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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER: 0-3390
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UNIMED PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 22-1685346
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2150 E. LAKE COOK RD.
BUFFALO GROVE, ILLINOIS 60089
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (847) 541-2525
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS
ON WHICH REGISTERED NAME OF EACH EXCHANGE
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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
March 13, 1998 -- 9,051,942.
The aggregate market value of the Registrant's common stock held by
non-affiliates of the Registrant, based upon the closing price on March 13, 1998
was $54,532,560.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement (to be filed pursuant to Regulation 14A) for
the Annual Meeting of Stockholders to be held May 28, 1998, is incorporated by
reference in Part III.
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PART I
ITEM 1. BUSINESS.
Unimed Pharmaceuticals, Inc. (the "Company" or "Unimed") develops and
markets prescription pharmaceutical products. Currently, the Company promotes
three approved drugs and is developing others targeted for the HIV/AIDS,
endocrinology, infectious diseases and urology markets. The Company developed
and co-promotes Marinol(R), an appetite stimulant and antiemetic drug, through
the Company's 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 anti-infective used in the urology and
infectious disease markets. The Company markets and distributes Maxaquin through
the efforts of the Company's specialty sales force in the U.S. primarily to
urologists and AIDS-treating physicians. In July 1997, the Company acquired from
Syntex (USA), Inc. and its Mexican affiliate ("Syntex") all rights to Anadrol(R)
(oxymetholone) for the U.S., Canada and Mexico. Anadrol is an orally active
anabolic androgenic steroid used to treat various anemias. The Company began
marketing and distributing Anadrol in the first quarter of 1998. The Company is
a Delaware corporation incorporated in 1948.
The Company's business strategy is to become a premier niche pharmaceutical
products development and marketing concern. With a business strategy that
focuses on licensing and developing drugs that have successfully completed human
clinical testing milestones, the Company expects to build a diversified
portfolio of products in several therapeutic areas including HIV and other
infectious diseases, endocrinology, hematology, oncology and urology. The
Company's specific goals center on effectively marketing the current product
line while rapidly developing the current product pipeline. During 1996, the
Company completed Phase II clinical development on three new drugs that were
in-licensed in 1995 described under "Product Development." In 1997, the Company
initiated Phase III clinical trials on all three of these compounds. The Company
expects completion of these clinical trials during 1998 or early 1999. The
Company filed a New Drug Application ("NDA") with the U.S. Food and Drug
Administration ("FDA") on one of these drugs in 1997.
The Company is concentrating on markets in which relatively few specialized
physicians treat affected patients. The Company believes a small and specialized
salesforce will 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(R) (DRONABINOL)
Marinol was approved for marketing by the 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 currently supplied as round soft gelatin capsules containing
2.5mg, 5mg or 10mg dronabinol. During 1997, the Company began studies on
alternative dosage forms of Marinol. These studies are aimed at identifying a
dosage form that will allow quicker absorption by the body, a feature that the
Company believes would be beneficial to, among others, cancer chemotherapy
patients who are prescribed Marinol to treat nausea and vomiting. The dosage
forms currently under review include an aerosol formulation, a sublingual
formulation and a nasal gel formulation. Of these dosage forms, the one that
proves to be the most effective will then be pursued through Phase I
bioavailability studies. Subject to the Company achieving positive
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results, the selected dosage form will then need to be studied as part of a
Phase II/III clinical trial, the length of which is not yet determinable.
Currently, Marinol is under clinical investigation to treat nausea and
vomiting caused by anti-HIV drug regimens. In addition, Marinol is being studied
in combination with testosterone to reverse weight loss and wasting in HIV
patients.
Use of Marinol(R) 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(R) 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. Treatment with Marinol can
improve caloric intake and/or stimulate appetite, resulting in clinical
improvements.
Potential Use of Marinol(R) in Alzheimer's Disease
Alzheimer's disease is believed to afflict an estimated four million
Americans with a projected annual increase of 400,000 new cases per year. During
1996, the Company completed a pilot study exploring use of Marinol in Alzheimer
patients as an appetite stimulant. Although the pilot study was primarily
undertaken to investigate the effect of Marinol on appetite, patients were
observed to have a significant reduction in disturbed behavior compared to
patients on placebo. The disturbed behavior most commonly associated with
Alzheimer patients is believed to be due to a degenerative process in which
brain cells are lost leading to brain atrophy. This atrophy usually leads to
memory loss in early stages of the disease and can later lead to disturbances of
arousal, attention, orientation, perception and intellectual function.
A series of Phase II trials were initiated in December 1996 to further
evaluate the clinical effects of Marinol doses on the behavior of patients with
Alzheimer's disease. The Company intends to pursue a Phase III program on
Alzheimer patients if the results are favorable from the Phase II studies.
MAXAQUIN(R) (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 anti-infective. 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 provide multiple product offerings to AIDS-treating physicians and
ultimately to establish a presence in the urology and infectious disease
therapeutic markets.
The FDA approved Maxaquin 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. In September of 1997, the FDA
approved a supplemental NDA for the three-day use of Maxaquin to treat
uncomplicated urinary tract infections. Prior to this, Maxaquin was approved for
a 10-day regimen.
Sales were initiated in the first quarter of 1997. Initial efforts focused
on markets where Maxaquin sales have been strong historically. Future
promotional efforts will center on marketing Maxaquin as one component
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of a portfolio of Unimed products offered to the Company's target physician
population including urologists (see discussion on Androgel(TM) and
Andractim(TM) under "Product Development").
ANADROL(R) (OXYMETHOLONE)
In July 1997, the Company acquired from Syntex (USA), Inc. all rights to
Anadrol (oxymetholone), an orally active anabolic androgenic steroid used to
treat various anemias, for the U.S., Canada and Mexico. The acquisition of this
product is part of the Company's strategy to provide a multiple of product
offerings to AIDS-treating physicians and ultimately to develop and market
products for pharmaceutical markets such as hematology.
Anadrol is an orally active anabolic androgenic steroid, a synthetic
derivative of testosterone. Anadrol is used to treat various anemias caused by
deficient red blood cell production. Anemias that typically display this
deficiency are associated with erythropoietin deficiency or bone marrow
dysfunction. Erythropoietin deficiency is commonly associated with chronic renal
failure and drug-induced renal dysfunction. In both cases, the kidneys produce
less erythropoietin causing reduced erythrocyte (red blood cell) production. In
addition, anemia is a common complication following treatment of cancer with
chemotherapy or radiation, which can be mylelotoxic (destructive to bone
marrow). Anadrol has been found to enhance the production of urinary excretion
of erythropoietin in patients with anemia due to bone marrow failure and often
stimulates erythropoiesis (production of red blood cells in the bone marrow) in
anemia due to deficient red cell production.
Patients with HIV commonly have hematologic abnormalities and almost all
have some bone marrow abnormality. Although 10-to-20% of HIV/AIDS patients are
believed to be anemic when first seen by a healthcare professional, 70-to-80%
eventually become anemic during the course of the disease. The factors that
contribute to the development of anemia in AIDS patients include the disease
itself, opportunistic infections and their treatment, treatment with
antiretroviral drugs and the effects of chronic disease. The major cause of
anemia in AIDS patients is impaired erythropoiesis.
The Company initiated sales of Anadrol in February of 1998. The Company
intends to increase visibility of Anadrol by using the Company's specialty sales
force to target physician specialists such as hematologists, oncologists and
infectious disease physicians.
The Company is researching the viability of further clinical studies that
may lead to additional uses for Anadrol. Among other topics, the Company is
researching Anadrol as a treatment for HIV wasting syndrome. It is generally
believed in the HIV community that anabolic steroids can help prevent and/or
reverse the wasting syndrome effect of HIV.
PRODUCT DEVELOPMENT
The Company has three drugs under development: Nitazoxanide (formerly
referred to as "NTZ"), an antiparasitic compound being developed for the
treatment of cryptosporidial diarrhea. Androgel(TM), a transdermal gel being
developed to treat 18-60 year-old men who do not produce sufficient levels of
testosterone; and Andractim(TM), another transdermal gel being developed to
treat men over the age of 60 for the supplementation and replacement of
testosterone.
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 nitazoxanide 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 nitazoxanide 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
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of animals and, increasingly, humans. In 1982, according to the Centers for
Disease Control (CDC), the number of cases of C. parvum increased significantly,
which was later determined to relate 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.
In a Phase II clinical trial in 28 patients with AIDS and cryptosporidiosis
at Cornell Medical Center, in New York City and at Kaiser Permanente Research
Center in San Francisco, patients received up to 2,000mg per day of nitazoxanide
for eight weeks. A favorable clinical response was observed in 58% of the
patients.
This trial together with patients enrolled in an unrestricted, open label
compassionate use trial, culminated in the submission of an NDA in December
1997.
During 1997, the AIDS Clinical Trials Group (ACTG), a clinical research
cooperative supported by the National Institute of Allergy and Infectious
Diseases, initiated a Phase III placebo controlled study of nitazoxanide to
treat AIDS patients with cryptosporidiosis. The Company participated in the
design of this study, is providing nitazoxanide to patients and is providing
certain other supportive services to ACTG.
This NDA marks the first submission of a new drug application to treat the
diarrhea associated with cryptosporidiosis in AIDS patients. The Company has
been granted priority review by the FDA of this NDA, thereby ensuring a complete
review and action within six months of filing.
In 1998, the Company intends initiate studies that may provide additional
indications for nitazoxanide. These studies could include researching
nitazoxanide as a possible treatment for Helicobacter pylori, a bacterium that
is the causative agent in most cases of nonerosive gastritis.
ANDROGEL(TM)
In 1995, the Company acquired exclusive rights from Laboratoires Besins
Iscovesco S.A. ("Besins") in the U.S., Canada and Mexico to Androgel, an
androgen replacement drug. Androgel consists of a proprietary topical gel
formulation of the male hormone, testosterone, and is applied to the arms and
abdomen. Androgel is a testosterone replacement drug used by men age 18 to 60
who do not produce sufficient levels of testosterone. This deficiency is
referred to as hypogonadism. 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 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, and chronic illnesses (e.g., diabetes, kidney
failure, AIDS). Hypogonadism has also been implicated as a potential factor in
the etiology of HIV wasting syndrome.
In March 1997, the Company began a pivotal Phase III human clinical trial
with Androgel for the treatment of testosterone deficiency in men. This study is
expected to be complete in late 1998 or early 1999. Pending positive results,
the Company intends to file an NDA with the FDA.
ANDRACTIM(TM)
In 1995, the Company also acquired exclusive rights from Besins in the
U.S., Canada and Mexico to Andractim, a novel, patented topical gel formulation
of the male hormone, dihydrotestosterone (DHT). Andractim has demonstrated many
of the benefits of other testosterone-replacement products but does not have the
specific type of androgen linked with prostate enlargement in men 60 and older.
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.
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The Company initiated a Phase II clinical trial in 1996 to evaluate the
safety and efficacy of Andractim for treating patients with HIV wasting
syndrome. This study is expected to be complete in the second quarter of 1998.
The Company has also initiated a Phase II/III study in geriatric hypogonadism
(deficient levels of testosterone due to aging, also known as andropause) during
1997. This study is expected to be complete in 1999.
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. The Company
details Maxaquin in the urology market and to high prescribing infectious
disease physicians. In February 1998, the Company began to distribute Anadrol.
The Company expanded its sales and marketing capabilities in 1997 and will only
further expand its sales force as market conditions warrant.
The Company intends to develop a portfolio of proprietary drugs to
distribute in niche markets -- therapeutic areas such as HIV/AIDS and other
infectious diseases, 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.
Marinol is approved for use as an antiemetic in South Africa and is under
regulatory review or use as an appetite stimulant. The product is being marketed
and sold in South Africa by Pharmacare Ltd.
The Company has sublicensed the right to register, market and distribute
nitazoxanide, Androgel and Andractim in Canada to BioChem Pharma Inc.
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.
Under the terms of the Unimed/G.D. Searle & Co. Distribution Agreement,
Searle manufactures and supplies Maxaquin to Unimed.
The terms of the agreement with Syntex provide for an initial supply of
finished Anadrol tablets to be provided to the Company. Further production will
be the responsibility of the Company, which is finalizing a contract
manufacturing agreement with Oread Pharmaceutical Manufacturing, to supply the
Company with Anadrol.
The Company has supply agreements with Romark for nitazoxanide, Besins for
Androgel and Andractim. 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, 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
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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.
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 efforts to promote therapeutic use of marijuana will
have a significant adverse impact on Marinol sales. There are no clinical trials
establishing the safety or efficacy of marijuana for any medical use and the
potency and purity of marijuana is not assured. Moreover, the cost of Marinol is
eligible for Medicaid reimbursements, unlike marijuana, and 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. 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,
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 and
Anadrol is also 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 Andractim qualifies
as an Orphan Drug for treating weight loss in AIDS patients. In addition, the
Company received proprietary protection from a U.S. patent that was issued
during the year. This patent relates to the use of Andractim in treating
geriatric hypogonadism.
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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 Andractim 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 Laboratories, L.C. Unimed has the right to use and practice
those patents under its license agreement with Romark; however, Unimed does not
hold any nitazoxanide-related patents directly.
The Company owns the Marinol, SERC, Anadrol, Androgel and Andractim
trademarks in the U.S.
EXECUTIVE OFFICERS
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TERM OF
NAME AGE POSITION BUSINESS EXPERIENCE
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Ronald L. Goode Ph.D. ...... 54 President, Chief President, Chief Executive Officer and
Executive Officer and Director of Unimed since November, 1997;
Director several positions at G.D. Searle & Company, a
pharmaceutical company, from 1986 through
1997, most recently Corporate Senior Vice
President and President Asia/Pacific World
Area; several positions at Pfizer
Pharmaceuticals, a pharmaceutical company,
from 1976 through 1986, most recently Vice
President Clinical Research and Scientific
Affairs.
Robert E. Dudley Ph.D. ..... 43... Senior Vice President Senior Vice President of Clinical and
Regulatory Affairs since November 1997, Chief
Executive Officer and Interim President of
Unimed from January 1997 through November 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 pharmaceutical
company, from May 1989 through August 1993.
David E. Riggs.............. 46 Senior Vice President Senior Vice President since October, 1994 and
Vice President, CFO, Secretary, and Treasurer
of Unimed since May 1992; CFO of NeoPharm,
Inc. from October 1995 through November 1997;
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.
</TABLE>
EMPLOYEES
As of March 13, 1998, the Company has 45 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 14,000 square feet of executive office
space in Buffalo Grove, Illinois, at an annualized cost of approximately
$250,000, under a lease that expires in 2002.
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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 NASDAQ stock market -- 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.
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HIGH LOW
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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
1997 (January 1 -- December 31)
First Quarter............................................. 8 1/8 4 7/8
Second Quarter............................................ 5 3/4 4 1/2
Third Quarter............................................. 6 3/4 4 1/4
Fourth Quarter............................................ 8 3/4 5 3/8
</TABLE>
The Company had approximately 1,049 holders of record of Common Stock on
March 13, 1998. 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 April 1997, the Company announced a stock repurchase program had been
approved by the Board of Directors allowing the Company to purchase up to
500,000 shares of common stock through open market purchases. As of December 31,
1997, the Company held 70,000 shares (108,500 total) in treasury as a result of
this program.
ITEM 6. SELECTED FINANCIAL DATA.
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YEAR ENDED
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12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
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RESULTS OF OPERATIONS:
Net sales..................... $ 8,918,424 $ 7,648,599 $ 7,320,052 $ 7,387,860 $ 6,875,678
Net (loss) income............. (8,209,488) 1,522,143 625,062 40,708 (852,294)
Total assets.................. 24,089,724 30,746,875 16,305,181 11,804,781 11,662,035
Long-term obligation.......... 1,213,000 -- -- -- --
PER SHARE COMMON STOCK DATA:
Basic net (loss) income....... $(.93) $.18 $.10 $.01 $(0.14)
Dividends paid................ $ -- $ -- $ -- $ -- $ --
</TABLE>
Selected financial data for all periods prior to December 31, 1996, have
been restated to conform to the 1997 presentation. These restatements had no
effect on net income (loss).
Results for the fiscal year ended December 31, 1997, include a $4.1 million
write down of previously capitalized Maxaquin acquisition costs and a $2.5
million valuation adjustment related to the Company's investment in, and a
subordinated debenture from, Romark Laboratories, L.C.
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 1997, sales and cash flow from Marinol and Maxaquin, as well as cash from
cash reserves, were used to fund product development programs and expand
10
<PAGE> 11
the Company's sales and marketing infrastructure. The Company is actively
pursuing acquisition of commercial products and rights to additional
pharmaceutical products under late-stage development or already on the market.
In 1997, Unimed's net sales were $8.9 million, a 17% increase over 1996 net
sales of $7.6 million. Marinol net sales increased by 6% over 1996 due to growth
in domestic sales and a price increase in the second quarter of 1997. Maxaquin
was introduced in the second quarter of 1997 contributing $833,000 to net sales.
The Company reported a net loss of $.93 per share (basic) in 1997 compared
to net income of $.18 per share (basic) in 1996 and $.10 per share (basic) in
1995. The net loss in 1997 was caused primarily by the write down of certain
assets and investments totaling $6,580,000 or $.74 per share, a 166% increase in
sales and marketing expenses, and a 57% increase in research and development
spending.
In 1997, the Company used cash to support operations of $482,000 compared
to generating cash flow from operations of $3,045,000 in 1996. The Company
reported year-end cash, cash equivalents and short-term investments of
$14,787,000 compared with $20,830,000 at year-end 1996.
REVENUE
Fiscal 1997 net sales of Marinol, marketed as a refractory antiemetic in
cancer chemotherapy and an appetite stimulant in anorexia associated with weight
loss in AIDS, increased 6% over 1996 levels, ending the year at $8,085,000. This
compares with a 27% increase in Marinol net sales growth for 1996 to $7,649,000.
Both the 1997 and 1996 Marinol net sales increase were a result of increased
unit sales and a price increase. The Company's licensee, Roxane Laboratories,
Inc. (Roxane), markets Marinol. 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 $124,000 in 1997 and
$812,000 in 1996.
The Company began to market Maxaquin, a fluoroquinolone antibiotic, in the
second quarter of 1997. Net sales for the year totaled $833,000.
Other pharmaceutical companies in Canada and several other international
markets promote SERC for the treatment of recurrent vertigo. During 1995, Sanofi
Winthrop in Canada marketed SERC for the Company. 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 1997 and 1996 and $1,049,000 in 1995.
Total revenue for 1997 was $8,918,000, representing 17% growth over
$7,649,000 in 1996. Higher Marinol net sales, combined with Maxaquin net sales
were responsible for the increase. For the year ended December 31, 1996, and for
all prior periods presented, the Company reclassified, for financial reporting
purposes, all research and development revenues that were historically treated
as part of total revenue. These revenues are now offset against research and
development expenses in the operating expenses section of the income statement.
This change had no effect on net income. In 1996, the Company deferred the
recognition of revenue on unconditional cash payments made from corporate
partners that were to be applied to development of the Company's product
portfolio. The Company recognized the remaining portion of this deferred revenue
in 1997.
Other income (net of other expenses) decreased approximately $315,000 or
20% to $1,235,000 in 1997 primarily as a result of imputed interest expense of
approximately $113,000. The Maxaquin distribution agreement includes a long and
short-term debt obligation for which interest is imputed and recorded. Interest
income decreased to $1,049,000, a $19,000 decrease from 1996 due to lower
invested cash balances. Other income in 1997 includes $300,000 of clinical
development milestone payments from a product sub-license agreement. In 1996,
other income included approximately $311,000 from the gain on a product
sub-license
11
<PAGE> 12
and $200,000 from a gain on the sale of a trademark. Other income in 1995
included a $106,000 write off of the Company's interest in a limited
partnership.
COSTS AND EXPENSES
Cost of sales improved by 3% from $3,087,000 in 1996 to $2,997,000 in 1997.
The lower cost of sales in 1997 was due to lower Marinol raw material costs and
Maxaquin product costs which are lower than those of Marinol. Cost of sales in
1996 was lower than the 1995 cost of sales of $3,201,000 due primarily to lower
Marinol raw material costs.
Net research and development expenses increased 136% from $1,135,000 in
1996 to $2,675,000 in 1997. As mentioned earlier, the Company started three
Phase III clinical trials during 1997 as well as several smaller studies such as
the Marinol alternate dosage form studies. The Company also prepared an NDA for
nitazoxanide and submitted it to the FDA in December. Net research and
development expenses increased 84% from $618,000 in 1995 to $1,135,000 in 1996
with the completion of three human clinical studies and initiation of several
toxicology studies. For the year ended December 31, 1996, and for all prior
periods presented, the Company reclassified, for financial reporting purposes,
all research and development revenues that were historically treated as part of
total revenue. These revenues are now offset against research and development
expenses in the operating expenses section of the income statement. This change
had no effect on net income. Approximately $1,600,000 of deferred research and
development expenditures were offset against research and development expenses
in 1997. These deferred expenses would have historically been recognized as
research and development revenue.
Sales and marketing expenses increased 166% from $1,272,000 in 1996 to
$3,384,000 in 1997. During 1997, the Company organized an integrated sales and
marketing infrastructure that can provide for the coordinated introduction of
new products to targeted markets. The increase can be attributed to increased
personnel and advertising expenses related to the promotion of Maxaquin. Sales
and marketing expenses increased 20% from 1995 to 1996 as the Company added a
commercial development function to distribute new products.
Operating and administrative expenses increased 25% from $2,183,000 in 1996
to $2,726,000 in 1997 primarily due to increased administrative support of the
expanded sales and marketing activities and accelerated development programs,
professional expenses related to the acquisition of product rights, higher
personnel-related expenses and executive recruitment. Operating and
administrative expenses increased 3% from 1995 to 1996. Operating and
administrative expenses as a percent of net sales were 31% in 1997 and 29% in
both 1996 and 1995. Operating and administrative expenses were $2,129,000 in
1995.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had cash and cash equivalents and
short-term investments of $14,787,000, compared with $20,830,000 at December 31,
1996. During 1997, Unimed used cash in operations of $602,000. Working capital
decreased from $18,901,000 in 1996 to $13,210,000 in 1997, primarily due to the
purchase of Maxaquin and Anadrol product rights, the purchase of equipment and
leasehold improvements and the purchase of Company Common Stock. The Company
expects to continue to increase clinical development expenditures in 1998 as it
accelerates Phase III clinical trials. The Company will also continue to expand
its sales and marketing efforts as it adds to the portfolio of products
currently promoted. In addition, the Company will require a higher investment in
working capital in order to fund accounts receivable and inventories.
During 1997, the Company received approximately $847,000 from the exercise
of stock options. The Company purchased $561,000 of its own common stock,
maintaining 108,500 shares in treasury as of December 31, 1997.
Inventories increased approximately $200,000 in 1997 over 1996 levels. Due
to increasing Marinol sales and production levels of THC remaining constant, THC
inventory decreased during the year. This was offset by inventory purchases
related to Maxaquin and Anadrol. Also, the Company increased the reserve for
12
<PAGE> 13
inventory obsolescence during 1997. The Company's Marinol 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 has recently issued two new accounting standards, Statement No.
130, "Reporting Comprehensive Income" and, Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information", and if adopted will be
effective for fiscal year 1998. The Company is evaluating the effect, if any, of
these new statements.
YEAR 2000 PROGRAM
The Company will continue to conduct a comprehensive review of its computer
systems to identify the systems that could be affected by the "Year 2000" issue
and is developing an implementation plan to resolve the issue. The Company
presently believes that, with modifications to existing software and converting
to new software, the Year 2000 problem will not pose significant operational
problems for the Company's computer systems as so modified and converted.
However, if such modifications and conversions are not completed in a timely
manner, the Year 2000 problem may have a material impact on the operations of
the Company.
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.
13
<PAGE> 14
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,
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 than 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.
Dependence on Qualified Personnel. The Company's success is highly
dependent upon its ability to attract and retain qualified administrative,
product development 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.
14
<PAGE> 15
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,
1997.
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, 1997.
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, 1997.
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, 1997.
15
<PAGE> 16
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 (filed by reference to Exhibit
3-B(iii) to Annual Report on Form 10-K for fiscal year ended
December 31, 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.
(filed by reference to Exhibit 4 to the Annual Report on
Form 10-K for the fiscal year ended December 31, 1995).
4-E -- Warrant, dated August 11, 1995, for 72,550 shares of Common
Stock, issued to Laboratoires Besins Iscovesco S.A. (filed
by reference to Exhibit 4 to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
4-F -- Registration Rights Agreement, dated August 11, 1995,
between the Company and Laboratoires Besins Iscovesco S.A.
(filed by reference to Exhibit 4 to the Annual Report on
Form 10-K for the fiscal year ended December 31, 1995).
4-G -- Warrant, dated February 29, 1996, for 140,000 shares of
Common Stock, issued to Sunrise Securities Corp. (filed by
reference to Exhibit 4 to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
4-H -- Registration Rights Agreement, dated February 29, 1996,
between the Company and certain holders of Common Stock
(filed by reference to Exhibit 4 to the Annual Report on
Form 10-K for the fiscal year ended December 31, 1995).
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C>
4-I -- Stock Purchase Agreement dated May 9, 1996, between the
Company and BioChem Pharma (International) Inc. (filed by
reference to Exhibit 4-I to Annual Report on Form 10-K for
the fiscal year ended December 31, 1996).
4-J -- Registration Rights Agreement dated May 9, 1996, by and
between the Company and BioChem Pharma (International) Inc.
(filed by reference to Exhibit 4-J to Annual Report on Form
10-K for the fiscal year ended December 31, 1996).
4-K -- Rights Agreement dated as of June 16, 1997, between the
Company and Harris Trust and Savings Bank including Form of
Rights Certificate and Summary of Rights attached thereto as
Exhibits A and B (filed by reference to Exhibit 4.1 to
Current Report on Form 8-K dated June 20, 1997).
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).
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 (filed by reference to Exhibit
10-K to the Annual Report on Form 10-K filed in fiscal year
ended December 31, 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 (filed by reference to Exhibit 10-L to the
Annual Report on Form 10-K filed in fiscal year ended
December 31, 1996).
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. (filed by
reference to Exhibit 10-R to the Annual Report on Form 10-K
filed in fiscal year ended December 31, 1996).
10-S -- Consulting Agreement dated July 23, 1996, by and between the
Company and E.J. Financial Enterprises, Inc (filed by
reference to Exhibit 10-S to the Annual Report on Form 10-K
filed in fiscal year ended December 31, 1996).
*10-T -- Employment Agreement dated November 13, 1997, by and between
the Company and Ronald L. Goode.
*10-U -- Agreement between Syntex (USA) Inc. and its Mexican
affiliate and the Company dated July 1, 1997.
*27 -- Financial Data Schedule
</TABLE>
- -------------------------
* Filed herewith.
17
<PAGE> 18
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
(Item 14(a)1 and 14(a)2)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1997 and
December 31, 1996...................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995....................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997,
1996 and 1995.......................................... F-6
Notes to Consolidated Financial Statements................ F-7
Report of Independent Accountants on Financial Statement
Schedule.................................................. F-17
Financial Statement Schedule:
Valuation and Qualifying Accounts (Schedule II)........... F-18
</TABLE>
F-1
<PAGE> 19
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, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1997, 1996 and 1995. 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, 1997 and 1996, and the
consolidated results of operations and cash flows for the years ended December
31, 1997, 1996 and 1995, in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
Chicago, Illinois
February 6, 1998
F-2
<PAGE> 20
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,068,279 $ 4,458,889
Short-term investments.................................... 13,718,834 16,370,897
Receivables:
Trade, less allowances of $21,398 in 1997 and $39,390
in 1996............................................... 1,661,042 1,876,807
Other.................................................. 116,978 78,109
------------ -----------
Total receivables.................................... 1,778,020 1,954,916
Inventories, less reserves of $302,020 in 1997 and $11,280
in 1996................................................ 4,386,904 4,184,855
Prepaid expenses.......................................... 407,698 108,457
------------ -----------
Total current assets................................. 21,359,735 27,078,014
------------ -----------
Equipment and leasehold improvements, at cost............... 2,555,857 2,035,807
Less accumulated depreciation and amortization....... 1,452,217 1,227,790
------------ -----------
Net.................................................. 1,103,640 808,017
------------ -----------
Investment in, and subordinated debenture from, Romark
Laboratories, L.C......................................... 0 2,275,910
Product rights, net of amortization......................... 1,626,349 584,934
------------ -----------
Total assets......................................... $ 24,089,724 $30,746,875
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,812,030 $ 376,761
Accrued and other liabilities............................. 1,806,687 1,210,664
Due to Roxane Laboratories, Inc........................... 3,616,665 4,945,801
Deferred research and development revenues................ 0 1,643,887
Current portion of long-term obligation................... 914,836 0
------------ -----------
Total current liabilities............................ 8,150,218 8,177,113
------------ -----------
Long-term obligation........................................ 1,213,000 0
------------ -----------
Total liabilities.................................... 9,363,218 8,177,113
------------ -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.25 par value; authorized 30,000,000
shares; issued and outstanding: 9,040,942 and
8,775,499.............................................. 2,260,236 2,193,875
Additional paid-in capital................................ 28,201,420 27,340,665
Accumulated deficit....................................... (15,215,214) (7,005,726)
Accumulated foreign currency translation adjustment....... 41,522 40,948
------------ -----------
15,287,964 22,569,762
Less: treasury stock at cost (108,500 shares in 1997 and 0
shares in 1996)........................................... (561,458) 0
------------ -----------
Total stockholders' equity........................... 14,726,506 22,569,762
------------ -----------
Total liabilities and stockholders' equity........... $ 24,089,724 $30,746,875
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 21
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales............................................. $ 8,918,424 $7,648,599 $7,320,052
Cost of sales......................................... 2,997,030 3,086,713 3,201,014
----------- ---------- ----------
Gross profit.......................................... 5,921,394 4,561,886 4,119,038
----------- ---------- ----------
Operating and administrative.......................... 2,726,452 2,183,229 2,129,140
Sales and marketing................................... 3,384,213 1,271,566 1,059,215
Research and development, net......................... 2,675,467 1,134,977 618,019
Product rights writedown.............................. 4,080,189 0 0
Investment revaluation................................ 2,500,000 0 0
----------- ---------- ----------
Total expenses........................................ 15,366,321 4,589,772 3,806,374
----------- ---------- ----------
(Loss) Income from operations......................... (9,444,927) (27,886) 312,664
Interest income....................................... 1,048,562 1,067,975 430,098
Interest expense...................................... (113,123) 0 0
Other, net............................................ 300,000 482,054 (106,000)
----------- ---------- ----------
(Loss) Income before income taxes..................... (8,209,488) 1,522,143 636,762
Income tax provision.................................. 0 0 11,700
----------- ---------- ----------
Net (loss) income..................................... $(8,209,488) $1,522,143 $ 625,062
=========== ========== ==========
Net (loss) income per share:
Basic............................................... $(.93) $.18 $.10
=========== ========== ==========
Diluted............................................. $(.93) $.17 $.09
=========== ========== ==========
Weighted average number of common and common
equivalent shares outstanding:
Basic............................................... 8,862,000 8,365,785 6,178,453
=========== ========== ==========
Diluted............................................. 9,229,101 8,898,430 6,998,610
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 22
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
---------------------- PAID-IN ACCUMULATED TRANSLATION TREASURY
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT STOCK TOTAL
------ ------ ---------- ----------- ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
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
--------- ---------- ----------- ------------ ------- --------- -----------
Net loss............... -- -- -- (8,209,488) -- -- (8,209,488)
Treasury stock
acquired............. -- -- -- -- -- $(561,458) (561,458)
Exercise of common
stock options........ 265,443 66,361 860,755 -- -- -- 927,116
Foreign currency
translation gain..... -- -- -- -- 574 -- 574
--------- ---------- ----------- ------------ ------- --------- -----------
Balance at December 31,
1997................. 9,040,942 $2,260,236 $28,201,420 $(15,215,214) $41,522 $(561,458) $14,726,506
========= ========== =========== ============ ======= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 23
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows provided by operations:
Net (loss) income..................................... $ (8,209,488) $ 1,522,143 $ 625,062
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operations:
Depreciation and amortization....................... 450,251 176,924 108,012
Writedown of investment in, and debenture from,
Romark........................................... 2,500,000 -- --
Provision for Maxaquin product rights writedown..... 4,080,389 -- --
Conversion of Anadrol product rights to inventory... 318,750 -- --
Increase in royalty payment......................... (120,000) -- --
Decrease (Increase) in receivables.................. 176,896 128,336 (435,007)
Increase in inventories............................. (492,789) (813,494) (617,696)
Increase (Decrease) in inventory reserve............ 290,740 (43,422) (195,298)
(Increase) Decrease in prepaid expenses and other... (298,718) 205,930 116,629
Increase in accounts payable and accrued
liabilities...................................... 2,031,292 639,274 203,582
(Decrease) Increase in due to Roxane Laboratories,
Inc. ............................................ (1,329,136) 1,229,168 1,834,717
------------ ------------ -----------
Net cash flows (used in) provided by operating
activities.......................................... (601,813) 3,044,859 1,640,001
Cash flows (used in) investing activities:
Proceeds on disposition of equipment................ 1,880 6,124 63,063
Purchases of equipment.............................. (564,272) (129,039) (25,969)
Purchase of product rights.......................... (3,376,000) -- --
Purchase of short-term investments.................. (31,794,726) (48,736,422) (877,393)
Sale of short-term investments...................... 34,446,789 33,754,281 --
Investment in Medisperse............................ -- -- (39,456)
Investment in and subordinated debenture from Romark
Laboratories, L.C................................ (224,090) (1,675,910) (600,000)
------------ ------------ -----------
Net cash (used in) investing activities............... (1,510,419) (16,780,966) (1,479,755)
Cash flows (used in) provided by financing activities:
Purchase of treasury stock.......................... (561,458) -- --
Proceeds from exercise of stock options............. 927,116 710,820 250,463
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.............. (1,643,888) 643,888 500,000
------------ ------------ -----------
Net cash flows (used in) provided by financing
activities.......................................... (1,278,230) 11,183,097 750,463
Effect of exchange rate changes on cash............... (148) 56 41
------------ ------------ -----------
Net change in cash and cash equivalents............... (3,390,610) (2,552,954) 910,750
Cash and cash equivalents at beginning of year........ 4,458,889 7,011,843 6,101,093
------------ ------------ -----------
Cash and cash equivalents at end of year.............. $ 1,068,279 $ 4,458,889 $ 7,011,843
============ ============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes........ $ 11,805 $ 11,700 $ 1,663
Obligation incurred due to product rights
acquisitions (including imputed interest)........ $ 2,127,836 -- --
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 24
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 approximates 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 apply 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> 25
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(H) EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards 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.
Basic earnings (loss) per share was computed by dividing net income (loss)
by the weighted-average number of common shares outstanding during the year.
Diluted earnings per share was computed assuming the conversion of all
options and warrants (when dilutive) as of the beginning of the year. The number
of common shares issuable assuming conversion was then added to the
weighted-average number of common shares outstanding. No effect has been given
in 1997 to options outstanding under the Company's stock option plans and
warrants issued, as their effect is anti-dilutive.
(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 1996 and 1995 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 were required, the estimated
future undiscounted cash flows associated with the asset would be compared to
the asset's carrying amount to determine if a writedown to market value is
required. The adoption did not have a material effect on the Company's financial
position or results of operations.
F-8
<PAGE> 26
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(M) INTANGIBLE ASSETS
Intangible assets consist of Maxaquin and Anadrol product rights. These
product rights are being amortized over 5 to 20 years. Amortization is provided
on a straight-line basis over the estimated useful lives of the product rights.
(2) INVENTORIES
A summary of inventory components at December 31 follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Finished products................................... $ 847,709 $ 367,124
Work in process..................................... 986,406 0
Raw materials....................................... 2,854,809 3,829,011
Reserve for obsolescence............................ (302,020) (11,280)
---------- ----------
$4,386,904 $4,184,855
========== ==========
</TABLE>
(3) EQUIPMENT, LEASEHOLD IMPROVEMENTS AND INTANGIBLE ASSETS
A summary of equipment and leasehold improvements at December 31 follows:
<TABLE>
<CAPTION>
ESTIMATED
1997 1996 USEFUL LIFE
---- ---- -----------
<S> <C> <C> <C>
Equipment, furniture and fixtures........ $2,347,782 $1,997,888 3-10 years
Leasehold improvements................... 208,075 37,919 10 years
---------- ----------
$2,555,857 $2,035,807
========== ==========
</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, 1997 and 1996, the equipment had a net book
value of $327,519 and $408,902, respectively. Depreciation expense for 1997 and
1996 was $266,770 and $186,038, respectively.
At December 31, 1997, intangible assets consisted of product rights
($1,633,694) and the amortization related to those product rights ($7,345).
(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 Inc.
In May 1996, the Company signed a Collaboration Agreement with BioChem
Pharma (International) Inc. (which it subsequently assigned to BioChem Pharma
Inc.), under which the Company sublicensed product rights in Canada to
nitazoxanide, Androgel and Andractim. Successful development of the Androgel
products may result in additional equity investment and milestone payments from
BioChem Pharma Inc. The
F-9
<PAGE> 27
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. ("Romark") for
$1.5 million. 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 nitazoxanide for human use in
the U.S., Canada, Australia and New Zealand from Romark Laboratories, L.C.,
Tampa, Florida. Unimed holds equity in Romark, which was previously valued at
$1,000,000 and a convertible subordinate debenture in the amounts of $1.5
million, which could be converted to Romark equity.
During the fourth quarter of 1997, the Company provided for an expense of
$2.5 million representing a revaluation of (1) a $1,000,000 equity investment in
Romark and (2) the $1.5 million convertible subordinated debenture.
G.D. Searle & Co.
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 (lomefloxacin),
a fluoroquinolone antibiotic. Under the terms of the agreement, the Company will
make sales-based distribution fee payments during the term of the agreement. The
Company also recorded long and short-term obligations along with imputed
interest at 8% on that obligation, to be satisfied January 2, 1998 and 1999,
respectively. During 1997, $3,058,148 in distribution fees were paid to Searle.
During the fourth quarter of 1997, the Company wrotedown the previously
capitalized acquisition costs of Maxaquin by $4.1 million.
Syntex (USA) Inc.
In July 1997, the Company acquired from Syntex (USA) Inc. and its Mexican
affiliate all rights to Anadrol(R) (oxymetholone) an orally active anabolic
androgenic steroid used to treat anemias, for the U.S., Canada and Mexico. The
Company will pay Syntex a licensing fee, in three installments, and a royalty on
net product sales. The Company paid the first installment, $376,000, in 1997.
(5) SHORT-TERM INVESTMENTS
Short-term investments held-to-maturity securities were $13,718,834 and
$16,370,897 in 1997 and 1996, respectively.
(6) INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
CURRENT 1997 1996 1995
------- ---- ---- ----
<S> <C> <C> <C>
Federal............................................. $-- $-- $ --
State............................................... -- -- 11,700
Foreign............................................. -- -- --
--- --- -------
Total............................................... $-- $-- $11,700
=== === =======
</TABLE>
F-10
<PAGE> 28
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax provisions from continuing operations differed from the taxes
calculated at the statutory federal rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Taxes (benefit) at the statutory
rate................................ $(2,791,000) $ 517,400 $ 216,500
Utilization of tax loss
carryforward........................ -- (518,000) (217,100)
State income taxes.................... -- -- 11,700
Foreign loss.......................... -- 600 600
Valuation allowance................... 2,791,000 -- --
----------- --------- ---------
Totals................................ $ -- $ -- $ 11,700
=========== ========= =========
</TABLE>
At December 31, 1997, the Company has a tax loss carryforward of
approximately $9,112,000 for federal income tax purposes, which expires in the
years 2001 through 2011. The Company has available a research and development
credit carryforward at December 31, 1997, of approximately $172,000, which
expires in the years 2003 through 2011. 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>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward................. $ 3,667,000 $ 3,361,000
Research tax credit carryforward................ 172,000 430,000
Sales returns and allowances.................... 8,000 15,000
Inventory reserve............................... 121,000 4,500
Accrued liabilities............................. 41,000 22,000
Other........................................... 1,000 1,000
Depreciation.................................... 200,000 213,000
Valuation allowance............................. (4,210,000) (3,620,500)
----------- -----------
Total...................................... $ 0 $ 0
----------- -----------
Deferred tax liabilities:
None............................................ 0 0
----------- -----------
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. In March 1993,
Sanofi Winthrop started to distribute Marinol in Canada. 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
$8,085,000 (1997), $7,649,000 (1996) and $6,031,000 (1995). As of December 31,
1997 and 1996, trade receivables included $1,537,223 and $1,557,403,
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
F-11
<PAGE> 29
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
paid $64,328 (1997), $27,746 (1996) and $92,334 (1995) of these costs, which is
netted against research and development expenses.
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 Roxane sells inventory.
The Company has various other licensing, marketing and distribution
agreements typical to its business. See Note 4 -- "Product Development,
Licensing and Other Agreements" 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. These warrants expired unexercised.
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, 1997,
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, 1997,
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,
1997 and 1996, 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 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. Generally, options expire 10
years from the date of grant or 90 days after termination of employment.
F-12
<PAGE> 30
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Option activity for the 1991 Plan for the years ended December 31, 1995,
1996 and 1997 was as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE OPTIONS
SHARES EXERCISE PRICE EXERCISABLE
------ ---------------- -----------
<S> <C> <C> <C>
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
--------- ----- -------
Options granted........................... 1,112,500 6.38 --
Options exercised......................... (184,313) 2.76 --
Options forfeited......................... (425,375) 4.94 --
--------- ----- -------
Balance at December 31, 1997.............. 1,488,269 $5.83 425,117
========= ===== =======
</TABLE>
The following table summarizes the status of outstanding stock options as
of December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- ------------------------------------
RANGE OF REMAINING
EXERCISE NUMBER OF OPTIONS CONTRACTUAL LIFE WEIGHTED AVERAGE NUMBER OF OPTIONS WEIGHTED AVERAGE
PRICES OUTSTANDING (IN YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------- ----------------- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
2.75 - 4.88 294,004 7.0 3.14 220,254 3.22
5.13 - 6.75 569,765 8.7 5.35 85,765 5.00
7.13 - 8.25 624,500 9.3 7.54 119,098 7.70
- ----------- --------- --- ---- ------- ----
-- 1,488,269 8.3 5.83 425,117 4.83
=========== ========= === ==== ======= ====
</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 1996 and 1997, reported net
income and earnings per share would have been reduced as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net (loss) income, as reported....................... $(8,209,488) $1,522,143
Pro forma net (loss) income.......................... $(8,562,962) $1,169,032
Basic (loss) earnings per share, as reported......... $(.93) $.18
Pro forma basic (loss) earnings per share, as
reported........................................... $(.99) $.13
Dilutive (loss) earnings per share, as reported...... $(.93) $.17
Pro forma dilutive (loss) earnings per share......... $(.99) $.13
</TABLE>
The effects of applying SFAS 123 in the above pro forma disclosure are not
likely to represent the effects disclosed in future years because the proforma
calculations exclude stock options that were granted before 1995.
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
F-13
<PAGE> 31
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
weighted-average assumptions used in determining fair value as disclosed for
SFAS 123 are shown in the following table:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Risk-free interest rate..................................... 6.20% 6.16%
Dividend yield.............................................. 0.00% 0.00%
Option life (years)......................................... 4.2 4.7
Stock price volatility...................................... 55.82% 58.16%
</TABLE>
(B) OTHER STOCK OPTIONS
In November 1986, reflecting employment contracts with certain executives,
the Company granted nonqualified options to purchase 220,000 shares of Common
Stock. In January 1988, the exercise price of these options was changed to $5.38
from $15.00. 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
giving effect 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, 1997, options to
purchase 214,110 shares of Common Stock had been exercised, none had been
canceled and options to purchase 57,106 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, giving
effect 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. There were no exercises or cancellations
during 1995, 1996 or 1997.
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 giving effect 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 1995, 1996 or 1997.
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 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, 1997,
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 of December 31, 1997, all 20,000 options had been exercised.
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, 1997, options to purchase
F-14
<PAGE> 32
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1997, 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 1995, 1996 or 1997.
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 311,182 shares of the Company's Common Stock reserved for these
arrangements as of December 31, 1997.
(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 1997 and 1996 totaled $78,668 and $55,278,
respectively.
(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 expenses charged
to operations were approximately $291,000 in 1997, $143,000 in 1996 and $193,000
in 1995. At December 31, 1997, approximate amounts committed for future fiscal
years are as follows:
<TABLE>
<S> <C>
1998................................................. $372,000
1999................................................. 379,000
2000................................................. 387,000
2001................................................. 395,000
2002................................................. 34,000
</TABLE>
Management expects that in the normal course of business, leases that
expire will be renewed or replaced by other leases.
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.
(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
F-15
<PAGE> 33
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. Either party upon 30 days prior
written notice can cancel the agreement. Expenditures under this agreement
totaled approximately $50,000 in 1997, 1996 and 1995, respectively.
F-16
<PAGE> 34
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 Subsidiary 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.
/s/ COOPERS & LYBRAND L.L.P.
Chicago, Illinois
February 6, 1998
F-17
<PAGE> 35
SCHEDULE II
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
DESCRIPTION PERIOD EXPENSES DEDUCTIONS END OF PERIOD
----------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and returns:
1995.......................................... $ 28,000 $ 15,000 $ 0 $ 43,000
======== ======== ======== ========
1996.......................................... $ 43,000 $ 9,436 $ 13,046 $ 39,390
======== ======== ======== ========
1997.......................................... $ 39,390 $ 0 $ 17,992 $ 21,398
======== ======== ======== ========
Reserve for inventory obsolescence:
1995.......................................... $250,000 $ 0 $195,298 $ 54,702
======== ======== ======== ========
1996.......................................... $ 54,702 $241,107 $284,529 $ 11,280
======== ======== ======== ========
1997.......................................... $ 11,280 $290,740 $ 0 $302,020
======== ======== ======== ========
</TABLE>
F-18
<PAGE> 36
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/ RONALD L. GOODE
------------------------------------
Ronald L. Goode
President and Chief
Executive Officer
March 30, 1998
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 30, 1998
---------------------------------------------
Dr. John N. Kapoor
/s/ RONALD L. GOODE President and Chief Executive March 30, 1998
--------------------------------------------- Officer
Ronald L. Goode
/s/ DAVID E. RIGGS Senior Vice President, Chief March 30, 1998
--------------------------------------------- Financial Officer, Secretary
David E. Riggs and Treasurer
/s/ FRED HOLUBOW Director March 30, 1998
---------------------------------------------
Fred Holubow
/s/ JAMES J. LEMPENAU Director March 30, 1998
---------------------------------------------
James J. Lempenau
/s/ ROLAND WEISER Director March 30, 1998
---------------------------------------------
Roland Weiser
</TABLE>
<PAGE> 1
EXHIBIT 10.T
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 13th day of November,
1997, by and between UNIMED PHARMACEUTICALS, INC., a Delaware corporation (the
"Company") and DR. RONALD L. GOODE ("Executive").
WITNESSETH:
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept such employment, upon the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the covenants and mutual agreements
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby
agree as follows:
1. Employment. Throughout the Term (as defined in Section 2 below), the
Company shall employ Executive as provided herein, and Executive hereby
accepts such employment. In accepting such employment, Executive
represents to the Company that he is not now, and by accepting such
employment, will not be, under any restrictions in the performance of the
duties contemplated under this Agreement as a result of the provisions of
any prior employment agreement or non-compete or similar agreement to
which Executive is or was a party.
2. Term of Employment. The term of Executive's employment by the Company
hereunder shall commence on November 13, 1997 (the "Effective Date") and
shall continue until terminated in accordance with the provisions of this
Agreement (the "Term").
3. Duties. Throughout the Term, and except as otherwise expressly provided
herein, Executive shall be employed by the Company as the President and
Chief Executive Officer ("CEO") of the Company. In such capacities,
Executive shall devote his full time to the performance of his duties as
President and CEO of the Company which shall include the responsibilities
and authority generally afforded to chief executive officers of comparable
public corporations, but subject, in all cases, to the provisions of the
Company's By-laws, this Agreement and the directions of the Company's
Board of Directors (the "Board"). In addition, the Company shall promptly
appoint Executive to the Board and thereafter nominate Executive as a
nominee for election to the Board and solicit proxies for his election for
so long as this Agreement is in effect. Without limiting the generality
of the foregoing, throughout the Term Executive shall faithfully perform
his duties as President and CEO and at all times use his diligent efforts
to promote the best interests of the Company, it being acknowledged by the
Company, however, that Executive shall not be precluded from engaging in
charitable and community affairs (including, but not limited to, service
on the boards of such organizations), from managing his personal
investments or from serving as a member of the board of directors of
Thunderbird - The American Graduate School of International Management
<PAGE> 2
("Thunderbird"), The Mercy Ships Foundation ("Mercy") or of a for profit
subsidiary of Highland Park Hospital ("Highland Park"); provided, however,
that such activities do not interfere in any material respect with
Executive's performance of his obligations to the Company hereunder.
4. Compensation.
(a) Salary. For any and all services performed by Executive under this
Agreement during the Term, the Company shall pay to Executive an
annual salary of Two Hundred Fifty Thousand ($250,000) per year (the
"Salary"). The Salary shall be paid in equal installments no less
frequently than monthly and in accordance with Company practice,
prorated, however, for any period of less than a full month. The
Salary will be reviewed annually by the Board and a determination
shall be made by the Board as to the appropriateness of an increase,
if any, thereto.
(b) Bonus. In addition to the Salary, Executive shall be eligible to
receive from the Company an incentive compensation bonus (the
"Bonus") of up to 50% of his Salary. The Bonus, if any, shall be
determined based on the achievement by the Company of certain
specific strategic plans and goals (the "Strategic Goals") during
the preceding calendar year (the "Measurement Period") as shall be
determined by the Board following its consideration of
recommendations from the Executive. The Strategic Goals for each
Measurement Period shall be established as promptly as possible in
each such Measurement Period, with the expectation that the Strategic
Goals be in place each year prior to distribution of the Company's
annual proxy materials. Following each Measurement Period, the
Compensation Committee of the Board shall review the Strategic Goals
for the prior Measurement Period in light of the Company's actual
performance during such Measurement Period. Achievement of various
levels of the Strategic Goals shall result in the following payments
as a percentage of Salary:
<TABLE>
<CAPTION>
Level of Achievement Bonus as Percent of Salary
-------------------- --------------------------
<S> <C>
None to Threshold 0%
Threshold 20%
Budget 40%
Target 50%
</TABLE>
Payment of each year's Bonus, if any, shall be made promptly
after the amount of such Bonus is ascertainable and in no event
later than March 31 in the year following the year with respect to
which the Bonus shall be owed. In addition, and at its sole
discretion, the Board may award additional compensation to Executive
based on Executive's contributions to the Company.
5. Benefits and Other Rights. In consideration for Executive's performance
under this
2
<PAGE> 3
Agreement, and in addition to the payments provided in Section 4, the
Company shall provide to Executive the following benefits:
(a) The Company will reimburse Executive for, or provide cash
advances for, all reasonable out-of-pocket business expenses
incurred by Executive in connection with his employment hereunder;
provided, Executive adheres to any and all reasonable policies
established by the Company from time to time with respect to such
reimbursements or advances, including, but not limited to, a
requirement that Executive submit supporting evidence of any such
expenses to the Company.
(b) The Company will provide Executive with a monthly car
allowance in the amount of one thousand dollars ($1,000.00) net of
tax cost to the Executive.
(c) During the Term, Executive shall be entitled to participate
in any employee benefit plans (including, but not limited to, any
life insurance, disability, medical, dental, hospitalization,
savings, retirement, and other benefit plans of the Company) then in
effect for executive officers of the Company and to receive any
other fringe benefits that the Company then provides to executive
officers of the Company to the extent Executive meets the
eligibility requirements for any such plan or benefit.
(d) (i) Executive shall be provided $1,200,000 term life
insurance protection with the death benefit payable to Executive's
estate (or as Executive otherwise directs) and (ii) Executive shall
be permitted to participate in the Company's existing 401(k) plan,
with the Company making matching contributions in accordance with
said plan.
(e) During the Term the Executive shall be entitled to four (4)
weeks paid vacation, it being understood and agreed that unused
vacation shall not be carried over from one year to the next.
(f) The Company will pay Executive's dues at Exmoor Country Club
and the other expenses payable to maintain Executive's membership
and use privileges at the club such as the annual fees payable as a
condition to use of the golf, tennis and other facilities for which
an annual fee is payable, the annual employee fund and other
analogous charges up to a maximum of $10,000 per year at current
rates, but subject to adjustment during the Term as such dues and
fees may be increased.
(g) At the direction of the Executive, the Company shall make a
charitable donation of Ten Thousand Dollars ($10,000) to either
Thunderbird or Mercy each year during the Term, beginning with a
contribution in 1997.
(h) The Company will purchase such equipment as Executive
reasonably deems necessary to enable him to perform work for the
Company from his home or while
3
<PAGE> 4
traveling, including an office computer and fax machine, a portable
computer and a cellular phone. These items will remain the
property of the Company, but Executive will have exclusive use of
these items during his employment term. From time to time, the
equipment will be upgraded as Executive reasonably requests to keep
pace with technological developments and his needs.
(i) The Company will reimburse the Executive for the reasonable
costs of travel, lodging and other incidental costs associated with
Executive's participation as a board member of Thunderbird and
Mercy, to the extent that such costs are not reimbursed by such
entities.
(j) The Company will indemnify Executive against claims arising
out of Executive's service with the Company to the fullest extent
permitted by law and the Company's Certificate of Incorporation and
will include Executive under the coverage provided by the Company's
existing D&O insurance policy during the term of his employment
hereunder and, if permitted to do so by its D&O carrier at no more
than nominal cost to the Company, for a period of five years after
termination of employment.
(k) During the Term, the Company shall provide Executive with
such other employment benefits as may from time to time be made
generally available to employees of the Company; provided, however,
that the Company shall not be required to establish and maintain any
specific benefits or benefit plans.
6. Options. (a) As of November 13, 1997, the Compensation and Stock Option
Committee of the Board of Directors (the "Committee") shall grant to
Executive stock options pursuant to the terms and conditions of the
Company's 1991 Stock Option Plan (the "Option Plan"), as amended, to
purchase 400,000 shares of the Company's common stock (the "Options"), at
an exercise price per share of $7.50 which is the fair market value of the
Company's common stock on the date of grant. The options granted to the
Executive will expire ten years from the date of grant. Of the Options
granted to Executive, 66,665 Options shall be incentive stock options
("ISOs") which will vest at the rate of 13,333/year (based on the exercise
price of $7.50) on November 13 of each of the five years 1997-2001. The
remaining Options shall be granted under the Option Plan as non-qualified
stock options ("NQOs"). There will be immediate vesting of 36,667 NQO
Options (which represents the difference between 50,000 shares and the
number of shares vested in 1997 under the ISO described above). The
remaining NQOs (the "Monthly NQOs") will vest at a uniform rate of 6,180
NQO options on the 13th day of each of the 47 consecutive months beginning
with December 1997 with a final vesting of 6,208 NQO options on the 13th
day of the 48th month. 2,083 of the Monthly NQOs in each of the first 47
months and 2,099 of the Monthy NQOs in the 48th month (for a total of
100,000 NQO options) shall not be exercisable until the attainment of
certain "milestone achievements" which are to be mutually agreed to by the
Board and the Executive within
4
<PAGE> 5
90 days of the date of the Employment Agreement. The milestone options
shall become purchasable in chronological order as the milestones are
achieved so that, for example, if and when milestones are achieved which
render one-half of the milestone option shares purchasable, then the
milestone requirement would not then thereafter restrict purchases through
the 24th of the 48 monthly vesting installments. The Company agrees to
allow the Executive to exercise Options on a cash-less basis (to the
extent permitted by the Option Plan) or, if not permitted by the Option
Plan, to use its best efforts to amend the Option Plan to allow such
exercise in accordance with current law, including, but not limited to,
applicable regulations of the Securities and Exchange Commission.
(b) Upon exercise of any Options, Executive may request that the
Company provide Executive with a loan (the "Loan" or if multiple loans are
requested the "Loans") in an amount sufficient to purchase the shares
subject to such exercised Options, up to a maximum for all Loans of an
amount sufficient to exercise Options for 100,000 shares of the Company's
stock, each such Loan to be evidenced by a promissory note (the "Note" and
collectively the "Notes") which shall provide for an interest rate equal
to the Applicable Federal Rate of interest authorized by Section 1274(d)
of the Internal Revenue Code, as amended, be secured by the Company
shares so acquired, require payment of interest annually on each November
13, provide for payment of principal as a lump sum on the earlier to occur
of four (4) years from the date of the Note or one (1) year from the date
of termination of employment and contain such other terms as the Company
and Executive shall reasonably agree.
(c) The Option Plan is currently registered under the Securities Act
of 1933 and the Company hereby commits to maintain such registration in
effect until Executive's Options are fully exercised.
7. Termination of the Agreement.
(a) The Company shall have the right to terminate the Agreement,
effective upon delivery of written notice of termination to
Executive under the following circumstances:
(i) Executive shall die or shall be deemed to be
Permanently Disabled (as defined in Section 9 below);
(ii) Without Cause (as hereinafter defined), effective
immediately upon delivery of written notice to Executive by
the Company; or
(iii) With Cause, it being agreed that Executive's employment shall
not be deemed to have been terminated for Cause unless the
primary reason for Executive's termination shall be that:
5
<PAGE> 6
(1) Executive has been convicted of (or plead guilty or nolo
contendere to) a felony; or
6
<PAGE> 7
(2) Executive has engaged in embezzlement.
The Executive may not be terminated for Cause unless there shall be
been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of a majority of the Board of Directors of
the Company, at a meeting of that Board held after reasonable notice
to the Executive of the purpose for the meeting and an opportunity
for the Executive to be heard at such meeting), finding that in the
good faith opinion of the Board the Executive shall have engaged in
conduct described in clause (1), (2) or (3) above and specifying the
particulars thereof. Such a finding by the Board of Directors of
the Company shall be a prerequisite to a termination for Cause, but
such a finding shall not preclude the Executive from seeking a
determination by means of an arbitration proceeding pursuant to
Section 13 of this Contract that Cause did not exist for such
termination. Any termination of the Executive's employment by the
Company which shall not be for Cause as defined in this Section shall
be deemed to be "not for Cause."
(b) This Agreement may be terminated by the Executive at any time
upon thirty (30) days prior written notice to the Company.
(c) Upon termination pursuant to Section 7(a)(i) or 7(a)(ii) the
Company shall (i) reimburse Executive, or his estate, when and as
otherwise due in accordance with Section 5, for his expenses accrued
through the date of termination, plus (ii) compensate Executive, or
his estate, through the end of the month in which the termination
occurs for the regular monthly portion of his Salary, plus (iii) pay
to Executive the "applicable incentive percentage" (as herein
defined) of Executive's Salary paid in the year of termination
through the end of the month in which termination occurs, plus (iv)
pay an amount per day for any accrued but unused vacation time
compensated at the rate of Salary for the current year plus Bonus
paid for the prior Measurement Period, plus (v) pay an amount equal
to any Bonus for the prior year which has been earned and awarded but
not yet paid. As used herein, "applicable incentive percentage" will
be the percentage of incentive compensation Executive earned for the
preceding Measurement Period (expressed as a percentage of
Executive's salary in that year), provided that if Executive's
employment is terminated in 1998, the applicable percentage will be
0%. For example, if a termination of employment were to occur after
1998 on a June 15, at a time when Executive's salary was $250,000,
his Bonus for the prior Measurement Period (which has been paid) had
been 40% ($100,000) and he had two weeks unused
7
<PAGE> 8
vacation time and no reimbursable expenses, the Company would be
obligated to make the following payments: $20,833.33 of Salary
(assuming that no portion of his monthly salary had been paid in
June), plus, $50,000 (representing the applicable incentive
percentage of $250,000 x 40% x .5 = $50,000), plus $13,461.54 for
unused vacation ($250,000 + $100,000 divided by 52 x 2 = $13,461.54),
for a total of $84,294.87. In addition to the foregoing payments,
after a termination under Section 7(a)(i) or 7(a)(ii), the Company
will pay Executive or Executive's estate, an amount equal to
Executive's annual Salary as in effect at the time of termination,
payable in 12 equal monthly payments. Finally, upon a termination
under Section 7(a)(i) or 7(a)(ii) medical, dental and disability
benefits will be extended, on the same terms as if Executive had
continued to be an employee of the Company, for a period of
twenty-four (24) months.
(d) Upon termination in accordance with Section 7(a)(iii) or 7(b), the
Company shall (i) pay the Executive all Salary accrued but unpaid as
of the date of such termination, (ii) reimburse the Executive, when
and as otherwise due in accordance with Section 5, his expenses
accrued through the date of termination, and (iii) pay any Bonus
earned but not yet paid for any year prior to the year in which the
termination occurs.
(e) Any dollar amounts which are to be paid at the time of termination
under this Section (other than any Salary continuation under Section
7(c)) shall be paid promptly upon termination of employment, but in
no event more than thirty (30) days after the date of termination.
Any salary continuation payments shall be made in accordance with the
normal payroll policies of the Company. All payments made pursuant
to this Section 7 shall be subject to all appropriate withholding
taxes.
(f) The Company's Board will, with input from Executive, develop an
appropriate "golden parachute" compensation package in which
Executive and other key executives would participate in the event of
a take over or other change in control. The plan will include
features included in such plans at public companies in the same
industry as and of similar size as the Company.
8. Effect of Expiration or Termination of the Agreement. Promptly
following the expiration or termination of this Agreement, and except
as provided in Section 7 or as otherwise expressly agreed by the Company:
(a) Executive's duties shall cease as of the effective date of
termination; provided, however, the Executive shall provide the
Company with all reasonable assistance necessary to permit the
Company to continue its business operations without interruption
and in a manner consistent with reasonable business practices,
provided that such transition period shall not exceed thirty (30)
consecutive days after termination nor require more than twenty (20)
hours of Executive's time per
8
<PAGE> 9
week. In the event that the Company shall request Executive to
provide transitional assistance after the effective date of
termination, Executive shall be paid at any hourly rate based on a
2,080 hour work year and his then current Salary, based upon time
sheets submitted by Executive specifying the services performed and
the amount of time expended;
(b) Executive shall deliver to the Company possession of any and
all property owned or leased by the Company which may then be in
Executive's possession or under his control, including without
limitation, any and all such keys, credit cards, telephones,
automobiles, equipment, supplies, books, records, files, computer
equipment, home office equipment purchased by the Company for
Executive's use, computer software and other such tangible and
intangible property of any description whatsoever. If, following the
expiration or termination of the Agreement, Executive shall receive
any mail addressed to the Company, Executive shall immediately
deliver such mail, unopened and in its original envelope or package,
to the Company; and
(c) Other than as provided in Section 7, upon a termination of
employment Executive's participation in all other benefits or
entitlement to participate in Company programs or benefits, if any,
shall be determined in accordance with the Company's employee benefit
plans and other applicable programs and practices then in effect;
provided, however, that all policies of life insurance, if any,
relating solely to Executive shall be assigned to Executive within
thirty (30) days following termination, provided that such assignment
shall be at no cost or expense to the Company, and provided further
that such assignment shall state that it is made subject to the terms
and conditions of the policy(ies).
9. Definition of "Permanently Disabled". Executive shall be deemed to be
"Permanently Disabled" upon ninety (90) days after the first to occur of
either of the following:
(a) The Company shall receive a written certificate from a physician
selected by the Company, and reasonably acceptable to the Executive,
stating that, based upon one or more examinations of Executive by
such physician made at the Company's request, it is such physician's
opinion that for a period of at least six (6) consecutive months from
the date of such certification Executive is and will be substantially
unable to perform his duties hereunder or that it would seriously
impair his physical or mental health to perform such duties; or
(b) Executive shall be adjudicated as an incompetent or disabled
person and a conservator or a guardian shall be appointed for his
person or property by a court of competent jurisdiction.
10. Inventions and Discoveries.
9
<PAGE> 10
(a) Executive shall promptly and fully disclose to the Company, and with
all necessary detail for a complete understanding of the same, all
developments, know-how, discoveries, inventions, improvements,
concepts, ideas, writings, formulae, processes and methods of a
financial or other nature (whether copyrightable, patentable or
otherwise) made, received, conceived, acquired or written during
working hours, or otherwise, by Executive (whether or not at the
request or upon the suggestion of the Company) during the period of
his employment with the Company or any of its subsidiaries, solely or
jointly with others, in or relating to any activities of the Company
or its subsidiaries known to him as a consequence of his employment
with the Company (collectively the "Subject Matter").
(b) Executive hereby assigns and transfers, and agrees to assign and
transfer, to the Company, all his rights, title and interest in and
to the Subject Matter, and Executive further agrees to deliver to the
Company any and all drawings, notes, specifications and data relating
to the Subject Matter, and to execute, acknowledge and deliver all
such further papers, including applications for copyrights or
patents, as may be necessary to obtain copyrights and patents for any
thereof in any and all countries and to vest title thereto to the
Company. Executive shall assist the Company in obtaining such
copyrights or patents during the term of this Agreement, and any time
thereafter on reasonable notice and at mutually convenient times, and
Executive agrees to testify in any prosecution or litigation
involving any of the Subject Matter, provided however, that Executive
shall be compensated in a timely manner at the rate of $100.00 per
hour (with a minimum of $500 per day), plus out-of-pocket expenses
incurred in rendering such assistance or giving or preparing to give
such testimony if it is required after termination of his employment.
11. Confidentiality. The Executive acknowledges that during the period of
his employment by the Company, and in his performance of services
hereunder, he will be placed in a relationship of trust and confidence
regarding the Company and its affairs. In the course of and due to that
relationship he will have contact with the Company's customers, suppliers,
affiliates, and distributors and their personnel. In the course of the
aforesaid relationship, he will have access to and will acquire
confidential information relating to the business and operations of the
Company, including, without limitation, information relating to processes,
plans and methods of operation of the Company. The Executive acknowledges
that any such information that is not a trade secret, nonetheless
constitutes confidential information as between himself and the Company,
that the disclosure thereof (or of any information which he knows relates
to confidential, trade, or other secret aspects of the Company's business)
would cause substantial loss to the goodwill of the Company, and will
continue to be made known to Executive only because of the position of
trust and confidence which he will continue to occupy hereunder. In view
of the foregoing, and in consideration of the covenants and premises of
this Agreement, the Executive agrees that during the term of this
Agreement and at all times thereafter, Executive shall not in any manner,
either directly or indirectly, divulge, disclose or communicate to any
person or
10
<PAGE> 11
firm, except to or for the Company's benefit as directed by the Company,
any of the confidential information which he may have acquired in the
course of or as an incident to his employment by the Company, the parties
agreeing that such information affects the successful and effective
conduct of the business and goodwill of the Company and that any breach
of the terms of this Section 11 is a material breach of this Agreement.
Notwithstanding the foregoing, nothing in this Section 11 shall preclude
Executive from disclosing confidential information pursuant to law or
court order or disclosing confidential information which has been made
public through the release or disclosure by persons other than Executive.
11
<PAGE> 12
12. Remedies.
(a) The covenants of Executive set forth in Section 11 are separate and
independent covenants for which valuable consideration has been paid,
the receipt, adequacy and sufficiency of which are acknowledged by
Executive, and have also been made by Executive to induce the Company
to enter into this Agreement. Each of the aforesaid covenants may be
availed of, or relied upon, by the Company in any court of competent
jurisdiction, and shall form the basis of injunctive relief and
damages including expenses of litigation suffered by the Company
arising out of any breach of the aforesaid covenants by Executive.
The covenants of Executive set forth in this Section 12 are
cumulative to each other and to all other covenants of Executive in
favor of the Company contained in this Agreement and shall survive
the termination of this Agreement for the purposes intended.
(b) Each of the covenants contained in Section 11 above shall be
construed as agreements which are independent of any other provision
of this Agreement, and the existence of any claim or cause of action
by any party hereto against any other party hereto, of whatever
nature, shall not constitute a defense to the enforcement of such
covenants. If any of such covenants shall be deemed unenforceable
but may be made enforceable by the imposition of limitations thereon,
Executive agrees that the same shall be enforceable to the fullest
extent permissible under the laws and public policies of the
jurisdiction in which enforcement is sought. The parties hereto
hereby authorize any court of competent jurisdiction to modify or
reduce the scope of such covenants to the extent necessary to make
such covenants enforceable.
13. Arbitration. Any claims, disputes or controversies arising out of or
relating to this Agreement between the parties (other than those arising
under Section 12) shall be submitted to arbitration by the parties. The
arbitration shall be conducted in Chicago, Illinois in accordance with the
rules of the American Arbitration Association then in existence and the
following provisions: Either party may serve upon the other party by
guaranteed overnight delivery by a nationally recognized express delivery
service, a written demand that the dispute, specifying in detail its
nature, be submitted to arbitration. Within seven business days after the
service of such demand, each of the parties shall appoint an arbitrator
and serve written notice by guaranteed overnight delivery by a nationally
recognized express delivery service, of such appointment upon the other
party. The two arbitrators appointed shall appoint a third arbitrator.
The decision of two arbitrators in writing under oath shall be final and
binding upon the parties. The arbitrators shall decide who is to pay the
expenses of the arbitration. If the two arbitrators appointed fail to
agree upon a third arbitrator within ten days after their appointment,
then an application may be made by either party, upon notice to the other
party, to any court of competent jurisdiction for the appointment of a
third arbitrator, and any such appointment shall be binding upon both
parties.
12
<PAGE> 13
14. Notices. Any and all notices necessary or desirable to be served
hereunder shall be in writing and shall be:
(a) personally delivered, or
(b) sent by certified mail, postage prepaid, return receipt
requested, or guaranteed overnight delivery by a nationally
recognized express delivery company, in each case
addressed to the intended recipient at the address set forth
below.
(c) For notices sent to the Company:
Unimed Pharmaceuticals, Inc.
2150 East Lake Cook Road
Buffalo Grove, Illinois 60089
Attention: Office of the Chairman of the Board
(d) For notices sent to Executive:
Dr. Ronald L. Goode
1051 Melody Road
Lake Forest, Illinois 60045
Either party hereto may amend the addresses for notices to such party
hereunder by delivery of a written notice thereof served upon the other
party hereto as provided herein. Any notice sent by mail as provided
above shall be deemed delivered on the second business day next following
the postmark date which it bears.
15. Entire Agreement. This Agreement, along with the Option Plan, sets forth
the entire agreement of the parties hereto with respect to the subject
matter hereof, and all prior negotiations, agreements and understandings
are merged herein. This Agreement may not be modified or revised except
pursuant to a written instrument signed by the party against whom
enforcement is sought.
16. Severability. The invalidity or unenforceability of any provision hereof
shall not affect the enforceability of any other provision hereof, and
except as otherwise provided in Section 12 above, any such invalid or
unenforceable provision shall be severed from this Agreement.
17. Waiver. Failure to insist upon strict compliance with any of the terms
or conditions hereof shall not be deemed a waiver or such term or
condition, and the waiver or relinquishment of any right or remedy
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or remedy at any other time or
times.
13
<PAGE> 14
18. Governing Law. This Agreement and the rights and obligations of the
parties hereto shall be governed by and construed in accordance with the
laws of the State of Illinois.
14
<PAGE> 15
19. Benefit and Assignability. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns. The
rights and obligations of Executive hereunder are personal to him,
and are not subject to voluntary or involuntary alienation, transfer,
delegation or assignment, except by will or by the laws of dissent and
distribution.
20. Payments. Any and all payments made to Executive under this Agreement
shall be subject to deduction for any and all applicable federal, state
and local payroll and withholding taxes.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year first above written.
UNIMED PHARMACEUTICALS, INC.
By:
__________________________________
Its: __________________________________
EXECUTIVE:
_____________________________________
DR. RONALD L. GOODE
16
<PAGE> 1
EXHIBIT 10.U
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
AGREEMENT
BETWEEN
UNIMED PHARMACEUTICALS, INC.
AND
SYNTEX (U.S.A.) INC.
<PAGE> 2
TABLE OF CONTENTS
SECTION PAGE
----
1. DEFINITIONS....................................................... 1
2. TECHNOLOGY TRANSFER............................................... 4
2.1 Transfer................................................. 4
2.2 Discussions.............................................. 4
2.3 Observation.............................................. 4
2.4 Maintenance of Records................................... 4
2.5 Termination of Technology Transfer....................... 5
3. SUPPLY............................................................ 5
3.1 Single Campaign.......................................... 5
3.2 Labeling................................................. 5
3.3 Clinical Supplies........................................ 5
3.4 Additional Active Ingredient............................. 5
3.5 Quality.................................................. 5
3.6 FRS In Active Ingredient................................. 6
3.7 Identification of FRS.................................... 6
4. REPRESENTATIONS, WARRANTIES, AND COVENANTS........................ 6
4.1 Manufacturing Complaints................................. 6
4.2 Stability Studies........................................ 6
4.3 Compassionate Use........................................ 7
4.4 NDA...................................................... 7
4.5 NDA Supplement........................................... 7
4.6 Litigation............................................... 7
4.7 Infringement............................................. 7
4.8 Non-Compete.............................................. 7
5. ASSETS............................................................ 7
5.1 Transfer Know-How........................................ 7
5.2 Licensed Know-How........................................ 7
5.3 Trademarks............................................... 8
5.4 Registrations............................................ 8
5.5 DMF...................................................... 8
5.6 Punches.................................................. 8
5.7 Assumption of Liabilities................................ 8
6. CONSIDERATION..................................................... 8
6.1 Payments................................................. 8
6.2 Additional Payments...................................... 9
6.3 Royalties................................................ 9
6.4 Reduction of Royalties................................... 9
7. REPORTING......................................................... 10
(i)
<PAGE> 3
8. INDEMNITY AND WARRANTY............................................ 10
8.1 Indemnity by Unimed...................................... 10
8.2 Indemnity by Syntex...................................... 10
8.3 Authority................................................ 11
8.4 Sale of Product.......................................... 11
8.5 No Warranty.............................................. 11
9. TERM.............................................................. 11
10. DEFAULT........................................................... 11
10.1 Rights on Default........................................ 11
10.2 Rights on Bankruptcy..................................... 11
11. MISCELLANEOUS..................................................... 12
11.1 Law...................................................... 12
11.2 Survival................................................. 12
11.3 Severability............................................. 12
11.4 Publicity................................................ 12
11.5 Notice and Payment....................................... 13
11.6 Entire Agreement......................................... 13
11.7 Force Majeure............................................ 14
11.8 Assignees................................................ 14
(ii)
<PAGE> 4
AGREEMENT
THIS AGREEMENT is entered into by and between Unimed Pharmaceuticals, Inc.,
a Delaware corporation located at 2150 East Lake Cook Road, Buffalo Grove,
Illinois 60089 ("Unimed") and Syntex (U.S.A) Inc., a Delaware corporation
located at 3401 Hillview Avenue, Palo Alto, California 94304 ("Syntex").
WHEREAS, Syntex developed know-how and owns rights relating to the Product
throughout the Territory;
WHEREAS, Syntex owns the Registrations with respect to the Product;
WHEREAS, there is a medical need in the Territory for the Product to be
distributed for the treatment of Fanconi's Anemia and related anemias, all as
indicated in the FDA approved labeling for the Product;
WHEREAS, Unimed desires to obtain Syntex's know-how and rights related to
the Product (including the ownership rights to the Registrations therefor) and
to distribute the Product in the Territory, among other things, for the
treatment of Fanconi's Anemia;
WHEREAS, Unimed desires to have a limited quantity of the Product supplied
to it by Syntex for distribution and sale in the Territory under the terms and
conditions described below, and Syntex is willing to supply such Product to
Unimed;
NOW, THEREFORE, for and in consideration of the mutual covenants herein,
Unimed and Syntex agree as follows:
1. DEFINITIONS.
"Active Ingredient" shall mean the chemical compound drug substance known
as oxymetholone.
"Affiliate" shall mean:
(a) a business entity which owns, directly or indirectly, a
controlling interest in Syntex or Unimed, by stock ownership or otherwise;
or
(b) a business entity which is owned by Syntex or Unimed, either
directly or indirectly, by stock ownership or otherwise; or
(c) a business entity, the majority ownership of which is directly or
indirectly common to the majority ownership of Syntex or Unimed.
Anything to the contrary in this paragraph notwithstanding, Genentech, Inc., a
Delaware corporation, and its subsidiaries shall not be deemed an Affiliate of
Syntex, unless Syntex in its sole discretion notifies Unimed that Genentech
shall be considered an Affiliate of Syntex.
"Campaign" shall have the meaning set forth in Section 3.1.
<PAGE> 5
"Canadian NDA" means a New Drug Application, as such term is defined by the
Food and Drug Regulations issued pursuant to the Food and Drugs Act and as
interpreted by the HPB, as set forth on Appendix A.
"DEA" shall mean the United States Drug Enforcement Administration.
"DEA Site" shall mean a site that has a current, valid DEA permit to
receive a Schedule 3 controlled substance.
"DIN" shall mean the Drug Identification Number as such term is defined by
the HPB.
"DMF" shall mean the Type 2 Drug Master File filed with the FDA by Syntex
or an Affiliate of Syntex.
"Effective Date" shall mean the day both parties become a signatory to this
Agreement.
"FDA" shall mean the United States Food and Drug Administration.
"First Commercial Sale" shall mean the first sale to a Third Party of the
Product by Unimed in the Territory.
"HPB" means the applicable federal Canadian authorities and agencies
including the Health Protection Branch of Health Canada.
"IND" shall mean the Investigational New Drug exemptions, as such term is
defined by the FDA, set forth on Appendix A.
"Manufacturing Area" shall have the meaning set forth in Section 2.3.
"Manufacturing Know-How" means the Transferred Know-How and the Licensed
Know-How, collectively.
"Master Batch Record" shall mean the current master manufacturing
instructions for the Product as set forth in the NDA.
"MQA File" means the Master Quality Assurance File developed by Syntex
Research for the Product, a copy of which has previously been delivered to
Unimed by Syntex.
"NDA" shall mean the New Drug Application, as such term is defined by the
FDA, set forth on Appendix A.
"NDA Supplement" shall mean the Supplement to the NDA filed by Syntex on
November 14, 1996.
"Net Sales" shall mean the aggregate gross sales for trade shipments of
Product to Third Parties in the Territory made by the Unimed Group less credits
issued during the reporting period, to the extent included in the price charged,
for (i) chargebacks, rebates and credits including those
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<PAGE> 6
incurred or granted on account of returns or price adjustments; (ii) trade,
cash, and other discounts or rebates; (iii) sales and other excise taxes and
duties; and (iv) transportation, insurance, and handling charges and expenses.
Net Sales shall be calculated after cash discounts given to customers.
"Plant" means the Syntex manufacturing facility located in Palo Alto,
California.
"Products" shall mean the finished pharmaceutical drug product containing
the Active Ingredient as further described in the NDA.
"Registrations" shall mean the NDA, the Canadian DIN, and the INDs.
"Specifications" means the raw material and component specifications and
the in-process and finished Product specifications for release for the Product
as set forth in the NDA.
"Studies" shall mean the clinical studies to be conducted by or on behalf
of Unimed.
"Substantial Competition" shall mean market penetration in the Territory by
one or more third parties who are not members of the Unimed Group which market
penetration, with respect to the Product, cumulatively amounts to more than
thirty three and one third percent (33 1/3 %) market share of such Product
determined on a gram basis of Active Ingredient in the Territory during a
calendar year.
"Territory" shall mean the United States of America and its territories and
possessions and Canada.
"Third Party(ies)" shall mean a person or entity who or which is neither a
party hereto nor an Affiliate of a party hereto.
"Trademarks" shall mean all trademarks and registrations as listed in
Appendix B. attached hereto and made a part hereof.
"Unimed Group" shall mean Unimed, its Affiliates and its sublicensees.
2. TECHNOLOGY TRANSFER.
2.1 TRANSFER. Syntex shall transfer to Unimed the Master Batch Record and
the MQA File. Syntex shall transfer to Unimed the manufacturing technology and
know-how that are contained in the Master Batch Record and MQA File and that are
exclusively used in manufacturing the Product (the "Transferred Know-How") and
any manufacturing technology and know-how contained in the Master Batch Record
or MQA File that are necessary or used in manufacturing the Product but not
exclusively used thereto (the "Licensed Know-How").
2.2 DISCUSSIONS. Unimed may meet with Syntex or its Affiliates, at
reasonable times and locations acceptable to both parties, for Syntex or its
Affiliates to review with Unimed the Manufacturing Know-How and answer Unimed's
questions with respect to the Manufacturing Know-How. Such meetings shall not
exceed four (4) eight (8) hour days in number, or result in
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<PAGE> 7
Syntex or its Affiliates having to conduct any additional activities or make any
additional expenditures in time or money whatsoever with respect to Unimed's
research or development of the Product. In no event shall Syntex or its
Affiliates be required to create, develop, search for, or deliver additional
Know-How to Unimed beyond the Manufacturing Know-How. Moreover, to the extent
reasonably possible, Unimed shall reduce to writing all questions of Syntex or
its Affiliates and give same to Syntex or its Affiliates in advance of any
meeting.
2.3 OBSERVATION. During the Campaign, Syntex or its Affiliates will allow
Unimed personnel to visit its facilities in order to facilitate Unimed in
learning the Know-How necessary to manufacture and package Product. Any expenses
incurred by Unimed shall be solely for its own account. During such visits,
Unimed shall fully cooperate with Syntex or its Affiliates and its personnel,
including but not limited to: (i) obtaining Syntex's or its Affiliates' and if
necessary, DEA security clearance prior to any entry into the manufacturing and
packaging area of the Plant (the "Manufacturing Area"); (ii) providing Syntex or
its Affiliates with written physician's reports for each Unimed employee who
will enter the Manufacturing Area prior to any entry into the Manufacturing Area
stating that such employees are certified to use a respirator while in the
Manufacturing Area; and (iii) meeting all other additional reasonable
requirements of Syntex's or its Affiliates' Environmental Health Services
department, including, attending a mandatory drug, safety training workshop
prior to entering the Manufacturing Area. The parties acknowledge that the
Campaign has been concluded prior to execution of this Agreement.
2.4 MAINTENANCE OF RECORDS. During the term hereof and subject to the
limitations set forth in this subsection and for a period of five (5) years
thereafter (or such longer period as may be required by law), Syntex or its
Affiliates or third party contractors shall maintain, and shall grant Unimed
access to, all books and records related to manufacture of the Product hereunder
at reasonably agreed upon times, provided, however, that if the FDA has
requested an immediate response, Syntex or its Affiliates shall permit Unimed
immediate access to such books and records as soon as reasonably possible.
Immediate access shall be defined as at least one business day from notification
of request, though Syntex shall endeavor to respond more promptly if possible.
2.5 TERMINATION OF TECHNOLOGY TRANSFER. It is the intentions of both
parties to complete the transfer of Manufacturing Know-How and Product as soon
as possible and thus early meetings are encouraged. Upon termination of the
Campaign, Syntex shall, to the extent resources are available, which
determination shall be made in Syntex' sole discretion, be available for
reasonable amounts of telephone discussions and hands-on support. Unimed shall
pay all travel costs and an hourly rate for consulting for hands-on support to
be mutually agreed upon by the parties.
3. SUPPLY.
3.1 SINGLE CAMPAIGN. Syntex has manufactured one campaign of three batches
of the Product at the Plant (the "Campaign"). Syntex shall have no further
obligation to manufacture the Product. After Unimed provides to Syntex a
shipping address in the Territory, and after Syntex receives the Initial Payment
(as hereinafter defined), Syntex shall provide Unimed with Product in finished
dosage form in accordance with the Specifications and in accordance with the
quantity and timing schedule as set forth in Appendix C, attached hereto and
made a part hereof. Such Product will be shipped F.O.B., the Plant, to one DEA
Site as designated by Unimed. Unimed must supply
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<PAGE> 8
to Syntex a copy of the DEA Certificate indicating that the destination
designated by Unimed is a DEA Site prior to shipping. Appendix C describes all
of the Product which shall be provided by Syntex to Unimed.
3.2 LABELING. The Product shall be packaged in unlabeled bottles of 100
tablets per bottle. The bottles will be identified with the Syntex lot number.
One thousand bottles will have Syntex or Hoffmann-La Roche Ltd. labeling at no
charge to Unimed. All remaining bottles of the Product will be labeled with
Unimed labeling at cost and shall be invoiced by Syntex to Unimed.
3.3 CLINICAL SUPPLIES. Syntex shall manufacture for Unimed approximately
500 bottles of 100 tablets each of the Product for use by Unimed in the Studies.
Such Product shall be delivered to Unimed in accordance with the timing schedule
set forth in Appendix C. Syntex will mark and score such Product in accordance
with written instructions from Unimed.
3.4 ADDITIONAL ACTIVE INGREDIENT. Syntex or one of its Affiliates shall
sell to Unimed Active Ingredient to the extent such Active Ingredient is
available, pursuant to written purchase orders which may be submitted by Unimed
to Syntex. The price of the Active Ingredient shall be $3,300 per kilo.
3.5 QUALITY. The Product and the Active have been or will be manufactured,
packaged, and stored in accordance with the Specifications and with applicable
laws, rules, orders, regulations and FDA requirements (including Good
Manufacturing Practices); provided, however, that the parties acknowledge the
fact that there is a Foreign Related Substance ("FRS") in the Active Ingredient
and the provisions of Section 3.6 supersede the warranty set forth herein. The
Product shall be deemed to have met Specifications unless Unimed notifies Syntex
that the Product does not meet Specifications within sixty (60) days after the
first receipt by Unimed or its designee of the finished Product. If there is a
difference of opinion concerning the conformance of the Product, Syntex and
Unimed agree to consult with each other in order to explain and resolve the
discrepancy between each other's determinations. If, after good faith attempt by
the parties to do so, such consultation does not resolve the discrepancy, Syntex
and Unimed agree to nominate an independent, reputable laboratory, acceptable to
both parties, that shall repeat the applicable Methods of Analysis on
representative samples from the Campaign provided by both Syntex and Unimed, and
the resulting determinations shall be binding on Syntex and Unimed for the
purposes hereof. The party whose assertion as to the conformity or nonconformity
of the Product in question is not borne out by the results of testing by the
independent laboratory shall bear all costs and expenses of such testing.
3.6 FRS IN ACTIVE INGREDIENT. The parties acknowledge that there is an FRS
in the Active Ingredient and the parties are endeavoring to solve the problem in
accordance with Section 3.7. Until the NDA Supplement is approved by the FDA,
and there is no guaranty that it will be approved, the Product may not be sold
commercially but only supplied under the investigator-held IND for compassionate
use.
3.7 IDENTIFICATION OF FRS. Syntex will identify a party, either within or
outside Syntex, to attempt to identify the FRS. Syntex is responsible for
contracting with an outside party to identify the FRS. If the FRS is
successfully identified, Syntex and Unimed shall share the cost for that work
equally, up to a total cost of twenty-five thousand dollars ($25,000) each. If
the FRS is
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<PAGE> 9
not successfully identified, Syntex shall pay all costs for that work. If the
cost of identifying the FRS exceeds a total of fifty thousand dollars ($50,000),
Unimed and Syntex shall negotiate in good faith the manner in which the cost is
to be allocated between the parties. In no event, however, will Syntex be
obligated to expend more than one hundred thousand dollars ($100,000) to
identify the FRS.
4. REPRESENTATIONS, WARRANTIES, AND COVENANTS.
4.1 MANUFACTURING COMPLAINTS. Notwithstanding anything contained herein to
the contrary, Syntex or its Affiliates or its third party contractors shall
maintain books and records related to Product-related customer complaints (i.e.
complaints relating to the manufacture of the Product, but not complaints
relating to the Product itself or adverse reactions) concerning the Product for
twenty-four (24) months after the Effective Date.
4.2 STABILITY STUDIES. As soon as possible following the execution of this
Agreement, Unimed shall qualify a testing site for stability studies. Syntex
shall transfer all ongoing stability studies for the Product and the
responsibility therefor to Unimed immediately upon qualification of such a site.
4.3 COMPASSIONATE USE. Unimed shall supply the Product on a compassionate
use basis as requested for the treatment of Fanconi's Anemia. Upon execution of
this Agreement, Syntex shall send a letter to the Fanconi's Anemia Society
informing them that Unimed now owns the Registrations and that further inquiries
and requests with respect to the Product should be directed to Unimed. In
addition, Syntex shall forward all Compassionate Use requests to Unimed and send
a letter to the inquirer informing the inquirer of the same. Unimed shall
continue to fulfill this obligation regardless of whether the NDA Supplement is
approved for so long as tablets are available; provided, however, that once
tablets are available for commercial sale, Unimed may cease distribution under
the Compassionate Use Program.
4.4 NDA. Syntex represents and warrants that (i) each of the NDA and the
NDA Supplement is accurate and complete in all material respects and has been
amended and supplemented as required by law up to the date of this Agreement;
and (ii) the NDA has been and remains active and has never been withdrawn for
any reason. An NDA Supplement has been filed with respect to the FRS issue in
the Active Ingredient. A complete and accurate copy of such NDA Supplement has
been provided to Unimed.
4.5 NDA SUPPLEMENT. Following Closing, Unimed will be responsible for any
regulatory work, including the NDA Supplement.
4.6 LITIGATION. Syntex represents that to the best of its knowledge,
neither Syntex nor any of its Affiliates has been a party to any product
liability litigation in the United States since 1991.
4.7 INFRINGEMENT. As of the date hereof, Syntex has no knowledge and has,
to the best of its knowledge, received no notice that the manufacture, packaging
or sale of Product in the Territory as contemplated herein conflicts with or
violates any existing patents, proprietary information or other intellectual
property rights of any third party.
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<PAGE> 10
4.8 NON-COMPETE. For the five (5) year period following the date hereof,
neither Syntex nor any of its Affiliates shall directly or indirectly,
manufacture, distribute, or sell oxymetholone or any product containing
oxymetholone (whether or not under the Trademarks) for use in the Territory,
except with respect to this Campaign, which will be sold to Unimed pursuant to
this Agreement.
5. ASSETS.
5.1 TRANSFER KNOW-HOW. Syntex hereby assigns and transfers to Unimed all
of Syntex's right, title and interest in and to the Transfer Know-How.
5.2 LICENSED KNOW-HOW. Syntex hereby grants Unimed a non-exclusive,
perpetual, paid-up, irrevocable, royalty-free, license in the Territory, with
right to sublicense, to the Licensed Know-How with such license or sublicense
being restricted to use for the Product.
5.3 TRADEMARKS. Syntex hereby assigns and transfers to Unimed all of
Syntex's right, title and interest in the Trademarks. Following Closing, Unimed
shall prepare and Syntex shall execute such documents as Unimed may reasonably
request in order to record the assignment of the Trademarks. The responsibility
and expense of preparing and filing such documents and any actions required
ancillary thereto, shall be borne solely by Unimed. Nothing contained herein
shall be deemed to transfer to Unimed any rights to any trademarks outside the
Territory, including but not limited to the right to use the Trademarks outside
the Territory. In addition, Syntex makes no representations or warranties that
the use of the Trademarks outside the Territory will not violate or infringe any
other trademark.
5.4 REGISTRATIONS. Syntex shall promptly assign and transfer to Unimed all
of Syntex's right, title and interest in and to the Registrations. Syntex
represents that to the extent requested by Unimed, it has provided access to
true and complete copies of the NDA prior to Closing. As soon as reasonably
possible after Closing, Syntex shall transfer the originals of the NDA and the
Canadian DIN to Unimed. Upon execution of this Agreement, Syntex shall execute a
letter to each of the FDA and the Canadian HPB transferring the Registrations.
5.5 DMF. Syntex shall promptly assign and transfer the DMF to Unimed;
provided, however, that Unimed shall permit Syntex and its designees to
reference the DMF upon request.
5.6 PUNCHES. Syntex shall transfer to Unimed the tablet punches used in
the Campaign within a reasonable time period after the Campaign is concluded.
5.7 ASSUMPTION OF LIABILITIES. Unimed will assume all responsibility for
the Trademarks and Registrations as of the Effective Date, including complying
with all government regulations and laws, except to the extent Syntex is
responsible for complying with all government regulations and laws with respect
to manufacturing the Products pursuant to the Campaign.
6. CONSIDERATION.
6.1 PAYMENTS. In consideration of the sale, conveyance, assignment,
transfer and
7
<PAGE> 11
delivery of the assets set forth in Article 5, Unimed shall be obligated to pay
Syntex a total of XXXXX dollars ($XXXXX) as of the Effective Date (the "Purchase
Price"). Unimed shall pay Syntex XXXXX dollars ($XXXXX) at the Effective Date
("Initial Payment"). Unimed's obligation to pay the remaining XXXXX dollars
($XXXXX) is contingent upon the NDA Supplement being approved by the FDA
("Additional Payments"). If the NDA Supplement is approved by the FDA, Unimed
shall pay to Syntex the Additional Payments as set forth below:
6.1.1 XXXXX dollars ($XXXXX) within thirty (30) days of approval of
the NDA Supplement;
6.1.2 XXXXX dollars ($XXXXX) within one hundred eighty (180) days
after approval of NDA supplement;
6.1.3 XXXXX dollars ($XXXXX) within three hundred sixty (360) days
after approval of NDA supplement.
6.2 ADDITIONAL PAYMENTS. Unimed shall not be obligated to pay to Syntex any
of the Additional Payments unless the NDA Supplement is approved by the FDA
within two (2) years of the Effective Date.
6.3 ROYALTIES. In consideration of the assignments contemplated in Article
5 hereof, Unimed shall pay Syntex a royalty of XXXXX percent (XXXXX%) of Net
Sales sold by the Unimed Group in the Territory. The term of the royalties shall
be for a period of ten (10) years from the date of the First Commercial Sale by
the Unimed Group in the Territory. All royalty payments due to Syntex under this
Agreement shall accrue and be payable to Syntex quarterly at the address
designated in Article 11.5 hereof in U.S. Dollars within sixty (60) days of the
end of each calendar quarter. All payments of royalties shall be accompanied by
a statement from Unimed setting forth the Net Sales by the Unimed Group.
6.4 REDUCTION OF ROYALTIES.
6.4.1 Unimed shall notify Syntex in writing, and provide reasonable
documentation, if Unimed determines that Substantial Competition exists in
the Territory and shall indicate the date when it reasonably believes the
Substantial Competition commenced. Upon Unimed's providing such notice and
reasonable documentation, Syntex may agree or disagree with Unimed's
determination. If Syntex agrees with Unimed's determination, Unimed may
reduce the royalty from XXXXX percent (XXXXX%) to XXXXX percent (XXXXX%) of
Net Sales of Product sold in the Territory by the Unimed Group from the
date on which the Substantial Competition commenced, for so long as the
Substantial Competition continues. If Syntex disagrees with Unimed's
determination, Syntex shall provide Unimed with reasonable documentation
upon which Syntex bases its disagreement, and the parties agree to discuss
in good faith resolution of the disagreement.
6.4.2 Unimed shall promptly notify Syntex when Substantial Competition
in the Territory no longer continues and shall indicate the date when the
substantial competition ceased. Unimed shall pay Syntex a royalty of XXXXX
percent (XXXXX%) of Net Sales of Product sold in the Territory by the
Unimed Group from the date on which the Substantial
8
<PAGE> 12
Competition ceased.
6.4.3 Syntex may, at its option, notify Unimed in writing if Syntex
determines that Substantial Competition in the Territory no longer
continues and shall indicate the date when it reasonably believes the
Substantial Competition ceased. Upon Syntex's providing such notice and
reasonable documentation, Unimed may agree or disagree with Syntex's
determination. If Unimed agrees with Syntex's determination, Unimed shall
pay Syntex a royalty of XXXXX percent (XXXXX%) of Net Sales of Product sold
in the Territory by the Unimed Group from the date on which the Substantial
Competition ceased. If Unimed disagrees with Syntex's determination, Unimed
shall provide Syntex with reasonable documentation upon which Unimed bases
its disagreement, and the parties agree to discuss in good faith resolution
of the disagreement.
7. REPORTING.
Unimed shall keep and shall require its Affiliates and sublicensees to
maintain records as are required to accurately determine royalties due Syntex
under this Agreement. Unimed's, Unimed's Affiliates, and Unimed's sublicensees
books and supporting data shall be open, at all reasonable times, for four (4)
years following the end of the reporting period to which they pertain, to the
inspection of a certified public accountant selected by Syntex (including an
employee of Syntex or its Affiliates) and reasonably acceptable to Unimed;
provided, however, that if there is a dispute over an audit conducted by an
employee of Syntex or its Affiliates, then Syntex shall select an independent
public accountant, reasonably acceptable to Unimed Syntex will pay for such
audit, unless it reveals an underpayment of royalties of five percent (5%) or
greater for the period being audited, upon which occurrence the cost will be
incurred by Unimed.
8. INDEMNITY AND WARRANTY.
8.1 INDEMNITY BY UNIMED. Unimed will defend, indemnify, and hold harmless
Syntex and its Affiliates, the managers, directors, officers, employees, and
agents of Syntex and its Affiliates, from and against any and all losses, costs,
damages, expenses, fees (including reasonable attorneys' fees) and/or
liabilities (excluding, in any event, damages for lost profits) directly or
indirectly resulting from claims, lawsuits and/or judgments (hereinafter
referred to as "Claims"), which are incurred or asserted as a result of the
Unimed Group's making, having made, using, manufacturing, promoting, selling or
otherwise disposing of Product, except for those Claims for which Syntex is
responsible pursuant to Article 8.2.
8.2 INDEMNITY BY SYNTEX. Syntex will defend, indemnify, and hold harmless
Unimed and its Affiliates, the managers, directors, officers, employees, and
agents of Unimed and its Affiliates, from and against any and all losses, costs,
damages, expenses, fees (including reasonable attorneys' fees) and/or
liabilities (excluding, in any event, damages for lost profits) directly or
indirectly resulting from claims, lawsuits and/or judgments (hereinafter
referred to as "Liabilities") which are incurred or asserted as a result of
Syntex making or having distributed, sold (other than to Unimed), or made
Product, except for those Liabilities which result from the sole negligence of
Unimed. Notwithstanding the above, Syntex shall have no obligation to defend,
indemnify, or hold harmless Unimed or its Affiliates, managers, directors,
officers, employees, or agents of Unimed or its Affiliates, from or against any
or all Liabilities directly or indirectly resulting from Claims with
9
<PAGE> 13
respect to Product which Syntex made or had made in accordance with the
Specifications unless such product was sold by or on behalf of Syntex prior to
the Effective Date.
8.3 AUTHORITY. Each party warrants and represents that it has the full
right and authority to enter into this Agreement and that it is not aware of any
impediment that would inhibit its ability to perform its obligations under this
Agreement.
8.4 SALE OF PRODUCT. Unimed warranties and represents that Product shall
be sold, including promotion and marketing, in accordance with all governmental
regulations and laws applicable to the Product.
8.5 NO WARRANTY. EXCEPT AS EXPRESSLY PROVIDED HEREIN, SYNTEX PROVIDES THE
MANUFACTURING KNOW-HOW, PRODUCT, AND TRADEMARKS WITH NO WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR WARRANTY AGAINST INFRINGEMENT.
9. TERM.
The term of this Agreement shall commence on the Effective Date and shall
continue until the expiration of Unimed's royalty obligations under Article 6 of
this Agreement.
10. DEFAULT.
10.1 RIGHTS ON DEFAULT. Failure by Unimed to comply in any material respect
with any of its obligations under this Agreement (hereinafter referred to as
"Default") shall entitle Syntex to give Unimed written notice requiring Unimed
to cure such Default. If Unimed does not cure such Default within sixty (60)
days after the date of such notice (hereinafter referred to as "Cure Period"):
(i) at the option of Syntex, any or all those payments under
Section 6.1 not previously paid to Syntex by Unimed must be paid to
Syntex immediately at the end the Cure Period, and
(ii) in the event that the Default is under Section 6.1, Syntex,
at its option, shall be entitled, without prejudice to any of the
other rights conferred on it by this Agreement or by law or in equity,
to have Unimed assign and transfer, or cause to be assigned or
transferred, to Syntex all or part of the right, title and interest in
and to Trademarks, Transfer Know-How, and/or Product(s).
The rights of Syntex under this Section 10.1 shall not be affected in any way by
Syntex's waiver or failure to take action with respect to any previous Default.
10.2 RIGHTS ON BANKRUPTCY. In the event Unimed becomes insolvent or
bankrupt, or shall have made an assignment for the benefit of its creditors, or
there shall have been appointed a trustee or receiver Unimed of all or a
substantial part of Unimed's property or any case or proceeding shall have been
commenced or other action taken by or against Unimed in bankruptcy
10
<PAGE> 14
or seeking reorganization, liquidation, dissolution, winding-up, arrangement or
readjustment of its debts or any other relief under the bankruptcy, insolvency,
reorganization or similar act or law of any jurisdiction now or hereafter in
effect, or there shall have been issued a warrant of attachment, execution,
distraint or similar process against any substantial part of Unimed, and any
such event shall have continued for ninety (90) days undismissed, unbended and
undischarged:
(i) at the option of Syntex, any or all those payments under
Section 6.1 not previously paid to Syntex by Unimed must be paid to
Syntex immediately, and
(ii) if all payments due under Section 6.1 have not been paid to
Syntex, then Syntex, at its option and upon prior written notice to
Unimed, shall be entitled, without prejudice to any of the other
rights conferred on it by this Agreement or by law or in equity, to
have Unimed assign and transfer, or cause to be assigned or
transferred, to Syntex all or part of the right, title and interest in
and to Trademarks, Transfer Know-How, and/or Product(s).
11. MISCELLANEOUS.
11.1 LAW. This Agreement shall be governed and interpreted under the laws
of New York.
11.2 SURVIVAL. The provisions of Article 8 shall survive the termination of
this Agreement, as well as those rights and/or obligations which by their intent
or meaning have a validity beyond the termination of this Agreement.
11.3 SEVERABILITY. In the event that a court of competent jurisdiction
holds that a particular provision or requirement of this Agreement is in
violation of any law, such provision or requirement shall not be enforced except
to the extent that it is not in violation of such law and all other provisions
and requirements of this Agreement shall remain in full force and effect.
11.4 PUBLICITY. If either party wishes to make a public disclosure
concerning this Agreement and such disclosure mentions the other party by name
or description, such other party will be provided with an advance copy of the
disclosure and will have three (3) business days within which to approve or
disapprove such use of its name or description. Approval shall not be
unreasonably withheld by either party. Absent approval, no public disclosure
shall use the name of or otherwise describe such party except to the extent
required by law. If the language has already been approved or the language just
lists this Agreement, the party making the disclosure shall, if possible,
forward a courtesy copy of the publication to the other party prior to release
to the public.
11.5 NOTICE AND PAYMENT.
11.5.1 NOTICES. Any notice shall be considered properly given if sent
by registered air mail, return receipt requested, or overnight courier or
by fax to the respective address of each party as follows:
If to Unimed: Unimed Pharmaceuticals, Inc.
2150 East Lake Cook Road
11
<PAGE> 15
Buffalo Grove, Illinois 60089
Attn.: Robert E. Dudley, Ph.D., President
Fax No.: 1-847-541-2533
If to Syntex: Syntex (U.S.A.) Inc.
3401 Hillview Avenue
Palo Alto, California 94304
Attn.: President
Fax No.: 1-415-354-2595
with a copy to: Syntex (U.S.A.) Inc.
3401 Hillview Avenue
Palo Alto, California 94304
Attn.: Legal Department
Fax No.: 1-415-852-1338
or to such other address as the addressee shall have last furnished in
writing to the addressor.
11.5.2 PAYMENTS. All payments to Syntex from Unimed under this
Agreement shall be wire transferred for value in US Dollars, on the
respective payment dates, to the following address:
Syntex (U.S.A.) Inc.
Account No. 13-104-887
at Wachovia Bank of Georgia
Atlanta, Georgia
ABA # 061000010
or to any other address that Syntex may designate in writing.
11.6 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes and terminates all previous agreements whether written or oral. No
modification or amendment hereof shall be of any force or effect unless it is in
writing and signed by the parties to be bound thereby.
11.7 FORCE MAJEURE. Neither party shall be liable for any failure or delay
in performance under this Agreement which is due in whole or in part directly or
indirectly to any cause of any nature beyond the reasonable control of such
party, including, without in any way limiting the generality of the foregoing,
fire, explosion. earthquake, storm, flood, strike, lockout, labor difficulties,
war, insurrection, riot, act of God or the public enemy, or any law, act, order,
export or import control regulations, actions by a regulatory authority,
proclamation, decree of a court of competent jurisdiction (not arising out of
breach of such party of this Agreement). In the event of a happening of such a
cause, the party invoking the Force Majeure shall not be liable to the other
thereof and the time for performance of such obligation shall be extended for a
period equal to the duration of the contingency which occasioned the delay,
interruption or prevention. The party invoking such Force Majeure shall notify
the other party within a period of thirty (30) days, stating
12
<PAGE> 16
the period of time the same is expected to continue, unless the Force Majeure
renders such notification impossible in which case notification will be made as
soon as possible. If the delay from the Force Majeure exceeds six (6) months,
both parties shall consult each other to find an appropriate solution. No event
of Force Majeure may be invoked to delay any payments under Article 6. provided
that all of the Products have been delivered to Unimed.
11.8 ASSIGNEES. This Agreement shall be binding upon, and shall inure to
the benefit of the respective successors of the parties hereto, or to an
assignee of all of the good will and entire business and assets of a party
hereto, but shall not otherwise be assignable, without the prior written consent
of the other party, which consent will not be unreasonably withheld.
13
<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their authorized representatives on the dates written below.
UNIMED PHARMACEUTICALS, INC. SYNTEX (U.S.A.) INC.
By: /s/ Robert E. Dudley By: /s/ David R. Austin
------------------------ ------------------------
Title: President & CEO Title: Vice President
----------------- -----------------
Date: June 16, 1997 Date: July 1, 1997
----------------- -----------------
Attachments: Appendix A - Registrations
Appendix B - Trademarks
Appendix C - Supply
14
<PAGE> 18
APPENDIX A
REGISTRATIONS
INDs
IND No. 5,724 for 50 mg Anadrol filed April 30, 1969 IND No. 22,965 for 5
mg Anadrol filed October 18, 1983
NDA
NDA No. 16-848 for 50 mg Anadrol filed January 18, 1972
DIN (Canada)
DIN No. 02162679 for 50 Mg Anapolon
A-1
<PAGE> 19
APPENDIX B
TRADEMARKS
COUNTRY TRADEMARK REGISTRATION NUMBER REGISTERED OWNER
United States Anadrol 719177 Syntex (U.S.A.) Inc.
Canada Anapolon 179084 Syntex (U.S.A.) Inc.
B-1
<PAGE> 20
APPENDIX C
SUPPLY
FOR MARKET:
FINISHED DOSAGE FORM: 50 mg tablets
QUANTITY IMPRINTED WITH UNIMED. 1,550,000
QUANTITY IMPRINTED WITH SYNTEX: 100,000
TIMING OF SUPPLY: Fourth Quarter Calendar Year 1997
FOR CLINICAL TRIALS:
FINISHED DOSAGE FORM: 50 mg tablets
QUANTITY: 50,000
TIMING OF SUPPLY: Fourth Quarter Calendar Year 1997
C-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNIMED
PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 FOUND
ON PAGES 22 THROUGH 25 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,068
<SECURITIES> 13,719
<RECEIVABLES> 1,778
<ALLOWANCES> 0
<INVENTORY> 4,387
<CURRENT-ASSETS> 21,360
<PP&E> 2,556
<DEPRECIATION> 1,452
<TOTAL-ASSETS> 24,090
<CURRENT-LIABILITIES> 8,150
<BONDS> 0
0
0
<COMMON> 2,260
<OTHER-SE> 12,467
<TOTAL-LIABILITY-AND-EQUITY> 24,090
<SALES> 8,918
<TOTAL-REVENUES> 8,918
<CGS> 2,997
<TOTAL-COSTS> 18,363
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> (8,209)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,209)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,209)
<EPS-PRIMARY> (.93)
<EPS-DILUTED> (.93)
</TABLE>
