion thereof, of Product that has been properly rejected by
Distributor pursuant to this Agreement.
(f) Company shall keep full and accurate books and records related to the
fully absorbed cost of the Product in sufficient detail so amounts payable
hereunder can be properly calculated. Such books and records shall be kept for
the longer of two (2) years after the close of the calendar year to which the
records apply or the period required by law. Commencing with the books and
records for calendar year 1998, Company shall permit (not more than once each
calendar year during the term hereof) independent accountants designated by
Distributor to whom Company has no reasonable objection, to examine said books
and records at reasonable times for the sole purpose of verifying the accuracy
of the written statements submitted to Distributor and the purchase price for
Product paid or payable. Said independent accountants shall not disclose to
Distributor any information other than information relating solely to the
accuracy of the accounting and payments made by Distributor pursuant to this
Agreement and shall otherwise be bound by the confidentiality provisions of
this Agreement.
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<PAGE> 6
4. OBLIGATIONS OF COMPANY.
(a) Subject to paragraph 3 above, Company agrees to use all reasonable
efforts to sell, or cause to be sold to Distributor by one or more of Company's
affiliates, on a timely basis the Product in quantities adequate to meet the
needs of the market throughout the Territory. In the event that Company is
unable to fill any accepted purchase order, Company shall promptly notify
Distributor. Distributor shall have the right under this Agreement to cancel
any quantity of Product for which Company has failed or will be unable for any
reason, including, without, limitation, the force majeure reasons enumerated in
paragraph 19(d) hereof, to deliver within one (1) month following the
applicable delivery date set forth in written purchase orders accepted pursuant
to this Agreement. Any such canceled quantities up to the limits of
Distributor's applicable forecast made in compliance with paragraph 3(b),
however, shall apply to determining the amount of Distributor's purchases for
purposes of the second to last sentence of paragraph 3(b) above.
(b) Company shall inform Distributor of any orders and/or inquiries for
Product in the Territory which it receives. Company shall not knowingly sell
the Product to customers intending to resell the Product in the Territory.
(c) To the extent permitted by law, any decision to recall or cease
distribution of the Product, as a result of the Product being in violation of
any law, rule or regulation or presenting a possible safety risk, shall be made
by Company, after consultation with Distributor. In the event of any recall,
Company shall, with Distributor's cooperation and assistance, determine the
scope and form of the recall and Distributor shall conduct the recall. Company
will provide Distributor with any information concerning the manufacturing of
the Product which may reasonably be required by Distributor to determine the
need for a recall. Costs for any recall shall be borne by the party required
to indemnify the other party in relation to such recall pursuant to paragraph
9. Notwithstanding the foregoing, if Company falls within a reasonable period
of time to recall Product delivered to Distributor pursuant to this Agreement
that Distributor reasonably determines should be recalled due to safety
concerns, Distributor reserves the right to recall such Product after
consultation with Company and subject to ouch reasonable conditions and
limitations as Company may request.
(d) Company shall perform quality control tests and assays on raw and
packaging materials and on finished Product as required under the
Specifications. Unless instructed otherwise in writing by Distributor, Company
will vend Distributor a certificate of analysis for each shipment of Product.
(e) Company shall provide Distributor with relevant material information
concerning clinical studies previously conducted by Company in the Territory
and useful in the promotion and sale of the Product.
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<PAGE> 7
5. DISTRIBUTION RIGHTS PAYMENTS.
(a) In order to secure the rights to distribute and market the Product in
the Territory, Distributor has agreed to pay Company the following sums:
[XXXXX]
If (A) either party terminates this Agreement under paragraph 19(d), (B)
Company (without Distributor's agreement) exercises its rights under paragraph
2(b), (C) the Master License is terminated other than due to the Distributor's
negligence, willful misconduct or breach of this Agreement, or (D) Distributor
exercises its rights to terminate under paragraph 10(b)(i), (ii) or (iii),
Distributor shall be entitled to the return of the following portions of its
paragraph 5(a)(i), (ii), and (iii) payment:
<TABLE>
<CAPTION>
IF TERMINATED
DURING CALENDAR YEAR AMOUNT RETURNED*
-------------------- ----------------
<S> <C> <C>
1997 [XXXXX]
1998 [XXXXX]
1999 [XXXXX]
</TABLE>
The foregoing shall be Distributor's sole remedy in the event of any
termination of this Agreement for any of the reasons described above. In the
event of the termination of the Agreement for any other reason or at any other
time, Distributor shall not be entitled to a refund of any payment made under
this Agreement.
* The above amounts shall be netted against payments required hereunder,
including without limitation, payments required under each of sub-paragraphs
5(a)(i), (ii), (iii), and (iv) (but as to (iv) only the [XXXXX] percent
([XXXXX]) of Net Sales accrued but unpaid through the date of termination).
(b) For purposes of the above paragraphs, "Net Sales" means the gross
invoice value of the Product as and when sold by Distributor or its affiliates,
to unrelated third parties, less (i) ordinary and customary volume, cash and
trade discounts and rebates, (ii) credits, allowances, refunds and adjustments
actually credited or made to customers for spoiled, damaged, outdated and
returned Project, (iii) sales, use, excise, and value-added taxes, and (iv)
reasonable freight and insurance to the extent included in gross invoice value.
(c) Each payment shall be accompanied by the report required under
paragraph (d) below, plus such other information on the sale of Product as
Company may reasonably request. Except as otherwise provided in paragraph 3,
all payments to be made by Distributor to Company pursuant to this Agreement
shall be made in United States dollars by wire transfer to
7
<PAGE> 8
Company's account number [XXXXX] at [XXXXX] (or other bank or account
designated by Company) in immediately available funds and shall not be reduced
by any taxes, licenses, fees or other withholdings.
(d) Within thirty (30) days after the end of each calendar quarter during
the term hereof, Distributor will provide company a statement showing the
calculation of Net Sales (in form satisfactory to Company) and the calculation
of the payment due.
(e) The payments under sub-paragraphs 5(a)(i), (ii), and (iii) above shall
be non-refundable (except as otherwise expressly provided herein) and not
creditable against subparagraph 5(a)(iv) payments.
(f) Distributor shall keep full and accurate books and records related to
Net Sales of the Product in sufficient detail so amounts payable hereunder can
be properly calculated. Such books and records shall be kept for the longer of
the term of this Agreement plus two (2) years or the period required by law.
Distributor shall permit (not more than once each calendar year during the term
hereof) independent accountants designated by Company to whom Distributor has
no reasonable objection, to examine said books and records at all reasonable
times for the sole purpose of verifying the accuracy of the written statements
submitted by Distributor and the distribution rights fees paid or payable.
Said independent accountants shall not disclose to Company any information
other than information relating solely to the accuracy of the accounting and
payments made by Distributor pursuant to this Agreement and shall otherwise be
bound by the confidentiality provisions of this Agreement.
(g) Overdue amounts payable by Distributor to Company or its affiliate
under paragraph 3 and/or this paragraph 5 shall bear interest from the date due
to and including the date paid at the rate of [XXXXX] ([XXXXX]) per month or,
if lower, the highest rate permitted by applicable law.
(h) For purposes of this paragraph 5, "Financial Covenant" means that at
all times prior to the payment in full of amounts due under paragraph 5(a)(ii)
and (iii), Distributor's cash and cash equivalents plus short-term investments,
minus total current liabilities shall equal or exceed [XXXXX] United States
dollars ([XXXXX]). Distributor shall not later than fifteen (15) days after
the end of each calendar month, provide Company with an unaudited balance sheet
showing compliance with the Financial Covenant and certified by Distributor's
chief financial officer. In the event that Distributor breaches the Financial
covenant, payments under paragraphs 5(a)(ii) and (iii) shall be immediately due
and payable, without further notice or demand by Company and without any cure
period.
6. SALES PROMOTION AND REPORTS.
(a) Distributor shall maintain:
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<PAGE> 9
(i) such facilities in the Territory as are necessary for storing
and distributing the Product in the Territory;
(ii) an accurate and up-to-date list of customer" and prospective
customers; and
(iii) a system of recordkeeping to permit tracking of the Product
sold hereunder, in the event a recall of any Product is ordered.
Distributor shall retain, and grant Company and its representatives access
to, such records during the term of this Agreement and for a period of at least
two (2) years following its expiration or other termination.
(b) Distributor shall provide Company with detailed semiannual written
reports of its sales and sales promotion activities in such manner as Company
shall reasonably require.
7. TRADEMARKS AND OTHER PROPRIETARY RIGHTS.
(a) Company represents that the trademark registration for Maxaquin (the
"Trademark") is valid and subsisting in the Territory and, that to the best of
its knowledge, the Company has the exclusive right to use the Trademark in the
Territory.
(b) The parties have agreed, subject to any governmental approvals or
changes, to make changes in the labeling and packaging for the Product so that
they would include Distributor's corporate name.
(c) Distributor acknowledges that the Trademark used in connection with
the Product is not Distributor's property, and Distributor shall not contest
such Trademark or seek to register or have registered any such Trademark or
trade name in the Territory. Distributor shall not display or use any
Trademark or trade name owned by the Company except during the term of this
Agreement and then only in a manner previously approved by Company; provided,
however, that no such prior approval shall be required for the use or
advertising or promotional materials prepared, designed, furnished or approved
in writing in advance by Company. Company shall respond to Distributors
written submissions in this regard within five (5) business days of receipt.
Distributor shall execute any documents necessary for the recordal of any
required registered user agreement in the Territory.
(d) Distributor shall promptly notify Company if Distributor becomes aware
of any actual or potential infringement of or conflict with Company's trademark
rights or any other proprietary rights relating to the Product in the
Territory. Company, at its expense, shall have the right to deal with such
infringement or conflict by appropriate legal proceedings (but Distributor
shall provide all reasonable assistance in connection therewith) and Company
shall be solely entitled to any compensation or other payment received in
connection therewith.
9
<PAGE> 10
However, if Company fails to commence and diligently pursue appropriate
legal proceedings against the infringer within sixty (60) days of Distributor's
notice to Company, Distributor shall be solely entitled to deal with such
infringement or conflict by such means as Distributor sees fit (but Company
shall provide all reasonable assistance in connection therewith) and
Distributor shell be solely entitled to any compensation or other payment
received in connection therewith. If the use of the Trademark is enjoined in
the Territory, Company shall provide Distributor with a substitute trademark.
(e) Notwithstanding the foregoing paragraph, in the event Company fails to
commence and diligently pursue appropriate legal proceedings under paragraph
7(d) above, Distributor may, in addition to the other remedies provided in
paragraph 7(d) above, in its sole discretion, elect to register a new trademark
for the Product, which trademark shall be the sole and exclusive property of
Distributor.
8. COMPLIANCE WITH APPLICABLE LAW.
(a) Subject to Company's compliance with paragraph 9 and 15 below,
Distributor shall be responsible for compliance of the Product with all
applicable laws and regulations and governmental orders and decrees in the
Territory, federal, state and local. Further, Distributor shall promptly
inform Company in writing of any change or proposed change in requirements for
production, promotion or sale of the Product imposed by any governmental entity
in the Territory.
(b) Distributor shall communicate all ADE events in the Territory related
to Products sold in the Territory by Distributor to Company in sufficient time
and detail to enable Company to comply with its reporting requirements under
FDA regulations. Sufficient time shall mean within three (3) days as to
serious ADE's and within seven (7) days as to non-serious ADE's.
In addition to its obligations under paragraph 15, every six months
Company will provide Distributor with periodic drug safety update reports
prepared in accordance with EC guidelines.
ADE shall mean any adverse drug experience as defined by FDA regulations
(c) Company shall promptly notify Distributor of any inspections by
federal, state or local regulatory representatives of any facility or
facilities where the Product is manufactured and/or packaged, and shall, if
such inspections directly relate to the Product, send Distributor copies of the
portions of the reports of any such inspections which directly relate to the
Product, including actions taken by Company to remedy condition cited in such
inspections.
(d) Subject to Distributor's compliance with its obligations under this
Agreement, Company shall obtain and maintain all government license, permits
and registrations necessary to manufacture, package and supply Product
hereunder.
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<PAGE> 11
(e) Not more frequently than once each calendar year during the term
hereof, Company shall allow a representative of Distributor (to whom Company
has no reasonable objection) to inspect the facility or facilities where the
Product is manufactured and/or packaged, to assure compliance with Company's
obligations under this Agreement. Such inspection shall be at reasonable
times, following reasonable notice and be subject to such confidentiality
agreement and rules as Company shall designate from time to time.
9. WARRANTY, INDEMNITY AND INSPECTION.
(a) Company warrants, represents and covenants that
(i) the Product, when delivered to the common carrier at the FOB
point, shall have been manufactured and packaged in accordance with
current good manufacturing practices of the FDA ("CGMPs") and meet the
then applicable Specifications;
(ii) On the date of shipment, no Product sold hereunder shall be
adulterated or misbranded within the meaning of the Federal Food, Drug
and Cosmetic Act, as amended (the "Act") , or within the meaning of any
applicable state or municipal laws in which the definitions of
adulteration and misbranding are substantially the same as those
contained in the Act, as the Act and such laws are constituted and
effective at the time of shipment, or consist of or include any product
or article which may not be introduced into interstate commerce;
(iii) Company shall have good title to all Product sold hereunder,
which title shall pass to Distributor as provided herein following
payment therefor, free and clear of any lien, encumbrance or other
conflicting interest of any kind; and
(iv) The New Drug Application which has been filed with the FDA for
the Product (the "NDA") is, to the best of Company's knowledge, accurate
and complete in all material respects as required by law.
(b) THE WARRANTIES SET FORTH IN PARAGRAPH (a) ARE EXCLUSIVE AND IN LIEU OF
ANY OTHER EXPRESS OR IMPLIED WARRANTY, INCLUDING ANY IMPLIED WARRANTY OF
FITNESS OR MERCHANTABILITY.
(c) All Product ordered hereunder shall be subjected to a visual
inspection upon receipt by Distributor. All claims for shortages, alleged
defects, or breaches of warranty which could be discovered by visual inspection
shall be made in writing to Company no later than thirty (30) days after
receipt of such Product and, if not so made, shall be irrevocably waived by
Distributor. If Company disputes Distributor's rejection (for alleged Product
quality reasons) made as provided above of all or part of any shipment of
finished Product such dispute shall be resolved by an independent testing
organization or consultant, or recognized repute within the pharmaceutical
industry in the Territory mutually agreed upon by the parties, the appointment
11
<PAGE> 12
of which shall not be unreasonably withheld or delayed by either party.
The determination of such entity with respect to the rejection of all or part
of any shipment of finished Product shall be final and binding upon the
parties, but only as to the reasons given by Distributor in rejecting the
shipment and shall have no effect on any matter for which said entity did not
render a determination. The cost of such determination shall be borne by the
party against whom the decision is made.
(d) Except as provided in subparagraph (e) below, Distributor shall
indemnify and hold Company, its subsidiaries and affiliates and their
respective directors, officers, employees and agents harmless against all
claims, suits, demands, judgments or damages, including reasonable attorneys'
fees and court costs, arising out of or relating to Distributors (i) breach of
this Agreement, or (ii) handling, sale or promotion of the Product in the
Territory (including, without limitation any strict liability, product
liability, tort or similar claim).
(e) Company will indemnify and hold Distributor, its subsidiaries and
affiliates and their respective directors, officers, employees and agents
harmless against all claims, suits, demands, judgments or damages, including,
reasonable attorneys' fees and court costs, arising out of or relating to
Company's (i) breach of this Agreement or (ii) failure to supply Product
complying with any of the express Product quality requirements of this
Agreement or (iii) third party claims resulting from Product sold prior to the
Effective Date.
(f) Notwithstanding the foregoing or any other provision of this
Agreement, neither party shall be liable to the other for lost profits or
consequential damages of any kind.
10. DURATION AND TERMINATION AND REMEDIES.
(a) Subject to paragraphs (b) and (c) below, this Agreement shall be in
effect for the period from the Effective Date and until twenty (20) years after
such date.
(b) This Agreement may be terminated, effective immediately, by a party
("Injured Party") at any time upon written notice to the other party after:
(i) the failure of the other party to comply with then Agreement in
respect of any obligation other than an obligation to make any payment
hereunder, which failure is not cured within thirty (30) days of written
notice thereof;
(ii) the suspension, liquidation, dissolution or bulk sale, or
notice thereof, of the other party's business without the prior written
consent of the Injured Party or in the event of the calling of a meeting
of such party's creditors, an assignment by such other party for the
benefit of creditors, the insolvency of any kind of such other party, or
the filing of any attachment, distraint, levy, execution or judgment
against such party, any filing of a voluntary or involuntary petition
under the provisions of any bankruptcy act, or any application for or
appointment of a receiver for the property of such other party;
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<PAGE> 13
(iii) the cessation by such other party of its business; or
(iv) the other party fails to make any payment hereunder when due
and such failure continues for a period in excess of ten (10) days.
(c) Distributor may, at any time and in its sole discretion, upon not less
than ninety (90) days written notice to Company, terminate this Agreement for
any reason. In such event, Company shall complete manufacture and packaging of
all Product currently on order, and Distributor shall purchase and pay for such
Product. Distributor shall also pay Company's costs for all materials
(including labels) on hand or ordered by Company as of the date of the
termination and usable only with respect to the Product, provided that the
quantities of such materials are reasonably based on forecasted amounts of
Product.
(d) Upon termination of this Agreement for any reason, Distributor shall
promptly return to Company, at Company's cost, all price lists, catalogs and
other advertising literature furnished by Company and, if so requested by
Company in writing, all Product on hand which is in good and saleable
condition. If so requested by Company, Company shall pay Distributor for such
Product at Distributor's purchase price therefor under paragraph 3. Upon
termination of this Agreement for any reason, all related subdistributorship,
agency or dealership agreements entered into by Distributor shall be
automatically terminated. If Company does not request return of Product held
by Distributor, Distributor shall have six (6) months from the date of
termination within which to sell the Products, subject to all the terms and
conditions of this Agreement
(e) No termination pursuant to this Agreement shall give rise to any
obligation by either party to the other except as specifically provided in this
Agreement. In particular, each party agrees that it shall not be entitled to
any payment, whether by way of compensation, indemnity or penalty, arising out
of such termination. Any pre-existing claims, however, shall not be waived by
the parties as a result of such termination.
(f) In addition to any other rights it may have at law or in equity, if
Distributor breaches this Agreement and fails to cure such breach pursuant to
paragraph 10(b)(i) or (iv) above, the Company may on notice to Distributor
unilaterally amend the appointment in paragraph 1 to be as non-exclusive
distributor.
11. INSURANCE.
Distributor shall obtain and maintain, at its expense, product liability
insurance which includes the Product in an aggregate amount for all products of
not less than [XXXXX] US Dollars ([XXXXX]). All such insurance shall include
Company as an additional insured and must be issued by such insurer and have
such deductibles as are acceptable to Company, in its reasonable discretion.
Distributor shall provide a certificate of insurance evidencing such insurance
13
<PAGE> 14
concurrently with the execution of this Agreement and will provide new
certificates complying with this Agreement at least thirty (30) days in advance
of the stated expiration date of the period of coverage. Each such certificate
shall recite that the subject insurance is not cancelable and may not be
amended absent at least sixty (60) days notice to Distributor and Company.
12. CURRENT PRODUCT SUPPLY CONTRACTS.
Company shall, if requested by Distributor, use reasonable efforts (but
shall not be required to make any payment) to obtain at the earliest
practicable date, by instruments in form and substance reasonably satisfactory
to Distributor, all consents and approvals to the assignment of material
agreements for the supply of Product to customers within the Territory. If,
with respect to any agreement to be assigned, a required consent to the
assignment is not obtained Company shall use reasonable efforts to keep in
effect and give Distributor (at Distributor's cost and expense) the benefit of
such agreement to the same extent as if it had been assigned and to the extent
not prohibited by that agreement, and Distributor shall perform Company's
obligations under the agreement or cooperate in Company's performance of such
obligations. Nothing in this Agreement shall be construed as an attempt to
assign any agreement that is by its terms nonassignable without the consent of
the other party.
13. NDC NUMBERS AND MEDICAID REBATES.
(a) Promptly following the signing of this Agreement, Distributor shall
take any and all action necessary to change the National Drug Code number
("NDC") for the Product, which change shall be implemented as reasonably agreed
upon by the parties. For purposes of Company's Rebate Agreement with the
Secretary of Health and Human Services ("HHS") under Section 4401 of the
omnibus Budget Reconciliation Act of 1990, Company shall continue to make any
Rebate Payment (as defined in such Rebate Agreement) with respect to the
Product required thereunder; provided that, for Rebate Payments for which State
Medicaid Utilization Information reports show that Medicaid payment was made
for such drug after the Effective Date, Distributor shall reimburse Company for
all such Rebate Payments pursuant to the procedure established under paragraphs
16 and 18.
(b) Distributor shall notify all relevant persons and entities, including
Company and First Data Bank, of such NDC change and comply with all laws and
regulations of HHS or its sub-divisions and agencies (including HCFA) and the
Rebate Agreement.
(c) Distributor shall also provide Company all relevant information
regarding Distributor's sales, promotion, pricing and other activities with
respect to the Product, including pricing calculations for purposes of
determining "Best Price", necessary for Company to comply with the Rebate
Agreement.
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<PAGE> 15
14. RETURN OF PRODUCT.
(a) Company and Distributor shall make joint announcements to the trade
concerning Distributor's appointment, which announcements will advise customers
that there is no reason to return Product, Distributor shall not by its pricing
or other activities seek to induce its customers to return Product. Company
agrees to be responsible, in compliance with its currently prevailing returned
goods policies, for all costs and expenses with respect to the return by
Distributor's or Company's customers of Products shipped prior to the Effective
Date. Distributor agrees to be responsible for all costs and expenses with
respect to the return of Product shipped on or after the Effective Date.
(b) Distributor and Company shall track lot numbers for the purposes of
identifying when Product was sold. For those lots for which both Distributor
and Company have sold Product, returns shall be pro-rated between Distributor
and Company based upon the quantity of such lot sold by each party, as
determined by count of finished goods inventory at the Effective Date. Each
party will issue the appropriate credit for returns to its customers and any
net payment due to either party pursuant to this paragraph 14 will be made
quarterly pursuant to paragraph 18.
(c) For purposes of this paragraph, Product will be deemed to have been
"returned" when received by Company or Distributor at their respective
warehouse facilities or returned goods agents, as applicable.
15. NDA COMPLIANCE.
(a) Provided that Distributor renders all reasonable assistance, including
without limitation by complying with paragraph 8 and the provisions below,
Company shall file all documents as are required to maintain the new drug
application for the Product ("NDA").
(b) In general, Distributor and Company will allocate and assist in the
preparation and review of regulatory filings and reports as follows:
(i) Annual NDA Progress Report - Company will prepare and file with
the FDA;
(ii) Adverse Drug Reaction Reports - Company will prepare and file
with the FDA;
(iii) Submission of promotional materials to the FDA - Distributor
will provide materials to Company concurrently with dissemination,
Distributor will prepare and file with the FDA and give Company
simultaneously a copy of Form 2253 (or its successor) and an original of
each promotional material;
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<PAGE> 16
(iv) Annual IND Progress Report - Company will prepare and file with
the FDA;
(v) IND Amendments - Company to prepare and file with the FDA; and
(vi) Annual antimicrobial susceptibility testing - Company shall
contract for this work and prepare submission. Company will file report
with the FDA (Annual NDA Progress Report), Company will prepare any
required labeling changes and file with the FDA.
(vii) Pending labeling changes as of the date of this Agreement -
Company will file with the FDA until all matters are resolved; provided
that Company has no obligation to initiate or conduct additional clinical
studies, data analyses or other material efforts in this regard.
(viii) Labeling changes after the date of this Agreement - Company
will prepare and file with the FDA.
Company reserves the right to reject, or require changes in, the documents
prepared by Distributor, if in Company's opinion such documents are inaccurate
or fail to comply with applicable laws or regulations. Notwithstanding any
review by company, Distributor shall be solely responsible for the accuracy and
completeness at all information supplied to Company under paragraphs 8, 13 and
15. Company will provide Distributor with copies of reports filed under (i),
(ii), and (iv) above.
(c) Distributor shall compensate Company for its efforts pursuant to
sub-paragraph (a) and (b) above through payment at the rate of [XXXXX] dollars
([XXXXX]) per calendar quarter, plus the contract cost of performing the
antimicrobial susceptibility testing (the latter payment due thirty (30) days
after company provides Distributor with a copy of the applicable invoice). The
quarterly payment shall be made at the same time as payments under paragraph
5(a)(iv). The quarterly rate stated above shall increase each calendar year
commencing with 1998 by a percentage equal to the increase in the Consumer
Price Index (All Urban Consumers Index, 1982-84=100) over the prior calendar
year.
(d) Each party shall designate a regulatory affairs representative for
purposes of coordinating efforts under this Agreement and the two
representatives shall agree upon the procedures for assuring compliance with
the reporting and other filing requirements of the ADA.
16. REBATES AND CHARGEBACKS.
(a) From and after the Effective Date, Distributor shall be responsible
for any rebate payments with respect to the Product, whether by agreement,
government mandate or otherwise.
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<PAGE> 17
(b) From and after the Effective Date, Distributor shall be responsible
for all payments with respect to contract chargeback claims for the Product.
(c) In consideration of Distributor's agreements contained in (a) and (b)
above, Company shall pay or credit Distributor the amount of [XXXXX] dollars
([XXXXX]).
(d) Nevertheless, for administrative convenience Company shall continue to
make any chargeback or rebate payments with respect to the Product required
under agreements, government mandates or otherwise which relate to the period
prior to the Effective Date or to supply contracts not assigned or assignable
under paragraph 12 or which are processed by the Company due to direct requests
of a customer, provided that Distributor shall reimburse Company for all such
payments.
17. SPECIAL SERVICES.
(a) From and after the Effective Date, Company shall notify all customers
and formularies under contracts existing as of the Effective Date of this
Agreement that as of such date Distributor shall be the seller of the Product
in the Territory, by a writing in form and substance satisfactory to
Distributor (providing Distributor with a duplicate set of mailing labels for
its use).
(b) For its services under (a) above and under paragraph 16, Distributor
shall pay Company a fee equal to [XXXXX] percent ([XXXXX]) of the dollar amount
of the chargebacks and rebates in excess of the amount stated in paragraph
16(c) paid by Company (or by Distributor on behalf of Company) to third parties
with respect to the Product.
18. QUARTERLY PAYMENTS.
The parties shall provide each other on a calendar quarterly basis (within
thirty (30) days after the end of the quarter) the information necessary to
calculate payments due under paragraphs 13, 14, 16 and 17 for the calendar
quarter just ended. The payments otherwise due under these separate paragraphs
will be aggregated for each party and the resulting two amounts netted against
each other, and the net payment due the applicable party shall be made not
later than sixty (60) days after the end of each calendar quarter by wire
transfer in immediately available funds to the bank and account designated from
time to time in a notice from the payee party.
19. MISCELLANEOUS PROVISIONS.
(a) The relationship between Company and Distributor hereunder is solely
that of seller and purchaser. Neither party shall have any power or authority
to bind the other in any
17
<PAGE> 18
manner and shall not hold themselves out as agents or representatives of the
other party for any purpose.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois, without regard to the conflict of laws
principles of such state or any other jurisdiction.
(c) Any notice required to be given by either party shall be in writing
and hand delivered, sent by telecopier or mailed by registered airmail, postage
prepaid, to the other party at its address set forth below or at such other
address as shall have been designated by such other party by written notice.
Notices shall be deemed given (i) when received, if hand delivered or
telecopied or (ii) the earlier of receipt or five (5) days after deposit in the
mails as aforesaid, if mailed.
if to Company, addressed to:
G. D. Searle & Co.
5200 Old Orchard Road
Skokie, IL 60077
Attention: Mr. John Shannon, Senior Director,
Business Planning and Development, Americas
Telecopier: (847) 470-6743
with a copy to:
General Counsel
Telecopier: (847) 967-2045
if to Distributor, addressed to:
Unimed Pharmaceuticals, Inc.
2150 East Lake Cook Road
Buffalo Grove, IL 60089-1862
Attention: Mr. Robert E. Dudley
President and CEO
Telecopier: (847) 541-2533
with a copy to:
Katherine A. Letourneau
760 Falls Circle
Lake Forest, IL 60045
Telecopier: (847) 295-2409
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<PAGE> 19
(d) The obligations of either party to perform under this Agreement (other
than any obligation to pay money) shall be excused if failure to perform or any
delay is caused by acts of God, strikes, civil commotion, riots, war,
revolution, acts of governments, lack of adequate production capacity, failure
or delay in plant start-up, breakdown of machinery, shortages of raw materials,
power shortages, or shortages of equipment, fuel, transportation or containers,
or any other cause beyond the reasonable control of the party obligated to
perform. Upon the occurrence of any such event, the duties and obligations of
the parties shall be suspended for the duration of the event preventing proper
performance under this Agreement; provided, however, that if such suspension
shall continue for more than one hundred twenty (120) days, either party may
terminate this Agreement immediately upon notice to the other party.
(e) No waiver of any default hereunder by either party or any failure to
enforce any rights hereunder shall be deemed to constitute a salver of any
subsequent default with respect to the same or any other provision. No waiver
shall be effective unless made in writing and signed by the parties.
(f) This Agreement constitutes the complete agreement of the parties with
respect to the subject matter thereof. All prior proposals, communications,
agreements or understandings between Distributor and Company, whether oral or
written, concerning the subject matter hereof, if any, are superseded by this
Agreement. This Agreement may not be modified except in writing signed by both
parties.
(g) Distributor may not assign this Agreement or any right under it
without the prior written consent of Company.
(h) Company shall not be bound to honor any of Distributor's contracts for
resale or supply of the Product.
(i) Each party agrees for the term of this Agreement and a period of ten
years thereafter not to disclose, or use for any purpose except as otherwise
expressly provided herein, any confidential information relative to the other
party's business acquired pursuant to or during the term of this Agreement.
For the avoidance of doubt, all confidential and proprietary information
previously disclosed to Distributor by Company or related to the Product's NDA
or the Specifications are confidential and proprietary information of company's
and subject to the foregoing obligation. The foregoing obligation shall not
apply, however, to information (i) which is or becomes public through no fault
of the recipient, or (ii) which is made lawfully available to the recipient by
an independent third party, or (iii) which was already in recipient's
possession at the time of receipt from the disclosing party as evidenced by its
written records, or (iv) which is independently developed by employees of the
recipient after the date of this Agreement or (v) which is required by law,
regulation, rule, act or order of any governmental authority or agency to be
disclosed.
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<PAGE> 20
(j) If either party wishes to make any public disclosure concerning this
Agreement or the terms hereof, the other party shall be provided with an
advance copy of the proposed disclosure and shall have seven (7) business days
within which to approve or disapprove such disclosure. Approval shall not be
unreasonably withheld by either party. Absent approval, no public disclosure
concerning this Agreement or the terms hereof shall be made by either party.
Notwithstanding the foregoing, it is understood and agreed that no approval
shall be required in the event that the information to be disclosed has been
the subject of a prior public disclosure.
(k) The provisions of paragraphs 1, 2, 3, 5, 6, 7, 9, 10, 11, 13, 14, 16,
17, and 18 shall survive the expiration or other termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
G.D. SEARLE & CO. UNIMED PHARMACEUTICALS, INC.
By: By:
Title: Title:
20
<PAGE> 21
EXHIBIT A
SPECIFICATIONS FOR PRODUCT
DOCUMENT NUMBER TITLE EFFECTIVE DATE
A-1
<PAGE> 22
EXHIBIT B
PRICE FOR PRODUCT
The price for Product shall be Company's "fully absorbed cost" plus
[XXXXX] percent ([XXXXX]) at the time of each order's receipt. For this
purpose, "fully absorbed cost" means:
20. Costs of third party manufacturers, utilities, materials,
indirect materials and supplies used in the manufacturing and packaging
of Product;
21. Wages of those employees directly employed in the manufacturing
and packaging of the Product;
22. Wages of employees directly employed in quality control,
materials management or related functions which are applicable to the
manufacturing and packaging of Product and the salaries of the
supervisors of said functions (or an appropriate portion of such wages
and salaries it such personnel are not employed exclusively in said
manufacture);
23. That portion of payroll taxes, benefits, social security
payments, vacation and bonus payments and other employee costs allocable
to the wages and salaries included within the provisions of subparagraphs
(b) and (c) above; and
24. That portion of Company's manufacturing overhead expenses
apportioned in accordance with generally accepted accounting principles
to the manufacture and packaging of the Product supplied to Distributor.
Notwithstanding the foregoing, the prices for Product ordered prior to
December 31, 1997 shall be at set out below:
Initial Price U.S. [XXXXX] (bottle of 20 tablets)
U.S. [XXXXX] (100 count, unit dose)
B-1
<PAGE> 1
[UNIMED LETTERHEAD]
July 23, 1996
Dr. John N. Kapoor
E.J. Financial Enterprises, Inc.
225 East Deerpath Drive, Suite 250
Lake Forest, IL 60045
Re: Consulting Agreement
Dear Dr. Kapoor:
As per our recent Board of Directors meeting, this will confirm our mutual
agreement to renew that certain Consulting Agreement entered into between E.J.
Financial Enterprises, Inc. and Unimed Pharmaceuticals, Inc. (formerly known as
Unimed, Inc.) dated as of March 27, 1991 (the "Agreement"). Notwithstanding the
terms of Section 3 of such Agreement, we agree that the Agreement shall be
renewed and shall continue until March 27, 1997, unless earlier terminated
pursuant to Section 6 of the Agreement.
If you are in agreement with the foregoing, please sign in the space provided
below and return one copy of this letter agreement.
Sincerly yours,
By: /s/ Stephen M. Simes
--------------------
Stephen M. Simes
Its: President & CEO
SMS/so
Agreed to:
E. J. Financial Enterprises, Inc.
By: /s/ John N. Kapoor
------------------
John n. Kapoor
Its: President
<PAGE> 1
EXHIBIT 11
UNIMED PHARMACEUTICAL, INC. AND SUBSIDIARIES
COMPUTATION OF INCOME PER SHARE
years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994(1)
Fully Fully
Primary Diluted Primary Diluted Primary
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Common and equivalent shares:
Weighted average shares outstanding 8,365,785 8,523,876 6,178,453 6,226,729 6,127,161
Additional shares assuming exercise
of dilutive stock options 471,607 471,501 499,226 637,761 33,040
Additional shares assuming exercise
of dilutive stock warrants 59,484 59,470 352,874 436,431 240,865
------- ------- -------- -------- --------
Average number of common and common
equivalent shares 8,896,876 9,054,847 7,030,553 7,300,921 6,401,066
=========== ========== ========== ========== ==========
Net income:
Net income
Net income per common and $ 1,522,143 $1,522,143 $ 625,062 $ 625,062 $ 40,708
=========== ========== ========== ========== ==========
common equivalent share (1)
$0.17 $0.17 $0.09 $0.09 $0.01
===== ===== ===== ===== =====
Note:
(1) The fully diluted calculation is not presented in the 1994 computations
since they would have been antidilutive, as the resultant net income per
share is the same as for primary net income per share.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNIMED
PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1996 AND
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 FOUND
ON PAGES F-3 THROUGH F-5 OF THE COMPANY'S FORM 10-K, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,459
<SECURITIES> 16,371
<RECEIVABLES> 1,955
<ALLOWANCES> 0
<INVENTORY> 4,185
<CURRENT-ASSETS> 27,078
<PP&E> 2,036
<DEPRECIATION> 1,228
<TOTAL-ASSETS> 30,747
<CURRENT-LIABILITIES> 8,177
<BONDS> 0
0
0
<COMMON> 2,194
<OTHER-SE> 20,376
<TOTAL-LIABILITY-AND-EQUITY> 30,747
<SALES> 7,649
<TOTAL-REVENUES> 8,213
<CGS> 3,087
<TOTAL-COSTS> 8,241
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,522
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,522
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,522
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
